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New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

NINTH CIRCUIT: UNCONSCIONABILITY ARGUMENTS DIRECTED SOLELY AT CLASS ACTION WAIVER PROVISIONS IN ARBITRATION AGREEMENTS ARE FORECLOSED BY CONCEPCION

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Utilizing a “sweeping reading of Concepcion,” as characterized by the concurring opinion, the Ninth Circuit has ruled that arguments that “a class action waiver, by itself, is unconscionable under state law or that an arbitration agreement is unconscionable solely because it contains a class action waiver” are expressly foreclosed by AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011). The plaintiff did not challenge the district court’s decision to compel arbitration, but rather the decision to compel arbitration on an individual basis, arguing that the relevant agreement’s class action waiver provision was unconscionable under Nevada law.

The majority stated that, while Concepcion foreclosed the plaintiff’s unconscionability argument because it was directed only at the class action waiver provision, Concepcion “does not foreclose application of state unconscionability doctrines to arbitration agreements generally.” Were the plaintiff to contend that “the entire arbitration agreement – or any aspect of it other than the class action waiver – is unconscionable,” then his argument would be viable. However, such was not the case here. Carter v. Rent-A-Center, Inc., Case No. 16-15835 (9th Cir. Dec. 12, 2017).

This post written by Benjamin E. Stearns.
See our disclaimer.

ELEVENTH CIRCUIT FINDS NO MANIFEST DISREGARD OF THE LAW AND UPHOLDS ORDER CONFIRMING ARBITRATION AWARD IN LICENSING DISPUTE

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The case involved a dispute between the owner of the Cabbage Patch Kids brand and related intellectual property (“CPK”), and licensee JAKKS Pacific, Inc., which had an exclusive license to use the brand and intellectual property between 2012 and 2014. Prior to the end of the license agreement, CPK selected a new licensee, Wicked Cool Toys, to manufacture and sell Cabbage Patch Kids dolls and products beginning in 2015. To that end, CPK and Wicked Cool Toys entered into a deal memorandum on May 30, 2014 whereby CPK permitted Wicked Cool Toys to immediately begin the process of creating and promoting a new line of dolls. Shortly thereafter, JAKKS asserted that CPK had breached its exclusive license and stopped paying royalties due under the agreement. CPK responded by filing suit in a federal court in Georgia seeking an order compelling arbitration and confirmation of any arbitration award.

At issue during arbitration was the meaning of a provision in the license agreement reserving to CPK the right to “engage, during the 365-day period prior to the termination or expiration of [the agreements], in the negotiation, with potential licensees (including competitors of Licensee), of one or more license agreements granting licenses with respect to” the products covered by JAKKS’s exclusive license, “to become effective upon the expiration or earlier termination of [the agreements].” JAKKS argued that, under that provision, CPK could only “negotiate” with potential licensees in 2014, and was prohibited from actually reaching an agreement with a new licensee or doing anything else to make it possible for a new licensee to actually launch a new line of Cabbage Patch Kids products in 2015. The arbitrator concluded that this provision, particularly the word “negotiate,” was ambiguous in light of the circumstances, and that “it was the intention of the parties” that CPK and Wicked Cool Toys “could do what they did in order to transition into the manufacture and launch in 2015 of a new seasonal line of [Cabbage Patch Kids] products, without the de facto creation of a ‘gap’ of about one year.” The arbitrator therefore awarded CPK the royalties withheld by JAKKS and the court confirmed the award.

On appeal, JAKKS moved to vacate the award and argued under both Georgia law and the FAA that the arbitrator manifestly disregarded the law and exceeded his authority. The Eleventh Circuit disagreed and affirmed the district court’s confirmation of the award. The court found that the arbitrator did not manifestly disregard the law by considering the commercial context of the relevant market when determining whether the license agreement provision allowing CPK to engage in the negotiation of a new license agreement in 2014 was ambiguous. In addition, the court held that because “the subject of the arbitration proceeding was the parties’ dispute about the construction, meaning, or enforceability of certain terms” of the license agreement, the arbitrator did not overstep his authority by deciding the meaning of the provision at issue. The court also rejected JAKKS’ argument that the arbitrator violated the FAA and held that the arbitrator was interpreting, rather than modifying, the relevant provision because it was ambiguous on its face. Original Appalachian Artworks, Inc. v. Jakks Pacific, Inc., Case No. 17-11513 (11th Cir. Nov. 17, 2017).

This post written by Gail Jankowski.
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SPECIAL FOCUS: TREASURY REPORT MAY PROVIDE A PREVIEW OF THE TRUMP ADMINISTRATION’S INSURANCE REGULATORY AGENDA

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We earlier posted on a report issued by the U.S. Treasury Department that might provide a preview of the Trump Administration’s agenda for the insurance industry.  A more detailed analysis of that report appears in a Special Focus article.

This post written by Rollie Goss.
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MAGISTRATE JUDGE RECOMMENDS DENYING APPLICATION FOR $305M REINSURANCE JUDGMENT

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A Magistrate Judge in the U.S. District Court for the Southern District of New York has recommended that a default judgment totaling more than $221 million be entered against the Islamic Republic of Iran and in favor of insurers who paid claims to their insureds for property damage, business interruption and other losses arising out of the terrorist attacks on 9/11. In doing so, however, the magistrate also recommended denying the insurers’ application for an additional $305 million reflecting payments made under reinsurance contracts.

The plaintiff-insurers argued that they were entitled to all amounts they were compelled to expend under applicable policies of insurance and reinsurance resulting from 9/11. The court concluded, however, that the insurers were only entitled to recover under the doctrine of subrogation.  The court explained that subrogation allows an insurer to “stand in the shoes” of its insured for purposes of seeking payment from third-parties whose wrongdoing caused the losses for which the insurer was obligated.

While finding that the insurers were subrogated to over $221 million in damages under direct insurance policies, the court recommended denying their application for over $305 million in losses incurred under reinsurance contracts with primary insurers that paid claims relating to 9/11. Noting that reinsurance contracts operate solely between the reinsurer and the reinsured primary insurer, the court stated that there is no contractual privity between a reinsurer and the policyholder who suffered the initial loss.  Because the damaged policyholders have no rights under the reinsurance contracts at issue, the magistrate judge found that plaintiffs, as reinsurers, have no subrogation rights as to the 9/11-related losses sustained by these policyholders.

In re Terrorist Attacks on September 11, 2001, Case No. 04-cv-05970 (USDC S.D.N.Y. Nov. 27, 2017).

This post written by Alex Silverman.
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NDNY JURY AWARDS $35M PLUS INTEREST FOR AMOUNTS DUE UNDER REINSURANCE CONTRACTS

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Following a jury trial, Utica Mutual Insurance Company was awarded $35 million, plus interest ($29,092,191.78) on its claims against Fireman’s Fund Insurance Company to enforce the terms of the certificates of reinsurance issued by Fireman’s Fund to Utica. The Court, ruling on Utica’s Motion for Judgment on Partial Findings, dismissed Fireman’s Fund’s counterclaims for intentional and negligent misrepresentation. Post-trial motions are to be filed by December 29, 2017.

Utica Mut. Ins. Co. v. Fireman’s Fund Ins. Co., 6:09-CV-0853 (USDC N.D.N.Y. Dec. 15-16, 2017)

This post written by Nora A. Valenza-Frost.

See our disclaimer.