Jurisdiction Issues

ELEVENTH CIRCUIT RESOLVES JURISDICTIONAL ISSUES REGARDING THE CONFIRMATION OF AN ARBITRATION AWARD

January 16, 2017 by Rob DiUbaldo

The Eleventh Circuit recently held that a district court retained jurisdiction over a motion to confirm an arbitral award, even though the plaintiff had voluntarily dismissed its claims while the motion to confirm was pending.

After PTA-FLA and affiliated entities (“ClearTalk plaintiffs”) filed a series of lawsuits across multiple jurisdictions against ZTE USA, ZTE moved to compel arbitration and the disputes were addressed in a consolidated arbitration proceeding. The arbitration resulted in a zero dollar award for both sides meant to bind ZTE and the ClearTalk plaintiffs.

While ZTE’s motion to confirm the arbitral award was pending, PTA-FLA voluntarily dismissed its claims, but the district court confirmed the arbitral award based upon its supplemental jurisdiction to do so. The Eleventh Circuit affirmed, finding that the lower court’s diversity jurisdiction granted it power both to compel the arbitration and confirm the resulting award. It held that the zero dollar award did not destroy diversity jurisdiction because the amount in controversy was satisfied at the time the case was filed. Likewise, it decided that the voluntarily dismissal did not destroy diversity jurisdiction because the confirmation of an arbitral award is a collateral claim over which the district court had independent jurisdiction.

Furthermore, the Eleventh Circuit confirmed that the lower court had supplemental jurisdiction to confirm the award against those ClearTalk plaintiffs that were joined for the consolidated arbitration. In doing so, it confirmed that the exception to supplemental jurisdiction excluding claims by plaintiffs against parties added under certain Federal Rules applied only to the “original” plaintiffs, and not third-party, counter, or cross plaintiffs.

PTA-FLA, Inc. v. ZTE USA, Inc., No. 15-15159 (11th Cir. Dec. 15, 2016)

This post written by Thaddeus Ewald .

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ARBITRATION CLAUSE IN BODY OF REINSURANCE AGREEMENT GOVERNS OVER PROVISION IN ENDORSEMENT

December 5, 2016 by Rob DiUbaldo

In a dispute between First Mutual, a ceding company, and its reinsurer, Infrassure, over which of two competing arbitration clauses in a reinsurance contract governed, the Second Circuit affirmed a lower court decision in favor of the reinsurer and found the arbitration provision contained in the body of the operative agreement controlling over a second provision located in an endorsement.

First Mutual, the insurance arm of New York’s Metropolitan Transit Authority, sought to resolve its claims against Infrassure arising from damage caused by Superstorm Sandy in a London arbitration. The endorsement relied upon by First Mutual contained the second arbitration clause, which was titled “LONDON ARBITRATION AND GOVERNING LAW (UK AND BERMUDA INSURERS ONLY).” Infrassure argued the endorsement was inapplicable because it was not a UK or Bermuda insurer. Another provision in the agreement, the so-called ‘Titles Clause,’ provided that titles in the agreement existed for convenience and were not deemed to limit or affect the provisions they titled. First Mutual argued that the endorsement’s title limiting the provision to UK and Bermuda Insurers could not limit the substance of that provision.

The Second Circuit ruled that the reinsurance agreement was unambiguous in this respect, and that the arbitration clause contained in its body controlled, because the second clause was contained in a section expressly limiting its effect to UK and Bermuda insurers. Furthermore, the court noted that First Mutual’s construction of the Titles Clause would render several critical clauses within the reinsurance agreement meaningless because the titles provided critical context regarding what the language therein governed.

Infrassure, Ltd. v. First Mut. Transp. Assurance Co., No. 16-306 (2nd Cir. Nov. 16, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

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COURT GRANTS DEFAULT JUDGMENT CONFIRMING ARBITRATION AWARD, WITH A LESSON ON JURISDICTION

November 30, 2016 by Michael Wolgin

Choice Hotels filed an application to confirm an arbitration award of over $247,000 for the alleged breach of a franchise agreement by two defendants, which failed to timely commence construction of a hotel. The defendants had not participated in or submitted any written materials for arbitration. However, the court denied Choice Hotels’ first motion for a default judgment because it failed to adequately establish subject matter jurisdiction and jurisdiction under the FAA. The Court explained that the FAA is not an independent source of jurisdiction, and further held that Choice Hotels’ failed to plead the requirements of diversity jurisdiction. Additionally, because there was no record in the application or the arbitration award itself that the arbitration occurred in Maryland, which was required by the arbitration agreement, the court could not determine that jurisdiction existed under the FAA. Choice Hotels filed a second motion for default judgment, which successfully alleged diversity jurisdiction and established that the case was within the scope of the FAA. The Court then granted the motion for default judgment and confirmed the award. Choice Hotels Int’l, Inc. v. HSL Inv., Inc., Case No. TDC-15-2386 (USDC D. Md. Oct. 20, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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APPLYING KENTUCKY LAW, SIXTH CIRCUIT FINDS CONTINUED EMPLOYMENT CONSTITUTES ASSENT TO ARBITRATION AGREEMENT

November 28, 2016 by Michael Wolgin

During the time Plaintiffs Aldrich and Nolan worked as recruiters for the University of Phoenix, they allegedly signed an electronic form acknowledging their understanding of updated terms to the employee handbook. The acknowledgment form included an arbitration clause, and the updated employee handbook contained a class action waiver. Thereafter, both Aldrich and Nolan continued to work for the University of Phoenix for almost two years and were eventually let go. They later brought claims for wrongful termination on account of their refusal to engage in allegedly unfair, deceptive, and fraudulent practices related to recruiting veterans and service members. The trial court granted the University of Phoenix’s motion to dismiss and compel arbitration. Although Aldrich and Nolan asserted that they never received or signed the acknowledgement form, the court reasoned that under Kentucky law, continued employment constituted assent to the terms of the agreement. Moreover, the court held that there was no dispute of material fact entitling plaintiffs to a jury trial on the issue of whether they in fact signed, and because the arbitration agreement was valid, the waiver provision was valid as well.

On appeal, Sixth Circuit affirmed, reiterating Kentucky law holding that “an employee can be bound by an arbitration agreement, even without a signature, when he or she demonstrates acceptance of the agreement by continuing to work for the employer.” Aldrich v. University of Phoenix, Inc., Case No. 16-5276 (6th Cir. Oct. 24, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

SUIT AGAINST REINSURER IN CALIFORNIA DISMISSED FOR LACK OF PERSONAL JURISDICTION

November 15, 2016 by Rob DiUbaldo

A federal district court in California recently dismissed a lawsuit brought by a cedent against its reinsurer for lack of a personal jurisdiction, where the reinsurer’s only contacts with the state derived from the fact that the operative reinsurance certificates were entered into with a California company and that it attempted resolve the claims at issue by engaging in certain activities in the state.

The lawsuit centered on certain reinsurance certificates between the American Insurance Company (“TAIC”) and R&Q Re, a Pennsylvania corporation, regarding coverage for underlying asbestos claims implicating certain excess policies reinsured by the certificates. When R&Q declined to pay amounts billed under the certificates based upon insufficient notice, TAIC commenced suit, and R&Q moved to dismiss for lack of jurisdiction.

In dismissing the action, the court found that it lacked both general and specific personal jurisdiction over the dispute. With regard to the former, the court held that it lacked general jurisdiction because R&Q Re is a Pennsylvania corporation, even though it is licensed to do business in California and maintains a registered agent in the state for purposes of service of process. As for the latter, the court found that the fact that the reinsurance certificates were entered into with TAIC, a California company, was insufficient to warrant specific personal jurisdiction. Similarly, R&Q’s contacts with TAIC purely related to its resolution of the subject claims were insufficient, even including a visit to California to conduct an audit where the visit occurred because TAIC refused to send files out-of-state. American Ins. Co. v. R&Q Reinsurance Co., Case No. 16-03044 (USDC N.D. Cal. Oct. 12, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

See our disclaimer.