Carlton Fields

COURT UPHOLDS CLASS WAIVER ARBITRATION CLAUSE, FINDING AN UNAWARE PARTY CAN STILL MANIFEST ASSENT TO BE BOUND

February 11, 2016 by Carlton Fields

A federal court in Oregon granted a motion to compel arbitration based on a class waiver and arbitration provision in a credit agreement. The primary question of fact was whether the plaintiff had been read or had received the terms of the credit agreement. The credit agreement’s arbitration provision contained a right to opt out of the arbitration provisions upon written notice by the consumer within the first thirty days of their first transaction. The plaintiff never opted out of this agreement, claiming that she never affirmatively consented to the terms of the agreement or physically received the provision. Based on a preponderance of evidence, the court found that the plaintiff manifested assent to the terms of the arbitration agreement. The defendants did not need to show that the plaintiff verbally assented to or signed a credit agreement in order to bind her. Receipt of the agreement and use of the account, “regardless of whether [the plaintiff] read, signed, or understood the Agreement, objectively manifested assent to the arbitration provision contained in the Agreement.” Campos v. Bluestem Brands, Inc., Case No. 3:15-CV-00629-SI (USDC D. Ore. Jan. 22, 2016).

This post written by Joshua S. Wirth, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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LIQUIDATION COURT GRANTS RECEIVER’S APPLICATION FOR AUTHORITY TO ENTER INTO REINSURANCE SETTLEMENTS WITH THREE REINSURERS

February 10, 2016 by Carlton Fields

A Texas court presiding over the liquidation of Santa Fe Auto Insurance Company approved an application by the Special Deputy Receiver for the liquidating company (“SDR”) to enter into a reinsurance settlement with three reinsurers. The agreement provides that the reinsurers will pay over $11 million due under certain quota share reinsurance agreements. The order noted that no objections to the application were filed. Texas v. Santa Fe Auto Ins. Co., Case No. D-1-GV-13-000204 (Tex. Dist. Ct. Dec. 7, 2015) (application) and (Tex. Dist. Ct. Dec. 21, 2015) (order).

This post written by Joshua S. Wirth, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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CEDENT IS NOT REQUIRED TO MINIMIZE ITS REINSURANCE RECOVERY IN ORDER FOR THE “FOLLOW THE FORTUNES” DOCTRINE TO APPLY

February 9, 2016 by Carlton Fields

On December 9, 2014 and August 20, 2015, we reported on the reinsurance dispute between Utica Mutual Insurance Company and Clearwater Insurance Company. In a recent ruling, the court rejected Clearwater’s argument that the follow the fortunes doctrine did not apply and that Clearwater was relieved of its obligations under the subject reinsurance contract. Clearwater contended that Utica unreasonably and in bad faith shifted all of its liabilities to its umbrella policies to maximize reinsurance recovery. As an alternative basis to avoid liability, Clearwater also argued that Utica billed it for items for which it was not entitled to recover.

In rejecting Clearwater’s arguments, the court explained that while the follow the fortunes doctrine requires the cedent to align its interests with its reinsurer, in order to show bad faith, Clearwater was required to establish an “extraordinary showing of a disingenuous or dishonest failure” and that the cedent acted with gross negligence or recklessness. The court found that Clearwater could not make such a showing. The Court noted that Utica did not have any fiduciary duty to place Clearwater’s interests above its own nor minimize its reinsurance recovery in order to avoid bad faith. And the Court summarily dismissed Clearwater’s argument that some of the billings were not covered by the reinsurance, ruling that if the payment was arguably within the scope of the insurance policy, then it was within the reinsurance. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Jan. 20, 2016).

This post written by Barry Weissman.

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IRS REVOKES RULING THAT IMPOSED EXCISE TAX ON WHOLLY FOREIGN REINSURANCE TRANSACTIONS

February 8, 2016 by Carlton Fields

The Internal Revenue Service recently revoked a 2008 ruling that a 1% excise tax under section 4371(3) of the Internal Revenue Code applied to “reinsurance premiums paid by one foreign insurer or reinsurer to another.” The IRS’s shift came in the wake of the D.C. Circuit’s opinion in Validus Reinsurance, Ltd. v. United States, 786 F.3d 1039 (D.C. Cir. 2015).

In Validus, a foreign reinsurer filed claims for refund of excise taxes imposed on premiums paid to a foreign retrocessionaire. The United States argued that such reinsurance policies were within the excise tax’s scope because the risks ultimately underlying the multiple levels of reinsurance were situated within the United States. The taxpayer countered that the statute’s plain language applied only to reinsurance, not retrocession coverage. After extensive analysis of the statute’s plain language and legislative history, the D.C. Circuit concluded that the statute was ambiguous. To resolve the controversy, the court resorted to the presumption against extraterritorial application of U.S. laws. The court ruled that the excise tax did not apply because the transaction was a “wholly foreign retrocession[].”

Going forward, therefore, a foreign insurer who pays reinsurance premiums to another foreign insurer likely will not have to pay the excise tax under section 4371(3) of the Internal Revenue Code, though the IRS has noted some narrow exceptions. Moreover, any foreign insurers who have paid such taxes within the statute of limitations should consider contacting counsel about the prospect of claims for refund. IRS Rev. Ruling 2016-03.

This post written by Richard Euliss.

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DELAWARE FEDERAL COURT CONFIRMS ARBITRATION AWARD IN COMMERCIAL DISPUTE, FINDING THAT THE FAA STANDARD, AND NOT THE DELAWARE UNIFORM ARBITRATION ACT, GOVERNED THE PARTY’S CHALLENGE

January 28, 2016 by Carlton Fields

Roquette Freres, S.A. and Solazyme, Inc. entered into a Joint Venture Operating Agreement (the “JVOA”), which was established for the purpose of “the research and development, manufacture, distribution, sales, marketing and support” of certain products. The JVOA contained an arbitration provision that required disputes arising out of or connected with the agreement to be resolved under the “Arbitration Rules of the Center for Public Resources in New York”. The JVOA further provided that the arbitration be conducted “according to the laws of the State of Delaware” and that the agreement was “governed and construed in accordance with” Delaware law.

After the arbitration panel ruled in Solazyme’s favor, Roquette moved to vacate the award under Delaware law. Solazyme counterclaimed for confirmation of the award, arguing that the standard set forth in the Federal Arbitration Act (“FAA”) governed Roquette’s challenge. As a threshold matter, the court found that because the JVOA did not specifically reference the Delaware Arbitration Act, and Roquette did not file its action in the Delaware Court of Chancery (as contemplated by the statute), the FAA controlled. Applying the standard set forth by the FAA, the court confirmed the panel’s award and denied Roquette’s motion to vacate because: (1) the panel’s interpretation of the time period in which to render an award, which Roquette argued had not been strictly adhered to, was a procedural issue that required broad deference under the statute and was rationally derived from the JVOA and CPR rules; (2) the panel’s consideration of extrinsic evidence was necessary to resolve the issues in dispute, and thus permissible; (3) alleged “public policy” considerations did not provide the court with a basis to vacate the panel’s ruling as a matter of law; and (4) the relief crafted by the panel, though broad in scope, was based upon the language of the JVOA, and thus within the panel’s authority. Roquette Freres, S.A. v. Solazyme, Inc., No. 1:14-cv-01442 (USDC D.Del. Dec. 21, 2015).

This post written by Rob DiUbaldo.
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