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Jurisdiction Issues

A HORSE RACE TO JUDGMENT

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Continental Casualty Corporation sued its reinsurer, AXA Global Risks (UK) Ltd., in Missouri federal court seeking, among other things, a temporary restraining order and preliminary injunction to prevent AXA from proceeding with a similar action AXA filed against Continental in a British court. The parties dispute AXA’s obligation to reinsure a portion of a $23,072,979 judgment against Continental in a coverage action between Continental and its insured, a construction company, under a certain reinsurance slip between Continental and AXA. In response, AXA moved to dismiss or stay the Missouri action in favor of the British lawsuit, which was filed approximately six weeks earlier than Continental’s suit. The Court rejected both parties’ arguments, refusing to enjoin prosecution of the British action, and refusing to stay or dismiss the case on its own docket. The court stated, citing Third Circuit precedent, that “when related cases are before two different sovereigns, the appropriate procedure is to permit both jurisdictions to proceed, with any decision of one becoming res judicata on the other.” Continental Cas. Corp. v. AXA Global Risks (UK) Ltd., Case No 09-00335 (USDC W.D. Mo. April 2, 2010).

This post written by John Pitblado.

SOVEREIGN IMMUNITY BARS LAWSUIT ALLEGING INTERNATIONAL REINSURANCE FRAUD

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The Second Circuit affirmed the dismissal of a lawsuit alleging that the Republic of Indonesia and its state-owned social security insurer, P.T. Jamsostek, negligently supervised Jamsostek employees who perpetrated an international commercial reinsurance fraud scheme against plaintiff Anglo-Iberia Underwriting Management Company. Indonesia and Jamsostek moved for dismissal for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act, arguing the defendants were not engaged in “commercial activity” under FSIA. FSIA abrogates sovereign immunity where a foreign state has engaged in commercial activity; a foreign state engages in commercial activity when it acts not as a regulator of a market, but in the manner of a private player within it. In ruling on the motion, the district court found, and the Second Circuit later agreed, that Jamsostek does not sell insurance to workers or employers “in any traditional sense,” and does not compete in the marketplace like a private insurer. Rather, as the default health insurer under Indonesia’s national social security program, Jamsostek provides a “floor” for health insurance, and ensures that certain Indonesian employers comply with the governmental mandate that they provide basic health insurance coverage to their workers. Thus, FSIA barred the suit. Anglo-Iberia Underwriting Management Co. v. P.T. Jamsostek (Persero), Case No. 08-2666 (2d Cir. Mar. 29, 2010).

This post written by Brian Perryman.

COLORADO RIVER ABSTENTION WHACK-A-MOLE

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A federal court in Iowa heard a motion to dismiss or stay brought by The Samuels Group, Inc., a design/build company who undertook a construction project in Wisconsin. Samuels had entered into a contract with the property owner, Alta Vista Properties, LC, to build a facility on one of its properties. Samuels subcontracted to Hatch Grading & Contracting, Inc. During the course of construction, a tornado destroyed the partially finished project. Hatch asserted a mechanic’s lien against the property to recover payment for the work it had done, and brought an action in state court to enforce the lien. It initially brought in both Alta Vista and Samuels, but ultimately, after various machinations by the parties, agreed to withdraw the petition as against Samuels, as Samuels and Hatch agreed to arbitrate corollary disputes that impacted the mechanic lien issue, and the state court proceedings were stayed. Samuels and Hatch arbitrated, with an award in favor of Hatch. Hatch thereafter sought to bring Samuels back into the state court action to confirm the arbitration award. Samuels filed a petition in federal court to vacate the award on various grounds. Hatch argued that Colorado River abstention applied, and that the action should be dismissed or stayed pending resolution of the state court action. Samuels argued Colorado River did not apply, in part because the FAA created a federal law basis requiring the federal court to maintain jurisdiction, and in part because the parties were not identical in the state court proceeding. The court generally rejected these arguments, noting that the parties were not identical in Colorado River itself, and that Samuels effectively had been part of the state court proceedings at various points. The court nonetheless agreed to maintain jurisdiction, but granted Hatch’s motion to stay the federal action pending the outcome of the state court proceeding. The Samuels Group, Inc. v. Hatch Grading and Contracting, Inc., No. 09-2058 (USDC N.D. Iowa March 23, 2010).

This post written by John Pitblado.

ENGLISH COURT OF APPEALS AFFIRMS RULING CONFERRING EXCLUSIVE JURISDICTION ON ENGLISH COURTS, SETS ASIDE RULING CONFINING FRAUD TO CLAIMS OF DECEIT

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This post is our fourth installment covering this convoluted, international lawsuit involving the Seaton Insurance Company (“Seaton”) and Stonewall Insurance Company (“Stonewall”). The dispute centers around the interpretation of a term sheet that details the termination of the parties’ relationship with respect to the run-off of Seaton’s and Stonewall’s insurance business (see our July 23, 2008, December 22, 2008, and January 20, 2009 posts for more information). Interpreting this term sheet, an English court concluded that the parties agreed to submit all disputes to the exclusive jurisdiction of English courts and that the carve-out provision for “fraud” had only the primary meaning of deceit. Seaton and Stonewall appealed. On the jurisdiction issue, the Court of Appeals affirmed the ruling that any claims for fraud must be brought in England and agreed with the lower court judge who called the prospect of a New York court applying the English concept of fraud a “judicial nightmare.” On the “fraud” issue, the Court of Appeals stated that, in the commercial context, the concept of fraud is broader than the concept of deceit which requires a fraudulent misrepresentation, or an equivalent to fraudulent misrepresentation. The Court of Appeals then set aside the judge’s ruling and substituted a declaration that the “fraud” exception is not limited to claims of deceit; the exception extends in some instances to cases of the dishonest abuse of a fiduciary position. Cavell USA, Inc. v. Seaton Ins. Co. [2009] EWCA 1363 (Dec. 16, 2009).

This post written by Dan Crisp.

CAPTIVE REINSURANCE ARRANGEMENT LAWSUIT REINSTATED BY THIRD CIRCUIT

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In a putative class action by homebuyers seeking to recover treble damages under section 8(d)(2) of the Federal Real Estate Settlement Procedures Act, the Third Circuit held that the statute’s plain language permits private litigants to sue if their real estate settlement transaction involve unlawful settlement service referrals or fee splitting. Plaintiffs alleged that their private mortgage insurance premiums were channeled into an unlawful captive reinsurance arrangement operated by their mortgage lender and its affiliated reinsurer. Plaintiffs further alleged they had a statutory right to a real estate settlement free from unlawful kickbacks and unearned fees, and the lender’s invasion of that right gave them standing to sue. The district court dismissed the case for lack of subject matter jurisdiction (see our December 27, 2008 post), but the Third Circuit reversed, and also rejected the lender’s argument that the lawsuit was barred by the filed rate doctrine. Alston v. Countrywide Financial Corp., No. 08-4334 (3d Cir. Oct. 28, 2009).

This post written by Brian Perryman.