Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Fifth Circuit Reversed Judgment Compelling Arbitration Because Unsigned Arbitration Agreement Was Invalid

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This matter involved a lawsuit brought in Texas federal court by a former employee (Huckaba) against Ref-Chem L.P., alleging sexual harassment, discrimination and retaliation in violation of Title VII. Ref-Chem moved to dismiss the lawsuit and compel arbitration, which was granted by the Texas district court, finding that Huckaba’s “continued employment” after she signed an arbitration agreement “constituted acceptance of that agreement” by both parties, even though Ref-Chem never executed the agreement. Huckaba appealed to the Fifth Circuit.

The Fifth Circuit reversed the Texas district court’s judgment, holding that the express language of the arbitration agreement at issue required for it to be signed by both parties and it was undisputed that Ref-Chem did not sign the agreement. Therefore, there was no valid agreement to arbitrate in this case, and thus, the court remanded to the district court for further proceedings.

Huckaba v. Ref-Chem, L.P., No. 17-50341 (5th Cir. June 11, 2018).

This post written by Jeanne Kohler.

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New York’s First Department Upholds Fraud Claim Involving Alleged Sham Reinsurance Scheme

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In an action alleging claims for fraud and conspiracy to commit fraud (among others), a New York appellate court upheld the trial court’s conclusion that the “defendants are subject to jurisdiction under New York’s long-arm statute because they were part of a conspiracy that involved the commission of tortious acts in New York,” including agreements between defendants relating to Plaintiff.

The conspiracy’s overt acts included defendant Weston Capital Management’s “approval of a Gerova proxy statement on which they are listed and which seeks approval of the sham acquisition of a reinsurance company, their receipt of ‘hush money’ to ignore certain red flags and Gerova, and their failure to correct misrepresentations or disclose material information to the public.” The Court also found that, even if the individual defendants – directors of Gerova – did not themselves include misrepresentations in the public filings, by their positions “one can rationally infer… they knew of the falsity of the facts therein, did not disclose material information, and allowed the misrepresentations to be publicly stated.”

Plaintiff, the alleged target of the conspiracy, had standing to bring the fraud claim, as it sought recovery for damages for the theft of its assets.

Wimbledon Financing Master Fund, Ltd. v. Weston Capital Mgmt. LLC, et al., No. 653468 (N.Y. App. Div. April 26, 2018)

This post written by Nora A. Valenza-Frost.

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Appellate Court of Massachusetts Finds That Reinsurer Must Pay Workers’ Compensation Benefits of Bankrupt Self-Insured Employer

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In a recent opinion, a Massachusetts appeals court was required to determine who is liable to pay workers’ compensation benefits owed by a self-insured employer that has gone bankrupt? In a choice between the state created Workers’ Compensation Trust Fund and a reinsurer of that bankrupt employer, the court chose the reinsurer.

The case involved benefits due to Robert Janocha, whose employer at the time of his injury was self-insured for workers’ compensation claims. In compliance with Massachusetts law, the employer had ensured its ability to pay such claims with a $2.4 million surety bond and a reinsurance contract with ACE American Insurance Company, which had a $400,000 retention provision applicable to each injured employee. In 2007, the employer went bankrupt, and in 2012 the surety bond was exhausted. However, Mr. Janocha’s benefits had not reached the $400,000 retention floor, and ACE argued that, until that floor was reached, his benefits were the responsibility of the Workers’ Compensation Trust Fund under a statute requiring the Trust Fund to pay benefits for claims against employers “uninsured in violation” of the law. The court found that this statute only applied when the employer was uninsured at the time of the injury in question, however, and did not apply when the lack of insurance was the result of bankruptcy. Thus, the Trust Fund was not obliged to pay the benefits. The court then found that ACE was statutorily required to pay benefits in the event the self-insured employer became insolvent, and that the retention provision would not be enforced because “a party is unable to contract away its statutory obligations.” Thus, ACE was required to pay Mr. Janocha’s benefits.

Janocha’s Case, No. 16-P-1181 (Mass. App. Ct. May 2, 2018)

This post written by Jason Brost.

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Court Rejects Defendant’s Objections to Subpoenas as Untimely and Baseless in Fraudulent Transfer Default Judgment Spat

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In a dispute previously reported on this blog, the Southern District of California overruled a defendant’s objections to subpoenas served on a former expert witness in defendant’s unrelated divorce case and to a bank for account information for a non-party corporate entity.

Regarding the former expert’s subpoenas, the court held that defendant waived her challenges. Plaintiff had served the subpoenas duces tecum to the defendant’s former expert witness in February 2018, with which the witness complied and produced hundreds of thousands of documents in March 2018. Defendant filed her objections in April 2018.

First, the court noted the difference under the Federal Rules between objections permitted by the non-party subject of the subpoena and motions to quash by parties who are not the subject of the subpoena. The defendant was not the subject of the subpoenas and thus could move to quash the subpoena. However, even interpreting defendant’s objections as a motion to quash, the court held they were untimely because they were filed a month after the subpoenas’ compliance date and the date on which the subject produced the documents. Additionally, the court held that even if defendant was technically able to object to the subpoenas, such objections were untimely filed after the statutory 14-day objection period.

The court next found there were no unusual circumstances or good cause to justify the untimeliness of defendant’s objections. Although defendant asserted a work product privilege regarding her former expert’s documents, that privilege was waived because the former expert was a testifying expert in her divorce case whose work is not protected by the privilege (compared to a consulting expert’s work). Defendant also failed to provide any explanation for her significant delay in filing objections.

Lastly, the court concluded that defendant lacked standing to quash a third-party subpoena for the former expert’s deposition testimony. Because it had already rejected defendant’s privilege claim, it found only the non-party witness could move to quash the subpoena prior to the deposition and defendant thus lacked standing to challenge the deposition.

Regarding the bank subpoena, the court overruled defendant’s objection to the subpoena pertaining to the non-party corporate entity’s account on relevance grounds. Although the corporate entity was an “uninvolved corporation,” newly-discovered emails indicated defendant created the corporate entity specifically to shield money from judgment creditors, making them highly relevant.

Odyssey Reinsurance Co. v. Nagby, Case No. 16-3038 (S.D. Cal. Apr. 26, 2018).

This post written by Thaddeus Ewald .

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Eleventh Circuit Finds Defendant Can’t Use Unsigned Consent to Receive Text Messages to Compel Arbitration Of TCPA Claim

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Hope Gamble sued New England Auto Finance, Inc. (NEAF) in federal court under the Telephone Consumer Protection Act (TCPA). Ms. Gamble alleged that NEAF, from which she had previously borrowed money to buy a car, sent her text messages without her consent. NEAF moved to compel arbitration under an arbitration agreement contained within her loan agreement. That loan agreement also contained a Text Consent Provision that would have granted NEAF the right to send Ms. Gamble text messages, but this provision required a separate signature, and Ms. Gamble did not sign it. The district court found that the TCPA claim was not covered by the arbitration agreement and denied NEAF’s motion.

On appeal, the NEAF argued that the arbitration agreement, which required arbitration of any “claim, dispute or controversy . . . whether preexisting, present or future, that in any way arises from or relates to this Agreement or the Motor Vehicle securing this Agreement,” was broad enough to encompass the TCPA claim. The Eleventh Circuit rejected this argument, however, as the text messages in question did not involve her auto loan, which Ms. Gamble had paid off before the relevant text messages were sent. The NEAF further argued that the Text Consent Provision governed the issue of Ms. Gamble’s consent to receive text messages, even though she had not signed that provision. Again, the Court disagreed, finding that Ms. Gamble’s right not to receive text messages was created by Congress through the TCPA, not by any agreement with NEAF, and certainly not by the unsigned Text Consent Provision that, because it was unsigned, created no rights or obligations for anyone. Thus, the Court affirmed the denial of NEAF’s motion to compel arbitration.

Gamble v. New England Auto Finance, Inc., No. 17-15343 (11th Cir. May 31, 2018)

This post written by Jason Brost.

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