Arbitration / Court Decisions

LOUISIANA WAIVES ITS RIGHT TO ARBITRATE DISPUTE OVER AUCTION RATE SECURITIES DUE TO LITIGATION INVOLVEMENT

January 20, 2011 by Carlton Fields

A federal appeals court affirmed that Louisiana Stadium & Exposition District and the State of Louisiana (“LSED”) waived their right to arbitration by expressing the intent to litigate a dispute with Merrill Lynch, Pierce Fenner & Smith Inc. (“MLPFS”) concerning auction rate securities. LSED, which owns the Superdome, structured $240 million in municipal debt as auction rate securities to finance repairs after Katrina, based on MLPFS’s allegedly misleading advice. After the auctions failed in 2008, LSED filed lawsuits against MLPFS. Following eleven months of litigation, LSED moved to compel arbitration before FINRA. The appeals court affirmed that LSED had waived its right to arbitration by expressing its intent to litigate, finding that MLPFS would be prejudiced because, among other reasons, it would forfeit procedural victories it had won in litigation, including having the cases consolidated with other auction rate securities actions, and lose the opportunity to file a dispositive motion, which are disfavored in FINRA arbitrations. Louisiana Stadium & Exposition District v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 10-889 (2d Cir. Nov. 22, 2010).

This post written by Ben Seessel.

ALABAMA COURT OF CIVIL APPEALS AFFIRMS CONFIRMATION OF ARBITRATION AWARD

January 19, 2011 by Carlton Fields

Three prospective buyers of certain multi-million dollar beach condo properties, who paid twenty percent down, but later refused to purchase the condos due to alleged deficiencies, brought suit against the owner/builder, who allegedly improperly retained a portion of the down payment. The parties arbitrated their dispute pursuant to the arbitration provision in the purchase agreement, and the plaintiffs were awarded compensatory and punitive damages on a conversion claim. However, disputing the damages calculation, the plaintiffs brought an action in court seeking to vacate the damages award in favor of a higher figure. The trial court generally confirmed the arbitration award, with only a slight modification based on a computational error. The appellate court affirmed, reiterating the principles of deference codified in the Federal Arbitration Act, and rejecting “manifest disregard of the law” as a proper basis on which to challenge an arbitration award. Kitchens v. Turquoise Properties Gulf, Inc., No. 2090791 (Ala. Civ. App. Nov. 12, 2010) (opinion not available without charge).

This post written by John Pitblado.

COURT ISSUES PROTECTIVE ORDER OVER DIRECT INSURER’S REINSURANCE CLAIM AND RESERVE INFORMATION

January 17, 2011 by Carlton Fields

Teck Metals Ltd. sued London Market Insurance in a direct insurance coverage action arising from alleged environmental pollution claims asserted by Federal, State, and Tribal authorities against Teck. London Market declined coverage for the claims under certain umbrella liability policies. Among a morass of various discovery issues in the case (some of which are the subject of a pending interlocutory appeal to the Ninth Circuit), Teck sought information from London Market pertaining to its notification of the claims to its reinsurers, as well as certain reinsurance claims and reserve information. A Magistrate recommended that the date, method of transmittal, and author of London Market’s first communication to its reinsurers is relevant to late notice issues and should be provided, but that reinsurance reserves and claim information was not relevant. The district court adopted the magistrate’s recommendations with some agreed-upon compromises, including a protective order regarding the reinsurance information. Teck also made a request under the Hague Convention to obtain the depositions of three London Market-affiliated foreign nationals, including two claims administrators and an underwriter. Teck Metals, Ltd. v. London Market Insurance, Case No. 05-411 (USDC E.D. Wash. Nov. 19, 2010).

This post written by John Pitblado.

FAA JURISDICTION EXISTS TO COMPEL AGREEMENT NON-SIGNATORIES TO ARBITRATE

January 13, 2011 by Carlton Fields

In a suit brought by FR 8 Singapore, a Singapore company, to compel arbitration with the alleged alter ego companies of Albacore Maritime, a Marshall Islands corporation, the court denied the defendants’ motion to dismiss for lack of subject matter jurisdiction, and held the choice of law provision in the agreement between FR 8 and Albacore applied to defendants’ motion to dismiss for failure to state a claim. The dispute stemmed from a failed purchase of a ship by Albacore from FR 8. The purchase agreement was signed by Albacore in Greece and FR 8 in Singapore, and provided for English choice of law and dispute resolution in London. When the purchase failed, arbitration commenced between FR 8 and Albacore, but Albacore’s parent companies (alleged alter egos) refused to participate. FR 8 sued in the United States under the FAA and the Convention in the Recognition and Enforcement of Foreign Arbitral Awards, to compel the alter egos’ participation. The defendants argued that the refusal to participate by the alter egos, which were non-signatories to the agreement, did not render FR 8 a “party aggrieved” under the FAA. The court rejected FR 8’s argument, questioning whether the FAA applied to compel non-signatories to arbitrate, but holding that FR 8 was a “party aggrieved” because correspondence between FR 8 and the defendants’ counsel constituted “an unambiguous demand to arbitrate,” with which the alter egos refused to comply. The court also resolved conflicting precedent on whether federal common law or the parties’ choice of law would apply to defendants’ motion to dismiss for failure to state a claim, holding the choice of English law provision would apply. FR 8 Singapore v. Albacore Maritime Inc., Case No. 10 Civ. 1862 (USDC S.D.N.Y. Dec. 14, 2010).

This post written by Michael Wolgin.

SUIT DISMISSED AGAINST FINNISH REINSURER FOR LACK OF PERSONAL JURISDICTION

January 12, 2011 by Carlton Fields

Neles-Jamesbury Inc. filed suit for breach of contract against Pohjola Ins., a Finnish insurer, arising from a reinsurance contract between Pohjola and Lumbermens Mutual Casualty. NJI sought to hold Pohjola directly liable, alleging that Lumbermens was acting as Pohjola’s agent. Lumbermens had issued a comprehensive insurance policy covering NJI. The policy was stamped “Facultative Reinsurance” and contained the notation “reverse flow business 100% reinsured by Pohjola Ins. Co.” After Lumbermens denied coverage on certain claims, NJI filed suit against Lumbermens in Massachusetts state court. When NJI learned Lumbermens was having financial trouble, it sued Pohjola, which suit was removed to federal court. The federal court granted Pohjola’s motion to dismiss for lack of personal jurisdiction, finding that the Finnish company’s relationship with Lumbermens was not a mere agency and thus the Pohjola’s contacts with Massachusetts did not reach the levels necessary for personal jurisdiction. Neles-Jamesbury, Inc. v. Pohjola Ins. Co., LTD., Case No. 10-40055 (USDC D. Mass. Dec. 7, 2010).

This post written by John Black.