Jurisdiction Issues

KENTUCKY FEDERAL COURT FINDS SUBJECT-MATTER JURISDICTION HAS NOT BEEN “REVERSE PREEMPTED” BY APPLICATION OF KENTUCKY’S INSURERS REHABILITATION AND LIQUIDATION LAW

June 19, 2017 by John Pitblado

The question presented to the Court was “whether federal law has opened the door for state law to ‘reverse preempt’ the diversity jurisdiction statute.” The McCarran-Ferguson Act was enacted by Congress to prevent federal laws from interfering with state insurance regulation. The Liquidator sought to expand the existing McCarran-Ferguson “reverse preemption” framework to prevent the Defendant from exercising their right of removal pursuant to 28 U.S.C. § 1441. The Court determined that application of the Kentucky Insurers Rehabilitation and Liquidation Law (“IRLL”) had exclusive jurisdiction over the matter, which “would directly conflict with federal law” and “therefore, the IRLL jurisdiction provision must be preempted by the federal removal and diversity subject matter jurisdiction statute.”

Having established subject-matter jurisdiction necessary to adjudicate the dispute, the Court declined to abstain from exercising its jurisdiction under the Colorado River doctrine, as the Liquidator included a demand for common law contract damages, and there was no longer a parallel state proceeding. The Court requested additional briefing on the issue of whether the FAA can apply in light of the parties’ “Governing Law” agreement that restricted the Court to the law of Kentucky.

H. Brian Maynard, Liquidator of Kentucky Health Cooperative, Inc. v. CGI Technologies and Solutions, Inc., 3:16-cv-00037 (USDC E.D. Ky. Jan 3, 2017)

This post written by Nora A. Valenza-Frost.

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FIFTH CIRCUIT VACATES TEXAS FEDERAL COURT’S ORDER WHICH WITHDREW ITS PRIOR ORDER COMPELLING ARBITRATION

June 5, 2017 by Michael Wolgin

Plaintiff Gaspar Salas, a former employee of defendant GE Oil & Gas, brought suit in 2014 in Texas federal court against GE for discrimination and retaliation. The court granted GE’s motion to compel arbitration, and the case was dismissed in December 2014. The parties did not move forward with arbitration, and in February 2016, plaintiff filed a motion to compel arbitration in the same court. After a teleconference on the motion, the court issued an order, reopening the suit and withdrawing its prior order compelling arbitration. GE moved for reconsideration, which was denied and GE then appealed.

On appeal, GE argued that the district court lacked subject matter jurisdiction to reopen the case, since it had previously dismissed the suit. Thus, according to GE, the court could exercise jurisdiction only to the extent of enforcing an arbitration award. That the district court fully dismissed the case, explained the Fifth Circuit, is not necessarily fatal to the court’s exercise of jurisdiction. Under the Federal Arbitration Act, however, district courts may not intervene in the arbitral process “beyond the determination as to whether an agreement to arbitrate exists and enforcement of that agreement.” Here, the Fifth Circuit noted that the district court did not determine whether the parties’ agreement to arbitrate was valid nor did it enforce that arbitration agreement. Instead, the district court had found “that the parties had ‘failed’ to arbitrate and withdrew its prior order compelling arbitration.” Thus, the Fifth Circuit remanded the case for further proceedings, but limited the district court’s jurisdiction to determining only whether an agreement to arbitrate still exists and enforcement of that agreement. Gaspar Salas v. GE Oil & Gas, No. 16-20379 (5th Cir. May 12, 2017).

This post written by Jeanne Kohler.

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FIFTH CIRCUIT DISMISSES FOR LACK OF JURISDICTION APPEAL OF COURT’S ORDER SELECTING ARBITRATORS

May 15, 2017 by Michael Wolgin

Bordelon Marine, LLC sued Bibby Subsea ROV, LLC for damages and for writ of attachment arising out of a disagreement over the chartering of an offshore vessel. Pending arbitration, litigation was stayed, but a dispute arose regarding the selection of arbitrators. Bordelon filed a “Motion to Re-Open Case to Enforce the Method of Appointment of Arbitrators” contending that Bibby violated the arbitration clauses by appointing a certain arbitrator. After the court granted Bibby’s motion confirming the selection of arbitrators, Bordelon appealed to the Fifth Circuit.

The Fifth Circuit focused on whether it had subject matter jurisdiction to hear the appeal. Bordelon first argued that the Fifth Circuit had appellate jurisdiction because the lower court’s order amounted to a final decision. The Fifth Circuit rejected this argument, reasoning that the court’s order did not expressly stay the case, and furthermore, the court had subsequently reopened the case. Bordelon’s second argument turned on whether or not its “Motion to Re-Open Case to Enforce the Method of Appointment of Arbitrators” amounted to an appealable petition directing arbitration to proceed under § 4 of the FAA, or alternatively a non-appealable motion under § 5 to intervene in the selection of an arbitrator. The Fifth Circuit concluded that the order was the latter, and therefore, the court found that it did not have subject matter jurisdiction over the appeal. Bordelon Marine, LLC v. Bibby Subsea ROV, LLC, Case No. 16-30847 (5th Cir. Apr. 14, 2017).

This post written by Gail Jankowski.

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LOUISIANA FEDERAL COURT FINDS REMOVAL PROPER AS DISPUTE COULD RELATE TO AN UNDERLYING ARBITRATION CLAUSE IN INSURANCE POLICY

April 18, 2017 by John Pitblado

In this case, a Louisiana federal court denied a motion for remand of a former machinist’s asbestos-related claim, finding that an English insurer’s removal from state court was appropriate and that the dispute could relate to an underlying arbitration agreement contained in an insurance policy.

The background of this case can be found here. In short, plaintiff filed a personal injury action in Louisiana state court against defendants Cove Shipping, Inc. and Maritime Management Corp. (together, “Cove Shipping”), alleging that he now suffers from lung cancer as a result of asbestos exposure from years spent working as a machinist onboard several oil tankers in the early 1980s while he was working for Cove Shipping. Via the Louisiana Direct Action Statute, plaintiff also named West of England Shipowners Mutual Insurance Association, a P&I Club (“West of England”) as a defendant, for its role as Cove Shipping’s insurer during the years in question. West of England subsequently removed the action, invoking the removal provision of the Uniform Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”).

As justification for using the Convention for removal, West of England cited an arbitration clause found in its Club Rules that it contends were in effect at the time of plaintiff’s alleged employment and now apply to his lawsuit, notwithstanding the fact that plaintiff is a third-party to the insurance agreement between West of England and Cove Shipping. In his motion for remand, plaintiff made various arguments in support of the contention that he is not bound by the arbitration clause and, thus, the case should be remanded: First, West of England has failed to demonstrate it is entitled to arbitration under documents it submitted with removal as the arbitration agreement at issue was not attached. Second, English law forbids the application of this arbitration agreement to non-signatories such as plaintiff. Third, the arbitration agreement is unenforceable because the prohibitive costs of the agreement prevent plaintiff from vindicating his federal statutory rights. Fourth, West of England waived its right to arbitrate. Fifth, Jones Act Claims are not subject to arbitration. And sixth, the law of Louisiana forbids arbitration in insurance disputes, which does not run afoul of the Convention.

Rejecting all of plaintiff’s arguments and/or finding them premature merit-based challenges to arbitration, the Louisiana federal court denied the motion to remand, finding that removal of the direct action plaintiff’s lawsuit against a foreign insurer was appropriate based on the existence of an arbitration clause found in the Club Rules of the insurer. The court noted that what was at issue in the present motion was a jurisdictional question, and that the plaintiff is not left without redress, as merit-based arguments may be presented in the form of an opposition to a motion to compel arbitration, which is typically the first matter to be raised after removal under 9 U.S.C. § 205 of the Convention. Finally, the court found that the arbitration clause at issue could conceivably have an effect on the outcome of plaintiff’s lawsuit, such that the two are related, and that therefore section 205 of the Convention confers subject matter jurisdiction on the court, making removal of the case by West of England proper.

O’Connor v. Maritime Management Corp., et al., No. 16-16201 (E.D. La. Mar. 16, 2017).

This post written by Jeanne Kohler.

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DISTRICT COURT FIND NO FEDERAL QUESTION JURISDICTION IN ACTION CHALLENGING ARBITRATION AWARD BASED ON ARBITRATOR BIAS

April 11, 2017 by Rob DiUbaldo

A federal court has rejected the attempt of the losing party in an arbitration to engage in discovery regarding the potential bias of the arbitrator, finding that it had no jurisdiction over the matter because it did not involve a question of federal law and that it was not appropriate to allow discovery on this issue based solely on speculation.
The arbitration arose out of a dispute over allegedly defective work performed by a building contractor, BCI Construction, Inc., resulting in an award of approximately $586,000 in damages and attorney’s fees to 797 Broadway Group, LLC. BCI filed an action to vacate the award in federal court on the basis that the arbitrator was biased and moved to compel the arbitrator’s deposition.

The district court began with the question of it jurisdiction over the matter, repeating the well-established rule that the Federal Arbitration Act does not create an independent basis for jurisdiction in federal court. BCI argued that it was premature to consider the jurisdictional question because the court had “not had the opportunity look through the pleadings and conduct an analysis of the underlying dispute to determine if jurisdiction is appropriate.” The court disagreed, finding that there was no apparent federal question in the underlying dispute and that it would not allow BCI to depose the arbitrator “in hopes that an underlying federal question will present itself.” Having found no basis for federal jurisdiction, the court dismissed the matter. The court also awarded 797 Broadway’s motion for costs and an attorney’s fees, finding that BCI had failed to “articulate[] a colorable reason why the parties’ underlying dispute presented a federal question.” BCI Construction, Inc. v. 797 Broadway Group, LLC, Case No. 1:16-cv-1077 (FJS) (N.D.N.Y. March 15, 2017)

This post written by Jason Brost.

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