John Pitblado

ENGLAND’S HIGH COURT OF JUSTICE UPHOLDS ARBITRATION AWARD FINDING NO “SERIOUS IRREGULARITY”

November 14, 2017 by John Pitblado

Claimant’s application under s. 68(2)(d) of the Arbitration Act 1996 alleged serious irregularity in the award of an arbitral tribunal alleging the tribunal failed to deal with all the issues that were put before it, and requested that the Court set aside or vary the award rather than remit it to the tribunal, as one of the arbitrators had acted inappropriately.

Claimant listed four aspects of its defense which were not addressed: (1) collateral estoppel; (2) conclusive evidence; (3) failure to meet the burden of proof; and (4) overstatement. The Court concluded none of the complaints were justified.

With respect to the alleged inappropriate behavior, claimant’s party-appointed arbitrator sent an email to its counsel, not copying the petitioner or any other member of the Tribunal, stating that “both party-appointed arbitrators were upset by the conduct of the chairman,” expressed highly negative views about him, and that the party-appointed arbitrator was going to ask the chairman to resign. The email was marked “highly confidential: not to be used in the arbitration” and explicitly stated that the email “could not be referred to in the arbitration or afterwards.” The chairman did not resign and the arbitration proceeded “with no suggestion that there were any other internal difficulties on the Tribunal.”

The Court was astonished that the email was sent, stating that “any communication by one arbitrator with one party which concerns the arbitration may give rise to concerns that that arbitrator is not acting fairly or impartially for the simple reason that it creates the impression of a close relationship between the arbitrator and the party and rises the specter of other such communications.” Despite this, the Court did not set aside the Award, noting that disclosure of the email “might have created a somewhat awkward working environment, it is not something that experienced, professional people could not deal with.”

With respect to the claimant’s request for confidentiality, the Court concluded that as the Award was not confidential by a U.S. lawsuit, it was “unrealistic to argue that [claimant] continues to have any expectation of confidentiality in the Award.”

Symbion Power LLC v. Venco Imtiaz Construction Company, Case No: HT-2016-000211 (Royal Courts of Justice, London March 10, 2017)

This post written by Nora A. Valenza-Frost.

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U.K. COURT APPROVES MULTI-BILLION POUND PLAN TO TRANSFER ANNUITY LIABILITIES UNDER REINSURANCE AND BUSINESS TRANSFER AGREEMENTS

October 26, 2017 by John Pitblado

The Queen’s Bench Division of the U.K.’s High Court of Justice recently approved a scheme proposed by Scottish Equitable Plc to transfer its liabilities as to over 185,000 insurance policies to Rothesay Life Plc. The scheme was backed by roughly £7 billion in assets paid to Rothesay under a series of annuity reinsurance and business transfer agreements executed in April 2016.

The court’s approval was guided by eight principles used by British courts in assessing long-term business transfer plans. While the primary factor is whether the scheme would adversely impact policyholders, the court held that a scheme will not be rejected simply because it may adversely affect certain policyholders. Instead, viewed as a whole, the scheme must be objectively “fair.” The court also noted that a proposal will not be rejected solely because it is not the “best possible scheme,” stating that deference should be given to the company’s choice of schemes, provided that choice is objectively fair. The court rejected policyholders’ objections, finding the proposed scheme was sufficient to protect policyholders’ interests. The court also rejected the argument that the scheme was not the “transfer of a business” under the FSMA simply because the policies were being reinsured, finding that the transaction did not need to expose Scottish Equitable to “risk or reward” to qualify as the transfer of its “business.” See In the Matter of Scottish Equitable Plc and In the matter of Rothesay Life Plc, [2017] EWHC 1439 (Ch).

This post written by Alex Silverman.

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DISTRICT OF SOUTH CAROLINA DENIES MOTION TO DISMISS ACTION INVOLVING FRONTING RELATIONSHIP

October 25, 2017 by John Pitblado

Applying Delaware law, a South Carolina District Court found Plaintiff had properly pled its causes of action for breach of contract, breach of fiduciary duty, negligence/gross negligence and negligent misrepresentation involving allegations that Defendant approved multiple transactions depleting the trust account which protected Plaintiff’s obligations under its fronting agreement.

The Court found Plaintiff adequately pled that Defendant breached its duty under the fronting agreement when it depleted the trust’s legitimate assets and left Plaintiff with a duty to pay claims. While the Court acknowledged that the fronting agreement did not explicitly impose a duty on Defendant to validate and confirm the assets admitted to the trust, nevertheless, at the very least, “the duty to provide an ‘accounting’ required Defendant to submit a ‘rendition of [the] account’ and the assets it contained.”

The Court also found Plaintiff adequately pled that Defendant breached its fiduciary duty owed to Plaintiff, as Defendant was the trustee and Plaintiff the trust’s sole beneficiary. Although Delaware law prohibits fiduciary duty claims that are wholly duplicative of contract claims, the Court found Plaintiff’s allegations of fiduciary duty were based on additional facts which were broader in scope than the parties’ contractual obligations.

The Court further found Plaintiff sufficiently alleged an independent duty of good faith and duty of care, which supports Plaintiff’s claim for negligence/gross negligence.

Finally, while the Court acknowledged Defendant’s argument that under the trust agreement Defendant had “no duty or responsibility with respect to the qualification, character, or valuation of the Assets deposited into the trust account,” in the contract between the parties, Defendant (as trustee) “agreed to maintain assets of the trust. . . to be negotiable at any time.” Being the agreed upon terms, the Court held that “Defendant cannot alter these terms by placing boilerplate disclaimer language as to the value of the funds on the statement to absolve itself of contractual duties. When Plaintiff attempted to withdraw the assets of the trust account, Defendant could not negotiate these assets.”

Accident Insurance Company, Inc. v. U.S. Bank National Association and U.S. Bank Trust N.A., 15-cv-02621-JMC (USDC D.S.C. Sept. 28, 2017)

This post written by Nora A. Valenza-Frost.

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FIFTH CIRCUIT FINDS ORDER NOT “FINAL” FOR PURPOSES OF APPELLATE JURISDICTION

October 24, 2017 by John Pitblado

The U.S. Court of Appeals for the Fifth Circuit held that an order compelling arbitration and staying a related action was not an appealable “final decision with respect to arbitration” under the Federal Arbitration Act (“FAA”).

Anthony Charles filed an action asserting substantive claims regarding construction of a home in Mississippi (“Charles I”). While it was pending, the defendants filed a separate action against Charles (“Charles II”), seeking to compel him to arbitrate the claims in Charles I. The court in Charles II granted the motion to compel, and ordered that the unresolved claims in Charles I be stayed pending arbitration. Charles appealed.

The Fifth Circuit held that it did not have jurisdiction over the appeal. The court noted that the FAA only allows courts to consider an appeal from a “final decision with respect to arbitration,” meaning one that “ends the litigation on the merits.” In ruling, the court found that furthering the strong interest in favor of arbitration required considering Charles II together with Charles I. Because the claims in Charles I were merely stayed by virtue of Charles II – not dismissed – the court held that the decision in Charles II could not be considered a “final appealable order” under the FAA.

Green Tree Servicing, LLC, et al. v. Anthony Charles, No. 17-60165 (5th Cir. Sept. 29, 2017)

This post written by Alex Silverman.

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NINTH CIRCUIT AFFIRMS APPLICATION OF ARBITRATION CLAUSE FOUND IN AMAZON’S CONDITIONS OF USE

October 23, 2017 by John Pitblado

Applying Washington law, the Ninth Circuit Court of Appeals affirmed a California federal court’s ruling that Amazon’s Conditions of Use (COU) created a valid contract between Amazon and its customers, and there was no procedural unconscionability in the presentation of the arbitration clause. Further, the Court found that, “[w]hile the COU are adhesive in nature, adhesion is insufficient to support a finding of procedural unconscionability.”

Plaintiff made three arguments for substantive unconscionability which the Court found lacked merit: (1) “the unilateral modification clause does not render the arbitration provision substantively unconscionable because Amazon is limited by the implied covenant of good faith and fair dealing;” (2) “the arbitration clause’s exemption of intellectual property claims for injunctive relief does not make the provision overly harsh or one-sided;” and (3) “the attorneys’ fees provision does not create substantive unconscionability because it mirrors Washington’s statutory right to attorneys’ fees for frivolous claims” and “also complies with California law, which permits Amazon to seek fees as a sanction for frivolous claims.”

Class action waivers continue to be a hotly contested issue. We previously reported that the California Fifth District Court of Appeal held that, while California Private Attorneys General Act (PAGA) claims for civil penalties cannot be arbitrated or waived, the underlying worker claims for the wages themselves are subject both to arbitration and a class action waiver, which substantially undercuts an employer’s group exposure in wage and hour actions.

Wiseley, et al. v. Amazon.com, Inc., No. 15-56799 (9th Cir. Sept. 19, 2017)

This post written by Nora A. Valenza-Frost.

See our disclaimer.