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Rob DiUbaldo

ARBITRATOR’S DECISION ON AVAILABILITY OF COLLECTIVE AND CLASS ARBITRATION WITHSTANDS PROCEDURAL AND SUBSTANTIVE CHALLENGES

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A Colorado federal court recently denied DISH Network (“DISH”)’s petition to vacate an arbitration award that decided an arbitration agreement with former employee Ray permitted collective or class certification. The arbitrator had decided as a jurisdictional matter that he had authority to determine whether the agreement permitted collective or class arbitration, and then held on the merits that the disputed agreement permitted arbitration of this kind.

First, the court upheld the arbitrator’s decision that he had authority to determine whether the agreement permitted collective or class arbitrations, but on slightly different grounds than the arbitrator decided the issue. The arbitrator found that the question of whether an agreement permits collective or class arbitration is not a “gateway” issue—or “question of arbitrability”—so she therefore had jurisdiction to decide the substantive issue. Alternatively, the arbitrator found that the agreement itself clearly and unmistakably indicated the parties’ intent to submit the issue to the arbitrator. The court, on the other hand, followed persuasive authority from other circuits holding that the question of whether an agreement permits collective or class arbitration is a question typically decided by a court and not the arbitrator. It still upheld the finding of jurisdiction, however, because it found that the parties manifested an intent to delegate questions of arbitrability to the arbitrator by incorporating the American Arbitration Association’s National Rules for the Resolution of Employment Disputes—which provide for determination of such issues by the arbitrator—into their arbitration agreement.

Second, the court refused to vacate the arbitrator’s decision that the agreement permitted collective or class certification, based primarily on the limited review applicable to arbitration awards under the Federal Arbitration Act. The arbitrator weighed a series of six features of the agreement’s language, three of which counseled for construing the agreement to permit collective or class arbitration of Ray’s claims and three counseled against permitting collective or class arbitration. Regarding the permissibility of collective arbitration provided by the Fair Labor Standards Act, the arbitrator decided that the three features supporting collective arbitration outweighed the three opposing it. Regarding the permissibility of class arbitrations, the arbitrator found a closer case and proceeded to interpret the agreement against DISH as the drafter to permit class arbitration.

In reviewing DISH’s merits challenges, the court found that the arbitrator’s decision was entirely consistent with relevant Supreme Court and Colorado precedent. The court also noted that even if the arbitrator’s analysis was inconsistent with the relevant authority, errors in interpreting or applying the law do not constitute grounds for vacating an arbitration award. Furthermore, it found the decision to interpret the contract against DISH was appropriate, because other rules of contract interpretation failed.

Dish Network, L.L.C. v. Ray, Case No. 16-314 (USDC D. Colo. Dec. 28, 2016).

This post written by Thaddeus Ewald .

See our disclaimer.

COURT REFUSES TO COMPEL PRODUCTION OF CEDENT’S DOCUMENTS TO REINSURER WHEN EXTENT OF CEDENT’S OBLIGATION TO PROVIDE DOCUMENTS IS AT CENTER OF THE LITIGATION

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A court has denied a motion to reconsider its decision denying a reinsurer’s (Century Indemnity Co.) motion to compel an insurer (Travelers Casualty and Surety Company) to produce certain documents in a case in which Travelers is specifically seeking a declaratory judgment that Century’s obligation to pay claims is not preconditioned on its access to Travelers’ documents.

Travelers filed the lawsuit alleging that Century had breached two reinsurance contracts, seeking reimbursement for underlying asbestos-related claims paid by Travelers, and requesting declarations that Travelers is not obligated to provide Century with privileged documents and that Century’s obligation to pay under the contracts is not preconditioned on Traveler’s providing documents to Century. After Travelers refused to produce certain documents requested in discovery, Century moved for leave to file a motion to compel production. The court denied the motion for two reasons. First, it found that the motion was untimely, as it was not filed until four months after Travelers completed its production. Second, the court found “that the documents that Century seeks to obtain by compelling production are effectively what the underlying dispute in this case is about”. On reconsideration, the court found that Century had provided no basis sufficient for the court to alter its earlier decision. Travelers Casualty and Surety Company v. Century Indemnity Co., 3:16-cv-170 (JCH) (D. Conn. Jan. 19, 2017)

This post written by Jason Brost.

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HAWAII BILL PROPOSES PARAMETRIC DISASTER INSURANCE PILOT PROGRAM

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On January 23, 2017, Hawaii lawmakers introduced a bill to establish a pilot parametric disaster insurance program aimed at preventing potential liquidity gaps between federal assistance and total economic losses in the event of a serious natural disaster. Parametric or index-based insurance programs peg claims to specific characteristics of natural disasters rather than the usual insurance arrangement basing payouts on actual losses sustained. The bill lists one example of a metric to determine whether coverage under a parametric disaster program would be triggered—if the maximum wind speed of a hurricane as it passes through a specific part of the islands reaches a certain threshold, coverage attaches.

If passed, H.B. 791 would establish a three-year parametric disaster insurance pilot program and empower the state to research and purchase parametric disaster insurance. A parametric disaster insurance special fund would be financed with interest earned on the principal in the currently existing hurricane reserve trust fund, any money paid out under parametric disaster insurance policies, and any appropriations made by the state legislature. The bill further requires a report to the legislature on the pilot program due by December 1, 2019, and calls for the repeal of the program on June 30, 2020. A companion bill, S.B. 799, was introduced in the state senate on January 20, 2017.

This post written by Thaddeus Ewald .

See our disclaimer.

COURT AFFIRMS RULING DENYING MOTION TO COMPEL ARBITRATION ON THE BASIS THAT CONTRACT WAS INVALIDATED BY FRAUD

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The Ninth Circuit, in an unpublished opinion, has found that a contract, and therefore an arbitration clause within it, was unenforceable due to fraud in the inception, despite the fact that both parties had ample opportunity to review the contract in its entirety. This result was required, the court found, because, assuming the allegations of the complaint to be true, the plaintiff did not know that by signing the contract it was agreeing to be a victim of defendants’ scheme.

In the complaint, plaintiff alleged that it was misled into agreeing to a consulting agreement that the defendants used as part of a wide-ranging scheme of fraud, involving forging financial documents, destroying plaintiff’s relationships with clients and creditors, and falsely representing that an employee of one of the defendants had been hired for a non-existent position in order to get plaintiff to issue paychecks for that position. The dissent argued that such fraudulent conduct in the performance of the agreement did not constitute fraud in the inception because plaintiff did not allege that plaintiff signed the contract based on a misunderstanding of its contents or that the arbitration clause was fraudulently induced. The majority disagreed, however, citing a California Court of Appeals decision for the proposition that it was enough that defendants, as the party drafting the contract, drafted the contract “‘in such a way as to not apprise’ the other party of its intentions.” DKS, Inc. v. Corporate Business Solutions, Inc., 15-16589 (9th Cir. Jan. 17, 2017)

This post written by Jason Brost.

See our disclaimer.

COURT APPROVES DIRECT PAYMENT OF REINSURANCE TO INSURED IN RELIANCE INSURANCE COMPANY LIQUIDATION

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The court handling the liquidation of Reliance Insurance Company has approved an application for the direct payment of reinsurance proceeds by United Insurance Company to Reliance’s insured, Hoechst Celanese Corporation, with respect to certain workers compensation and employers liability policies issued to Hoechst for the policy periods of 1989 and 1990. The court found that United had unequivocally assumed Reliance’s direct coverage obligations to Hoechst, that Hoechst had consented to this direct payment and released Reliance for all 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 the applicable reinsurance agreement.

In re Reliance Insurance Company, No. 1 REL 2001 (Pa. Comm. Ct. Nov. 22, 2016 )

This post written by Jason Brost.

See our disclaimer.