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Arbitration / Court Decisions

FIFTH CIRCUIT REMANDS TO DETERMINE WHETHER JURISDICTION EXISTED FOR APPEAL OF DENIAL OF MOTION TO COMPEL ARBITRATION

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The underlying dispute involved allegations of breach of warranty and deceptive trade practices based on a sale of an allegedly defective car. The Fifth Circuit explained that the FAA, which governed the alleged arbitration agreement in the purchase contact, does not supply jurisdiction in the federal courts, that there was no federal question jurisdiction here, and that there was insufficient information in the record to show that diversity jurisdiction existed. The court ruled: “This Court is not satisfied, based on the record before it, that AutoNation does not share citizenship with the [plaintiffs]. For that reason, we VACATE the district court’s order and REMAND for a determination of subject matter jurisdiction. If diversity is not established, the district court must dismiss the parties’ suit.” Roman v. AutoNation Ford Gulf Freeway, Case No. 16-20047 (5th Cir. Oct. 13, 2016).

This post written by Michael Wolgin.

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NINTH CIRCUIT REVERSES CONFIRMATION OF ARBITRATION AWARD, REQUIRES EVIDENCE AS TO CONTRACT INTERPRETATION

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The hotel management agreement (HMA) between hotel manager Four Seasons and hotel owner Burton Way provided that Four Seasons could not license any of the “Four Seasons Operational Benefits” within 14 miles of the Four Seasons Los Angeles, but provided an exception permitting Four Seasons to “manage or operate” the Regent Beverly Wilshire hotel. A dispute arose as to whether Four Seasons’ provision of Four Seasons Operational Benefits to the Regent Beverly Wilshire was permitted under the “manage or operate” exception. Both parties at arbitration presented extrinsic evidence as to the interpretation of the exception, and the panel made determinations as to the credibility of both interpretations.

On appeal of the district court’s order confirming the arbitration award, the Ninth Circuit reversed, holding that such fact-finding at summary judgment by the panel was legal error and required an evidentiary hearing. The court also reversed the confirmation of the panel’s determination of sanctions against Four Seasons for spoliation of evidence, remanding for purposes of re-determining the question of prejudice to Burton Way. The Ninth Circuit affirmed, however, on the issues of fiduciary duty and fraudulent inducement. On the issue of fiduciary duty, the court held that it was not legal error for the panel to conclude that negotiations between the two parties over the terms of their management agreement fell outside the scope of the principal-agent relationship. Regarding the inducement claim, the court held that it was not legal error for the panel to conclude that Burton Way waived its fraudulent inducement claim where, despite the fact that it included a clause reserving its claims, it signed a later agreement continuing the relationship. Burton Way Hotels, Ltd. V. Four Seasons Hotels Ltd., Case No. 14-56846 (9th Cir. Oct. 18, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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TENNESSEE DISTRICT COURT ORDERS DISCOVERY OF REINSURANCE AGREEMENTS, BUT DENIES DISCOVERY OF REINSURANCE-RELATED COMMUNICATIONS, OTHER SIMILAR CLAIMS FILES, CLAIMS-HANDLING AND UNDERWRITING MANUALS AND ESTABLISHMENT OF RESERVES

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Plaintiffs sought coverage from the insurer Defendants for a $212.5 million dollar settlement of a claim of violation of the False Claims Act relating to errors and omissions in underwriting and origination of HUD mortgage loans. Defendants disclaimed coverage in part, stating the claim is “interrelated” to an earlier “claim” and thus barred under a later policy, and that Plaintiffs failed to timely notify Defendants of the claim. Plaintiffs sought discovery, and Defendants objected The Court largely agreed with Defendants, denying Plaintiffs’ requests for:

  • Other Similar Claims Files: although the parties should not be allowed to withhold extrinsic evidence during discovery while they wait for the Court to make a determination of ambiguity in the insurance contract, each claim is fact specific – involving different policy language and facts – and would not aid the Court in interpreting the policy language or Plaintiffs’ bad faith claims. Additionally, affidavits from each insurer reflected production would be unduly burdensome and disproportionate.
  • Claims-Handling & Underwriting Manuals of Excess Insurers: the interpretation of the excess policies depends upon interpretation of the primary policy, thus, any definition of “claim” or “interrelated” in the claims-handling manuals of the excess insurers are irrelevant. Further, what the excess insurers’ underwriting departments knew regarding the earlier “claim” is neither notice under the policies, nor relevant to interpretation of the terms “claim” and “interrelated claims.”
  • Reinsurance Communications: although the law on the discoverability of reinsurance communications is unclear, such communications are irrelevant to determining the intent of the parties to the primary insurance contract, or to Plaintiffs’ claim of bad faith.
  • Reserves: although courts are divided on the discoverability of reserves, the Court’s prior precedent held such information was a business decision and thus irrelevant to Plaintiffs’ claims.

The only discovery Defendants were compelled to produce were reinsurance agreements pursuant to Fed.R.Civ.P. 26 (a)(1)(A)(iv).

First Horizon Nat’l. Corp., et al. v. Houston Casualty Co., et al., 2:15-cv-02235 (USDC W.D. Tenn. Oct. 5, 2016).

This post written by Nora A. Valenza-Frost.
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NEVADA FEDERAL COURT AFFIRMS ARBITRATION AWARD

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The background of this case is as follows. Lift Equipment Certification Co., a heavy equipment manufacturer, was contracted by Lawrence Leasing Corp., a shipping company to redesign one of Lawrence’s cranes. The deal fell through, and the parties proceeded to arbitration. The arbitrator awarded both parties significant sums of money. However, plaintiff Lift believed that defendant Lawrence received too much in the arbitration award, and that it received too little. Thus, it moved in federal court in Nevada for the arbitration award to be vacated, and Lawrence cross-moved for the award to be confirmed.

The Nevada federal court noted that its review of arbitration awards is limited, and that plaintiff Lift faced a “heavy burden to prove by clear and convincing evidence that the arbitrator intentionally disregarded obvious legal principles” or that the decision is “utterly without support in the record.” The court then held that plaintiff Lift failed to prove by clear and convincing evidence that the arbitrator “manifestly disregarded the law” or that the award was “arbitrary and capricious.” Thus, the court denied Lift’s motion to vacate the arbitration award, and granted Lawrence’s cross motion to confirm the arbitration award. However, the court declined defendant Lawrence’s request for legal fees since plaintiff’s claims were “far from frivolous.”

Lift Equipment Certification Co., Inc. v. Lawrence Leasing Corp., No. 2:15-CV-01987-JAD-GWF (USDC D. Nev. Sept. 23, 2016)

This post written by Jeanne Kohler.

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NINTH CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION FOR LACK OF FEDERAL JURISDICTION

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The Ninth Circuit affirmed a district court’s dismissal of a plaintiff’s RICO claim, and thus found the district court lacked independent federal jurisdiction to compel arbitration of the dispute under the Federal Arbitration Act (“FAA”). Specifically, the Ninth Circuit agreed with the district court that the plaintiff failed to properly allege any predicate acts for a cognizable RICO claim against the defendant. As that claim was the plaintiff’s only basis for federal jurisdiction, the court found it lacked jurisdiction to compel arbitration under the FAA, which requires a party so moving to demonstrate that the court has an independent basis for federal jurisdiction.

Estate of Clark v. Horwich, No. 12-17064 (9th Cir. Sept. 23, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

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