Jurisdiction Issues

SECOND CIRCUIT COURT OF APPEALS ALLOWS FEDERAL COURTS TO “LOOK THROUGH” § 10 FAA PETITION TO DETERMINE FEDERAL JURISDICTION

September 13, 2016 by Carlton Fields

The United States Court of Appeals for the Second Circuit has reversed its own precedent to allow federal courts examining petitions under § 10 of the FAA to “look through” the petition to examine if there is federal jurisdiction. In the case, which arose out of a dispute involving registered FINRA members and their former employees, the district court dismissed the case for want of jurisdiction, finding that it did not state a “substantial federal question on its face.” On appeal, the petitioner argued that the Second Circuit’s precedent in Greenberg v. Bear, Stearns & Co., 220 F.3d 22 (2d Cir. 2000), which led the district court to its determination, had been displaced by Vaden v. Discovery Bank, 556 U.S. 49 (2009). The Second Circuit panel held that Vaden “rendered Greenberg’s result fundamentally inconsistent with the Act’s statutory context and judicial interpretations.” Thus, the Second Circuit returned the case to the district court with instructions that it could “look through” the § 10 petition, “applying the ordinary principles of federal-question jurisdiction to the underlying dispute as defined by Vaden.” Doscher v. Sea Port Group Securities, LLC, No. 15-2814 (2d Cir. Aug. 11, 2016).

This post written by Zach Ludens.

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FEDERAL COURT HAS SUBJECT-MATTER JURISDICTION TO DECIDE PETITION TO COMPEL; DETERMINES PARTY DID NOT WAIVE ARBITRATION BY AGREEING TO MEDIATION

August 23, 2016 by Carlton Fields

Despite a pending motion to compel arbitration in state court, a party (MetLife) petitioned a Tennessee district court under the Federal Arbitration Act for the same relief. As that Act itself does not create federal-question jurisdiction, the court sua sponte looked to the citizenship of the parties and the amount in controversy. Finding both requirements met, and declining to invoke the doctrine of abstention as the respondent requested, the court determined the merits of the parties’ claims. Applying federal law, the court looked at the contract created by the parties’ exchange of emails while the issue of arbitrability was pending before the state court. The pertinent email from MetLife stated that it was agreeable to mediating within 90 days of the state court’s ruling on the arbitration issue. In the Sixth Circuit, a party waives a contractual right to arbitrate by “(1) taking actions that are completely inconsistent with any reliance on the arbitration agreement; and (2) delaying its assertion to such an extent that the opposing party incurs actual prejudice.” MetLife merely expressed its openness to mediation. The respondent also challenged the validity of the arbitration provisions themselves, characterizing them as unenforceable contracts of adhesion, which the court could determine under the Federal Arbitration Act. As the parties agreed that New York law governed the arbitration provisions, the court looked at the elements of adhesion and determined the account application the respondent signed contained enforceable and valid arbitration provisions. As to the account applications respondent directed her MetLife representative to sign, the court reserved a ruling on the issue of agency. Metlife Securities, Inc. v. Holt, Case No. 2:16-cv-32 (USDC E.D. Tenn. July 21, 2016).

This post written by Nora A. Valenza-Frost.

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ILLINOIS FEDERAL COURT DENIES MOTION TO TRANSFER WHERE CONTRACTS ENTERED INTO AND PARTY LOCATED IN ILLINOIS

August 2, 2016 by Carlton Fields

Earlier this month, a federal court in Illinois denied a motion to transfer a case to California. The motion arose out of a reinsurance dispute between the R&Q Reinsurance Company and American Insurance Company. R&Q filed its case in the Illinois federal court, and American moved to transfer the case to California, arguing that R&Q was seeking to “avail itself of Illinois’ notice laws, which arguably provide reinsurers with a less onerous path to avoid their obligations on late notice grounds.” R&Q argued that the case should remain in Illinois, among other reasons, because R&Q was based in Illinois and the reinsurance contracts were executed there. Additionally, R&Q argued that to the extent that AIC’s records were electronic, those documents and that data is “as much present in Illinois” as in California. However, R&Q noted that “this action arises out of events that transpired in at least three, and possibly 5 different states.” American replied that the key witnesses were “either in California or outside of Illinois,” continuing to make its case for a transfer to California. After an oral hearing, the court denied the American’s motion to transfer, keeping the case in Illinois. R&Q Reinsurance Co. v. American Insurance Co., Case No. 1:16-cv-4199 (USDC N.D. Ill. July 11, 2016).

This post written by Zach Ludens.

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COURT DISMISSES SECOND-FILED REINSURANCE DISPUTE UNDER FIRST-FILED RULE THOUGH BOTH CASES ASSIGNED TO SAME JUDGE

June 20, 2016 by Carlton Fields

Earlier this month, a federal court in Pennsylvania faced the issue of whether it must file a second-filed suit even though the first-filed suit was transferred to the same court, and judge, as the second. The issue arose out of a dispute between St. Paul Fire & Marine Insurance Company (“St. Paul”) and the R&Q Reinsurance Company (“R&Q”) related to reinsurance obligations that R&Q assumed from the INA Reinsurance Company. After St. Paul sent R&Q a $4.4 million bill, both parties filed declaratory judgment actions in different courts.

R&Q filed first in the U.S. District Court for the Northern District of Illinois (the “Illinois Action”). St. Paul followed the next month in the U.S. District Court for the Eastern District of Pennsylvania (the “Pennsylvania Action”). Around the same time that St. Paul initiated the Pennsylvania Action, it filed a motion to transfer the Illinois Action to the Eastern District of Pennsylvania—which was granted six months later.

Federal courts typically follow the “first-filed rule” where the first court with possession of a dispute must decide it. However, cases of concurrent jurisdiction typically are pending in different courts—not before the same judge. With that in mind, Judge Berle M. Schiller of the Eastern District of Pennsylvania applied the same standards, applying a holding that “the procedural posture of the first-filed case on the date the second-filed action is dismissed is irrelevant to the analysis,” and finding that no exceptions to the first-filed rule applied. Thus, Judge Schiller dismissed the Pennsylvania Action under the first-filed rule on the basis that there was concurrent jurisdiction, even though he now had sole jurisdiction over both declaratory judgment actions.

St. Paul Fire & Marine Ins. Co. v. R&Q Reinsurance Co., No. 15-5528 (E.D. Pa. June 2, 2016).

This post written by Zach Ludens.

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ILLINOIS FEDERAL COURT TRANSFERS “LATE NOTICE” REINSURANCE DISPUTE TO PENNSYLVANIA

May 9, 2016 by Carlton Fields

R&Q Reinsurance Company issued a facultative reinsurance certificate to St. Paul Fire & Marine Insurance Company, which reinsured a policy issued by St. Paul to Walter E. Campbell, Co. The broker who placed the certificate was located in Chicago, as were the R&Q employees who executed the contract. St. Paul was located in Minnesota at the time the certificate was negotiated and entered into.

The certificate provided that St. Paul was to “promptly” advise R&Q of “any occurrence and any subsequent developments pertaining thereto” which, in St. Paul’s opinion, might implicate the reinsurance coverage afforded by the certificate. After St. Paul defended and indemnified Campbell in several asbestos personal injury lawsuits arising under the reinsured policy, it sent R&Q its first notice of loss and demanded payment under the certificate. The notice of loss was sent via the broker’s Hartford, Connecticut office. R&Q subsequently brought suit in the U.S. District Court for the Northern District of Illinois seeking a declaration that it was not obligated to indemnify St. Paul under the certificate because it failed to provide prompt notice of the subject loss. St. Paul then filed a parallel suit against R&Q in the Eastern District of Pennsylvania seeking coverage under the certificate, and moved to transfer the Illinois case to the latter forum. At the time the competing actions were filed, R&Q was a Pennsylvania corporation and St. Paul was a Connecticut corporation.

The parties did not dispute that venue was proper in both Illinois and Pennsylvania, but disagreed as to whether the transfer of the Illinois action to Pennsylvania served the convenience of the parties and the interests of justice. Analyzing these factors and others, the court granted St. Paul’s motion to transfer the case to Pennsylvania, because: (a) the bulk of the events material to St. Paul’s alleged late notice and R&Q’s purported breach of the certificate occurred in areas “much closer to Pennsylvania than Illinois, with some of the material events occurring in Pennsylvania”; (b) R&Q is based in Pennsylvania and St. Paul’s residence is closer to that forum than to Illinois; (c) the parties witnesses, and potential non-party witnesses, are located either in the Eastern District of Pennsylvania or closer to it than to the Northern District of Illinois; (d) the dispute was “more likely” to be resolved sooner in Pennsylvania than Illinois, given the relative speed by which cases in each forum typically reach trial or are disposed of prior to trial; (e) Illinois law was “unlikely” to govern the dispute; and (f) Illinois’ interest in the action is “weak relative to that of Pennsylvania”. R&Q Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., No. 15-cv-7784 (USDC N.D. Ill. Mar. 30, 2016).

This post written by Rob DiUbaldo.

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