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Arbitration / Court Decisions

Sixth Circuit Finds it Lacks Jurisdiction Over Dispute Regarding Proper Forum for Settlement of Fee Dispute

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A dispute regarding attorney Steven Johnson’s right to fees from William Drake, an individual who hired Johnson to pursue a product liability claim, was made considerably more complicated by conflicting forum provisions in a contract with the attorney and the settlement agreement in the MDL that eventually resolved Drake’s product liability claim.

Drake received a hip implant that was later recalled. Drake hired Mr. Johnson to represent him in his claim against the manufacturer of the implant, signing a contract providing that fee disputes would be arbitrated in Texas. Drake later terminated Johnson and hired a new lawyer, who filed lawsuit against the manufacturer, which became part of an MDL. Drake’s claims were then settled by the manufacturer, and the settlement agreement specified the use of a special master to settle disputes regarding attorneys’ fees.

Johnson commenced an arbitration proceeding against Drake in Texas regarding his fees, and Drake initiated arbitration proceedings against Johnson before the special master regarding the same issues. The special master dismissed Drake’s arbitration proceeding because it was already pending in a different arbitral forum. The Texas arbitrator then issued an award in Johnson’s favor. Drake moved, in the Ohio federal district court handling the MDL, to enforce the terms of the settlement agreement and vacate the Texas arbitration award. The court granted to motion to enforce the settlement but did not decide whether to vacate the apparently conflicting Texas arbitration award, and Johnson appealed this decision to the Sixth Circuit.

The Sixth Circuit started and ended its consideration of the matter with the question of jurisdiction, which Johnson argued existed because (1) the district court’s decision was a final decision appealable under 28 U.S.C. § 1291, and (2) it was appealable under section 16 of the Federal Arbitration Act. The court disagreed. First, the court found that the motion to vacate the Texas arbitration award was one of the main issues before the court, and the district court’s failure to rule on that motion meant that there was no final resolution of the litigation on the merits. Second, the court found that section 16 of the FAA did not apply because the district court did not address the Texas arbitration award, rejecting an argument that it was implicitly vacated by the ruling enforcing the settlement. Lacking jurisdiction, the Sixth Circuit remanded the case to the district court with instructions that it consider whether the Texas arbitration award should be confirmed or vacated.

Drake v. DePuy Orthopaedics, Inc., No. (6th Cir. Nov. 30, 2018)

Court Confirms Arbitration Award Rejecting Insurers’ Allocation of Losses to Multiple Policies for Reinsurance Purposes

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A federal district court in Massachusetts has confirmed and entered as a judgment of the court an arbitration award in favor of Certain Underwriters at Lloyd’s, London against Century Indemnity Company regarding reinsurance coverage they provided for a set of claims against Boy Scouts of America (BSA) for sexual molestation by individuals associated with BSA in the 1960s and 1970s.

Century had provided insurance to BSA under 8 policies between 1963 and 1971, and the Underwriters had agreed to reinsure those policies. In the late 1990s, BSA submitted dozens of claims regarding BSA’s alleged liability for sexual molestation claims, and Century settled these claims. The dispute with the reinsurer’s at Lloyd’s of London arose out of the manner in which Century, per an agreement with BSA, chose to allocate these settlement payments among the BSA policies, such that all payments to a particular claimant were allocated to the policy of the first year of the alleged conduct against that individual. Century also combined all claims from a particular year into a single loss for reinsurance purposes.
The Underwriters refused to pay Century’s reinsurance claim, arguing that the manner of allocating losses to the first year of the alleged conduct “was counterfactual” and the agreement with BSA to do it that way “was not the product of a reasonable and business-like investigation.” Century took the dispute to arbitration, and the panel issued an award in the Underwriters’ favor.

The Underwriters then moved to have the court confirm the award and enter it as a judgment of the court. Century did not oppose this motion, which the court then granted without comment.

Certain Underwriters at Lloyd’s, London v. Century Indemnity Company, Civil Action No. 18-12041 (D. Mass. Nov. 16, 2018)

Ninth Circuit Finds That Party was a Third-Party Beneficiary of Arbitration Agreement, and Affirms Order Compelling Arbitration of Putative Class Action

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Three delivery drivers sued a transportation broker for failure to pay overtime and minimum wages, failure to provide rest and meal breaks, failure to timely pay wages upon termination, and willful refusal to pay wages on behalf of a proposed class of current and former drivers. The transportation broker moved to dismiss or stay the proceedings and compel arbitration, asserting that the plaintiffs were required to submit their claims to arbitration because the broker was a third-party beneficiary to arbitration agreements between the delivery drivers and a third party administrator. The district court granted the motion, concluding that the broker was a third-party beneficiary, that the claims were arbitrable, and that arbitration was the proper forum. The individual plaintiffs appealed, but the Ninth Circuit affirmed, holding that, under the applicable state law, the agreements containing the arbitration provisions intended to create a third-party beneficiary contract for the benefit of the broker. The drivers’ “work under the agreement–delivering parcels–was an integral part of [the broker’s] business, and the agreements obligated [the drivers] to indemnify logistics company customers, grant customers the right to subrogate claims and notify customers within four hours of any accidents.” The Ninth Circuit rejected the drivers’ argument that the agreements contained substantively unconscionable provisions, since they were not raised below. Ege v. Express Messenger Systems Inc., Case No. 17-35123 (9th Cir. Dec. 7, 2018).

This post written by Michael Wolgin.

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Applied Underwriters Defeats Motion for Summary Judgment in Suit Over Breach of Reinsurance Participation Agreement

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Applied Underwriters Captive Risk Assurance Company, Inc. (Applied) defeated a motion for summary judgment filed by Beemac Driver Management, LLC (Beemac), in a lawsuit precipitated by Beemac’s alleged failure to pay either the $142,797.91 due under a “reinsurance participation agreement,” or the $253,287 early cancellation fee that resulted when Beemac refused to pay the amount due. The court stated it was “apparent that calculation of the amount due pursuant to the parties’ agreement is not [] simple … [nor was it] at all apparent from the pleadings and evidence how the plaintiff calculated the amount due – only that the plaintiff claims there is an amount due and owing.” The court noted that Beemac’s argument rested on the premise that miscalculating the amount due “was a prior material breach of the agreement, excusing their own subsequent failure to perform,” but that Beemac offered no authority to support that position. In addition, Beemac offered no calculation of the correct amount it contended was due under the contract. On these facts, the court could not conclude as a matter of law that Applied’s billing, even if inaccurate, was a material breach.

Beemac also sought to strike the affidavit of Applied’s chief actuary regarding the factors Applied used to determine the amount due under the reinsurance participation agreement. Beemac argued that Applied either failed to disclose the expert witness prior to the expert disclosure deadline or, if the witness was not an expert, that her testimony concerned contract interpretation, which is determined by the court as a matter of law. The court disagreed, stating that although Applied’s chief actuary might be an expert, in this particular matter she was not providing her opinions and conclusions based on her experience, skill and training, as an “expert witness” would testify. Rather, she was testifying regarding her personal knowledge of her employer’s business practices, rendering her a lay opinion witness. As a result, the motion to strike her affidavit was denied. Applied Underwriters Captive Risk Assurance Co., Inc. v. Beemac Driver Mgmt., LLC, Case No. 8:16-CV-382 (USDC D. Neb. Dec. 6, 2018).

This post written by Benjamin E. Stearns.

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Fifth Circuit Finds Waiver of Arbitration Where Motion to Dismiss Argued Merits, Omitted Mention of Arbitration, and Created Prejudice

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A consumer (Forby) filed a proposed class action in Illinois state court alleging that One Technologies, L.P. (One Tech) failed to adequately disclose that consumers who accessed their “free” online credit score on the company’s website would be enrolled in a credit monitoring program and be charged a monthly fee. The case was removed and then transferred to the Northern District of Texas. One Tech filed a motion to dismiss in the Texas district court, seeking dismissal of all of Forby’s claims but omitting any mention of arbitration. After the district court partially denied One Tech’s motion to dismiss, Forby served requests for production, which prompted One Tech to file motions to compel arbitration and to stay discovery. After the court granted these motions, Forby appealed to the Fifth Circuit, arguing that the court erred in finding that One Tech did not waive its right to arbitration. The Fifth Circuit agreed with Forby and reversed the district court’s order compelling arbitration, finding that One Tech substantially invoked the judicial process by seeking a full dismissal on the merits, and caused prejudice to Forby by waiting thirteen months before moving to compel arbitration and by forcing Forby to re-litigate in arbitration the matters already decided by the district court in her favor. The court reasoned: “[a] party does not get to learn that the district court is not receptive to its arguments and then be allowed a second bite at the apple through arbitration.” Forby v. One Technologies, L.P., Case No. 17-10883 (5th Cir. Nov. 28, 2018).

This post written by Gail Jankowski.

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