Week's Best Posts

NLRB REAFFIRMS ITS D.R. HORTON DECISION, RULING THAT EMPLOYMENT AGREEMENTS REQUIRING INDIVIDUAL ARBITRATION ARE UNLAWFUL

December 16, 2014 by Carlton Fields

On February 16, 2012, we reported on the National Labor Relations Board’s D.R. Horton decision, which ruled that arbitration agreements that are signed as a condition of employment and preclude employees from bringing joint, class or collective claims over working conditions are unlawful. Subsequently, that opinion was rejected by the Fifth Circuit Court of Appeals, on which we reported on December 19, 2013, and disagreed with by other courts. Notwithstanding these adverse court decisions, on October 28, 2014, the NLRB reaffirmed D.R. Horton, ruling that the arbitration agreements of Murphy Oil USA Inc., which barred employees from pursuing class actions, were unlawful. The majority held that Murphy Oil violated the National Labor Relations Act by requiring employees to arbitrate employment claims on an individual basis, and by seeking to enforce its agreements in court after the employee filed a Fair Labor Standards Act suit. While the dissent accused the NLRB of ignoring “clear instructions” from the U.S. Supreme Court about the interpretation of the NLRA and the FAA, the majority disagreed, although it acknowledged that its opinion was likely not “the last word on the subject.” Murphy Oil USA, Inc., Case No. 10-CA-038804 (N.L.R.B. Oct. 28, 2014).

This post written by Michael Wolgin.

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INSURANCE CARRIER BATTLES REINSURER FOR EXPENSES IN ADDITION TO LOSSES

December 15, 2014 by Carlton Fields

On December 4, 2014, the Second Circuit addressed whether a facultative reinsurance certificate (“certificate”) covering an umbrella policy obligates a reinsurer to indemnify expense payments in addition to losses. The Court found the certificate ambiguous as to whether the reinsurer’s reimbursement liability included expense payments and consequently remanded and vacated the instant action back to the Northern District of New York.

Utica Mutual Insurance Company (“Utica”) issued an umbrella policy to Goulds Pumps Inc. (“Goulds”), exposing the carrier to significant payment obligations stemming from asbestos claims against Goulds. As reinsurer, Munich Reinsurance America, Inc. (“Munich”) paid out $5 million dollars, the limit under the certificate. Utica filed suit for additional unpaid and future expense payments associated with the Goulds’ policy. The trial court granted summary judgment for Munich reasoning that the certificate’s $5 million limit of liability applied to expenses and therefore Munich’s obligation for reimbursement had been met.

Distinguishing prior case law that found certificates “unambiguously expense-inclusive,” the Second Circuit found this certificate ambiguous as to expense-inclusion. They reasoned that Munich’s obligations to Utica for “losses or damages” to the liability limit on the certificate could be construed as specifically excluding expenses. The Court also noted that “settlement payments,” while not expressly included in the liability limit, were considered part of the calculation. The Court remanded the action to allow the trial court to interpret the certificate’s inclusion or exclusion of expenses. Utica Mut. Ins. Co. v. Munich Reins. Am. Inc., No. 13-4170-cv (2d Cir. Dec. 4, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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REINSURER’S LIABILITY CAPPED AT AMOUNT STATED IN LIABILITY CLAUSES

December 9, 2014 by Carlton Fields

In a case on which we previously reported on January 29, 2014, a federal court in New York recently ruled that a reinsurer was not required to pay amounts in excess of the sums stated in the Liability Clauses of two facultative certificates, even though the word “limit” was not used. Rather, the reinsurer’s liability was stated as a percentage share of the underlying policy limit. The reinsured argued that certain defense expenses must be reimbursed, even though they exceeded the agreed-upon percentage share, because the facultative certificates were silent on whether defense expenses count toward the amount reinsured. Applying Second Circuit and New York law, the court concluded that the contract was unambiguous and that the reinsurer’s overall liability for both indemnity and defense expenses was capped at the amount stated in the Liability Clauses of the facultative certificates. The Court ruled that a percentage share of an underlying policy limit is itself a limit on liability. The court also denied the reinsured’s request for discovery regarding the “custom and practice” related to limit-of-liability provisions in reinsurance contracts. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Nov. 20, 2014).

This post written by Catherine Acree.

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COURT REVERSES DENIAL OF PETITION TO COMPEL ARBITRATION

December 8, 2014 by Carlton Fields

In Mahmud v. Ralph’s Grocery Company, No. B237636 CA 2/4 (Nov. 10, 2014), the California Second Appellate District reversed and remanded a trial court denying the petition of an employer (Ralph’s) to compel arbitration of a wage dispute with its former employee (Mahmud), which also includes certification of multiple classes of similarly situated Ralph’s employees. The California Second Appellate District relied upon the U.S. Supreme Court’s opinion in AT&T Mobility L.L.C. v. Concepcion, 563 U.S. ___,131 S.Ct. 1740 (2011), which effectively overruled Gentry v. Superior Court, 42 Cal.4th 443 (2007) and concluded that the National Labor Relations Act did not override the FAA. Furthermore, the Court determined that Mahmud would not prevail on demonstrating that Ralphs’ arbitration policy was unconscionable on both procedural or substantive grounds because she presented no evidence of the circumstances surrounding her application for employment or her decision to sign the arbitration agreement and failed to cite to any provisions of the arbitration policy to explain how the arbitration procedures set forth in the policy demonstrate unconscionability.

This post written by Kelly A. Cruz-Brown.

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DELAWARE SUPREME COURT REVERSES LOWER COURT AND AFFIRMS ARBITRATOR’S AWARD

December 2, 2014 by Carlton Fields

Reversing the Court of Chancery’s ruling vacating an arbitration award, the Delaware Supreme Court held in SPX Corporation v. Garda USA, Inc. that the arbitrator’s decision should have been affirmed because the arbitrator’s decision did not manifestly disregard the law. The award under review concerned whether SPX Corporation properly stated certain reserves on its balance sheets in connection with the sale of one of its subsidiaries to Garda World Security Corporation. The net purchase price for the subsidiary was subject to certain adjustments to the SPX balance sheets as set forth in the parties’ Stock Purchase Agreement (“SPA”). SPX was to provide Garda with a pre-closing balance sheet and an “Effective Date Balance Sheet” reflecting those adjustments. Post-closing, Garda challenged SPX’s calculation of the workers compensation reserve on the balance sheet and submitted the matter to arbitration, arguing the reserve calculation violated the SPA. After reviewing the parties’ briefs and addressing several rounds of questions to the parties, the arbitrator determined that SPX had not failed to comply with the SPA and that the balance sheets did not need to be restated. The arbitrator did not provide an explanation for its decision. Garda asked the Court of Chancery to vacate the award, which found that the arbitrator manifestly disregarded the SPA’s terms.

On appeal, the Delaware Supreme Court applied the Delaware Arbitration Act which provides that an arbitration award will be vacated when “the arbitrators exceeds their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made.” The high court interpreted this provision as analogous to the Federal Arbitration Act which authorizes vacatur of an award where the arbitrator acts in “manifest disregard of the law.” This standard requires a party seeking vacatur to provide that the arbitrator was “fully aware of the existence of a clearly defined governing legal principle but refused to apply it, in effect, ignoring it.” The parties had submitted to the arbitrator two colorable interpretations of the relevant SPA provisions. While the arbitrator’s interpretation of those provisions may have been wrong, it was not without basis in the contract. Accordingly, under the “manifest disregard” standard, the arbitrator’s award was not subject to vacatur. SPX Corporation v. Garda USA, Inc., No. 332, 2013 C.A. No. 7115-VCL (Del. June 16, 2014).

This post written by Leonor Lagomasino.

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