Cintas Corp. was sued by a group of its service sales representatives for back pay under the Fair Labor Standards Act, which provides for opt-in classes. The District Court entered an Order compelling 56 of the 65 named Plaintiffs to arbitrate, and a request for class-wide arbitration was filed with the American Arbitration Association. The Court held that the arbitrator should determine whether class-wide arbitration was appropriate. After approximately 2,400 Plaintiffs opted into the back pay lawsuit, Cintas filed 70 separate actions against such Plaintiffs, seeking to compel them to arbitrate the dispute in the Districts in which they were employed by Cintas. The Judicial Panel on Multidistrict Litigation created an MDL proceeding, transferring the 70 separate actions to the original forum court, for a determination of: (1) whether the parties named in the 70 separate actions were refusing to arbitrate within the meaning of section 4 of the Federal Arbitration Act; and (2) whether the parties were complying with that obligation by seeking class-wide arbitration. The Court held that the parties were refusing to arbitrate within the meaning of section 4 of the FAA, found that all common proceedings had been completed, and suggested that the cases be remanded to the transferor courts for further, individual, proceedings. In re: Cintas Corp. Overtime Pay Arbitration Lit., Case No. 06-1781 (USDC N.D. Cal. Jan. 12, 2007).
Week's Best Posts
SEC settles claims against MBIA for sham reinsurance
The SEC has filed a Complaint against MBIA in District Court alleging securities fraud arising out of an allegedly sham reinsurance transaction in 2005, which MBIA had entered into to avoid having to recognize a $170 million loss on bonds guaranteed by MBIA. The SEC simultaneously commenced an administrative enforcement proceeding against MBIA and entered an agreed cease and desist Order settling the dispute. A SEC litigation release describes these events, and the underlying conduct by MBIA.
American Academy of Actuaries issues risk transfer testing practice note
The American Academy of Actuaries' Committee on Property and Liability Financial Reporting has published a Reinsurance Attestation Supplement 20-1: Risk Transfer Testing Practice Notice. This publication provides advisory, non-binding guidance to property/casualty actuaries regarding testing for risk transfer, in connection with the NAIC's new Supplement 20-1 titled the “Reinsurance Attestation Supplement: Attestation of Chief Executive Officer and Chief Financial Officer Regarding Reinsurance Agreements.”
Court denies motion to dismiss in a case involving the interpretation of a commutation agreement
In a terse one sentence ruling, a District Court has denied a motion to dismiss a Complaint alleging a number of claims with respect to a Commutation Agreement of certain reinsurance agreements. The Defendant contended that the Commutation Agreement unambiguously released it from all liabilities, while the Plaintiff countered that the Defendant's reliance on extrinsic evidence in its motion demonstrated that the agreements were not unambiguous, requiring the denial of the motion to dismiss. ACE Tempest Reinsurance, Ltd. v. Converium Reinsurance (North America), Inc., Case No. 06-1059 (USDC S.D.N.Y. Nov. 30, 2006).
Special Focus: captive insurer bills
With January comes the new sessions of most state legislatures. We have been reviewing the new bills filed in the state legislatures relating to reinsurance. There is one clear trend: many state legislators wish to provide for the creation and regulation of captive insurance/reinsurance companies in their states, or to amend existing rules relating to captives. While it is, of course, impossible to predict how many of the filed bills will be enacted into law, here is a sampling of the captive bills filed so far:
- Arizona: HB 2294 (adding new provisions relating to captives);
- Connecticut: Bill 58 (formation and licensing of captives) and Bill 60 (establishing a captive insurance division within the Insurance Department) (the full text of these bills is not available as of this posting);
- Hawaii: HB 272 (allowing captives to be formed as limited liability companies, specifying minimum capital and surplus requirements and increasing investment flexibility);
- Indiana: HB 1417 (specifying the requirements for a captive to do business in Indiana, imposing fees and premium taxes and establishing a captive insurer trust fund);
- Missouri: SB 215 (amending the existing statutes to add 25 new sections relating to the regulation of captives – bill summary);
- Montana: SB 161 (broad revision of statutory regulation of captives);
- Nebraska: LB 121 (Captives Insurers Act);
- New Jersey: SB 1444 (broad regulation of captives); and
- West Virginia: SB 93 (adding three new sections relating to captives).