Arbitration Process Issues

The Second Circuit has dismissed an appeal arising from a reinsurance dispute between Northwestern National Insurance Company and Insco, Ltd. As we last reported in a December 29, 2011 post, those entities were parties to a reinsurance agreement and submitted a dispute to arbitration, with each party appointing its own arbitrator, and those two in turn selecting a neutral third to act as umpire. Insco’s appointed arbitrator shared private email communications between panel members with Insco’s counsel, believing that they showed that Northwestern’s selected arbitrator could not serve as an impartial arbitrator. Insco reviewed the emails and thereafter demanded that all the arbitrators resign immediately. Northwestern’s arbitrator resigned, but Insco’s and the neutral umpire did not. Northwestern then became suspicious that Insco had received the private panel member emails and demanded copies, but Insco refused. Northwestern named a new arbitrator, and the panel took up the issue, compelling production, determining that Insco’s counsel had acted inappropriately, and allowing the parties time to take the matter up in court.

Northwestern brought an action in federal court to disqualify Insco’s counsel. The trial court granted the motion to disqualify. Insco appealed, challenging the trial court’s jurisdiction and statutory authority to do so. On November 6, 2012, however, Insco moved to dismiss the appeal because the parties had settled the underlying arbitration. That motion was granted on November 21, 2012. Northwestern National Insurance Co. v. Insco, Ltd., No. 11-4626 (2d Cir. Nov. 21, 2012).

This post written by Brian Perryman.

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Amerisure successfully arbitrated a dispute with Global Re. Under the parties’ reinsurance agreement, arbitration was to be governed by Illinois law, though Amerisure is a Michigan-based company and Global Re is based in New York. Amerisure’s award was confirmed by an Illinois circuit court but the portion of it awarding attorney’s fees was vacated. Subsequently, Amerisure filed a one-count complaint in the circuit court seeking attorney’s fees pursuant to Illinois statute. The court dismissed Amerisure’s complaint, determining that New York law applied to the lawsuit and that New York law did not permit an award of attorney’s fees in this instance. While the parties agreed that Illinois law should apply to arbitration matters, there was no such provision governing litigation. Absent a governing choice of law provision, New York law applied because New York had the most significant contacts with the parties’ dispute. Amerisure Mutual Insurance Co. v. Global Reinsurance Corp. of America, Case No. 10 L 012665 (Ill. Cir. Ct. Nov. 7, 2012).

This post written by Ben Seessel.

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In a recent per curiam opinion, the U.S. Supreme Court reminded state courts that the Federal Arbitration Act is “the supreme Law of the Land” and they must abide by the Supreme Court’s opinions interpreting that law. The Oklahoma Supreme Court ignored Supreme Court precedent, which holds that a court has authority to decide the validity of an arbitration clause, but that the validity of the contract is left to the arbitrator to decide once the arbitration clause is deemed valid. Improperly assuming the role of arbitrator, the Oklahoma Supreme Court declared a noncompetition agreement that included a valid arbitration clause to be “void and unenforceable against Oklahoma’s public policy,” elevating Oklahoma law over the FAA. Nitro-Lift Technologies, L.L.C. v. Howard, No. 11-1377, 586 U.S. __ (U.S. Nov. 26, 2012).

Accepting an opportunity to provide further guidance with respect to class arbitrations, the Supreme Court has also granted certiorari in an arbitration case decided by the Second Circuit to decide “[w]hether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim.” As profiled in a prior post, the Second Circuit held that arbitration agreements that do not provide for class arbitration are unenforceable if the claimant can demonstrate that “the cost of . . . individually arbitrating their dispute . . . would be prohibitive.” It will be intertesting to see whether the Court decides this case on a narrow statement of the issue or uses it to provide broader principled guidance for post-Concepcion cases. In re American Express Merchants’ Litigation, No. 12-133 (U.S. Nov. 9, 2012).

This post written by Abigail Kortz.

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