Jurisdiction Issues

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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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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