Arbitration / Court Decisions

Missouri Federal Court Remands Action To State Court Because Missouri Law “Reverse Preempts” The New York Convention Based On The McCarran-Ferguson Act

May 22, 2018 by Carlton Fields

Foresight Energy, LLC (“Foresight”) brought an action in Missouri state court against various domestic and Bermuda and London market insurers for declaratory judgment, breach of contract and statutory vexatious refusal to pay a claim related to an event at a coal mine in Hillsboro, Illinois. The policies at issue provided for an arbitration in London and that the policies were to be governed by Missouri law. One of the insurers removed the action to Missouri federal court, asserting that federal subject matter jurisdiction existed under Chapter 2 of the Federal Arbitration Act (the “New York Convention”) because the agreement did not arise out of a relationship “entirely between citizens of the United States,” given the involvement of the non-U.S. insurers/defendants. Foresight then moved in Missouri federal court to remand the action back to state court because the federal court lacked subject matter jurisdiction, arguing that Missouri law, the law governing the policies, prohibits mandatory arbitration clauses in insurance policies and that Missouri law “reverse preempts” the New York Convention in light of the McCarran-Ferguson Act.

The Missouri federal court noted that McCarran-Ferguson states that “[n]o act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance.” The court then found that the New York Convention, an act of Congress, was not a self-executing treaty and could not itself provide the rule of decision, and that the Missouri anti-arbitration statute was a state law regulating the business of insurance. The court also found that application of the New York Convention to enforce the arbitration agreement in the policies at issue would “invalidate, impair or supersede” the Missouri anti-arbitration statute. The court then held that because the New York Convention was an act of Congress and was not self-executing, McCarran-Ferguson “reverse preempted” the New York Convention, which thus eliminated the basis for federal subject matter jurisdiction. Thus, the Missouri federal court granted Foresight’s motion to remand the action to state court.

Foresight Energy, LLC. v. Certain London Market Ins. Cos., No. 17-CV-2266 (USDC E.D. Mo. Apr. 25, 2018).

This post written by Jeanne Kohler.
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Texas Federal Court Enforces Arbitration Award Under the New York Convention Despite Jurisdictional Challenge

May 21, 2018 by Carlton Fields

Respondent argued against the confirmation of the arbitral award as it was based upon the consent of the parties, rather than a disputed hearing, which it contended made the award not subject to the New York Convention, resulting in a lack of jurisdiction. The Court disagreed that it lacked subject matter jurisdiction, citing to Albtelecom SH.A. v. UNIFI Commc’ns, Inc., 2017 WL 2364365 (S.D.N.Y. May 30, 2017). The court noted that “[w]hile the tribunal did not make findings or reach legal conclusions, it made an award that bound parties, with its power. No binding or persuasive statutory language or case law requires a court to hold that a tribunal must reach its own conclusions, separate from the parties’ agreement, to make a valid binding award subject to the Convention.”

As Respondent did not argue that the award should not be confirmed on any ground but lack of subject-matter jurisdiction, the Court found the award must be confirmed.

Transocean Offshore Gulf of Guinea VII Ltd., et al. v. Erin Energy Corp., No. H-17-2623 (USDC S.D. Tex. Mar. 12, 2018)

This post written by Nora A. Valenza-Frost.
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Court of Appeal of England and Wales Finds That Party’s Forgery of Documents in Connection with a Transaction Does Not Bar Confirmation of Arbitration Award

May 15, 2018 by Rob DiUbaldo

The Court of Appeal of England and Wales has rejected a challenge to an arbitration award issued by the China International Trade Arbitration Commission (the “Tribunal”) against RBRG Trading (UK) Limited in favor of Sinocore International Co. Ltd., despite an argument from RBRG that the award was contrary to public policy.

The matter arose from Sinocore’s agreement to sell steel to RBRG. The parties later amended the contract to give RBRG a right to inspect the steel, and RBRG claimed that the parties agreed to amend a letter of credit issued by a Dutch bank in connection to the transaction to change the shipping date to July 20 and 30, 2010. Sinocore then shipped the steel on July 7, 2010, a fact of which RBRG was informed, but presented bills of lading that falsely gave the date of July 20-21, 2010 to the bank. The bank refused to pay due to the fraudulent bills of lading, and Sinocore terminated the contract and sold the steel to a third party. RBRG then commenced the arbitration, claiming that Sinocore had breached the agreement to allow RBRG to inspect the steel by shipping it too soon, and Sinocore counterclaimed for damages related to the termination of the contract.

The Tribunal determined that RBRG had not asked to inspect the steel and had been timely notified of its shipment and thus could not claim damages from Sinocore’s failure to allow an inspection. The tribunal further determined that RBRG had breached the contract by instructing the bank to issue the amended letter of credit, an amendment to which Sinocore had not agreed. The Tribunal further determined that that forgery of the bills of lading had not harmed RBRG and had not been the cause of the termination of the agreement, which instead resulted from RBRG’s instruction to issue the non-conforming letter of credit.

When Sinocore attempted to enforce the award in the United Kingdom, RBRG argued that it should not be enforced because it was based on Sinocore’s forgery of bills of lading, and that it was contrary to public policy to assist a seller who present forged documents under a letter of credit. The court disagreed, however, and emphasized the importance both of enforcing arbitral awards and of strictly construing the exception for awards that violate public policy. Ultimately, relying in part on the Tribunal’s determination that RBRG’s conduct caused the contract to terminate, the court found that the connection between the forged bills of lading and the award was simply too weak to justify a departure from the general rule that arbitral awards should be enforced.

RBRG Trading (UK) Limited v. Sinocore International Co. Ltd., [2018] EWCA (Civ) 838

This post written by Jason Brost.

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SDNY Denies Plaintiff’s Attempt To Vacate Arbitral Awards In Administrative Charge Dispute With Verizon

May 14, 2018 by Rob DiUbaldo

Verizon Wireless prevailed recently in confirming certain arbitration awards related to a dispute based on allegedly unlawful administrative charges for a cellular contract. Verizon’s customer agreement contained an arbitration clause prohibiting class arbitrations, and an arbitrator issued two relevant decisions during the course of the dispute. The first decision held the plaintiff could not pursue general injunctive relief. The second decision held, in part, that plaintiff did not have standing because, while he continued to pay the phone bill, he had assigned his account to his partner, thus rejecting plaintiff’s request for individual injunctive relief. The arbitrator also ordered Verizon to pay $1,500 without interest—the full amount of disputed administrative charges that Verizon had previously tendered and plaintiff rejected—$500 in attorney’s fees, and arbitrator compensation. The parties cross-moved to confirm and vacate various aspects of the arbitral decisions.

First, the court declined plaintiff’s request to vacate the arbitrator’s first decision. It disagreed with plaintiff’s argument that the arbitrator exceeded his authority by precluding general injunctive relief where the claim for such relief should have been non-arbitrable, because the “narrowest of circumstances” required to overturn an arbitrator’s decision on that ground were not present. The court also refused to find the arbitrator manifestly disregarded the law by precluding injunctive relief because plaintiff’s contention constituted a “mere disagreement” with the arbitral decision and because the arbitrator had valid grounds for his decision.

Second, the court likewise refused plaintiff’s attempt to vacate the second decision. The court concluded the arbitrator did not exceed his powers in awarding $500 in attorney’s fees because attorney’s fees issue was properly before the arbitrator. It determined the arbitrator did not manifestly disregard the law because plaintiff failed to establish the arbitrator “intentionally defied the law” as required to overturn on that ground. Similarly, the court rejected plaintiff’s arguments of arbitral misconduct and partiality. There was no misconduct because the limited nature of permitted discovery, challenged by plaintiff, was entirely within the arbitrator’s broad discretion. Further, the arbitrator was not partial where Verizon paid the mandatory arbitrator fees because the arbitration agreement provided for such payment by Verizon. Lastly, the court declined to find the arbitration violated plaintiff’s due process rights because the “law of the case”—via a prior finding of the court—determined the signing of the arbitration agreement could not constitute state action required for a due process claim.

Thus, the court confirmed the arbitrator’s two decisions and closed the case.

Katz v. Cellco P’ship, Case No. 12-9193 (USDC S.D.N.Y. Apr. 17, 2018).

This post written by Thaddeus Ewald .

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Tax Counsel Ordered To Produce Documents Related To Odyssey Reinsurance’s Continuing Quest To Collect $3.2 Million Default Judgment Against Richard And Diane Nagby

May 10, 2018 by Michael Wolgin

Odyssey Reinsurance Company (“Odyssey”) has obtained an order compelling John Scannell to produce subpoenaed documents related to Odyssey’s efforts to collect a $3.2 million judgment rendered against Richard and Diane Nagby. The judgment stems from a reinsurance contract between Odyssey and Cal-Regent Insurance Services. We previously wrote about this dispute here.

Scannell objected that the documents were protected by California’s taxpayer privilege. California courts have determined the state’s taxation statutes provide the privilege “to encourage the voluntary filing of tax returns and truthful reporting of income,” thereby facilitating tax collection. The privilege may be overcome where it is intentionally waived, the gravamen of the lawsuit is inconsistent with the privilege, or by a public policy “greater than that of the confidentiality of tax returns.”

The court found the privilege was overcome in this matter, which it described as an effort by Odyssey “to recover that money from sources that it contends have actively endeavored to thwart collection efforts.” As such, the Nagby’s privacy concerns “shrink in the shadow of the public policy subversion” that would result if their effort to hide behind the privilege were successful.

In addition, the court determined that Scannell had waived any objection to the subpoena under Federal Rule of Civil Procedure 45 by failing to raise it within 14 days of service of the subpoena. The waiver may be overcome by demonstrating that the failure to assert the objection was due to unusual circumstances and a good cause, but Scannell could not meet either requirement. Odyssey Reinsurance Co. v. Nagby, Case No. 16-CV-3038-BTM (USDC S.D. Cal. March 29, 2018).

This post written by Benjamin E. Stearns.

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