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Jurisdiction Issues

District Court Orders Insurer in Receivership to Arbitrate With Reinsurers, Rejecting Argument That Jurisdiction Rests With Receivership Court and That McCarran-Ferguson Act Preempts FAA

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The District Court of Puerto Rico upheld a prior judgment ordering Integrand Assurance Co. to arbitrate its claims against its various reinsurers, rather than remand the case to the court overseeing Integrand’s receivership, the Superior Court of the Commonwealth of Puerto Rico.

Integrand commenced proceedings against the reinsurers in order to recover assets that the reinsurers purportedly owed Integrand. In support of its argument that the proceedings should be remanded, Integrand argued that, under the Puerto Rico insurance code, the Superior Court of Puerto Rico had “exclusive jurisdiction to attend” to any action by or against Integrand and its estate subsequent to the commencement of receivership proceedings. Integrand further argued that the McCarran-Ferguson Act preempted the application of the Federal Arbitration Act to the parties’ dispute.

The court disagreed with Integrand, finding that, under the U.S. Supreme Court’s test in Humana v. Forsyth, the FAA was not preempted because the application of the FAA to the parties’ dispute would not “invalidate, impair, or supersede the state statute regulating insurance.” The court found that the provisions relied upon by Integrand related clearly and exclusively to the commencement of receivership proceedings. The instant dispute, however, was over entitlement to certain assets, not the commencement of receivership proceedings. The exclusive jurisdiction provisions, therefore, did not apply.

The court also distinguished this case from prior cases holding that, in the context of a liquidation proceeding, the FAA was preempted. Significantly, in those prior cases, the action was brought by other entities against the assets of a delinquent insurance company, unlike in this case, in which the action was brought by and for the delinquent insurance company in an attempt to recover assets supposedly owed to it. Finding that the FAA applied, the court upheld the order that the parties proceed with the arbitration of their dispute.

Integrand Assurance Co. v. Everest Reinsurance Co., No. 3:19-cv-01111 (D.P.R. May 1, 2020).

Fourth Circuit Determines Arbitral Panel in UK Is Foreign Tribunal for Purposes of Section 1782

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Where the parties to a private arbitration in the United Kingdom disagreed as to whether the arbitration panel is a “foreign or international tribunal” for purposes of obtaining testimony from residents in South Carolina pursuant to 28 U.S.C. § 1782, the Fourth Circuit determined that the panel was a “foreign tribunal” for purposes of the statute.

The district court denied the appellant’s application for the issuance of subpoenas to three South Carolina residents, relying on case law that held that private arbitral bodies were not “tribunals” as used in section 1782(a). The circuit court disagreed, reasoning that “even if we were to apply the more restrictive definition of ‘foreign or international tribunal’… – that the term refers only to ‘entities acting with the authority of the State’ – we would conclude that the UK arbitral panel charged with resolving the dispute between” the parties meets that definition.

The matter was remanded to the district court to conduct further proceedings on the appellant’s section 1782 application.

Servotronics, Inc. v. Boeing Co., No. 18-2454 (4th Cir. Mar. 30, 2020).

Nebraska Appellate Court Affirms Dismissal for Lack of Personal Jurisdiction in Suit Involving Breach of Reinsurance Participation Agreement

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The Court of Appeals of Nebraska has affirmed the dismissal of a claim under a reinsurance participation agreement based on lack of personal jurisdiction.

Applied Underwriters Captive Risk Assurance Co., an Iowa corporation with its principal place of business in Nebraska, entered into a reinsurance participation agreement with Doyle Signs Inc., an Illinois corporation based in Illinois. The agreement contained a choice-of-law clause and a forum selection clause providing that the agreement would be governed by Nebraska law and that disputes regarding the agreement would be heard by the “courts of Nebraska.” Applied Underwriters later sued in Nebraska state court alleging that Doyle owed it nearly $380,000 under the agreement.

Doyle moved to dismiss for lack of personal jurisdiction claiming it did not have sufficient contacts with Nebraska to be hauled into court there and, in the alternative, that Nebraska was not a reasonably convenient forum. The trial court granted Doyle’s motion and Applied Underwriters appealed.

The Court of Appeals affirmed. It found the case largely on point with its prior decision in Applied Underwriters Captive Risk Assurance Co. v. E.M. Pizza, Inc., 26 Neb. App. 906, 923 N.W.2d 789 (2019). In that case, the court concluded that the defendant had sufficient minimum contacts with Nebraska for specific jurisdiction but that Nebraska was nevertheless not a reasonably convenient forum.

Attempting to distinguish E.M. Pizza, Applied Underwriters argued that Doyle did business in Nebraska and was subject to general personal jurisdiction there. The court rejected that argument. It concluded that Doyle did not have systematic and continuous general business contacts with Nebraska based on the fact that it had bid for and had been awarded eight contracts by corporate offices outside Nebraska to make signs for Nebraska stores when the signs were manufactured outside Nebraska, transported to Nebraska by third parties, and there was no evidence that, among other things, Doyle had any employees in Nebraska, made sales there, or solicited business there.

In the alternative, the court noted that even if Doyle had sufficient minimum contacts with the state, it was not fair or reasonable for Nebraska courts to exercise jurisdiction over Doyle.

The court also rejected Applied Underwriters’ argument that the forum selection clause conferred jurisdiction on Nebraska’s courts, noting that it had rejected a similar argument in E.M. Pizza.

Finally, the court rejected Applied Underwriters’ contention that Doyle did not challenge service upon it, explaining that courts are still entitled to determine whether Nebraska courts are a convenient forum notwithstanding the apparent lack of challenge to service of process.

Applied Underwriters Captive Risk Assurance Co. v. Doyle Signs, Inc., No. A-19-464, 2019 WL 7425406 (Neb. Ct. App. Dec. 20, 2019) (copy of opinion available from Nebraska court website with a subscription).

Without Jurisdiction or Authority to Review, California Appellate Court Dismisses Appeal of Trial Court’s Statement of Decision

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Finding that a California trial court’s statement of decision was not a judgment or appealable order, the California Court of Appeal dismissed the appeal, having no jurisdiction or authority to review it.

The appellant argued that the statement of decision was a final judgment within the meaning of California Code of Civil Procedure section 904.1(a)(1). The court disagreed, as a judgment is final “when it terminates the litigation between the parties on the merits of the case and leaves nothing to be done but to enforce by execution what has been determined.” Thus, a statement of decision will be appealable only when it is “signed and filed and does, in fact, constitute the court’s final decision on the merits.” The court found that the statement of decision was a limited ruling on a discrete issue that did “not finally resolve the dispute alleged in the operative pleadings.”

The appellant argued, in the alternative, that its opening brief should be treated as a petition for a writ of mandate. The court noted, “Although we have the power to treat the purported appeal as a petition for writ of mandate, we should not exercise that power expect under unusual circumstances.” Seeing no justification for such relief, the court held that “[u]nder the circumstances presented here, treating the instant appeal as a writ application would … encourage parties to knowingly appeal from nonappealable orders, safe in the knowledge that their appeal will be saved by the appellate courts. We cannot condone or encourage such practice.”

Warwick Cal. Corp. v. Applied Underwriters, Inc., No. A155523 (Cal. Ct. Ap. Jan. 7, 2020).

Eleventh Circuit Clarifies Standard for New York Convention’s Public Policy Defense to Foreign Arbitration Awards

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The dispute involved an arbitration related to alleged medical malpractice by doctors selected by Carnival Cruise Lines to treat a wrist injury of a Serbian employee of Carnival. The employee’s employment agreement with Carnival contained mandatory arbitration and forum selection clauses and a choice-of-law clause designating the governing law as the law of Panama, the law of the flag of the employee’s cruise ship. Notwithstanding the choice of Panamanian law, the employee filed a foreign arbitration asserting a claim under U.S. law, including the Jones Act, for vicarious liability against Carnival. The arbitrator ruled that the employee could not assert the U.S. law claims and that she would not be entitled to relief under Panamanian law. The employee then filed a lawsuit in a federal district court seeking to vacate or deny enforcement of the foreign award under the New York Convention. The district court denied the employee’s petition, rejecting the employee’s arguments that the arbitrator wrongfully deprived her of the opportunity to assert her claim under the Jones Act and that the award was void as against U.S. public policy.

On appeal, the Eleventh Circuit affirmed the district court’s ruling. The Eleventh Circuit rejected the employee’s argument that the court was required to refuse to enforce the award because she was allegedly deprived of a statutory remedy against Carnival. The court ruled that it would not refuse to enforce the award “simply because the remedies available under Panamanian law [were] less favorable” to the employee “than the remedies available under U.S. law.” The court further found that the remedies available under Panamanian law were not “so inadequate that enforcement would be fundamentally unfair.” The court held: “[T]he test for whether a court should refuse to enforce a foreign arbitral award based on public policy is not whether the claimant was provided with all of her statutory rights under U.S. law during arbitration. Rather the public-policy defense ‘applies only when confirmation or enforcement of a foreign arbitration award would violate the forum state’s most basic notions of morality and justice.'” The employee had not made that showing here.

Cvoro v. Carnival Corp., No. 18-11815 (11th Cir. Oct. 17, 2019).