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Rob DiUbaldo

COURT GRANTS MOTION COMPELLING 30(B)(6) DEPOSITION TESTIMONY ON REINSURANCE FROM INSURANCE COMPANY FOLLOWING LIQUIDATION

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In a discovery dispute following the liquidation of Western Insurance Company (“Western”), a Utah federal district court granted a motion to compel a 30(b)(6) deposition testimony regarding Western’s reinsurance agreements. Western objected to the discovery on the grounds that the subject Directors and Officers should have made reinsurance claims prior to liquidation, and the failure to do so resulted in millions of dollars lost for the company. The court granted the motion to compel based on that assertion, deeming the testimony regarding reinsurance agreements, payments, and settlements to be relevant to the Directors and Officers’ preparation of their defense to that assertion. The court stated that if no reinsurance proceeds were received by Western, the Directors and Officers were still allowed to verify that through deposition testimony, because had Western received any payments on claims, that might provide evidence of the value of those claims at the time of liquidation.

Western Ins. Co. v. Rottman, Case No. 13-436 (USDC D. Utah Dec. 28, 2016)

This post written by Thaddeus Ewald .

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COURT FINDS THAT ENRON’S FRAUD DOES NOT VOID CONTRACT ENTERED INTO WITH ENRON SUBSIDIARY

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A federal appellate court has upheld a district court order enforcing an arbitration award by the ICC against the Republic of Nigeria in favor of Enron Nigeria Power Holdings, Ltd. (“ENPH”), a former subsidiary of Enron International Corporation (“Enron”), for breach of a contract. Nigeria claimed that enforcing the contract was against public policy due to that fraud that became apparent when Enron collapsed in 2001. However, the court rejected this argument, noting that Enron was not a party to or mentioned in this contract.

The operative contract, agreed to in 1999, contemplated ENPH engaging in three phases of construction, but the dispute was limited to the second phase under which ENPH was to have built a power plant in Nigeria. ENPH made various efforts through 2005 to get Nigeria to move forward with the second phase of the contract, but Nigeria refused to do so, leading ENPH to take the matter to arbitration with the ICC.

Nigeria argued that the contract was void as against public policy because of false statements regarding Enron’s financial attributes made to Nigeria in order to induce Nigeria to enter the contract. The ICC found no clear evidence that these statements induced Nigeria to enter the contract, emphasizing that the contract contained no express or implied guarantees from Enron, which was not a party to nor required to do anything under the contract. Further, the ICC found that Enron’s accounting fraud had no connection to ENPH nor to the second phase of the contract. When Nigeria refuse to pay ENPH, ENPH successfully sought enforcement in federal court. On appeal, the court upheld the order granting enforcement of the award, noting the deference due to both the factual determinations and interpretations of the contract made by the ICC.

Despite finding in ENPH’s favor, the court rejected three arguments advanced by ENPH. First, ENPH argued that Nigeria had failed to identify a well-defined public policy, but the court found that enforcing a contract tainted by fraud was plainly against public policy. Second, ENPH argued that Nigeria contractually waived any right to challenge the award anywhere except London, where the arbitration was held, but the court found that a party cannot waive such a public policy argument, as that would effectively “elevat[e] the parties’ contractual choices above the fundamental need of the federal courts to protect their own integrity.” Third, the court rejected the argument that Nigeria forfeited the argument that ENPH should be held responsible for Enron’s fraud as its alter ego by not properly raising it before the district court, finding that a party cannot waive this sort of public policy argument that courts are bound to decide.

Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria, No. 15-7121 (D.C. Cir. Dec. 27, 2016)

This post written by Jason Brost.

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ELEVENTH CIRCUIT RESOLVES JURISDICTIONAL ISSUES REGARDING THE CONFIRMATION OF AN ARBITRATION AWARD

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The Eleventh Circuit recently held that a district court retained jurisdiction over a motion to confirm an arbitral award, even though the plaintiff had voluntarily dismissed its claims while the motion to confirm was pending.

After PTA-FLA and affiliated entities (“ClearTalk plaintiffs”) filed a series of lawsuits across multiple jurisdictions against ZTE USA, ZTE moved to compel arbitration and the disputes were addressed in a consolidated arbitration proceeding. The arbitration resulted in a zero dollar award for both sides meant to bind ZTE and the ClearTalk plaintiffs.

While ZTE’s motion to confirm the arbitral award was pending, PTA-FLA voluntarily dismissed its claims, but the district court confirmed the arbitral award based upon its supplemental jurisdiction to do so. The Eleventh Circuit affirmed, finding that the lower court’s diversity jurisdiction granted it power both to compel the arbitration and confirm the resulting award. It held that the zero dollar award did not destroy diversity jurisdiction because the amount in controversy was satisfied at the time the case was filed. Likewise, it decided that the voluntarily dismissal did not destroy diversity jurisdiction because the confirmation of an arbitral award is a collateral claim over which the district court had independent jurisdiction.

Furthermore, the Eleventh Circuit confirmed that the lower court had supplemental jurisdiction to confirm the award against those ClearTalk plaintiffs that were joined for the consolidated arbitration. In doing so, it confirmed that the exception to supplemental jurisdiction excluding claims by plaintiffs against parties added under certain Federal Rules applied only to the “original” plaintiffs, and not third-party, counter, or cross plaintiffs.

PTA-FLA, Inc. v. ZTE USA, Inc., No. 15-15159 (11th Cir. Dec. 15, 2016)

This post written by Thaddeus Ewald .

See our disclaimer.

PARTY CANNOT APPEAL DECISION THAT DISTRICT COURT DID NOT MAKE REGARDING MOTION TO VACATE ARBITRATION AWARD

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The Sixth Circuit has declined to rule on a motion to vacate an arbitration award, which was brought at the same time as a successful motion to dismiss the action for forum non conveniens, when the district court had not decided that motion. The Court found that no exceptional circumstances existed that would justify ruling on an issue not addressed by the district court and that, given its other ruling, the district court was correct not to address the motion.

The case was initially brought in federal court in Tennessee by Milan Express, which alleged various claims against Applied Underwriters relating to an agreement to provide workers’ compensation coverage. The parties later agreed to submit the matter to arbitration, but the arbitration panel determined that the arbitration clause in the parties’ agreement was unenforceable. Returning to federal court, Applied Underwriters filed two motions: a motion to dismiss for forum non conveniens and a motion to vacate the arbitration award. The district court granted the motion to dismiss but did not rule on the motion to vacate. Applied Underwriters appealed, claiming that the court’s non-ruling on the motion to vacate was “in effect a denial of the motion.” Applied Underwriters further contended that the arbitrators, in finding the arbitration clause unenforceable, “exceeded their powers and acted with manifest disregard for the law,” and that both parties agreed that this presented a pure question of law that the Sixth Circuit could decide. The Court disagreed, however, finding that the district court’s silence could not be construed as confirming the validity of the arbitration award, an issue the district court was constrained not to decide once it decided that the Nebraska courts had exclusive jurisdiction over the case. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., No. 16-5270 (6th Cir. Dec. 2, 2016)

This post written by Jason Brost.

See our disclaimer.

ARBITRATION AWARD IN INTERNATIONAL COAL SHIPPING DISPUTE UPHELD AS WITHIN TRIBUNAL’S AUTHORITY

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An arbitration tribunal awarded damages to Sino East after Kailuan International wrongfully terminated a coal shipping contract after the delivery was delayed. The two Hong Kong-based companies’ agreement for Sino East to ship coal from Virginia to China was thrown into conflict when Sino East was delayed in loading and shipping the coal. Sino East petitioned for arbitration under the agreement when discrepancies in shipping documents and an ultimately late delivery of coal to China prompted Kailuan to terminate the contract and refuse payment for the shipment. The arbitration tribunal considered whether Kailuan wrongfully terminated the contract and whether Sino East failed to timely present the required shipping documents, and awarded damages to the latter. Kailuan then moved to vacate the arbitration award in New York federal court.

Under the limited review of arbitral decisions afforded to courts under the Federal Arbitration Act (“FAA”), the court analyzed whether the arbitrator’s consideration of Kailuan’s untimely exercise of its termination rights under the contract overstepped the panel’s authority to consider the issues submitted to it. The court concluded that the tribunal acted squarely within its authority in determining the issue of whether Kailuan adequately preserved its termination rights was critical to the determination of the wrongfulness of the ultimate termination—one of two issues submitted to the panel. Because the arbitrators acted within the scope of their authority, and did not exhibit manifest disregard for the law or the agreement, the court denied Kailuan’s motion to vacate.

Kailuan (Hong Long) Int’l Co., Ltd. v. Sino East Minerals, Ltd., Case No. 16-2160 (USDC S.D.N.Y. Dec. 9, 2016).

This post written by Thaddeus Ewald .

See our disclaimer.