Carlton Fields

COURT COMPELS DISCOVERY OF REINSURANCE AND OTHER INSURANCE DOCUMENTATION FROM INSURER IN GARNISHMENT PROCEEDINGS

February 18, 2015 by Carlton Fields

The judgment was entered in a class action by plaintiffs who lost their tuition payments for computer training programs at schools that abruptly closed in 2009. In attempting to collect on the judgment, plaintiffs served subpoenas on the schools’ insurers. Overruling objections to the relevance of the documents sought by the subpoenas, the magistrate compelled substantial discovery, including reinsurance policies and information, subject to a procedure where the insurer must verify “the accuracy and completeness of all the searches performed” by way of an affidavit and a subsequent deposition. The district court judge affirmed the decision of the magistrate, and rejected argument that the court lacked jurisdiction over garnishment proceedings. Smith v. Computertraining.com, Inc., Case No. 2:10-cv-11490 (USDC E.D. Mich. Sept. 26, 2014 & Dec. 29, 2014).

This post written by Michael Wolgin.

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CALIFORNIA COURT OF APPEAL SIDES WITH FEDERAL ARBITRATION ACT OVER STATE LAW UNCONSCIONABILITY RULE

February 17, 2015 by Carlton Fields

The California Court of Appeals recently held that the Federal Arbitration Act (“FAA”) preempts California’s Broughton-Cruz rule, which states that arbitration agreements for injunctive relief under California’s unfair competition and false advertising laws are against public policy and invalid.

In McGill v. Citibank, plaintiff sued Citibank for state law claims of unfair competition and false advertising, alleging that Citibank had violated her rights as a consumer in offering a credit insurance plan she purchased to protect her credit card account. Citibank moved to compel plaintiff to arbitrate her claims pursuant to the arbitration provision in her account contract. The trial court granted the motion with regard to plaintiff’s claims for monetary damages and restitution but refused to order arbitration of the claim for injunctive relief. Citibank appealed the decision as to the damages and restitution claims.

California’s appellate court held that the California Broughton-Cruz rule did not survive the Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, __ U.S. __, 131 S. Ct. 1740 (2011). In Concepcion, the Court held that the FAA preempts state laws, such as laws that prohibit class arbitration waivers in certain contexts or otherwise impede the FAA’s objective of enforcing arbitration agreements according to their terms. The California court reversed and remanded the case for the trial court to order all of plaintiff’s claims to arbitration. McGill v. Citibank, N.A., No. G049838 (Cal. Ct. App. Dec. 18, 2014).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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THIRD CIRCUIT REVERSES EQUITABLE ESTOPPEL RULING COMPELLING ARBITRATION AGAINST NON-SIGNATORY INSURER

February 16, 2015 by Carlton Fields

The trial court had granted the motion to compel arbitration of Flintkote Company against one of its asbestos liability insurers, Aviva PLC, despite the fact that Aviva was a non-signatory to the subject Alternative Dispute Resolution Agreement (“ADR Agreement”). Flintkote had entered into the ADR Agreement with its other asbestos liability insurers, but not with Aviva, which would not accept the ADR Agreement’s arbitration provision. The trial court compelled arbitration based on equitable estoppel, reasoning that Aviva had agreed to participate in mediation with Flintkote and the other insurers (which had been initiated further to the ADR Agreement). On appeal, the Third Circuit reversed. The court held that there was “simply no evidence that Aviva embraced the [ADR] Agreement when it opted to participate in mediation alongside the other London insurers.” The court also ruled that certain correspondence sent by the joint mediation counsel that referenced the ADR Agreement or suggested joint action with Aviva did not constitute sufficient reliance on the ADR Agreement to compel Aviva to arbitrate. The court further held that Flintkote could not have reasonably relied on an “unspoken” agreement with Aviva to arbitrate, given that Aviva had previously “negotiated for and specifically reserved the right to resolve all disputed issues through litigation.” Flintkote Co. v. Aviva PLC, No. 13-4055 (3d Cir. Oct. 9, 2014).

This post written by Michael Wolgin.

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U.S. COMMODITY FUTURES TRADING COMMISSION GRANTS RELIEF FROM COMMODITY POOL OPERATOR OBLIGATIONS CONCERNING INSURANCE-LINKED SECURITIZATION (“ILS”) VEHICLES

February 12, 2015 by Carlton Fields

In CFTC Letter No. 14-145 Exemption (November 12, 2014) and CFTC Letter No. 14-152 No-Action (December 18, 2014), the U.S. Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) exempted entities engaging in insurance-linked securities (“ILS”) transactions from commodity pool operator registration requirements, subject to certain conditions as specified by each respective letter. The above-referenced letters requested no- action or exemption relief from the CFTC’s commodity pool obligations because the definition of “commodity interest” under Section 1a(10) of the Commodities Exchange Act (“CEA”) was expanded under the Dodd-Frank Act, to include swaps, and could subject an ILS Issuer to be considered a commodity pool and require registration with the CFTC. It is noteworthy that among the conditions for relief in each letter, active management of the assets and liabilities over the lifetime of the Issuer is prohibited.

This post written by Kelly A. Cruz-Brown.

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SECOND CIRCUIT REFUSES TO EMPLOY THE ALL WRITS ACT TO ENJOIN A SECOND ARBITRATION OF THE SAME CLAIMS

February 11, 2015 by Carlton Fields

The Second Circuit recently affirmed a district court’s refusal to enjoin an arbitration proceeding under the All Writs Act. The parties to the dispute had been involved in a prior arbitration that resulted in an award confirmed by the district court. While the confirmation judgment was on appeal, one of the parties instituted a second arbitration raising claims similar to those asserted in the first arbitration. The respondent, Citigroup, Inc., filed suit in the Southern District of New York, arguing that the All Writs Act should be applied to enjoin the second arbitration because the second arbitration amounted to an “assault” on the prior federal judgment confirming the first award. The district court rejected Citigroup’s argument, dismissed the federal court action, and compelled arbitration. The Second Circuit affirmed, holding that the FAA’s framework favoring the submission of disputes to arbitration precludes use of the All Writs Act to enjoin a subsequent arbitration of claims that one party asserts are barred by the prior arbitration. In reaching this decision, the Second Circuit noted that the prior federal judgment did not involve consideration of the merits of the underlying claims, but rather merely confirmed an arbitration award through a limited review. The Second Circuit concluded that a federal court’s interest in protecting the integrity of such a prior judgment does not authorize use of the All Writs Act. Citigroup, Inc. v. Abu Dhabi Inv. Auth., No. 13-4825-CV, 2015 WL 161745 (2d Cir. Jan. 14, 2015).

This post written by Catherine Acree.

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