Arbitration / Court Decisions

FEDERAL COURT STRIKES AIG’S DEFENSES AND DISMISSES SOME OF ITS THIRD PARTY CLAIMS IN ACTION BROUGHT BY NATIONAL WORKERS COMPENSATION REINSURANCE POOL

April 6, 2009 by Carlton Fields

As reported in our post on March 27, 2008, The National Council on Compensation Insurance, Inc. (“NCCI”), as attorney-in-fact for participating companies of the National Workers Compensation Reinsurance Pool (collectively “The Pool”) sued AIG and certain of its subsidiaries for allegedly engaging in a fraudulent scheme to avoid paying their proportionate share of the insurance costs in the residual market for workers compensation insurance.

AIG asserted a number of special defenses and counterclaims to NCCI’s complaint, and asserted third-party claims against certain members of the Pool. The defenses and claims were all generally based on the theory that various Pool members engaged in a premium accounting methodology similar to that utilized by AIG and found by the New York Attorney General to have been unlawful in various respects in its investigation of AIG. NCCI moved to strike the special defenses, and moved to dismiss the counterclaims. Affected members of the Pool moved to dismiss the third-party claims. The Court granted NCCI’s motion to strike each of the special defenses, but denied its motion to dismiss the counterclaims, finding that NCCI is itself a party, and not merely a representative of Pool members. The Court granted in part and denied in part the Pool members’ motion to dismiss, allowing AIG to maintain claims for breach of fiduciary duty, fraud, and unjust enrichment against specified Pool members. The Court held that New York law applies to these common law claims. National Council on Compensation Ins., Inc. v. American International Group, Inc., Case No. 07-2898 (USDC N.D.Ill. Feb. 23, 2009).

This post written by John Pitblado.

ARBITRATION AWARD WITHOUT A HEARING? COURT SAYS: FUNDAMENTALLY UNFAIR

April 1, 2009 by Carlton Fields

A labor arbitration award was recently vacated in an action involving a dispute between Murphy Oil and United Steelworkers AFL-CIO regarding post-Katrina restoration of an oil facility. Because a key Union witness was prevented from attending the hearing due to health concerns, the parties entered into an agreement that if the arbitrator ruled against Murphy’s, the arbitrator would convene an evidentiary hearing. Following the conference and briefing by both parties, the arbitrator issued an award in favor of the Union. Murphy sought to vacate the award, and the Union sought to enforce the award. Noting the extreme deference paid to arbitration rulings, the court determined that the arbitrator’s failure to convene an evidentiary hearing as per the parties’ agreement was fundamentally unfair, vacated the award and remanded the matter to the arbitrator. Murphy then filed a Motion to Amend asking the court to direct the parties to select a new arbitrator, as the original failed to retain and no longer had jurisdiction. The motion is pending. Murphy Oil USA, Inc. v. United Steel Workers AFL-CIO Local 8363, Case No. 08-3899, (USDC E.D. La. Mar. 4, 2009).

This post written by John Black.

COURT APPROVES ANOTHER SETTLEMENT IN BROKERAGE ANTITRUST MDL ACTION

March 31, 2009 by Carlton Fields

The court in the MDL action involving allegations of improper “contingent commissions” has approved a settlement with the Marsh companies, the preliminary approval of which was reported in a September 4, 2008 post. Marsh is at least the third broker to settle such allegations. The settlement provides for a $69 million fund to be distributed to class members. Marsh may use up to $5 million of the fund to resolve and settle claims of state officials representing policyholders who are potential members of the settlement class. In addition, Marsh may use up to $7 million of the fund to resolve and settle claims of individual plaintiffs in pending actions relating to the same matters that are at issue in the class action. The approved settlement is described in the court’s Memorandum Opinion. At the same time, the court issued a separate Memorandum Opinion granting class counsels’ application for an award of attorneys’ fees, reimbursement of expenses and incentive award payments. Class counsel in the federal proceedings were awarded $14.5 million; class counsel in a concurrent state court class action were awarded $4.5 million. The court entered a Final Judgment on February 17, 2009. An objector has filed a Notice of Appeal to the Third Circuit, appealing the settlement approval.

Shortly thereafter, Marsh filed a motion to enforce the final judgment and order, and to specifically enjoin the pursuit of two state court litigations by settlement class members pursuant to the Anti-Injunction Act and All Writs Act. The grounds for the motion are detailed in Marsh’s Memorandum of Law. In re Insurance Brokerage Antitrust Litigation, Case No. MDL 1663 (USDC D.N.J. Feb. 17, 2009).

This post written by Brian Perryman.

SECOND CIRCUIT AFFIRMS ORDER COMPELLING ARBITRATION OF CLASS CLAIM

March 30, 2009 by Carlton Fields

The Second Circuit has affirmed an order compelling arbitration and a judgment confirming a final arbitration award. Plaintiff-appellant appealed the order on the basis that the arbitration agreement required arbitration only of his individual claim, but permitted his class claim to be heard in court. The appellant contended that because claims may not be arbitrated as class actions under the rules of the NYSE and the NASD (incorporated by reference in the Settlement Agreement), the parties must have intended any class claims to be litigated in the courts.

Relying on the Supreme Court’s decision in Green Tree Financial v. Bazzle, the Second Circuit found that whether an arbitration contract forbids class arbitration falls under the domain of arbitrators, and therefore the district court properly compelled arbitration on the question of the arbitrability of class claims under the Settlement Agreement. The Court also rejected appellant’s claim that the arbitration decision should not have been confirmed because the arbitrators: (1) acted with a lack of fundamental rationality; (2) exceeded the scope of their authority; and (3) acted with manifest disregarded of the law. Vaughn v. Leeds, Morelli & Brown, No. 07-5637 (2d Cir. Mar. 16, 2009).

This post written by Lynn Hawkins.

VARYING RULINGS WITH RESPECT TO ARBITRATION AWARDS

March 25, 2009 by Carlton Fields

Courts have confirmed and vacated arbitration awards on different bases:

Arbitrator’s interpretation of agreement: awards confirmed – Asociacion de Empleados del Estado Libre Asociado de P. R. v. Union Internacional de Trabajadores de la Industria de Automoviles, No. 07-2636 (1st Cir. Mar. 6, 2009) (vacating partial vacation of award, since arbitrator employed a plausible construction of the contract at issue); Horizon Lines of P.R., Inc. v. Local 1575, Int’l. Longshoremen’s Assoc. AFL-CIO, Case No. 08-1611 (USDC D.P.R. Mar. 6, 2009) (confirming award since interpretation of agreement was plausible; Hall Street eliminated manifest disregard of law doctrine); System Council U-3 of the Int’l Brotherhood of Elec. Workers v. Jersey Central Power & Light Co., Case No. 07-5248 (USDC D.N.J. Feb. 25, 2009) (confirming award since it was rational and drew its essence from the agreement; panel had authority to bar irrelevant and cumulative evidence); awards vacated – Boardwalk Regency Corp. v. Unite Here Local 54, Case No. 08-16 (USDC D.N.J. Mar. 3, 2009) (vacating award as not drawing its essence from the contract); N.J. Carpenters Funds v. Professional Furniture Services, Case No. 08-3690 (USDC D.N.J. Feb. 26, 2009) (vacating award because arbitrator exceeded his authority in interpreting the contract at issue);

Vacation on miscellaneous grounds denied: MCI Constructors, Inc. v. Hazen and Sawyer, P.C., Case Nos. 99-2 and 02-96 (USDC M.D.N.C. Mar. 9, 2009) (two opinions in two related cases: 99-2 – request to vacate award denied – arbitrators could select procedures; reasoned award not required; award not in violation of public policy – 02-96: request to vacate award denied – panel not exceed powers; panel has authority to determine what evidence to hear; award not obtained by undue means; no breach of arbitration agreement); Regnery Publishing, Inc. v. Miniter, Case No. 08-709 (USDC D.D.C. Mar. 7, 2009) (ruling by AAA instead of arbitrator on Motion to Recuse not justify vacation of award); Williams v. Mexican Restaurant, Inc., Case No. 05-841 (USDC E.D.Tex. Feb. 27, 2009) (Magistrate Judge’s Report & Recommendation that award be confirmed even though it was “astonishing, eye-popping and, perhaps, soft-witted” since errors of fact not justify vacating awards) (objections have been filed to the R&R);

Evident material miscalculation: Volk v. X-Rite, Inc., Case No. 08-0054 (USDC S.D.Iowa Mar. 2, 2009) (attempt to select Michigan state law ineffective; no manifest disregard of law (without discussing Hall Street); award modified due to an evident material miscalculation);

Miscellaneous: Sathianathan v. Smith Barney, Inc., Case No. 04-2130 (USDC N.D.Cal. Mar. 3, 2009) (denying FRCP 60 motion for relief from Order confirming arbitration award – see Sept. 12, 2007 post regarding discovery with respect to the Rule 60 motion); Clearwater Ins. Co. v. Various London Market Reinsurers, Case No. 08-8695 (USDC S.D.N.Y. Feb. 5, 2009) (entering judgment for several liability on reinsurance arbitration award of $1.9 million – see Petition, Answer to Petition and Memorandum in Support of Confirmation).

This post written by Rollie Goss.