Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Ninth Circuit Affirms Order Compelling Class Arbitration in Employment Dispute Involving Two Employment Agreements With Varying Arbitration Provisions

by

Oracle America Inc. appealed the trial court’s order compelling class arbitration in an employment dispute in which there were two agreements at issue, one with, and one without, a class action waiver. The Ninth Circuit rejected Oracle’s arguments that the trial court should have selected the former agreement (with the class waiver) over the latter (without the class waiver). First, the court rejected Oracle’s argument that the trial court, as opposed to the arbitrator, should have decided whether there was an enforceable agreement to arbitrate. Here, the Ninth Circuit held, both contracts clearly delegated the issue of arbitrability to the arbitrator. Next, the Ninth Circuit was not persuaded by Oracle’s argument that the trial court should have decided which of the two agreements the arbitrator should enforce, ruling that there was no dispute that the agreement on which the arbitrator relied (the one lacking a class action waiver) was properly entered into by the parties. Finally, the Ninth Circuit rejected Oracle’s argument that the trial court should have considered Oracle’s argument that the second agreement was a novation of the first agreement. The issue of novation was not a defense to the agreement’s validity that should have been decided by the trial court; it was an issue that was to be decided by the arbitrator.

Johnson v. Oracle America, Inc., No. 17-17489 (9th Cir. Mar. 21, 2019).

Court Finds Jurisdiction Over Petition to Confirm Arbitration Award in Dispute Between Liquidator and Foreign Reinsurer

by

In the wake of the liquidation of Legion Indemnity Co., the Illinois Director of Insurance, as liquidator of Legion, and Catalina Holdings arbitrated claims originating under reinsurance agreements between Legion and a predecessor of Catalina. After the arbitrators ruled in favor of Catalina, Catalina filed a petition to confirm the award with the Northern District of Illinois. The Director moved to dismiss.

The court found that it had jurisdiction over the petition under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The arbitration agreement arose out of a dispute over reinsurance contracts, which are generally considered “commercial” under 9 U.S.C. § 2, and the contracts arose out of a relationship between a citizen of the United States and a citizen of the United Kingdom. Pursuant to 9 U.S.C. § 202, all arbitral awards fall under the Convention unless they arise out of “a relationship which is entirely between citizens of the United States.”

The court ruled against the Director’s argument that the Convention is reverse-preempted by the McCarran-Ferguson Act because the Convention did not “invalidate, impair, or supersede any law enacted by [the] State for the purpose of regulating the business of insurance.” Finally, the court found that Burford abstention would be inappropriate in this case. The Director argued, pursuant to Burford, that the court should “abstain from the exercise of federal review that would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.” There are two “essential elements” to this type of Burford abstention: The state must offer a forum where these claims may be litigated, and that forum must “stand in a special relationship of technical oversight or concentrated review to the evaluation of those claims.” The requisite elements were not present in this case and, as a result, the court refused to abstain.

Catalina Holdings (Bermuda) Ltd. v. Hammer, No. 1:18-cv-05642 (N.D. Ill. Mar. 22, 2019).

Ninth Circuit Finds No Foreign Arbitration Award to Uphold

by

Foreign arbitration awards must generally be upheld in the United States under treaty obligations. Upholding a foreign award requires that there actually be an arbitration award, however. For that matter, it requires an actual arbitration proceeding. A recent Ninth Circuit decision confronted a strange situation where there was no arbitration to confirm.

Michael Castro signed an employment agreement to be a commercial fisherman for Tri Marine. The agreement contained a mandatory arbitration provision that required him to arbitrate any disputes in and subject to the procedural rules of American Samoa. Castro was injured on the job. He released his claims in exchange for a cash settlement. The release also contained an arbitration clause requiring arbitration in American Samoa. Castro was then advised to go to an arbitrator in the Philippines with a representative of Tri Marine, though claimed he was told and believed he was merely picking up his settlement check. At the arbitrator’s office, Tri Marine filed a motion to dismiss the arbitration, even though there was not an arbitration case filed (indeed, there wasn’t even a case number assigned to the matter). The arbitrator granted that motion. Castro later required additional surgery and sought to bring suit in Washington state court in the United States. Tri Marine removed to Washington federal court, which dismissed the case.

The Ninth Circuit reversed. The court recognized that foreign arbitration awards must generally be upheld under the New York Convention, but concluded that there was no arbitral award under the facts. Although the arbitrator had issued a decision on a motion to dismiss, the parties had settled their dispute before the “case” was even filed. There was nothing to arbitrate. But even if there was an “arbitration,” it did not comply with the arbitration agreement’s arbitration clause or choice-of-venue provision. There was no evidence Castro waived those provisions. And even putting aside all those problems, the “arbitration” did not comply with the law of the Philippines concerning arbitration. The Ninth Circuit was careful to note that it was not infringing on “consent awards” whereby settlements reached during arbitration are turned into arbitration awards. That did not happen in this case. The court then remanded the case to the district court and instructed it to consider whether jurisdiction existed.

Castro v. Tri Marine Fish Co., No. 17-35703 (9th Cir. Feb. 27, 2019).

New York Federal Court Rejects Attempt to Vacate Arbitration Award Related to Theft of Corporate Assets

by

A New York federal court recently confirmed an arbitration award related to the alleged theft of more than $100 million from a Luxembourg company, SLS Capital. SLS’s liquidator in bankruptcy court then initiated a FINRA arbitration against CRT Capital, which had sold its majority interest in SLS to David Elias, who allegedly stole SLS’s assets.

CRT prevailed after a lengthy arbitration and was awarded more than $4 million, which includes costs and fees. CRT sought to confirm the award. SRT opposed that motion and sought to vacate the award. SRT argued that the arbitrators had improperly: (1) excluded expert rebuttal testimony it proffered; (2) applied the Federal Rules of Evidence during the hearing; and (3) awarded fees. The New York district court rejected those arguments and confirmed the award. The court concluded that the arbitration panel had numerous independent grounds for excluding the proffered rebuttal testimony, acted within its discretion to apply the evidentiary rules, and, under a highly circumscribed review, did not manifestly disregard the law of New York with respect to the award of costs and fees.

CRT Capital Grp. LLC v. SLS Capital, S.A., No. 1:18-cv-03986-VSB (S.D.N.Y. Mar. 31, 2019)

California Federal Court Enforces Arbitration Provision in Uber Agreements

by

A class action alleging unsolicited text messages received from Uber violated the Telephone Consumer Protection Act (TCPA) and California competition law was sent to arbitration by a California federal court based upon an arbitration clause contained in the Technology Services Agreement (TSA) between certain of the class plaintiffs and Uber subsidiaries. Moreover, the court noted that the delegation clause in the agreement “clearly and unmistakably delegate the gateway question of arbitrability to the arbitrator, no matter what Plaintiffs’ purported subjective understanding of the terms of the agreement may have been.” The plaintiffs who had entered into the TSA were thus dismissed, and the action with the remaining plaintiffs will continue.

Fridman v. Uber Techs., Inc., 4:18-cv-02815 (N.D. Cal. Mar. 27, 2019)