Arbitration / Court Decisions

ARBITRATION ROUNDUP

January 18, 2012 by Carlton Fields

Manifest Disregard:

L’Objet, LLC v. Samy D. Ltd., Case No. 11-3856 (USDC S.D.N.Y. Sept. 29, 2011) (confirming award, finding arbitrator did not exceed powers, commit misconduct, or exhibit manifest disregard of the law, in disallowing certain discovery, and interpreting applicable precedent)

Schwartz v. Merrill Lynch & Co., Inc., No. 10-0826 (2d Cir. Nov. 30, 2011) (affirming denial of motion to vacate arbitrator’s award, rejecting claim that retroactivity of Lilly Ledbetter Fair Pay Act did not suffice to establish manifest disregard of arbitrator decision made before passage of Act)

Diaz v. Colombina, S.A., Case No. 10-1426 (USDC D.P.R. Dec. 6, 2011) (confirming award, finding no basis for vacatur under enumerated categories in FAA)

Scope of Submission:

Wells Fargo Bank, N.A. v. WMR e-PIN, LLC, No. 09-3800 (8th Cir. Sept. 1, 2011) (Affirming confirmation of award, panel did not exceed scope of submission by ordering injunctive relief)

Wilkes Barre Hospital Co., LLC v. Wyoming Valley Nurses Assoc. PASNAP, Nos. 11-1134 and 11-1225 (3d Cir. Dec. 1, 2011) (affirming confirmation of award, finding arbitrator’s award did not exceed scope of submission based on nature of “mixed remedy” not specifically contemplated in parties’ Collective Bargaining Agreement)

Evident Partiality:

Anderson v. Cricket Comm’s, Inc., Case No. 11-2004 (USDC, W.D. Tenn. Sept. 23, 2011) (confirming award, finding no corruption, fraud or partiality by single arbitrator challenged by pro so litigant for declining to allow certain discovery)

Free Country Design & Construction, Inc. v. Proformance Group, Inc., Case No. 09-06129 (USDC W.D. Mo. Dec. 5, 2011) (confirming award, finding no evident partiality for “conflict of interest” based on arbitrator’s prior relationship with prevailing parties’ predecessor-in-interest, awarding attorney’s fees for post-arbitration litigation)

Validity of Arbitration Agreement:

Tricon Energy, Ltd. v. Vinmar International, Ltd., Case No. 10-05260 (USDC S.D. Tex. Sept. 21, 2011) (confirming award, finding valid agreement to arbitrate based on email exchanges which ratified certain disputed provisions of the parties’ agreement, including the arbitration provision)

Unity Construction Services, Inc. v. New Jersey Building Laborer’s Local Unions and District Councils, Case No. 11-6209 (USDC D.N.J. Dec. 12, 2011) (vacating award based on finding that no valid agreement existed as putative agent of contracting party had no authority to enter into agreement containing arbitration provision)

Duvall Contracting LLC v. New Jersey Building Laborer’s District Council, Case No. 11-02705 (USDC D.N.J. Dec. 16, 2011) (confirming award, finding valid agreement to arbitrate under Collective Bargaining Agreement applied to non-signatory company set up by principal of signatory company for purpose of avoiding use of union labor, contrary to CBA’s “double-breasting” provision)

This post written by John Pitblado.

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COURT ALLOWS REPLACEMENT OF APPOINTED ARBITRATOR, REFUSES TO DISQUALIFY UMPIRE CANDIDATE FOR ALLEGED IMPARTIALITY

January 17, 2012 by Carlton Fields

In a dispute concerning approximately $250 million in coverage obligations under two reinsurance policies issued by National Indemnity Company (“NICO”), IRB-Brasil Resseguros, S.A. (“IRB”) filed a motion to prohibit NICO from changing its party-appointed arbitrator two-years after appointment, and to stay the second of two pending arbitrations until the arbitrators in the first proceeding decided IRB’s motion to consolidate. The federal district court denied IRB’s request to bar NICO from replacing its appointed arbitrator, reasoning that a party is entitled to an arbitrator of its choice to act as a “de facto advocate for its position” and, furthermore, that, notwithstanding the passage of two-years, no action had been taken in the arbitration because a panel had never been fully constituted. The court granted the motion to stay that later-filed arbitration pending the arbitrators’ decision on the motion to consolidate. The court also denied a motion by NICO to disqualify IRB’s neutral umpire candidate due to alleged impartiality, finding that such challenges cannot be brought under the FAA until after an award is rendered. IRB-Brasil Resseguros, S.A. v. National Indem. Co., Case No. 11-1965 (USDC S.D.N.Y. Nov. 29, 2011).

This post written by Ben Seessel.

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COURT DISMISSES FRAUD AND UNJUST ENRICHMENT CLAIMS IN DISPUTE OVER ALLEGEDLY IMPROPER DRAW ON REINSURER’S LETTER OF CREDIT

January 12, 2012 by Carlton Fields

A court dismissed reinsurer Assurecare Corp.’s counterclaim for fraud and unjust enrichment against reinsured Arrowood Indemnity Company for drawing on Assurecare’s letter of credit for the allegedly improper purpose of collecting a disputed reinsurance claim. After engaging in a choice of law analysis, the court found that Assurecare’s fraud claim, which Assurecare sought to replace with a claim that Arrowood tortiously interfered with Assurecare’s relationship with the bank that issued the letter of credit, failed because no effect on the banking relationship was alleged. Assurecare’s unjust enrichment counterclaim failed because an enforceable contract (the Assurecare-Arrowood reinsurance agreement) existed between the parties. The court rejected Assurecare’s argument that Arrowood’s conduct related exclusively to the letter of credit, holding that the reinsurance agreement governed “the conditions under which Arrowood could draw on the Letter of Credit.” Arrowood Indemnity Co. v. Assurecare Corp., Case No. 11-5206 (USDC N.D. Ill. Dec. 15, 2011).

This post written by Michael Wolgin.

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NEW YORK COURT FINDS DISPUTED ISSUE OF FACT REGARDING WHETHER $600 MILLION SETTLEMENT WAS MADE IN GOOD FAITH, POSSIBLY IMPLICATING EXCEPTION TO FOLLOW-THE-FORTUNES DOCTRINE

January 11, 2012 by Carlton Fields

A New York appellate court decided an appeal of a grant of summary judgment and dismissal of an action relating to a 1993 settlement of massive coverage litigation regarding the manufacture of polychlorinated biphenyl (PCB). After the 1993 settlement, the underlying insured who manufactured the PCB became the subject of claims for bodily injury and property damage related to PCB. The insured settled those cases for roughly $600 million, $150 million of which was paid by National Union and its affiliates. National Union turned to its reinsurers for reimbursement; the reinsurers refused to pay. Normally, reinsurers are bound by settlements entered into by a ceding insurance company in good faith. Here, however, the appeal court found that there were issues of fact related to whether National Union settled in good faith. Though there was no evidence that National Union negotiated in bad faith, a 1993 Delaware superior court decision called into question the propriety of National Union’s dealings. Accordingly, the grant of summary judgment was overturned. American Home Assurance Co. v. National Union Fire Insurance Co. of Pittsburgh, No. 06-6430 (N.Y. App. Div. Dec. 27, 2011).

This post written by John Black.

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SUIT BASED ON REINSURERS’ FAILURE TO MAINTAIN REINSURED’S REQUIRED RESERVES SURVIVES DISMISSAL

January 10, 2012 by Carlton Fields

In a suit between a life insurer, Security Life Insurance Company of America, and producer-owned reinsurance companies (PORCs) and their organizer/administrator, Southwest Reinsure, Inc. (SRI), Security Life’s complaint that SRI and the PORCs (SRI Defendants) failed to maintain a trust account containing Security Life’s required reserves largely survived dismissal. The parties had entered into a number of agreements, including various reinsurance agreements between Security Life and the PORCs, and an agreement between Security Life and SRI whereby the latter would administer the insurance covered by the reinsurance agreements. Under the reinsurance agreements, if Security Life’s reserves account was deficient, the PORCs would pay Security Life a fee equal to an amount needed to satisfy the deficiency. When a deficiency arose, SRI arranged for a letter of credit in lieu of the fee, and subsequently, the creation of a trust account. The trust agreement gave Security Life control over disposition of the trust and required the trustee to keep Security Life informed about trust activity. Without Security Life’s knowledge, SRI allegedly transferred the trust to another bank, and ultimately depleted the account. Security Life alleged that it consequently could not use the account to meet its statutory capital requirements, prompting the instant suit against the SRI Defendants for breach of contract, breach of fiduciary duties, fraud and conversion, among other counts.

Security Life’s breach of contract claim survived dismissal in the face of the SRI Defendants’ argument that Security Life did not either “charge a fee” or “terminate the agreement,” which were the only two actions contemplated by the relevant reinsurance agreement. The court found that factual questions arose regarding whether the agreement was modified pursuant to the parties’ course of dealing, namely, that in lieu of charging fees, the parties would use letters of credit and a trust account. Security Life’s alleged damages based on risk of “adverse regulatory action” or downgraded rating were not too speculative to defeat the contract claim. As to the fiduciary duty count, the court found it also survived dismissal, as “the complex relationships between and among Security Life, SRI, and the reinsurers call into [] question the arm’s length nature of the various agreements between the parties.” Security Life’s fraud claims also survived dismissal. Security Life’s claim for conversion failed, however, because Security Life did not allege that it had an immediate right to possess the funds in the trust account. Security Life Ins. Co. of Am. v. Southwest Reinsure, Inc., Case No. 11-1358 (USDC D. Minn. Dec. 20, 2011).

This post written by Michael Wolgin.

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