Rob DiUbaldo

California Appeals Court Upholds Summary Judgment Against Insured’s Attempt To Pierce Insurer’s Corporate Veil

June 25, 2018 by Rob DiUbaldo

A California state appellate court recently upheld summary judgment in favor of an insurer in a dispute about the value of fine art paintings over the insured’s attempts to pierce the insurer’s corporate veil. In the course of litigation against XL Specialty and related entities, the Hollanders alleged that XL Capital, the insurer’s parent company, operated as the alter ego of the other entities and operated as a single enterprise. The trial court had previously denied several defendants’ motion for summary judgment on the alter ego, agency, and related liability theories, but those defendants renewed their motion on the grounds that new facts had arisen. Specifically, there was new information concerning XL Specialty’s assets which allegedly doomed the Hollanders’ ability to prove the insurer was incapable of paying a judgment; proof which would satisfy the “inequitable result” element required to pierce the corporate. After the trial court’s initial grant of the renewed motion was appealed and remanded on other grounds, the trial court again granted the motion and this appeal followed.

In its second review of the case, the appellate court affirmed the grant of summary judgment. First, the court found the Hollanders failed to present sufficient evidence (through proper expert witness testimony) that XL Specialty’s assets were inadequate to satisfy a potential judgment or to support their claims for emotional distress and punitive damages. It concluded the expert testimony proffered was “only unsupported and unexplained conjecture” about XL Specialty’s solvency. Even less sufficient were the Hollanders’ claims for emotional distress, supported by “absolutely no evidence,” and punitive damages, a discretionary award for which the lack of evidence fell far short of the clear and convincing evidence required.

Second, the court upheld the decision regarding the agency theory because the Hollanders failed to prove that XL Capital dominated and controlled the activity of its subsidiaries. The Hollanders showed the various defendants shared an employee, but that showing alone was insufficient to prove agency of XL Capital where there was no evidence about other employees, the senior leadership of the companies, or the shared employee inappropriately mixing roles for the respective companies. The Hollanders attempted to demonstrate shared profits and losses by highlighting reinsurance agreements, but failed to show any of the defendants were members or parties to the reinsurance pooling and quota share agreements. Finally, the fact that the defendants shared administrative service agreements did not show agency where there was no right to control or any demonstrated impact by the agreements on day-to-day management of the companies.

Thus, the court affirmed the summary judgment as to the alter ego/single enterprise and agency theories of liability because the Hollanders failed to present triable issues of fact on the legal elements of those theories.

Hollander v. XL Capital, Ltd., Case No. B276621 (Cal. App. Ct. May 1, 2018).

This post written by Thaddeus Ewald .

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Eastern District Of Pennsylvania Holds That Plaintiffs Forfeited American Pipe Tolling By Filing Their Lawsuit Too Soon

June 7, 2018 by Rob DiUbaldo

A federal district court has dismissed with prejudice a Real Estate Settlement Procedures Act (RESPA) class action filed against JPMorgan Chase Bank N.A. and related entities on statute of limitations grounds a year after finding that the continuing violations doctrine applied to RESPA.

Plaintiffs claimed that defendants violated RESPA when JPMorgan created captive reinsurers to reinsure private mortgage insurance. Plaintiffs alleged that JPMorgan received kickbacks from the reinsurers, which did not assume any real risk and provided no real services. Defendants moved to dismiss the initial complaint on the basis that the claims were untimely under RESPA’s one year statute of limitations. In response, plaintiffs relied (1) on the argument that the limitations period was tolled by the filing of an earlier class action called Samp v. JPMorgan Chase Bank, N.A., which asserted similar claims on behalf of the same putative class members, under the doctrine established by the Supreme Court in American Pipe American Pipe & Construction Co. v. Utah, and (2) on the doctrine of equitable tolling. While that motion was pending, the Third Circuit decided Cunningham v. M & T Bank Corp., in which it held that the equitable tolling doctrine did not save very similar RESPA claims, as plaintiffs in that suit knew or should have known of their claims at the time they were provided with certain disclosures regarding reinsurance. Plaintiffs in the JPMorgan case then moved to amend their complaint to abandon their reliance on equitable tolling, instead asserting that, under the continuing violations doctrine, their RESPA claims were triggered each time a kickback payment was made. The court found that this doctrine applied to such RESPA claims and allowed the amendment.

Defendants moved to dismiss the amended complaint, again asserting that the RESPA claims were time-barred. In its order, the court reiterated its position that the continuing violations doctrine could be applied to the RESPA claims and rejected defendants’ argument that plaintiffs’ knowledge of their claims more than one year before filing their complaint defeated the application of this doctrine. Such knowledge was irrelevant, the court found, as plaintiffs did “not seek to aggregate earlier wrongful acts that would otherwise be untimely,” but limited their claims to conduct occurring within one year prior to the date of accrual.

Plaintiffs victory on this point did not save their RESPA claims, however, as the court then found that plaintiffs had forfeited the tolling made possible by American Pipe because they filed their complaint before the issue of class certification was resolved in the earlier Samp class action. Finding that this was a question of first impression in the Third Circuit, the court found that the purpose of the American Pipe doctrine was to avoid forcing putative class members to file individual suits to avoid the operation of the statute of limitations, and that this purpose would not be served if parties could, after taking advantage of this tolling and file duplicative lawsuits before the issue of class certification was decided in the earlier-filed class action. Thus, the court dismissed plaintiffs’ RESPA claims with prejudice as time-barred and, refusing to exercise ancillary jurisdiction over the remaining state law claims, dismissed those claims without prejudice. The court has already denied a motion for reconsideration filed by plaintiffs, reaffirming its decision that plaintiffs forfeited American Pipe tolling. The court has also denied a motion to intervene by parties seeking to become class representatives, finding that it lacked jurisdiction to continue the matter after dismissing it prior to class certification and that there was no entity with which to intervene.

Blake et al. v. JPMorgan Chase Bank, N.A., et al. (E.D. Pa. March 28, 2018)

This post written by Jason Brost.

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Cryptocurrency Theft Class Not Estopped From Avoiding Enforcement Of Arbitration Clause Under Either California Or Florida Law

June 6, 2018 by Rob DiUbaldo

The Eleventh Circuit recently affirmed the denial of a motion to compel arbitration based on equitable estoppel in a putative class action by victims of a cryptocurrency exchange website (Cryptsy) CEO’s theft of money derived from the conversion of cryptocurrencies into cash, regardless of which state’s law applied. The class complaint filed on behalf of Crypsty customers and the Cryptsy receiver alleged Coinbase, an online marketplace for the sale, exchange, and purchase of cryptocurrencies, failed to adequately monitor Crypsty, detect the theft, and report suspicious activity as required under the federal Bank Secrecy Act. The court analyzed the equitable estoppel basis to compel arbitration under both California and Florida law and found that regardless of which applied, the motion to compel must be denied.

First, the court assessed the present claims under Florida’s two standards for compelling arbitration under an equitable estoppel theory: the narrow scope of arbitration clauses requiring arbitration for claims “arising out of” the subject contract and the broad scope for clauses requiring arbitration for claims “arising out of or relating to” the contract. The Eleventh Circuit concluded that because the claims were based on duties and obligations imposed by the Bank Secrecy Act—intended to detect money laundering, not protect customers—and imposed by the underlying contract, they did not rely on nor bear a significant relationship to the underlying contract sufficient to trigger application of the arbitration clause. Because the claims failed to satisfy the lower burden of broader scope standard, the court held they would likewise not be able to satisfy the higher burden required for the narrow scope analysis.

Second, the court reached a similar conclusion under California’s inquiry on whether equitable estoppel requires compulsion of an arbitration agreement for claims that are “dependent upon, or inextricably intertwined with” the underlying contract obligations. Even if claims are related to the contract, California does not compel arbitration unless a complaint “relies” on the agreement to establish its cause(s) of action. Here, the court found the class representative did not seek to enforce any terms or obligations of the underlying user agreements, but rather sought to enforce duties and obligations imposed by federal statutes and regulations and state common law. Therefore, because plaintiffs’ claims, if viable, would be so viable without any reference to the user agreements, the complaint did not rely on them and plaintiffs were not estopped from avoiding the arbitration clauses.

Leidel v. Coinbase, Inc., No. 17-12728 (11th Cir. Apr. 23, 2018).

This post written by Thaddeus Ewald .

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Fifth Circuit Allows Non-Signatories To Enforce Arbitration Agreement

June 5, 2018 by Rob DiUbaldo

The Fifth Circuit has affirmed an order compelling arbitration, despite the fact that the parties seeking to compel arbitration were not signatories to the relevant arbitration agreement.

The litigation arose out of a 1998 transaction in which Henry House purchased a home and real property from Jim Walter Homes, Inc. and Mid-State Trust IV. The sale contract contained an arbitration agreement under which the parties agreed to arbitrate any disputes “in accordance with the Comprehensive Arbitration Rules and Procedures administered by J●A●M●S/Endispute.”

In 2016, Mr. House sued Green Tree Servicing, L.L.C. and Walter Investment Management Corporation (WIMC), alleging that they conspired with Jim Walter Homes and Mid-State Trust IV to induce Mr. House to enter into the 1998 agreement based on the false premise that he would get a properly constructed home. Green Tree and WIMC moved in federal court to compel arbitration. Mr. House argued that Green Tree and WIMC, as non-signatories to the arbitration agreement, lacked standing to enforce it, but the district court found that they had standing under Mississippi’s intertwined claims test and that the arbitration agreement, by incorporating the JAMS rules, delegated questions of arbitrability to the arbitrator.

On appeal, Mr. House argued (1) that the intertwined claims test did not apply because Green Tree and WIMC did not exist at the time the arbitration agreement was executed; (2) that Mr. House, as an unsophisticated party, could not agree to delegate the question of arbitrability by agreeing to the JAMS rules; and (3) that the arbitration agreement was invalid because it was fraudulently induced.

The court quickly disposed of the second argument, refusing to consider it at all because Mr. House had not raised the issue of his lack of sophistication before the trial court.

As regards the first, the court found that the exact date when the entities formed was irrelevant. Mississippi’s intertwined claims test allows a non-signatory to enforce an arbitration agreement against a party who makes “‘allegations of substantially interdependent and concerted misconduct’ between a non-signatory and a signatory that have a close legal relationship.” The court found that this was satisfied by Mr. House’s complaint, which alleged that Green Tree and WIMC were coconspirators and joint venturers with the parties to the 1998 arbitration agreement in a scheme to get Mr. House to enter into that transaction.

Finally, the court held that when the parties have delegated questions of arbitrability to the arbitrator, a court may only find that the arbitration agreement was procured by fraud if the party seeking to avoid arbitration challenges the validity of the arbitration agreement specifically, rather than the contract as a whole. Mr. House did not do that, however, instead alleging generally that his signature on the 1998 sales contract and related documents was procured through fraud, which the court found was not specific enough to take this question out of the hands of the arbitrator.

Green Tree Servicing, L.L.C., et al. v. House, et al., (5th Cir. May 14, 2018)

This post written by Jason Brost.

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Following New York High Court’s Answer To Certified Question, Second Circuit Remands Reinsurance Dispute To District Court

June 4, 2018 by Rob DiUbaldo

The Second Circuit vacated and remanded for reconsideration a district court opinion in a dispute concerning the limits available under certain facultative reinsurance certificates after the New York Court of Appeals answered a certified question on that issue. Specifically, the Second Circuit had questioned whether Excess Insurance Co. v. Factory Mutual Insurance Co. imposed a rule of construction or a presumption that the per occurrence liability caps in facultative reinsurance certificates strictly limit the reinsurance coverage regardless of whether the operative language is understood to cover defense costs or other expenses. The N.Y. Court of Appeals answered there is no such rule of construction or presumption, and instead, reinsurance agreements are governed by standard contractual interpretation principles that place utmost importance on the language of the contract. Given that answer, the Second Circuit remanded the case to the district court to interpret, in the first instance, the reinsurance contracts terms as they relate to liability caps.

Global Reinsurance Corp. of Am. v. Century Indemn. Co., No. 15-2164 (2d Cir. May 9, 2018).

This post written by Thaddeus Ewald .

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