Jurisdiction Issues

VOLUNTARY-INVOLUNTARY RULE IMPLICATED IN REMOVAL PROCEEDING

May 11, 2015 by Carlton Fields

In late April, a district court in New York granted plaintiff Utica Mutual Insurance Company’s (“Utica”) motion to remand, implicating the voluntary-involuntary removal rule. Utica originally filed a breach of contract lawsuit against defendant American Re-Insurance Company (“American”). The lawsuit also named as co-defendant, Transatlantic Reinsurance Company (“Transatlantic”), a corporation domiciled and with a principal place of business in New York. American was initially unable to remove the case to federal court due to lack of diversity among the co-defendants.

A New York state court severed the claims against American and Transatlantic, thereby eliminating the diversity impediment for removal. Utica argued that “removability can only be created by Utica’s voluntary conduct,” and not by the court’s involuntary severance order. American argued that the voluntary-involuntary rule’s fraudulent misjoinder exception applied, as Transatlantic was improperly joined. The court found—citing second circuit precedent—that an action was not removable when non-diverse parties were made diverse by a court’s involuntary severance order. The voluntary-involuntary rule was designed to “protect against the possibility that a party might secure a reversal on appeal in state court of the non-diverse party’s dismissal, producing renewed lack of complete diversity in the state court action….in order to be removable, be one which could have been brought in federal court in the first instance.” The case turned on whether the order was final, and not simply voluntary.

As Utica’s severance order appeal was not yet final, a requirement under the voluntary-involuntary rule, the district court remanded the case back to the New York State Supreme Court. The court noted that American’s fraudulent misjoinder claim was “time barred” as defendants failed to file within thirty days after receipt. The court also noted that American understood “Utica’s motivation for joining Transatlantic and [American] as defendants in the same action,” an admission that went against their claim for fraudulent misjoinder.

Utica Mutual Ins. Co. v. American Re-Ins. Co., No. 6:14-CV-1558 (USDC N.D.N.Y. Apr. 27, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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FEDERAL COURT REMANDS INSURANCE DISPUTE TO STATE COURT BASED ON WAIVER

April 15, 2015 by Carlton Fields

A New York federal court remanded a reinsurance dispute to state court, based on the defendant’s waiver of its right to remove. Plaintiff R&Q Reinsurance Company (“R&Q”) brought an action against Allianz Insurance Company (“Allianz”) regarding a dispute as to R&Q’s indemnity obligations to Allianz under two reinsurance contracts. Allianz timely removed the action, as it met all the requirements for federal diversity jurisdiction. However, R&Q moved to remand, based on the fact that Allianz had already answered and counterclaimed in state court, and had therefore waived its right to remove. The court agreed, granting the remand, finding that Allianz’s counterclaims, which sought affirmative relief, constituted a voluntary submission to the state court’s jurisdiction. The court denied R&Q’s bid for attorney’s fees, however, finding that Allianz had a reasonable basis on which to remove, particularly given that the action otherwise met the requirements for diversity jurisdiction. R&Q Reinsurance Co. v. Allianz Ins. Co., Case No. 15-00166 (USDC S.D.N.Y. March 20, 2015)

This post written by Catherine Acree.

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THIRD CIRCUIT: PENNSYLVANIA LAW PREEMPTED BY THE FAA

March 25, 2015 by Carlton Fields

The Third Circuit recently ruled that a Pennsylvania statute prohibiting an unregistered businesses from maintaining any “action or proceeding” in any court in the state interferes with the enforcement of arbitration awards and therefore is preempted by the Federal Arbitration Act. The plaintiff was a non-registered company, but the parties had agreed that the arbitration could proceed and be administered under the rules of the American Arbitration Association. The district court confirmed the arbitration award, and the Third Circuit affirmed, holding that the FAA preempted application of the law because it rendered the arbitration agreement unenforceable, noting that the intent of Congress in enacting the FAA was to promote arbitration. Therefore, the Pennsylvania statute, by barring any “action or proceeding,” interfered with the enforceability of the FAA and therefore was preempted.

The issue of state statutes interfering with the enforcement of arbitration awards has been a subject of Reinsurance Focus blogs numerous times. Particularly, courts have examined state statutes that require the posting of security before a non-admitted company may file suit in that state. We will continue to monitor case law addressing whether other courts find that the FAA pre-empts similar pre-pleading security statutes.

Generational Equity LLC v. Schomaker, No. 14-1291 (3d Cir. Feb. 23, 2015).

This post written by Catherine Acree.

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SEVENTH CIRCUIT DENIES REHEARING IN FAILED ATTEMPT TO COMPEL ARBITRATION AND TO REQUIRE PRE-PLEADING SECURITY FROM URUGUAY STATE-OWNED REINSURER

March 9, 2015 by Carlton Fields

On November 18, 2014, we reported on the Seventh Circuit’s decision in Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, in which Pine Top claimed that Banco de Seguros owed it $2,352,464.08 under certain reinsurance contracts. The Seventh Circuit affirmed the trial court’s ruling denying Pine Top’s motion to compel arbitration, agreeing that Pine Top’s assigned rights under the reinsurance contracts were limited to the collections of certain debts and did not include the right to arbitrate. The Seventh Circuit also had affirmed the trial court’s denial of a motion to strike Banco Seguros’s pleading for failure to post security, holding that such pre-judgment security is a form of attachment that violates the Foreign Sovereign Immunities Act. On December 22, 2014, the Seventh Circuit denied Pine Top’s petition for rehearing and rehearing en banc, as no judge requested a vote on the petition, and the judges on the prior panel voted to deny rehearing. Pine Top Receivables of Illinois, LLC v. Banco de Seguros del Estado, No. 13–1364 (7th Cir. Dec. 22, 2014).

This post written by Michael Wolgin.

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FIFTH CIRCUIT DISMISSES FOR LACK OF APPELLATE JURISDICTION APPEAL OF ORDER COMPELLING ARBITRATION

January 14, 2015 by Carlton Fields

The Fifth Circuit Court of Appeals has dismissed, for lack of appellate jurisdiction, a district court order granting a motion to compel arbitration filed by Certain Underwriters of Lloyds of London and several other insurance companies. The Fifth Circuit held that the district court’s order was not a final, appealable order within the meaning of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards or the Federal Arbitration Act. The district court had granted the motion after finding the insurance contract at issue contained a clear and unambiguous arbitration clause, and had then stayed the case and closed it for administrative purposes. The Fifth Circuit found the district court’s order and administrative closure lacked the finality necessary for appellate jurisdiction, noting a “clear distinction” between final orders dismissing cases after compelling arbitration and interlocutory orders staying and administratively closing cases pending arbitration. The district court’s order was deemed to be the latter and the appeal was therefore dismissed. Southwestern Electric Power Co. v. Certain Underwriters at Lloyds of London, No. 13-31130 (5th Cir. Nov. 24, 2014).

This post written by Renee Schimkat.

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