Jurisdiction Issues

REINSURANCE GUARANTORS’ APPEAL DISMISSED FOR LACK OF APPELLATE JURISDICTION

April 28, 2009 by Carlton Fields

The Third Circuit has determined it lacked jurisdiction to hear the appeal of parties disputing their obligations in connection with certain reinsurance guarantees. In a breach of contract action, an insurer (Everest) alleged that certain guarantors failed to fulfill their obligations following the reinsurer’s (Founders) refusal to pay over $76 million to Everest under a reinsurance agreement. The guarantors filed counterclaims, in part seeking a declaration that no monies are due and owing under the guarantees because Everest unnecessarily reimbursed lenders for certain claims. In connection with a separate arbitration between Everest and Founders, an arbitral panel ordered Founders to post $70 million in favor of Everest as security. Founders failed to comply. Everest then moved for partial summary judgment in the lawsuit, seeking an order requiring the guarantors to satisfy Founders’s obligation to post security. Everest also moved to dismiss the counterclaims. The district court granted Everest’s motion for partial summary judgment and granted, in part, Everest’s motion to dismiss.

The appellate court found it lacked jurisdiction to hear the appeal on the one remaining counterclaim and on Everest's breach of contract claim, as there was no final order being appealed from, and because the district court’s award was merely one for the payment of money, and not an injunction (which would have accorded the guarantors the right to an interlocutory appeal). The appeal was dismissed. Everest Nat'l Ins. Co. v. Sutton, No. 08-4643 (3d Cir. Apr. 7, 2009).

This post written by Brian Perryman.

STATE INSURER LIQUIDATION ACT PREEMPTS FEDERAL REMOVAL STATUTE

March 24, 2009 by Carlton Fields

The Florida Department of Financial Services (“FDFS”) filed a claim in state court against General Reinsurance Corporation (“Gen Re”) after discovering that in the course of Aries Insurance Company’s (“Aries”) receivership, Aries made improper preferential transfers to Gen Re within six months of the rehabilitation date. Alleging diversity jurisdiction, Gen Re removed the action to Florida district court. FDFS moved to remand the claim to state court pursuant to the McCarran-Ferguson Act. The district court first determined that, under the Florida Insurers Rehabilitation and Liquidation Act (the “Liquidation Act”), the assets at issue are subject to the exclusive jurisdiction of the Leon County Circuit Court. Granting the motion to remand, the district court stated that the federal removal statute does not specifically relate to the business of insurance, found that the Liquidation Act provision vesting exclusive jurisdiction in the state court served to regulate the business of insurance, cited similar findings by other courts regarding such jurisdictional provisions, and concluded that the McCarran-Ferguson Act applies causing the Liquidation Act to preempt the federal removal statute. Fla. Dep’t. of Fin. Servs. v. Gen. Reins. Corp., Case No. 08-443 (USDC N.D. Fla. Feb. 2, 2009).

This post written by Dan Crisp.

SUPREME COURT “LOOKS THROUGH” FAA § 4 PETITION TO UNDERLYING DISPUTE TO DETERMINE JURISDICTION

March 17, 2009 by Carlton Fields

Last week, in a decision authored by Justice Ginsburg, the Supreme Court announced that a federal court may “look through” a Federal Arbitration Act § 4 petition to determine whether it is predicated on a controversy that arises under federal law. Under the well-pleaded complaint rule, a suit “arises under” federal law when the plaintiff’s statement of the cause of action shows that it is based on federal law. The Court held that the language of § 4 (“save for the arbitration agreement…”) directs federal courts to “look through” the petition itself to determine proper jurisdiction. Justice Ginsburg stated that federal courts should assume the absence of the arbitration agreement and determine jurisdiction based on the parties’ underlying dispute.

With this in mind, the Court held that the underlying controversy between Vaden and Discover Bank did not support federal jurisdiction. The controversy arose from Vaden’s alleged debt and not any federal law or other basis for federal jurisdiction. The Court thus declined federal jurisdiction. Chief Justice Roberts filed an opinion concurring in part and dissenting in part. Vaden v. Discover Bank, No. 07-773, (U.S. Mar. 9, 2009).

This post written by John Black.

ACTION TO CONFIRM ARBITRATION AWARD DISMISSED FOR LACK OF SUBJECT MATTER JURISDICTION

February 26, 2009 by Carlton Fields

On December 2, 2008, we reported on an order by the U.S. District Court for the Eastern District of Michigan granting the Respondent’s motion to seal in part, permitting the Respondent to “temporarily file” its motion to dismiss and the award under seal, pending a determination of the motion to dismiss for lack of subject matter jurisdiction in the Petitioners’ action to confirm the arbitration award. After the order, the Respondent filed its motion to dismiss and the Petitioners moved for sanctions. The district court noted that the arbitration award included declaratory provisions but no monetary award. Petitioners argued that the court retained jurisdiction from an earlier action to appoint an umpire and that the amount sought in the arbitration, rather than the award, provided diversity jurisdiction. In granting the motion to dismiss, the district court first stated that jurisdiction was not retained because the earlier action was dismissed without the court issuing an order to compel arbitration, which would have retained jurisdiction on a subsequent motion to confirm. The district court next stated that the amount in controversy is the amount of the arbitration award sought to be confirmed. Since no monetary damages were awarded and the Petitioners did not show that the declaratory provisions had any real value, the court concluded the amount in controversy did not meet the threshold required to exercise diversity jurisdiction, which will force the Petitioners to file a similar motion to confirm in state court. Petitioners sought sanctions against Respondent’s local counsel for costs incurred to defend against the motion to dismiss and to address the motion to seal and related motion papers. The court ultimately denied the motion for sanctions because the Respondent’s position in the motion to dismiss was correct and the arbitration premised on the parties’ own agreement necessitated the motion to seal. American Bankers Insurance Co. of Florida v. National Casualty Co., Case No. 08- 13522 (USDC E.D. Mich. Feb. 3, 2009).

This post written by Dan Crisp.

NO INDEPENDENT SUBJECT MATTER JURISDICTION UNDER FEDERAL ARBITRATION ACT

January 22, 2009 by Carlton Fields

Defendant, Sandra R. Sanchez, filed a Rule 12(b)(1) Motion to Dismiss for Lack of Subject Matter Jurisdiction against the plaintiff, Newton & Associates, LLC. Sanchez asserted that, because the Federal Arbitration Act (“FAA”) did not confer federal-court jurisdiction, the case should be dismissed because the parties are not diverse and there was no other basis for federal jurisdiction. The Eastern District of Louisiana granted Sanchez’s motion to dismiss, holding that while the FAA created a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, it did not create any independent federal-question jurisdiction under 28 U.S.C. § 1331 or otherwise. The District Court noted in particular that section 10 of the FAA allowed federal district courts to vacate arbitration awards but did not confer upon federal courts subject matter jurisdiction. The court did, however, opine that under limited circumstances, the non-statutory ground for vacatur of an arbitration award (if made in manifest disregard of the law) may provide subject matter jurisdiction for the federal courts. As this was not the case here, the court dismissed the action. The case has been remanded to state court. Newton & Assoc., LLC v. Sanchez, Case No. 08-4558 (USDC E.D. La. Dec. 22, 2008).

This post written by John Black.