Michael Wolgin

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

January 10, 2017 by Michael Wolgin

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.

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NAIC DRAWS LINE IN CFPB SAND BOX

January 9, 2017 by Michael Wolgin

The National Association of Insurance Commissioners has taken a firm stance on the Consumer Financial Protection Bureau’s proposed ban of “mandatory arbitration” clauses that make financial product consumers waive their right to join class actions.

Because consumer loans are generally financial products within the CFPB’s purview, the CFPB stated that the proposed ban would extend to arbitration clauses used for whole life insurance policy loans, if (a) the insurance company is a “creditor” under the Equal Credit Opportunity Act (ECOA) and (b) the activity is not the “business of insurance” under the Dodd –Frank Act. In a comment letter, however, the NAIC has urged the agency to remove altogether policy loan features from the scope of the rule.

In drawing a line between insurance policy loans and consumer finance, the NAIC argued that whole life policy loans do not make insurance companies ECOA “creditors.” Insurers do not extend, renew, or continue credit; nor do they arrange for such transactions. Rather, despite the use of the word “loan,” a policy loan is in substance an advance payment of the policy’s cash surrender value. It more closely resembles a structured temporary conversion from one type of asset into cash, particularly because, if a policyholder does not repay the loan, the insurance company’s recourse is simply to reduce the policy benefits by the outstanding balance of the loan.

Finally, the NAIC pointed to Dodd-Frank Act language stating that the bureau has no authority to alter, amend, or affect the authority of any state insurance regulator. Because states regulate the issuance of insurance policy loans and none of the CFPB’s enumerated statutes—like the Truth in Lending Act or Real Estate Settlement Procedures Act—expressly incorporates policy loans into their purview, the NAIC concluded that the CFPB’s purported encroachment into this territory is “beyond the appropriate jurisdiction of the bureau.”

For more analysis of this CFPB rule proposal, and how state insurance law is not the only area of regulation as to which it is engendering line-drawing controversies, see “CFPB Grabs for SEC/CFTC Turf.”

This post written by Sarah J. Auchterlonie.

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COURT TOSSES TIME-BARRED RICO CLAIMS ALLEGING CAPTIVE REINSURANCE KICKBACK SCHEME

December 22, 2016 by Michael Wolgin

Plaintiffs asserted class claims for RICO violations based on allegations that Bank of America referred borrowers to private mortgage insurance providers in exchange for kickbacks, funneled through a captive reinsurance company. Bank of America argued that plaintiffs’ lack of due diligence precluded them from tolling the four-year statute of limitations under the “injury discovery rule.” The Court found that Bank of America met its initial burden to establish the existence of “storm warnings” of the alleged wrongs, shifting the burden to plaintiffs to show that they exercised reasonable due diligence but were nevertheless unable to discover their injuries. The Court noted that before closing on their loans, plaintiffs received a disclosure explaining that their reinsurance could be placed with a lender-affiliated company, and plaintiffs were given the opportunity to opt out of reinsurance. However, the plaintiffs took no steps to investigate the reinsurance. Since plaintiffs did not exercise reasonable due diligence, the Court held that they had constructive notice of all facts that could have been learned through diligent investigation during the limitations period.

Plaintiffs also attempted to delay the accrual of the limitations period based on the “separate accrual rule.” Plaintiffs argued that each transmission of a periodic account statement was in furtherance of the RICO scheme and constituted a new predicate act of mail and wire fraud, which in turn, resulted in the payment of illegal kickbacks. The Court disagreed, concluding that the present account statements – even if each prompted and caused plaintiffs to make a payment – arose from obligations and facts already known and acknowledged at the time of the parties’ mortgage agreements and thus were not “new and separate.” As such, the Court granted summary judgment in Bank of America’s favor, holding the RICO claims were time-barred.

Weiss v. Bank of America Corp., Case No. 15-62 (USDC W.D. Pa. Nov. 22, 2016).

This post written by Gail Jankowski.

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CONNECTICUT ISSUES BULLETINS REGARDING FINANCIAL REPORTING REQUIREMENTS FOR SURPLUS LINES INSURERS AND ACCREDITED REINSURERS

December 21, 2016 by Michael Wolgin

The Connecticut Insurance Department has issued two bulletins addressing 2016 and 2017 financial reporting requirements for foreign eligible surplus lines insurers and accredited reinsurers. Regarding surplus lines insurers, the department advised that each insurer, before March 1st, must submit a signed report of its financial condition for 2016, and must report their financial condition on a quarterly basis in 2017, including a breakdown of the company’s Connecticut business showing premiums and losses by line. Regarding accredited reinsurers, the department provided that each Connecticut reinsurer: (1) must, before March 1st, submit a signed report of its financial condition for 2016; (2) must file, in addition to the Annual Statement, an actuarial opinion and management discussion and analysis on March 1st and April 1st respectively; (3) need not file quarterly statements unless specifically requested; (4) must file before June 1st, a copy of the company’s independent audit report for 2016; and (5) must file a list of Connecticut insurers ceding business to the accredited reinsurer in 2016. The bulletin also included the March 1st deadline for reinsurance trusts to file documents detailing the balance in the trust and a listing of the trust’s 2016 investments. Finally, managers of non-affiliated reinsurance pools were advised to direct participating companies that are not licensed in Connecticut to file a copy of their Annual Statement with the Connecticut Department. Connecticut Insurance Department Bulletin Numbers FS-4SL-16 & CT Bulletin FS-4AR-16 reinsurer reports 11.28.16 FS-4SL-16 (Nov. 28, 2016).

This post written by Michael Wolgin.

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TENTH CIRCUIT AFFIRMS REFUSAL TO COMPEL ARBITRATION WHERE AGREEMENTS CONTAINED CONFLICTING ARBITRATION PROVISIONS

December 20, 2016 by Michael Wolgin

Mr. Ragab sued two financial companies and a corporate officer for misrepresentation and for violating several consumer credit repair statutes. There were six agreements between the parties, including, for example, a consulting agreement, a purchase agreement, and an operating agreement. Each agreement contained arbitration provisions, but they varied in material ways, including: (1) which rules governed, (2) how the arbitrator would be selected, (3) the notice required to arbitrate, and (4) entitlement to attorney’s fees. The district court refused to compel arbitration, concluding that there was no meeting of the minds on essential terms, and therefore no actual agreement to arbitrate. On appeal, a divided panel of the Tenth Circuit affirmed, distinguishing cases where the contracts provided for a solution to resolve conflicting provisions, or where contracts failed to spell out the requirements for arbitration; where, as here, there are multiple, specific, conflicting arbitration provisions with no agreed way to resolve them, “there was no meeting of the minds with respect to arbitration.” The court also rejected the defendants’ argument that the district court should have granted a summary trial to decide whether the parties agreed to arbitrate. The court held that in this case there were no material factual disputes, leaving only an issue of law for the court to resolve. Ragab v. Howard, Case No. 15-1444 (10th Cir. Nov. 21, 2016).

This post written by Michael Wolgin.

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