Arbitration Process Issues

NINTH CIRCUIT ADOPTS REBUTTABLE PRESUMPTION THAT ORDER WHICH DOES NOT EXPLICITLY DISMISS ARBITRABLE CLAIMS STAYS THE ACTION AS TO THOSE CLAIMS

April 14, 2014 by Carlton Fields

Under the Federal Arbitration Act, only “a final decision with respect to an arbitration” is appealable. 9 U.S.C. §16(a)(3). The issue facing the Ninth Circuit was whether an order compelling arbitration which neither explicitly dismissed nor explicitly stayed the action was such “a final decision.” The Court concluded it was not a final decision and therefore was not appealable. In MediVas, the district court’s order on appeal (“Order”) ruled that many of the plaintiff’s claims were subject to the arbitration clause, and ordered arbitration for those claims. As to the remaining claims, the district court remanded them to state court. Neither the Order nor any other order in that case explicitly dismissed nor explicitly stayed the arbitrable claims, and no judgment was entered in the action.

In its analysis, the Court reasoned that a final decision is one which “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Thus, an order compelling arbitration may be appealed if it dismisses all the underlying claims, but may not be appealed if the court stays the action pending arbitration. Consistent with its earlier rulings and with the procedural history of the case before it, the Ninth Circuit held the Order implicitly stayed the arbitrable claims pending the outcome of the arbitration. Because those claims were not dismissed, the Order was therefore interlocutory and not appealable.

Significantly, although the Medivas Court declined to follow the Second Circuit’s requirement of an official dismissal of all claims before reviewing an order compelling arbitration, the Court adopted a rebuttable presumption that an order compelling arbitration which did not explicitly dismiss the underlying claims stays the action as to those claims pending the completion of the arbitration. The Court did so in order to simplify the analysis in future cases where the order compelling arbitration is not clear. Along those lines, the MediVas Court also urged the district courts make their orders as clear as possible as to whether they intend to dismiss or stay a case, and noted that the appeal before it could have been avoided had the parties requested a clarification of the Order. MediVas, LLC, et. al. v. Marubeni Corporation, Case No. 12-55375 D.C. No. 3:10-cv-01001-W-RBB (9th Cir. Jan. 27, 2014).

This post written by Leonor Lagomasino.

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REINSURANCE ARBITRATION DISPUTE TRANSFERRED TO VENUES IN WHICH ARBITRATIONS WERE PENDING

April 8, 2014 by Carlton Fields

National Indemnity Company (NICO) sought an injunction in a Nebraska federal district court to prevent Transatlantic Reinsurance Company and its subsidiary (collectively, Transatlantic Re) from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. Transatlantic Re had commenced arbitrations in Illinois and New York (and initiated actions in those jurisdictions to compel NICO’s participation), pursuant to applicable forum selection clauses contained in Transatlantic Re’s reinsurance agreements with cedents. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York. The court analyzed venue provisions in the Federal Arbitration Act and different judicial approaches thereto, and concluded that Nebraska was limited in its jurisdiction over the claim. Illinois and New York were authorized under the FAA to compel arbitration if necessary, whereas Nebraska possessed jurisdiction only to enjoin NICO’s participation. Transfer, the court concluded, would promote judicial economy. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-cv-00074 (USDC D. Neb. Mar. 31, 2014).

This post written by Michael Wolgin.

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DISTRICT COURT DECLINES TO CONSOLIDATE DISPUTES ARISING OUT OF TWO REINSURANCE CONTRACTS

March 25, 2014 by Carlton Fields

Plaintiff Georgia Casualty & Surety Company entered into two reinsurance contracts with Defendant Excalibur Reinsurance Corporation, formerly known as PMA Capital Insurance Company. Both reinsurance contracts contained arbitration clauses. The First Excess Reinsurance Contract contained a choice of law provision but no forum selection clause, and the Second Excess Reinsurance Contract contained a forum selection clause but no choice of law provision. In 2006, Douglas Asphalt Company sued Applied Technical Services, Inc., a Georgia Casualty insured. Applied was found liable. While that judgment was on appeal, a high-low agreement was entered, which guaranteed that Georgia Casualty would pay Applied no less than $3 million and no more than $12 million. Thereafter, the Eleventh Circuit vacated the judgment against Applied. Georgia Casualty claimed that it was owed $1,418,708 under the two reinsurance contracts. In response, Excalibur argued that Georgia Casualty promised to seek malpractice damages against defense counsel for Applied and that this lawsuit would be a prerequisite to determining Excalibur’s liability. Additionally, Excalibur claimed that it did not consent to the high-low agreement. Georgia Casualty demanded arbitration of Excalibur’s alleged breach of the reinsurance contracts. Excalibur demanded arbitration on a counterclaim for unpaid premiums. Excalibur refused to consolidate the arbitration of all claims under both reinsurance contracts and requested that the arbitrators stay the arbitration pending the resolution of the malpractice claims. Georgia Casualty claimed this was a delay tactic and sued Excalibur.

The court found that if the Federal Arbitration Act or a state arbitration act lacking a statutory consolidation provision applied, then a court may consolidate arbitration only if the contracts expressly permit. Alternatively, if a state arbitration act that allows courts to impose consolidation regardless of the contracts’ terms governs the contracts, then a court may order consolidation where the statutory requirements are satisfied. Because the Second Excess Reinsurance Contract lacked a choice of law provision, it was governed by the FAA. Thus, the court could not order consolidation. Because the court could not order consolidation, it also could not designate a forum for that consolidated arbitration. With respect to a potential stay, the court believed it had to tread carefully to not violate the principle that, in determining whether a dispute is arbitrable, a court should not rule on the merits of the underlying claims. The court could not order the arbitrators not to stay the arbitration pending any potential malpractice recovery. The court also could not delve into the contract to determine if the contract required Excalibur to post security (in response to Georgia Casualty’s claim that Excalibur was delaying the proceedings). Georgia Casualty & Surety Co. v. Excalibur Reinsurance Corp., Case No. 1:13-CV-00456-JEC (USDC N.D. Ga. Mar. 13, 2014).

COURT AFFIRMS PARTIES’ WAIVER OF RIGHT TO COMPEL ARBITRATION

March 19, 2014 by Carlton Fields

A federal court of appeals has affirmed a district court’s decision that parties to a pending lawsuit waived their right to compel arbitration by waiting 11 months after that lawsuit was filed to invoke their right. Instead of exercising their right to compel arbitration according to the agreement at issue, defendants actively litigated the case in federal court, conducting discovery and litigating motions. The court found that plaintiffs, in opposing defendants’ belated motion to compel arbitration, had shown that (1) defendants had knowledge of their right, (2) defendants’ actions in litigating the dispute in court were inconsistent with that right, and (3) plaintiffs would be prejudiced by arbitration at such a late date. Prejudice was founded upon the waste of time and money already spent in federal court, the additional expense the parties would incur if they now needed to educate arbitrators, and the threat of forcing plaintiffs to relitigate matters already decided by the district court judge. James V. Kelly, et al. v. Public Utility District No. 2 of Grant County, et al., No. 12-35639 (9th Cir. Jan. 13, 2014).

This post written by Renee Schimkat.

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REINSURER’S PETITION TO COMPEL ARBITRATION STAYED WHERE CEDENT CLAIMS ISSUE IS ALREADY PENDING IN STATE COURT

March 13, 2014 by Carlton Fields

A federal district court has stayed a case where Nationwide Mutual Insurance Company petitioned to compel arbitration of a dispute that its cedent Liberty Mutual Insurance Company claims was already adjudicated by an arbitration panel and confirmed by a state court judgment. Nationwide sought to compel arbitration on the issue of whether Liberty Mutual breached its obligations under an access to records provision of the parties’ reinsurance treaties. In support, Nationwide cited the breadth of the treaties’ arbitration clauses and the strong federal policy favoring arbitration. Liberty Mutual countered that the very issue Nationwide sought to arbitrate was already decided as part of a panel’s decision regarding Nationwide’s payment obligations under the treaties and that Liberty Mutual had already moved to enforce a state court judgment confirming that very arbitration award. The court presumably agreed with Liberty Mutual that the identical claims were at issue before the state court, a fact which Nationwide disputed, and that the federal action should therefore be stayed in deference to the state court’s pending decision to enforce its own judgment under the Colorado River abstention doctrine, or in the interests of comity and sound judicial administration. Nationwide Mutual Insurance Co. v. Liberty Mutual Insurance Co., Case No. 1:13-CV-12910 (USDC D. Mass. Feb. 21, 2014).

This post written by Renee Schimkat.

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