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Arbitration / Court Decisions

APPELLATE COURTS SPLIT ON CONTINUED VIABILITY OF “MANIFEST DISREGARD OF LAW” DOCTRINE

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We have posted several times about the manifest disregard of law doctrine for vacating arbitration awards, and on the implications for that doctrine of the Supreme Court’s holding last year that the grounds for vacating or modifying arbitration awards set out in the FAA are the “exclusive grounds” upon which federal courts may modify or vacate such awards. Hall Street Assocs., L.L.C. v. Mattel, Inc., 128 S. Ct. 1396 (2008). Hall Street left open the question of whether courts, as opposed to parties, could create different standards for vacating arbitration awards. In two recent opinions, the Fifth and Ninth Circuits have reached different conclusions about the impact of Hall Street on the judicially created “manifest disregard of law” doctrine.

In January, the Ninth Circuit issued an opinion stating that “in this circuit, an arbitrator’s manifest disregard of the law remains a valid ground for vacatur of an arbitration award under § 10(a)(4) of the Federal Arbitration Act.” Comedy Club, Inc. v. Improv West Assoc., No. 05-55739 (9th Cir. Jan. 29, 2009). This holding was predicated upon the Ninth Circuit characterizing the manifest disregard doctrine as an example of Section 10(a)(4) of the FAA, situations in which the arbitrator exceeds his/her authority. Recently, however, the Fifth Circuit concluded that Hall Street “unequivocally” restricted the grounds for vacatur to those set forth in the FAA, and that the “manifest disregard of law” doctrine is not a valid basis for vacating an arbitration award under the FAA. Citigroup Global Markets Inc v. Bacon, No. 07-20670 (5th Cir. March 5, 2009). These opinions demonstrate an increasing split of authority as to the continuing viability of the doctrine.

This post written by Lynn Hawkins.

COURT GRANTS IN PART AND DENIES IN PART PLAINTIFF REINSURER’S MOTION TO COMPEL DISCOVERY RESPONSES FROM DEFENDANT REINSURER

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Plaintiffs Trenwick American Reinsurance Corporation (“Trenwick Re”) and Unum Life Insurance Company of America (“Unum”) brought an action against reinsurer IRC Re, Limited (“IRC Re”) and others arising from a claims dispute under an alleged reinsurance contract under which IRC Re purportedly agreed to reinsure a portion of a risk also partially reinsured by Trenwick Re. Specifically, Trenwick Re alleges that IRC Re agreed to continue to reinsure a 19% portion of a managed workers compensation insurance program (the “Compcare Program”) which IRC Re had previously reinsured, when Trenwick Re and various other parties entered into a quota share reinsurance treaty covering the Compcare Program.

The plaintiffs filed a lengthy Memorandum arguing that the defendants failed to satisfy their discovery obligations by (1) failing to provide responsive documents to certain requests, despite having claimed to have provided them in a 50,000 page purported “document dump;” (2) failing to provide documents under the defendants’ custody or control in the possession of defendant IRC Re’s “management and administrative services provider,” Beecher Carlson, a Bermuda company; (3) failing to produce documents alluded to by defendants’ designated 30(b)(6) deposition witness; and (4) failing to provide complete answers to interrogatories and failing to specify objections beyond “boilerplate” assertions. Defendants filed a Memorandum in opposition. The Court, in a three-sentence electronic order, granted portions of plaintiff’s motion pertaining to points (1) and (4) above, and noted that defendants would not be permitted to rely on any documents not produced in response to plaintiff’s requests. Trenwick American Reinsurance Corp. v. IRC Inc., Case No. 07 -12160 (USDC D. Mass. Dec. 17, 2008).

This post written by John Pitblado.

COURT DENIES MOTION TO DISMISS AMENDED PLEADING, HOLDING THAT DEFECTS IN PREVIOUSLY DISMISSED COMPLAINT WERE CURED

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In a previous post dated August 13, 2008, we noted that a federal court dismissed a complaint brought by Swiss Reinsurance America Corporation (“Swiss Re”) against the Access General Agency, Inc., Access Claims Administrators, Inc., and Access General Insurance Agency of California (“Access Entities”), alleging that the Access Entities failed to manage and administer claims properly under Swiss Re’s predecessors’ reinsurance program. The Court's opinion granted the motion to dismiss on the basis that Swiss Re’s earlier complaint failed to differentiate claims and allegations between the related but separate Access Entities.

Swiss Re amended its complaint and the defendants again filed a motion to dismiss. This time, the Court denied the defendants’ motion, finding that Swiss Re adequately cured its previous pleading by: (1) separating counts against the various Access Entities and identifying the various contracts under which claims were brought against each defendant; and (2) by pleading sufficient facts in support of its claim that the Access Entities should be jointly liable under an “alter ego” theory. Swiss Reinsurance America Corp. v. Access General Agency, Inc., Case No. 07 -3954 (USDC N.D. Ill. Jan. 26, 2009).

This post written by John Pitblado.

COURTS RULE ON ARBITRATION PROCEDURE ISSUES

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Courts have recently ruled on various issues of arbitrability:

  • A party which commenced, and lost, an arbitration sought vacation of the award on the basis that the arbitration clause was unconscionable. The court rejected the claim, finding the party judicially stopped to make the argument since he had invoked the clause to commence the arbitration after the insurer filed a declaratory judgment action against him. Pegues v. Progressive Northern Ins. Co., No. 2008AP1500 (Wisc. Ct. App. Feb. 25, 2009).

  • A court compelled arbitration, rejecting an argument that mandatory arbitration provisions in an employment contracted were unconstitutional under the due process provisions of the Fifth Amendment to the Constitution because the claimant did not have the same procedural and discovery rights in arbitration that she would have had in litigation, were procedurally and substantively unconscionable and violated her Seventh Amendment right to a jury trial. Forbes v. A. G. Edwards & Sons, Inc., Case No. 08-552 (USDC S.D.N.Y. Feb. 18, 2009).

  • A court denied a motion to compel arbitration, finding that providing an arbitration agreement to a new employee for agreement by e-mail was valid, but that there was insufficient proof that the employee had agreed to the provision. Kerr v. Dillard Store Services, Inc., Case No. 07-2604 (USDC D. Ks. Feb. 17, 2009).

  • An appellate court affirmed the denial of a motion to compel arbitration since the plaintiff did not agree to arbitrate, and the contract containing the arbitration provision did not cover the parties to the action. Ins. Corp. of N.Y. v. Kenning Mgmt. of Ct., LLC, 2009 NY Slip Op 01541 (N.Y. App. Div. Mar. 3, 2009).

This post written by Rollie Goss.

EMERGING TRENDS IN SEALING ARBITRATION AWARDS?

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A trend seems to be emerging in favor of allowing arbitration awards to be sealed. Two district courts recently granted Swiss Re’s and Nationwide Mutual’s respective motions to seal petitions to confirm arbitration awards. In the first instance, Swiss Re argued, and the court agreed, that the existence of a confidentiality agreement between the parties was a sufficient basis to seal the records relating to the award. Swiss Reinsurance Co. v. Lincoln National Reinsurance Co. Ltd, Case No. 1109-036 (USDC N.D. Ind. February 6, 2009). Similarly, the Northern District of Indiana granted Nationwide Mutual’s motion to seal in an effort to comply with a confidentiality order entered by the panel that entered the award. Nationwide Mutual Ins. Co. v. Westchester Fire Ins. Co., Case No. 08 -673 (USDC W.D. Wisc., February 3, 2009). (See also February 10, 2009 post “Court Grants Motion to Seal Arbitration Award” and December 2, 2008 post “Arbitration Award Allowed to be Filed Under Temporary Seal”).

Just last year, however, the Southern District of New York held that despite the confidential nature of arbitration proceedings, a party seeking to confirm an arbitration award in court must establish some justifiable reason as to why the award and any documents filed in conjunction with the petition to confirm should remain confidential in order to overcome the strong judicial presumption against sealing judicial records. The New York court concluded that the risk of impairing the exchange of information between parties to a reinsurance agreement due to fear of ultimate disclosure could not overcome the strong presumption of access afforded to documents filed in court. Global Reinsurance Corp. v. Argonaut Ins. Co., Case No. 07-8196 and 07- 8350 (USDC S.D.N.Y. April 18, 2008). (For full details see May 6, 2008 post “Reinsurance Claims Rejected; Court Refuses to Seal Confirmation.”)

This post written by Lynn Hawkins.