Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Fifth Circuit Affirms Dismissal Without Prejudice After Plaintiff Compelled to Arbitrate Refuses To Do So

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The Fifth Circuit affirmed a dismissal without prejudice of a plaintiff’s putative class action related to a multi-level marketing program selling electricity after the plaintiff refused to submit his claims to arbitration despite the district court compelling arbitration and staying the case pending arbitration. The case languished for over a year after the district court’s order compelling arbitration while plaintiff refused to arbitrate the putative class claims. Twice the court requested status reports in which the plaintiff indicated his failure to arbitrate and lack of intent to do so, at which point the district court ordered plaintiff to show cause why the case should not be dismissed for lack of prosecution. The plaintiff responded by reiterating his disagreement with the court’s conclusions as to arbitration, his intent not to arbitrate, and his readiness to litigate the case to conclusion before the court. The court ultimately dismissed the case without prejudice for lack of prosecution.

On a threshold issue, the Fifth Circuit concluded that it had appellate jurisdiction over the dismissal as a “final decision with respect to an arbitration.” Defendants argued that plaintiff, through his response to the show-cause order, voluntarily dismissed the case, which is not a final appealable decision. The court disagreed, holding that plaintiff’s inaction in failing to submit his claims to arbitration was not sufficient to constitute voluntary dismissal. Specifically, the court determined that plaintiff’s response to the show-cause order did not serve as notice of dismissal, but rather were “statements of inaction,” and therefore did not constitute a voluntary dismissal.

Additionally, the court found that it could appropriately hear an appeal of a dismissal without prejudice. The court surveyed circuit precedent and distinguished the present case from those finding no appellate jurisdiction over dismissals without prejudice. Here, there were no concerns about piecemeal appeals of interlocutory issues because the dismissal concluded the litigation on the merits. Nor, as the court previously established, was the dismissal voluntary such that the litigant was voluntarily dismissing as a tactic to seek expedited appeal of interlocutory issues.

Finally, the Fifth Circuit affirmed the lower court’s use of its discretion in dismissing for failure to prosecute. Regardless of whether the heightened standard for dismissal without prejudice—where statutes of limitations risk barring any future litigation—applied, the court held that defendants would prevail. Dismissal was warranted for failure to prosecute because plaintiff demonstrated a “clear record of delay and contumacious conduct” by persistently refusing to arbitrate the claims as the district court so ordered and explicitly stating it would not pursue arbitration. Thus, the Fifth Circuit concluded the lower court acted within its discretion and affirmed.

Griggs v. S.G.E. Mgmt., L.L.C., No. 17-50655 (5th Cir. Sept. 27, 2018).

This post written by Thaddeus Ewald .

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Judge Rejects Ameriprise’s Request to Vacate Arbitration Award, But Reverses Award of Attorney’s Fees

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Ameriprise sought vacatur of the award under grounds set forth in the FAA, namely fraud, evident partiality, arbitrator misconduct, and exceeding of powers. In refusing Ameriprise’s request, the court first noted that judicial review of an arbitral award is “among the narrowest known in the law” and is “exceedingly deferential.” This standard “ensures arbitration’s essential virtue of resolving disputes straight away is maintained and avoids costly full-bore legal and evidentiary appeals.” With respect to Ameriprise’s claim that there was “evident partiality” on the part of one of the arbitrators, the court rejected it due to its “broad and speculative nature” and because the facts underlying the claim could have been discovered prior to the arbitration by “the most basic method of contemporary due diligence: a Google search.” With regard to Ameriprise’s argument that the panel engaged in “misconduct” by declining to give due weight to evidence in support of its case, the court declined Ameriprise’s invitation to “conduct a post-mortem of the arbitrators’ cognition processes and how they reached their decision.” As to Ameriprise’s argument regarding fraud, the court held that Ameriprise failed to present “clear and convincing evidence.” The court, however, did reverse the arbitration panel’s award of $123,712 in attorney’s fees, which the court declared was either in excess of the powers of the panel, or in manifest disregard of the law. Ameriprise Financial Services, Inc. v. Brady, Case No. 18-10337-DPW (USDC D. Mass. Sept. 11, 2018).

This post written by Benjamin E. Stearns.

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Court Finds New York Convention Applies to Arbitration Agreement in Insurance Policy That Would Otherwise be Invalid Under State Law

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Lloyd’s issued an insurance policy with an arbitration provision, covering direct physical loss or physical damage caused by windstorm and/or hail. The insured filed suit in state court alleging nonpayment of claims for damages from Hurricane Isaac. Lloyd’s removed to federal court, asserting that the court had original subject matter jurisdiction for the arbitration agreement in the policy pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. The insured sought remand, arguing that the New York Convention did not apply.

The court denied remand, finding that the Convention applied because the dispute arose out of an insurance policy, a commercial legal relationship, with Lloyd’s, a citizen of the United Kingdom. The court also rejected the insured’s argument that the “Conformity to Statute” clause effectively amended the policy to comply with Louisiana state law, which would result in the arbitration provision being rendered unenforceable. The court held that because the Convention preempts state law, state law is inapplicable and cannot change the policy. The court also rejected the insured’s arguments that the Convention was reverse-preempted by the McCarran-Ferguson act, and that the Convention applies only to instances of enforcement of foreign arbitration awards. The plaintiff has appealed the court’s rulings. Gulledge v. Certain Underwriters at Lloyd’s, London, Case No. 2:18-cv-06657 (USDC E.D. La. Sept. 27, 2018); Notice of Appeal (Oct. 2, 2018).

This post written by Gail Jankowski.

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Uber Drivers’ Class Action Thrown Into Reverse: Ninth Circuit Overturns Class Certification Order and Denial of Uber’s Motion to Compel Arbitration

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A putative class action against Uber filed by some of the company’s California-based drivers has crashed. The Ninth Circuit reversed rulings denying Uber’s motion to compel arbitration, certifying the class of drivers, and enjoining Uber from distributing and enforcing a new arbitration agreement. Relying on its decision in a previous class action against Uber (Mohamed v. Uber Technologies, Inc., 848 F.3d 1201 (9th Cir. 2016), the Ninth Circuit held that the arbitration agreements delegated the threshold question of arbitrability to the arbitrator. Thus, the determination of arbitrability was not within the district court’s province.

The plaintiffs argued the district court’s determination that the arbitration agreements were unenforceable should be upheld because the named class representatives had “constructively opted out of arbitration on behalf of the entire class.” The Ninth Circuit held the plaintiffs had no authority to take that action on behalf of and binding the other drivers. Although the plaintiffs found a Georgia Supreme Court case (Bickerstaff v. Suntrust Bank, 788 S.E. 787 (Ga. 2016)) supporting their position, they were unable to point to any federal case doing so. Bickerstaff relied exclusively on state law grounds and did not discuss the Federal Arbitration Act.

The plaintiffs’ second argument, that the arbitration agreements were unenforceable because they contain class action waivers that violate the National Labor Relations Act, was extinguished by the United States Supreme Court in Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018). Because the arbitration agreements were enforceable, Uber’s motion to compel arbitration should have been granted, and because the plaintiff’s claims would be arbitrated, the district court’s order certifying the class and restricting Uber’s communications with the class were also reversed. O’Connor v. Uber Technologies, Inc., Case No. 14-16078 (9th Cir. Sept. 25, 2018).

This post written by Benjamin E. Stearns.

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Years-Long Asbestos Reinsurance Battle Continues for Utica and Century, Including Whether Century Must Follow the Fortunes of Utica’s Allocation of Losses

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In 2013, Utica Mutual Insurance Company (the cedent) filed a complaint alleging that Century Indemnity Company (the reinsurer) (1) breached two reinsurance certificates executed between the parties covering the years 1973 and 1975 in connection with asbestos liability exposure; (2) owed the unpaid balance of prior billings under the two certificates; (3) violated the duty of utmost good faith and fair dealing; and (4) is obligated to pay certain future billings. Century answered, refusing to acknowledge the existence of a valid 1975 reinsurance certificate, and asserted various affirmative defenses. After two years of discovery, Century amended its answer to assert bad-faith counterclaims against Utica alleging that Utica had been maintaining two sets of record-keeping systems to track asbestos settlements made on behalf of the underlying insured, allegedly part of a larger effort by Utica to conceal the fact it had been over-billing reinsurers, including Century, for these claims.

Utica sought partial summary judgment on various aspects of the litigation, including that (1) Utica’s allocation decisions related to the coverage and handling of the asbestos claims against the underlying insured were reasonable and made in good faith, such that the “follow the fortunes” doctrine applied; (2) the 1975 reinsurance certificate is valid and binding on Century; and (3) Century had no right to claw back any sums previously paid to Utica. Century responded with its own dispositive motions. The court denied the parties’ motions with respect to most issues, including whether Utica’s loss allocation decisions were reasonable and made in good faith. Utica Mut. Ins. Co. v. Century Indem. Co., Case No. 6:13-cv-00995 (USDC N.D.N.Y. Sept. 26, 2018).

This post written by Gail Jankowski.

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