Week's Best Posts

COURT APPROVES ANOTHER SETTLEMENT IN BROKERAGE ANTITRUST MDL ACTION

March 31, 2009 by Carlton Fields

The court in the MDL action involving allegations of improper “contingent commissions” has approved a settlement with the Marsh companies, the preliminary approval of which was reported in a September 4, 2008 post. Marsh is at least the third broker to settle such allegations. The settlement provides for a $69 million fund to be distributed to class members. Marsh may use up to $5 million of the fund to resolve and settle claims of state officials representing policyholders who are potential members of the settlement class. In addition, Marsh may use up to $7 million of the fund to resolve and settle claims of individual plaintiffs in pending actions relating to the same matters that are at issue in the class action. The approved settlement is described in the court’s Memorandum Opinion. At the same time, the court issued a separate Memorandum Opinion granting class counsels’ application for an award of attorneys’ fees, reimbursement of expenses and incentive award payments. Class counsel in the federal proceedings were awarded $14.5 million; class counsel in a concurrent state court class action were awarded $4.5 million. The court entered a Final Judgment on February 17, 2009. An objector has filed a Notice of Appeal to the Third Circuit, appealing the settlement approval.

Shortly thereafter, Marsh filed a motion to enforce the final judgment and order, and to specifically enjoin the pursuit of two state court litigations by settlement class members pursuant to the Anti-Injunction Act and All Writs Act. The grounds for the motion are detailed in Marsh’s Memorandum of Law. In re Insurance Brokerage Antitrust Litigation, Case No. MDL 1663 (USDC D.N.J. Feb. 17, 2009).

This post written by Brian Perryman.

SECOND CIRCUIT AFFIRMS ORDER COMPELLING ARBITRATION OF CLASS CLAIM

March 30, 2009 by Carlton Fields

The Second Circuit has affirmed an order compelling arbitration and a judgment confirming a final arbitration award. Plaintiff-appellant appealed the order on the basis that the arbitration agreement required arbitration only of his individual claim, but permitted his class claim to be heard in court. The appellant contended that because claims may not be arbitrated as class actions under the rules of the NYSE and the NASD (incorporated by reference in the Settlement Agreement), the parties must have intended any class claims to be litigated in the courts.

Relying on the Supreme Court’s decision in Green Tree Financial v. Bazzle, the Second Circuit found that whether an arbitration contract forbids class arbitration falls under the domain of arbitrators, and therefore the district court properly compelled arbitration on the question of the arbitrability of class claims under the Settlement Agreement. The Court also rejected appellant’s claim that the arbitration decision should not have been confirmed because the arbitrators: (1) acted with a lack of fundamental rationality; (2) exceeded the scope of their authority; and (3) acted with manifest disregarded of the law. Vaughn v. Leeds, Morelli & Brown, No. 07-5637 (2d Cir. Mar. 16, 2009).

This post written by Lynn Hawkins.

STATE INSURER LIQUIDATION ACT PREEMPTS FEDERAL REMOVAL STATUTE

March 24, 2009 by Carlton Fields

The Florida Department of Financial Services (“FDFS”) filed a claim in state court against General Reinsurance Corporation (“Gen Re”) after discovering that in the course of Aries Insurance Company’s (“Aries”) receivership, Aries made improper preferential transfers to Gen Re within six months of the rehabilitation date. Alleging diversity jurisdiction, Gen Re removed the action to Florida district court. FDFS moved to remand the claim to state court pursuant to the McCarran-Ferguson Act. The district court first determined that, under the Florida Insurers Rehabilitation and Liquidation Act (the “Liquidation Act”), the assets at issue are subject to the exclusive jurisdiction of the Leon County Circuit Court. Granting the motion to remand, the district court stated that the federal removal statute does not specifically relate to the business of insurance, found that the Liquidation Act provision vesting exclusive jurisdiction in the state court served to regulate the business of insurance, cited similar findings by other courts regarding such jurisdictional provisions, and concluded that the McCarran-Ferguson Act applies causing the Liquidation Act to preempt the federal removal statute. Fla. Dep’t. of Fin. Servs. v. Gen. Reins. Corp., Case No. 08-443 (USDC N.D. Fla. Feb. 2, 2009).

This post written by Dan Crisp.

FEDERAL COURT GRANTS SUMMARY JUDGMENT TO REINSURER BASED ON EXCLUSION IN UNDERLYING POLICY FOR CLAIMS SEEKING SOLELY EQUITABLE RELIEF

March 23, 2009 by Carlton Fields

A federal court granted summary judgment to Northfield Insurance Company (“Northfield”) on claims brought by the Pennsylvania Counties Risk Pool (“PCORP”), and the Counties of Monroe and Beaver, Pennsylvania (“the Counties”), after Northfield declined a claim under a reinsurance agreement with PCORP, which reinsured insurance issued by PCORP to the Counties. The plaintiffs sought coverage pertaining to an underlying class action suit brought by residents against the Counties, which suit alleged that various county officials failed to provide state-mandated per diem foster care payments to “kinship caregivers” of special needs foster children. The suit sought declaratory and injunctive relief, as well as costs and attorneys fees. The underlying suit eventually settled, with the result that PCORP paid an amount which “include[ed] the settlement and attorneys fees and litigation expenses,” of $213,799.71.

Northfield denied the reinsurance claim based in part on an endorsement to the underlying policy which excluded coverage for “any costs or expenses incurred by the Assured in any claim or suit seeking solely declaratory, injunctive, or equitable relief, including but not limited to any attorney’s fees or expenses incurred to defend the claim.” The Court agreed with Northfield that, strictly confined to the four corners of the operative pleading, the underlying suit did not seek compensatory damages or any other form of legal relief, but was limited in its demand to solely declaratory and injunctive relief, both of which are strictly equitable forms of relief. The Court disagreed with the plaintiffs that the catch-all claim for relief alleged in the underlying suit for “such additional or alternative relief which [the] Court deems just, proper, or equitable” did not negate the proper application of the exclusion. Pennsylvania County Risk Pool v. Northland Insurance, Case No. 07-00898 (USDC M.D. Pa. Feb. 27, 2009).

This post written by John Pitblado.

SUPREME COURT “LOOKS THROUGH” FAA § 4 PETITION TO UNDERLYING DISPUTE TO DETERMINE JURISDICTION

March 17, 2009 by Carlton Fields

Last week, in a decision authored by Justice Ginsburg, the Supreme Court announced that a federal court may “look through” a Federal Arbitration Act § 4 petition to determine whether it is predicated on a controversy that arises under federal law. Under the well-pleaded complaint rule, a suit “arises under” federal law when the plaintiff’s statement of the cause of action shows that it is based on federal law. The Court held that the language of § 4 (“save for the arbitration agreement…”) directs federal courts to “look through” the petition itself to determine proper jurisdiction. Justice Ginsburg stated that federal courts should assume the absence of the arbitration agreement and determine jurisdiction based on the parties’ underlying dispute.

With this in mind, the Court held that the underlying controversy between Vaden and Discover Bank did not support federal jurisdiction. The controversy arose from Vaden’s alleged debt and not any federal law or other basis for federal jurisdiction. The Court thus declined federal jurisdiction. Chief Justice Roberts filed an opinion concurring in part and dissenting in part. Vaden v. Discover Bank, No. 07-773, (U.S. Mar. 9, 2009).

This post written by John Black.