Arbitration / Court Decisions

COURT GRANTS SUMMARY JUDGMENT IN $40M REINSURANCE COMMISSION DISPUTE

August 11, 2014 by Carlton Fields

Greenlight Reinsurance brought suit against Appalachian Underwriters (“AUI”), Appalachian Reinsurance (“App Re”) and Insurance Services Group (“ISG”) alleging it had been shortchanged more than $40,000,000 pursuant to three types of agreements it entered into with the respective defendants (1) a reinsurance agreement between Greenlight and AIU, where AIU acted as managing general agent, and was obliged to refund ceded premium beyond contractually defined amounts based on loss ratios; (2) a similar retrocession agreement with App Re; and (3) a guarantee agreement with ISG. Greenlight claimed that, based on loss ratio thresholds, it was owed a return of premium under the reinsurance and retrocession agreements, and that ISG had guaranteed those payments.

The court analyzed the agreements, and, based on the minimum loss ratios, and the undisputed calculations of ceded premium, held that AUI owed Greenlight $16,986,516 under the reinsurance agreement, and App Re owed Greenlight $24,456,213 under the retrocession agreement. The court held, however, that Greenlight failed to demonstrate that the guarantee from ISG was a guarantee of payment. Rather, the court found that it was a parental guarantee, which required ISG, as a parent corporation, to ensure that its subsidiaries, AIU and App Re, remained solvent, but did not require it to make direct payments on their behalf. The court thus granted summary judgment on Greenlight’s claims against AUI and App Re, but denied summary judgment as to ISG. Greenlight Reinsurance, Ltd. V. Appalachian Underwriters, Inc., Case No. 12-CV-8544 (JPO) (USDC S.D.N.Y. July 28, 2014).

This post written by John Pitblado.

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CALIFORNIA APPELLATE COURT UPHOLDS DELEGATION CLAUSE IN ARBITRATION AGREEMENT

August 7, 2014 by Carlton Fields

The issue before the California Appellate Court was whether the trial court erred in enforcing a delegation clause in an arbitration agreement governed by the Federal Arbitration Act (“FAA”), and granting the defendant’s motion to compel arbitration.

Plaintiff/Petitioner brought a wage and hour action against her former employer. The defendant former employer moved to compel arbitration, pursuant to a clause contained in its employee handbook. The delegation clause provided, “The arbitrator has exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this binding arbitration agreement.” Plaintiff opposed arbitration asserting that the arbitration agreement was unconscionable. Defendant, in turn, asserted that arbitration agreement contained a delegation clause providing that issues relating to the enforceability of the arbitration agreement were themselves delegated to the arbitrator for resolution. The dispute then turned to whether the delegation clause itself was unconscionable.

The appellate court upheld the trial court’s decision. The appellate court concluded a portion of the rationale underlying Murphy v. Check ‘N Go of California, Inc. (2007) 156 Cal.App.4th 138 (Murphy); Bruni v. Didion (2008) 160 Cal.App.4th 1272 (Bruni); and Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494 (Ontiveros) was no longer viable under California law. Murphy, Bruni, and Ontiveros relied on three factors to conclude that the delegation clauses at issue were substantively unconscionable: (1) they were outside the reasonable expectations of the parties; (2) they were not bilateral; and (3) they provided for decisionmaking by arbitrators who would be biased by their financial self-interest. The appellate court found that the first two factors did not apply to the delegation clause at issue and that the third factor was preempted by the Federal Arbitration Act (“FAA”). Malone v. Superior Court, B253891 (Cal. Ct. App. June 17, 2014).

This post written by Kelly A. Cruz-Brown.

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NEW YORK FEDERAL COURT RULES IT CANNOT COMPEL ARBITRATION IN GEORGIA

August 6, 2014 by Carlton Fields

A New York federal court recently was presented with a motion to compel arbitration in Georgia. The district court first concluded that the arbitration provision was enforceable and then proceeded to the question of whether it had the authority to compel arbitration in a district other than its own. The court described what it deemed an “internal conflict” within the Federal Arbitration Act because the Act provides both that (1) courts must enforce an arbitration agreement in accordance with its terms, and (2) arbitration must take place “within the district in which the petition for an order directing such arbitration is filed.” The court also noted an unresolved split in the Second Circuit on how a New York district court should proceed when a suit pending before it involves an arbitration agreement that specifies that arbitration should take place outside the court’s district. Ultimately, the court ruled that it had no authority to compel arbitration outside its district, but nevertheless wished to enforce the valid forum selection clause contained in the agreement. Accordingly, the district court elected to stay the action, pending arbitration of the plaintiff’s claims against the defendant in Georgia. This approach left the parties free to pursue their contractual rights and remedies in the appropriate venue without running afoul of the FAA. Klein v. ATP Flight School, No. 14-CV-1522 (USDC E.D. N.Y. July 3, 2014).

This post written by Catherine Acree.

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NINTH CIRCUIT FINDS REVISIONS TO ARBITRATION POLICY IN EMPLOYEE HANDBOOK EFFECTIVE AND ENFORCEABLE

August 5, 2014 by Carlton Fields

The Ninth Circuit recently reversed a district court’s denial of a motion to compel arbitration of an employee’s claims that were brought as a putative class action against her employer, Nordstrom. The basis for the motion to compel was an arbitration provision contained in Nordstrom’s employee handbook. The arbitration provision had been modified to preclude employees from bringing class action lawsuits after the employee received the handbook.

The employee argued that she did not have reasonable notice of the change based on a provision in the employee handbook that required Nordstrom to provide employees with 30 days written notice of any substantive changes to the arbitration provision. The handbook provided that the notice provision was included to “allow employees time to consider the changes and decide whether or not to continue employment subject to the changes.” To comply with the notice provision, Nordstrom sent letters to employees in June 2011 informing them of the change in the arbitration policy. Nordstrom did not seek to enforce the new arbitration provision during the 30-day notice period, but the letter was silent in that regard and stated that the revised arbitration provision was the “current version.” Applying California law, the Ninth Circuit ruled that Nordstrom had satisfied the minimal requirements for providing employees with reasonable notice of a change to its employee handbook by sending the letter to the employees informing them of the modification, and by not seeking to enforce the arbitration provision during the 30-day notice period. The Ninth Circuit also held that Nordstrom was not bound to inform the employee that her continued employment after receiving the letter constituted acceptance of new terms of employment. Davis v. Nordstrom, Inc., No. 12-17403 (9th Cir. June 23, 2014).

This post written by Catherine Acree.

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TRAVELERS INDEMNITY SETTLES REINSURANCE DISPUTES WITH EXCALIBUR

July 31, 2014 by Carlton Fields

In two related cases, Travelers has settled its claims against Excalibur Reinsurance. A number of prior posts have addressed the substance of the parties’ disputes – for example, discovery issues (sealing portions of deposition testimony) and procedural issues (denying consolidation; requiring pre-hearing security). Stipulations of Dismissal were filed in both cases on May 23, 2014. The Travelers Indemnity Co. v. Excalibur Reinsurance Corp., Case Nos. 3:11-CV-1209 and 3:11-CV-1793 (USDC D. Conn. May 23, 2014).

This post written by Renee Schimkat.

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