Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Sixth Circuit Compels Arbitration in Putative Class Action between Shell Oil and Ohio Landowners

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Plaintiff entered into a lease agreement with Defendants (Shell Oil entities) governing extraction of oil and gas from his five-acre property located in Guernsey County, Ohio. The agreement provided a signing bonus to Plaintiff of $5,000 per acre, contingent upon Shell’s timely verification that he possessed good title to the property. The lease also contained a broad arbitration clause providing that any dispute under the lease was to be resolved by binding arbitration. Plaintiff brought suit, individually and on behalf of other landowners having similar contracts with Shell, for breach of contract after Shell allegedly failed to pay the signing bonus. The District Court for the Southern District of Ohio subsequently denied Shell’s motion to compel arbitration, and Shell appealed.

The Sixth Circuit reversed and remanded, compelling arbitration and a directing the district court to decide whether the lease allowed for class-wide arbitration. The panel found that the district court failed to address the threshold issue of who decides arbitrability and further reasoned that Plaintiff did not attack the enforceability of the “specific arbitration clause” but rather “argued that much of the contract, which happens to include the arbitration clause, is unenforceable.” In so finding, the panel determined that the arbitration clause was triggered at signing, leading to the applicability of the severability doctrine and the determination that an arbitrator must consider the issue first. As to the class-wide arbitration question, the Panel reasoned that because the parties did not identify a provision in the contract that clearly and unmistakably gave the arbitrator the power to decide the matter, and in light of “the importance of this issue to the case, given that the class could include hundreds of Ohio landowners,” that question would be for the district court to decide upon remand. In a dissenting opinion, Judge Moore opined that the district court was the proper body to decide whether the dispute should be arbitrated in light of the lease agreement’s two distinct triggering events – the signing of the agreement and the payment of the bonus. As such, Judge Moore opined that only after payment of the bonus would the arbitration clause apply.

Rogers v. Swepi LP, No. 18-3229 (6th Cir. Dec. 10, 2018).

This post written by Gail Jankowski.

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Missouri Supreme Court Upholds Denial of Petition to Compel Arbitration Where Agreement Designated an Arbitration Forum that Later Became Defunct

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After a loan company sued a customer in default and the customer asserted counterclaims on a class-wide basis, the company sought to compel arbitration. However, the particular arbitral forum designated in the arbitration agreement had stopped providing arbitration services after entering a consent decree following another state’s fraud and unfair practices investigation. The lower courts declined the company’s request to designate a new arbitrator and ultimately denied its request to compel arbitration.

On appeal, the Missouri high court found no error in the lower court’s refusal to compel arbitration. Channeling the principle that arbitration is a matter of contract, the court evaluated the arbitration agreement to determine whether the parties agreed to arbitrate regardless of the named arbitrator’s availability or whether they agreed to arbitrate “before – but only before” the named arbitrator. Based on the plain language of the agreement, the court concluded the latter – the parties agreed to arbitrate only before the defunct arbitrator. It noted that the company drafted the agreement, which specified a particular arbitrator, and could not now avoid that specific choice because the arbitrator is unavailable. Moreover, the court was unable to reconcile other parts of the agreement with the idea that the designated arbitrator was not exclusive. The agreement provided that arbitration was to proceed under the designated arbitrator’s procedures, and that arbitration claims must be filed at the designated arbitrator’s home office only. The court emphasized that an agreement’s designation of a specific arbitrator does not always demand this result when the arbitrator later becomes unavailable; rather, the language of this particular agreement required the conclusion that the agreement to arbitrate was limited to the defunct arbitrator only. Thus, the court affirmed. A-1 Premium Acceptance, Inc. v. Hunter, Case No. SC96672 (Mo. Oct. 16, 2018).

Munich Re Wins Arbitration it Initially Resisted, and Parties Agree to Dismiss Federal Lawsuit Against Munich Re as a Result

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Alabama Municipal Insurance Corporation (AMIC) has agreed to dismiss with prejudice its federal lawsuit against Munich Re after an arbitrator rendered judgment against AMIC in a case we previously wrote about here. Munich Re had resisted arbitration, contending that AMIC’s claim did not arise under a contract which contained an arbitration clause. The district court disagreed, finding that another contract applied to the claim and that contract provided for “final and binding” arbitration of disputes. Despite losing the initial round, Munich Re has emerged victorious from the arbitration it initially sought to avoid, and the court dismissed AMIC’s lawsuit with prejudice on December 7, 2018, pursuant to the parties’ joint request. Alabama Municipal Insurance Corporation v. Munich Reinsurance America, Inc., Case No. 2:16-cv-00948-WHA-SRW (USDC M.D. Ala. Dec. 7, 2018) (final judgment); (Nov. 9, 2018 Joint Status Report Regarding Arbitration).

This post written by Benjamin E. Stearns.

See our disclaimer.

Court Enforces Arbitration Subpoena Against Third-Party Walgreens in Pharmaceutical Drug Overcharge Dispute

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The plaintiff in the underlying arbitration (Health Options) served a third-party subpoena on Walgreens to attend a hearing and produce documents concerning the prices it charged for pharmaceuticals to Navitus that Health Options ultimately covered. Walgreens initially declined to produce the requested information and a corporate representative for the hearing, claiming its headquarters was more than 100 miles from the hearing location in Madison, Wisconsin, and that the court lacked personal jurisdiction over it. The court, however, granted a motion to enforce the arbitration subpoena. First, the court rejected Walgreens’s territoriality argument, accepting Health Options’s proposed method of measuring distance “as the crow flies” and finding that Walgreens’ headquarters in Deerfield, Illinois was less than 100 miles from Madison. Second, the court held that it had personal jurisdiction over Walgreens. The court concluded that Walgreens’s suit-related in-state activities—submitting inflated prices to Navitus that Navitus in turn submitted to Health Options—were sufficiently related to Health Options’s injuries—overpaying on Navitus’s claims. Walgreens’s “purposely-directed communications” to Navitus in Wisconsin were “part of the wrongful conduct” that prompted the lawsuit. Because it is unclear whether the traditional minimum contacts inquiry applies in the third-party discovery context, the court examined the additional criterion some circuits apply: whether a close relationship exists between the non-party’s contacts with the specific discovery request. Even with the heightened scrutiny, the court found the subpoena sought documents related specifically to Walgreens’s contact with Wisconsin. Finally, the court denied Walgreens’s request that Health Options pay its subpoena compliance costs up front. It found Walgreens did not demonstrate the subpoena would be unduly burdensome nor did it provide an estimate of costs, both flaws that precluded an award of costs, let alone upfront costs. Maine Community Health Options v. Walgreen Co., Case No. 18-0009 (USDC W.D. Wis. Dec. 20, 2018).

Ninth Circuit Holds that Federal Rules of Civil Procedure Govern How to Calculate the FAA’s Three-Month Filing Deadline to Seek Vacatur of an Arbitration Award

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The Ninth Circuit affirmed the denial of a petition to vacate an arbitration award because the petition was filed one day late. The court determined that whether a petition to vacate is filed within the applicable three-month deadline under the FAA is based upon the method of calculating provided by Federal Rule of Civil Procedure 6(a). That Rule provides a three-step process: (1) exclude the day the arbitrator delivered the final award (in this case, September 14, 2016); (2) calculate three months from the following day (in this case September 15); and (3) include the last day of the period, unless it is on the weekend or a legal holiday, in which case the period concludes at the end of the next weekday that is not a legal holiday. Here, the court focused on Step 2. The court stated that each month began on the 15th day of the month and ended on the 14th day of the following month, just as “the month beginning January 1 concludes on January 31, not February 1.” Because the plaintiffs filed their petition for vacatur on December 15, when the last day for filing within the available three-month window under the FAA was December 14, the Ninth Circuit found that the petition was properly denied as untimely. The Ninth Circuit also addressed the standard for whether a post-judgment motion tolls the time to file an appeal pursuant to Federal Rule of Appellate Procedure 4(a)(4). Stevens v. Jiffy Lube International, Inc., No. 17-15965 (9th Cir. Dec. 27, 2018).

This post written by Benjamin E. Stearns.

See our disclaimer.