Arbitration Process Issues

COURT HOLDS THAT QUESTION OF ARBITRABILITY IS RESERVED TO ARBITRATORS BY PARTIES’ AGREEMENT

November 30, 2009 by Carlton Fields

A New York court has affirmed the trial court’s denial of the plaintiff’s motion to stay or enjoin arbitrations pending before the American Arbitration Association. Although noting that the question of arbitrability is generally an issue for judicial determination, the parties’ agreement incorporated the AAA rules, which provide that the arbitration panel had the power to rule on its own jurisdiction. The court therefore found that the scope and validity of the arbitration agreement were properly presented to the arbitators. One justice filed a concurring opinion expressing his view that the United States Supreme Court decision in Hall Street Associates v. Mattel, Inc., 128 S. Ct. 1396 (2008), rendered unenforceable the agreement’s provision allowing for judicial review of legal errors by the arbitrator. The panel opinion had declined to reach that issue since it was included among the arbitrability issues to be decided by the arbitrators. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, No. 194N 601244/08 (N.Y. App. Div. Oct. 13, 2009).

This post written by Brian Perryman.

PLAINTIFFS ORDERED TO SUBMIT FRAUD CLAIMS TO ARBITRATION IN BERMUDA

November 24, 2009 by Carlton Fields

In October, 2007, Alternative Re Holdings Ltd. (“ARH”) commenced separate arbitrations in Bermuda against each of the plaintiffs seeking funds pursuant to Shareholder Agreements. In December, 2008, the plaintiffs brought suit in the Southern District of New York alleging that a 2005 Settlement Agreement was fraudulently induced in that the plaintiffs’ liability for reinsurance more than doubled. Arch Insurance Co. subsequently moved to stay the litigation pending arbitration. ARH and Alternative Re Ltd. also moved to stay, and to compel the plaintiffs to submit their fraud claims to arbitration pursuant to an arbitration clause in the Shareholder Agreements requiring “all disputes” between the parties to be submitted to arbitration in Bermuda. The plaintiffs opposed, arguing that their complaint fell within the parameters of the Settlement Agreement, which specified that the U.S. District Court for the Southern District of New York was the exclusive forum and venue for dispute resolution. The district court summarily granted the defendants’ motions, staying the lawsuit and ordering that arbitration proceed in Bermuda. TPG Group v. Alternative Re Holdings Ltd., Case No. 08-11244 (USDC S.D.N.Y. Sept. 22, 2009).

This post written by Dan Crisp.

THIRD CIRCUIT AFFIRMS DECISIONS COMPELLING ARBITRATION AND CONFIRMING RESULT IN RETROCESSION DISPUTE

November 23, 2009 by Carlton Fields

Century Indemnity Company (“Century”) made claim under certain retrocession agreements between it and Certain Underwriters at Lloyd’s, London (“Lloyd’s”) for a portion of the payment Century made to its reinsured, Argonaut Insurance Company (“Argonaut”) in connection with underlying asbestos coverage litigation expenses. Lloyd’s denied the claim, asserting that Century’s payment to Argonaut was not warranted under the reinsurance treaties. Century sued to recover the approximately $2 million in dispute. Lloyd’s moved to compel arbitration. Although it was undisputed that the retrocession agreements did not contain an arbitration clause, the trial court agreed with Lloyd’s that the retrocession agreements incorporated the underlying reinsurance treaties by reference, which treaties did contain arbitration provisions, and therefore granted the motion to compel arbitration. The parties arbitrated, and the three-member panel found in Lloyd’s favor, finding the reinsurance treaties did not obligate Century to pay Argonaut, and therefore Lloyd’s was not obligated to pay Century any portion of the payment to Argonaut. Century moved to vacate the award, contending that the arbitral panel had manifestly disregarded the law and failed to admit evidence which should have been admitted. The district court denied the motion. Century appealed to the Third Circuit Court of Appeals, which affirmed both the decision to compel arbitration, and the decision denying the motion to vacate the award. Century Indemnity Company v. Certain Underwriters at Lloyd’s, London, No. 08-2924 (3d Cir. Oct. 15, 2009).

This post written by John Pitblado.

COURT DECLINES TO RECONSIDER ORDER DISMISSING SUIT TO ENFORCE ARBITRATION AWARD FOR LACK OF JURISDICTION

November 18, 2009 by Carlton Fields

A court has denied reconsideration of its earlier order holding that an award postponing the determination of a remedy is not final and binding and, thus, is not subject to review. We reported on the earlier order in an August 20, 2009 post. The American Postal Workers’ Union brought a suit alleging that the United States Postal Service breached a collective bargaining agreement by failing to comply with an arbitration award finding liability. On July 14, 2009, the court dismissed the case for lack of jurisdiction. The Union moved for reconsideration, principally arguing that that it should be permitted to move forward to enforce the award because it had been granted final injunctive relief. The court found that the Union was simply regurgitating its earlier, unsuccessful argument. Therefore, the motion for reconsideration was denied. American Postal Workers’ Union v. United States Postal Service, Case No. 08-2200 (USDC D.D.C. Sept. 2, 2009).

This post written by Brian Perryman.

EN BANC DECISION HOLDS THAT MCCARRAN-FERGUSON ACT DOES NOT REVERSE-PREEMPT THE CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

November 16, 2009 by Carlton Fields

The Fifth Circuit has affirmed en banc a panel decision holding that while the McCarran-Ferguson Act reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. We reported on the panel decision in an October 14, 2008 post. The district court denied a motion to compel arbitration of a contractual dispute among three insurers, finding that a Louisiana statute barring mandatory arbitration provisions in insurance contracts superseded the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. On an interlocutory appeal, the Fifth Circuit panel reversed. Rehearing en banc was granted, vacating the panel opinion. Sitting en banc, the Fifth Circuit concluded that because McCarran-Ferguson does not apply to the Convention or its implementing law (the Convention Act), the district court’s order should be vacated and the case should be remanded for further proceedings. The Court indicated that it “was persuaded that state law does not reverse-preempt federal law in the present case for two related but distinct reasons: (1) Congress did not intend to include a treaty within the scope of an ‘Act of Congress’ when it used those words in the McCarran-Ferguson Act, and (2) in this case, it is when we construe a treaty – specifically, the Convention, rather than the Convention Act – to determine the parties’ respective rights and obligations, that the state law at issue is superseded.” Safety National Casualty Corp. v. Certain Underwriters at Lloyd’s, No. 06-30262 (5th Cir. Nov. 9, 2009).

This post written by Brian Perryman.