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Jurisdiction Issues

Fifth Circuit Affirms Dismissal Without Prejudice After Plaintiff Compelled to Arbitrate Refuses To Do So

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The Fifth Circuit affirmed a dismissal without prejudice of a plaintiff’s putative class action related to a multi-level marketing program selling electricity after the plaintiff refused to submit his claims to arbitration despite the district court compelling arbitration and staying the case pending arbitration. The case languished for over a year after the district court’s order compelling arbitration while plaintiff refused to arbitrate the putative class claims. Twice the court requested status reports in which the plaintiff indicated his failure to arbitrate and lack of intent to do so, at which point the district court ordered plaintiff to show cause why the case should not be dismissed for lack of prosecution. The plaintiff responded by reiterating his disagreement with the court’s conclusions as to arbitration, his intent not to arbitrate, and his readiness to litigate the case to conclusion before the court. The court ultimately dismissed the case without prejudice for lack of prosecution.

On a threshold issue, the Fifth Circuit concluded that it had appellate jurisdiction over the dismissal as a “final decision with respect to an arbitration.” Defendants argued that plaintiff, through his response to the show-cause order, voluntarily dismissed the case, which is not a final appealable decision. The court disagreed, holding that plaintiff’s inaction in failing to submit his claims to arbitration was not sufficient to constitute voluntary dismissal. Specifically, the court determined that plaintiff’s response to the show-cause order did not serve as notice of dismissal, but rather were “statements of inaction,” and therefore did not constitute a voluntary dismissal.

Additionally, the court found that it could appropriately hear an appeal of a dismissal without prejudice. The court surveyed circuit precedent and distinguished the present case from those finding no appellate jurisdiction over dismissals without prejudice. Here, there were no concerns about piecemeal appeals of interlocutory issues because the dismissal concluded the litigation on the merits. Nor, as the court previously established, was the dismissal voluntary such that the litigant was voluntarily dismissing as a tactic to seek expedited appeal of interlocutory issues.

Finally, the Fifth Circuit affirmed the lower court’s use of its discretion in dismissing for failure to prosecute. Regardless of whether the heightened standard for dismissal without prejudice—where statutes of limitations risk barring any future litigation—applied, the court held that defendants would prevail. Dismissal was warranted for failure to prosecute because plaintiff demonstrated a “clear record of delay and contumacious conduct” by persistently refusing to arbitrate the claims as the district court so ordered and explicitly stating it would not pursue arbitration. Thus, the Fifth Circuit concluded the lower court acted within its discretion and affirmed.

Griggs v. S.G.E. Mgmt., L.L.C., No. 17-50655 (5th Cir. Sept. 27, 2018).

This post written by Thaddeus Ewald .

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Court Finds New York Convention Applies to Arbitration Agreement in Insurance Policy That Would Otherwise be Invalid Under State Law

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Lloyd’s issued an insurance policy with an arbitration provision, covering direct physical loss or physical damage caused by windstorm and/or hail. The insured filed suit in state court alleging nonpayment of claims for damages from Hurricane Isaac. Lloyd’s removed to federal court, asserting that the court had original subject matter jurisdiction for the arbitration agreement in the policy pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. The insured sought remand, arguing that the New York Convention did not apply.

The court denied remand, finding that the Convention applied because the dispute arose out of an insurance policy, a commercial legal relationship, with Lloyd’s, a citizen of the United Kingdom. The court also rejected the insured’s argument that the “Conformity to Statute” clause effectively amended the policy to comply with Louisiana state law, which would result in the arbitration provision being rendered unenforceable. The court held that because the Convention preempts state law, state law is inapplicable and cannot change the policy. The court also rejected the insured’s arguments that the Convention was reverse-preempted by the McCarran-Ferguson act, and that the Convention applies only to instances of enforcement of foreign arbitration awards. The plaintiff has appealed the court’s rulings. Gulledge v. Certain Underwriters at Lloyd’s, London, Case No. 2:18-cv-06657 (USDC E.D. La. Sept. 27, 2018); Notice of Appeal (Oct. 2, 2018).

This post written by Gail Jankowski.

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Ninth Circuit Finds Foreign Bank Did Not Waive Personal Jurisdiction by Litigating Other Defenses and Counterclaims in a Related Matter

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The Ninth Circuit recently reversed a California District Court’s finding of personal jurisdiction against a foreign bank, and found it did not waive appeal on that issue by asserting defenses. The Ninth Circuit stated that “[o]ur cases are clear that once the issue of personal jurisdiction has been adjudicated on the merits against a party, that party may fully participate and defend the litigation up to and including filing its own counterclaim.” It distinguished cases relied upon by the Central District of California as inapposite, as they involved circumstances where: (1) the defense was listed in the answer but never affirmatively litigated; and (2) where the defendant did not avail himself of the opportunity to conduct discovery on the jurisdictional issue and renew its motion to dismiss if the evidence supported a lack of personal jurisdiction. Here, the Bank timely asserted personal jurisdiction as a defense and litigated the issue to a decision from the district court: “[n]othing more was required to preserve the issue, and subsequent litigation of defenses and counterclaims did not waive the Bank’s properly preserved defense of personal jurisdiction.”

The Court further found that the Bank did not have sufficient contacts with the United States to establish personal jurisdiction over the contract claims asserted by Plaintiffs. The Bank “entered into a contract with a Cayman Islands corporation to provide pre-paid cards in the UAE. There is no indication that the Bank conducted any unilateral activities in California… [and] certainly no evidence that any minimal contacts with California, through email and phone calls to California or through an investigation conducted in California by one of the Bank’s agents, form the basis for [Plaintiff’s] contract-focused claims, which raise from the Bank’s and [Plaintiff’s] conduct in the UAE.”

The Court also reversed the judgment compelling arbitration the contract claims and remanded for dismissal due to the lack of personal jurisdiction over the Bank.

InfoSpan, Inc. v. Emirates NBD Bank PJSC, 16-55090 (USCA 9th Cir. Sept. 7, 2018)

This post written by Nora A. Valenza-Frost.

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Minnesota Federal Mutual Court Adopts “Look Through” Basis for Federal Question Jurisdiction in FAA Section 9 Disputes

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The District of Minnesota issued several opinions this summer in a dispute between two insurance companies, Federated Mutual Insurance Co. (“Federated Mutual”) and Federated National Holding Co. (“Federated National”), regarding the similarities between the two companies’ names. Federated Mutual owned the trademark rights to several iterations of the word “Federated” related to insurance. The parties resolved their trademark dispute in 2013 with a co-existence agreement under which Federated National agreed to stop using the term “Federated” in its name within 7 years and minimize industry confusion. By 2016 Federated Mutual initiated arbitration against Federated National because of the latter’s failure to abide by the agreement. An arbitrator concluded that Federated National had indeed breached the agreement but denied a trademark infringement claim asserted by Federated Mutual. Federated Mutual moved to confirm the arbitral award and Federated National responded by moving to confirm the award related to the denial of the trademark infringement claim and to vacate the award otherwise. On June 22, 2018, the court issued a decision on Federated National’s motion to dismiss the petition and Federated Mutual’s petition to confirm.

First, the district court resolved a circuit split on the appropriate approach when courts assess subject matter jurisdiction in the context of FAA Section 9 petitions. Rejecting the approach that courts should consider the face of the petition alone, the court concluded it should “look through” the petition to the underlying arbitration to determine whether a federal question exists. Here, the court “looked through” the petition and because the underlying arbitration involved a federal trademark claim, federal question jurisdiction existed.

Second, the court held that even if federal question jurisdiction did not exist, the court had diversity jurisdiction over the dispute. Even though Federal Mutual primarily sought injunctive relief, the court decided the value of the “object of the litigation”—resolving the confusion surrounding the names in the insurance industry—satisfied the $75,000 jurisdictional minimum.

Third, the court determined it could not exercise general jurisdiction over Federated National but it could exercise specific jurisdiction based on the particular contacts with Minnesota regarding the co-existence agreement. While Federated National did not exercise sufficient control or domination over its subsidiaries with Minnesota contacts to warrant general jurisdiction, the court found specific jurisdiction because the co-existence agreement was governed by Minnesota law and contemplated performance that affected Federated Mutual’s business in the state.

Fourth, the court found proper venue in Minnesota where Federated National was subject to personal jurisdiction there, and therefore deemed to reside in the state. Likewise, the court rejected Federated National’s request to transfer the case to Illinois where it had filed a case to vacate the award.

Fifth, the court confirmed the arbitral award. It noted the limited circumstances under which a court can vacate an award pursuant to the FAA and that Federated National did not assert any of the applicable bases—instead, the court dismissed the argument as Federated National merely disagreeing with the arbitrator’s analysis.

After the court issued its June 22, 2018 opinion, Federated National appealed and moved to stay the court’s decision pending appeal.  In a September 11, 2018 opinion, the District of Minnesota denied that motion. Federated National moved on the grounds that there were substantial questions of law regarding the “look through” basis for Federated Mutual question jurisdiction, doubt that the injunctive relief satisfies the amount in controversy requirement, and whether Federated National had sufficient Minnesota contacts. The court denied the motion largely because Federated National failed to make a strong showing that it was likely to succeed on the merits. All of Federated National’s arguments regarding “substantial questions of law” presented merely the possibility of success on the merits that fail to satisfy the high burden to warrant a stay pending appeal. Additionally, Federated National did not establish any irreparable injury absent a stay, a stay would further injure Federated Mutual by delaying resolution, and the public interest did not support a stay.

This post written by Thaddeus Ewald .

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Contract Claims Dismissed Against Reinsurers and Reinsurance Service Providers, but Negligence Claim Against Service Providers Allowed to Go Forward

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Vantage, the plaintiff, had purchased insurance from Assured Risk Transfer (ART) against the risk that a company to which Vantage had loaned $22 million would default. ART then reinsured 90% of its risk with seven reinsurance companies. When the borrower defaulted, Vantage made a $22 million claim, which ART denied. An arbitrator decided that ART owed Vantage $22 million plus interest and costs. ART did not pay, claiming it had insufficient assets to satisfy the award and that the only source of funding was amounts owed to it under its reinsurance contracts. The reinsurers, however, refused to pay on the claim. Vantage filed suit in U.S. District Court of the District of Columbia, asserting a claims for breach of contract against the seven reinsurers and negligence and breach of contract against three related companies that provided services to ART—Willis Captive Management, Willis Re, Inc. and Willis Towers Watson Management (the Willis Defendants).

The court first addressed the argument that it could not exert personal jurisdiction over the seven reinsurers. While it found that the requirements for specific jurisdiction over these reinsurers had been met, the court found that Vantage had not effected service of process on these defendants. Vantage had served them through a law firm that was listed in the relevant reinsurance contracts as their agent for service of process, but those contracts authorized service only if ART sued to compel arbitration or enforce an arbitration award. The court found that Vantage could not show that it was a party to any of the reinsurance contracts or overcome the general rule that a reinsurer does not have a contractual relationship with the original insured, and thus that it could not take advantage of the service of process provisions within those contracts. The court then denied Vantage an extension of time to effect service, as Vantage’s lack of a contractual relationship with the reinsurers meant that its breach of contract claims against those reinsurers must necessarily fail.

The court then addressed the breach of contract claims against the Willis Defendants. Vantage alleged that they had breached their contractual obligation to transmit information to the reinsurers when they failed to timely notify them of Vantage’s $22 million claim—a failure the reinsurers relied upon when denying the claim. However, the court found that the contracts at issue were between the Willis Defendants and ART, not Vantage, giving ART no enforceable right under these contracts, and the court dismissed these claims. However, while no contractual duty existed, the court found that a tort duty might, as the Willis Defendants were alleged to have undertaken to render services to one party (ART) that was necessary for the protection of a third party (Vantage). Thus, the court found that the complaint sufficiently alleged the existence of such a duty to Vantage to avoid dismissal.

Vantage Commodities Financial Service I, LLC, v. Assured Risk Transfer PCC, LLC, et al., Case no. 1:17-cv-01451(TNM) (D.D.C. Aug. 6, 2018)

This post written by Jason Brost.

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