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Arbitration / Court Decisions

NINTH CIRCUIT: ENGLISH ARBITRATION LAW DOES NOT APPLY, AND DISPUTE NOT ARBITRABLE UNDER FEDERAL LAW

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Titan Maritime appealed a district court’s decision denying its motion to compel arbitration in an action filed by Cape Flattery Limited for gross negligence in the salvage of a vessel owned by Cape Flattery. Titan argued that the district court erred in refusing to apply English arbitrability law and that, even under federal arbitrability law, the dispute should go to arbitration. The Ninth Circuit Court of Appeal affirmed the district court’s denial of the motion to compel arbitration, noting specifically that under the Supreme Court’s reasoning in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), non-federal arbitrability law should apply only if there is clear and unmistakable evidence that the parties intended to apply such non-federal law. Accordingly, the Ninth Circuit held that federal arbitrability law did apply and that under federal law, the dispute was not arbitrable. Cape Flattery Limited v. Titan Maritime, LLC, No. 09-15682 (9th Cir. July 26, 2011).

This post written by John Black.

NONSIGNATORY AGENTS OF A PARTY TO AN ARBITRATION AGREEMENT ARE NOT COMPELLED TO ARBITRATE

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The Fifth Circuit held that two agents and officers of Beacon Maritime, Inc. were not bound to arbitrate claims against Aban Offshore Limited because, although one officer had signed a contract containing an arbitration clause in his capacity as an officer of the company, neither had signed the agreement in his individual capacity. The court reversed a trial court decision compelling the individual officers to arbitrate. Among other authorities, the Fifth Circuit relied on the Restatement (Third) of Agency, which provides that when an agent contracts with another on behalf of a disclosed principal, the agent and the third party become parties to the contract, but the agent does not become a party to the agreement unless the agent and third party agree otherwise. The court also cited state and federal case law holding that nonparties resisting arbitration demands are not be bound by arbitration agreements. Guy Covington v. Aban Offshore Ltd., No. 10-40449 (5th Cir. Aug. 10, 2011).

This post written by Ben Seessel.

COURT RULES FOR REINSURER IN ASBESTOS COVERAGE DISPUTE

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OneBeacon sued Commercial Union of Canada, based on its contention that Commercial Union agreed to reinsure successive renewals of a primary policy issued by OneBeacon to Harrisons & Crossfield (America) Inc. and affiliates. Harrisons faced lawsuits for asbestos-based personal injury claims. One of the OneBeacon primary policies at issue was renewed for three successive one-year terms in 1980, 1981, and 1982. Commercial Union issued a Facultative Certificate covering the policy period from March 28, 1980 through April 1, 1981. OneBeacon took the position that the parties intended for the reinsurance cover to be renewed as well. The court disagreed, finding as a matter of law that the Facultative Certificate was unambiguous, covered only the single year described in the contract, and that OneBeacon had not demonstrated with competent evidence any intent on the part of Commercial Union to extend the reinsurance cover beyond its stated term. The Court granted both parties’ motions to strike certain evidence (including a so-called “sham affidavit” proferred by OneBeacon that contradicted sworn testimony), denied OneBeacon’s motion for summary judgment, and granted Commercial Union’s motion for summary judgment. OneBeacon America Insurance Co. v. Commercial Union Assurance Co. of Canada, Case No. 10-10164 (USDC D. Mass. Aug. 18, 2011).

This post written by John Pitblado.

THIRD CIRCUIT CONFIRMS THAT FEDERAL ARBITRATION ACT PREEMPTS STATE LAW DEEMING CLASS ARBITRATION WAIVERS UNCONSCIONABLE

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The Third Circuit reversed a prior decision and held that, under the Supreme Court’s ruling in AT&T Mobility v. Concepcion, a New Jersey law providing that class arbitration waivers in consumer adhesion contracts are unconscionable is preempted by the Federal Arbitration Act. As we reported earlier on June 1, 2010, the Third Circuit had previously vacated a trial court order compelling individual arbitration holding that, under governing New Jersey law, provisions in adhesion contracts precluding class arbitrations are unconscionable and thus unenforceable. The defendant, Cellco Partnership, d/b/a Verizon Wireless, successfully petitioned for a writ of certiorari to the Supreme Court, which vacated the Third Circuit’s decision after deciding in Concepcion that a similar California law was preempted by the FAA. On remand, the Third Circuit reversed its prior decision and affirmed the trial court’s order compelling individual arbitration of the plaintiffs’ claims. Litman v. Cellco Partnership, No. 08-4103 (3d Cir. June 6, 2011).

This post written by Ben Seessel.

ONGOING REINSURANCE DISPUTE SURVIVES MOTION TO DISMISS

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A court granted in part and denied in part a motion to dismiss in a case involving the alleged miscalculation and underpayment of amounts owed to plaintiff Lincoln General Insurance Company by defendant U.S. Auto Insurance Services, Inc. We covered this litigation in a May 11, 2009 post. Lincoln General was the reinsurer of a variety of auto insurance policies sold by U.S. Auto, as managing general agent for State and County Mutual Fire Insurance Company. U.S. Auto sought dismissal on variety of grounds, including that a memorandum of understanding entered by the parties in a 2007 lawsuit between the parties necessitated dismissal of claims not raised in that earlier suit. The court, however, found that the memorandum did not limit the available causes of action in the later suit to those delineated in the 2007 suit, so the motion to dismiss on this ground was denied. Defendants also claimed that an “Assignment of Rights” between State and County and Lincoln General was invalid because it contained a “revocability clause.” The court noted, however, the absence of any case or statute saying a court must ignore the manifested intent of the parties in declaring the assignment void on revocability grounds. The court did dismiss Lincoln General’s claims of alter ego liability against others for U.S. Auto’s breaches of contract, fiduciary duty, and conversion because Lincoln General voluntarily withdrew these claims. Lincoln General Insurance Co. v. U.S. Auto Insurance Services, Inc., No. 10-CV-2307-B (USDC N.D. Tex. Aug. 18, 2011).

This post written by Brian Perryman.