The plaintiff in the underlying arbitration (Health Options) served a third-party subpoena on Walgreens to attend a hearing and produce documents concerning the prices it charged for pharmaceuticals to Navitus that Health Options ultimately covered. Walgreens initially declined to produce the requested information and a corporate representative for the hearing, claiming its headquarters was more than 100 miles from the hearing location in Madison, Wisconsin, and that the court lacked personal jurisdiction over it. The court, however, granted a motion to enforce the arbitration subpoena. First, the court rejected Walgreens’s territoriality argument, accepting Health Options’s proposed method of measuring distance “as the crow flies” and finding that Walgreens’ headquarters in Deerfield, Illinois was less than 100 miles from Madison. Second, the court held that it had personal jurisdiction over Walgreens. The court concluded that Walgreens’s suit-related in-state activities—submitting inflated prices to Navitus that Navitus in turn submitted to Health Options—were sufficiently related to Health Options’s injuries—overpaying on Navitus’s claims. Walgreens’s “purposely-directed communications” to Navitus in Wisconsin were “part of the wrongful conduct” that prompted the lawsuit. Because it is unclear whether the traditional minimum contacts inquiry applies in the third-party discovery context, the court examined the additional criterion some circuits apply: whether a close relationship exists between the non-party’s contacts with the specific discovery request. Even with the heightened scrutiny, the court found the subpoena sought documents related specifically to Walgreens’s contact with Wisconsin. Finally, the court denied Walgreens’s request that Health Options pay its subpoena compliance costs up front. It found Walgreens did not demonstrate the subpoena would be unduly burdensome nor did it provide an estimate of costs, both flaws that precluded an award of costs, let alone upfront costs. Maine Community Health Options v. Walgreen Co., Case No. 18-0009 (USDC W.D. Wis. Dec. 20, 2018).
Discovery
South Carolina Federal Court Denies Motion to Stay and Orders Insurer to Produce Documents
The background of this case is as follows. In 2014, ContraVest Inc., ContraVest Construction Co., and Plantation Point Horizontal Property Regime Owners Association Inc. (collectively, “Plaintiffs”) brought suit in South Carolina state court against Mt. Hawley Insurance Company (“Mt. Hawley”) for declaratory judgment, bad faith, breach of contract and unjust enrichment based on the insurer’s refusal to provide benefits allegedly owed under excess commercial liability insurance policies with respect to an allegedly defective construction project. The case was removed to South Carolina federal court. In March 2017, the South Carolina district court granted a motion to compel filed by Plaintiffs. In April 2018, Mt. Hawley moved to stay the case pending resolution of a mandamus petition to the Fourth Circuit and a motion to certify a question of attorney-client privilege waiver in bad faith insurance claims to the South Carolina Supreme Court. It also submitted to the court a privilege log and various documents for in camera review. The privilege log had four main categories of documents at issue: attorney-client privilege documents, work-product documents, reinsurance documents and reserves documents.
The South Carolina district court denied Mt. Hawley’s motion without prejudice and ordered that it produce all documents except those claiming attorney-client privilege in light of the mandamus petition. It declined to conduct an in camera review of the work-product documents and ordered production of those documents. The court also held that it would not consider whether an in camera review is necessary to determine if the reinsurance and reserves documents are relevant or privileged, and also ordered production of those documents. Mt. Hawley also took the position that it had not waived its objection regarding documents referencing mediation. However, the court noted that Mt. Hawley cited no South Carolina case law discussing a mediation privilege and the court noted that its own research did not reveal any such case law. It also noted that if Mt. Hawley meant to reference attorney-client privilege, “it does not appear that Mt. Hawley believes these documents to be attorney-client privileged as the privilege log does not identify them as such.” Thus, the court found that “[i]f Mt. Hawley means to reference general confidentiality rules about mediation, those rules are not applicable to the current issue” because “producing a document during discovery is not the same as introducing a document in a proceeding.” Thus, the court ordered that Mt. Hawley produce the mediation documents.
As for Mt. Hawley’s request to stay the case pending resolution of its petition for mandamus in the Fourth Circuit, the South Carolina district court noted that Mt. Hawley’s petition relates only to the attorney-client privilege issue, and that the Fourth Circuit already “stay[ed] any district court discovery that implicates the attorney-client issue pending further order of [the Fourth Circuit].” Thus, the court declined to stay the entire case “due to this discrete issue when there are other pending discovery issues unrelated to the attorney-client privilege issue,” and denied Mt. Hawley’s motion without prejudice.
ContraVest Inc., et al. v. Mt. Hawley Insurance Co., No.15-00304 (USDC D.S.C., Oct. 24, 2018).
This post written by Jeanne Kohler.
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Court Refuses to Confirm “Interim Decision” Arbitration Award Under the New York Convention
An “Interim Decision” issued by three Rabbinical Court arbitrators based in New York was not “final” and therefore could not be confirmed in federal court pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Under the New York Convention, an award is “final” if it “resolves the rights and obligations of the parties definitively enough to preclude the need for further adjudication with respect to the issue submitted to arbitration. Thus, an award that finally and conclusively disposes of a ‘separate and independent claim’ may be confirmed even if it does not dispose of all the claims that were submitted to arbitration.”
In this case, the Interim Decision issued by the Rabbinical Court was not confirmable because, although the award finally determined liability as to some of the issues presented, it did not finally determine the amount of damages flowing from that liability, but rather left open the possibility that the amount of damages awarded could change depending on evidence yet to be presented. Although there is some authority stating that the parties can agree to treat an arbitration panel’s partial final determination as to certain issues as “final” for purposes of confirmation, those cases involved “express bifurcation of issues,” which did not exist in this case. Instead, the parties had “merely consented to the issuance of such intermediate decisions.” Their agreement was silent as to whether those intermediate decisions were to be treated as “final” with regard to the issues therein.
The court also found that the Interim Decision’s statement that certain issues were not susceptible to adjudication by the panel was not capable of being confirmed by the court because it was not even an “award,” let alone a “final award,” as it did not “in any way resolve any issue submitted to arbitration.” With regard to certain “other claims” that were summarily denied via the Interim Decision, the court could not confirm them on the present record because there was no indication in the award “as to what the other claims … are” and as a result the court was “without a basis to determine whether any justification exist[ed] for confirmation of the Interim Decision.”
In addition, the court denied the petitioner’s motion to enforce an arbitration subpoena under section 7 of the FAA because section 7 “explicitly confers authority only upon arbitrators” to issue subpoenas, and the subpoena in this case was issued by the petitioner himself, albeit purportedly “in the name of” the arbitration panel. The court held that a party may not invoke the authority of section 7 by issuing a subpoena “in the name of” the arbitrators; rather, the arbitrators themselves must issue the subpoena. Sharbat v. Muskat, Case No. 17-CV-4776 (USDC E.D.N.Y. Sept. 27, 2018).
This post written by Benjamin E. Stearns.
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English Court Holds that Discovery Given by U.S. Citizen Pursuant to a 28 U.S.C. § 1782 Order can be Used in London Arbitrations
This English court case involved arguments by Dreymoor Fertilisers Overseas Pte. Ltd. (“Dreymoor”), a Singapore trading company, to prevent EuroChem Trading GmbH, a Swiss company, and JSC MCC EuroChem, Russia’s largest fertilizer company (collectively, EuroChem”), from using information obtained through a U.S. court order under 28 U.S.C. §1782 (the “1782 Order”), which allows a federal court to order a person residing in its district to provide testimony or documents “for use in a proceeding in a foreign or international tribunal.”
EuroChem had obtained the 1782 Order in Tennessee federal court in order to obtain information to be used in litigation against Dreymoor proceeding in the British Virgin Islands and in Cyprus. EuroChem also intended to use the information obtained pursuant to the 1782 Order in two arbitrations proceeding in London. In all of the cases, EuroChem alleges that Dreymoor paid bribes to secure various fertilizer supply and sales contracts. Dreymoor sought an injunction in an English court, restraining EuroChem from enforcing the 1782 Order with respect to the London arbitrations, which was originally granted.
However, recently, on an application to continue the injunction, an English court found that EuroChem has a legitimate interest in obtaining the evidence in question for use in the London arbitrations. Thus, the court held “[w]hether enforcement of the 1782 Order would constitute unconscionable conduct requires an overall evaluation,” and “[i]n my judgment, looking at the circumstances of this case as a whole and with particular regard to the factors which I have identified, many of which point strongly against the grant of an injunction, it would not.” Thus, the English court refused to continue the injunction.
Dreymoor Fertilisers Overseas PTE Ltd. v. EuroChem Trading GMBH, [2018] EWHC 2267 (Comm. Aug. 24, 2018).
This post written by Jeanne Kohler.
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Insurance Broker Must, at Its Own Expense, Produce Documents Requested by Subpoena Issued in Dispute Between Workers’ Compensation Insurer and Its Insureds
A district judge in the Eastern District of California has ordered a third-party insurance broker to comply with a subpoena from defendants seeking documents related to that broker’s sale of defendant’s insurance policies to plaintiffs.
The order was entered in two lawsuits against Applied Underwriters, Inc. that have been consolidated for pre-trial purposes. In these lawsuits, Shasta Linen Supply Inc. and Pet Food Express Ltd. allege that Applied Underwriters used “an unfiled, void and illegal collateral agreement in the collection of excessive fees and expenses” in connection with workers’ compensation insurance. Applied Underwriters issued a subpoena to Relation Insurance Services, Inc., which was the insurance broker that sold the policies at issue. Relation objected to the subpoena on the basis that (1) it sought irrelevant information, (2) this information was available from plaintiffs, (3) the requested documents contained confidential, proprietary information, and (4) Applied Underwriters should be required to pay the costs of the production. The court rejected all four objections.
First, the court agreed with Applied Underwriters that information regarding the insurance brokerage work that Relation did for the plaintiffs was relevant to the question of plaintiffs’ reliance on Applied Underwriters’ allegedly fraudulent statements, as it could show what plaintiffs already knew about the market for insurance and competitive products. Second, the court found that Applied Discovery had already sought discovery from plaintiffs, and that the subpoena was meant to fill in gaps in plaintiffs’ productions. The court also emphasized that no rule required that party discovery be final before third-party discovery is issued. Third, the court found that a protective order entered in the matter would address Relation’s concerns regarding its confidential, proprietary information. Finally, the court found that $15,000—the amount that Relation estimated compliance with the subpoena would cost—was not a “significant expense” as is required for the cost shifting provision of Fed. R. Civ. P. 45(d)(2)(B)(ii) to apply, as Relation was a large company that had received approximately $400,000 in commissions from sales to the plaintiffs. Thus, the court ordered Relation to produce the requested documents and information at its own expense.
Shasta Linen Supply Inc. v. Applied Underwriters, Inc., No. 2:16-cv-00158 WBS AC, and Pet Food Express Ltd. v. Applied Underwriters, Inc., No. 2:16-cv-01211 WBS AC (June 14, 2018)
This post written by Jason Brost.
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