Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions

Arbitration / Court Decisions

Third Circuit Affirms Order Declining to Consolidate Reinsurance Dispute, but Vacates Order Denying Motion to Unseal

by

Everest Reinsurance Co. appealed from two district court orders. It claimed that this dispute with Pennsylvania National Mutual Casualty Insurance Co. was the same as a prior dispute that Penn National had arbitrated with two other reinsurers. It, therefore, sought to have this matter consolidated with and heard by the same panel as the prior dispute. The parties agreed that whether this dispute and the prior dispute were actually the same was to be decided by the arbitrators, not the court. The issue was which arbitrators: a new panel, or the panel that heard the prior dispute. The district court ordered that the question goes to a new panel, and the Third Circuit agreed, citing language in the Everest/Penn National arbitration agreement stating that consolidation is only permitted “[i]f more than one reinsurer is involved in the same dispute.” By sending the present dispute to the same panel as the prior dispute at this juncture, the Third Circuit held, Everest was essentially asking the court to prejudge the question of whether the two disputes were “the same,” and thus disregard the express language of the agreement.

Everest separately appealed an order denying its motion to unseal records from the prior dispute. The Third Circuit agreed with Everest that the district did not apply the “more rigorous common law right of access” standard. It therefore vacated and remanded for the district court to apply the legal standard articulated by the Third Circuit in Avandia Marketing.

Pa. Nat’l Mut. Cas. Ins. Co. v. New England Reinsurance Corp., No. 19-1805 (3d Cir. Dec. 6, 2019).

Court Finds No Manifest Disregard of the Law or Exceeding of Powers in Upholding Arbitration Award Related to Dispute Over Earn-Out Payment

by

Markmidco S.àr.l., a Luxembourg company, sold to Zeta Interactive Corp. its interest in a customer relationship management business consisting of several companies that provided to retailers email and text message marketing, database management, and related services. The parties’ agreement called for several earn-out payments to be made upon the determination that the CRM business had surpassed certain revenue thresholds laid out in the contract. Zeta refused to make the first earn-out payment of $4 million, claiming the revenue threshold had not been reached as of the deadline. Markmidco disagreed and referred the parties’ dispute to an arbitrator. The arbitrator agreed with Markmidco and awarded it the earn-out payment.

The parties’ dispute then moved to federal court where Markmidco’s award was confirmed over several arguments from Zeta seeking its vacatur. Zeta argued that the parties’ contract called for a “manifest error” standard of review. However, the court held that the parties “cannot contract for more judicial review than the FAA and Convention grant them.” Zeta next argued that the award should be vacated due to the arbitrator’s manifest disregard of the law, but failed to identify any instance of the arbitrator ignoring the applicable law.

The court also denied Zeta’s claim that the arbitrator exceeded his powers, stating that his findings were reasonable interpretations based on analysis of specific provisions of the purchase agreement. When presented with an argument that an arbitrator has exceeded his powers, the “sole question” for the court is “whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” As such, Zeta’s argument failed.

Zeta also argued that the grounds for vacatur stated in the Delaware Uniform Arbitration Act should apply rather than those provided by the Federal Arbitration Act because the parties’ contract included a choice-of-law provision selecting Delaware law. The court held that, under Third Circuit law, state law vacatur standards apply only when the parties express a clear intent to supplant the FAA standards with state law standards. A choice-of-law provision that applied broadly to the parties’ contract was not a sufficiently clear expression of the parties’ intent to opt out of the FAA scheme.

Lastly, Zeta argued that enforcement of the award was premature because other proceedings between the two parties were ongoing. The court held that Zeta’s claims in the collateral proceeding did not overlap with the issues submitted by the parties to the arbitrator. The court also held that issuing a stay or denying enforcement of the award at this time “would transform a summary proceeding into a protracted dispute,” contrary to the “basic purpose” of arbitration. The court ordered enforcement of the arbitration award.

Markdutcho 1 B.V. v. Zeta Interactive Corp., No. 1:17-cv-01420 (D. Del. Nov. 12, 2019).

Eleventh Circuit Clarifies Standard for New York Convention’s Public Policy Defense to Foreign Arbitration Awards

by

The dispute involved an arbitration related to alleged medical malpractice by doctors selected by Carnival Cruise Lines to treat a wrist injury of a Serbian employee of Carnival. The employee’s employment agreement with Carnival contained mandatory arbitration and forum selection clauses and a choice-of-law clause designating the governing law as the law of Panama, the law of the flag of the employee’s cruise ship. Notwithstanding the choice of Panamanian law, the employee filed a foreign arbitration asserting a claim under U.S. law, including the Jones Act, for vicarious liability against Carnival. The arbitrator ruled that the employee could not assert the U.S. law claims and that she would not be entitled to relief under Panamanian law. The employee then filed a lawsuit in a federal district court seeking to vacate or deny enforcement of the foreign award under the New York Convention. The district court denied the employee’s petition, rejecting the employee’s arguments that the arbitrator wrongfully deprived her of the opportunity to assert her claim under the Jones Act and that the award was void as against U.S. public policy.

On appeal, the Eleventh Circuit affirmed the district court’s ruling. The Eleventh Circuit rejected the employee’s argument that the court was required to refuse to enforce the award because she was allegedly deprived of a statutory remedy against Carnival. The court ruled that it would not refuse to enforce the award “simply because the remedies available under Panamanian law [were] less favorable” to the employee “than the remedies available under U.S. law.” The court further found that the remedies available under Panamanian law were not “so inadequate that enforcement would be fundamentally unfair.” The court held: “[T]he test for whether a court should refuse to enforce a foreign arbitral award based on public policy is not whether the claimant was provided with all of her statutory rights under U.S. law during arbitration. Rather the public-policy defense ‘applies only when confirmation or enforcement of a foreign arbitration award would violate the forum state’s most basic notions of morality and justice.'” The employee had not made that showing here.

Cvoro v. Carnival Corp., No. 18-11815 (11th Cir. Oct. 17, 2019).

Connecticut Supreme Court to Consider Whether Parties Can Use FAA to Extend Time to Vacate Arbitration Award

by

The Connecticut Supreme Court will consider whether the parties to an arbitration agreement can circumvent Connecticut’s 30-day statutory deadline for filing an application to vacate an arbitration award by including in the arbitration agreement a choice-of-law provision stating that the agreement is governed by the Federal Arbitration Act, which contains a three-month time limitation for filing applications to vacate arbitration decisions.

In A Better Way Wholesale Autos, Inc. v. Saint Paul, 192 Conn. App. 245 (2019), the Connecticut Appellate Court affirmed the trial court’s dismissal of a plaintiff’s application to vacate an arbitration award on the ground that the application was untimely because it was filed more than 30 days after the award. Under a Connecticut statute, “[n]o motion to vacate, modify or correct an award may be made after thirty days from the notice of the award to the party to the arbitration who makes the motion.” The appellate court concluded as a matter of law that parties may not circumvent that statute by agreeing to have the FAA’s three-month limitation period apply. Thus, even though the arbitration agreement at issue provided that “[a]ny arbitration under this Arbitration Provision shall be governed by the Federal Arbitration Act … and not by any state law concerning arbitration,” Connecticut’s 30-day limitation applied.

A Better Way Wholesale Autos, Inc. v. Saint Paul, 192 Conn. App. 245 (2019).

Second Circuit Finds Arbitrator Within Authority to Bind Absent Class Members to Arbitration

by

In reversing a New York federal court, the Second Circuit found the arbitration was within the arbitrator’s authority in binding absent class members to class proceedings because, by signing the operative arbitration agreement, the absent class members — employees of the defendant — bargained for the arbitrator’s construction of their agreement with respect to class arbitrability. The issue whether the arbitrator exceeded her authority in certifying an opt-out, as opposed to a mandatory, class was not before the Second Circuit, and thus the matter was remanded to the district court.

The court found that the arbitrator’s decision was supported, in part, by the American Arbitration Association’s Supplementary Rules for Class Arbitrations, which provide that “the arbitrator shall determine as a threshold matter … whether the applicable arbitration clause permits the arbitration to proceed on behalf of … a class.” Furthermore, the arbitration agreement provided that questions of arbitrability and procedural questions were to be decided by the arbitrator.

The Second Circuit noted that it was not for the court to “decide whether the arbitrator’s class certification decision was correct on the merits of issues such as commonality and typicality. We merely decide that the arbitrator had the authority to reach such issues even with respect to the absent class members.”

Jock v. Sterling Jewelers Inc., No. 18-153 (2d Cir. Nov. 18, 2019).