Arbitration / Court Decisions

MIDWEST EMPLOYERS CAS. CO. VS. LEGION INS. CO. – THE SAGA CONTINUES TOWARDS TRIAL

May 4, 2009 by Carlton Fields

As reported in our previous posts on November 19, 2007 and July 8, 2008, Midwest Employers Casualty Company (“Midwest”) sued Legion Insurance Company (“Legion”), in connection with 43 separate reinsurance certificates issued by Midwest to Legion between 1994 and 2001. The crux of Midwest’s position is that the certificates each establish that the coverage was provided on a “loss occurring basis” rather than a “risk attaching basis,” and also that the agreements contain no agreement to arbitrate. Midwest moved for summary judgment on those bases. However, the federal court agreed with Legion that the nature of the agreements could not be ascertained from the face of the documents submitted, and that the parties’ various oral agreements and understanding as to how the agreements operated potentially conflicted with the certificates, leaving fact questions to be reserved for trial. The court denied the motion and instructed the parties to prepare for trial. Midwest Employers Cas. Co. v. Legion Ins. Co., Case No. 07-870 (USDC W.D. Mo. Mar. 24, 2009).

This post written by John Pitblado.

NINTH CIRCUIT APPLIES OREGON LAW TO FIND CLASS ACTION WAIVER UNENFORCEABLE

May 1, 2009 by Carlton Fields

The Ninth Circuit recently concluded that a district court improperly dismissed a consumer class action pursuant to an arbitration agreement between a wireless provider and its customers, holding that the agreement’s class action waiver was unconscionable and therefore unenforceable under Oregon law. The court found that the waiver was substantively unconscionable for two reasons. First, the waiver was unilateral in effect: “It can hardly be imagined that T-Mobile or its suppliers would ever want or need to bring a class action against T-Mobile’s customers.” Second, the class action waiver created a disincentive to litigate since the actual damges alleged were below $700 a year. Given the small size of the individual claims covered by the agreement, the waiver made it impracticable for customers to vindicate their rights in court. The court also found that under the arbitration agreement the class action waiver was not severable since the agreement itself included a provision prohibiting severance of the waiver. Chalk v. T-Mobile USA, Inc., No. 06-35909 (9th Cir. Mar. 27, 2009).

This post written by Brian Perryman.

DEFENDANT REFUSES TO PARTICIPATE IN ARBITRATION – DISTRICT COURT RULES DEFAULT

April 30, 2009 by Carlton Fields

In an action arising out of a services agreement related to the construction of low-income tax-credit housing, plaintiff, The Youngs Company, filed a breach of contract action in the Northern District of Texas. Defendant, Continental Realty, moved to compel arbitration and stay discovery asserting that the arbitration clause in the services contract controlled. While the existence and application of the clause was not in dispute, the district court determined that the defendant had defaulted in proceeding with arbitration where the plaintiff had originally initiated arbitration proceedings, set an arbitration hearing, and served discovery requests on the defendant. Continental Realty refused to respond or participate in the arbitration, and failed to file a reply to the opposition to the present motion. Accordingly, Continental Realty’s motion to compel was denied. Continental Realty has since filed a Notice of Appeal to the U.S. Court of Appeals for the Fifth Circuit. Don Youngs & Judy Youngs v. Haugh, Case No. 4-08CV-528 (USDC N.D. Tex. Mar. 18, 2009).

This post written by John Black.

FORMER GENERAL RE SENIOR VP SENTENCED TO A YEAR AND A DAY

April 29, 2009 by Carlton Fields

On March 4, 2009, former General Reinsurance Senior Vice President Christopher Garand was sentenced to prison time, following his conviction for his involvement in a scheme to manipulate AIG's financial statements through finite reinsurance transactions. Mr. Garand was sentenced to one-year and one-day of jail time, two years of probation, a $150,000 fine and a Special Assessment of $1,000. Mr. Garand was ordered to surrender on April 22, 2009. Christian Milton (former VP of reinsurance for AIG), Ronald Ferguson (Gen Re's former CEO), Elizabeth Monrad (Gen Re's former CFO) and Robert Graham (former Gen Re senior VP and assistant general counsel) were also convicted in the scam. U.S. v. Garand, Case No. 06-CR-137 (USDC D.Conn. Mar. 4, 2009).

This post written by John Black.

AIG DIRECTORS FACING MASSIVE SUIT

April 29, 2009 by Carlton Fields

In a recent opinion, the Delaware Court of Chancery ruled on several motions to dismiss in the AIG Consolidated Derivative Litigation. The case, brought by stockholders of AIG and the company itself, alleged numerous claims against AIG top executives arising out of finite reinsurance transactions. Specifically, the allegations involved action by AIG insiders to misstate AIG's financial performance in order to deceive investors into believing that AIG was more prosperous than it really was. The single largest act of decption alleged involved a fraudulent $500 million reinsurance transaction in which various AIG insiders staged an elaborate artificial transaction with Gen Re Corporation. The AIG “Inner Circle Defendants” is comprised of AIG CEO Maurice R. Greenberg, CFO Howard I. Smith, Vice Chairman Edward E. Matthews, and Vice Chairman Thomas R. Tizzio. The stockholders asserted additional causes of action against former AIG employees and PriceWaterhouseCooper, AIG’s auditor. Virtually every defendant has moved for dismissal.

In a 104-page opinion, the Court dismissed the stockholders’ “due care” claim against defendant Tizzio, but otherwise denied all motions to dismiss as to defendants Greenberg, Matthews, and Tizzio finding that the amended complaint sufficiently stated an actionable claim. However, the Court determined that under Delaware law, it did not have a basis for personal jurisdiction over the former employee defendants and dismissed the claims against them without prejudice. Finally, the court ruled that New York law immunized PriceWaterhouseCooper from suit, and dismissed all claims against the auditor without prejudice. Am. Int’l Group, Inc. Consolidated Derivative Litigation, Case No. 769-VCS (Del. Ct. Chanc. Feb. 10, 2009).

This post written by John Black.