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Arbitration / Court Decisions

COURT AFFIRMS DENIAL OF MOTION TO COMPEL CEDANT TO DISCLOSE ATTORNEY-CLIENT COMMUNICATIONS

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A New York appellate court summarily affirmed the denial of the reinsurers’ motion to compel the cedant to disclose attorney-client communications. The court referred to its prior decision, American Re-Insurance Co. v. United States Fid. & Guar. Co., which held that the reinsurers could seek testimony and the production of documents concerning attorney-client communications on the presentation of the reinsurance claim, but only to the extent that the discovery related to disclosures made by one person at a deposition. In the prior decision, the reinsurers argued for a broad subject matter waiver, however, the cedant did not intend to advance an “advice of counsel” defense, and the court thus determined that waiver did not need to be expanded. United States Fid. & Guar. Co. v. Excess Cas. Reins. Assoc., Case No. 2009-09076 (N.Y. App. Div. Dec. 8, 2009).

This post written by Dan Crisp.

TENTH CIRCUIT AFFIRMS ARBITRATION AWARD, ADDS POST-AWARD PREJUDGMENT INTEREST, PUNTS ON HALL STREET

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The Tenth Circuit recently affirmed an arbitration award, but vacated the lower court’s ruling regarding post-award prejudgment interest. In a lengthy opinion, the Court discussed, and ultimately rejected, each of the defendant’s arguments for vacating the award, including: (1) that the arbitrator lacked jurisdiction; (2) that the defendants were not judicially estopped from asserting that the arbitrator lacked jurisdiction; (3) that the arbitrator acted outside the scope of his authority; (4) that he manifestly disregarded the law and violated public policy; and (5) that the district court failed to apply the proper deferential standard of review.

The Defendant first argued that the arbitrator lacked jurisdiction over certain claims heard in the second phase of the bifurcated arbitration. Unlike the “first-phase” claims, which arose directly out a promissory note between the parties (which contained an arbitration provision), all “second-phase” claims occurred after the plaintiff had been released from liability under the note. As such, the defendants argued that there was no meeting of the minds to arbitrate the second-phase claims. The Court disagreed, concluding that note’s arbitration clause applied to all controversies arising out of and related to the note, including defendant’s tortious actions after the note expired.

Next, the Defendant argued that they did not waive their right to have the second-phase claims tried in court, despite having joined in a motion to stay. The Court disagreed, finding that “defendants waived any objection to arbitration and were estopped from asserting that the arbitrator lacked jurisdiction because they had stated, when they joined [the] motion for stay, that this action must be arbitrated.”

Interestingly, in addressing the defendant’s claim of manifest disregard, the Court (which has not previously addressed judicially-created grounds for vacatur after Hall Street) discussed the Supreme Court’s May 2008 decision in Hall Street v. Mattel, but avoided the ultimate question of whether judicially-created grounds for vacatur survive, by stating that manifest disregard was not shown in any event. This fact is significant, as it demonstrates that this Court is sensitive that Hall Street may have eliminated the judicially created bases for vacating awards. Hicks v. The Cadle Co., Case Nos. 08-1306, 1307, 1429, 1435 (10th Cir. Dec. 7, 2009).

This post written by John Black .

RIGHT TO ARBITRATE DEEMED WAIVED BY COURT

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A court denied a motion to compel arbitration because the movants’ active participation in the litigation constituted a waiver of the right to arbitrate. Although assuming a contractual right to arbitrate, the court noted that such a right, like any contractual right, can be waived. The movants’ actions were inconsistent with the right to arbitrate because they consented to jurisdiction and venue, appeared before the court to set aside a default certificate and made numerous filings. They also filed a counterclaim and a third-party complaint, and never mentioned the right to arbitrate or indicated that they would be seeking an extra-judicial remedy. Seeking affirmative relief through a counterclaim or third-party claim frequyently is found to waive a right to arbitrate. Belcourt v. Grivel, S.L.R., Case No. 2:08-CV-902-TC (USDC D. Utah Nov. 6, 2009).

This post written by Brian Perryman.

DISTRICT COURT DENIES LLOYDS’ RULE 59 MOTION IN DISPUTE WITH EMPLOYERS INSURANCE; SECOND APPEAL FOLLOWS

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In our 11/9/09 post, we reported on the dispute between Employers Ins. and Lloyds of London. In the most recent development, the Lloyds-parties filed a Rule 59 Motion for Reconsideration and Clarification of the District Court’s September 28th opinion and order requesting that the court declare that Wisconsin law applies to the parties’ contracts or in the alternative that irrespective of which law is applied the arbitrators are required to be impartial and disinterested. The District Court denied Lloyds’ Motion for Reconsideration finding that Lloyds had failed to demonstrate that the order and opinion was in error and that the motion at hand failed to specify relief contemplated by Rules 59 or 60. The Lloyds-parties subsequently filed a revised notice of appeal to the Seventh Circuit to include this Order, as well as ones covered by a prior Notice of Appeal. Employers Ins. Co. of Wausau v. Certain Underwriters at Lloyds of London, Case No. 09-210 (W.D. Wisc. Oct. 23; Oct. 29, 2009).

This post written by John Black.

CAPTIVE REINSURANCE ARRANGEMENT LAWSUIT REINSTATED BY THIRD CIRCUIT

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In a putative class action by homebuyers seeking to recover treble damages under section 8(d)(2) of the Federal Real Estate Settlement Procedures Act, the Third Circuit held that the statute’s plain language permits private litigants to sue if their real estate settlement transaction involve unlawful settlement service referrals or fee splitting. Plaintiffs alleged that their private mortgage insurance premiums were channeled into an unlawful captive reinsurance arrangement operated by their mortgage lender and its affiliated reinsurer. Plaintiffs further alleged they had a statutory right to a real estate settlement free from unlawful kickbacks and unearned fees, and the lender’s invasion of that right gave them standing to sue. The district court dismissed the case for lack of subject matter jurisdiction (see our December 27, 2008 post), but the Third Circuit reversed, and also rejected the lender’s argument that the lawsuit was barred by the filed rate doctrine. Alston v. Countrywide Financial Corp., No. 08-4334 (3d Cir. Oct. 28, 2009).

This post written by Brian Perryman.