Rob DiUbaldo

SECOND CIRCUIT HOLDS SECTION 1782 DISCOVERY IS AVAILABLE FOR USE IN A FOREIGN OR INTERNATIONAL PROCEEDING EVEN WHERE APPLICANT MAKES NO CLAIM FOR MONETARY DAMAGES

November 21, 2017 by Rob DiUbaldo

This case arose out of a dispute between Intervenors-Appellants Yves Bouvier and MEI Invest Ltd. (collectively, “Bouvier”) and Petitioners-Appellees Accent Delight International Ltd. and Xitrans Finance Ltd. (collectively, “Petitioners”) over the sales to Petitioners of thirty-eight works of art, including paintings by Picasso and van Gogh, for a total of approximately $2 billion. Petitioners ultimately initiated criminal and civil proceedings against Bouvier in Monaco, France and Singapore on the grounds of fraud. Petitioners filed a 28 U.S.C. § 1782 application in the District Court for the Southern District of New York claiming that Sotheby’s was involved in relevant acquisitions by Bouvier. Petitioners requested discovery of documents relevant to all thirty-eight artworks involved in the alleged fraud. The district court granted the discovery application with respect to the French proceedings and denied Bouvier’s request for a protective order limiting the discovery to be used in the Monaco proceeding.

On appeal, the first issue was whether discovery was “for use in a proceeding in a foreign or international tribunal” for the purposes Section 1782, where the applicant is a crime victim authorized to submit the discovery to the foreign tribunal, but where the applicant is not making a claim for damages. On this issue, the Court held in the affirmative. The Court rejected Bouvier’s argument that the statute’s “for use” clause was limited to cases where monetary relief was sought. Specifically, the Court reasoned that “Section 1782 explicitly permits district courts to grant discovery in aid of ‘criminal investigations conducted before formal accusation,’ which are among the cases least likely to feature claims by private litigants for money damages notwithstanding the considerable variation in procedural rules across countries (including those involved in this appeal).” As to the second issue on appeal, whether an applicant that lawfully has obtained discovery under Section 1782 as to one foreign proceeding may use that discovery in another foreign proceeding, the Court held that Section 1782 permits such use, absent an order to the contrary by the district court. In so finding, the Court “s[aw] no reason why the number or identity of the foreign proceedings in which a successful applicant may use discovery produced pursuant to the statute would fall outside that discretionary grant” and reasoned that “Section 1782 leaves to the district courts’ discretion both the decision to grant discovery and to ‘prescribe the practice and procedure’ for its production.”

In a related summary order, the Court addressed the remaining issues on appeal. It found that the district court did not abuse its discretion in dismissing Bouvier’s argument that the district court failed to properly consider the third Intel factor, whether the Section 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions. In addition, the Court declined to resolved a district court split as to whether Section 1782 permits discovery of documents located outside the United States. The Court affirmed the lower court’s decision in its entirety. Bouvier v. Adelson, Case No. 16-3655 (2d Cir. Aug. 28, 2017) (Opinion at Dkt. 131 & Summary Order at Dkt. 132).

This post written by Gail Jankowski.

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TENNESSEE REVISES RULES REGARDING CAPTIVE INSURANCE COMPANIES

November 9, 2017 by Rob DiUbaldo

The Tennessee Department of Commerce and Insurance has substantially revised its rules for captive insurance companies. Significant changes include:

a requirement that captive insurance companies use the OPTins system to file premium tax, penalty, and interest forms and payments;
a requirement that annual financial reporting be done using a form included in the appendix to the new rules;
revisions to the rules regarding the required financial reports, audits, and examinations of captive insurance companies, including the addition of requirements specific to “protected cell captive insurance companies,” which may omit from their financial reports individual cells for which no premiums were collected or policies written during the relevant year;
authorization for the commissioner to order “limited scope examinations” to be conducted upon captive insurance companies “when questions arise about a captive insurance company’s solvency, governance, operating practices, or other” areas determined by the commissioner;
a provision allowing a captive insurance company to request that the commissioner or a designee conduct an “informal visitation” of such company, for which a report making suggestions and recommendations will be issued.

These rules will become effective December 21, 2017, and will be codified at Tenn. Comp. R. & Regs. 0780-01-41-.01 through 0780-01-41-.15.

This post written by Jason Brost.

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RELIANCE LIQUIDATION COURT APPROVES APPLICATION FOR DIRECT PAYMENTS FROM RELIANCE’S REINSURERS TO CERTAIN INSUREDS

October 19, 2017 by Rob DiUbaldo

The court handling the liquidation of Reliance Insurance Company has approved an application for the direct payment of reinsurance proceeds by Hunt Equities, Inc., as guarantor of Mount Vernon Insurance company (the “Reinsurer”), to Reliance’s insured, Hunt Consolidated, Inc., with respect to certain workers compensation and employers liability policies issued to Hunt Consolidated, Inc., for the policy periods of 1991 to 1996. The court found that the Reinsurer had unequivocally assumed Reliance’s direct coverage obligations to Hunt Consolidated, Inc., that Hunt Consolidated, Inc. had consented to the substitution of the Reinsurer for Reliance and to the release of Reliance for all coverage related claims, and that permitting such direct payment complied with the Section 534 of Article V of the Pennsylvania Insurance Department Act of 1921, the court’s own guidelines for enforcement of the Act, and it prior orders.

In re Reliance Insurance Company, No. 1 REL 2001 (Pa. Comm. Ct. Aug. 9. 2017)

This post written by Jason Brost.

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COURT COMPELS DISCOVERY, AWARDS SANCTIONS IN DISPUTE OVER WHETHER REINSURANCE ARBITRATION CLAUSE APPLIES

October 18, 2017 by Rob DiUbaldo

In 2011, Top’s Personnel entered into a reinsurance agreement with Applied Underwriters Captive Risk Assurance Company (“AUCRA”), and several years later executed a promissory note (“the Note”) in favor of a related entity, Applied Underwriters. Applied Underwriters (“Plaintiff”) sued Top’s Personnel (“Defendant”) for breach of its obligations under the Note, and Defendant moved to compel arbitration pursuant to an arbitration clause in the reinsurance agreement. The court denied the motion to compel arbitration because, on the evidence before it, Plaintiff was not subject to the arbitration clause. However, the court acknowledged the possibility that discovery might show circumstances that justify binding Plaintiff to the arbitration clause in AUCRA’s reinsurance agreement.

Defendant sought discovery as to the relationship between the two entities, the reinsurance agreement, and the Note’s connection to that agreement. Defendant moved to compel complete responses to its interrogatories and document requests, as well as sought to depose Plaintiff’s counsel. The court granted that motion in part, requiring revised responses to discovery requests, but denied the request to depose Plaintiff’s counsel. Defendant subsequently filed another motion to compel to remediate what Defendant argued were continued deficiencies in Plaintiff’s discovery responses.

The court granted Defendant’s motion to compel in full, including allowing the deposition of Plaintiff’s counsel and imposing sanctions for Plaintiff’s failure to comply with the court’s first order. The court addressed each disputed response in a piecemeal fashion, issuing specific directives for Plaintiff to cure its deficient responses by answering completely interrogatories regarding the negotiations of the Note and why different entities signed the Note and the reinsurance agreement, producing any correspondence or communications regarding the Note or reinsurance agreement, and supplementing its initial disclosures to include relevant information about all individuals with discoverable information.

Furthermore, the court granted the motion to compel the deposition of Plaintiff’s counsel. Whereas before the court ordered Defendant to attempt to first depose another individual who allegedly had the same information as Plaintiff’s counsel, this time the court determined the deposition was necessary because some of Plaintiff’s revised discovery responses and other communications indicated the attorney was the only individual involved in negotiating the Note on behalf his client.

Finally, the court granted Defendant’s request for sanctions, including attorney’s fees, for Plaintiff’s failure to comply with the court’s prior discovery order. The court concluded that the majority of the second motion was previously addressed during Defendant’s first motion to compel and the resulting order, and moreover it was Plaintiff’s failure to fully comply with the previous order that necessitated the second motion. Thus, an award of sanctions and attorney’s fees was just and sufficient to address Plaintiff’s discovery failures.

Applied Underwriters, Inc. v. Top’s Personnel, Inc., Case No. 15-90 (USDC D. Neb. Aug. 7, 2017).

This post written by Thaddeus Ewald .
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SECOND CIRCUIT ENFORCES ARBITRATION AGREEMENT IN FAVOR OR NON-PARTY WHOSE AGENT ENTERED INTO THAT AGREEMENT

October 17, 2017 by Rob DiUbaldo

The Second Circuit has affirmed an order compelling a plaintiff-employee to arbitrate his employment related claims against Carnival Cruise Lines, despite the fact that the one page employment agreement that he signed did not contain an arbitration clause and did not mention Carnival.

The plaintiff sued Carnival in connection with injuries allegedly suffered while working on one of their ships, and Carnival moved to compel arbitration. The plaintiff argued that he should not be required to arbitrate his claims because his employment contract did not contain an arbitration clause or expressly incorporate any other document, and Carnival was not a party to or even mentioned in that agreement. The Court disagreed.

First, the Court noted that incorporation by reference was a matter of law and thus for the court to decide. Second, it found that the language – stating that the “herein terms and conditions in accordance with POEA Governing Board Resolution No. 09 and Memorandum Circular No. 10 … shall be strictly and faithfully observed,” was sufficient to incorporate those documents, which contained an arbitration clause. Third, the Court found that it did not matter that the plaintiff was unaware of the arbitration clause, as he was bound by the terms of his contract and the incorporated documents, regardless of whether he had actually read them. Finally, the court held that the company with which the plaintiff had entered into a contract was acting as an agent for Carnival, and that Carnival had the power to enforce an arbitration agreement made by its agent.

Pagaduan v. Carnival Corporation et al., No. 16-465 (2d Cir. Sept. 18, 2017)

This post written by Jason Brost.

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