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Jurisdiction Issues

MCCARRAN-FERGUSON ACT “REVERSE-PREEMPTS” FEDERAL JURISDICTION IN INSURANCE REHABILITATION CASE

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A Wisconsin federal district court has held that it may not interfere with an insurance rehabilitation case proceeding in state court. On January 18, 2011, the federal court ruled that it lacked jurisdiction to consider the legality of a state court’s order made in the context of an insurance rehabilitation proceeding. The state court enjoined the United States from taking certain actions against the claims-paying assets of the segregated accounts of Ambac Assurance. Shortly thereafter, the United States commenced a collateral attack against the state court and others, seeking to enjoin the state court from enforcing its rehabilitation plan or any injunction insofar as it affected the United States. The federal court once again ruled it lacked jurisdiction, holding that the McCarran-Ferguson Act “reverse-preempted” I.R.C. § 7401 (which authorizes injunctions for enforcement of internal revenue laws), the federal-question statute, and the federal-tax-issue jurisdiction statute. An injunction would “impair” or “supersede” state laws authorizing the state court to issue rehabilitation orders. The court also rejected the United States’ argument that the McCarran-Ferguson Act cannot preempt sovereign immunity. The case was dismissed for lack of subject matter jurisdiction. United States v. Wisconsin State Circuit Court for Dane County, Case No. 11-99 (USDC W.D. Wis. Feb. 18, 2011).

This post written by John Black.

NINTH CIRCUIT: DISTRICT COURTS HAVE REMOVAL JURISDICTION OVER CASES RELATED TO CONVENTION ON FOREIGN ARBITRAL AWARDS

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In a recent opinion, the Ninth Circuit Court of Appeals ruled on the novel question of whether a district court had removal jurisdiction under 9 U.S.C. § 205 where a defendant raises an affirmative defense relating to an arbitral award falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The case arose from a dispute over medical licensing rights between entities from the British Virgin Islands, Israel, and California. After an arbitration decision finding that Infuturia Global had a valid license to develop, market, and use certain medical techniques, a California federal district court lifted an existing litigation stay on a related state court action. Infuturia moved to remand, arguing that removal was improper under 9 U.S.C. § 205 because defendants were not party to the foreign arbitration agreement. On appeal, the Ninth Circuit affirmed the district court’s ruling, holding that because an arbitration agreement or award falling under the Convention “relates to” an action’s subject matter if it could conceivably affect the action’s outcome, a district court does indeed have jurisdiction. Infuturia Global Ltd. v. Sequus Pharmaceuticals, Inc., Case No. 09-16378 (9th Cir. Feb. 7, 2011).

This post written by John Black.

SUIT DISMISSED AGAINST FINNISH REINSURER FOR LACK OF PERSONAL JURISDICTION

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Neles-Jamesbury Inc. filed suit for breach of contract against Pohjola Ins., a Finnish insurer, arising from a reinsurance contract between Pohjola and Lumbermens Mutual Casualty. NJI sought to hold Pohjola directly liable, alleging that Lumbermens was acting as Pohjola’s agent. Lumbermens had issued a comprehensive insurance policy covering NJI. The policy was stamped “Facultative Reinsurance” and contained the notation “reverse flow business 100% reinsured by Pohjola Ins. Co.” After Lumbermens denied coverage on certain claims, NJI filed suit against Lumbermens in Massachusetts state court. When NJI learned Lumbermens was having financial trouble, it sued Pohjola, which suit was removed to federal court. The federal court granted Pohjola’s motion to dismiss for lack of personal jurisdiction, finding that the Finnish company’s relationship with Lumbermens was not a mere agency and thus the Pohjola’s contacts with Massachusetts did not reach the levels necessary for personal jurisdiction. Neles-Jamesbury, Inc. v. Pohjola Ins. Co., LTD., Case No. 10-40055 (USDC D. Mass. Dec. 7, 2010).

This post written by John Black.

REINSURANCE DISPUTE DISMISSED FOR LACK OF PERSONAL JURISDICTION

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A federal district court recently granted two individual corporate officer defendants’ motion to dismiss against plaintiff Capitol Insurance. Capitol sued a number of individuals and corporations for alleged losses arising from a reinsurance agreement Capitol entered into with Aldrostar, S.A. The defendants included, among others, Alison Dvorak and Charles Dvorak who allegedly represented themselves as “officers, employees, agents, or servants of the corporate defendants.” The court found that Capitol failed to establish the court’s personal jurisdiction over the Dvoraks. The court held that Alison did not have the requisite minimum contacts with Pennsylvania and that the action against Richard did not arise out of his contracts with the state. Capitol also failed to demonstrate why the corporate shield would not protect the Dvoraks in their individual capacities. Accordingly, Capitol’s assorted claims were dismissed. Capitol Ins. Co. v. Dvorak, Case No. 10-01195 (USDC E.D. Pa. Oct. 29, 2010).

This post written by John Black.

SECOND CIRCUIT AFFIRMS WAIVER OF REMOVAL BASED ON SERVICE OF SUIT PROVISION IN REINSURANCE TREATY

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In two prior posts (December 8, 2009 and February 11, 2010), we reported on Dinallo v. Dunav Ins. Co., a case between a liquidator of an insurance company and the company’s reinsurer, Dunav Re. The Southern District of New York had remanded the action to New York State Court and denied reconsideration, holding that Dunav Re waived removal based on a service of suit provision in its reinsurance treaty with the insurer. Dunav Re appealed to the Second Circuit Court of Appeals, which, after de novo review, has now affirmed “substantially for the same reasons articulated by the district court.” In other cases, some parties have persuaded courts that the service of suit clause does not waive a right to arbitrate under an arbitration provision, because it merely provides for consent to jurisdiction and venue to enforce such an agreement to arbitrate. The same kind of argument was not persuasive in the context of this case. Dinallo v. Dunav Ins. Co., No. 09-5235 (2d Cir. Dec. 1, 2010).

This post written by Michael Wolgin.