Arbitration / Court Decisions

NO RES JUDICATA EFFECT FOR UNCONFIRMED ARBITRATION AWARD

May 31, 2012 by Carlton Fields

The Greers entered into a contract with Town Construction for construction of their home. After a dispute arose regarding costs, workmanship, and other issues, Town Construction filed an arbitration demand with AAA for unpaid balances. The Greers counterclaimed for damages for repairs and diminution in home value due to construction defects, specifically alleging that their home had cracks in the walls due to Town Construction’s faulty workmanship. The arbitrator awarded damages on Town Construction’s claims and the Greers’ counterclaims. There was no evidence in the record, however, that the award had been confirmed by a court.

Three years later, the Greers discovered more cracks in the walls and filed a lawsuit in state court for damages. The trial court dismissed the claims as barred by res judicata because the Greers’ claims had already been litigated in the AAA arbitration proceeding. The Court of Appeal reversed. The court held that, under Louisiana Supreme Court precedent, an unconfirmed arbitration award is not a “valid final judgment” because it was not “rendered by [a] court” and thus has no res judicata effect. Greer v. Town Constr. Co., No. 2011 CA 1360 (La. Ct. App. Mar. 23, 2012).

This post written by Ben Seessel.

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LLOYDS’ DISQUALIFICATION ACTION AGAINST OPPOSING COUNSEL DISMISSED

May 29, 2012 by Carlton Fields

Certain Underwriters at Lloyds, London (“Underwriters”) brought an action in Massachusetts Superior Court against Liberty Mutual and its counsel, Sidley Austin LLP, seeking to disqualify Sidley from representing Liberty Mutual in a coverage action involving a Lloyds reinsurance treaty, where Liberty Mutual was adverse to Lloyds. Sidley had also been retained by Resolute Management, Inc.. (f/k/a Equitas), which is Lloyds’ long-tail asbestos reinsurance claims management arm, to represent it in connection with a federal appeal. Sidley claimed that there was no conflict in its representation in the two actions, but that if there was a conflict, it was nevertheless disclosed to Lloyds, and implicitly waived thereby. The Court agreed with Sidley, finding the two representations did not involve substantially similar issues, and that Lloyds had been appropriately apprised of Sidley’s representation of Liberty Mutual when it retained Sidley in the federal appeal. The Court denied the motion for disqualification, and dismissed Lloyds’ action seeking declaratory and injunctive relief. Apparently, Lloyds was not upset enough about Sidley’s dual role to fire it from representing Equitas in the appeal. Certain Underwriters at Lloyds, London v. Sidley Austin LLP, No. SUCV2010-04663 (Mass. Super. Ct. March 5, 2012).

This post written by John Pitblado.

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NINTH CIRCUIT: NO IMMEDIATE APPEAL OF INTERIM STAY AND ORDER COMPELLING SUBMISSION OF DISPUTE TO REFEREE

May 24, 2012 by Carlton Fields

The Ninth Circuit recently issued an opinion on an issue of first impression — whether an order compelling enforcement of a contractual agreement to submit a dispute to a referee, and staying proceedings in the interim, is immediately appealable. The dispute at issue arose between Bagdasarian Productions and Twentieth Century Fox over the film “Alvin and the Chipmunks, The Squeakquel.” The Ninth Circuit dismissed the appeal on the basis that it lacked jurisdiction at this stage of the proceedings. Specifically, the court held that the stay was not a “final decision” or “judgment” because it did not put the plaintiffs “out of court.” No decision by the referee could possibly moot the action or be res judicata (as with a parallel proceeding). Indeed, after the referee’s decision, the losing party would have the option of moving for a new trial or any other post-judgment motions. Similarly, the court found that the order staying the proceedings was not immediately appealable under the collateral order doctrine because plaintiffs could ultimately seek relief on appeal to this court after the action before the referee and district court concludes. The Court noted that its ruling was consistent with treatment of orders denying or compelling arbitration under the Federal Arbitration Act. Bagdasarian Productions, LLC v. Twentieth Century Fox Film Corp., No. 10-56430 (9th Cir. Mar. 26, 2012).

This post written by John Black.

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COURT GRANTS, DENIES SUMMARY JUDGMENT IN TRAVEL REINSURANCE ACTION

May 23, 2012 by Carlton Fields

Liberty Travel (and affiliated travel and leisure companies) and Travel Re-Insurance filed cross-motions for summary judgment on a dispute related in part to reinsurance of travel insurance products sold by Liberty to its customers. Liberty and Travel Re’s relationship was complex, and involved both reinsurance and direct insurance. Among other things, Travel Re contracted with Liberty to be its exclusive provider of travel insurance products. Essentially, Travel Re provided reinsurance on travel products, and would also collect “Salvage” from Liberty, meaning the excess money collected when a travel supplier did not issue a cancellation penalty or issued a credit or reimbursement to Liberty following a customer’s trip cancellation. After some time, Liberty sought to end the parties’ exclusive arrangement, and Travel Re filed suit.

The United States District Court for the District of New Jersey granted in part Liberty’s motion for summary judgment. The court ruled that (a) Liberty was not liable for damages unforeseeable at the time the contract was entered; (b) the existence of a valid contract barred Travel Re’s claim for unjust enrichment; and (c) Travel Re’s breach of the implied covenant of good faith and fair dealing should be dismissed as duplicative of the breach of contract claim. The court, however, denied summary judgment as to the breach of contract and also ruled that material issues of fact remained as to whether Travel Re mitigated damages. Finally, the court denied Travel Re’s motion for summary judgment on the exclusivity provision, finding issues of fact as to who was to blame for the failure to engage in a joint determination of reasonable competitiveness under the contract. Travel Re-Insurance Partners, Ltd. v. Liberty Travel, Inc., No. 09-CV-5033 (D. N.J. May 9, 2012).

This post written by John Black.

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REINSURER PERMITTED TO REFUSE CONSENT TO NEW BOND OFFERING DESPITE INSURED’S COMPLIANCE WITH “ADDITIONAL DEBT TEST”

May 22, 2012 by Carlton Fields

A hospital sued its bond insurer and reinsurer for losses incurred pre-paying certain debt before learning that the insurers would refuse to consent to the hospital’s plan to procure additional debt to fund a new facility. The hospital contended that the underlying policy implicitly required the insurer and reinsurer to provide consent to additional loans if the hospital complied with the policy’s “additional debt test” standards, with which the hospital allegedly complied. The court disagreed and dismissed the case, holding that the policy provided an unqualified right to the insurers to withhold consent. The consent provisions were unconditional on their face and, moreover, contained in a section of the policy separate from the debt test provisions. The court further held that the hospital’s allegations of improper motives on the part of the insurers should be dismissed, where the insurers purportedly withheld consent to conduct diligence on what was to be a $350 million bond offering deal. Woman’s Hospital Foundation v. National Public Finance Guarantee Corp., Case No. 11-cv-00014 (USDC M.D. La. Mar. 20, 2012).

This post written by Michael Wolgin.

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