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Arbitration / Court Decisions

SDNY Finds Insurer, As Subrogee, Lacked Authority to Enforce Arbitration Clause in Fuel Delivery Contract

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The Southern District of New York declared that plaintiff Monjasa A/S was not bound by an arbitration agreement to which neither it nor the defendant was a party. The case stems from a fuel delivery contract between two non-parties, Monjasa Lda and Angola de Navegacao Lda (ANNA). The contract called for Monjasa Lda to supply fuel to a ship known as the BBC Scotland. Monjasa Lda and the plaintiff are wholly separate subsidiaries of Monjasa Group. The defendant underwrote an insurance policy covering the BBC Scotland and its owner. The dispute arose after the BBC Scotland collided with and damaged the Golden Oak, a fuel tanker that Monjasa Lda arranged under the fuel contract, forcing Monjasa Lda to send a different tanker – the Duzgit Venture – to complete the delivery.

Subsequently, various parties – excluding the plaintiff – engaged in settlement discussions regarding the damage to the Golden Oak. The defendant, as insurer for the BBC Scotland parties, ultimately funded the settlement, after which it sent an arbitration demand to the plaintiff seeking reimbursement. According to the defendant, the plaintiff was liable for the settlement and subject to arbitration based on the general Monjasa Group terms and conditions incorporated by reference in the Monjasa Lda/ANNA contract. As support, the defendant cited a reference on the fuel delivery receipt issued by the Duzgit Venture stating that the sale was “governed by terms and conditions between Vessel and Monjasa A/S, acting as principal.” The plaintiff responded by filing this action.

Because there was no dispute that the plaintiff and the defendant were not parties to the contract between Monjasa Lda and ANNA, the district court found that the plaintiff could only be bound by its terms under agency principles. In that regard, the court ruled that the defendant failed to prove that Monjasa Lda was acting with actual or apparent authority to bind the plaintiff when it contracted with ANNA. The court also found that it was the defendant’s burden to prove that it was entitled to enforce a contract to which it was not a party. Although acting as subrogee of the BBC Scotland’s owner, the court found no connection between the owner of the BBC Scotland and the fuel delivery contract. Further, the court held that no reasonable fact-finder could conclude that the owner of the BBC Scotland was a third-party beneficiary of the contract. Accordingly, the court granted the plaintiff’s motion for summary judgment and denied the defendant’s cross-motion to compel arbitration, finding that the defendant had no basis to invoke the arbitration clause in the first instance.

Monjasa A/S v. Mund & Fester GmbH & Co. KG, No. 1:19-cv-06143 (S.D.N.Y. Aug. 6, 2020).

Third Circuit Affirms District Court’s Denial of Attorneys’ Fees Absent a Valid Statutory or Contractual Right to Additional Fees

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Betty Frison invented a product related to hair weaving and subsequently entered into an agreement with Davison Design to promote her product. The agreement required that the parties arbitrate any dispute. After believing Davison Design misrepresented the financial gain that she would realize from the product, Frison initiated arbitration against Davison Design, pursuing a claim under the American Inventors Protection Act.

Frison received an award of more than $13,000 in damages and $10,000 in attorneys’ fees. Davison Design then filed an application in federal court under sections 10 and 11 of the Federal Arbitration Act to vacate or modify the award. The U.S. District Court for the Western District of Pennsylvania denied Davison Design’s application, and Frison sought additional attorneys’ fees for successfully upholding the arbitration award. The district court rejected Frison’s request, and Frison appealed.

On appeal, Frison argued that the attorneys’ fees provision of the American Inventors Protection Act entitled her to fees for upholding the arbitration award. Relying on the “American Rule,” which provides that each party bear its own attorneys’ fees unless a statute or contract provides otherwise, the Third Circuit found that Frison did not have a basis in statute or contract to recover fees for successfully defending the arbitration award. Although the fee-shifting provision of the American Inventors Protection Act allows the recovery of attorneys’ fees “in a civil action against the invention promoter,” the Third Circuit held that this action was brought by the invention promoter not under the American Inventors Protection Act for damages, but under the Federal Arbitration Act to vacate or modify an arbitration award.

Accordingly, the Third Circuit found that the district court did not err in denying Frison’s request for additional attorney’s fees.

Davison Design & Development Inc. v. Frison, No. 19-2045 (3d Cir. Aug. 11, 2020).

New York Federal Court Confirms Arbitration Award Where Plaintiff Offered No Grounds to Vacate, Modify, or Correct Award

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PB Life and Annuity Co. Ltd. brought this action seeking a declaratory judgment that a breach of contract dispute with Universal Life Insurance Co. was not subject to arbitration and must be litigated in federal or state courts in New York. Universal Life filed a motion to compel arbitration, and PB Life filed a motion for a preliminary injunction, which the parties later agreed would be converted into a motion for a permanent injunction.

We have previously addressed the district court’s May 12, 2020, decision granting Universal Life’s motion to compel arbitration and denying the plaintiff’s motion for a permanent injunction of the arbitration.

On June 2, 2020, the arbitral panel issued an interim award to Universal Life. Universal Life subsequently moved to confirm the arbitration award, and PB Life cross-moved to vacate the award on four grounds:

1. Whether the Panel Denied PB Life Due Process

PB Life argued that the arbitral panel denied it a fair opportunity to present its case under the Federal Arbitration Act and the New York Convention because PB Life was not given the opportunity to generate new independent expert reports showing the value of the trust assets, or the opportunity to obtain important discovery from Universal Life on the same issue. The court rejected PB Life’s argument, noting that the basis for the panel’s ruling was not the value of the assets in the trust account, but rather whether they were qualifying assets, and that the panel’s conclusion that they were not qualifying would not be undermined by evidence that the assets were valuable. The court found that PB Life “does little more than complain that the panel issued its interim award without conducting a full hearing on the merits of its defenses.”

2. Whether the Award Was Entered in Manifest Disregard of the Law

PB Life argued that the panel manifestly disregarded the law by finding irreparable harm when Universal Life sought money damages alone. The court found that PB Life failed to provide any law that is contrary to the panel’s decision or provide any basis for its assertion that the panel misapplied the law to find “immediate and irreparable loss or damage” other than its bare disagreement with the outcome.

3. Whether Recognition or Enforcement of the Award Would Be Contrary to Public Policy

PB Life argued that the award would be contrary to public policy under the Convention because its recognition or enforcement would require PB Life to violate a temporary restraining order entered by a North Carolina state court to which PB Life voluntarily subjected itself.

The court construed PB Life’s arguments in one of two ways:

  • First, that PB Life argued the temporary restraining order relieved it of its obligations under the reinsurance agreement. The court rejected this argument, finding that PB Life forfeited such an argument when it failed to raise this argument before the panel.
  • Second, that PB Life was in essence stating a restraint on the power of the court – that it would be contrary to public policy for the court to enter a judgment that would require PB Life to violate an order of another court. Again, the court rejected PB Life’s argument, finding that PB Life offered no reason to believe that the North Carolina state court would not honor the district court’s judgment, nor identified any public policy that prevents a second court from awarding judgment in favor of a party entitled to it simply because the defendant is subject to a prior court order from an earlier court that would make compliance difficult or impossible.

Simply put, PB Life had not identified any public policy that prevented the court from ordering interim relief in favor of Universal Life that the panel determined Universal Life was plainly entitled to under the Convention and the FAA. The panel found in favor of Universal Life, and under governing law, Universal Life was entitled to confirmation of the award. The court advised that to the extent the judgment conflicts with that of the temporary restraining order in the North Carolina court, PB Life has the means to address that conflict by either petitioning the North Carolina court for relief or, if the plaintiffs in the North Carolina proceeding can successfully resist, find another way to satisfy those parties.

4. Whether the Dispute Is Arbitrable

Lastly, PB Life argued that the dispute was not arbitrable because the arbitration clause of the reinsurance agreement was superseded by the trust agreement. The court stood by its original decision, which held that the reinsurance agreement and its arbitration clause were not superseded by the trust agreement and that the question of arbitrability was for the arbitrators to decide, who ultimately determined that the dispute was arbitrable. The court found that PB Life failed to show an “intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice.”

Ultimately concluding that PB Life had not provided any ground to vacate, modify, or correct the award, the U.S. District Court for the Southern District of New York confirmed the arbitration award.

PB Life & Annuity Co. v. Universal Life Insurance Co., No. 1:20-cv-02284 (S.D.N.Y. July 30, 2020).

Eleventh Circuit Affirms Order Compelling Arbitration of Cruise Liner Class Action

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Plaintiffs filed a putative class action against Norwegian Cruise Lines claiming that Norwegian failed to disclose profits it earned when the plaintiffs elected to purchase travel insurance during the cruise booking process. Each plaintiff acknowledged accepting the terms of a “guest contract” with Norwegian, which contained a mandatory arbitration clause covering any dispute “relating to or in any way arising out of or connected with this Contract or Guest’s cruise.” The district court granted Norwegian’s motion to compel arbitration and the plaintiffs appealed, claiming the arbitration clause was inapplicable. According to the plaintiffs, Norwegian was not being sued as a cruise line carrier, but for its role in a purported “reinsurance scheme” whereby it received “kickbacks” on the sale of each travel insurance plan. Thus, the plaintiffs claimed, the class action was unrelated to the guest contract or their cruises. The district court disagreed, however, as did the Eleventh Circuit. Both courts concluded that the plaintiffs’ claims “arose out of,” were “related to,” and were “connected with” Norwegian’s obligations under the guest contract, as any alleged wrongdoing by Norwegian was inextricable from the transaction that culminated in the contract, as well as the plaintiffs’ cruises. The Eleventh Circuit also rejected the notion that Norwegian was being sued in its capacity as a “distribution participant” for the travel insurer. As such, the court affirmed the district court order enforcing the arbitration clause and dismissing the plaintiffs’ allegations.

Phillips v. NCL Corp., No. 19-12463 (11th Cir. Aug. 10, 2020).

Unopposed Motions to Confirm Arbitration Awards Are Treated As Motions for Summary Judgment

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A court granted an unopposed motion to confirm an arbitration award in favor of the Drywall Tapers and Pointers of Greater New York Local Union 1974. The award stemmed from CCC Custom Carpentry’s apparent failure to remit contributions required under a collective bargaining agreement to a collection of insurance and pension funds and to file weekly reports of those remittances. The collective bargaining agreement provided for fines for failure to file the weekly reports and permitted the union to complain to an arbitral board should an employer fail to make them. Custom Carpentry did not appear at the arbitration hearing, which resulted in the levy of $14,000 in fines. Nor did Custom Carpentry appear in the action to confirm the award in the district court.

The court noted that an “unanswered petition to confirm an arbitration award is to be treated as an unopposed motion for summary judgment.” Courts are required to review such motions to determine the moving party’s entitlement to judgment, even if the motion is unopposed. If the burden of proof at trial would fall on the movant, then that party’s submissions in support of the motion “must entitle it to judgment as a matter of law.”

Upon review of the award, the court found no indication that it was made arbitrarily, exceeded the arbitrator’s jurisdiction, or was contrary to law. The court noted that the fine that was levied per missing report exceeded the $500 per report scheduled in the collective bargaining agreement but that the schedule of fines in the agreement set those fines as minimums, rather than maximums.

As a result, the court confirmed the award. However, it denied the union attorney fees, finding neither a statutory nor a contractual basis for such an award.

Drywall Tapers & Pointers of Greater New York Local Union 1974 v. CCC Custom Carpentry Corp., No. 1:20-cv-00946 (S.D.N.Y. Aug. 5, 2020).