Arbitration / Court Decisions

SECOND CIRCUIT REJECTS MANIFEST DISREGARD ARGUMENTS

July 19, 2012 by Carlton Fields

The Second Circuit has summarily affirmed a district court’s denial of a petition to vacate an arbitration award, and granted the cross-petition to confirm. We noted in our December 15, 2010 post that the Southern District of New York confirmed the award to Bayou Funds, a group of bankrupt entities which had been run as a massive Ponzi scheme. The district court ruled that the arbitrator did not manifestly disregard the law, even though he did not explicate the reasons for his ruling. Goldman Sachs, Bayou Funds’ clearing broker, continued to argue on appeal that the award must be vacated because it was rendered in manifest disregard of the law. After confirming that the manifest disregard doctrine remains viable in the Second Circuit, the appeals court rejected, among other things, Goldman’s arguments that it was not an “initial transferee” under the Bankruptcy Code’s § 550(a), and that the panel manifestly disregarded the law in concluding that it was. A district court decision in a different case supported Bayou Funds’ position and, although the Second Circuit declined to expressly endorse that earlier decision, it was enough to hold there was no manifest disregard. Goldman Sachs Execution & Clearing L.P. v. The Official Unsecured Creditors’ Committee of Bayou Group, LLC, No. 10-5049 (2d Cir. July 3, 2012).

This post written by Brian Perryman.

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SECOND CIRCUIT FINDS NO DIRECT ACTION RIGHT AGAINST REINSURER

July 18, 2012 by Carlton Fields

The Second Circuit handed down a summary order affirming the dismissal of Callon Petroleum’s complaint in a reinsurance dispute against National Indemnity. The court found that because the reinsurance agreement made clear that third parties had no rights under the agreement, Callon did not have a right of action against National Indemnity. Thus, this case did not qualify for New York state’s exception (in cases where the agreement contains a “cut through” provision) to the general rule that, as contracts of indemnity, reinsurance agreements give the original assured no right of action against the reinsurer. The court also affirmed the denial of Callon’s request to amend its complaint. Callon Petroleum Co. v. National Indemnity Co., No. 11-241 (2d Cir. July 3, 2012).

This post written by John Black.

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COURT ORDERS PRODUCTION OF REINSURANCE AND RESERVE INFORMATION IN INSURANCE CLAIM SUIT, FINDING INFORMATION RELEVANT AND NOT SUBJECT TO THE COMMON INTEREST PRIVILEGE

July 17, 2012 by Carlton Fields

In an insurance coverage case arising out of the sinking and salvage of a dry dock, the insured sought the production of documents concerning reinsurance purchased by its insurer, from the procurement of the reinsurance through the claim submitted to the reinsurer. The insurer resisted production based upon two grounds: (1) relevance; and (2) the common interest privilege, claiming that it and its reinsurer had “a joint legal interest in the outcome of the litigation ….” The insured contended that the reinsurance documents were discoverable and potentially relevant in that the insurer had contended that the insured had fraudulently failed to disclose certain information to it about the dry dock, and the facts considered by the reinsurer in pricing the reinsurance might reveal that the information allegedly not disclosed was in fact known to the insurer. Accepting this argument, the court found the reinsurance file, including information concerning reserves, to be relevant and discoverable.

The court held that the common interest doctrine requires a two-part showing: (1) a common legal, rather than solely commercial, interest; and (2) an exchange of privileged information made in the course of formulating a common legal strategy, with an understanding that the communication would be in furtherance of a shared legal interest. The first element requires an oral or written agreement “embodying a cooperative and common enterprise towards an identical legal strategy.” Finding that the mere status of insurer-reinsurer did not establish these elements, and the fact of the reinsurer merely turning its file over to the insurer was insufficient, the court analyzed the facts and determined that neither of these two elements of the common interest privilege had been satisfied. Accordingly, it ordered the production of the reinsurance information. In a separate order, the court deferred other discovery issues not related to reinsurance to a later hearing. Fireman’s Fund Insurance Company v. Great American Insurance Company of New York, Case No. 10-1653 (USDC SDNY July 3, 2012).

This post written by Rollie Goss.

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FOURTH CIRCUIT: STATE STATUTE DOES NOT REVERSE PREEMPT FEDERAL LAW

July 16, 2012 by Carlton Fields

The Fourth Circuit issued an opinion “preserving the United States’ ability to speak with one voice” in regulating foreign arbitrations. ESAB Group argued that a South Carolina statute “reverse preempts” federal law pursuant to the McCarran-Ferguson Act which is directed at protecting state insurance regulation by implied preemption by federal domestic commerce legislation. In particular, the Court of Appeals considered whether McCarran-Ferguson applied such that state law can reverse preempt federal law to invalidate a foreign arbitration agreement mandating dispute resolution before Swedish tribunals. The court concluded that the federal government articulated a uniform policy in favor of enforcing agreements to arbitrate internationally (through a treaty and its enacting regulations) even when a contrary result would be forthcoming in a domestic context. Thus, insurance disputes were not exempted from the treaty, which controlled. In addition, the Court of Appeals held that the district court properly exercised personal jurisdiction over Zurich Insurance, and that the court was within its rights to remand nonarbitrable claims to state court. ESAB Group, Inc. v. Zurich Insurance PLC, No. 11-1243 (4th Cir. July 9, 2012).

This post written by John Black.

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ARBITRATION AWARD ROUNDUP

July 11, 2012 by Carlton Fields

Following is a roundup of recent opinions on motions concerning the confirmation, vacation and modification of arbitration awards, organized by the issues presented in the motions:

Manifest Disregard

New York City Dist. Council of Carpenters v. Dufour Group, Inc., No. 12-Civ-00173 (USDC S.D.N.Y. April 19, 2012) (granting petition to confirm, no manifest disregard, no evident partiality, proceeding was not “fundamentally unfair”)

Hargrove v. Citigroup, Inc., No. 1:11-cv-07946 (USDC S.D.N.Y. May 9, 2012) (denying petition to vacate, no manifest disregard in age discrimination case)

Broadnax v. LVI Demolition Services, Inc., No. 2:11-cv-03084 (USDC D.N.J. May 31, 2012) (granting motion to confirm award, finding arbitrator’s award in labor dispute was rationally related to Collective Bargaining Agreement, no manifest disregard).

Gomez v. People’s United Bank, No. 3:10-cv-00904 (USDC D. Conn. June 13, 2012) (granting motion to confirm, no manifest disregard in compensatory damages, punitive damages, and attorneys fee award against car dealer)

Failure to Hear Pertinent Evidence

Ace American Ins. Co. v. Christiana Insurance, LLC, No. 11 Civ. 8862 (USDC S.D.N.Y. April 12, 2012) (granting petition to confirm, arbitrators did not fail to hear pertinent and material evidence, proceeding was not “fundamentally unfair,” arbitrators did not exceed the scope of the submission, and there was no manifest disregard of the law)

Scope of Arbitration

Homesite Ins. Inc. v. Dhaliwal, No. A131226 (Cal. App. Ct. April 19, 2012) (affirming confirmation of award, arbitrator did not exceed powers, and correctly decided question concerning scope of arbitration)

Harrell and Owens Farm v. Federal Crop Ins. Corp., No. 11-1360 (4th Cir. April 18, 2012) (affirming confirmation of award, arbitrator did not exceed powers in deciding scope of arbitration)

Town & Country Salida, Inc. v. Dealer Computer Services, Inc., No. 11-15430 (USDC E.D. Mich. May 31, 2012) (granting in part motion to vacate or modify, granting in part motion to confirm, vacating award against party who was not a party to the agreement to arbitrate, affirming award against affiliate that was party to the agreement)

Alliance Healthcare Services, Inc. v. Argonaut Private Equity, LLC, No. 11-C-3275 (USDC N.D. Ill. June 12, 2012) (granting motion to confirm in part, denying in part, finding arbitration panel did not exceed scope of submission, and confirming award on that basis, but denying moving party’s claim for post-award interest)

Evident Partiality

Chandler v. Journey Education Marketing, Inc., No. 2:10-cv-00839 (USDC S.D.W.Va May 15, 2012) (granting motion to confirm, no evident partiality)

Stone v. Bear, Stearns & Co., Inc., No. 2:11-cv-5118 (USDC E.D. Pa. May 29, 2012) (denying petition to vacate, denying attorneys fees to prevailing party, no evident partiality in FINRA arbitration where arbitrator failed to disclose husband’s ties to securities industry and insufficient challenge to such failure was made during the arbitration)

Jurisdiction/venue

Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, No. 11-Civ. 7707 (USDC S.D.N.Y. May 25, 2012) (denying motion to remand state court action seeking vacatur which was removed to federal court by prevailing party in arbitration, ordering petitioner to show cause why award should not be confirmed)

This post written by John Pitblado.

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