Jurisdiction Issues

FIFTH CIRCUIT: DIVERSITY JURISDICTION DETERMINED BY AMOUNT SOUGHT IN ARBITRATION, NOT AMOUNT OF AWARD

May 3, 2016 by Carlton Fields

In a recent interlocutory appeal of a matter involving an arbitration of a claim for $80 million, but in which only $10,000 was awarded, the Fifth Circuit held that the amount in controversy for purposes of establishing diversity jurisdiction over petitions to confirm or vacate arbitration awards, is the amount sought in the arbitration, and not the amount ultimately awarded. In choosing the “demand approach” over the “award approach,” the court analyzed both positions, and noted that treatment by other circuits has varied. The Fifth Circuit found that the demand approach is the better of the two because it takes into account the true scope of the dispute between the parties. The court also reasoned that the demand approach avoids the application of two conflicting jurisdictional tests for the same controversy (jurisdiction for petitions to compel arbitration are based on the amount of the demand). Further, the court explained, the award approach might promote frivolous motions to compel, where demands for less than the jurisdictional requirement may be filed in federal court and then stayed pending the result of the arbitration. Last, the court explained, the demand approach permits jurisdiction consistent with that which would be present if the case were litigated rather than arbitrated. Pershing, LLC v. Kiebach, Case No. 15-30396 (5th Cir. Apr. 6, 2016).

This post written by Barry Weissman.

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NINTH CIRCUIT DISMISSES INTERLOCUTORY APPEAL OF ORDER DENYING MOTION TO STAY UNDER FEDERAL ARBITRATION ACT FOR LACK OF JURISDICTION

April 18, 2016 by Carlton Fields

Western Security Bank brought an action in the United States District Court for the District of Montana against certain doctors seeking to enforce commercial loan guaranties. The doctors asserted that a non-party, Meridian Surgical Partners, fraudulently induced them to guarantee the loan, and moved to stay the lawsuit pending the outcome of their separate arbitration with Meridian. The doctors based their motion, in part, on Section 3 of the Federal Arbitration Act, which provides that a court may stay an action where an issue involved is referable to arbitration pursuant to a written agreement. Significantly, however, the doctors did not actually seek to compel Western Security to arbitrate its claims against them.

After the district court denied the motion to stay, the doctors filed an interlocutory appeal under Section 16 of the Act, which permits an appeal “from…an order…refusing a stay of any action under section 3.” Relying on precedent from other federal circuit courts, the U.S. Court of Appeals for the Ninth Circuit dismissed the appeal for lack of jurisdiction. Specifically, the circuit court found that in order to invoke appellate jurisdiction under § 16(a), a party must “either move to compel arbitration and stay litigation explicitly under the FAA, or must make it plainly apparent that he seeks only the remedies provided for by the FAA—namely, arbitration rather than any judicial determination.” The court held that while the doctors styled their motion as one brought under Section 3, the motion plainly did not seek relief under the Act, as the doctors made clear they did not seek to compel Western Security to arbitrate any of the claims brought against them in the district court. Western Security Bank v. Winzenreid, No. 15-cv-35617 (9th Cir. Mar. 14, 2016).

This post written by Rob DiUbaldo.

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FEDERAL COURTS LACK JURISDICTION OVER ENFORCEMENT OF FOREIGN JUDGMENTS, EVEN WHERE JUDGMENT IS INCONSISTENT WITH EARLIER ARBITRATION AWARD OR AGREEMENT TO ARBITRATE

April 14, 2016 by Carlton Fields

Plaintiff Albaniabeg, power plant operator, sought enforcement of an Albanian judgment in a New York state court against defendant Italian power companies. Section 205 of the FAA permits removal of an action that relates to an arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The defendants sought to remove the case to federal court, claiming that the action related to the original arbitration because the Albanian judgment was obtained in violation of the parties’ arbitration clause and award. Albaniabeg moved to remand to state court due to lack of federal subject matter jurisdiction. The court held that removal was improper because the issue was unrelated to the arbitration agreement or the arbitral award; rather, the issue related to enforcement of a foreign judgment. The court held that, while certain defenses to the award may involve claims relating to the prior arbitration, the Convention does not provide subject matter jurisdiction over actions to enforce a foreign court’s judgment, even where a party contends that the foreign court’s judgment is inconsistent with an earlier arbitration award or agreement to arbitrate. Albaniabeg Ambient Sh.p.k. v. Enel S.P.A., Case No. 15 Civ. 3283 (USDC S.D.N.Y. Mar. 11, 2016).

This post written by Joshua S. Wirth.

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FEDERAL COURT WEIGHS PERSONAL JURISDICTION IN RETROCESSION DISPUTE

March 22, 2016 by Carlton Fields

A New Jersey federal district court recently weighed whether it had personal jurisdiction over a foreign corporation in a reinsurance and retrocession dispute. The case involved insurance coverage for Companhia Siderurgica Nacional, S.A. (“CSN”), one of the largest conglomerates in Brazil with interests in steel, iron ore, mining, and various other operations. The direct coverage was provided by Brazilian insurance corporations, which reinsured through IRB Brasil Resseguros S.A. (“IRB”); in turn, IRB sought retrocessional coverage from National Indemnity Company (“NICO”) through a reinsurance broker in New Jersey, Catalyst Re Consulting, LLC (“Catalyst Re”).

The dispute involved nearly $200 million in retrocessional coverage provided to IRB by NICO. When IRB indicated that it may not be able to make a $9 million premium payment on time, NICO issued an extension on the premium payment based on a personal guarantee by CSN. Then, CSN filed a claim for coverage under the direct policies and initiated a lawsuit against IRB for failure to acknowledge that it was the reinsurer of that direct coverage. CSN and IRB settled this dispute, with IRB agreeing to “help CSN retrieve the $9 million premium that CSN paid to NICO” to secure the retrocessional agreement.

As a result, NICO filed suit in New Jersey seeking a declaration that the retrocessional agreement was binding and enforceable, and that CSN had no right to the premium. NICO further alleged tortious interference with a contractual relationship, unjust enrichment, injurious falsehood, and civil conspiracy against CSN. CSN, a Brazilian corporation, moved to dismiss for lack of personal jurisdiction. The court explained that “specific jurisdiction analysis is claim-specific,” and it must therefore “consider whether the defendant’s contacts with the forum arise under or relate to each claim alleged.” The court found that it had jurisdiction over CSN on the declaratory actions because it had acted through a New Jersey reinsurance broker to secure coverage and guarantee payment to NICO. However, the court found that it did not have jurisdiction over CSN related to the actions for damages because those involved actions between two Brazilian corporations and lawsuits and settlement agreements effectuated in Brazil. Thus, NICO will only be able to pursue the declaratory action against CSN in the United States, and will likely have to file any suit for damages against CSN in Brazil. National Indem. Co. v. Companhia Siderurgica Nacional, S.A., Case No. 15-cv-00752-JLL (D.N.J. Feb. 8, 2016).

This post written by Zach Ludens.

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FEDERAL COURT FINDS THAT THE MCCARRAN FERGUSON ACT BARS PLAINTIFF’S RICO CLAIMS ARISING FROM CERTAIN REINSURANCE TRANSACTIONS

March 8, 2016 by Carlton Fields

In a putative class action seeking damages for alleged violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) arising from certain reinsurance transactions, the United States District Court for the Western District of Missouri held that Plaintiff’s claims were barred by the McCarran-Ferguson Act, granting defendants’ motion to dismiss. Plaintiff Dale Ludwick and others purchased annuities from F&G Life Insurance Company, which was acquired by Harbinger Group, Inc. Plaintiff brought suit alleging that F&G, Harbinger and Harbinger’s chairman and CEO engineered a fraudulent accounting scheme to hide F&G’s liabilities, artificially inflate its reported assets, and create a false appearance of capital adequacy through reinsurance transactions with certain entities, including defendants Raven Reinsurance Company and Front Street Re (Cayman), Ltd, in violation of RICO.

Defendants moved to dismiss the action, arguing that plaintiff’s RICO claims impermissibly interfered with state statutory and regulatory insurance schemes, and were thus barred by the McCarran-Ferguson Act. The court granted defendants’ motion, finding that: (a) RICO does not specifically relate to the business of insurance, thus satisfying this prong of McCarran-Ferguson’s criteria; (b) the states relevant to the transactions at issue – Missouri and Iowa – have statutory schemes which regulate the business of insurance and governed said transactions; and (c) the application of RICO to the subject claims would intrude upon the insurance regulatory schemes in those states, and thus “invalidate, impair or supersede” the schemes in violation of McCarran-Ferguson. Moreover, the court rejected plaintiff’s argument that its common law claims negated the effect of McCarran-Ferguson and that such claims were not barred by the statute, as the transactions at issue were subject to the states’ insurance codes. Ludwick v. Harbinger Group, Inc., No. 15-cv-00011 (USDC W.D.MO. Feb. 12, 2016).

This post written by Rob DiUbaldo.

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