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Arbitration / Court Decisions

NEW YORK APPELLATE COURT AFFIRMS DENIAL OF MOTION FOR CHANGE OF VENUE

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In this reinsurance coverage case in a New York court, certain defendant reinsurers made a motion for a change of venue under NY CPLR 510 (2) on the ground that “an impartial trial could not be had” based on the fact that plaintiffs’ former lead counsel, who was scheduled to be a fact witness, had retired from law firm practice and was now a judge of that same court’s Commercial Division. The New York court denied the motion, and the reinsurers appealed.

On appeal, the New York appellate court noted that the lower court correctly determined that the reinsurers’ motion for a change of venue was untimely, in that they waited “until the eve of trial,” after plaintiffs’ former counsel’s was designated a judge of the court’s Commercial Division, which was nine months after he was first designated as a judge of the court. The court noted that all of the arguments raised by the reinsurers in support of the venue change when he was appointed to the Commercial Division existed at the time he was first appointed as judge of the court.

Noting that to succeed on a CPLR 510(2) motion, a movant must demonstrate by factual evidence that there is a strong possibility that an impartial trial cannot be had in the venue. But the New York appellate court concluded that the reinsurers’ arguments consisted not of factual evidence, but of conclusory allegations, beliefs, and suspicions. The court noted that “[t]here is no personal relationship between the trial judge and the judge-witness and no personal relationship between the judge-witness and the party. The mere fact that the jury may discover a nonparty witness is a judge is not enough to prejudice a defendant where a plaintiff does not seek to exploit the witness’s status to enhance his credibility. Moreover, the same concerns would exist, no matter in what venue the case is tried.” Thus, the court affirmed the lower court’s denial of the reinsurers’ motion.

U.S. Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604517/02 (N.Y. App. 1st Dep’t Dec. 22, 2016).

This post written by Jeanne Kohler.

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SUPREME COURT GRANTS CERTIORARI IN THREE CLASS ARBITRATION WAIVER CASES AMIDST DEVELOPING FEDERAL CIRCUIT SPLIT

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The Supreme Court will hear argument on whether arbitration provisions in employment agreements which waive class actions are a violation of the National Labor Relations Act (“NLRA”). The three cases are as follows:

In Epic Systems Corp. v. Lewis (USSC 16-285), which we previously reported on June 6, 2016, the Seventh Circuit held a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived collective action was prohibited under Section 7 of the NLRA.

In Ernst & Young, et al. v. Morris, et al. (USSC 16-300), which we previously reported on September 12, 2016, the Ninth Circuit similarly held that the waiver in the Ernst & Young employment agreement violated Sections 7 and 8 of the NLRA.

In NLRB v. Murphy Oil USA, Inc., et al. (USSC 16-307), which we previously reported on September 6, 2016, the Fifth Circuit held the opposite, finding that requiring employees to sign arbitration agreements requiring them to resolve employment-related claims through individual arbitration and waiving their rights to pursue a class arbitration to be valid.

The three cases were consolidated and a total of one hour is allotted for oral argument.

This post written by Nora A. Valenza-Frost.

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COURT GRANTS MOTION COMPELLING 30(B)(6) DEPOSITION TESTIMONY ON REINSURANCE FROM INSURANCE COMPANY FOLLOWING LIQUIDATION

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In a discovery dispute following the liquidation of Western Insurance Company (“Western”), a Utah federal district court granted a motion to compel a 30(b)(6) deposition testimony regarding Western’s reinsurance agreements. Western objected to the discovery on the grounds that the subject Directors and Officers should have made reinsurance claims prior to liquidation, and the failure to do so resulted in millions of dollars lost for the company. The court granted the motion to compel based on that assertion, deeming the testimony regarding reinsurance agreements, payments, and settlements to be relevant to the Directors and Officers’ preparation of their defense to that assertion. The court stated that if no reinsurance proceeds were received by Western, the Directors and Officers were still allowed to verify that through deposition testimony, because had Western received any payments on claims, that might provide evidence of the value of those claims at the time of liquidation.

Western Ins. Co. v. Rottman, Case No. 13-436 (USDC D. Utah Dec. 28, 2016)

This post written by Thaddeus Ewald .

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COURT FINDS THAT ENRON’S FRAUD DOES NOT VOID CONTRACT ENTERED INTO WITH ENRON SUBSIDIARY

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A federal appellate court has upheld a district court order enforcing an arbitration award by the ICC against the Republic of Nigeria in favor of Enron Nigeria Power Holdings, Ltd. (“ENPH”), a former subsidiary of Enron International Corporation (“Enron”), for breach of a contract. Nigeria claimed that enforcing the contract was against public policy due to that fraud that became apparent when Enron collapsed in 2001. However, the court rejected this argument, noting that Enron was not a party to or mentioned in this contract.

The operative contract, agreed to in 1999, contemplated ENPH engaging in three phases of construction, but the dispute was limited to the second phase under which ENPH was to have built a power plant in Nigeria. ENPH made various efforts through 2005 to get Nigeria to move forward with the second phase of the contract, but Nigeria refused to do so, leading ENPH to take the matter to arbitration with the ICC.

Nigeria argued that the contract was void as against public policy because of false statements regarding Enron’s financial attributes made to Nigeria in order to induce Nigeria to enter the contract. The ICC found no clear evidence that these statements induced Nigeria to enter the contract, emphasizing that the contract contained no express or implied guarantees from Enron, which was not a party to nor required to do anything under the contract. Further, the ICC found that Enron’s accounting fraud had no connection to ENPH nor to the second phase of the contract. When Nigeria refuse to pay ENPH, ENPH successfully sought enforcement in federal court. On appeal, the court upheld the order granting enforcement of the award, noting the deference due to both the factual determinations and interpretations of the contract made by the ICC.

Despite finding in ENPH’s favor, the court rejected three arguments advanced by ENPH. First, ENPH argued that Nigeria had failed to identify a well-defined public policy, but the court found that enforcing a contract tainted by fraud was plainly against public policy. Second, ENPH argued that Nigeria contractually waived any right to challenge the award anywhere except London, where the arbitration was held, but the court found that a party cannot waive such a public policy argument, as that would effectively “elevat[e] the parties’ contractual choices above the fundamental need of the federal courts to protect their own integrity.” Third, the court rejected the argument that Nigeria forfeited the argument that ENPH should be held responsible for Enron’s fraud as its alter ego by not properly raising it before the district court, finding that a party cannot waive this sort of public policy argument that courts are bound to decide.

Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria, No. 15-7121 (D.C. Cir. Dec. 27, 2016)

This post written by Jason Brost.

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ELEVENTH CIRCUIT RESOLVES JURISDICTIONAL ISSUES REGARDING THE CONFIRMATION OF AN ARBITRATION AWARD

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The Eleventh Circuit recently held that a district court retained jurisdiction over a motion to confirm an arbitral award, even though the plaintiff had voluntarily dismissed its claims while the motion to confirm was pending.

After PTA-FLA and affiliated entities (“ClearTalk plaintiffs”) filed a series of lawsuits across multiple jurisdictions against ZTE USA, ZTE moved to compel arbitration and the disputes were addressed in a consolidated arbitration proceeding. The arbitration resulted in a zero dollar award for both sides meant to bind ZTE and the ClearTalk plaintiffs.

While ZTE’s motion to confirm the arbitral award was pending, PTA-FLA voluntarily dismissed its claims, but the district court confirmed the arbitral award based upon its supplemental jurisdiction to do so. The Eleventh Circuit affirmed, finding that the lower court’s diversity jurisdiction granted it power both to compel the arbitration and confirm the resulting award. It held that the zero dollar award did not destroy diversity jurisdiction because the amount in controversy was satisfied at the time the case was filed. Likewise, it decided that the voluntarily dismissal did not destroy diversity jurisdiction because the confirmation of an arbitral award is a collateral claim over which the district court had independent jurisdiction.

Furthermore, the Eleventh Circuit confirmed that the lower court had supplemental jurisdiction to confirm the award against those ClearTalk plaintiffs that were joined for the consolidated arbitration. In doing so, it confirmed that the exception to supplemental jurisdiction excluding claims by plaintiffs against parties added under certain Federal Rules applied only to the “original” plaintiffs, and not third-party, counter, or cross plaintiffs.

PTA-FLA, Inc. v. ZTE USA, Inc., No. 15-15159 (11th Cir. Dec. 15, 2016)

This post written by Thaddeus Ewald .

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