Jurisdiction Issues

COURT DISMISSES CLAIMS AGAINST AIG FOR LACK OF STANDING

August 31, 2009 by Carlton Fields

As reported in our March 27, 2008 and April 6, 2009 posts, The National Council on Compensation Insurance (“NCCI”), as attorney-in-fact for participating companies of the National Workers Compensation Reinsurance Pool (“the Pool”), brought claims against AIG and several of its subsidiaries (“AIG”). The suit generally alleged that payments made by AIG in resolution of charges against it by the New York Attorney General’s office arising from an allegedly fraudulent workers compensation premium accounting scheme, were insufficient to compensate Pool members for their losses.

AIG moved to dismiss the claims brought by NCCI, asserting (1) NCCI lacked standing to bring claims in its capacity as “attorney-in-fact;” (2) NCCI suffered no direct injury; and (3) NCCI did not have associational standing to bring the claims on behalf of individual companies. The Court agreed with AIG, finding that there was no transfer of title or assignment of interest of any affected rights in the agreement Pool members made with NCCI to act as “attorney-in-fact.” The Court also agreed that NCCI suffered no direct injury of its own, and that NCCI could not demonstrate associational standing because of the underlying conflicts between member companies. However, while the Court dismissed the claims, it noted that the litigation continues because individual pool members’ claims were “reassigned for relatedness” to the Court, and those Pool members now seek to bring those claims as a class action. National Council on Compensation Ins., Inc. v. American Int’l Group, Inc., No. 07-C-2898 (USDC N.D. Ill. August 20, 2009).

This post written by John Pitblado.

PETITION TO VACATE ARBITRATION AWARD FILED IN WRONG COURT

July 7, 2009 by Carlton Fields

Following an unfavorable decision by an arbitrator, the Pacific Northwest Regional Council of Carpenters (“PNRCC”) filed suit in the Western District of Washington to vacate the arbitrator’s award to the Laborers’ International Union of North America (“LIUNA”). LIUNA filed a motion to transfer PNRCC’s action to D.C. federal court, arguing that PNRCC was bound to consent to D.C. jurisdiction by the collective bargaining agreement. Finding that the action could clearly have been brought in D.C., the district court focused on the “convenience of the parties” and “interests of justice” requirements for a §1404(a) transfer. The court noted that both LIUNA and PRNCC’s parent union were headquartered in Washington, D.C. and that all relevant records were in D.C. where all of the operative facts of the case occurred. For these reasons, the court held that D.C. was the more convenient forum.

The court also held that the interests of justice supported the transfer. LIUNA had filed a suit seeking enforcement of the arbitration award in D.C. and the court noted that it would be inefficient and duplicative to examine the same issues in separate cases. Ultimately, the court granted the motion to transfer, explaining that whether the agreement properly bound PNRCC was irrelevant in the §1404(a) analysis. LIUNA had met their burden by showing that D.C. was the most appropriate forum to decide all issues based on the traditional §1404(a) considerations. Pacific Northwest Reg'l Council of Carpenters v. Laborers Int'l Union of N. Am., Case No. C09-420 (W.D. Wash. June 5, 2009).

This post written by John Black.

TWO RECENT CASES ADDRESS REVERSE-PREEMPTION UNDER THE MCCARRAN-FERGUSON ACT

June 2, 2009 by Carlton Fields

On March 15, 2007, we reported on an Oklahoma district court’s denial of a motion to compel arbitration, finding that an Oklahoma statute prohibiting enforcement of arbitration clauses in insurance contracts controlled pursuant to the McCarran-Ferguson Act. Soon thereafter, the Oklahoma legislature amended the statute excepting reinsurance contracts from the prohibition. On appeal, despite the legislature not specifying whether the amendment would apply retroactively, the Tenth Circuit found that the statute itself was retroactive by its express terms and as interpreted by the Oklahoma Supreme Court, and, after acknowledging that arbitration agreements are contrary to Oklahoma public policy, the Tenth Circuit then found that specific legislative approval rendered the agreements valid and enforceable. Mid-Continent Cas. Co. v. Gen. Reins. Corp., No. 07-5050 (10th Cir. May 22, 2009).

Theodore L. Kessner (“Kessner”), appointed as the Special Deputy Liquidator of an insolvent insurer, filed an action in Nebraska state court seeking to recover on a reinsurance policy issued by One Beacon Insurance Company, which removed the action to federal court based on diversity jurisdiction. Kessner then moved to remand, arguing that the McCarran-Ferguson Act reverse-preempted the federal removal statute. In the Report and Recommendation, the Magistrate Judge concluded that the matters at issue related to the business of insurance and that a proceeding in the district court would likely invalidate, impair or supersede the Nebraska insurer liquidation statutes utilized in the state liquidation proceeding, requiring remand. A short, two paragraph opinion by the District Judge adopted the Magistrate Judge’s Report and Recommendation, with a colorful conclusion that “intervention by a federal court could screw up the comprehensive scheme Nebraska has set up to deal with matters like this one. Federal law has a bias against such meddling.” Kessner v. One Beacon Ins. Co., Case No. 09-3003 (USDC D. Neb. Apr. 20, 2009).

This post written by Dan Crisp.

NINTH CIRCUIT FINDS THAT THE DISTRICT COURT LACKED JURISDICTION TO CONFIRM ARBITRATION AWARD AGAINST THE UNITED STATES

May 19, 2009 by Carlton Fields

In a proceeding in which the United States declined to participate, an arbitration panel awarded over $93 million to Park Place Associates, Ltd. (“Park Place”) on a breach of contract claim against the United States, which subsequently filed a motion to vacate in district court, which denied the motion to vacate and granted Park Place’s motion to confirm the award. On appeal, the Ninth Circuit first affirmed the denial of the motion to vacate, finding jurisdiction sufficient, since the United States had commenced civil proceedings in the district court by filing a complaint and a motion to vacate, and rejecting United States’ manifest disregard of the law arguments. Next, the court vacated the grant of the motion to confirm, concluding that, in this case where the action is to confirm a contract-based claim against the United States, the Tucker Act, which conditions its waiver on jurisdiction to the Court of Federal Claims, is the only means by which the United States can be said to have waived sovereign immunity, and, thus, the district court lacked jurisdiction to confirm the award. The court then remanded the case to the district court with instructions to dismiss the confirmation action as barred by sovereign immunity. United States v. Park Place Assocs., Ltd., No. 05-56235, No. 05-56312 (9th Cir. Apr. 22, 2009).

This post written by Dan Crisp.

RECENT DECISIONS FEATURE JURISDICTIONAL ISSUES OVER NON-SIGNATORIES TO ARBITRATION AGREEMENTS

May 5, 2009 by Carlton Fields

UBS AG named Ramy and Michel Lakah (the “Lakahs”) as respondents in an arbitration proceeding, despite Michel never signing the arbitration agreement and Ramy only signing on behalf of Lakah Funding Ltd. and the guarantors, not in his personal capacity. The Lakahs petitioned the state court to stay the arbitration, and UBS removed the petition to federal court seeking to pierce the corporate veil. While the action was pending, the arbitration panel chairman informed all parties that the panel would address the question of jurisdiction over the Lakahs, and the Lakahs subsequently moved for a preliminary injunction. The court granted the petitioners’ motion for injunctive relief, stating that, unless the agreement clearly provides otherwise, courts decide the question of whether the parties agreed to arbitrate, and, without addressing the merits, the court found that petitioners would be irreparably harmed if the panel addressed the issue due to the cost of and time spent litigating before a body lacking the authority to decide this issue. Lakah v. UBS AG, Case No. 07-2799 (USDC S.D.N.Y. Mar. 6, 2009).

Symetra National Life Insurance Co. and Symetra Life Insurance Co., (collectively “Symetra”), obligors on structured settlement payments and nonparties to the transfer agreement that contained the arbitration clause, appealed from a trial court’s confirmation of an arbitration award that directed Symetra to pay Rapid Settlements, Ltd., instead of the original payee. In reversing the trial court’s judgment and vacating the arbitration award, the court held that the arbitration award violated public policy as set forth in the Texas Structured Settlement Protection Act (“TSSPA”) because no court had preapproved the transfer agreement. The court also held that Symetra had standing to contest the arbitration award because, first, the TSSPA gave Symetra an interest sufficient to contest any attempt to force the company to make payments, in the absence of court approval, to anyone other than the payee and, second, Symetra could be subject to double liability if payments were ever made to the wrong party. Symetra Nat’l Life Ins. Co. & Symetra Life Ins. Co. v. Rapid Settlements, Ltd., Case No. 14-07-00880 (Tex. App. Apr. 21, 2009).

This post written by Dan Crisp.