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Arbitration / Court Decisions

ON RECONSIDERATION, APPLIED UNDERWRITERS AGAIN LOSES ARGUMENT TO ENFORCE MANDATORY FORUM SELECTION CLAUSE IN REINSURANCE CONTRACT

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As we previously reported, the District of Connecticut in September denied a motion to transfer based on a mandatory forum selection clause in a reinsurance contract in a dispute between Applied Underwriters, Inc. and its affiliates, and Aiello Home Services (“Aiello”), over a workers’ compensation insurance product. There, the court held the forum selection clause did not bind Aiello relative to defendants other than Applied affiliate Applied Underwriters Captive Risk Assurance Company (“AUCRAC”), did not apply to Aiello’s specific claims against AUCRAC, and was generally unenforceable under Nebraska and federal law. In the present opinion, the court granted a motion for reconsideration to clarify its prior ruling, but denied the requested relief.

The court addressed whether the claims and parties are subject to the forum selection clause and whether the resisting party showed that the enforcement of the clause would be unjust or the clause was otherwise invalid.

On reconsideration, AUCRAC first argued that the claims, while not “arising out of” the contract, are “related to” the reinsurance contract. Noting that the Second Circuit interprets the language “related to” broadly, the court reaffirmed its original ruling the claims fall outside the scope of the forum selection clause. Aiello’s statutory claims concern deceptive behavior that predated the reinsurance contract and the court was unable to determine the extent to which the alleged misrepresentations induced the parties to agree to the contract, concluding that those claims were not “related to” the contract.

Despite not needing to reach the enforceability of the forum selection clause because the court held Aiello’s claims did not “relate to” the reinsurance contract, the court analyzed the clause’s enforceability to clarify statements from its September ruling. Because Second Circuit precedent for evaluating enforceability provides that federal law controls, the court clarified that although it found the forum selection clause is unenforceable under Nebraska law, it did not ground the decision on the motion to transfer on state law. The court then doubled-down on its assessment that the forum selection clause was unenforceable under federal law because of the accompanying inefficiencies and risk of inconsistent judgments. However, it specified that it was not suggesting inefficiency alone renders the clause unenforceable, but rather in the circumstances here the inefficiency constituted sufficient injustice.

Charter Oak Oil Co. v. Aiello Home Servs., Case No. 17-689 (D. Conn. Feb. 26, 2018).

This post written by Thaddeus Ewald .

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SIXTH CIRCUIT FINDS THAT COMPELLING ARBITRATION DOES NOT IMPAIR STATE INTEREST IN EXCLUSIVE JURISDICTION OVER MATTER ALREADY REMOVED TO FEDERAL COURT

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The Sixth Circuit Court of Appeals has found that Kentucky’s Insurers Rehabilitation and Liquidation Law (IRLL) did not reverse-preempt the Federal Arbitration Act so as to prohibit the arbitration of a dispute when that dispute had already been removed to a federal district court.

The case arose out of the insolvency of the Kentucky Health Co-op, a non-profit health insurance company. The Kentucky Department of Insurance instituted a delinquency proceeding in Franklin County Circuit court and, as liquidator, brought a collateral proceeding against CGI Technologies and Solutions, Inc. CGI had provided claims processing services to the Kentucky Health Co-op under an agreement providing that all disputes would be resolved by arbitration and that Kentucky law would apply. CGI removed the case to federal court based on diversity jurisdiction and moved to compel arbitration, and the liquidator moved to remand the matter to state court. The district court refused to remand the case but denied the motion to compel arbitration, and CGI appealed the denial of the motion to compel arbitration, but did not appeal the denial of the motion to remand.

On appeal, the liquidator argued that federal law favoring arbitration was reverse-preempted by Kentucky law providing that the Franklin Circuit Court has exclusive jurisdiction over all matters relating to an insolvent insurer’s liquidation. Such reverse preemption, which is authorized by the McCarran-Ferguson Act, applies when 1) the state statute was enacted for the purpose of regulating the business of insurance; 2) the federal statute involved does not specifically relate to the business of insurance; and 3) the application of the federal statute would invalidate, impair, or supersede the state statute regulating insurance. The Sixth Circuit easily found that the first two of the requirement for preemption were satisfied, but found that the third was not. The alleged impairment of the state statute was the fact that it would deny the Franklin Circuit Court of exclusive jurisdiction over the matter as provided for by the IRLL. But since the Liquidator had not appealed the denial of the motion to remand, no matter what the court decided the action would remain in federal court, and not be returned to state court. Finding that enforcing the arbitration clause would thus not invalidate, impair, or supersede a state statute regulating insurance, the Sixth Circuit vacated the order denying CGI’s motion to compel arbitration.

Atkins v. CGI Technologies and Solutions, Inc., Case No. 17-5506 (6th Cir. Feb. 9. 2018)

This post written by Jason Brost.

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ELEVENTH CIRCUIT SLAPS DOWN BANK’S THIRD ATTEMPT TO COMPEL ARBITRATION IN OVERDRAFT LITIGATION FIGHT

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The Eleventh Circuit recently upheld a district court’s denial of RBC Bank’s latest attempt to compel arbitration of a dispute with banking customers over allegedly fraudulent overdraft practices. The bank had previously lost its bid to enforce the arbitration provision in a 2008 customer account agreement (“CAA”). PNC Bank, which had acquired RBC, issued a new CAA in 2012 that lacked an arbitration provision and purported to be binding on account holders who did not opt out. The lower court then denied RBC’s renewed motion to compel arbitration based on the 2008 CAA, finding the 2012 CAA superseded the 2008 CAA. Shortly thereafter, PNC distributed a 2013 amended CAA including an arbitration provision that purported to apply retroactively to existing claims and to be binding on account holders who did not opt out. The present opinion came in review of the district court’s subsequent denial of another motion to compel arbitration, this one based upon the 2013 CAA, finding that PNC waived the right to pursue arbitration under the 2013 CAA where it did not issue the amendment until three years after this litigation began, failed to argue the 2013 CAA for almost two years after its purported effective date, and previously pursued arbitration under the 2008 CAA instead. The court also alternatively held the 2013 CAA amendment was not effective because both parties did not “expressly” agree to the arbitration provision addition.

Upon review, the Eleventh Circuit affirmed the denial of arbitration but for different reasons than the trial court articulated. The appellate court did not address waiver because it instead found PNC failed to demonstrate the necessary meeting of the minds regarding arbitration via the 2013 CAA. The court’s analysis centered on two primary considerations: (1) that PNC communicated with the plaintiff regarding the purported retroactive effect of the arbitration provision (which would effectively end the litigation) directly rather than through counsel, and (2) plaintiff repeatedly evinced his resistance to arbitration notwithstanding his failure to opt out of the 2013 CAA. Specifically, the court found PNC’s failure to communicate through plaintiff’s counsel to be material to its interpretation of the 2013 CAA’s retroactive effect. The contrast between plaintiff’s “uncounseled,” non-response to the opt out offer and the “counseled” response of repeated and ongoing opposition to arbitration demonstrated plaintiff could not have agreed to retroactive application of the arbitration agreement.

The court rejected PNC’s argument that refusing to enforce the 2013 CAA would be asymmetric considering the court previously enforced the 2012 CAA, because then plaintiff was not demonstrating inconsistent behavior, was seeking to enforce an agreement against PNC that PNC drafted, and did not exhibit ethically questionable behavior. Additionally, the court rejected PNC’s argument that plaintiff’s filing of an amended complaint revived its arbitration rights because the court’s conclusion that plaintiff did not agree to the 2013 CAA necessarily meant there were no arbitration rights to revive, and that the amended complaint’s changes would not warrant revival.

Dasher v. RBC Bank (USA), No. 15-13871 (11th Cir. Feb. 13, 2018).

This post written by Thaddeus Ewald .

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DELEGATION CLAUSE MUST CLEARLY CONTEMPLATE ARBITRABILITY OF DISPUTES WITH NON-SIGNATORIES TO BE ENFORCED IN THOSE DISPUTES

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A delegation clause that gave the arbitrators “exclusive jurisdiction over the entire matter in dispute, including any question as to its arbitrability,” was found insufficient to require submission to the arbitrators of whether a non-signatory to the arbitration agreement was subject to it. The court so held because the arbitration agreement did not “clearly and unmistakably” evidence an agreement by the non-signatory to have an arbitrator determine whether the agreement was arbitrable. Rather, nothing in the agreement “mention[ed]” or “reference[d]” the non-signatory.

The court distinguished cases wherein the non-signatory was successful in compelling a signatory to arbitrate. The court reasoned that, while the signatory in those cases could not disown its agreed-to obligation to arbitrate all disputes, the non-signatory in this case had never made such an agreement. Furthermore, one of the cases involved a party that was undeniably a successor-in-interest to a signatory, a fact that was contested in this case.

The court found these distinctions significant, and, in the absence of a “clear and unmistakable” reference in the arbitration agreement indicating the non-signatory was subject to the agreement, determined that it would decide this question of arbitrability, rather than submit it to the arbitrators pursuant to the delegation clause. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Stucco Sys., LLC, 17 Civ. 7936 (USDC S.D.N.Y. Jan. 26, 2018).

This post written by Benjamin E. Stearns.

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NEW YORK DISTRICT COURT CONFIRMS FOREIGN ARBITRATION AWARD, REASONING THAT COURTS WITH SECONDARY JURISDICTION MAY NOT REFUSE TO CONFIRM AN AWARD DUE TO AMBIGUITY

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Pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, codified at 9 U.S.C. § 201 et seq. (the “Convention”), Petitioner, a German corporation, sought an order confirming a final arbitration award of a money judgment against Respondent, a Turkish national, issued by a Swiss tribunal. In opposition to Petitioner’s motion to confirm the final award, Respondent argued, among other things, that the final award was so ambiguous as to be unenforceable.

The District Court, however, was not persuaded by that argument. Specifically, the Court held, “[w]hatever ambiguity existed by looking solely to the award section of the Final Award, it is resolvable by the record and the Arbitral Tribunal’s thorough Final Award opinion; it is clear what the Arbitral Tribunal decided.” More significant was the Court’s holding on ambiguity as grounds for refusal to confirm the award generally. In this regard, the Court held that “[w]hen sitting in secondary jurisdiction, as the Second Circuit has recently reminded district courts, the parameters within which a district court may refuse enforcement are rigidly circumscribed: ‘[T]he [New York] Convention is equally clear that when an action for enforcement is brought in a foreign state, the state may refuse to enforce the award only on the grounds explicitly set forth in Article V of the [New York] Convention.’” Therefore, because ambiguity is not a ground “explicitly set forth” in Article V, the Court determined that it is not a ground for consideration when determining whether or not to confirm a foreign award. BSH Hausgeräte GMBH v. Jak Kamhi, Case No. 17-5776, (USDC S.D.N.Y. Mar. 3, 2018).

This post written by Gail Jankowski.

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