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Arbitration / Court Decisions

ASSETS UNFROZEN TO PAY LEGAL COUNSEL

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In a follow-up to a December 2, 2009 post regarding unauthorized insurance and reinsurance, funds previously frozen to ensure payment of a judgment in favor of plaintiff Everest National Insurance Co. were unfrozen to pay the judgment debtor/defendants’ legal fees. The funds were originally pledged as security for the defendants’ reimbursement obligation arising out of a letter of credit. When the security interest was released, Everest obtained an injunction restraining the defendants from transferring the funds so they would be available to satisfy the judgment. Before the injunction was entered, however, the funds were transferred to a trust account for the express purpose of paying legal fees. The court granted the defendants’ motion for an order authorizing release of the funds for the purpose of paying their legal fees. The defendants had no other source of cash to pay counsel, who threatened to withdraw if payment toward the accumulated legal fees could not be made. Everest National Insurance Co. v. Sutton, Case No. 07-722 (USDC D.N.J. Jan. 8, 2010).

This post written by Brian Perryman.

RECENT DECISIONS ON CONFIRMATION OF ARBITRATION AWARDS

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This post summarizes the salient issues and key points of recent decisions on arbitration awards:

  • In the latest development in Swiss Re v. Lincoln National, the Northern District of Indiana confirmed the entry of an uncontested arbitration award. Swiss Reinsurance Co. v. Lincoln Nat’l Reinsurance Co. (Barbados) Ltd., Case No. 09-cv-36 (N.D. Ind. Dec. 14, 2009).
  • In ConocoPhillips v. United Steel Workers, the Eastern District of Pennsylvania analyzed a labor arbitration award. The court determined that the arbitrator was not authorized to make a particular progressive discipline structure of his own creation part of the Collective Bargaining Agreement. The court confirmed the award, but modified the arbitrator’s opinion to make clear that the five-step progressive discipline structure described would only be illustrative rather than required by or part of the CBA. ConocoPhillips v. United Steel Workers Local 10-234, Case No. 09-3842 (E.D. Pa. Jan. 19, 2010).
  • Following an adverse arbitration award, plaintiff Jerry Broaddus moved the Middle District of Tennessee to vacate the award. Mr. Broaddus contended the award was in manifest disregard of the law because the arbitrator incorrectly defined an “adverse employment action” as a materially adverse change in the terms of conditions of employment in contravention of controlling case law. The court found that even if the arbitrator failed to correctly view the “adverse employment action,” the error was harmless. The award was confirmed. Broaddus v. Rivergate Acquisitions, Inc., Case No. 08-0805 (M.D. Tenn. Jan. 14, 2010).
  • In Kirby Morgan Dive Sys. V. Hydrospace Ltd., the Central District of California entered an order confirming an arbitration award in favor of Kirby Morgan Dive Systems. The court found that (1) it had subject matter jurisdiction over the petition; (2) personal jurisdiction over the defendant; (3) Kirby Morgan was permitted to proceed on a default basis; (4) and Kirby Morgan was not required to obtain a prior order compelling arbitration. Kirby Morgan Dive Sys. v. Hydrospace Ltd., Case No. 09-4934 (C.D. Cal. Jan. 13, 2010).
  • A Texas Court of Appeals conditionally granted Chevron USA’s motion for a writ of mandamus against the trial court judge compelling him to enter an order confirming three arbitration awards. Chevron additionally filed a notice of appeal from an order which, it argues, denies its motion to confirm the arbitration awards. The Court of Appeals dismissed the notice of appeal after determining that it lacked jurisdiction to hear the interlocutory appeal. In re: Chevron U.S.A., Inc., Case No. 08-00082 (Tex. Ct. App. Jan. 27, 2010).
  • Rhode Island Hospital moved to vacate an arbitration award in favor of Defendant United Nurses and Allied Professionals Local 5098. The Court held that the award was founded on a “plausible interpretation” of the collective bargaining agreement, and thus the court “must uphold it.” Rhode Island Hospital v. United Nurses and Allied Professionals, Local 5098, Case No. 09-226 (D. R.I. Jan. 22, 2010).
  • In Thomas Kinkade Co. v. Lighthouse Galleries, LLC, the Eastern District of Michigan vacated an arbitration award in favor of Lighthouse Galleries. The court, while noting the limited nature of judicial review of arbitration awards, found that the award violated the parties’ contract and disregarded undisputed evidence. Thus, the court ruled that intervention was appropriate and vacated the award. Thomas Kinkade Co. v. Lighthouse Galleries, LLC, Case No. 09-10757 (E.D. Mich. Jan. 27, 2010).
  • In a dispute related to construction work on the US Navy’s SPAWAR facility, the US District Court sitting in South Carolina denied plaintiff Coastal Roofing Company’s motion to vacate the arbitration award entered against it. The court found that even though the arbitrator failed to include a written explanation for his decision, the award should be confirmed. United States of America for the Use and Benefit of Coastal Roofing Co., Inc. v. P. Browne & Assoc., Inc., Case No: 07-3008 (D. S.C. Jan. 22, 2010).
  • Petitioners Thomas E. Collins, Jr. and Heather Collins moved to confirm an arbitration award issued by FINRA against Lawrence Joseph Ferrari, who had not filed a response or appearance in the action. The court found that petitioners carried their light burden of persuasion, and the award was confirmed. Collins v. Ferrari, Case No. 08-1274 (N.D. N.Y. Feb. 9, 2010).
  • In Schwartz v. Merrill Lynch, the Southern District of New York found that petitioner Robert Schwartz offered no legitimate grounds to support his motion to vacate the arbitration award entered in favor of Merrill Lynch. The court found specious Schwartz’s arguments that the arbitrator was biased and failed to consider relevant evidence. Schwartz v. Merrill Lynch & Co., Inc., Case No. 09-900 (S.D. N.Y. Feb. 8, 2010).

This post written by John Black.

EVIDENTIARY PRIVILEGES DEEMED WAIVED BY SHARING DOCUMENTS WITH REINSURER

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Last year, a defendant insurer filed an unsuccessful motion for protective order concerning subpoenas to the defendant’s reinsurers; the court more recently declined to reconsider that ruling. The issues presented in the underlying litigation included the defendant’s alleged conduct and representations in selling coverage to the plaintiff insureds, and in denying that coverage. The defendant sought to protect documents relating to positions it took with its reinsurers in the ordinary course of business and arbitrations attempting to secure coverage from the reinsurers for the plaintiffs. In denying the motion, the court found the discovery was “undoubtedly” relevant to the plaintiff’s lawsuit since it could include impeachment evidence on the question of whether defendant denied the existence of coverage, or reveal motives suggesting bad faith. The court rejected assertions of the attorney-client and work product privileges because no specific prejudice would result without the protective order, and because an insurance company waives any privilege if it shares its counsel’s documents with a reinsurer when the parties’ interests are not aligned. The defendant’s interests were not aligned with the interests of the reinsurers because the defendant engaged in two contested arbitrations with the reinsurers. The Regence Group v. TIG Specialty Insurance Co., Case No. 07-1337 (USDC D. Or. May 1, 2009).

On the defendant’s motion for reconsideration, the court found the defendant did not show an intervening change in the law or newly discovered evidence warranting reconsideration. Rather, the defendant relied on several older cases which the court found distinguishable. The court further clarified that it granted the plaintiff’s discovery requests in their entirety, without reservation. The Regence Group v. TIG Specialty Insurance Co., Case No. 07-1337 (USDC D. Or. Feb. 4, 2010).

This post written by Brian Perryman.

COURT DENIES MOTION TO VACATE ARBITRATOR’S DECISION THAT CLASS ARBITRATION IS NOT PROHIBITED BY THE ARBITRATION AGREEMENT

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In this class action brought by current and former female employees of Sterling Jewelers, Inc. (“Sterling”), Sterling moved to vacate the arbitrator’s decision that class arbitration is not prohibited by the arbitration agreement or, in the alternative, to stay the arbitration proceedings. The federal district court stated, and Sterling conceded, that the arbitrator’s decision could be overturned only if the decision exceeded the arbitrator’s powers in violation of the Federal Arbitration Act or if the decision was made in manifest disregard of the law. In denying the motion to vacate, the court first ruled that the arbitrator had the power to decide such an issue, pointing to the broadness of the arbitration clause and citing the court’s prior decision determining that the arbitrator should resolve the question of whether class arbitration should proceed. The court held that the arbitrator did not act in manifest disregard of law based upon the Second Circuit’s holding in Stolt-Nielsen SA v. Animalfeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2008), which is currently pending for decision before the Supreme Court after argument last December. Lastly, the court refused to grant a stay of arbitration pending the Supreme Court’s decision in Stolt-Nielsen, finding that Sterling did not identify any substantial harm that would justify a delay and noting the uncertainty surrounding when Stolt-Neilsen will be decided and whether the decision will dispose of the issues raised in this case. Jock v. Sterling Jewelers, Inc., Case No. 08-2875 (USDC S.D.N.Y. Dec. 28, 2009).

This post written by Dan Crisp.

ENGLISH COURT OF APPEALS AFFIRMS RULING CONFERRING EXCLUSIVE JURISDICTION ON ENGLISH COURTS, SETS ASIDE RULING CONFINING FRAUD TO CLAIMS OF DECEIT

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This post is our fourth installment covering this convoluted, international lawsuit involving the Seaton Insurance Company (“Seaton”) and Stonewall Insurance Company (“Stonewall”). The dispute centers around the interpretation of a term sheet that details the termination of the parties’ relationship with respect to the run-off of Seaton’s and Stonewall’s insurance business (see our July 23, 2008, December 22, 2008, and January 20, 2009 posts for more information). Interpreting this term sheet, an English court concluded that the parties agreed to submit all disputes to the exclusive jurisdiction of English courts and that the carve-out provision for “fraud” had only the primary meaning of deceit. Seaton and Stonewall appealed. On the jurisdiction issue, the Court of Appeals affirmed the ruling that any claims for fraud must be brought in England and agreed with the lower court judge who called the prospect of a New York court applying the English concept of fraud a “judicial nightmare.” On the “fraud” issue, the Court of Appeals stated that, in the commercial context, the concept of fraud is broader than the concept of deceit which requires a fraudulent misrepresentation, or an equivalent to fraudulent misrepresentation. The Court of Appeals then set aside the judge’s ruling and substituted a declaration that the “fraud” exception is not limited to claims of deceit; the exception extends in some instances to cases of the dishonest abuse of a fiduciary position. Cavell USA, Inc. v. Seaton Ins. Co. [2009] EWCA 1363 (Dec. 16, 2009).

This post written by Dan Crisp.