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Arbitration / Court Decisions

ACTION TO VACATE ARBITRAL AWARD DISMISSED FOR LACK OF SUBJECT-MATTER JURISDICTION

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A disappointed claimant in a FINRA arbitration filed suit under section 10 of the Federal Arbitration Act (“FAA”) in United States District Court to vacate the arbitral award.  The court dismissed the case for lack of subject-matter jurisdiction.  The court noted the well established principle that the FAA is not itself a source of subject-matter jurisdiction.  Stating that the parties were not diverse, the court proceeded to evaluate whether it could exercise subject-matter jurisdiction based upon the existence of a federal question.  The plaintiff proposed two bases for federal question jurisdiction: (1) the failure of its opponent to produce certain documents, which it argued constituted a violation of FINRA rules, or a disregard by the panel of FINRA rules; and (2) the fact that the claims pursued in the arbitration included claims under federal securities laws and SEC regulations.  The court rejected both  contentions, finding with respect to the first issue that many courts have held that “manifest disregard” of FINRA or NASD rules do not constitute manifest disregard of federal law for purposes of the FAA.  With respect to the second contention, the court followed a Second Circuit opinion which held that a court may not “look through” the petition to the claims in the underlying arbitration for a basis for subject-matter jurisdiction.  The court rejected the argument that jurisdiction was supported by Vaden v. Discover Bank, 556 U.S. 49 (2009), which held that, with respect to petitions to compel arbitration under section 4 of the FAA, courts may look through the petition to determine whether it is predicated on an action that “arises under” federal law. Citing textual differences between sections 4 and 10 of the FAA, the court held that Vaden did not provide support for looking through the petition for purposes of evaluating whether the court had subject-matter jurisdiction over an action predicted on section 10 of the FAA. Doscher v. Sea Port Group Securities, LLC, Case No. 15-cv-384 (USDC S.D.N.Y. August 5, 2015).

This post written by Rollie Goss.

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IN REINSURANCE-RELATED COMMISSION DISPUTE, COURT GRANTS DEFENDANT LEAVE TO AMEND ANSWER RATHER THAN GRANT PLAINTIFF SUMMARY JUDGMENT

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A lawsuit filed in the United States Court for the District of Connecticut between Odyssey Reinsurance Company and Cal-Regent Insurance Services Corporation involves a dispute over commission payments in a reinsurance scheme with State National Insurance Company, Inc. According to Odyssey, Cal-Regent has not made the appropriate commission payments for 2003 to 2007. According to Cal-Regent, however, Odyssey failed to perform the contracts and Cal-Regent is entitled to a set-off. In its complaint, Odyssey alleged that it “has performed all of its obligations under the Reinsurance Agreement” and had performed all conditions precedent to bringing suit. Odyssey moved for summary judgment, and Cal-Regent argued that Odyssey was not entitled to summary judgment, among other reasons, because of the dispute over whether the Odyssey had first breached the reinsurance contracts. However, in its answer to Odyssey’s complaint, Cal-Regent had the burden “to deny Odyssey’s performance with particularity, which Cal-Regent failed to do.” Rather than granting summary judgment to Odyssey on this issue, the court issued a decision allowing Cal-Regent to amend its answer and affirmative defenses, including granting leave to add an affirmative defense of material breach.

In another decision issued on the same day, however, the court dismissed Cal-Regent’s counterclaim for a setoff, finding that it had been brought under Connecticut law, rather than Texas law, when the parties had agreed to Texas law in the reinsurance agreement. Odyssey Reinsurance Co. v. Cal-Regent Insurance Services Corp., No. 3:14-cv-00458-VAB (USDC D. Conn. Aug. 20, 2015).

This post written by Zach Ludens.

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INSURER AND REINSURER LOCKED IN DISCOVERY ROW

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In a row between Granite State Insurance Company (“Granite”) and R & Q Reinsurance Company (“R & Q”), a New York trial court denied R & Q’s attempt to (1) vacate a prior court order, (2) appoint a special referee, and (3) dismiss counts in the complaint.

By way of history, the court previously found that certain discovery documents were protected under attorney-client privilege. Looking for reconsideration of this order, the court construed R & Q’s motion to vacate as a motion to renew and/or reargue. The court denied R & Q’s motion to renew as it failed to present a change in law or present new facts that would necessitate an alteration of the prior discovery order. The court also denied R& Q’s motion to reargue finding the “common interest” exception to attorney-client privilege inapplicable between an insurer and reinsurer. Without a relevant exception, the court held that R & Q “failed to demonstrate that [the court] overlooked or misapprehended the relevant facts.”

The court also denied R & Q’s attempt to appoint a special referee because an appointment would only extend an already prolonged discovery process without “special circumstances.” Finally, the court noted that Granite and R & Q engaged in a considerable “meet and confer” process in an effort to narrow the scope of discovery, and thus instead of dismissing claims for which discovery had not yet been provided, the court directed R & Q to re-serve its discovery requests directed to those claims, as appropriately revised based on the parties’ “meet and confer” process.

Granite State Ins. Co. v. R & Q Reinsurance Co., No. 654494/2013 (Sup. Ct. July 22, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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COURT MAY APPOINT ARBITRATION UMPIRE UNDER FAA

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On August 26, the Second Circuit Court of Appeals considered whether a trial court had appointment authority under the Federal Arbitration Act (“FAA”). Overturning a prior order that denied Odyssey Reinsurance Company’s (Odyssey) motion to appoint, the Second Circuit found that the trial court not only had the authority to appoint an arbitration umpire but “the obligation to appoint an umpire to correct a breakdown in the umpire selection process.”

The trial court found that it did not need to intervene in a dispute over worker’s compensation billings. The Second Circuit Court disagreed, finding the parties deadlocked as to the interpretation of various terms in the arbitration agreement concerning umpire qualifications. This “lapse” therefore necessitated the trial court to appoint an arbitration umpire.

Odyssey Reinsurance Co. v. Certain Underwriters at Lloyd’s London Syndicate 53, No. 14-2840-cv (2nd Cir. Aug. 26, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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DISTRICT COURT WON’T ALLOW INSURER TO “REPACKAGE” ITS BREACH OF UTMOST GOOD FAITH CLAIMS

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We previously reported on Old Republic National Title Insurance Co. v. First American Title Insurance Co., in which the court partially dismissed First American’s claim for breach of good faith and fair dealing to the extent the predicate breach of reinsurance contract claim alleged by First American failed to state a claim. The court has now denied First American’s motion to amend its answer. In the motion, First American attempted to demonstrate the predicate breach of reinsurance contract by contending that Old Republic failed to make payment under the contract based on false accusations and improper document requests. But the court agreed with Old Republic that the claims as pled did not support First American’s new allegations, and could not serve as a basis for a claim for the breach of the utmost duty of good faith. Old Republic Nat. Title Ins. Co. v. First American Title Ins. Co., No. 8:15-cv-126-T-30EAJ (USDC M.D. Fla. July 17, 2015).

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

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