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Arbitration / Court Decisions

FOLLOWING REVERSAL OF ARBITRABILITY RULINGS ON APPEAL, COURT DISMISSES REINSURANCE LITIGATION BASED ON FORUM SELECTION

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On August 15, 2014, we reported on a Tennessee district court finding unenforceable an arbitration clause in a Reinsurance Participation Agreement (RPA) between an insured and a reinsurer. The insured had filed a lawsuit seeking to reform the RPA, and the reinsurer sought to compel arbitration. The court refused to compel arbitration, finding that the arbitration clause was invalid. Subsequently, the Sixth Circuit vacated this ruling, finding that the parties manifestly intended to submit the threshold question of arbitrability to the arbitrator and not the court. On remand to arbitration, the arbitrator then determined that the matter was not arbitrable based on the RPA’s forum selection clause. In response to that ruling, the reinsurer moved to vacate it, and to dismiss the lawsuit altogether based on the choice of a Nebraska forum in the RPA’s forum selection clause.

The court has now granted dismissal, holding that the forum selection clause was unambiguous, and it was mandatory. The court also found that the insured failed to demonstrate that the clause was obtained by fraud, duress or other unconscionable means, that a Nebraska court would not handle the suit properly, or that Nebraska was seriously inconvenient to the insured. The insured also failed to show that “public-interest” factors disfavored a dismissal. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc., Case No. 1:13-CV-01069 (USDC W.D. Tenn. Feb. 2, 2016).

This post written by Barry Weissman.

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APPELLATE COURT REVERSES ORDER GRANTING MOTION TO COMPEL ARBITRATION

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In a three paragraph memorandum decision, the Ninth Circuit has reversed an order of a district court granting a motion to compel arbitration.  The Court  held that the district court erred in holding that the non-movant, GIB, had waived its right to a trial to determine the enforceability of a written arbitration agreement.  The Court stated that once GIB challenged the validity of the agreement the district court was obligated under the Federal Arbitration Act to hold a trial on the issue of the validity of the agreement.  Second, the Court held that the district court erred in holding GIB, which was not a signatory to the written arbitration agreement, bound by the agreement by the doctrine of estoppel, finding the factual record insufficient to support the district court’s ruling.  Finally, the Court held that the submission by GIB of a sworn declaration denying that the parties had entered into a written agreement, accompanied by e-mails which suggested a different, more informal, agreement, precluded the district court from deciding, as a matter of law, that the parties had entered into an agreement to arbitrate.  GIB, LLC v. Salon Ware, Inc., No. 14-55399 (9th Cir. Feb. 5, 2016) (unpublished).

This post written by Rollie Goss.
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DISTRICT COURT HOLDS ARBITRATION CLAUSE DOES NOT APPLY TO SWISS INSURER

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The United States District Court for the Southern District of New York recently denied a captive insurer’s motion to compel arbitration. The captive insurer, First Mutual Transportation Assurance Company, Inc. (FMTAC), argued that its reinsurer, Infrassure Ltd. (Infrassure), should be compelled to arbitrate a Hurricane Sandy-related reinsurance dispute in London. The parties shared a Certificate of Facultative Reinsurance that contained an arbitration clause setting forth arbitration procedures applicable to disputes between them. The district court held that the clause is inapplicable to this suit “because, by its explicit language, it only governs disputes between FMTAC and ‘UK and Bermuda Insurers.’” Infrassure is a Swiss insurer and therefore is not bound by the arbitration clause.

Infrassure, Ltd. V. First Mutual Transportation Assurance Company, Inc., No. 15-cv-8230 (U.S.D.C. S.D.N.Y. Jan. 22, 2016)

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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FOURTH CIRCUIT HOLDS ARBITRATION CLAUSE UNENFORCEABLE WHEN IT FORBIDS ARBITRATOR FROM APPLYING THE APPLICABLE LAW

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This case involves a class action filed in a Virginia district court against Delbert Services Corporation, the servicing agent of certain loans, for which the plaintiffs claimed that Delbert’s unfair debt collection practices violated federal law. The lender was Western Sky Financial, LLC, an online lender owned by a member of the Cheyenne River Sioux Tribe and located on the Cheyenne River Indian Reservation in South Dakota. Delbert sought to compel arbitration in response to the plaintiffs’ claims.

The loan agreements at issue required resolution of all disputes through arbitration, but stated that the agreement was “subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe” and that “[n]either this Agreement nor Lender is subject to the laws of any state of the United States of America”.

The Virginia district court upheld the arbitration clause in the loan agreements. However, although recognizing that the FAA establishes a liberal policy favoring arbitration agreements, the Fourth Circuit reversed the district court’s ruling, holding that the arbitration clause was unenforceable. The Court noted that “[t]he agreement purportedly fashions a system of alternative dispute resolution while simultaneously rendering that system all but impotent through a categorical rejection of the requirements of state and federal law. The FAA does not protect the sort of arbitration agreement that unambiguously forbids an arbitrator from even applying the applicable law.” The Fourth Circuit further noted that parties are free within bounds to select a choice of law clause, but that Delbert was seeking to use the arbitration process to avoid state and federal law.

Hayes v. Delbert Services Corp., No. 15-1170 (9th Cir. Feb. 2, 2016).

This post written by Jeanne Kohler.

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COURT DENIES MOTION TO VACATE ARBITRATION AWARD, FINDING ARBITRATION APPEALS PROCESS WAS VALID, AND THAT PANELS’ RULINGS DID NOT MANIFESTLY DISREGARD LAW

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Plaintiffs used a hay treatment product manufactured and sold by Cargill, Inc. A dispute arose between them concerning whether Cargill’s product caused serious injury to one of the plaintiffs. After protracted litigation concerning the arbitrability of the dispute, it was referred to arbitration before the National Grain and Feed Association (“NGFA”). The panel found in Cargill’s favor and plaintiffs appealed under the NGFA Arbitration Rules, challenging the arbitrators’ qualifications, evidentiary rulings, and other aspects of their decisionmaking. The NGFA Appeals Committee affirmed the decision and award issued by the original panel.

Plaintiffs brought an action to vacate the award. In support of its application, plaintiffs argued, among other things, that the arbitrators were biased in Cargill’s favor, that the arbitrators were not qualified to hear the dispute, that the structure of the NGFA arbitral process was flawed, and that both panels’ decisions were erroneous as a matter of law. The court denied plaintiff’s motion to vacate and granted Cargill’s cross-motion to confirm because: (a) plaintiffs had waived their right to challenge the arbitrators’ qualifications or the NGFA process by not raising these issues until after the proceedings; (b) Cargill’s involvement in NGFA’s annual convention, as well as the amount of membership dues it paid to the NGFA, did not evidence bias; (c) the panels’ failure to issue their decisions within the time period referenced by certain NGFA Arbitration Rules did not warrant vacatur, particularly since certain delays were attributable to plaintiffs; and (d) the panels’ evidentiary and legal rulings did not amount to manifest disregard of the law, as such rulings did not ignore binding precedent. Van Buren v. Cargill, Inc., No. 1:10-cv-00701 (USDC W.D.N.Y. Jan. 19, 2016).

This post written by Rob DiUbaldo.

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