John Pitblado

NEW YORK APPELLATE DIVISION REVERSES ORDER COMPELLING ARBITRATION AND REINSTATES COMPLAINT BASED UPON TERMINATED AGREEMENT’S FORUM SELECTION CLAUSE

May 16, 2016 by John Pitblado

New York’s First Department finds there was no clear manifestation parties had abandoned a forum selection clause by a later agreement which mandated arbitration in London. In 2000, the parties entered into two agreements: (1) the Quennington Agreement (with a U.S. forum selection clause); and, (2) the First Aurdeley Agreement (with an England forum selection clause). In 2009, the parties entered into two more agreements: (1) the Second Aurdeley Agreement (with an arbitration clause), which referenced both of the 2000 agreements and a merger clause, but only expressly terminated the First Aurdeley Agreement; and (2) the Quennington Termination Agreement (with an arbitration clause), which terminated the Quennington Agreement.

Plaintiffs commenced a lawsuit in New York Supreme Court for breach of fiduciary duty and breaches of the various agreements. Defendants moved for a stay of the action and an order compelling arbitration in London, as some of the claims arose under the 2009 agreements which both provided for arbitration. Alternatively, Defendants argued “only an arbitration tribunal could determine whether the forum selection clause” controlled.

On appeal, the Plaintiffs argued the claims alleged in the complaint related to conduct under the 2000 Quennington Agreement – which provided for litigation in the United States – and that they did not nullify the agreement’s forum selection clause “since they did not explicitly disavow it.” The Court agreed: “[t]he mere termination of a contract containing such a clause does not mean that the clause is not still effective”. At best, the parties intended only to arbitrate disputes that arose after 2009, when the agreements containing arbitration clauses were entered into. The Court also found the legal relationship established by the 2000 agreements survived, and since the complaint alleges a breach of fiduciary duty born out of that relationship, the forum selection clause survived. Moreover, any claims under the 2009 agreements were “inextricably bound together” with any claims subject to arbitration, and thus litigation of all claims was appropriate. Lastly, as to the issue of arbitrability, that question is for the court, as the parties did not “clearly and unmistakably” agree that the arbitrators should decide that issue.

Garthon Business Inc., et al. v. Kirill Ace Stein, et al., Index No. 653715/14 (N.Y.A.D. 1st Dep’t April 26, 2016).

This post written by Nora A. Valenza-Frost.

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COURT PUNTS DECISION ON HOW A PREVIOUS ARBITRATION AWARD AFFECTS A CURRENT DISPUTE TO ARBITRATOR

March 17, 2016 by John Pitblado

A Wisconsin federal district court determined, pursuant to the parties’ arbitration clause, it is the job of an arbitrator, not the court, to decide whether a present billing issue was resolved in a prior arbitration. The broad arbitration clause at issue stated “if any dispute shall arise . . . with reference to the interpretation of this Agreement . . . [it] shall be submitted to three arbitrators.” Previously, the parties had disagreed as to whether certain reinsurance treaties covered billings relating to a claim, which was resolved in a final order confirmed by the Court in 2004. In 2015, CNA demanded arbitration from Wausau for unpaid billings with respect to the same insured party, arguing the billings are part of a new and different dispute and subject to arbitration. Wausau disagreed, insisting they were improper “rebillings” already resolved in the 2004 arbitration.

The Court held under either party’s characterization, the dispute was subject to arbitration because whether or not CNA is, or is not, in compliance with the 2004 order is itself a dispute arising “with reference to the interpretation” of the party’s agreement. Essentially, Wausau was asking the Court to determine how the 2004 order should be treated in future arbitration disputes. The Court declined to do so, holding the “law is clear that arbitrators must determine in the first instance how a previous arbitration award affects a current dispute.” The parties were ordered to submit to arbitration and the action was dismissed.

Employers Ins. of Wausau, f/d/a Employers Ins. of Wausau a Mut. Co. v. Cont’l. Cas. Co., Case No. 15-cv-226 (USDC W.D. Wis. Feb. 17, 2016)

This post written by Nora A. Valenza-Frost.

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NINTH CIRCUIT REVERSES DISTRICT COURT’S ORDER VACATING ARBITRATION AWARD BASED ON EVIDENT PARTIALITY

March 16, 2016 by John Pitblado

This appeal is from an order from a district court in California, vacating an arbitration award against Masimo Corporation in favor of two former employees for $5.3 million because the court found that the arbitrator exhibited “evident partiality” because his brother litigated cases against Masimo. The employees appealed to the Ninth Circuit, which reversed the district court’s ruling, finding that Masimo provided “no coherent explanation” as to how the arbitrator’s brother’s litigation practice “would cause a person to doubt [the arbitrator’s] impartiality” and that Masimo failed to establish facts indicating actual bias. Although the Ninth Circuit found that the arbitrator committed an error in applying the wrong law as to punitive damages, it found that it did not rise to the level of affirmative misconduct. Finally, finding that Masimo’s remaining challenges to the award were unavailing, the Court noted that the arbitrator’s findings, even if erroneous, did not “exceed his powers” or rise to the level of manifest disregard of the law. Thus, the Ninth Circuit remanded to the district court to issue an order confirming the award in its entirety.

Ruhe, et al. v. Masimo Corporation, Nos. 14-55556 and 14-55725 (9th Cir. Feb. 19, 2016).

This post written by Jeanne Kohler.

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NEW YORK COURT OF APPEALS FINDS MCCARRAN FERGUSON ACT DOES NOT REVERSE PREEMPT THE FAA WITH RESPECT TO CALIFORNIA INSURANCE CODE § 11658

March 15, 2016 by John Pitblado

In an action to compel arbitration under payment agreements entered into between National Union and its insured, the New York Court of Appeals held the determination of arbitrability was not barred by the McCarran Ferguson Act, and would be decided by an arbitration panel, despite the fact National Union did not file copies of its workers’ compensation insurance policies in accordance with California Insurance Code § 11658. § 11658 requires workers’ compensation insurers to file copies of policies prior to issuance and at the time the payment agreements at issue were entered into. California law did not mandate a specific form or content of arbitration clauses, nor otherwise restrict their use. The law was later amended, requiring arbitration provisions in workers’ compensation policies or endorsements be disclosed to each potential insured, and failure to do so resulted in a default to California as the choice of law and forum (see § 11658.5).

Since California law did not prohibit arbitration in the insurance context, no law would be “invalidated, superceded or impaired” by application of the FAA, and thus the McCarran Ferguson Act does not reverse preempt the FAA with respect to § 11658. It was therefore up to the arbitrators – not the Court – to determine the question of whether the payment agreements’ arbitration provisions, and the agreements themselves, are enforceable under California law, despite the fact they were not filed in accordance with § 11658. The parties were required to arbitrate as they had clearly delegated the question of arbitrability and enforceability of the arbitration clauses to the arbitrators, and pursuant to the FAA, such arbitration provisions should be enforced as written.

Monarch Consulting, Inc., et al. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., et al., Case No. 8 (N.Y. Feb. 18, 2016)

This post written by Nora A. Valenza-Frost.

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UPDATE ON COVERED AGREEMENT NEGOTIATIONS BETWEEN THE U.S. AND THE EUROPEAN UNION

March 14, 2016 by John Pitblado

As we previously reported, in November 2015, the U.S. Treasury Department and the U.S. Trade Representative gave notice to Congress to initiate discussions with the European Union to enter into a Covered Agreement essentially addressing two major issues: (1) the equivalence of the U.S. insurance and reinsurance regulatory regime in the context of the EU’s Solvency II initiative; and (2) credit for reinsurance collateral requirements. Covered Agreements were introduced by the Dodd-Frank Act as a vehicle for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states. We described the Covered Agreement process in a Special Focus article. On February 23, 2016, the United States and the European Union released a joint statement regarding the status of negotiations and advised that representatives met in Brussels on February 18-19, 2016, and that both sides agreed to move forward efficiently in pursuit of agreement and expressed their hope that such future Covered Agreement will improve regulatory and supervisory treatment for insurers and reinsurers operating on both sides of the Atlantic. The Joint Statement can be found here.

This post written by Jeanne Kohler.

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