Week's Best Posts

FEDERAL DISTRICT COURT CONFIRMS ARBITRATION AWARD IN HOSPITAL SERVICES DISPUTE

May 31, 2016 by Carlton Fields

Weirton Medical Center, Inc. (“WMC”), a hospital in West Virginia, entered into an agreement with QHR Intensive Resources, LLC, under which QHR provided hospital administrative services. WMC ultimately terminated the agreement and refused to pay QHR’s invoices. As a result, QHR commenced arbitration in accordance with the arbitration provision in the operative agreement, alleging that WMC was in breach of contract for failing to reimburse QHR for amounts owed thereunder and seeking to recover those amounts.

After three years of discovery and an evidentiary hearing on the merits, the arbitrator issued an award in favor of QHR. WMC then brought an action in the U.S. District Court for the Northern District of West Virginia to vacate the award under Section 10 of the Federal Arbitration Act, and QHR cross-moved for confirmation. The Court ruled in QHR’s favor, finding that the arbitrator did not exceed his powers in basing the award on the proposed findings of fact and conclusions of law submitted by QHR in lieu of those submitted by WMC, as there was sufficient evidence to support the arbitrator’s decision, and it was apparent he considered the claims and defenses asserted by WMC. Moreover, the Court held that the arbitrator’s ruling was not in manifest disregard of the law, as he did not refuse to apply a legal principle that was clearly defined and not subject to reasonable debate. Last, the Court found that the award was not procured by fraud, corruption or undue means based on QHR’s having paid four of its fact witnesses for the time spent traveling to and preparing for their testimony at the arbitration, as WMC did not show by clear and convincing evidence that the witnesses were paid for their testimony, the arrangements did not materially influence the outcome of the hearing, and WMC failed to address this issue before the award was rendered, even though it was aware of the situation. Weirton Medical Center, Inc. v. QHR Intensive Resources, LLC, No. 5:15CV131 (USDC N.D.W.Va May 12, 2016).

This post written by Rob DiUbaldo.

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COURT DENIES RECONSIDERATION OF RULING THAT REINSURER MUST POST PRE-PLEADING SECURITY

May 24, 2016 by Carlton Fields

On April 13, 2016, we reported on Select Insurance Company’s successful motion for pre-pleading security against Excalibur Reinsurance Corp., pursuant to Connecticut law. Excalibur filed a motion for reconsideration, which the Magistrate has now denied. The court rejected on procedural grounds Excalibur’s new argument that, because Connecticut law did not deem Select Insurance Co. a Connecticut citizen, Select should not be permitted to invoke the Connecticut pre-pleading statute. The court also rejected Excalibur’s citation to certain Connecticut case decisions as dicta. The court concluded: “In the March 2016 Ruling, this Court held that the language of the Connecticut Security Statute does not address the citizenship of the moving party, nor is there Connecticut case law to the contrary; the Court relied on controlling law in this district in interpreting Connecticut’s Security Statute … and the wording of the Security Statute itself. There is no basis for reconsideration of the March 2016 Ruling on these issues.” Select Insurance Co. v. Excalibur Reinsurance Corp., Case No. 3:15-cv-00715 (D. Conn. May 10, 2016).

This post written by Joshua S. Wirth.
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EIGHTH CIRCUIT: DELAY IN ASSERTING RIGHT TO ARBITRATE AND USING LITIGATION MACHINERY RESULTS IN WAIVER

May 23, 2016 by Carlton Fields

The plaintiff, a terminated employee, had signed a two year employment agreement and a separate arbitration agreement with a home décor company. The plaintiff was terminated after six months and sued the defendant in Minnesota state court for wrongful termination. After defendant removed the case to federal court in Minnesota it filed an answer with various affirmative defenses but never mentioned the arbitration agreement. Additionally, the parties engaged in various motion practice and meetings but the arbitration agreement was never raised. The defendant raised the separate arbitration agreement for the first time, eight months after the initiation of the lawsuit and after it lost a motion to transfer the matter to the Eastern District of California. The lower court denied the motion to compel arbitration on the ground of waiver. On appeal, the Eighth Circuit affirmed, finding that the defendant knew of the right to arbitrate, acted inconsistently with the right, and prejudiced the plaintiff causing him to incur litigation costs. The court noted that the defendant had filed the Joint Rule 26(f) report requesting that the court set the matter for trial, and then engaged in motion practice attempting to transfer venue. The actions of the defendant in using the litigation machinery until it lost, clearly prejudiced the Plaintiff and constituted waiver of the right to arbitrate. Messina v. North Central Distributing, Inc., Case No. 15-2323 (8th Cir. May 10, 2016).

This post written by Barry Weissman.

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PENNSYLVANIA FEDERAL COURT REMANDS LITIGATION AGAINST BROKER BACK TO STATE COURT, FINDING THAT PARTY WAS NOT FRAUDULENTLY JOINED

May 17, 2016 by Carlton Fields

The background of this case is that Boomerang Recoveries LLC, a reinsurance program review company, investigated Farmers Insurance Company’s reinsurance contracts to identify any premiums Farmers had been overcharged in exchange for a percentage of any recoveries. Boomerang allegedly found that Farmers had been overcharged $2,246,014.65 in reinsurance premiums from 2003 to 2013. Guy Carpenter & Company LLC, the reinsurance broker, conducted its own review in response to Boomerang’s, and found that Farmers owed reinsurers over two million dollars in premium that had not been paid, thus reducing the amount owed to Farmers to $273,989.97. According to Boomerang, Guy Carpenter had no justification for performing the audit and disputing Boomerang’s findings, that Guy Carpenter disparaged Boomerang, and induced Farmers not to pursue a substantial portion of the recoveries.

On December 9, 2014, Boomerang brought a litigation against Guy Carpenter and two of its officers for various torts, including intentional interference with contract, unfair competition, commercial disparagement and other claims in Pennsylvania state court. The case was removed and then later remanded back to the state court. Boomerang then added Marsh & McLennan Cos. Inc. (MMC) as a defendant in a fifth amended complaint, and MMC again removed the case. Boomerang then moved to remand on the basis that removal was improper given the forum defendant rule, 28 U.S.C. § 1441(b)(2), and that one of the defendants is a citizen of Pennsylvania. The defendants argued that the one officer who is a Pennsylvania citizen was fraudulently joined to defeat removal. The Pennsylvania federal court, however, concluded that the officer was not fraudulently joined, and that the case was improperly removed from state court. Thus, the court remanded the action back to Pennsylvania state court for lack of federal subject matter jurisdiction. Boomerang Recoveries, LLC v. Guy Carpenter & Co., LLC, Case No. 16-0222 (USDC E.D. Pa. Apr. 21, 2016).

This post written by Jeanne Kohler.
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NEW YORK APPELLATE DIVISION REVERSES ORDER COMPELLING ARBITRATION AND REINSTATES COMPLAINT BASED UPON TERMINATED AGREEMENT’S FORUM SELECTION CLAUSE

May 16, 2016 by John Pitblado

New York’s First Department finds there was no clear manifestation parties had abandoned a forum selection clause by a later agreement which mandated arbitration in London. In 2000, the parties entered into two agreements: (1) the Quennington Agreement (with a U.S. forum selection clause); and, (2) the First Aurdeley Agreement (with an England forum selection clause). In 2009, the parties entered into two more agreements: (1) the Second Aurdeley Agreement (with an arbitration clause), which referenced both of the 2000 agreements and a merger clause, but only expressly terminated the First Aurdeley Agreement; and (2) the Quennington Termination Agreement (with an arbitration clause), which terminated the Quennington Agreement.

Plaintiffs commenced a lawsuit in New York Supreme Court for breach of fiduciary duty and breaches of the various agreements. Defendants moved for a stay of the action and an order compelling arbitration in London, as some of the claims arose under the 2009 agreements which both provided for arbitration. Alternatively, Defendants argued “only an arbitration tribunal could determine whether the forum selection clause” controlled.

On appeal, the Plaintiffs argued the claims alleged in the complaint related to conduct under the 2000 Quennington Agreement – which provided for litigation in the United States – and that they did not nullify the agreement’s forum selection clause “since they did not explicitly disavow it.” The Court agreed: “[t]he mere termination of a contract containing such a clause does not mean that the clause is not still effective”. At best, the parties intended only to arbitrate disputes that arose after 2009, when the agreements containing arbitration clauses were entered into. The Court also found the legal relationship established by the 2000 agreements survived, and since the complaint alleges a breach of fiduciary duty born out of that relationship, the forum selection clause survived. Moreover, any claims under the 2009 agreements were “inextricably bound together” with any claims subject to arbitration, and thus litigation of all claims was appropriate. Lastly, as to the issue of arbitrability, that question is for the court, as the parties did not “clearly and unmistakably” agree that the arbitrators should decide that issue.

Garthon Business Inc., et al. v. Kirill Ace Stein, et al., Index No. 653715/14 (N.Y.A.D. 1st Dep’t April 26, 2016).

This post written by Nora A. Valenza-Frost.

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