After striking the affirmative defense of failure to mitigate, a court quashed a subpoena issued to an arbitrator seeking an unissued arbitration award in a dispute between certain defendants and their reinsurer. The case involved a lawsuit by a state-appointed receiver, Jo Ann Howard & Associates, against numerous defendants stemming from a scheme to defraud consumers in connection with pre-need funeral services contracts issued by Lincoln Memorial. After Howard was appointed, the receivership court stayed the arbitration proceedings between Lincoln Memorial and its reinsurer, Hannover Life Reassurance Company of America. One of the issues pending in the arbitration at the time was Lincoln Memorial’s claim for damages against Hannover arising from Lincoln Memorial’s allegations that Hannover’s arbitration-related conduct had brought Lincoln Memorial to the brink of insolvency.
Two of the other defendants, both banks, raised as affirmative defenses Howard’s failure to mitigate damages. The banks alleged Howard’s decision not to pursue Lincoln Memorial’s claims against Hannover caused Howard’s damages. The banks subpoenaed the arbitrator in the Lincoln/Hannover arbitration to obtain a copy of the unissued arbitration award. The court granted Howard’s motion to strike the banks’ failure to mitigate defense, finding the defense legally insufficient. The defense was not causally related to Howard’s damages claim because Howard’s claims against Lincoln Memorial arose from Lincoln Memorial’s handling of pre-need trust accounts, and not from Lincoln Memorial’s insolvency. Further, a receiver’s ability to recover assets or damages for wrongdoing is important to the public, and allowing such an affirmative defense would encumber a receiver’s ability to perform these functions. Jo Ann Howard & Associates, P.C. v. J. Douglas Cassity, Case No. 4:09CV01252 ERW (USDC E.D. Mo. May 9, 2014).
This post written by Leonor Lagomasino.