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New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

California Court Grants § 1782(a) Application Seeking Subscriber Identity for Facebook Page Following Amendment of Application

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Hoteles City Express sought an order granting it permission to issue a subpoena to obtain documents from non-party Facebook, Inc. to show the subscriber identity for a Facebook page allegedly containing defamatory statements regarding Hoteles to be used in a lawsuit in Mexico.

The Northern District of California initially denied Hoteles request absent “additional information regarding the nature of the defamatory statements made and contained on the Facebook account for which Hoteles seeks identifying information.” Furthermore, it concluded that “Hoteles has provided insufficient information for the Court to determine whether it could actually state a claim for defamation under Mexican law.”

Hoteles was directed to, and subsequently did, amend its application. The Court granted the amended application, finding Hoteles had cured its prior defects and finding good cause to grant the requested discovery.

In re Hoteles City Express, Case No. 18-mc-80112 (N.D. Cal. July 13, 2018 & August 8, 2018)

This post written by Nora A. Valenza-Frost.

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Court Finds That Apparently Inconsistent Forum Selection Provisions Do Not Render Arbitration Agreement Unenforceable

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Plaintiff Fintech Fund, FLP filed an action in federal court in the Southern District of Texas asserting claims under the federal Defend Trade Secrets Act and the Computer Fraud and Abuse Act against Ralph Horne, a citizen of the United Kingdom and CEO of a company to which Fintech had licensed certain financial technology. Fintech claimed that Horne used that relationship to access Fintech’s confidential and proprietary information illegally. Horne moved to dismiss the action (1) for lack of personal jurisdiction and (2) for lack of subject matter jurisdiction and improper venue because the matter was subject to an arbitration agreement.

The court rejected Horne’s personal and subject matter jurisdiction arguments, finding that the court had specific jurisdiction over him based on telephone calls he made and emails he sent as part of his allegedly wrongful conduct to a Fintech partner in Texas, and that it had subject matter jurisdiction because Fintech’s claims were for federal statutory violations. Fintech was less successful on the question of venue, however.

Fintech argued that the dispute was not arbitrable because the arbitration agreement was unenforceable and the claims at issue were not covered by it. Fintech said there was no meeting of the minds as to arbitration, as the relevant contract contained an irreconcilable internal inconsistency; the arbitration provision said that all claims against Horne and his company would be resolved by “arbitration under the London Court of International Arbitration (‘LCIA’) Rules,” while a choice of law provision in the same contract said that the courts of England and Wales would have exclusive jurisdiction over such claims. The court found that this apparent inconsistency could be resolved by interpreting them to require that any non-arbitrable claims and disputes regarding arbitrability be brought before courts in England or Wales, while any arbitrable claims must be submitted for arbitration in London. In either case, the agreed upon forum was in the United Kingdom, not the Southern District of Texas. Finding no justification for refusing to enforce the parties agreed upon forum, the court dismissed the action, leaving the question of arbitrability to be decided, if necessary, by a court in England or Wales. Fintech filed its notice of appeal on the same day that the district court entered its order.

Fintech Fund, FLP v. Horne, Civil Action No. H-18-1125 (S.D. Tex. July 6, 2018)

This post written by Jason Brost.

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New York Federal Court Awards Damages for Reinsurance Payments in Lawsuit Against Iran Related to September 11 Attacks

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The Southern District of New York recently granted a motion for damages by insurance plaintiffs in a multidistrict litigation case against Iran stemming from the September 11, 2001 terrorist attacks. The court previously entered a default judgment against Iran and tasked a magistrate judge with calculating damages. The present opinion stemmed from plaintiff’s objections to the magistrate’s recommendations that plaintiffs could not recover reinsurance payments made related to the attacks and that prejudgment interest began to accrue on the individual dates of payment of each claim for which plaintiffs sought damages.

First, the court agreed with plaintiffs and awarded damages for the reinsurance payments at issue. Plaintiffs objected to the magistrate’s recommendation because another case in the MDL had previously awarded damages for reinsurance payments (constituting law of the case) and that, contrary to the magistrate’s logic, their subrogation rights did not depend on contractual privity. The Southern District side-stepped the issue of whether the “law of the case” doctrine applied by concluding equitable subrogation, a doctrine sounding in equity rather than contract, does not require contractual privity under New York law. While not officially deciding the law of the case issue, the court in dicta noted the existence of a D.C. federal case allowing recovery for reinsurance payments on an unrelated terrorist attack and that the magistrate provided no basis for distinguishing the present case from the previously decided MDL case.

Second, the court determined that the date of the September 11 terrorist attacks was the appropriate benchmark for when prejudgment interest should start accruing. New York law provides that damages for losses arising in the state incurred at various times may trigger interest either at the date of each loss individually or upon a “single reasonable intermediate date.” Instead of triggering interest accrual for each loss based on the date each claim was paid, the court affixed all prejudgment interest to begin accruing on September 11, 2001 to promote consistency in the MDL cases and avoid complex calculations. As to losses arising outside of New York, the court likewise exercised its broad discretion to select September 11, 2001—the date of the underlying terrorist attack and the date selected for New York losses—to be the date from which prejudgment interest is to be calculated for non-New York losses.

In re Terrorist Attacks on Sept. 11, 2001, Case No. 03-MDL-1570 (USDC S.D.N.Y. June 25, 2018).

This post written by Thaddeus Ewald .

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Court Orders Compliance with Arbitral Subpoenas, Deferring to the Panel’s Assessment of the Value of the Requested Testimony

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In a case that had been filed and then stayed in a New York federal district court in connection with an ongoing arbitration involving alleged violations of federal securities laws, the plaintiffs filed a motion to enforce two subpoenas issued by the arbitrators. The arbitral subpoenas were issued to two non-party witnesses who were refusing to appear to testify at the arbitration hearings. The defendants and the non-parties did not challenge the subpoenas as being invalid, improperly issued by the arbitrators, or improperly served. Instead, they argued that the court should apply its discretion and determine that the requested testimony would be improper rebuttal, duplicative, and overly burdensome. The court rejected defendants’ and the non-parties’ arguments and found that if the arbitration panel, which had sat through more than thirty days of hearings over two years, believed that the non-parties’ testimony was appropriate, the court could find no basis to quash either subpoena. Notwithstanding that the court had the authority to assess the value of the requested testimony, it was not obligated to make that assessment and was not sufficiently informed to do that here. The court found that the arbitrators were best-suited to do so, and ordered compliance with the subpoenas. Shasha v. Malkin, Case No. 1:14-cv-09989 (USDC S.D.N.Y. July 5, 2018).

This post written by Michael Wolgin.

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Two Federal Appellate Courts Decline to Find “Evident Partiality” Due to Trivial Omissions in Arbitrator’s Disclosures

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In two separate appellate decisions, two circuit courts of appeal declined to overturn orders enforcing arbitration awards where the appellants had challenged the respective awards based on “evident partiality” under the FAA. In Republic of Argentina v. AWG Group Ltd., Argentina contended that there was evident partiality by one of the arbitrators who did not disclose that she at one time (more than a year before the arbitration panel found Argentina liable) sat on the board of directors for a company with investments in two of the parties. Argentina appealed, but the appellate court affirmed, reasoning that the company on whose board the arbitrator sat had only trivial interest in the parties, and therefore, the arbitrator’s interests in the parties were insignificant.

Similarly, in Ploetz v. Morgan Stanley Smith Barney LLC, an arbitrator had submitted a disclosure report stating that he was currently serving as an arbitrator in two other cases that had Morgan Stanley as a party and that he had served as an arbitrator in eight closed cases in which an affiliate of Morgan Stanley had been a party. However, the arbitrator failed to disclose that he had once served as a mediator in another case, which was unsuccessful, in which an arbitration panel (on which he did not sit), ultimately found that Morgan Stanley owed the claimant $75,000 in damages. Despite this omission, the appellate court affirmed the order denying vacatur of the award. The appellate court reasoned that because the arbitrator timely disclosed the ten other cases he arbitrated where a member of the Morgan Stanley family was a party, his undisclosed mediation of the omitted case represented at most a trivial and inconsequential addition to that relationship. Republic of Argentina v. AWG Group Ltd., Case No. 1:15-cv-01057 (D.C. Cir. July 3, 2018); Ploetz v. Morgan Stanley Smith Barney LLC, Case No. 17-2405 (8th Cir. July 2, 2018).

This post written by Gail Jankowski.

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