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Arbitration / Court Decisions

COURT DENIES MOTION TO ORDER DEPOSITION IN CHICAGO FOR USE IN A PRIVATE, FOREIGN ARBITRATION

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In connection with a train derailment in Graniteville, South Carolina, Norfolk Southern Corp., Norfolk Southern Railway Co., and General Security Insurance Co. (collectively, “movants”) sought an order to require the deposition in Chicago of the former counsel to ACE Bermuda Ltd. for use in a private arbitration in England. The movants claimed that 28 U.S.C. Section 1782 allowed the Illinois district court to order such a deposition, however, Section 1782 does not explicitly address private arbitrations. In denying the motion, the court interpreted the reference to “arbitral tribunals” in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), to include state-sponsored arbitrations but exclude purely private arbitrations and the court agreed with pre-Intel circuit court decisions that Section 1782’s legislative history did not support the inclusion of private arbitral tribunals within the scope of the statute. In re Norfolk S. Corp., Case No. 09-3092 (USDC N.D. Ill. June 15, 2009).

This post written by Dan Crisp.

FEDERAL COURT REFUSES TO ENJOIN LATER STATE COURT CLAIMS RELATING TO PREVIOUSLY LITIGATED REINSURANCE TREATIES

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A federal court in Texas denied Aon Re’s motion for preliminary injunction against the defendant TIG Insurance Company. Aon Re moved to enjoin TIG from bringing claims arising out of two reinsurance treaties entered into in the late 1990’s that had been the subject of prior litigation, also in federal court in Texas, and which was resolved on summary judgment in Aon Re’s favor on statute of limitation grounds in 2005. However, TIG subsequently brought claims against Aon Re, based at least in part on issues pertaining to the two treaties, in federal court in Texas, which it withdrew, and then re-filed in state court in California.

Aon Re sought an injunction from the Texas federal court to enjoin TIG from prosecuting any further claims arising from the treaties, as it contended those issues had all been resolved. TIG cited the Anti-Injunction Act, which generally disfavors a federal court’s injunction preventing a state court from exercising its jurisdiction. Aon Re cited the “relitigation” exception to the Anti-Injunction Act, but the Court held that Aon Re failed to demonstrate, under the more strict standards required to obtain injunctive relief, that the prior judgment rendered based on statute of limitations grounds was a judgment “on the merits,” entitling it to the preclusive effect. The court essentially left it to the state court in California to decide for itself whether Aon Re was entitled to preclusion, based on the prior judgment in its favor. Aon RE, Inc. v. TIG Ins. Co., No. 3:09-cv-0300-B (USDC N.D. Tex. Sept. 28, 2009).

This post written by John Pitblado.

COURT OF APPEAL ADDRESSES PRECLUSIVE EFFECT OF COLLUSIVE FOREIGN COURT JUDGMENT AND PROCESS FOR DETERMINING ARBITRABILITY OF DISPUTE

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It is not unusual for there to be parallel or serial legal proceedings in arbitration disputes, and the preclusive effect of the first matter to go to a final decision has resulted in a number of opinions addressing the application of the doctrines of res judicata and collateral estoppel in arbitration proceedings. In Telnor Mobile Communications AS v. Altimo Holdings & Investments Limited, 07-4974 (2d Cir. Oct. 8, 2009), the Court held that: (1) the district court did not err in not holding a trial to determine whether a dispute before it was arbitrable based upon a dispute as to whether the person who signed the contract containing an arbitration provision had apparent authority to sign the document on behalf of a corporate party, when the factual record clearly demonstrated that the signer had apparent authority to do so; and (2) the district court did not act in manifest disregard of law by confirming an arbitration award that failed to give preclusive effect to a collusive judgment of a Ukrainian court adjudicating an issue before the arbitration panel.

This post written by Rollie Goss.

SCOTTISH COURT DISAPPROVES A SOLVENT SCHEME OF ARRANGEMENT

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The Scottish Court of Session Decisions has nixed a scheme of arrangement under the UK Companies Act of 2006, stating it could not be judicially sanctioned without the assent of all creditors. A scheme of arrangement is a reorganization device in which, with the approval of at least three-quarters of a company’s creditors, the company may compromise the claims of all its creditors. A somewhat analogous device might be a “cram-down” under U.S. bankruptcy law, with the important distinction that a scheme of arrangement may be used even by a solvent company. This procedure has been criticized by US insurance companies. There are three stages to a scheme of arrangement. First, there must be an application to the court for an order that a meeting of creditors be summoned. Second, the scheme proposals are put to the meeting and are approved (or not) by the requisite majority. Third, if approved at the meeting, there must be a further application to the court to obtain the court’s sanction to the arrangement.

In the case before the Court of Session Decisions, Scottish Lion Insurance Company had been in runoff since late 1994, and in 2008 had proposed a scheme of arrangement to terminate its exposures under short- and long-tail policies. The scheme was opposed by various U.S.-based creditors which were insureds under general liability or general aviation insurance policies with Scottish Lion. The court, noting it was not bound to sanction a scheme which had achieved the statutory majority at the creditors’ meeting, declined to exercise its discretion to approve the scheme. Scottish Lion was solvent and appeared to have made provision to meet its potential liabilities in the future. Thus, the court asked rhetorically, “in a situation where the Company is sound financially, why should one group of creditors who might wish to enter into a commutation agreement with the Company be entitled to force other creditors to participate against their will?” In such a case, sanctioning a solvent scheme smacked of “unreasonableness” to the minority. In the Petition of Scottish Lion Insurance Company, Ltd. [2009] CSOH 127.

This post written by Brian Perryman.

ROUND-UP OF RECENT ARBITRATION AWARD CHALLENGES

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Awards upheld

TIG Ins. Co. v. Global Int’l Reinsurance Co. Ltd., 09-Civ-1289 (USDC S.D.N.Y. Aug. 7, 2009) (arbitration award confirmed, no manifest disregard of law)

UTGR Inc. d/b/a Twin River v. Mutuel/Gaming Clerks of Rhode Island, Local 334, No. 09-046-S (USDC D.R.I. Aug. 6, 2009) (arbitrator’s award in CBA dispute confirmed)

Waddell v. Holiday Isle, LLC, No., CV-09-0040 (USDC S.D. Ala. Aug. 4, 2009) (several motions to vacate arbitration award denied, no manifest disregard, one motion to vacate granted as beyond the submission)

WellPoint, Inc. v. John Hancock Life Ins. Co., No. 07 C 943 (7th Cir. Aug. 7, 2009) (affirming district court’s denial of motion to vacate arbitration award)

Parsons, Brinckerhoff, Quade & Douglas, Inc. v. Palmetto Bridge Constructors, No. RDB-09-633 (USDC D. Md. Aug. 25, 2009) (motion to confirm arbitration award granted) .

Award reversed

Globe Newspaper Co. v. Int’l Assoc. of Machinists, Local 264, District 15, No. 08-cv-11945 (USDC D. Mass. Aug. 5, 2009) (vacating arbitrator’s award in CBA dispute as against public policy)

This post written by John Pitblado.