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Michael Wolgin

COURT AFFIRMS DISMISSAL OF CEDENT’S CLAIMS ASSERTING REINSURANCE PREMIUM FRAUD SCHEME, BASED ON EXPIRATION OF LIMITATIONS PERIOD

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The appellant (Guarantee Trust) had forwarded reinsurance premiums to the reinsurer to be held in a custodial account for the payment of claims. Guarantee Trust initially sued Kribbs, the founder of the reinsurer, alleging that he acted in concert with an employee inside Guarantee Trust’s organization to improperly obtain the funds from the account for Kribbs’ own use. During depositions (six years after filing suit), Guarantee Trust discovered the identity of two of its own employees, whom Guarantee Trust named in its re-filed action after having voluntarily dismissed the initial complaint. To address the running of the statute of limitations, Guarantee Trust argued that the limitations period was tolled due to fraudulent concealment. The trial court, however, dismissed Guarantee Trust’s claims, finding that Guarantee Trust provided no reason why it could not have discovered its claims against the two employees sooner through reasonable diligence.

On appeal, the court addressed the tolling issue under both the discovery rule and fraudulent concealment, and affirmed the circuit court’s decision. The court found it was significant that Guarantee Trust knew at the time it filed its original complaint that one of its own employees was involved in the alleged wrongdoing, and that Guarantee Trust had been provided in 2008 with discovery responses disclosing a short list of potential witnesses that included the two employees later addressed at depositions. The court concluded that the trial court correctly determined that Guarantee Trust failed the “reasonable diligence” test. The Court also found no fraudulent concealment during discovery that would toll the statute of limitations. Guarantee Trust Life Ins. Co. v. Kribbs, Case No. 15 L 11262, (Ill. App. Ct. Dec. 29, 2016).

This post written by Gail Jankowski.

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FIFTH CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION AGAINST NON-SIGNATORY TO ARBITRATION AGREEMENT

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The appeal arose from a consolidated case, originally three separate class actions, resulting from the alleged underfunding of Singing River Health System’s pension plan and KPMG’s alleged failure to detect that underfunding due to allegedly faulty auditing. The plaintiff from one of these class actions (Lowe) brought claims against KPMG but did not expressly rely upon KPMG’s engagement letters with Singing River – which included arbitration clauses. KPMG argued that, notwithstanding that the members of the Lowe class were not signatories to the engagement letters, the Lowe claims implicitly relied on the engagement letters because the letters “defined the scope of KPMG’s contractual role.” Therefore, KPMG argued, “equitable estoppel compel[led] the submission of Lowe’s claims to arbitration.”

Both the district court and the Fifth Circuit disagreed with KPMG’s argument. The Fifth Circuit explained, “the present case is based on tort rather than contract law. While it might well be easier for Lowe to pursue her claims based on the Engagement Letters, the standard for showing ‘direct dependence’ is what she pled, not what she might have pled … “ And, because Lowe’s tort claims were not “directly dependent” on the engagement letters, the Fifth Circuit found that KPMG’s motion was properly denied. The Court did go on to note, however, that if Lowe “later attempts to claim a remedy under the Engagement Letters, KPMG can seek relief including a renewed request for arbitration.” Thomas Jones, et al. v. Singing River Health Services Foundation, et al., Case No. 16-60263 (5th Cir. Jan. 5, 2017).

This post written by Brooke L. French.

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COURT HOLDS ALLEGED INDUSTRY BIAS AMONG ARBITRATORS INSUFFICIENT TO VACATE AWARD

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The case concerned two purchase orders whereby defendant BJB LLC dba Agri Trading (Agri Trading) agreed to purchase corn oil from plaintiff Hardy Industrial Technologies, Inc. (Hardy). A dispute arose and was submitted for arbitration pursuant to language in the purchase orders incorporating the American Fats and Oils Association, Inc.’s (AFOA) trade rules. A three-member panel of the AFOA Arbitration Tribunal issued its award finding in favor of Agri Trading that both purchase orders were invalid.

Hardy moved to vacate, modify, or correct the arbitration award, principally relying on “evident partiality” on the part of the arbitrators, namely, that the arbitrators were biased in favor of Agri Trading. In support of its motion, Hardy argued that the arbitrators were biased because Agri Trading was a member of the AFOA but Hardy was not, and because the president of Agri Trading attended AFOA meetings with the arbitrators, worked on AFOA committee meetings, served on the AFOA Board of Directors, and socialized with them.

The Court rejected this argument, finding that Hardy failed to establish that the alleged partiality was direct, definite, and capable of demonstration, or that specific facts existed which indicated improper motives on the part of the arbitrators. The Court reasoned that Hardy’s claim was “one of institutional bias, which, at best, establishes an appearance of bias.” Furthermore, the Court noted that the AFOA’s arbitration rules, which required that three-member panels be comprised of one arbitrator designated as a buyer, one as a seller, and one as other, undermined Hardy’s argument that the arbitrators were biased. As such, the Court denied Hardy’s motion to vacate and affirmed the arbitration award. Hardy Indus. Tech., LLC v. BJB, LLC, Case No. 1:12-cv-3097 (USDC N.D. Ohio Dec. 16, 2016).

This post written by Gail Jankowski.

See our disclaimer.

COURT FINDS ARBITRATION AWARD THAT INCLUDED ATTORNEYS’ FEES WAS NOT A MANIFEST DISREGARD OF THE LAW

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The court confirmed an arbitration award entered in favor of Astanza Design, LLC against Giemme Stile, S.p.A. and Giemme USA, LLC (Giemme) in which the arbitrator awarded both damages and attorneys’ fees to Astanza in a dispute arising from the parties’ agreement that Astanza was to serve as the exclusive representative for Giemme’s furniture sales to the LDS Church. Among other things, Giemme contended that the arbitrator lacked authority to award attorneys’ fees. The court disagreed.

The parties’ contract contemplated that the AAA International Center for Dispute Resolution Rules of Procedure would apply, and Article 34 of those rules provides that the tribunal “shall fix the costs of arbitration in its award.” In confirming the award, the court noted that the parties’ “bargained for the arbitrator’s construction of their agreement”, and noted that an arbitration award “even arguably construing or applying the contract must stand, regardless of this court’s view of its merits.” The award “drew its essence from the contract and was far from a manifest disregard of the law.” Astanza Design, LLC v. Giemme Stile, S.p.A., Case No. 1:16CV1238 (USDC M.D.N.C. Dec. 15, 2016).

This post written by Brooke L. French.

See our disclaimer.

LONDON MARITIME ARBITRATION ASSOCIATION HELD TO BE A “FOREIGN TRIBUNAL” WITHIN THE MEANING OF 28 U.S.C. § 1782

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Kleimar N.V., the plaintiff in a London arbitration against defendant Dalian Dongzhan Group Co. Ltd. (Dailan), filed an ex parte application with the New York District Court seeking the issuance of a discovery order and subpoena on Vale S.A., a third-party entity located in the United States. The District Court granted the application permitting discovery and asked that any challenges to the order be brought in a motion to quash. Kleimar subsequently served Vale with the subpoena and Vale moved to vacate the discovery order and quash the subpoena.

The principal issue in the case was whether the London Maritime Arbitration Association was a “foreign tribunal” under 28 U.S.C. § 1782, which permits a U.S. district court to approve the discovery over a person or entity found in the U.S. for use in a proceeding in a foreign or international tribunal. Putting aside Second Circuit precedent which had excluded private foreign arbitrations, the district court relied upon the 2004 U.S. Supreme Court case of Intel Corp. v. Advanced Miro Devices, Inc., wherein the Supreme Court’s interpretation of § 1782 left open the possibility that a private foreign arbitration could fall within its scope. The Court also found that the third-party was located in New York for the purposes of § 1782 because it traded on the New York Stock Exchange, regularly filed forms with the Security and Exchange Commission and had significant ties to an American entity that conducted systematic and regular business in New York. As such, the Court deemed the requirements of § 1782 were met and denied Vale’s motions. In re Ex Parte Application of Kleimar N.V., Case No. 16–mc–355 (USDC S.D.N.Y. Nov. 16, 2016).

This post written by Gail Jankowski.

See our disclaimer.