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Arbitration / Court Decisions

IN PARI DELICTO DOCTRINE BARS DERIVATIVE CLAIMS AGAINST ALLEGED AIG CO-CONSPIRATORS

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The AIG Consolidated Derivative Litigation continues – this time the court grants a motion to dismiss claims against alleged co-conspirator defendants. We covered a prior ruling on a motion to dismiss in our April 29, 2009 post, where the court found that the plaintiffs had stated well-pled breach of fiduciary duty claims against certain high-ranking AIG officers who were allegedly involved in two conspiracies, viz., a “bid-rigging” conspiracy and a “fake reinsurance writing” conspiracy, as well as other illegal activities. The question raised in the most recent ruling was: “may AIG sue its co-conspirators for the harm that AIG suffered as a result of two alleged, illegal conspiracies involving AIG and those third-party conspirators?” The court answered the question in the negative, holding that the in pari delicto doctrine bars this type of suit. A primary purpose of the doctrine is to prevent courts from having to engage in “inefficient” and “socially unproductive” accountings between conspirators. Rather than assessing the conspiracy and shifting responsibility, the court held that it would leave the conspirators as they are, potentially jointly and severally liable for the harms caused by their alleged conspiratorial acts. American International Group, Inc. Consolidated Derivative Litigation, Case No. 769-VCS (Del. Ct. Chanc. June 17, 2009).

This post written by Brian Perryman.

NINTH CIRCUIT ADDRESSES DOCTRINE OF FUNCTUS OFFICIO

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Last month, the Ninth Circuit Court of Appeals reviewed an arbitration panel’s awards against Leonard Bosack and Sandy Lerner, founders of Cisco Systems. The panel issued a series of preliminary and final awards. Bosack and Lerner challenged the panel’s awards in favor of their former financial manager David Soward on three primary bases: (1) the panel violated Rule 46 of the Commercial Arbitration Rules and the common law functus officio doctrine (forbidding an arbitrator from redetermining an issue which he has already decided); (2) the panel manifestly disregarded the law; and (3) the awards were “irrational.”

The Court ruled against Bosack and Lerner on all accounts. First, as a matter of first impression for the Ninth Circuit, the Court applied the Eighth Circuit’s rule that the functus officio doctrine applies only to “final” awards, and does not bar revisiting an issue addressed in a preliminary award, which the arbitrators did not intend to be their final word on the subject. Applying this standard, the Ninth Circuit held that only one of the five arbitration awards should be considered “final” for purposes of the doctrine, and the sole final award was not in violation of functus officio or Rule 46. Further, the Court concluded that in reaching the award, the panel neither acted irrationally or in manifest disregard of the law. The Court explained that Bosack and Lerner accepted the risk that goes along with arbitration, and could not avail themselves of expanded judicial review simply because the awards were unfavorable. Bosack v. Soward, Case No. 08-35248 (9th Cir. July 23, 2009).

This post written by John Black.

COURT AGREES TO STAY REINSURANCE DISPUTE PENDING OUTCOME OF APPEAL IN UNDERLYING COVERAGE CASE

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A federal district court in Missouri granted the parties’ joint motion to stay their reinsurance dispute, pending the outcome of an appeal taken in an underlying coverage action in which the reinsured, Continental Casualty Company (“CCC”), suffered a $23,072,979 jury verdict against it. The underlying plaintiff, Black & Veatch Construction Company, suffered a loss in the construction of a power plant in Missouri. It sought coverage from its insurer, CCC, in connection with the loss. CCC declined coverage and Black & Veatch sued. CCC has appealed the judgment. The collateral reinsurance dispute between CCC and its alleged Global Builders Risk Facility reinsurance treaty was brought in Missouri federal court by CCC. The parties also moved to stay an identical action filed in the U.K. Commercial Court by the defendant reinsurers. Both joint motions were based on the fact that, if CCC were successful in reversing the underlying judgment against it, it would make much of the remaining dispute between the parties moot. The Court granted the motion on June 8, 2009. Continental Cas. Co. v. AXA Global Risks (UK) Ltd., No. 09-00335 (USDC W.D. Missouri, June 8, 2009).

This post written by John Pitblado.

PLAINTIFFS WITHDRAW APPEAL IN KATRINA-RELATED REINSURANCE DISPUTE

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The parties in Association Cas. Ins. Co. v. Allstate Ins. Co., have stipulated to dismissal of the plaintiffs’ appeal in a Katrina-related reinsurance dispute. The plaintiffs had appealed the trial court’s order granting the defendants’ motion for directed verdict after eleven days of testimony was heard before a jury. The Plaintiffs, members of a condominium association, brought claims against the condominium board for failing to purchase adequate reinsurance to cover damage to areas of common property. Plaintiffs sustained losses after Hurricane Katrina. The defendants sought a directed verdict, arguing that the plaintiffs did not have standing to sue the board in their individual capacities, since their claims were based on damage to areas of common property in which plaintiffs only had a partial interest. The Court granted the motion. Aegis Security Ins. Co. v. Allstate Ins. Co., No. 2:09-cv-24 (USDC S.D. Miss. March 18, 2009). Plaintiffs appealed shortly thereafter, and the parties have now stipulated to a withdrawal of the appeal. Association Cas. Ins. Co. v. Allstate Ins. Co., No. 09-60299 (5th. Cir., June 5, 2009).

This post written by John Pitblado.