Week's Best Posts

First Circuit Holds Online Mandatory Arbitration Agreement is Unenforceable

July 24, 2018 by John Pitblado

The First Circuit recently held that an arbitration clause contained in the online contract of the ride sharing app, Uber Technologies, Inc., is unenforceable under Massachusetts law.

In this case, plaintiffs, Uber riders, filed a class action in Massachusetts state court, challenging certain fees and surcharges they were charged in addition to the ride-sharing costs to which they agreed as violations of state consumer protection laws. Uber removed the case to Massachusetts federal court and filed a motion to compel arbitration based on a mandatory arbitration clause included in Uber’s Terms of Service. In order to use the Uber app, the customers had been required to register for an Uber account and to agree to the company’s Terms of Service & Privacy Policy. The Terms of Service included an arbitration clause which required customers to resolve any disputes with Uber through binding arbitration and also contained a class action waiver. The Massachusetts district court granted Uber’s motion to compel arbitration and dismissed the lawsuit. The plaintiffs then filed an appeal to the First Circuit.

At the outset, the First Circuit acknowledged that federal policy favors arbitration under the Federal Arbitration Act (“FAA”). Despite this, the court stated a valid agreement to arbitrate must exist before the FAA applies. The Court then analyzed whether Uber’s mandatory arbitration clause was enforceable under Massachusetts law, and concluded that an online contract is enforceable only if it is reasonably communicated to the plaintiff, and accepted by the plaintiff. The First Circuit then found that Uber had not reasonably communicated its Terms of Service, including the mandatory arbitration clause, to its customers because the link to the Terms was not sufficiently conspicuous. The Court noted that Uber did not use a common method of conspicuously informing online app users of its terms by requiring users to click a box stating that they agree to the terms before continuing to the next screen. Instead, Uber displayed, on an enrollment screen, a rectangular box with the language “Terms of Service,” which customers were not required to click in order to review the contract. The Court noted that Uber’s terms were not conspicuously disclosed to its users because the link was not designed in a way that most users associate with hyperlinks and thus did not have the appearance of a hyperlink. Further, the hyperlink box was not sufficiently distinct from the rest of the screen, which had other links in bold with similarly sized font that were “more noticeable.” The First Circuit noted: “if everything on the screen is written with conspicuous features, then nothing is conspicuous.” Thus, the First Circuit found that the arbitration clause is unenforceable, and reversed the Massachusetts federal court decision and remanded the case.

Cullinane v. Uber Technologies, Inc., No. 16-2023 (1st Cir. June 25, 2018).

This post written by Jeanne Kohler.

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New York Federal Court Finds Section 1782 Petition Can Reach Documents Abroad

July 23, 2018 by John Pitblado

In a petition brought under 28 U.S.C § 1782, petitioner sought discovery of documents outside the United States. Recognizing the Second Circuit had not ruled on whether such discovery was authorized by Section 1782, the Court looked to precedent from the Eleventh Circuit, which had previously allowed such discovery abroad. “Section 1782 imposes no geographical limit on the production of documents” and to the extent courts have done so, it was “for reasons of legislative history and policy.” The Court found that the factors discussed by the Eleventh Circuit favored petitioner’s application with respect to documents relating to a criminal proceeding in Monaco, and permitted some – but not all – of petitioner’s discovery requests.

The petition also sought discovery in aid of criminal proceedings in Switzerland. Finding the petitioner satisfied the statutory requirements with respect to the Monaco proceedings, the Court found Section 1782 did not require the petitioner to “satisfy the statutory requirements for each foreign proceeding for which he or she wishes to use the requested discovery.”

In re Application of Accent Delight Int’l Ltd and Xitrans Finance Ltd., 16-MC-125 (USDC S.D.N.Y. June 11, 2018)

This post written by Nora A. Valenza-Frost.

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Northern District Of New York Allows Evidence That Follow The Fortunes Or Follow The Settlements Provision Could Be Implied In Facultative Reinsurance Certificates

July 18, 2018 by Rob DiUbaldo

Munich Reinsurance America, Inc. and Utica Mutual Insurance are headed to a bench trial in the United States District Court for the Northern District of New York in a case regarding two facultative reinsurance certificates issued by Munich to Utica in 1973 and 1977, and the court has ruled on certain motions in limine filed by both parties.

In an earlier ruling on cross motions for summary judgment, the court noted that neither the 1973 nor the 1977 certificates contained a follow the fortunes or follow the settlements provision and declined to find this such a clause was implied in the contracts based on the record before it. Munich filed a motion in limine asking the court to preclude Utica from presenting evidence in support of the existence of a follow the fortunes/settlements provision. The court denied this motion, however, holding that Utica would be allowed to present evidence that “the doctrines of follow the fortunes or follow the settlements were, at the time the parties agreed to the Certificates, so ‘fixed and invariable’ in the reinsurance industry as to be part of the Certificates.” In doing so, however, the court emphasized that it would be Utica’s burden to show that such custom and practice was “fixed and invariable,” and not merely generally understood within the (re)insurance industry during the relevant time period.

The court also considered Munich’s motion to preclude certain testimony by Utica’s expert witnesses regarding trade usage and custom and practice in the reinsurance industry. The court declined to exclude such testimony, doing so largely on the basis that such decisions could better be made in the context of trial and that such exclusions are less necessary in a bench trial “[w]here the gatekeeper and the factfinder are one in the same—that is, the judge . . . .” However, the court granted Munich’s motion to preclude testimony on withdrawn claims and defenses as well as its motion to preclude evidence of decisions from certain other matters, which the court held was hearsay.

Utica was similarly unsuccessful in most of its motions in limine. The court rejected Utica’s request that Munich not be allowed to make certain arguments about the meaning of the 1973 and 1977 certificates on the basis of collateral estoppel. The court found that this interpretation was an issue of law, and “collateral estoppel does not operate to bar relitigation of pure issues of law.” However, the court granted Utica’s motion to preclude the use of a privilege log it produced in the litigation, which Munich argued was admissible to show when Utica considered certain issues, finding that there was no relevant, nonspeculative inference that could be drawn from that log.

Utica Mutual Insurance Company v. Munich Reinsurance America, Inc., 6:13-cv-00196(BKS/ATB) (N.D.N.Y. June 27, 2018)

This post written by Jason Brost.

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Second Circuit Joins Sister Circuits in Holding Party-Appointed Arbitrators Not Subject to Same Disclosure Requirements as Neutral Arbitrators

July 17, 2018 by Rob DiUbaldo

The Second Circuit recently held that parties seeking to vacate awards under Federal Arbitration Act Section 10(a)(2) must satisfy a higher burden in showing evident partiality by a party-appointed arbitrator. The parties arbitrated a workers compensation reinsurance dispute and the losing party (Lloyds) moved to vacate the ultimate arbitral award on the ground that the prevailing party (ICA)’s selected arbitrator displayed evident partiality by failing to fully disclose his connections to ICA. The lower court vacated the award, finding that ICA’s appointed arbitrator’s undisclosed relationships were “more significant, more numerous, and involve[d] more financial entanglements” than would be acceptable, particularly in light of the “apparent willfulness” of the non-disclosure.

On appeal, the Second Circuit addressed as an issue of first impression what the appropriate standard is for a Section 10(a)(2) evident partiality challenge to a party-appointed arbitrator. The court disagreed with the lower court and instead followed the approach of other circuits in distinguishing between a heightened burden standard for party-appointed arbitrators and a reasonable person standard for neutral arbitrators. Despite the heightened burden, party-appointed arbitrators are subject to certain “baseline limits to partiality.” First, undisclosed relationships are material—and therefore warrant vacatur—if they violate the arbitration agreement. Here, the court noted, the only limitation in the arbitration agreement was that arbitrators be “disinterested,” in terms of financial and personal stake in the outcome. Second, undisclosed relationships are material if the complaining party can demonstrate the partiality had a prejudicial effect on the award.

As a result of this new framework, the Second Circuit remanded to the trial court to determine whether ICA’s arbitrator’s undisclosed relationships betrayed his disinterest or had a prejudicial effect on the arbitral award.

Certain Underwriting Members of Lloyds of London v. Ins. Co. of Am., No. 17-1137 (2d Cir. June 7, 2018).

This post written by Thaddeus Ewald .

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NAIC Publishes Exposure Drafts of Proposed Revisions to Credit for Reinsurance Models to Implement the Covered Agreement

July 16, 2018 by Rob DiUbaldo

The NAIC has published proposed revisions to the Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation that are intended to facilitate compliance by the states with the provisions of the Covered Agreement with the European Union, and avoid the federal preemption of state credit for reinsurance laws. These exposure drafts further the implementation of the Covered Agreement discussed at the NAIC’s February 20, 2018 public hearing. The draft revisions add new sections to both the Model Act and the Model Regulation allowing a ceding insurer to take financial statement credit for reinsurance if the assuming insurer has its headquarters or domicile in what the state insurance commissioner determines is a “Reciprocal Jurisdiction,” as that term is defined in the revised Models. The proposed revisions do not change or delete any of the existing provisions of the Models, which would remain in force and effect along with the new provisions.

The proposed revised Model Regulation adds detailed requirements to the more general provisions of the Model Act, including provisions clearly intended to implement the provisions of Articles 3 – 5 of the Covered Agreement and extend the benefits of the reinsurance collateral provisions of the Covered Agreement to non-E.U. jurisdictions that have group governance, capital, supervision, solvency, and other requirements that are in compliance with those found in the Covered Agreement. For example, Section 9 of the proposed revised Model Regulation states that to be recognized by a state as a Reciprocal Jurisdiction, a non-U.S. jurisdiction must either: (1) be recognized by the state insurance commissioner as a Reciprocal Jurisdiction and be party to a treaty or international agreement with the United States regarding credit for reinsurance, such as a Dodd-Frank Act Covered Agreement; or (2) be recognized by the state insurance commissioner as a qualified jurisdiction and a Reciprocal Jurisdiction, meeting stated requirements concerning the equal treatment of insurers domiciled in the U.S. and the foreign jurisdiction, a lack of a “local presence” requirement, certain worldwide group governance, solvency, capital, and supervision requirements, and required information exchange and sharing between insurance supervisors. The proposed revisions impose requirements for credit for reinsurance in such jurisdictions that are not only consistent with but quoted from the Covered Agreement, effectively offering the terms of the Covered Agreement to countries outside the E.U. on an equal footing with the Covered Agreement’s terms for E.U. member nations. Section 9.B.(2)(d) of the proposed revisions to the Model Regulation notes that “a memorandum of understanding or similar document between the commissioner and such qualified jurisdiction” will be needed to implement the provisions concerning the exchange of information between the regulators of different jurisdictions.

The proposed revisions to the Models resolve two issues which were undecided at the February 2018 public hearing: (1) whether the reinsurance collateral reform contemplated by the Covered Agreement would be limited to U.S.-E.U. relationships, or be applicable to reinsurance arrangements with foreign reinsurers domiciled elsewhere; and (2) whether non-E.U. domiciled reinsurers would have to be subject to the group supervision, solvency, capital, and information exchange provisions of the Covered Agreement to receive the benefits of reinsurance collateral reform. The proposed revisions to the Models make the reinsurance collateral reform provisions available with respect to any reinsurer domiciled in what the state insurance commissioner determines is a Reciprocal Jurisdiction, not limiting such treatment to E.U. nations, but conditions a determination that a jurisdiction is a Reciprocal Jurisdiction on that jurisdiction having laws or regulations in place that are consistent with the group supervision, solvency, capital, and information exchange provisions of the Covered Agreement. Thus, the Covered Agreement potentially becomes a model for the worldwide reinsurance market for U.S. ceding insurers.

There is a short public comment period for these drafts open until July 23, 2018. The consideration of these proposed revisions presumably will continue on the schedule published by the NAIC earlier this year, with consideration by the Financial Condition (E) Committee at the NAIC’s August meeting and by the NAIC plenary at the November meeting.

This post written by Rollie Goss.
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