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New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

SECOND CIRCUIT HOLDS THAT MANIFEST DISREGARD OF LAW DOCTRINE SURVIVES HALL STREET ASSOCIATES

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The Second Circuit Court of Appeals has held that the manifest disregard of law standard is a judicial gloss on the specific grounds for vacature of arbitration awards enumerated in section 10 of the Federal Arbitration Act, and remains a valid ground for vacating arbitration awards after the Supreme Court's Hall Street Associates decision. The issue in this case was whether class arbitration was appropriate under an arbitration agreement which was silent on that issue. It was undisputed that this was a question for the arbitrator to initially decide, and that it was a question of contract interpretation. The arbitrator allowed class arbitration, but the District Court found that decision to be in manifest disregard of law. The Second Circuit, noting the very narrow scope of the manifest disregard of law doctrine, disagreed, and remanded with directions that the District Court deny the request to vacate the arbitration award. Stolt-Nielsen SA v. AnimalFeeds Int'l. Corp., No. 06-3474 (2d Cir. Nov. 4, 2008). This decision further develops the conflict in court decisions as to whether the manifest disregard of law doctrine remains viable.

This post written by Rollie Goss.

BOSTON’S ‘BIG DIG’ CONSTRUCTION PROJECT LEADS TO REINSURANCE DISPUTE; COURT GRANTS MOTION TO TRANSFER

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This action stems from litigation arising from Boston’s “Big Dig” construction project. In early 2003, the Massachusetts Turnpike Authority (as manager of the project) made a claim against a subcontractor, Parsons Corporation (“Parsons”), arising from construction delays. Parsons gave notice of the claim to its liability insurer, National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). The claim against Parsons was settled in November 2007 for more than $1.5 million. In April 2008, National Union demanded payment of the $500,000 alleged limit of the reinsurance contract from its reinsurer, Syndicate 1861, for indemnity under the agreement. Syndicate 1861 denied the claim.

In the instant matter, National Union filed suit against Tonicstar (the “capital provider” to Syndicate 1861) in California federal court alleging that Tonicstar wrongfully denied paying National Union the amount due to it under the contract. Tonicstar argued that National Union did not give timely notice under the agreement or fulfill its claims cooperation clause. Tonicstar also moved to transfer, stay or dismiss the suit, arguing that California was not a suitable forum and noting that a substantially similar suit was proceeding in New York.

Persuaded by Tonicstar’s argument that National Union was forum shopping, the California court granted Tonicstar’s motion to transfer the action to the Southern District of New York. National Union Fire Ins. Co. of Pittsburg v. Tonicstar Ltd., Case no. 08-03706 (USDC C.D. Cal. Aug. 20, 2008). Further information about this motion is found in a Memorandum of Law filed in the case.

This post written by Lynn Hawkins.

IMPORTANT DECISIONS ON MANIFEST DISREGARD OF LAW DOCTRINE ON THE HORIZON

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Since the Supreme Court’s Hall Street Associates decision last March, it has been unclear whether the manifest disregard of law doctrine survived as a basis upon which to vacate an arbitration award. Authoritative guidance on that issue from the Second and Ninth Circuits may be relatively close at hand. The United States Supreme Court has granted a petition for writ of certiorari in Improv West Associates v. Comedy Club, Inc., No. 07-1334 (Oct. 6, 2008), and has summarily vacated the decision of the Ninth Circuit at 514 F.3d 833, and remanded the case for further consideration in light of Hall Street Associates. The Ninth Circuit, in a decision issued prior to the Supreme Court’s decision in Hall Street Associates, had found that a decision of an arbitrator was in manifest disregard of California law. The Supreme Court wishes to have the Ninth Circuit consider whether that decision is still appropriate in light of the Hall Street Associates decision.

In the Second Circuit, the court recently affirmed the confirmation of an arbitration award, rejecting the contention that the award was in manifest disregard of law, concluding that “even if the manifest-disregard standard were to survive Hall Street Associates, it affords Sole no relief from the arbitration award challenged in this case.” Sole Resort, S.A. v. Allure Resort Management, LLC, No. 07-1284 (2d Cir. Oct. 20, 2008). The Sole opinion notes that the issue of whether the manifest disregard of law doctrine survived Hall Street Associates is pending in another case in the 2d Circuit, Stolt-Nielsen S.A. v. AnimalFeeds International Corp., No. 06-3474 (argued May 30, 2008). Therefore, there may be federal appellate court authority addressing the continued viability of the manifest disregard of law doctrine fairly soon.

This post written by Rollie Goss.

THE STATUTE OF LIMITATIONS FOR A REVIEW OF ARBITRATION PROCEEDINGS BEGINS TO RUN ON THE DATE THE DECISION IS RECEIVED BY THE PETITIONER OR HER AGENT.

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New York law requires that applications to vacate or modify an arbitration award “be made by a party within ninety days after its delivery to him [or her].” However, New York Civil Practice Law and Rules (CPLR) 7511(a) does not define “delivery” in this context. Petitioner, Lowe, argued that delivery must be construed as the actual receipt of the award. Respondent, Erie, argued that delivery must be interpreted as the mailing of the award. In support of its argument, Erie cited Insurance Department Regulation Section 65-4.10(e)(3), which states that the delivery of the master arbitration award is the date the award is mailed to the parties. However, the court found that New York case law supported Lowe’s argument. Cases cited by the court used the terms “receipt” and “received” in discussing the 90-day period set forth in CPLR 7511(a). Lowe v. Erie Ins. Co., 1145 CA 08-00405 ( N.Y. App. Div. Oct. 10, 2008).

This post written by Dan Crisp.

CASE UPDATE: SECOND CIRCUIT HOLDS THAT ALLEGED CONSPIRACY WITH SIGNATORY TO CONTRACT IS INSUFFICIENT RELATIONSHIP TO ENFORCE ARBITRATION AGREEMENT AGAINST OTHER SIGNATORY

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We previously posted on March 27, 2007 on the Second Circuit’s denial of a motion to dismiss an interlocutory appeal from a federal district court’s denial of a motion to compel arbitration. The motion to compel arbitration was filed by several American Express companies (collectively “Amex”) against plaintiffs who brought a class action suit against Amex and other credit card companies and issuing banks for conspiring to fix certain fees charged to cardholders at excessive rates.

Addressing the appeal on its merits, the Second Circuit Court noted the undisputed fact that, though the plaintiff class had entered into cardholder agreements with other defendants in the class action, including Mastercard, Visa and Diner’s Club, they had no such relationship with Amex. Amex nonetheless sought to compel arbitration under the plaintiffs’ agreements with the other defendant companies on a theory of equitable estoppel. The Second Circuit held that because the only connection between Amex and the cardholders’ agreements with the other defendant companies was the alleged conspiracy, Amex could not establish the necessary condition under a theory of equitable estoppel that plaintiffs intended to be bound to arbitrate disputes with a stranger to their contracts. Ross v. American Express Co., Nos. 06-4598-cv(L), 06-4759-cv(XAP) (2d Cir. Oct. 21, 2008).

This post written by John Pitblado.