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Arbitration Process Issues

COURT REJECTS BID TO SEAL DOCUMENTS SUBMITTED IN SUPPORT OF PETITION TO CONFIRM REINSURANCE ARBITRATION AWARD

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First State Insurance Company and National Casualty Company arbitrated a reinsurance dispute in which the panel issued a confidentiality order prohibiting disclosure of confidential arbitration information. First State sought confirmation of an arbitration award in its favor by filing a petition in federal district court attaching the arbitration award to its moving papers. National Casualty moved to seal the record, including the award itself, arguing that public interest in access to the documents was low but an affiliate of National Casualty and third-parties could be injured if the award was made public because the award could be used to their disadvantage in other pending arbitration proceedings. The federal district court rejected National Casualty’s motion, holding that National Casualty had not overcome the presumption of public access to judicial documents, which included First State’s moving papers and the award itself. First State Insurance Co. v. National Casualty Co., Case No. 1:13-cv-00704 (USDC S.D.N.Y. Feb 19, 2013).

This post written by Ben Seessel.

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ARBITRATION CLAUSE INTERPRETATION ROUND-UP

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Following is a summary of five recent opinions of note concerning the interpretation of arbitration agreements and arbitration procedure:

Klein v. Nabors Drilling USA L.P., Case No. 11-30824 (5th Cir. Feb. 26, 2013) (reversing denial of motion to compel arbitration; option in contract to agree to non-binding alternative dispute resolution proceedings did not render mandatory arbitration clause unenforceable).

Noohi v. Toll Bros., Inc., Case No. 12-1261 (4th Cir. Feb. 26, 2013) (affirming denial of motion to dismiss or stay pending arbitration; arbitration clause was unenforceable because it lacked mutuality of consideration under state law, notwithstanding Concepcion).

GGNSC Omaha Oak Grove, LLC v. Payich, Case No. 12-2592 (8th Cir. Mar. 4, 2013) (affirming denial of application to compel arbitration; estate of deceased nursing home resident was not bound by arbitration agreement as a third-party beneficiary where agreement was not executed by decedent’s son in his individual capacity).

Landers v. FDIC, Case No. 27223 (S.C. Feb. 27, 2013) (reversing denial of motion to compel arbitration of claims for slander, emotional distress, illegal proxy solicitation, and wrongful expulsion, in connection with arbitration clause in employment agreement; the “pleadings provide a clear nexus between [plaintiff’s] claims and the employment contract sufficient to establish a significant relationship to the employment agreement”).

MHC Kenworth-Knoxcille/Nashville v. M & H Trucking, LLC, Case No. 2011-SC-000441 (Ky. Feb. 21, 2013) (reversing order denying motion to compel arbitration; state case law holding jurisdiction does not exist for state courts to compel out-of-state arbitration did not apply when arbitration clause provided for choice of law to be the FAA).

This post written by Michael Wolgin.

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IN HOT PURSUIT OF PREJUDGMENT SECURITY FROM A FOREIGN NATIONAL CONDUCTING REINSURANCE BUSINESS

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As previously reported, the Northern District of Illinois recently held that the prejudgment security required by the Illinois Insurance Code is an “attachment” within the meaning of the Foreign Sovereign Immunities Act and was therefore not required of the foreign defendant in that case. The court denied plaintiff’s motion to strike and the plaintiff subsequently moved to amend or correct the court’s order. The court stood by its decision in two additional orders: 1) denying plaintiff’s motion to amend the order because plaintiff failed to establish any misapprehension of the case law, and 2) granting defendant’s motion to dismiss plaintiff’s complaint for an order compelling arbitration for failure to state a claim. The court determined that the plaintiff could not compel arbitration because the assignment agreement that gave plaintiff limited rights to collect certain debts did not also assign the rights and duties under the reinsurance treaties with the defendants, which included the arbitration clauses. The plaintiff has appealed the December 13, 2012 Order concerning pre-hearing security and the February 5, 2013 Order denying the request to amend the December Order to the United States Court of Appeals for the Seventh Circuit. Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, Case No. 12-6357 (USDC N.D. Ill.)

This post written by Abigail Kortz.

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INSURER JUDICIALLY ESTOPPED FROM COMPELLING ARBITRATION OF LONGSTANDING DISPUTE WITH REINSURER

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The Texas Court of Appeals affirmed a trial court order denying New Hampshire Insurance Company’s motion to compel arbitration of Magellan Reinsurance Company’s nine common law and statutory claims. New Hampshire and Magellan entered into a reinsurance agreement whereby Magellan agreed to accept 100% of New Hampshire’s obligations under automobile dealer insurance policies. Pursuant to the agreement, Magellan established a trust account from which New Hampshire was authorized to withdraw funds to pay claims. A dispute arose after New Hampshire had emptied the trust account and demanded that Magellan make an additional $1.4 million deposit to replenish it. Magellan in turn questioned New Hampshire’s claims handling and accounting practices. New Hampshire responded by filing a petition in Turks and Caicos Island (TCI) courts seeking to wind up Magellan’s business, citing to the purportedly unpaid $1.4 million obligation and a TCI ordinance relating to a company’s inability to pay debt.

Several years of litigation in TCI, Texas, and New York courts ensued during which time, among other developments, New Hampshire successfully defeated Magellan’s attempt to stay the TCI litigation for arbitration. The TCI litigation, however, was ultimately concluded in Magellan’s favor in 2009 with a finding that New Hampshire was not a “creditor” of Magellan and thus could not wind up Magellan’s business. New Hampshire then sought to compel arbitration of Magellan’s action pending in Texas state court. The trial court denied the motion to compel. The Texas Court of Appeals affirmed holding that, because New Hampshire had convinced the TCI court to deny Magellan’s request to stay litigation for arbitration, New Hampshire was judicially estopped from seeking to arbitrate Magellan’s claims. New Hampshire Insurance Co. v. Magellan Reinsurance Co., No. 02-12-00196-CV (Tex. Ct. App. Feb. 14, 2013).

This post written by Ben Seessel.

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COURT COMPELS ARBITRATION NOTWITHSTANDING STATE “COST-PROHIBITIVENESS” DEFENSE, APPLYING CONCEPCION

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Current and former students filed a putative class action against an institution alleging that the institution misrepresented the quality of its education and the prospects for post-graduation employment. When the institution moved to compel arbitration, the students sought to challenge the enforceability of the arbitration clause in court, notwithstanding a delegation provision that provided for arbitrability to be decided by the arbitrators. The court initially refused to enforce the delegation clause, holding that the students presented a valid defense that arbitration would be cost-prohibitive for them. On reconsideration, however, the court compelled arbitration even on the issue of arbitrability, relying on Concepcion. The court explained, after reviewing the origins of the cost-prohibitiveness defense in state precedent, that the defense is a doctrine created in the specific context of arbitration agreements, and is therefore preempted by the FAA. Dean v. Draughons Junior College, Inc., Case No. 3:12-cv-0157 (USDC M.D. Tenn. Jan. 16, 2013).

This post written by Michael Wolgin.

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