Arbitration / Court Decisions

CALIFORNIA COURT ISSUES MIXED RULING ON CROSS-MOTIONS IN SUIT SEEKING POLICY RESCISSION

January 15, 2015 by Carlton Fields

A California federal district court granted in part and denied in part various motions involving Star Insurance’s action seeking to rescind an insurance policy based upon certain alleged material misrepresentations concerning the nature of the insured’s business. The insured, Sunwest Metals, Inc., incurred substantial damage to its property following an arson fire. After Star advanced certain benefits to Sunwest, Star sued to rescind the policy based upon certain alleged misrepresentations which Sunwest, through its agent, made on the insurance application which underreported the percentage of income from Sunwest’s recycling business. The parties did not dispute that the misrepresentations were false. In defense, Sunwest argued the misrepresentations were unintentional and not material. Sunwest counterclaimed against Star and cross-claimed against its agent as well as against Star’s surplus lines broker, G. J. Sullivan. The parties cross-moved for judgment.

First, the court denied Sunwest’s motion for judgment on the pleadings, rejecting Sunwest’s argument that Star was required to plead and prove that Sunwest’s intentionally mispresented the income from its recycling operations on the aapplication. As a matter of law, California law allows an insurer to rescind a policy based upon an insured’s negligent or intentional concealment or misrepresentation of a material fact.

Next, the court denied in part Star’s motion for summary judgment. Sunwest raised genuine issues of material fact as to whether Star had inquiry notice of the misrepresentations. Specifically, Star’s underwriters had seen Sunwest’s website which prominently displayed Sunwest’s recycling business and reviewed a report which should have put it on notice to further investigate Sunwest’s annual revenue breakdown. Moreover, because a genuine issue of material fact existed as to when Star should have been on notice of Sunwest’s actual income, the court determined that genuine issues of material fact also existed as to whether or not Star waived the misrepresentation by allegedly unduly delaying its rescission. While it agreed with Sunwest that genuine issues of material fact existed as to inquiry notice and waiver, the court found as a matter of law that the misrepresentations were indeed material.

Finally, the Court granted Sullivan’s motion for summary judgment. The parties did not dispute Sullivan acted as Star’s agent. The issue became whether Sullivan acted in a capacity as a dual agent which could have given rise to a cause of action by Sunwest against Sullivan. The court rejected Sunwest’s argument, finding that a reasonable jury could only conclude that Sullivan was not a dual agent. Star Insurance Co. v. Sunwest Metals, Inc., Case No. SACV 13-1930 DOC(DFMx) (C.D. Cal. Dec. 29, 2014).

This post written by Leonor Lagomasino.

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FIFTH CIRCUIT DISMISSES FOR LACK OF APPELLATE JURISDICTION APPEAL OF ORDER COMPELLING ARBITRATION

January 14, 2015 by Carlton Fields

The Fifth Circuit Court of Appeals has dismissed, for lack of appellate jurisdiction, a district court order granting a motion to compel arbitration filed by Certain Underwriters of Lloyds of London and several other insurance companies. The Fifth Circuit held that the district court’s order was not a final, appealable order within the meaning of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards or the Federal Arbitration Act. The district court had granted the motion after finding the insurance contract at issue contained a clear and unambiguous arbitration clause, and had then stayed the case and closed it for administrative purposes. The Fifth Circuit found the district court’s order and administrative closure lacked the finality necessary for appellate jurisdiction, noting a “clear distinction” between final orders dismissing cases after compelling arbitration and interlocutory orders staying and administratively closing cases pending arbitration. The district court’s order was deemed to be the latter and the appeal was therefore dismissed. Southwestern Electric Power Co. v. Certain Underwriters at Lloyds of London, No. 13-31130 (5th Cir. Nov. 24, 2014).

This post written by Renee Schimkat.

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IN BATTLE OF APPAREL COMPANIES, COURT COMPELS ARBITRATION

January 8, 2015 by Carlton Fields

In early September, a New York district court granted defendants United States Polo Association, Inc. (“USPA”) and Arvind Ltd.’s (“Arvind”) motion to compel arbitration. It further dismissed Ralph Lauren Corporation and its subsidiaries’ (collectively “Ralph Lauren”) complaint alleging breach of contract, fraudulent inducement, and unjust enrichment.

This action was the latest in a longstanding battle between Ralph Lauren and the USPA, who have been actively involved in trademark litigation since 1984. A 2003 settlement resolved disputes concerning USPA’s use of logos and trademarks with their sale of apparel. The settlement further contained an arbitration provision that would govern any dispute between the parties arising from the settlement agreement.

Ralph Lauren alleged that USPA/Arvind breached this settlement agreement by selling products that infringed upon their protected trademarks without language that indicated that the two companies were not affiliated. It also alleged that the defendants waived arbitration by filing to enforce arbitration in India instead of New York. The court rejected Ralph Lauren’s argument that the defendants waived their right to arbitration because Ralph Lauren showed neither substantive prejudice nor prejudice due to excessive cost and time delay. The court found that USPA/Arvind were not attempting to re-litigate any issue in arbitration. It further noted that “[i]t was the Polo plaintiffs, not USPA/Arvind, that filed the present action in the Southern District of New York and that postponed the arbitration proceedings in India,” negating a claim for excessive cost and delay. Finally, the court found that Ralph Lauren’s fraudulent inducement and remaining claims should be handled through arbitration. Ralph Lauren Corp. v. United States Polo Ass’n, No. 13 Civ. 7147 (S.D.N.Y. Sept. 4, 2014).

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

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RHODE ISLAND SUPREME COURT BARS SECOND ARBITRATION BASED ON THE DOCTRINE OF RES JUDICATA

January 6, 2015 by Carlton Fields

An architectural firm contracted to provide architectural, engineering and design services for a state veterans home for a “not to exceed fee” of $61,500, which was calculated as a percentage of overall expected construction costs. When there were changes to the scope of the construction, the construction costs increased, and the firm sought an additional fee. The request was denied, an administrative appeal was rejected and suit was filed. The parties stipulated to a stay of the lawsuit pending a statutory arbitration procedure. The arbitration was resolved adversely to the claimant, with the arbitrator declaring that he was not deciding any equitable claims the claimant may have had which were not asserted in the arbitration. The arbitration award was confirmed by agreement and no appeal was filed. The claimant then filed a petition to compel a second arbitration of equitable claims. The court denied the petition, holding that the proposed equitable claims were barred by the doctrine of res judicata.

The Rhode Island Supreme Court agreed, holding that the claimant could have asserted the equitable claims in the first arbitration, and that the scope of precluded claims was determined using the transaction test, i.e., whether the claims arose out of the same transaction or series of connected transactions. Finding that the equitable claims arose out of the same transactions as the previously arbitrated claims, and finding no applicable exception to the preclusion doctrine, the Supreme Court ruled that the unasserted equitable claims were barred by the final judgment confirming the award in the first arbitration. Torrado Architects v. Rhode Island Dept. of Human Services, No. 2013-274 (R.I. Nov. 25, 2014).

This post written by Rollie Goss.

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COURT DENIES RECONSIDERATION OF ORDER STAYING ACTION TO COMPEL ARBITRATION

January 5, 2015 by Carlton Fields

A federal district court refused to reconsider its order staying Allstate’s action to compel arbitration against its insured, A.O. Smith. The case involved a Settlement/Coverage-in Place Agreement between A.O. Smith and Allstate regarding coverage for asbestos liability. Continental Casualty Company, another insurer for A.O. Smith, filed an action in Wisconsin state court against both A.O. Smith and Allstate arguing that the Agreement impermissibly limited its subrogation and contribution rights against Allstate. When Allstate and A.O. Smith asserted their defenses in the Wisconsin action, a dispute emerged between them as to the nature of the Agreement. Allstate attempted to compel arbitration against A.O. Smith in federal court and to stay the Wisconsin litigation pending the outcome of the arbitration. The federal court, however, refused to compel arbitration and instead stayed its own proceedings, in deference to the Wisconsin court’s determination of a pending motion for summary judgment that could impact arbitrability. In denying reconsideration of that ruling, the court explained that its stay was warranted because the Wisconsin litigation was further along, the Wisconsin court was “currently in a more informed position from which to address the issue of arbitrability, and a stay [was therefore] warranted on that basis.” Allstate Insurance Co. v. A.O. Smith Corp., Case No. 1:15-cv-06574 (USDC N.D. Ill. Dec. 11, 2015).

This post written by Barry Weissman.

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