Arbitration / Court Decisions

As we reported on November 1, 2012, a federal court confirmed an arbitration award in favor of AXA Versicherung AG in a long-running reinsurance dispute with New Hampshire Insurance Company and other AIG affiliated entities. The $10 million award provided interest to be paid at 6.5%, compounded annually. AIG asked AXA for an extension on its deadline to pay the award. AXA agreed on the condition that AIG would not challenge the award and, further, that AIG would pay 6.5% interest until the award was paid in full.

AIG mistakenly sent payment to a former AXA affiliate that had been sold to an unrelated third-party. It took six weeks for the money to be returned to AIG. AIG argued that it should only have to pay interest at the lower stautory rate during this six-week period because AXA had not cooperated in obtaining a return of the funds. The court ruled in AXA’s favor, holding that AIG had to pay the 6.5% interest as agreed and, moreover, that it was AIG’s responsibility to make payment to the proper party. AXA Versicherung AG v. New Hampshire Insurance Co., Case No. 1:12-c-06009 (USDC S.D.N.Y. Apr. 22, 2013)

This post written by Ben Seessel.

See our disclaimer.

In a prior post, we reported the district court’s denial of the insurer’s motion to compel arbitration in Union Electric Co. v. Aegis Energy Syndicate 1225. In that decision, the court held that a choice of law and forum selection clause agreeing “to submit to the jurisdiction of the Courts of the state of Missouri” in a policy endorsement, commonly known as a service of suit provision, prevailed over an alternative dispute resolution clause in the policy itself, and foreclosed arbitration. On April 19, 2013, the Eighth Circuit affirmed that decision, holding that the endorsement’s plain language gave Missouri courts jurisdiction over all disputes related to the policy. The court was not persuaded by the insured’s argument that the endorsement granted only personal jurisdiction over the parties for Missouri courts to enforce the ADR provision. This decision is setting up a conflict of opinions on this issue. Union Electric Co. v. Aegis Energy Syndicate 1225, No. 12-3546 (8th Cir. April 19, 2013).

This post written by Michael Wolgin.

See our disclaimer.

Former students of a failed flight-training school brought a putative class action against the bank that originated their student loans and the loan servicer, claiming violation of the California Unfair Competition Law and seeking to enjoin defendants from reporting loan defaults to creditors and from enforcing Notes against the students. The district court dismissed plaintiffs’ claims for failure to state a claim and denied defendants’ motion to compel arbitration. A panel of the Ninth Circuit reversed, holding that the arbitation provision as not unconscionable and that arbitration should have been compelled, following the United States Supreme Court’s Concepcion opinion, which had reversed a ruling by the Ninth Circuit. The Ninth Circuit granted en banc review, but then followed the panel decision in a lopsided 10-1 decision, holding that the arbitration clause was not substantively or procedurally unconscionable under California law for the following reasons: (1) the Note’s ban on class arbitration is not unconscionable after Concepcion; (2) the risk that plaintiffs cannot afford the arbitration fees is too speculative; and (3) the arbitration clause was “in its own section, clearly labeled, in boldface” and gave the students an opportunity to opt out of the clause within 60 days of signing the note. The Court also held that the case did not fall under the “public injunction” exception to the Federal Arbitration Act because injunctive relief would benefit only the approximately 120 putative class members and not the public. Judge Pregerson dissented, finding the arbitration to be unconscionable and unenforceable. Kilgore v. KeyBank, Nat’l Assoc., Case No. 09-16703 (9th Cir. Apr. 11, 2013).

This post written by Abigail Kortz.

See our disclaimer.