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Jurisdiction Issues

APPELLATE COURTS ADDRESS JURISDICTION TO HEAR DISPUTES CONCERNING ARBITRATION

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Establishing that a federal court has jurisdiction to hear an arbitration dispute is not always easy. The Fourth Circuit recently affirmed the dismissal of an action seeking to vacate an arbitration award based upon lack of subject matter jurisdiction. Plaintiff attempted to show that the nexus between her claims and “commerce” fell within the realm of the FAA, and therefore there was a federal question under §1331. However, she failed to raise that argument below, so it was not properly before the court of appeal, and the Court found it to be unavailing in any event. Ball v. Stylecraft Homes, LLC, No. 13-1946 (4th Cir. Mar. 26, 2014)

The Eleventh Circuit affirmed the denial of a motion to remand for lack of jurisdiction. The issue was whether diversity jurisdiction was defeated because the action was a direct action against an insurer, defeating diversity jurisdiction under 28 U.S.C. §1332(c). The Court held that it was not a direct action, and affirmed the district court’s order compelling arbitration. Kong v. Allied Professional Insurance Company, No. 13-12305 (11th Cir. May 9, 2014)

This post written by Rollie Goss.

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CLASS ARBITRATION ROUND-UP

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There have been a number of recent court opinions enforcing class arbitration waivers, compelling individual arbitration and denying class arbitration, with the lone exception being a California Court of Appeal opinion which, in conflict with an opinion from the Ninth Circuit Court of Appeals, distinguished Concepcion and found a waiver of class arbitration to be unenforceable.

Alakozai v. Chase Investment Services Corp., No. 12-55553 (9th Cir. Feb. 7, 2014) (Affirming denial of motion to compel arbitration of class action claims, finding class arbitration exclusion in FINRA rules was not incorporated explicitly into parties’ agreement, potentially allowing for arbitration of class action claims in another arbitral forum).

Hickey v. Brinker Nat’l Payroll Company, LP, 1:13-cv-00951 (USDC D. Colo. Feb. 18 2014) (granting motion to compel individual arbitration of employees’ claims against employer, rejecting claims that agreement with class arbitration waiver was unenforceable under NLRA or was otherwise unenforceable as unconscionable or against public policy).

Michael Appelbaum v. AutoNation Inc., SACV 13-01927 (USDC C.D. Cal. April 8, 2014) (granting motion to compel individual arbitration of employee’s claims against employer, finding class arbitration waiver not unenforceable under NLRA or otherwise unconsionable, substantively or procedurally)

Johnson v. Consumerinfo.com, Inc., No. 11-56520 (9th Cir. March 20, 2014) (dismissing appeal of trial court’s grant of motion to compel individual arbitration of consumer protection claims, finding FAA bars appeals of court orders staying judicial proceedings and compelling arbitration).

Imburgia v. DirectTV, Inc., No. B239361 (Cal. App. Ct. April 7, 2014) (affirming denial of motion to compel individual arbitration, finding choice of law provision which did not explicitly mention FAA, but did mention state law, allowed for interpretation of enforceability issues under state law, despite that result would otherwise be preempted by FAA. The case distinguishes Concepcion, and is in conflict with Ninth Circuit decision in Murphy v. DirectTV, Inc., No. 11-57163 (9th Cir. July 30, 2013), discussed in prior ReinsuranceFocus.com post.

This post written by John Pitblado.

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TRIO OF CASES BETWEEN INSURERS AND REINSURERS REDUCED TO TWO

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Within weeks of each other, three suits were filed involving overlapping parties and similar claims regarding arbitration of disputes arising from reinsurance agreements between Transatlantic and Continental and between Transatlantic and AIG. In one of the three suits, National Indemnity Company (“NICO”) sought a preliminary injunction in the District of Nebraska enjoining Transatlantic from compelling NICO to arbitration in the other two actions in Illinois and New York. Considering the issue of where NICO’s claims should be resolved, the Nebraska court determined that while it could enjoin Transatlantic from compelling NICO to arbitration, it did not have the authority under the Federal Arbitration Act to compel arbitration under agreements that chose Illinois and New York as the venue for arbitration. The court would not therefore be able to grant complete relief to the parties. Comprehensive resolution could only be achieved by severing NICO’s claims and transferring those relating to the Transatlantic-Continental agreement to the Northern District of Illinois and those relating to the Transatlantic-AIG agreements to the Southern District of New York. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-CV-74 (USDC D. Neb. Mar. 31, 2014).

This post written by Abigail Kortz.

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COURT SANCTIONS PARTY FOR IMPROPER REMOVAL OF ACTION SEEKING CONFIRMATION OF ARBITRATION AWARD

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The facts in Jackson v. Sleek Audio, LLC, et. al., Case No. 13-80725-CIV-Marra (S.D. Fla. March 17, 2014) stemmed from an arbitrators award against Curtis Jackson (“Jackson”) in his action against former business associates, Sleek Audio and others (“Sleek”). The arbitrator’s award included an award of attorney’s fees for which, Jackson contended, he lacked authority to award under the Federal Arbitration Act, 9 U.S.C. §1, et. seq. (“FAA”) and under Florida law.

Following the award by the arbitrator, Jackson brought an action in the Southern District of Florida seeking to vacate the arbitration award and also removed Sleek’s petition in the State Court seeking confirmation of the award. Jackson argued the arbitrator relied on the FAA’s preemption of Florida law in finding authority to award attorney’s fees and, thus, the issue of the FAA’s preemption formed the basis of the federal question jurisdiction. Sleek then moved to dismiss the action to vacate the award and to remand its own action seeking confirmation of the award. The parties agreed there was no diversity of citizenship and the federal court did not have jurisdiction under the FAA.

In its analysis of federal question jurisdiction, the Court first restated the principle that only complete preemption can convert state law claims into federal statutory claim in order to serve as a basis for federal question jurisdiction. In this case, the FAA did not completely preempt state law and thus could not form an independent basis for jurisdiction. The Jackson Court concluded that Jackson therefore did not have “an objectively reasonable basis for removal” and ordered Jackson to pay Sleek’s costs, including attorney’s fee, incurred in connection the removal proceedings.

This post written by Leonor Lagomasino.

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REINSURANCE ARBITRATION DISPUTE TRANSFERRED TO VENUES IN WHICH ARBITRATIONS WERE PENDING

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National Indemnity Company (NICO) sought an injunction in a Nebraska federal district court to prevent Transatlantic Reinsurance Company and its subsidiary (collectively, Transatlantic Re) from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. Transatlantic Re had commenced arbitrations in Illinois and New York (and initiated actions in those jurisdictions to compel NICO’s participation), pursuant to applicable forum selection clauses contained in Transatlantic Re’s reinsurance agreements with cedents. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York. The court analyzed venue provisions in the Federal Arbitration Act and different judicial approaches thereto, and concluded that Nebraska was limited in its jurisdiction over the claim. Illinois and New York were authorized under the FAA to compel arbitration if necessary, whereas Nebraska possessed jurisdiction only to enjoin NICO’s participation. Transfer, the court concluded, would promote judicial economy. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-cv-00074 (USDC D. Neb. Mar. 31, 2014).

This post written by Michael Wolgin.

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