Carlton Fields

FEDERAL COURTS COMPELS ARBITRATION OF CAPTIVE INSURANCE DISPUTE

May 11, 2016 by Carlton Fields

Plaintiffs Capstone Associated Services, Ltd. And Capstone Associated Services (Wyoming), Limited Partnership (collectively, “Capstone”) brought suit against various defendants concerning the use of and rights to certain intellectual property related to a captive insurance arrangement. The parties agreed to mediate their dispute, resulting in the execution of a Mediated Settlement Agreement (“MSA”) that covered all of the claims between the parties except the intellectual property claims pending the lawsuit. The MSA contained an arbitration provision.

Thereafter, Capstone moved to compel arbitration under the MSA. After the arbitrator designated by the MSA declined his appointment, Capstone sought arbitration pursuant an arbitration agreement in an engagement letter that was part of the operative contract they and their attorneys (“Feldman”) entered into with the defendants as part of the captive insurance arrangement. Capstone argued that the affirmative defenses asserted by the defendants in the lawsuit were encompassed by the arbitration provision because those defenses challenged the propriety of the services provided by Capstone and Feldman under the engagement letter. The defendants opposed arbitration under the engagement letter, arguing that the parties’ claims and affirmative defenses were not arbitrable under the relevant provision.

Applying the standard set forth in the Federal Arbitration Act, the court denied Capstone’s motion to compel arbitration under the MSA, ruling that because the designated arbitrator declined his appointment, compelling arbitration in an alternative manner would be inconsistent with the express terms of the MSA’s arbitration agreement. However, the court granted Capstone’s motion to compel pursuant to the arbitration clause in the engagement letter, holding that the arbitrability of the parties’ claims and defenses were to be decided in arbitration, and not by the Court, under the terms of the operative clause. Capstone Associated Services, Ltd., et al. v. Organizational Strategies, Inc., et al., No. H-15-3233 (USDC S.D.Tex. Apr. 8, 2016).

This post written by Rob DiUbaldo.

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NINTH CIRCUIT REVERSES HOLDING THAT ARBITRATION CLAUSE IN EMPLOYMENT AGREEMENT IS UNCONSCIONABLE

May 10, 2016 by Carlton Fields

In early April, the Ninth Circuit Court of Appeals reviewed a lower court’s holding that an arbitration clause in an employment agreement with JP Morgan was procedurally and substantively unconscionable. Because the arbitration agreement was adhesive in the employment agreement, the court held that it was “at least minimally procedurally unconscionable under California law.” However, the court continued to state that it was not substantively unconscionable for a variety of reasons, including where it excluded certain actions seeking only injunctive relief—where the court acknowledged that the carve out “does no more than recite the procedural protections” already afforded by California law. Additionally, where one party has the legal obligation to pay all of the costs unique to arbitration, the court held that it was not substantively unconscionable to have a non-mutual initiation provision. Next, the court determined that the employee could not challenge a confidentiality provision on the grounds that it “prevents others from observing and learning of Chase’s illegal policies and procedures” where no harm to himself was alleged. Finally, the court found that explicitly allowing an arbitrator to rule on summary judgment motions was not substantively unconscionable. As such, the Ninth Circuit reversed the lower court’s finding that the arbitration clause was unconscionable.

Ali v. J.P. Morgan Chase Bank, N.A., Case No. 14-15076 (9th Cir. Apr. 7, 2016).

This post written by Zach Ludens.

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ILLINOIS FEDERAL COURT TRANSFERS “LATE NOTICE” REINSURANCE DISPUTE TO PENNSYLVANIA

May 9, 2016 by Carlton Fields

R&Q Reinsurance Company issued a facultative reinsurance certificate to St. Paul Fire & Marine Insurance Company, which reinsured a policy issued by St. Paul to Walter E. Campbell, Co. The broker who placed the certificate was located in Chicago, as were the R&Q employees who executed the contract. St. Paul was located in Minnesota at the time the certificate was negotiated and entered into.

The certificate provided that St. Paul was to “promptly” advise R&Q of “any occurrence and any subsequent developments pertaining thereto” which, in St. Paul’s opinion, might implicate the reinsurance coverage afforded by the certificate. After St. Paul defended and indemnified Campbell in several asbestos personal injury lawsuits arising under the reinsured policy, it sent R&Q its first notice of loss and demanded payment under the certificate. The notice of loss was sent via the broker’s Hartford, Connecticut office. R&Q subsequently brought suit in the U.S. District Court for the Northern District of Illinois seeking a declaration that it was not obligated to indemnify St. Paul under the certificate because it failed to provide prompt notice of the subject loss. St. Paul then filed a parallel suit against R&Q in the Eastern District of Pennsylvania seeking coverage under the certificate, and moved to transfer the Illinois case to the latter forum. At the time the competing actions were filed, R&Q was a Pennsylvania corporation and St. Paul was a Connecticut corporation.

The parties did not dispute that venue was proper in both Illinois and Pennsylvania, but disagreed as to whether the transfer of the Illinois action to Pennsylvania served the convenience of the parties and the interests of justice. Analyzing these factors and others, the court granted St. Paul’s motion to transfer the case to Pennsylvania, because: (a) the bulk of the events material to St. Paul’s alleged late notice and R&Q’s purported breach of the certificate occurred in areas “much closer to Pennsylvania than Illinois, with some of the material events occurring in Pennsylvania”; (b) R&Q is based in Pennsylvania and St. Paul’s residence is closer to that forum than to Illinois; (c) the parties witnesses, and potential non-party witnesses, are located either in the Eastern District of Pennsylvania or closer to it than to the Northern District of Illinois; (d) the dispute was “more likely” to be resolved sooner in Pennsylvania than Illinois, given the relative speed by which cases in each forum typically reach trial or are disposed of prior to trial; (e) Illinois law was “unlikely” to govern the dispute; and (f) Illinois’ interest in the action is “weak relative to that of Pennsylvania”. R&Q Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., No. 15-cv-7784 (USDC N.D. Ill. Mar. 30, 2016).

This post written by Rob DiUbaldo.

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COURT GRANTS MOTION OF NON-SIGNATORY TO COMPEL ARBITRATION OF PRIVACY VIOLATION CLAIMS OF PUTATIVE CLASS OF VERIZON CUSTOMERS

May 5, 2016 by Carlton Fields

The class action was brought by Verizon subscribers against a “targeted advertising” company business partner of Verizon (Turn, Inc.) for deceptive trade practices under New York law. Plaintiffs alleged that Turn violated users’ reasonable expectations of privacy by creating “zombie cookies” that monitored their behavior surreptitiously and that users could not detect, delete, or block. Turn, Inc. sought to compel arbitration based on a clause in the Verizon subscribers’ service provider agreements with Verizon. Plaintiffs opposed arbitration on the ground that Turn, Inc. was not a signatory to the Verizon service provider agreements. The court, however, agreed with Turn’s argument that plaintiffs were estopped from avoiding arbitration against Turn. The court found that it was certain that Turn’s defense required an analysis of the Verizon contracts, which include Verizon’s privacy policy at issue. Because the Verizon subscriber agreements “clearly anticipate the introduction of third parties to play a role in connection with the delivery of targeted advertising, Turn must invoke the Verizon agreements as a defense.” The court therefore found that “the issues to be resolved concern substantially interdependent and concerted conduct by both” Turn and Verizon “and are inextricably intertwined with the agreement to arbitrate.” The court therefore compelled arbitration of plaintiffs’ claims against Turn. Henson v. Turn, Inc., Case No. 4:15-cv-01497 (USDC N.D. Cal. Mar. 14, 2016).

This post written by Michael Wolgin.

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COURT CONFIRMS ARBITRATION AWARD RELATING TO THREE ARBITRATION AGREEMENTS AND ORDERS CERTAIN DOCUMENTS UNSEALED

May 4, 2016 by Carlton Fields

The court confirmed a final arbitration award in favor of the Petitioner, Employers Insurance Company of Wausau (“Wausau”), pursuant to Section 9 of the Federal Arbitration Action (FAA). Wausau and Ace Property and Casualty Insurance Company (“ACE”) were parties to three separate reinsurance agreements that contained individual arbitration clauses. In January 2014, ACE demanded arbitration relating to various issues. The three-person panel concluded its arbitration and issued an order resolving all remaining issues. Without opposition from ACE, the court confirmed the arbitration award.

Accompanying its petition seeking confirmation, Wausau filed a motion to keep all case filings under seal. It is typically “unnecessary to unseal documents that relate solely to the substance of the arbitration,” but other documents for which Wausau did not provide a basis to keep them under seal, were ordered unsealed. Emp’rs Ins. Co. of Wausau v. Ace Prop. & Cas. Is. Co., Case No. 2016-cv-00097 (W.D.Wis. Feb. 17, 2016); Emp’rs Ins. Co. of Wausau v. Ace Prop. & Cas. Is. Co., Case No. 16-cv-97-bbc (W.D.Wis. Mar. 22, 2016).

This post written by Joshua S. Wirth.

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