Jurisdiction Issues

EIGHTH CIRCUIT UPHOLDS DISMISSAL OF CLAIM AGAINST DEPARTMENT OF HEALTH & HUMAN SERVICES UNDER ACA TRANSITIONAL REINSURANCE PROGRAM FOR LACK OF SUBJECT MATTER JURISDICTION

January 17, 2018 by Carlton Fields

Seeking reimbursement of fees paid, allegedly by mistake, under the transitional reinsurance program in the Patient Protection and Affordable Care Act (“ACA”), the trustees of the Twin City Pipe Trades Welfare Fund’s sued the U.S. Department of Health and Human Services to recoup the payment. The Fund argued the Administrative Procedure Act (“APA”) waived the Department of Health & Human Services’ sovereign immunity. The district court held that sovereign immunity was waived by the APA only if the suit challenges final agency action, seeks relief other than money damages, and the plaintiff has no other adequate remedy in a court. 5 U.S.C. §§ 702, 704. Finding that the Complaint sought money damages, and that without sovereign immunity the suit should have been filed in the United States Court of Federal Claims, the district court found that the APA did not waive sovereign immunity and dismissed the Complaint. The Eighth Circuit found the district court’s decision well-reasoned and affirmed.

Trustees of the Twin City Pipe Trades Welfare Fund, et al. v. Price, No. 16-403 (8^th Cir. Nov. 27, 2017).

This post written by Nora A. Valenza-Frost.
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FIFTH CIRCUIT FINDS ORDER NOT “FINAL” FOR PURPOSES OF APPELLATE JURISDICTION

October 24, 2017 by John Pitblado

The U.S. Court of Appeals for the Fifth Circuit held that an order compelling arbitration and staying a related action was not an appealable “final decision with respect to arbitration” under the Federal Arbitration Act (“FAA”).

Anthony Charles filed an action asserting substantive claims regarding construction of a home in Mississippi (“Charles I”). While it was pending, the defendants filed a separate action against Charles (“Charles II”), seeking to compel him to arbitrate the claims in Charles I. The court in Charles II granted the motion to compel, and ordered that the unresolved claims in Charles I be stayed pending arbitration. Charles appealed.

The Fifth Circuit held that it did not have jurisdiction over the appeal. The court noted that the FAA only allows courts to consider an appeal from a “final decision with respect to arbitration,” meaning one that “ends the litigation on the merits.” In ruling, the court found that furthering the strong interest in favor of arbitration required considering Charles II together with Charles I. Because the claims in Charles I were merely stayed by virtue of Charles II – not dismissed – the court held that the decision in Charles II could not be considered a “final appealable order” under the FAA.

Green Tree Servicing, LLC, et al. v. Anthony Charles, No. 17-60165 (5th Cir. Sept. 29, 2017)

This post written by Alex Silverman.

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BANKRUPTCY COURT GRANTS MF GLOBAL HOLDINGS’ MOTION TO RECONSIDER DECISION TO COMPEL ARBITRATION IN BERMUDA, BUT REACHES SAME RESULT

October 16, 2017 by Rob DiUbaldo

On September 6, 2017, the Bankruptcy Court for the Southern District of New York issued the latest order in the ongoing coverage battle between MF Global Holdings (“MF Global”) and Allied World Assurance Company regarding the former’s bankruptcy. The decision stemmed from MF Global’s motion to reconsider the court’s August 24, 2017 order compelling arbitration in Bermuda. While the court initially granted the motion to reconsider, it reached the same result and granted Allied World’s motion to compel arbitration.

MF Global’s request for reconsideration was based on the court’s alleged failure to address its argument that the global bankruptcy plan explicitly retained jurisdiction over adversary proceedings, a provision which should have superseded the underlying insurance contract’s arbitration provision which formed the basis of the court’s decision to compel arbitration. The court noted that while its decision mentioned the argument, it did not address the merits of the argument, so the court granted the motion to reconsider.

On reconsideration, the court was unpersuaded by MF Global’s argument that the bankruptcy court retained jurisdiction pursuant to the global bankruptcy plan. In a short opinion, the court distinguished the principal authority upon which MF Global relied: Ernst & Young LLP v. Baker O’Neal Holdings, Inc., 304 F.3d 753 (7th Cir. 2002). That case addressed an adversary proceeding that commenced before the bankruptcy plan and a plan provision which retained jurisdiction over pending adversary proceedings. Here, the adversary proceeding was not filed until after the plan was confirmed, and, the court concluded, the plan language retaining jurisdiction of pending adversary proceedings should not be interpreted to supersede the contractual arbitration provision in the pre-petition contract without explicit instruction in the plan as to that interpretation. Furthermore, Allied World had not waived its right to demand arbitration at any point in the proceedings.

Thus, even though the court granted MF Global’s motion to reconsider, it ultimately reached the same conclusion and granted Allied World’s motion to compel arbitration and denied MF Global’s motion to stay the arbitration.

In re: MF Global Holdings Ltd., Case No. 11-15059 (Bankr. S.D.N.Y. Sept. 6, 2017).

This post written by Thaddeus Ewald .

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APPLIED UNDERWRITERS, INC., LOSES ARGUMENT TO ENFORCE MANDATORY FORUM SELECTION CLAUSE IN REINSURANCE CONTRACT

October 10, 2017 by John Pitblado

On September 12, the District Court for Connecticut denied a motion to transfer predicated on a mandatory forum selection clause in a reinsurance contract. The contract was one of several entered into by Applied Underwriters, Inc., and its affiliates (collectively “Applied”) with Aiello Home Services (“Aiello”) for a “novel [workers’ compensation] insurance product known as ‘EquityComp,’ which required participation by the insured in a reinsurance facility. Applied’s relations with Aiello broke down when Applied sent Aiello a statement “assessing an additional premium charge of $195,786.52, and reporting total estimated costs nearly $200,000 higher than the previous month’s total cost estimate.” Aiello filed suit alleging violations of the Connecticut Unfair Trade Practices Act and other statutory violations. Applied removed the case to federal court and sought to transfer to the District of Nebraska based on the forum selection clause.

The court denied the motion to transfer. The court found that the bulk of Aiello’s claims arose from statutory violations, not the contract, and therefore were not within the scope of the forum selection clause. The fact that Applied’s defenses relied primarily on the contract was insufficient to bring the statutory claims within the scope of the clause.

The court also analyzed whether the clause would be enforceable under the law of the chosen forum state (Nebraska). As part of that analysis, the court had to determine if Aiello had sufficient minimum contacts to establish personal jurisdiction in Nebraska. “[T]here is a clear distinction between conventional commercial contracts and those that arise in the business of insurance.” While an insurance company that markets policies to residents of a given state establishes sufficient minimum contacts within that state, the insureds do not simultaneously establish sufficient contacts with the insurer’s home state. As a result, the court refused to enforce the clause.

Charter Oak Oil Co., Inc. v. Applied Underwriters, Inc., No. 3:17-cv-00689 (SRU) (USDC D. Conn. Sept. 12, 2017).

This post written by Benjamin E. Stearns.

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EIGHTH CIRCUIT HOLDS THAT A MOTION TO DISMISS BASED ON AN ARBITRATION CLAUSE IS NOT A CHALLENGE TO THE COURT’S JURISDICTION

October 3, 2017 by Michael Wolgin

A municipality sued the company that constructed its water treatment facility, in connection with contaminants found in the water supply. The parties had entered into a series of agreements which contained choice of law and arbitration clauses governing the resolution of any disputes. The company filed a motion to dismiss for lack of jurisdiction based on the contracts’ forum selection and arbitration clauses, and the court construed the motion as falling under Rule 12(b)(1). The court then found that the contracts were inconsistent and ambiguous, and considered extrinsic evidence. The court ultimately granted the motion to dismiss and directed the parties to proceed to arbitration.

On appeal, the Eighth Circuit found that the district court erred by analyzing the motion to dismiss as a 12(b)(1) challenge to its jurisdiction. The court explained that the U.S. Supreme Court has held that “federal venue laws, not forum-selection clauses, govern the propriety of venue under Rule 12(b)(3). The same logic applies where, as here, a party seeks to enforce an arbitration agreement under Rule 12(b)(1). Just as a forum-selection clause has no bearing on the issue of whether venue is ‘wrong’ or ‘improper,’ an arbitration agreement has no relevance to the question of whether a given case satisfies constitutional or statutory definitions of jurisdiction.” The Eighth Circuit found that summary judgment standards should apply on remand because the parties submitted, and the district court considered, matters outside the pleadings. City of Benkelman, Nebraska v. Baseline Engineering Corp., et al., Case No. 16-1949 (8th Cir. Aug. 11, 2017).

This post written by Nora A. Valenza-Frost.

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