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Arbitration / Court Decisions

CASE UPDATE: SECOND CIRCUIT HOLDS THAT ALLEGED CONSPIRACY WITH SIGNATORY TO CONTRACT IS INSUFFICIENT RELATIONSHIP TO ENFORCE ARBITRATION AGREEMENT AGAINST OTHER SIGNATORY

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We previously posted on March 27, 2007 on the Second Circuit’s denial of a motion to dismiss an interlocutory appeal from a federal district court’s denial of a motion to compel arbitration. The motion to compel arbitration was filed by several American Express companies (collectively “Amex”) against plaintiffs who brought a class action suit against Amex and other credit card companies and issuing banks for conspiring to fix certain fees charged to cardholders at excessive rates.

Addressing the appeal on its merits, the Second Circuit Court noted the undisputed fact that, though the plaintiff class had entered into cardholder agreements with other defendants in the class action, including Mastercard, Visa and Diner’s Club, they had no such relationship with Amex. Amex nonetheless sought to compel arbitration under the plaintiffs’ agreements with the other defendant companies on a theory of equitable estoppel. The Second Circuit held that because the only connection between Amex and the cardholders’ agreements with the other defendant companies was the alleged conspiracy, Amex could not establish the necessary condition under a theory of equitable estoppel that plaintiffs intended to be bound to arbitrate disputes with a stranger to their contracts. Ross v. American Express Co., Nos. 06-4598-cv(L), 06-4759-cv(XAP) (2d Cir. Oct. 21, 2008).

This post written by John Pitblado.

DISPUTE OVER WHETHER QUOTA SHARE TREATY HAD BEEN TERMINATED IS SUBJECT TO ARBITRATION; LATE APPOINTMENT OF ARBITRATOR ALLOWED DUE TO ABSENCE OF PREJUDICE

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Lincoln General reinsured Clarendon National under a quota share reinsurance treaty. Lincoln gave notice of termination of the agreement, and Clarendon demanded that Lincoln provide collateral under a contractual provision requiring collateral if Lincoln’s Best rating became B++ or lower. Lincoln refused to provide collateral due to its purported termination of the treaty, and Clarendon demanded arbitration under the treaty. Lincoln sued in state court, seeking a declaration that it did not have to collateralize or arbitrate due to the termination of the treaty. Clarendon removed and moved to compel arbitration. The district court granted the motion, holding that a challenge to the validity of the contract as a whole was an arbitrable issue, whereas a challenge only to the arbitration provision would have been a judicial issue.

During the course of the dispute, Clarendon appointed an arbitrator, and had demanded that Lincoln do so. Lincoln refused, contending that it did not have to do so pending the dispute as to whether the dispute should be arbitrated. Clarendon then appointed a second arbitrator, under a provision allowing it to do so if Lincoln defaulted in appointing an arbitrator. Lincoln then belatedly named an arbitrator. The court confirmed Clarendon’s first appointment and Lincoln’s belated appointment, under a line of cases which decline to strictly enforce an appointment deadline if there is no prejudice from the delay in making an appointment. Lincoln General Ins. Co. v. Clarendon National Ins. Co., Case No. 08-0583 (USDC M.D. Pa. Aug. 15, 2008).

This post written by Rollie Goss.

CASE UPDATE: COURT RULES ON JURISDICTION AND DISMISSAL ISSUES IN THE HUNTSMAN/INTERNATIONAL RISK INSURANCE LAWSUITS

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We previously posted on May 14, 2008 about a group of reinsurers’ successful effort to transfer venue in a casualty coverage dispute. In an update to that litigation, the transferee court ruled on four motions in two related lawsuits: a motion to remand the transferred lawsuit to state court; a motion to enjoin related state court litigation; a motion to dismiss for lack of subject matter jurisdiction; and a motion to dismiss for failure to state a claim. Initially, the court found that remand should be denied because it had federal question jurisdiction under the New York Convention, 9 U.S.C. § 201 et seq. Specifically, jurisdiction was proper because arbitration agreements between citizens of foreign countries and citizens of the United States were implicated. This opinion also addresses the interesting question of whether the parties should be realigned for purposes of evaluating diversity of citizenship. Huntsman Corp. v. International Risk Ins. Co., Case No. 08-1542 (USDC S.D. Tex. Sept. 26, 2008). The motion to enjoin the state court litigation was denied as moot because, by the time of the rulings, the state case had been removed and was the subject of the decided motion to remand. Ace American Ins. Co. v. Huntsman Corp., Case No. 07-2796 (USDC S.D. Tex. Sept. 26, 2008). The motion to dismiss for lack of subject matter jurisdiction was denied. The principal thrust of that motion was that the defendant’s (International Risk Insurance Company) liability to its co-defendant (Huntsman) under an insurance policy had not yet been determined; however, the court found that this did not warrant dismissal of the reinsurers’ claim to compel arbitration with IRIC because, among other things, the reinsurers’ liability to IRIC under reinsurance certificates was intertwined with IRIC’s demand that the reinsurers accept the defense of IRIC’s lawsuit against Huntsman in related litigation. Finally, the court denied Huntsman’s motion to dismiss the reinsurers’ claim to compel arbitration, and to dismiss the reinsurers’ claim for declaratory relief. Ace American.

This post written by Brian Perryman.

FEDERAL APPELLATE COURT AFFIRMS STAY IN CASE INVOLVING PARALLEL STATE PROCEEDING

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Although this case does not directly address reinsurance or arbitration issues, it may be of interest to our readers, as it is a federal appellate opinion covering the relationship between parallel proceedings in federal and state court. Specifically, the Eleventh Circuit affirmed a district court’s decision to grant the defendant’s motion to stay pending a state court action involving the same issues. Plaintiff, Great Lakes Reinsurance (UK) PLC, appealed the ruling arguing that the lower court: (1) failed to apply the proper test governing whether to stay a declaratory judgment action; and (2) failed to give sufficient weight to the fact that the uniquely federal issues of admiralty law were central to the federal case.

The Eleventh Circuit disagreed with both arguments, and affirmed a stay of the case pending the resolution of the state court case. In Ameritas Variable Life Ins. Co. v. Roach, the Eleventh Circuit set forth nine factors that a court should consider in determining whether to accept or decline jurisdiction under the Declaratory Judgment Act when a related state action is pending. Although the district court did not expressly cite to the Ameritas case, the Eleventh Circuit found that the district court did sufficiently address certain prongs of the test. Additionally, the Eleventh Circuit concluded that the fact that the case involved admiralty law issues did not control the district court’s decision whether to stay the case. Great Lakes Reinsurance v. TLU Ltd., No. 08-11588 (11th Cir. Oct. 10, 2008).

This post written by Lynn Hawkins.

EIGHTH CIRCUIT REJECTS CHALLENGE TO ARBITRATOR’S QUALIFICATIONS, DEFERRING TO AAA

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In this case, the Eighth Circuit affirmed a district court decision that an arbitrator was qualified to hear a dispute and did not exceed his powers under the arbitration agreement. In 2000, in an attempt to make itself attractive for public financing, the Crawford Group decided to compensate its senior executives with a package that included awards of stock. William Holekamp retired in 2000 after three decades of working for Crawford and its subsidiary, Enterprise Car Rental. In June of 2004, Crawford attempted to buy back Holekamp’s stock by the terms of the Stock Award and Shareholder Agreement. A Missouri state court ruled that there was an issue with respect to the purchase price of the shares and sent the dispute to arbitration in accordance with the agreement. The arbitrator, chosen by Holekamp but approved by AAA (American Arbitration Association) valued Holekamp’s shares at $20.7 million, rather than the $11.4 million figure at which Crawford had valued them. The Eighth Circuit ruled that the AAA had the final determination as to whether or not the arbitrator was qualified, and the court then applied a deferential standard to the arbitrator’s decision, ruling that the award could not be set aside as long as the arbitrator was “even arguably construing or applying the contract and acting within the scope of his authority.” Crawford Group, Inc. v. Holekamp, No. 07-3454 (8th Cir. Oct. 6, 2008).

This post written by John Black.