In a Special Focus article, Rob DiUbaldo and Jeanne Kohler address the question of whether a reinsurer’s statute of limitations defense is an issue for arbitrators to resolve, or one that must be decided by a court of competent jurisdiction.
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FILING OF FOUR LAWSUITS OVER TEN YEARS DID NOT WAIVE RIGHT TO ARBITRATE WHERE “LITIGATION MACHINERY” HAD NOT BEEN INVOKED
Grigsby & Associates appealed an order confirming an arbitration award of compensatory damages and attorney fees to M Securities, in a dispute relating to underwriting fees owed in a municipal bond transaction. Grigsby claimed that the award should be vacated because the defendants waived their right to arbitration after filing four lawsuits concerning the bond transaction over ten years. The Eleventh Circuit held, however, that despite the prior lawsuits, M Securities still had not “substantial[ly] invoke[d] the litigation machinery prior to demanding arbitration.” M Securities did not effectuate service against Grigsby in three of the lawsuits, and the fourth litigation did not progress beyond the filing stage. And while delay in seeking arbitration generally weighs in favor of finding waiver, it must be coupled with other substantial conduct “inconsistent with an intent to arbitrate,” which M Securities did not display here. Nor did Grigsby demonstrate prejudice given “the extremely limited nature” of the prior lawsuits. Grigsby & Associates, Inc. v. M Securities Investment, Case No. 13-15208 (11th Cir. Dec. 28, 2015).
This post written by Joshua S. Wirth, a law clerk at Carlton Fields Jorden Burt in Washington, DC.
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ARBITRATION AWARD OVERTURNED UNDER THE FAA BECAUSE THE PANEL WAS NOT IMPARTIAL
The New York Supreme Court vacated the award entered in an arbitration of television rights between Mid-Atlantic Sports Network (“MASN”), the Baltimore Orioles, the Commissioner of Baseball (“MLB”) and the Washington Nationals. The arbitration was held by the Revenue Sharing Definitions Committee of Major League Baseball (“RSDC”). MASN and the Orioles filed a petition to vacate the award, and MLB and the Nationals moved to confirm it.
In vacating the award, the court discussed various grounds for vacatur under the FAA: corruption, fraud, misconduct of the arbitrator, use of undue means to procure the award, evident partiality, and corruption. The court found evident partiality existed here, because the law firm and lawyers opposing MASN and the Orioles served as counsel in other matters for every other entity in the arbitration, including the individual arbitrators. The court speculated that, to the extent that “there is no authority for a finding of ‘evident partiality’ in such a relationship,” it is because “arbitrators in similar situations have disqualified themselves rather than risk a charge of partiality.” While the “appearance of bias” is not a basis for vacatur under the FAA and therefore not applicable, the court noted that such an appearance existed here. The court further found that the panel completely ignored the prejudice established by MASN and the Orioles, which reflected “an utter lack of concern for fairness of the proceeding that is ‘so inconsistent with basic principles of justice’ that the award must be vacated.” TCR Broadcasting Holding, LLP v. WN Partner, LLC, Case No. 652044/2014 (N.Y. Sup. Ct. Nov. 4, 2015).
This post written by Barry Weissman.
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COURT HOLDS THAT SERVICE-OF-SUIT CLAUSE WAIVES RIGHT TO SEEK REMOVAL
The Northern District of Illinois recently granted a motion to remand filed by an insolvent insurer’s assignee because the removal contravened the forum-selection clauses of the reinsurance agreements at issue. Pine Top Receivables of Illinois LLC (PTRIL) sued Transfercom Ltd. (Transfercom) in Illinois state court for breach of contract and certain state law claims. Pine Top Insurance Company’s rights to certain accounts receivable due from reinsurers were assigned to PTRIL when the insurer became insolvent. Transfercom was one of the reinsurers that was indebted to Pine Top Insurance Company.
Transfercom removed the case to the U.S. District Court for the Northern District of Illinois, and PTRIL filed a motion to remand. PTRIL argued, and the court agreed, that the reinsurance agreements contained an agreed-upon clause to accept plaintiff’s choice of forum. The court noted that this clause meant that Transfercom agreed to “submit to the jurisdiction of any Court of competent jurisdiction within the United States.” Further, the court held that “[t]his clause’s ‘plain and ordinary meaning’ constitutes a ‘clear and unequivocal’ waiver of Transfercom’s removal rights.” As a freely negotiated forum selection clause, the court held, the parties must be bound by it. Pine Top Receivables of Illinois, LLC. v. Transfercom, Ltd., No. 15-CV-8908 (USDC N.D. Ill. Dec. 14, 2015).
This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.
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SOUTH CAROLINA FEDERAL COURT GRANTS IN PART, DENIES IN PART, TRUSTEE’S MOTION TO DISMISS CLAIMS BROUGHT BY FRONTING INSURER IN DISPUTE INVOLVING REINSURANCE TRUST AGREEMENTS
Plaintiff Companion Property and Casualty Insurance Company (“Companion”) brought suit against U.S. Bank National Association (“US Bank”) arising from its role as trustee under various reinsurance collateral trusts that secured certain reinsurers’ obligations to Companion for its participation in a fronted insurance program. Companion asserted the following claims against US Bank: breach of contract (the trust agreements); breach of fiduciary duty; negligence/gross negligence; negligent misrepresentation; equitable estoppel; and violation of the South Carolina Unfair Trade Practices Act (“SCUTPA”). US Bank moved to dismiss each cause of action for failure to state a claim.
The U.S. District Court for the District of South Carolina granted in part, and denied in part, US Bank’s motion. First, the Court found that Companion adequately pled a cognizable claim for breach of the trust agreements, rejecting US Bank’s argument that this claim (as pled) was premised on duties not expressed in those agreements. Next, Companion’s breach of fiduciary duty and negligence claims were ruled actionable, even though they involved US Bank’s purported breach of its contractual duties, because Companion sufficiently alleged the existence of an independent duty of good faith and care owed to it as beneficiary of the trusts. Finally, while Companion adequately pled sufficient facts to establish that US Bank is liable for negligent misrepresentation, the claims for equitable estoppel and for violating SCUTPA failed as a matter of law, because the former cannot be brought affirmatively in a complaint under South Carolina law, and the latter failed to allege facts demonstrating that US Bank’s conduct was the result of “standard procedures or business practices that have an adverse impact on public interest”, as required by SCUTPA. Companion Property & Casualty Insurance Co. (n/k/a Sussex Ins. Co.) v. U.S. Bank NA, No. 3:15-cv-01300 (USDC D.S.C. Nov. 24, 2015).
This post written by Rob DiUbaldo.
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