Arbitration / Court Decisions

POTENTIAL FOR FRUITS OF DISCOVERY FROM AN AMERICAN LITIGATION TO BE USED IN A FOREIGN ARBITRATION NOT THE BUSINESS OF AN AMERICAN COURT

February 3, 2014 by Carlton Fields

Creating an interesting procedural posture, a German engineering company, GEA Group AG, brought suit against Flex-N-Gate Corporation and its CEO, billionaire Shahid Khan, in federal district court after instituting arbitration proceedings against Flex-N-Gate in Germany. Immediately after filing suit, GEA sought a stay of all proceedings, including discovery, in the district court pending the outcome of the arbitration proceedings. Khan, not a party to the arbitration or to the contract authorizing arbitration, sought a limited lift of the stay in order to conduct enough discovery to defend himself, which the district court allowed. Over GEA’s objections that Khan would simply pass along the “fruits of his discovery” to Flex-N-Gate to use in the German arbitration, the Seventh Circuit affirmed the district court’s decision as “eminently sensible.” The Seventh Circuit wondered “[w]hat business is it of an American court” whether the German arbitration panel decides to allow in the evidence obtained through discovery in American litigation? GEA Group AG v. Flex-N-Gate Corporation, No. 13-2135 (7th Cir. Jan. 10, 2014).

This post written by Abigail Kortz.

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REINSURANCE “FOLLOW THE SETTLEMENTS” DISPUTE REFERRED TO MANDATORY MEDIATION

January 29, 2014 by Carlton Fields

Utica Mutual’s reinsurance lawsuit with Clearwater Insurance has been ordered to mediation. The reinsured (Utica) asserted claims for breach of contract and declaratory relief, alleging that the reinsurer (Clearwater) breached and is expected to continue breaching certain facultative reinsurance contracts covering a share of losses incurred by the reinsured under umbrella liability insurance policies. The reinsured contended that the reinsurer refused to pay a portion of asbestos claims arising out of a settlement the reinsured entered into with the underlying insured. The case was referred to mandatory confidential mediation on January 8, 2014, and is required to be completed within four months. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Sept. 20, 2013 & Jan. 8, 2014) (Complaint & Order).

This post written by Michael Wolgin.

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FOURTH AND FINAL SETTLEMENT IN THE AIG SECURITIES LITIGATION IS APPROVED

January 23, 2014 by Carlton Fields

On September 11, 2013, the Southern District of New York approved the final settlement in the protracted class litigation regarding allegedly artificially inflated prices for AIG securities. This final settlement resolves all claims against defendant Gen Re with a settlement fund of $72 million for a class of persons and entities who purchased AIG securities from October 28, 1999 through April 1, 2005. Lead counsel was awarded $6.5 million in attorneys’ fees (9.09% of the settlement fund) and $525k in expenses. Any funds not claimed by class members will be distributed to a 501(c)(3) not-for-profit rather than returned to the defendant. The three previous settlements resolved claims against PwC, AIG, and Starr International Company. In re American International Group, Inc. Securities Litigation, 04 Civ. 8141 (DAB) (S.D.N.Y. Sept. 11, 2013).

This post written by Abigail Kortz.

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MOTION TO COMPEL ARBITRATION DENIED AS TO NON-SIGNATORIES TO AGREEMENT

January 22, 2014 by Carlton Fields

In a recent case involving an unsuccessful aquatic ecosystem restoration project in Clearwater, Florida, the Middle District of Florida applied the Federal Arbitration Act to resolve an arbitrability dispute, which involved a marine and dredging construction company, its performance bond sureties, and a dredging contractor. First granting a motion to compel arbitration with respect to the construction company and the contractor, both of which had signed the arbitration agreement, the court then reviewed common law contract and agency principles to determine whether the non-signatory sureties could also be bound by the agreement on some other theory, ultimately holding that they could not be because there existed no (1) incorporation by reference of another contract to which the sureties were signatories, (2) assumption by the sureties, (3) agency relationship, (4) veil-piercing/alter-ego, or (5) estoppel. Additionally, the court found that the arbitration agreement unambiguously limited its reach only to claims or disputes between the signatories because it listed those parties – and only those parties – regardless of the fact that it did not expressly exclude application to others. The court next determined that those claims found to be proper for arbitration – breach of contract and indemnity – did not predominate the nonarbitrable claims. Rather, the nonarbitrable claims – fraud in the inducement, negligent misrepresentation, rescission, personal liability, civil theft, and conversion – could be resolved in independent litigation without resulting in either duplicative proceedings or preclusive effect on the arbitrable claims. The court also denied the individual defendant’s motion to dismiss. U.S. Surety Company v. Edgar, Case No. 8:13-cv-1207-T-33TGW (M.D. Fla. Dec. 5, 2013).

This post written by Kyle Whitehead.

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WAIVER OF RIGHT TO ARBITRATE IS ISSUE FOR COURTS, NOT ARBITRATORS TO DECIDE

January 21, 2014 by Carlton Fields

A California appellate court has confirmed that the issue of whether a party has waived the right to arbitrate is an issue to be decided by the trial court, not the arbitrator. Defendants in a dispute regarding a stock purchase agreement moved to compel arbitration pursuant to that agreement, but only after they filed a demurrer to the complaint, moved to require plaintiffs to furnish a bond, and commenced their own lawsuit against plaintiffs for alleged misrepresentations made in connection with the purchase agreement. Plaintiffs opposed the motion to compel arbitration by arguing that defendants waived the right to arbitrate through this litigation conduct. The trial court and the appellate both agreed that the waiver issue is one for the court to decide and that defendants had waived their right to arbitrate. Hong v. CJ GGV America Holdings, Inc., Case No. B246945 (Cal. Ct. App. Dec. 18, 2013).

This post written by Abigail Kortz.

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