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Arbitration / Court Decisions

COURT EXERCISES PERSONAL JURISDICTION OVER CANADIAN CORPORATION BUT FINDS MOTION TO VACATE PARTIAL FINAL ARBITRAL AWARD IS NOT JUSTICIABLE

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Pearl Seas Cruises, LLC (“PSC”), a Marshall Islands company whose members are Connecticut residents, petitioned a Connecticut federal district court to vacate a partial final arbitral award issued by a panel of arbitrators in connection with its dispute against Canadian corporation, Irving Shipbuilding Incorporated (“ISI”). ISI moved to dismiss, arguing that the court lacked personal jurisdiction over it and that PSC’s petition was premature because no final arbitration award had been issued yet by the panel. The court held that because ISI’s sales pitch, contract negotiations, and several meetings to resolve issues regarding contract performance occurred in Connecticut, ISI had the required minimum contacts with Connecticut to subject it to the court’s jurisdiction. However, the court held that PSC’s petition was not justiciable because the panel had not yet issued a final arbitral award. Pearl Seas Cruises, LLC v. Irving Shipbuilding, Inc., Case No. 10-1294 (USDC D. Conn. Feb. 9, 2011)

This post written by Ben Seessel.

NON-PARTIES TO CONTRACT CONTAINING ARBITRATION CLAUSE CAN COMPEL ARBITRATION; FRAUDULENT INDUCEMENT CLAIM IS ARBITRABLE

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Plaintiff filed a complaint in federal court alleging breach of contract and fraud against StoresOnline, its parent corporation, IMergent, and several officers and directors of the companies. StoresOnline offers software and support services for conducting internet businesses; Plaintiff had contracted with StoresOnline to purchase six web-stores. The contract between plaintiff and StoresOnline contained an arbitration clause, which provided that: “any and all disputes that arise . . . concerning this Agreement . . . or that concern any aspect of the relationship . . . shall be decided exclusively in binding arbitration.” Plaintiff asserted two arguments in opposition to the defendants’ motion to compel arbitration. First, Plaintiff argued that she only agreed to arbitrate with StoresOnline and not the other defendants, and, second, that the agreement was unenforceable because it had been procured by fraud. The court rejected both arguments and compelled arbitration. The court held that plaintiff’s claims against all defendants arose out of her relationship with StoresOnline and thus were governed by the terms of the arbitration clause, and that a claim of fraudulent inducement that generally challenges the enforceability of a contract, and not specifically the arbitration provision itself, may be subject to arbitration. Hird v. IMergent, Inc., Case No. 10-166 (USDC S.D.N.Y. Jan. 6, 2011).

This post written by Ben Seessel.

THIRD CIRCUIT AFFIRMS VACATING ARBITRATION AWARD, WHICH WAS THE “ESSENCE OF MANIFEST DISREGARD”

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The Third Circuit Court of Appeals affirmed a ruling vacating an arbitration award in an employment dispute involving a collective bargaining agreement (“CBA”). Armstrong County Hospital unilaterally instituted a smoking ban on its property. Its employees’ union disputed that policy, and sought arbitration of the dispute. The arbitrator ruled in favor of the union, finding that the policy unfairly altered the past practice of allowing smoking in designated areas, which was a working condition expected by employees, and which could not be altered unilaterally. The Hospital moved to vacate the award in federal court, on grounds that the arbitrator failed to address key language in the CBA stating that the Hospital’s management rights to institute policy unilaterally was “specifically not limited by existing or ‘prior practices.’” The district court agreed with the Hospital and vacated the award, finding it the “essence of manifest disregard.” The Third Circuit, citing the constraint on courts to “exceedingly narrow” review of such arbitration awards, nevertheless affirmed, finding the arbitrator’s award effectively rewrote the parties’ agreement. Armstrong County Memorial Hospital v. United Steel, Paper and Forestry, Rubber, Mfg. Energy, Allied Industrial and Service Workers Int’l Union, No. 10-2495 (3d Cir. March 14, 2011).

This post written by John Pitblado.

CLASS ACTION SETTLEMENT PRELIMINARILY APPROVED IN REINSURANCE KICKBACK SCHEME INVOLVING COUNTRYWIDE MORTGAGE LENDER

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A court has granted preliminary approval to a nationwide class action settlement in an action brought by homebuyers against Countrywide Financial Corporation, Countrywide Home Loans and Balboa Reinsurance Company for alleged violations of the Real Estate Settlement Procedures Act. Plaintiffs alleged that defendants engaged in a scheme where a portion of mortgage insurance premiums that mortgage insurers ceded to Countrywide’s affiliated reinsurer, Balboa, were “disguised kickbacks paid for the referral of primary mortgage insurance business.” The court conditionally certified a class defined as: “all borrowers with residential mortgage loans closed on or after December 22, 2005 through December 31, 2008 that were reinsured by Balboa or its subsidiaries, excluding borrowers with residential mortgage loans originated by Countrywide Home Loan’s Correspondence Lending Division or otherwise purchased on the secondary market.” The settlement relief includes payments from a settlement fund of up to $34 million. Payments for class members will be determined based on “an analysis of the number of private mortgage insurance payments made” by each class member. The settlement also includes an award of attorney’s fees and expenses for plaintiffs’ counsel, not to exceed 27.5% of the $34 million settlement fund. A hearing on whether to grant final approval to the settlement is currently set for July 29, 2011. Alston v. Countrywide Financial Corp., Case No. 2:07-cv-03508 (USDC E.D. Pa. March 22, 2011).

This post written by Michael Wolgin.

REINSURANCE LAWSUIT VOLUNTARILY DISMISSED

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On August 24, 2010, we reported that Folksamerica Reinsurance (n/k/a White Mountains Reinsurance) had been given 60 days to perfect service against Constructora Del Litoral in an action arising out of Constructora’s alleged failure to indemnify Folksamerica for sums paid in connection with reinsuring surety bonds issued for a construction project in Ecuador. In the latest development, the parties agreed to a joint stipulation of dismissal of the action with prejudice, although Folksamerica will not be precluded from pursuing claims against the defendants in Ecuador. The district court entered an order dismissing the case on February 25, 2011. Folksamerica Reinsurance Co. v. Constructora Del Litoral, S.A., Case No. 10-20560 (S.D. Fla. Feb. 25, 2011).

This post written by John Black.