Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SDNY Confirms Arbitration Award Under New York Convention

by

In Exclusive Trim Inc. v. Kastamonu Romania, S.A., the U.S. District Court for the Southern District of New York granted a petition to confirm and enforce a foreign arbitration award issued in an arbitration held before the International Centre for Dispute Resolution.

The parties entered into a supply agreement, which, among other terms, set forth the minimum amount of product to be purchased by the petitioner from the respondent in the first year. The agreement also included an arbitration provision requiring all controversies and claims be resolved through arbitration administered by the American Arbitration Association (AAA), and “judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.” A dispute arose between the parties and the petitioner filed an arbitration proceeding with the AAA alleging breach of contract and unjust enrichment. The matter was assigned to the AAA’s international division, the International Centre for Dispute Resolution. After an evidentiary hearing held in New York, the arbitrator issued an award for the petitioner on its claims and rejected the respondent’s counterclaim. The award required the respondent to make payment within 30 days.

After the respondent failed to satisfy the award, the petitioner filed a petition under the New York Convention and the Federal Arbitration Act to confirm and enforce the award. The respondent did not oppose the petition. In reviewing the petition, the district court concluded it had jurisdiction over the matter, noting that the four requirements for determining whether an arbitration agreement falls within the scope of the New York Convention had been met: “(1) there must be a written agreement; (2) it must provide for arbitration in the territory of a signatory of the convention; (3) the subject matter must be commercial; and (4) it cannot be entirely domestic in scope.” The court then analyzed the applicable standard of review for the matter, noting that it must enforce the arbitration award unless one of the seven defenses under the New York Convention was established. The court noted that the respondent had not appeared in the action or opposed the petition, and “if a petition to enforce an arbitration award is unopposed, a court need not inquire on its own into whether an exception to enforcement applies” and, in any event, there was no suggestion in the record that any of the defenses under the New York Convention were applicable. The court held that the petitioner established it was entitled to judgment in its favor in accordance with the award and granted the petition.

Exclusive Trim, Inc. v. Kastamonu Romania, S.A., No. 1:23-cv-03410 (S.D.N.Y. Oct. 12, 2023).

SDNY Grants Motion to Compel Arbitration of Employee’s Discrimination and Retaliation Claims

by

In Marino v. CVS Health, the U.S. District Court for the Southern District of New York found defendant CVS Health’s “arbitration of workplace legal disputes policy” and related arbitration agreement compelled arbitration of the plaintiff’s discrimination and retaliation claims based on her pregnancy.

Sarah Marino was employed as a pharmacist at CVS beginning in 2012 and became a pharmacy manager after her first child was born in 2017. After her second child was born in April 2020, Marino took leave under the Family and Medical Leave Act (FMLA) but alleged that she was forced to work without pay during her leave, and was ultimately forced to terminate her employment in January 2023 in retaliation for her complaints about poor treatment and working conditions.

Marino brought claims in the Southern District of New York alleging violations of the FMLA, the New York State Human Rights Law, the Fair Labor Standards Act, and New York labor laws. CVS moved to compel arbitration and stay Marino’s action. In support of its motion, CVS relied on its arbitration of workplace legal disputes policy and arbitration agreement, which included a provision that all disputes covered by the policy would be decided by a single arbitrator and governed by the Federal Arbitration Act (FAA), including claims of harassment, discrimination, and retaliation. Marino participated in online training addressing the policy in 2014 and did not exercise the option to opt out of the arbitration agreement included in the policy within 30 days. She opposed the motion to compel, contending she had no choice but to sign the training acknowledgment, and the terms of the arbitration agreement were “buried” or “submerged” in the training presentation. Marino also argued she was a “worker engaged in interstate commerce” and thus exempt from the FAA.

The court rejected both arguments, concluding that the 30-day opt-out provision “negates any suggestion” that she was forced to enter into the arbitration agreement. The court also held that “only a worker in a transportation industry can be classified as a transportation worker” under the FAA and, since CVS does not operate in the transportation industry, Marino did not satisfy the statutory exclusion under the FAA for transportation workers. The court granted the motion to compel arbitration and to stay the case.

Marino v. CVS Health, No. 7:23-cv-00784 (S.D.N.Y. Oct. 16, 2023).

Eighth Circuit: Plaintiff Waives Right to Compel Arbitration by Filing Complaint and Litigating Dispute in Court

by

The Eighth Circuit Court of Appeals recently affirmed the denial of a motion to compel arbitration filed by the plaintiff in the matter. The court noted that arbitration “can be waived in a variety of circumstances, including by substantially invoking the litigation machinery rather than promptly seeking arbitration.” Here, the plaintiff filed suit seeking a preliminary injunction and a permanent injunction and participated in court-ordered mediation as well as discovery proceedings before filing a demand for arbitration. The court recognized that section 3 of the Federal Arbitration Act “typically applies to give defendants, not plaintiffs, a right to stay litigation.”

Focusing on the actions of the party demanding arbitration, as required after the U.S. Supreme Court’s decision in Morgan v. Sundance Inc. (which removed consideration of prejudice to the opposing party from the analysis), the court found that the right to arbitration had been waived by acts inconsistent with that right, i.e., litigating the claim in court prior to seeking arbitration of the same claim. In so doing, the court also noted that the opinion of the U.S. Supreme Court in Henry Schein Inc. v. Archer & White Sales Inc. “did not disturb the general principle that arbitration is a waivable contractual right” and, furthermore, that “[c]ourts determine whether a party waives arbitration, not arbitrators.”

Breadeaux’s Pisa v. Beckman Bros. Ltd., No. 22-2835 (8th Cir. Oct. 16, 2023).

Tennessee Supreme Court Permits Consideration of Extrinsic Evidence in Dispute About Capacity to Enter Power of Attorney Used to Sign Arbitration Agreement

by

The Supreme Court of Tennessee has approved a trial court’s consideration of extrinsic evidence regarding whether an individual with Down syndrome had the capacity to execute a durable power of attorney that his brother used to enter an arbitration agreement on his behalf.

James Welch’s brother David had Down syndrome. James had David execute a durable power of attorney for health care so that James could make health care decisions for David. David subsequently used the power of attorney to admit David to Oaktree Health and Rehabilitation Center LLC, doing business as Christian Care Center of Memphis. James executed an arbitration agreement as part of Christian Care’s admission process. David died several months later and James sought to sue Christian Care for negligence and wrongful death.

Christian Care moved to compel arbitration. In response, James argued that he did not have the authority to sign the arbitration agreement on David’s behalf because David did not have the mental capacity to appoint an agent through the power of attorney. The trial court looked beyond the four corners of the power of attorney over Christian Care’s objections and concluded based on that evidence that David lacked capacity. It therefore denied the motion to compel.

Christian Care appealed and the court of appeals reversed. The court of appeals “held that the trial court erred by considering evidence on whether David had the mental capacity to sign the [power of attorney].” James then appealed to the Supreme Court of Tennessee.

The Supreme Court of Tennessee held that the trial court had properly considered “evidence on the circumstances surrounding execution of the durable power of attorney for health care and whether [David] lacked the requisite mental capacity to sign it.” The court therefore remanded the case to the court of appeals for a determination on whether the evidence outside the four corners of the power of attorney created “clear and convincing evidence that David lacked the requisite mental capacity when he signed the power of attorney for health care.”

Welch v. Oaktree Health & Rehabilitation Center LLC, No. W2020-00917-SC-R11-CV (Tex. Aug. 31, 2023).

“Judicial Statements Privilege” Protects Statements in Court-Ordered Arbitration From Defamation Claims

by

The Kentucky Supreme Court affirmed the dismissal of a defamation action based on statements made during a court-ordered arbitration. The “judicial statements privilege,” as it’s known in Kentucky, provides an “absolute privilege” for communications made pursuant to judicial proceedings, even if the statements would otherwise be defamatory. The privilege is more commonly referred to outside of Kentucky as the “litigation privilege” or “judicial privilege.”

A communication must fulfill two requirements to fall within the privilege’s protection: (1) the communication must have been made “preliminary to a proposed judicial proceeding, or in the institution of, or during the course and as part of a judicial proceeding”; and (2) the communication must be material, pertinent, and relevant to the judicial proceeding. The doctrine “rests upon public policy which looks to the free and unfettered administration of justice, though, as an incidental result, it may, in some instances, afford an immunity to the evil-disposed and malignant slanderer.”

The Kentucky Supreme Court was careful to point out that it did “not decide that all arbitrations come within the judicial statements privilege.” Rather, the court held solely that “statements made pursuant to court-ordered arbitrations are protected by the judicial statements privilege to the same extent as statements made in other court proceedings.”

New Albany Main Street Properties, LLC v. Stratton, No. 2022-SC-0254-DG (Ky. Aug. 24, 2023).