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COURT DISMISSES SECOND-FILED REINSURANCE DISPUTE UNDER FIRST-FILED RULE THOUGH BOTH CASES ASSIGNED TO SAME JUDGE

June 20, 2016 by Carlton Fields

Earlier this month, a federal court in Pennsylvania faced the issue of whether it must file a second-filed suit even though the first-filed suit was transferred to the same court, and judge, as the second. The issue arose out of a dispute between St. Paul Fire & Marine Insurance Company (“St. Paul”) and the R&Q Reinsurance Company (“R&Q”) related to reinsurance obligations that R&Q assumed from the INA Reinsurance Company. After St. Paul sent R&Q a $4.4 million bill, both parties filed declaratory judgment actions in different courts.

R&Q filed first in the U.S. District Court for the Northern District of Illinois (the “Illinois Action”). St. Paul followed the next month in the U.S. District Court for the Eastern District of Pennsylvania (the “Pennsylvania Action”). Around the same time that St. Paul initiated the Pennsylvania Action, it filed a motion to transfer the Illinois Action to the Eastern District of Pennsylvania—which was granted six months later.

Federal courts typically follow the “first-filed rule” where the first court with possession of a dispute must decide it. However, cases of concurrent jurisdiction typically are pending in different courts—not before the same judge. With that in mind, Judge Berle M. Schiller of the Eastern District of Pennsylvania applied the same standards, applying a holding that “the procedural posture of the first-filed case on the date the second-filed action is dismissed is irrelevant to the analysis,” and finding that no exceptions to the first-filed rule applied. Thus, Judge Schiller dismissed the Pennsylvania Action under the first-filed rule on the basis that there was concurrent jurisdiction, even though he now had sole jurisdiction over both declaratory judgment actions.

St. Paul Fire & Marine Ins. Co. v. R&Q Reinsurance Co., No. 15-5528 (E.D. Pa. June 2, 2016).

This post written by Zach Ludens.

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UPDATE ON COVERED AGREEMENT NEGOTIATIONS BETWEEN THE U.S. AND THE EUROPEAN UNION

June 14, 2016 by Carlton Fields

As we previously reported in March 2016, the United States initiated discussions with the European Union to enter into a Covered Agreement addressing: (1) the equivalence of the U.S. insurance and reinsurance regulatory regime in the context of the EU’s Solvency II initiative; and (2) credit for reinsurance collateral requirements. The Dodd-Frank Act introduced Covered Agreements as a means for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states.

On May 27, 2016, the United States and the European Union released another joint statement on their continued negotiations for a Covered Agreement. U.S. and EU representatives met in Washington, D.C. on May 24-25 to discuss the future bilateral agreement. Both sides agreed to continue in good faith to pursue an agreement on matters relating to group supervision, exchange of confidential information between supervisory authorities on both sides, and reinsurance supervision. U.S. and EU representatives expressed their commitment to pursuing an agreement that will improve regulatory and supervisory treatment for insurers and reinsurers. Both sides are considering next steps to ensure the advancement of negotiations.

This post written by Michael Wolgin.
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COURT CONSIDERS DEFENSES UNDER BOTH NEW YORK CONVENTION AND THE FAA IN CONFIRMING DOMESTIC ARBITRATION AWARD AGAINST FOREIGN PARTY

June 13, 2016 by Carlton Fields

Immersion Corporation, a U.S. company, had previously entered into a settlement with Sony, a Japanese company, regarding the latter’s alleged patent infringement. Subsequently, a dispute arose surrounding whether Sony was selling a “Royalty Bearing Product” within the meaning of the settlement agreement. An arbitration was held pursuant to the settlement agreement that found in favor of Immersion, which then sought to confirm the award in court. Sony put forth three grounds of opposition to the award: (1) under the New York Convention, the award was contrary to public policy because the arbitrator did not allow Sony to assert an “invalidity” defense; (2) under the FAA, the arbitrator impermissibly refused to hear evidence related to patent infringement that was pertinent and material to the controversy; and (3) under the FAA, the arbitrator committed a manifest disregard of the law “by failing to determine the extent of direct infringement as a necessary predicate for a finding of indirect infringement.”

In ruling on the petition, the court first determined that Sony appropriately argued defenses under both the New York Convention and the FAA. The former was appropriate, the court explained, because Sony is not a U.S. citizen. The FAA defenses were also appropriate under Ninth Circuit precedent because the arbitration had been held in the U.S. The court then turned to the defenses, and determined after a lengthy analysis that public policy had not been violated, that the arbitrator did provide a process to hear material evidence, and that the arbitrator had not committed a “manifest disregard” because it had in fact determined the necessary predicate of indirect infringement under the law. Accordingly, the court confirmed the award and denied Sony’s motion to vacate. Immersion Corp. v. Sony Comp. Entertainment America LLC, et al., Case No. 16-cv-00857 (USDC N.D. Cal. May 19, 2016).

This post written by Michael Wolgin.
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PENNSYLVANIA INSURANCE DEPARTMENT AMENDS REQUIREMENTS FOR QUALIFIED AND CERTIFIED REINSURERS TO CONFORM WITH NAIC’S MODEL LAW AND REGULATION

June 7, 2016 by John Pitblado

On May 14, 2016, Pennsylvania issued Bulletin No. 16-819, advising that the Pennsylvania Insurance Department amended Chapter 161 of the Pennsylvania Insurance Code related to the requirements for qualified and certified reinsurers. The change made to the Chapter was deleting the requirement that a reinsurer be listed on the successor list to the Non-Admitted Insurance Listing (now known as the ”Quarterly Listing of Alien Insurers”) published by the National Association of Insurance Commissioners (NAIC) to be considered for qualification under Section 319.1 of the Code. This amendment conforms Pennsylvania’s regulation to the model law and regulation developed by the NAIC entitled ”Credit for Reinsurance Model Law” and ”Credit for Reinsurance Model Regulation.” The change to the Pennsylvania Insurance Code will take effect on June 13, 2016.

This post written by Jeanne Kohler.
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CIRCUIT SPLIT DEVELOPS OVER THE ENFORCEABILITY OF CLASS WAIVERS IN EMPLOYMENT AGREEMENTS

June 6, 2016 by Carlton Fields

Affirming a district court’s denial of a motion to compel arbitration, the United States Court of Appeals for the Seventh Circuit has held unenforceable a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.” The provision further provided that if the waiver provision was unenforceable, “any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction.” Employees were not permitted to opt out of this provision; it was a requirement of continued employment. The Court found the waiver of collective action prohibited by the National Labor Relations Act (“NLRA”), and rejected the contention that the case involved any conflict between the NLRA and the Federal Arbitration Act (“FAA”). This decision appears to conflict with decisions of the Second, Fifth, Eighth and Ninth Circuits, laying the potential basis for the review of this issue by the Supreme Court.

The Court found that the contractual waiver of the right to proceed in a collective manner was an unlawful restriction of the exercise by the employee of the right to collective action protected by section 7 of the NLRA, a right it termed substantive and “at the heart” of the purpose of the NLRA rather than a procedural right. Addressing the employer’s contrary interpretation of section 7, the Court found persuasive interpretations of the scope of the protections of section 7 by the National Labor Relations Board, which the Court found to be “a sensible way to understand the statutory language, and thus we must follow it.”

The Court then rejected the employer’s assertion that the case involved a conflict between the NLRA, as it interpreted it, and the FAA, as interpreted by the Supreme Court. The Court reasoned that since the contractual provision at issue is unlawful under section 7 of the NLRA, “it is illegal, and meets the criteria of the FAA’s savings clause for nonenforcement.” The FAA’s savings clause provides that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Stating that finding the NLRA in conflict with the FAA “would render the FAA’s savings clause a nullity,” the Court rejected the contention that its decision created a Circuit split, contending that none of the opinions from the other four Circuits “has engaged substantively with the relevant arguments.” Regardless of the analytical claim, the result of the Seventh Circuit’s opinion does conflict with the result of the decisions of the other Circuits on the same issue, and accords the FAA a different role and emphasis than do the opinions of other Circuits. Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016).

This post written by Rollie Goss.
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