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Arbitration / Court Decisions

TEXAS SUPREME COURT GRANTS MANDAMUS RELIEF TO STAY LITIGATION PENDING ARBITRATION

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The Texas high court has held that a trial court abused its discretion by refusing to stay the litigation related to one corporation, MetroPCS Communications, Inc. (Communications), until the identical claims of its corporate affiliate, MetroPCS Wireless, Inc. (Wireless), were decided by arbitration or until Wireless became a member of a certified class action. The petitioner moved the trial court to compel arbitration and requested a stay of all litigation. The trial court denied the motion to compel arbitration because of a clause excluding arbitration where a signatory was a class member, but stayed Wireless’s claims until a class certification decision was rendered in a consolidated class action against the petitioner, of which Wireless was a putative member. The trial court declined to stay the related Communications litigation, which involved claims identical to the Wireless litigation. Directing that the Communications litigation also be stayed, the Supreme Court stated that the class action exclusion clause does not provide “a signatory with sanctuary from arbitration while a non-signatory affiliate simultaneously conducts discovery and chips away at the same issues in litigation.” In re Merrill Lynch & Co., Case No. 09-0161 (Tex. June 25, 2010).

This post written by Brian Perryman.

FEDERAL JUDGE CONFIRMS REINSURANCE ARBITRATION AWARD

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After arbitration between insurers Praetorian Insurance Co. (f/k/a Insurance Corporation of Hannover) and Clarendon Insurance Group Inc., and their reinsurer, American Constantine Insurance Co., the U.S. District Court for the Southern District of New York granted an unopposed petition to confirm the $7 million arbitration award. The award requires the reinsurer to place the amounts owed to the insurers either in escrow or in lines of credit for the insurers’ benefit, as collateral for the reinsurer’s share of reserves and incurred but not reported losses. Clarendon Am. Ins. Co. v. Am. Constantine Ins. Co., No. 10-2928 (USDC S.D.N.Y. June 8, 2010).

This post written by Michael Wolgin.

SOUTHERN DISTRICT OF NEW YORK BROADLY INTERPRETS U.S. SUPREME COURT’S STOLT-NIELSEN DECISION

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On February 18, 2010, we reported on Jock v. Sterling Jewelers, Inc., in which the U.S. District Court for the Southern District of New York refused to vacate an arbitration decision that permitted class arbitration under an agreement that did not address whether that procedure was permitted. Sterling subsequently appealed the order to the Second Circuit Court of Appeals, where it is currently pending. Thereafter, Sterling moved the Southern District of New York for an “indicative ruling” as to whether the court would reconsider its order based on the U.S. Supreme Court’s recent Stolt-Nielsen decision, which held that class arbitration is not permitted when the relevant arbitration clause is “silent” on class arbitration. The Southern District of New York concluded that, in light of Stolt-Nielsen, the court would now vacate the arbitration decision. The court explained that the determinative factor was the underlying arbitration agreement’s silence on whether class arbitration was permitted. The court was not persuaded by the plaintiffs’ attempts to distinguish this case from Stolt-Nielsen, including plaintiffs’ contention that the context of the agreement and sophistication of the parties in this case varied from the underlying agreement and parties in Stolt-Nielsen. Without an express or implied agreement for class arbitration, class arbitration would not be allowed. Jock v. Sterling Jewelers, Inc., No. 08- 2875 (USDC S.D.N.Y. July 27, 2010).

This post written by Michael Wolgin.

WITH OR WITHOUT PREJUDICE, THAT IS THE QUESTION

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A California federal court addressed arguments pertaining to whether a dismissal of a third party complaint as part of a settlement agreement between a plaintiff insurer and defendant-third-party-plaintiff reinsurer should be with or without prejudice. The third party plaintiff argued that the nature of the agreements between it and the third party defendant, another pool reinsurer (and no settlement had been reached as between these two parties), as to future indemnification obligations left open questions that could be precluded by dismissal with prejudice. The court ordered the dismissal without prejudice, invoking its broad discretion under Rule 41, and citing a failure by the third party defendant to identify a concrete harm it would suffer from a dismissal without prejudice. Eagle Star Ins. Co., Ltd. v. Highland Ins. Co., No. 02-cv-2165 (USDC S.D. Cal. July 22, 2010).

This post written by John Pitblado.