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Arbitration / Court Decisions

PARTICIPATION IN NEW YORK ARBITRATION NOT AN IMPLICIT WAIVER OF SOVEREIGN IMMUNITY UNDER THE FSIA

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A pro se attorney sued his former clients, Argentina’s economic ministry and a reinsurance company owned by the Argentine government, for malicious prosecution based on the Argentine government’s criminal prosecution of the attorney for allegedly exorbitant fees. In the malicious prosecution action, the Southern District of New York decided it could not exercise subject matter jurisdiction over the defendants because none of the exceptions to sovereign immunity provided by the Foreign Sovereign Immunities Act applied. Although the court acknowledged that defendants’ retention of the attorney in connection with commercial matters qualified as commercial activity, it determined that the commercial activity exception did not apply because the activity in question was the government initiated criminal prosecution. The court also concluded that defendants’ prior consent to arbitrate the issue of alleged overbilling by the plaintiff was not an “unmistakable or unambiguous waiver” of immunity from the separate tort action of malicious prosecution. Moreira v. Ministerio de Economia y Produccion de la Republica Argentina, Case No. 10 Civ. 266 (LTS)(KNF) (S.D.N.Y. Dec. 7, 2012).

This post written by Abigail Kortz.

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COURT REFUSES TO ENJOIN ATTORNEYS WHO ALLEGEDLY BREACHED CONFIDENTIALITY AGREEMENT IN REINSURANCE ARBITRATION

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On May 1, 2012, we reported on the Second Circuit’s affirmance of a denial of Utica Mutual Insurance Company’s motion to disqualify R & Q Reinsurance Company’s attorneys in a dispute arising out of the alleged breach of three confidentiality agreements, including one entered as an order in the parties’ pending reinsurance arbitration. Utica alleged that R&Q breached the confidentiality agreement put in place in the reinsurance arbitration by improperly disclosing confidential information in a separate lawsuit against a third party. On December 14, 2012, the court adopted a magistrate’s recommendation (entered on November 6, 2012), to deny Utica’s motion for preliminary injunction enjoining R&Q from disclosing the alleged confidential information. The court found that Utica failed to demonstrate with any specificity that the alleged breach of confidentiality would cause it irreparable harm, although the court did note that Utica showed a likelihood of success on the merits of its claim that the confidentiality agreements had been breached. Utica Mutual Insurance Co. v. INA Reinsurance Co., Case No. 6:12-cv-00194 (USDC N.D.N.Y. Dec. 14, 2012).

This post written by Michael Wolgin.

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BREACH OF UBERRIMAE FIDEA – THE UTMOST DUTY OF GOOD FAITH – AFFIRMED BY SECOND CIRCUIT

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The Second Circuit recently addressed the issue doctrine of uberrimae fidea. St. Paul Fire & Marine Insurance brought suit against Matrix Posh, LLC, its insured under a policy of marine insurance, seeking to have the policy declared void ab initio due to Matrix’s alleged misrepresentations about pre-existing damage to the insured vessel. The trial court granted summary judgment and the Second Circuit affirmed. The Second Circuit held that the determination of whether the misrepresentations were material hinged not on the extent of the damage to the vessel (Matrix claimed after the fact that the damage was minor), but on whether the misrepresentation that there was no damage, precluded St. Paul from the opportunity to investigate the risk itself, prior to acceptance. This violated Matrix’s duty of utmost good faith and the policy was therefore void. St. Paul Fire & Marine Insurance Co. v. Matrix Posh, LLC, No. 12-2045-CV (2d Cir. Jan. 16 2013).

This post written by John Pitblado.

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SECOND CIRCUIT HOLDS THAT FEDERAL COMMON LAW DEFINES WHAT “ARBITRATION” MEANS UNDER THE FAA

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Recently, the Second Circuit definitively held that federal common law, not state law, provides the meaning of “arbitration” under the Federal Arbitration Act. In the case, Bakoss and Lloyds entered into a disability insurance certificate which constituted a contract. The contract provided that each party would select its own physician to determine whether the insured was totally disabled and, in the case, the two physicians disagreed; a third physician chosen by the two would make a binding determination as to disability. After coverage was denied, Bakoss filed suit in state court. Lloyds removed the case asserting federal jurisdiction under the FAA and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which, unlike the FAA, provides an independent basis for federal jurisdiction.

The trial court looked to federal case law in determining that the dispute resolution provision regarding total disability constituted an arbitration agreement and thus held that it had jurisdiction to adjudicate the dispute over coverage under the Convention and FAA. The trial court also granted summary judgment on the merits to Lloyds. Bakoss appealed, arguing that the dispute resolution procedure was not an arbitration agreement under state law. The Second Circuit affirmed, holding that “arbitration” under the FAA is defined by federal common law; it also affirmed the grant of summary judgment to Lloyds on the merits. As discussed in the opinion, some federal courts of appeal have held that state law supplies the definition of “arbitration” and others apply federal law. Bakoss v. Certain Underwriters at Lloyds of London, No. 11-4371 (2d. Cir. Jan. 23, 2013).

This post written by Ben Seessel.

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COURT DENIES MOTION TO DISMISS WHERE DEFENDANT RETROCEDED RESERVES HELD ON VEHICLE SERVICE CONTRACTS

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Operators of vehicle dealerships filed suit alleging breach of contract, conversion, breach of fiduciary duty, and money had and received against an administrator of vehicle service contracts that the plaintiff dealerships had sold to customers in connection with vehicle sales. Plaintiffs complained that defendants had improperly retroceded funds that had been reserved as reinsurance for payments to be made under the vehicle services contracts. The court denied defendant’s motion to dismiss, holding that plaintiffs had stated a plausible claim for relief that the administrator had breached reinsurance agreements that were neither attached to the complaint nor to defendant’s motion to dismiss. The court also held that the economic loss rule did not bar plaintiffs’ conversion and breach of fiduciary duty claim because there was a possibility that plaintiffs could establish with certain (undescribed) facts that a fiduciary relationship existed between the parties. Hoffpauir v. Interstate National Dealer Services, Inc., Case No. A-12-CA-263 LY (USDC W.D. Tex. Jan. 24, 2013).

This post written by Ben Seessel.

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