John Pitblado

NEVADA FEDERAL COURT AFFIRMS ARBITRATION AWARD

November 2, 2016 by John Pitblado

The background of this case is as follows. Lift Equipment Certification Co., a heavy equipment manufacturer, was contracted by Lawrence Leasing Corp., a shipping company to redesign one of Lawrence’s cranes. The deal fell through, and the parties proceeded to arbitration. The arbitrator awarded both parties significant sums of money. However, plaintiff Lift believed that defendant Lawrence received too much in the arbitration award, and that it received too little. Thus, it moved in federal court in Nevada for the arbitration award to be vacated, and Lawrence cross-moved for the award to be confirmed.

The Nevada federal court noted that its review of arbitration awards is limited, and that plaintiff Lift faced a “heavy burden to prove by clear and convincing evidence that the arbitrator intentionally disregarded obvious legal principles” or that the decision is “utterly without support in the record.” The court then held that plaintiff Lift failed to prove by clear and convincing evidence that the arbitrator “manifestly disregarded the law” or that the award was “arbitrary and capricious.” Thus, the court denied Lift’s motion to vacate the arbitration award, and granted Lawrence’s cross motion to confirm the arbitration award. However, the court declined defendant Lawrence’s request for legal fees since plaintiff’s claims were “far from frivolous.”

Lift Equipment Certification Co., Inc. v. Lawrence Leasing Corp., No. 2:15-CV-01987-JAD-GWF (USDC D. Nev. Sept. 23, 2016)

This post written by Jeanne Kohler.

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FIO ANNUAL REPORT ON THE INSURANCE INDUSTRY

November 1, 2016 by John Pitblado

In September, the Federal Insurance Office (“FIO”) issued its Annual Report on the Insurance Industry for 2015, including its “outlook” for 2016 based upon results reported through June 30, 2016.

For 2015, the U.S. insurance industry, both life and health and property and casualty “reported another year in a run of solid financial performance, and, in the aggregate, remained in sound financial condition.” FIO notes the continued effects of low interest rates are exacerbated as life insurers are challenged in constructing investment portfolios that properly match liabilities and a decline in the sale of annuity products.

State insurance regulators have improved standards applicable to life insurers ceding to captive reinsurers, “but additional work is needed to develop a consistent oversight regime aimed at improving the transparency and solvency of captive life reinsurers.” In January 2016, state insurance regulators adopted amendments to the Credit for Reinsurance Model Law “that would provide states with the authority to implement regulations relating to a captive framework, as well as regulations applicable to reinsurance captives outside the scope of the captive framework.”

By 2016, a total of 42 state legislatures have enacted a new reserving methodology called “Principles Based Reserving” (PBR), which relies upon an insurer’s individualized risk modeling and analysis techniques. The three-year implementation period of PBR will begin on January 1, 2017.

The report also discusses cybersecurity issues relevant to the insurance sector, including the Cybersecurity Information Sharing Act, as well as the current state of the cyber risk insurance market and common products offered by a number of insurers.

On April 1, 2016, the U.S. Department of Treasury issued a notice of proposed rulemaking to implement changes to the Terrorism Risk Insurance Program (“TRIP”) required by the TRIP Reauthorization Act, and FIO continues to consider comments received in developing a final rule. Per the report, “TRIP remains an important mechanism in ensuring that terrorism risk insurance remains available and generally affordable in the United States.”

Lastly, FIO notes its continued work at the International Association of Insurance Supervisors with other member jurisdictions, spanning nearly 140 countries, in the development of international standards for the supervision of insurance.

For the full text of the report, click here.

Annual Report on the Insurance Industry, Federal Insurance Office, U.S. Department of the Treasury (Sept. 2016)

This post written by Nora A. Valenza-Frost.

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STRUCTURE OF CFPB FOUND TO BE UNCONSTITUTIONAL BUT AGENCY SURVIVES WITH CUT TO DIRECTOR’S POWER

October 31, 2016 by John Pitblado

The DC Circuit Court of Appeals recently held that the single-director structure of the Consumer Financial Protection Bureau (“CFPB”) was unconstitutional, and gave the President the authority to fire the director at will in order to provide a check on the CFPB’s expansive power.

The background of the case can be found here. PHH, a mortgage lender, was the subject of a CFPB enforcement action regarding allegations that it referred consumers to mortgage insurers who then purchased reinsurance from a PHH subsidiary. The captive reinsurance agreements, according to the CFPB, were an illegal kickback scheme and violated the Real Estate Settlement Procedures Act (“RESPA”) that resulted in a $109 million order against PHH. PHH sought to vacate the order. In its appeal, PHH argued that the CFPB, an independent agency headed by a single Director, violates Article II of the Constitution.

The D.C. Circuit agreed with PHH that the single-director structure given to the CFPB by Congress in the 2010 Dodd-Frank Act left the CFPB’s top official without any check on its authority as the director could only be fired by the President for cause. However, rather than dismantling the CFPB, the Court determined that giving the President the authority to fire the director at will would address the question of accountability at the CFPB. In this regard, the Court stated: “The president is a check on and accountable for the actions of those executive agencies, and the President now will be a check on and accountable for the actions of the CFPB as well.”

The Court also found that the CFPB violated PHH’s due process rights by applying a retroactive penalty against PHH, finding that its captive reinsurance agreements violated RESPA. First, the Court noted that the CFPB had reinterpreted RESPA, a rule it inherited from the U.S. Department of Housing and Urban Development (“HUD”), in a way that invalidated HUD’s previous interpretation. HUD’s interpretation was that captive reinsurance arrangements were lawful “as long as the mortgage insurer paid no more than reasonable market value to the reinsurer for reinsurance actually furnished.” According to the Court, “[r]etroactivity — in particular, a new agency interpretation that is retroactively applied to proscribe past conduct — contravenes the bedrock due process principle that the people should have fair notice of what conduct is prohibited.” The D.C. Circuit also found that the CFPB was wrong in asserting that it could bring an administrative case beyond the three-year statute of limitations provided under RESPA. Noting that the CFPB could theoretically bring an action for a violation that occurred a century ago, the Court noted that “[w]e need not wait for an enforcement action 100 years after the fact. This court looks askance now at the idea that the CFPB is free to pursue an administrative enforcement action for an indefinite period of time after the relevant conduct took place.”

Thus, the D.C. Circuit vacated the CFPB’s order and remanded for the CFPB to determine whether consistent with RESPA’s three year statute of limitations, the mortgage insurers paid more than reasonable market value for the reinsurance to PHH’s captive reinsurer. PHH Corp. v. Consumer Financial Protection Bureau, No. 15-1177, (D.C. Cir. Oct. 11, 2016).

This post written by Jeanne Kohler.

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THE TENTH CIRCUIT AFFIRMED DECISION THAT TWO PUTATIVE CLASS ACTIONS MUST BE ARBITRATED

October 13, 2016 by John Pitblado

This dispute involves two cable subscribers (Andrew Alwert and Stanley Freedman) who filed putative class actions against Cox Communications Inc. for allegedly tying monthly set-top box payments to its premium cable services.

The background of the dispute can be found here. In sum, in 2009, several of Cox’s premium cable subscribers filed suits against the company for allegedly tying the service to its set-top box rentals. The suits were consolidated and transferred to Oklahoma federal court. However, in 2011, the Oklahoma federal court denied the request to certify a national class. Many of the subscribers/plaintiffs then filed putative class actions in several geographic regions around the country (Alwert filed on behalf of Cox subscribers in its New Orleans market and Feldman filed on behalf of Cox subscribers in its Arizona market). The various regional actions were again consolidated and transferred to the Oklahoma federal court. The parties agreed to stay all actions except one case brought on behalf of Cox subscribers in its Oklahoma City market (the Healey litigation). After the court granted class certification in that case, Cox moved to compel arbitration, which was denied. Cox appealed, and the Tenth Circuit affirmed. While the Healey appeal was pending before the Tenth Circuit, the Oklahoma federal court lifted the stay on the Alwert and Feldman cases. Cox answered both complaints and plaintiffs then sought discovery. Cox then moved to compel arbitration in both the Alwert and Feldman cases. In December 2014, the Oklahoma federal court granted the motions, finding that the arbitration clauses covered the present litigation, that Cox had not waived arbitration and the arbitration clauses were supported by consideration and were not illusory. The plaintiffs appealed and the Tenth Circuit granted the petition to appeal.

The Tenth Circuit affirmed the Oklahoma federal court’s order compelling arbitration of both cases, finding that the arbitration clauses in Alwert and Feldman’s subscriber agreements cover the matters raised in their cases, and that Cox did not waive its right to arbitration. The Tenth Circuit distinguished these cases from Healy, because in Healey, Cox engaged in litigation and did not move to compel arbitration until a class of subscribers was certified. The Court noted that Cox’s decision to litigate in Healy does not legally impact its decision to compel arbitration in the Alwert and Feldman cases, as the matters involve different parties and claims.
Thus, the Court held that Cox had not waived its right to arbitrate.

In re: Cox Enterprises Inc. Set-Top Cable Television Box Antitrust Litigation, Nos. 15-6076 (Alwert) and 15-6077 (Feldman) (10th Cir. Aug. 26, 2016).

This post written by Jeanne Kohler.

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ELEVENTH CIRCUIT DETERMINES PARTY’S COUNTERCLAIM TO PETITION FOR CONFIRMATION COULD NOT BE CONSTRUED AS MOTION TO VACATE THE ARBITRATION AWARD

October 12, 2016 by John Pitblado

When the appellant failed to file a motion to vacate or modify an arbitration award, it waived its right to raise Section 10 or 11 of the Federal Arbitration Action (“FAA”) as a defense to a motion to confirm the award. Appellant argued that its counterclaim to the petition for confirmation should have been construed as a motion to vacate. Although a district court has “discretion to liberally construe a poorly conceived filing”, there is no obligation for the court to “independently inquire into the most advantageous construction of a represented civil litigant’s filing.” The Court found the counterclaim was “so vague that the district court could not possibly have discerned a factual predicate for Section 10 relief.”

The Court also upheld the District Court’s decision denying appellant’s motion for reconsideration, as appellant neglected to timely move for vacatur or respond to petitioner’s supplement to its petition for confirmation. Since a motion for reconsideration exists for the correction of “obvious errors or injustices” and not to put forth a new argument, the district court did not abuse its discretion by declining to accept appellant’s belated request to construe the counterclaim as a motion to vacate. Careminders Home Care, Inc. v. Concura, Inc., et al., No. 16-10112 (11th Cir. Aug. 25, 2016)

This post written by Nora A. Valenza-Frost.

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