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Arbitration / Court Decisions

COURT REFUSES TO VACATE AWARD WHERE INSURER’S PRE-ARBITRATION APPEALS PROCESS NOT FOLLOWED

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Plaintiff USA Chiropractic commenced arbitration proceedings against PIP carrier NJ Re-Insurance Co., seeking coverage under an assignment of rights for medical treatment provided to NJ-Re’s insured. The arbitrator entered an award dismissing the claim, holding that USA Chiropractic lacked standing because it had not complied with the insurer’s appeals process before demanding arbitration. USA Chiropractic sought vacatur and also sued arbitration tribunal NAF in state court, arguing that the arbitrator had misapplied the law. The court denied plaintiff’s claims, holding that USA Chiropractic lacked standing for failure to follow NJ-Re’s pre-arbitration appeals process and, further, that NAF was immune from suit. The appellate court affirmed, finding that the trial court did not exceed its authority in denying USA Chiropractic’s request to set aside the award and that it was thus unnecessary to reach plaintiff’s appeal regarding whether NAF was an indispensable party to the litigation. USA Chiropractic v. NJ Re-Insurance Co., No. A-3108-11T1 (N.J. Ct. App. Dec. 14, 2012).

This post written by Ben Seessel.

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FEDERAL COURT FINDS INSURERS’ REMOVAL RIGHTS NOT WAIVED

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Plaintiff Southwestern Electric Power Company brought suit in Louisiana state court against a number of its insurers, seeking indemnity for damaged heat steam generators. The defendant insurers removed the case to federal court pursuant to the Convention on Recognition and Enforcement of Foreign Arbitral Awards. Plaintiff moved to remand, arguing that the defendants waived their right to removal (1) by written waiver from defense counsel; and (2) by litigating in state court (a motion to stay and compel arbitration was also pending). The court disagreed and denied the remand, noting (1) the purported written waiver was not unequivocal and unambiguous; and (2) the Convention allows removal any time before trial, thus contemplating the possibility of state court litigation before removal. Southwestern Electric Power Co. v. Certain Underwriters at Lloyds, Case No. 12-2065 (USDC W.D. La. Nov. 19, 2012).

This post written by John Pitblado.

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TWO COURTS FIND LACK OF APPELLATE JURISDICTION TO HEAR ARBITRATION-RELATED APPEALS

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Two recent opinions illustrate the need to assess jurisdiction when proceeding in arbitration-related matters. The Seventh Circuit Court of Appeals recently held that it did not have appellate jurisdiction over an arbitration dispute involving a collective bargaining agreement for interstate truckers. Since appellate jurisdiction was predicted on a jurisdictional grant in the Federal Arbitration Act, 9 U.S.C. §16(a)(1), and 9 U.S.C. §1 exempts from the FAA’s scope employment agreements involving interstate commerce, the court found, after a remand for fact finding, that it did not have jurisdiction under 9 U.S.C. §16 because the dispute involved truckers working in interstate commerce, and dismissed the appeal for lack of jurisdiction. International Brotherhood of Teamsters Local Union No. 50 v. Kienstra Precast LLC, No. 11-2097 (7th Cir. Dec. 13, 2012).

Of perhaps more interest to reinsurance practitioners, one party in a reinsurance arbitration filed an action in United States district court in Wisconsin seeking a declaration that the law firm representing the opposing party could not represent the opposing party in an arbitration pending in New York due to a conflict of interest. Jurisdiction was predicated on diversity of citizenship and amount in controversy. The court raised a question of subject matter jurisdiction on its own, and determined that the amount in controversy was not measured by the amount in dispute in the arbitration, but rather by the cost of replacing counsel, and that there was no good faith basis for believing that the cost of replacing counsel would satisfy the jurisdictional requirement of $75,000. The court therefore remanded the case to state court on its own motion. National Casualty Co. v. Utica Mutual Insurance Company, Case No. 12-657 (USDC WD Wis. Dec. 12, 2012).

This post written by Rollie Goss.

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TWO RECENT DECISIONS ADDRESS WHETHER PREJUDGMENT RELIEF IS AVAILABLE IN ARBITRATION PROCEEDINGS

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The first decision involved reconsideration of an interim arbitration award of prejudgment security that the court initially refused to confirm as a manifest disregard of the law. The court had determined that the arbitrators erroneously awarded a prejudgment bond of $10 million or an injunction from transferring such an amount, in the alternative. The court had relied on a provision in the underlying contract that provided that the agreement would be enforced in accordance with New York law, which prohibits such provisional remedies. On reconsideration, however, the court focused on another provision of the agreement, which adopted the AAA International Dispute Resolution Procedures. Under those rules, such provisional remedies were permitted. The court held, “It lay with the parties to confer on the arbitrator whatever powers they wished. Having adopted rules that allowed the arbitrator to award interim security, [defendants] are bound by their bargain. Nothing about enforcing an order rendered in accordance with the procedures to which the parties agreed offends either New York law or New York public policy.” The court relied on a Second Circuit opinion, Banco de Seguros del Estado v. Mutual Marine Offices, Inc., as support for this holding, and as support for the underlying premise that interim security issues are reviewable prior to a final arbitration award. CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, Case No. 1:12-cv-08087 (USDC S.D.N.Y. Dec. 10, 2012).

The second decision involved a court’s refusal to prohibit a foreign sovereign-owned bank from litigating in a reinsurance dispute, notwithstanding the bank’s failure to post security as required by state law. The court held that the bank could not be compelled to post such security under the Foreign Sovereign Immunities Act, which prohibits “attachment” of the property of a foreign state or its instrumentalities. The court found that other courts that have considered this issue have determined that the practical effect of prejudgment security is akin to an attachment of property, and thus the FSIA’s immunity applied. The court also found that the bank did not waive this immunity, distinguishing the Second Circuit’s opinion in Banco De Seguros Del Estado v. Mutual Marine Offices, Inc. Whereas the Second Circuit opinion found waiver of FSIA immunity under an arbitration agreement that permitted the arbitrators to “abstain” from following “the strict rules of law,” this case involved no such agreement. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estado, Case No. 1:12-cv-06357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by Michael Wolgin.

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FOURTH CIRCUIT REVERSES ORDER DENYING MOTION TO COMPEL ARBITRATION BASED ON WAIVER, APPLYING FAA RATHER THAN STATE LAW

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In a recent opinion, the Fourth Circuit reversed a district court order denying a motion to compel non-class arbitration. The district court applied Maryland arbitration law and concluded that the party moving to compel arbitration waived its right to enforce arbitration because the moving party (1) waited six months from the date the complaint was filed to file a motion to compel arbitration, (2) participated in some discovery, and (3) made a strategic decision to delay seeking arbitration until the law regarding whether it would be forced into class arbitration was more certain (that certainty was provided by the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. __, 130 S. Ct. 1758 (2010)). The Fourth Circuit determined that the FAA, rather than Maryland law, applied and provides for more limited circumstances that give rise to a waiver of the right to compel arbitration. The only relevant factors under the FAA are the amount of delay and the extent of the moving party’s trial oriented activity, not the moving party’s reason for delay. Applying these factors, the Fourth Circuit found that the non-moving party was not prejudiced by the six month delay or the moving party’s minimal participation in litigation, focusing on the fact that the moving party did not file any dispositive motions. Rota-McLarty v. Santander Consumer USA, Inc., No. 11-1597 (4th Cir. Nov. 28, 2012).

This post written by Abigail Kortz.

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