Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions

Arbitration / Court Decisions

New York Federal Court Denies Cedent’s Motion For Reconsideration In Reinsurance Dispute Regarding Expense Provisions

by

This case was previously reported by us on April 30, 2018. As we previously reported, on March 20, 2018, a New York federal court largely denied the motions for summary judgment of both plaintiff, Utica, and defendant, Munich Re, finding that the expense provisions in the facultative certificates at issue were ambiguous and that extrinsic evidence was not submitted by the parties. Utica made a motion for reconsideration. In denying the motion, the court rejected Utica’s argument that extrinsic evidence was presented on the ambiguity found by the court in the facultative certificates. The court noted that the evidence noted by Utica “would in no way alter the conclusion the Court previously reached on this matter” and also that Utica failed to show that reconsideration was required.

Utica Mut. Ins. Co. v. Munich Reins. Am., Inc., Nos. 12-cv-00196; 12-cv-00743 (USDC N.D.N.Y. May 23, 2018).

This post written by Jeanne Kohler.

See our disclaimer.

The Eleventh Circuit Found No Waiver Of Right To Compel Arbitration Against Unnamed Class Members

by

The procedural history of the case can be found here. However, in sum, the case involves five consolidated class actions brought in Florida federal court against banks by bank customers in 2008 and 2009 alleging that they were unlawfully charged overdraft fees. Early in the case, the court ordered all defendant banks to file motions directed to the complaints, including those to compel arbitration. Wells Fargo did not file a motion to compel arbitration as to the named class representatives, but instead joined several other banks in filing a motion to dismiss. Wells Fargo also reserved its arbitration rights against unnamed class members in the event of class certification. Wells Fargo later filed answers to the complaints, stating that “’[a]bsent members of the putative classes have a contractual obligation to arbitrate any claims they have against Wells Fargo.’”

After the Supreme Court decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act preempted state laws purporting to void prohibitions on class arbitration, Wells Fargo then moved to compel the named class representatives to arbitrate their claims. However, the Florida district court found that Wells Fargo waived its right to arbitrate against the named class representatives, and the Eleventh Circuit affirmed. After remand to the district court, the plaintiffs moved for class certification. Wells Fargo opposed the motion on the grounds of lack of numerosity because the unnamed class members had arbitration agreements with the bank, and also filed conditional motions to compel arbitration as to the unnamed class members. The district court denied Wells Fargo’s motions to compel arbitration. Wells Fargo appealed, and the Eleventh Circuit vacated the district court’s decision, finding that because no class had been certified, the district court lacked jurisdiction to rule on the arbitration obligations of unnamed class members. On remand, the district court then granted the plaintiffs’ motion to certify the class. Wells Fargo then moved to compel arbitration of the claims of the unnamed class members. The district court denied the motion, finding that Wells Fargo waived its right to seek arbitration by acting “inconsistently with its arbitration rights during its pre-certification litigation efforts” and that the plaintiffs would suffer “significant prejudice” if Wells Fargo were allowed to invoke arbitration after nearly 10 years of litigation. Wells Fargo appealed.

The Eleventh Circuit first noted that a party asserting waiver of arbitration faces a heavy burden of proof: it requires a showing that the party seeking arbitration has acted inconsistently with the arbitration right and that the opposing party has in some way been prejudiced. The court held that, even though Wells Fargo had waived its arbitration rights as to the named class representatives, it provided “fair notice at a relatively early stage of litigation” that it wished to preserve its right to compel arbitration as to unnamed plaintiffs in the event the classes were certified. The court also noted that “it would have been impossible in practice to compel arbitration against speculative plaintiffs and jurisdictionally impossible for the District Court to rule on those motions before the class was certified.” The court rejected the argument that, to avoid waiver, filing a conditional motion to compel was required much earlier in the litigation, because the district court would lack jurisdiction over such a motion until the class was certified.

Thus, the Eleventh Circuit vacated the district court’s order denying Wells Fargo’s motion to compel arbitration of the unnamed plaintiffs’ claims and remanded for further proceedings.

Gutierrez v. Wells Fargo Bank, No. 16-16820 (11th Cir. May 10, 2018).

This post written by Jeanne Kohler.

See our disclaimer.

Eastern District Of Pennsylvania Holds That Plaintiffs Forfeited American Pipe Tolling By Filing Their Lawsuit Too Soon

by

A federal district court has dismissed with prejudice a Real Estate Settlement Procedures Act (RESPA) class action filed against JPMorgan Chase Bank N.A. and related entities on statute of limitations grounds a year after finding that the continuing violations doctrine applied to RESPA.

Plaintiffs claimed that defendants violated RESPA when JPMorgan created captive reinsurers to reinsure private mortgage insurance. Plaintiffs alleged that JPMorgan received kickbacks from the reinsurers, which did not assume any real risk and provided no real services. Defendants moved to dismiss the initial complaint on the basis that the claims were untimely under RESPA’s one year statute of limitations. In response, plaintiffs relied (1) on the argument that the limitations period was tolled by the filing of an earlier class action called Samp v. JPMorgan Chase Bank, N.A., which asserted similar claims on behalf of the same putative class members, under the doctrine established by the Supreme Court in American Pipe American Pipe & Construction Co. v. Utah, and (2) on the doctrine of equitable tolling. While that motion was pending, the Third Circuit decided Cunningham v. M & T Bank Corp., in which it held that the equitable tolling doctrine did not save very similar RESPA claims, as plaintiffs in that suit knew or should have known of their claims at the time they were provided with certain disclosures regarding reinsurance. Plaintiffs in the JPMorgan case then moved to amend their complaint to abandon their reliance on equitable tolling, instead asserting that, under the continuing violations doctrine, their RESPA claims were triggered each time a kickback payment was made. The court found that this doctrine applied to such RESPA claims and allowed the amendment.

Defendants moved to dismiss the amended complaint, again asserting that the RESPA claims were time-barred. In its order, the court reiterated its position that the continuing violations doctrine could be applied to the RESPA claims and rejected defendants’ argument that plaintiffs’ knowledge of their claims more than one year before filing their complaint defeated the application of this doctrine. Such knowledge was irrelevant, the court found, as plaintiffs did “not seek to aggregate earlier wrongful acts that would otherwise be untimely,” but limited their claims to conduct occurring within one year prior to the date of accrual.

Plaintiffs victory on this point did not save their RESPA claims, however, as the court then found that plaintiffs had forfeited the tolling made possible by American Pipe because they filed their complaint before the issue of class certification was resolved in the earlier Samp class action. Finding that this was a question of first impression in the Third Circuit, the court found that the purpose of the American Pipe doctrine was to avoid forcing putative class members to file individual suits to avoid the operation of the statute of limitations, and that this purpose would not be served if parties could, after taking advantage of this tolling and file duplicative lawsuits before the issue of class certification was decided in the earlier-filed class action. Thus, the court dismissed plaintiffs’ RESPA claims with prejudice as time-barred and, refusing to exercise ancillary jurisdiction over the remaining state law claims, dismissed those claims without prejudice. The court has already denied a motion for reconsideration filed by plaintiffs, reaffirming its decision that plaintiffs forfeited American Pipe tolling. The court has also denied a motion to intervene by parties seeking to become class representatives, finding that it lacked jurisdiction to continue the matter after dismissing it prior to class certification and that there was no entity with which to intervene.

Blake et al. v. JPMorgan Chase Bank, N.A., et al. (E.D. Pa. March 28, 2018)

This post written by Jason Brost.

See our disclaimer.

Cryptocurrency Theft Class Not Estopped From Avoiding Enforcement Of Arbitration Clause Under Either California Or Florida Law

by

The Eleventh Circuit recently affirmed the denial of a motion to compel arbitration based on equitable estoppel in a putative class action by victims of a cryptocurrency exchange website (Cryptsy) CEO’s theft of money derived from the conversion of cryptocurrencies into cash, regardless of which state’s law applied. The class complaint filed on behalf of Crypsty customers and the Cryptsy receiver alleged Coinbase, an online marketplace for the sale, exchange, and purchase of cryptocurrencies, failed to adequately monitor Crypsty, detect the theft, and report suspicious activity as required under the federal Bank Secrecy Act. The court analyzed the equitable estoppel basis to compel arbitration under both California and Florida law and found that regardless of which applied, the motion to compel must be denied.

First, the court assessed the present claims under Florida’s two standards for compelling arbitration under an equitable estoppel theory: the narrow scope of arbitration clauses requiring arbitration for claims “arising out of” the subject contract and the broad scope for clauses requiring arbitration for claims “arising out of or relating to” the contract. The Eleventh Circuit concluded that because the claims were based on duties and obligations imposed by the Bank Secrecy Act—intended to detect money laundering, not protect customers—and imposed by the underlying contract, they did not rely on nor bear a significant relationship to the underlying contract sufficient to trigger application of the arbitration clause. Because the claims failed to satisfy the lower burden of broader scope standard, the court held they would likewise not be able to satisfy the higher burden required for the narrow scope analysis.

Second, the court reached a similar conclusion under California’s inquiry on whether equitable estoppel requires compulsion of an arbitration agreement for claims that are “dependent upon, or inextricably intertwined with” the underlying contract obligations. Even if claims are related to the contract, California does not compel arbitration unless a complaint “relies” on the agreement to establish its cause(s) of action. Here, the court found the class representative did not seek to enforce any terms or obligations of the underlying user agreements, but rather sought to enforce duties and obligations imposed by federal statutes and regulations and state common law. Therefore, because plaintiffs’ claims, if viable, would be so viable without any reference to the user agreements, the complaint did not rely on them and plaintiffs were not estopped from avoiding the arbitration clauses.

Leidel v. Coinbase, Inc., No. 17-12728 (11th Cir. Apr. 23, 2018).

This post written by Thaddeus Ewald .

See our disclaimer.

Fifth Circuit Allows Non-Signatories To Enforce Arbitration Agreement

by

The Fifth Circuit has affirmed an order compelling arbitration, despite the fact that the parties seeking to compel arbitration were not signatories to the relevant arbitration agreement.

The litigation arose out of a 1998 transaction in which Henry House purchased a home and real property from Jim Walter Homes, Inc. and Mid-State Trust IV. The sale contract contained an arbitration agreement under which the parties agreed to arbitrate any disputes “in accordance with the Comprehensive Arbitration Rules and Procedures administered by J●A●M●S/Endispute.”

In 2016, Mr. House sued Green Tree Servicing, L.L.C. and Walter Investment Management Corporation (WIMC), alleging that they conspired with Jim Walter Homes and Mid-State Trust IV to induce Mr. House to enter into the 1998 agreement based on the false premise that he would get a properly constructed home. Green Tree and WIMC moved in federal court to compel arbitration. Mr. House argued that Green Tree and WIMC, as non-signatories to the arbitration agreement, lacked standing to enforce it, but the district court found that they had standing under Mississippi’s intertwined claims test and that the arbitration agreement, by incorporating the JAMS rules, delegated questions of arbitrability to the arbitrator.

On appeal, Mr. House argued (1) that the intertwined claims test did not apply because Green Tree and WIMC did not exist at the time the arbitration agreement was executed; (2) that Mr. House, as an unsophisticated party, could not agree to delegate the question of arbitrability by agreeing to the JAMS rules; and (3) that the arbitration agreement was invalid because it was fraudulently induced.

The court quickly disposed of the second argument, refusing to consider it at all because Mr. House had not raised the issue of his lack of sophistication before the trial court.

As regards the first, the court found that the exact date when the entities formed was irrelevant. Mississippi’s intertwined claims test allows a non-signatory to enforce an arbitration agreement against a party who makes “‘allegations of substantially interdependent and concerted misconduct’ between a non-signatory and a signatory that have a close legal relationship.” The court found that this was satisfied by Mr. House’s complaint, which alleged that Green Tree and WIMC were coconspirators and joint venturers with the parties to the 1998 arbitration agreement in a scheme to get Mr. House to enter into that transaction.

Finally, the court held that when the parties have delegated questions of arbitrability to the arbitrator, a court may only find that the arbitration agreement was procured by fraud if the party seeking to avoid arbitration challenges the validity of the arbitration agreement specifically, rather than the contract as a whole. Mr. House did not do that, however, instead alleging generally that his signature on the 1998 sales contract and related documents was procured through fraud, which the court found was not specific enough to take this question out of the hands of the arbitrator.

Green Tree Servicing, L.L.C., et al. v. House, et al., (5th Cir. May 14, 2018)

This post written by Jason Brost.

See our disclaimer.