Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NEW YORK DISTRICT COURT CONFIRMS FOREIGN ARBITRATION AWARD, REASONING THAT COURTS WITH SECONDARY JURISDICTION MAY NOT REFUSE TO CONFIRM AN AWARD DUE TO AMBIGUITY

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Pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, codified at 9 U.S.C. § 201 et seq. (the “Convention”), Petitioner, a German corporation, sought an order confirming a final arbitration award of a money judgment against Respondent, a Turkish national, issued by a Swiss tribunal. In opposition to Petitioner’s motion to confirm the final award, Respondent argued, among other things, that the final award was so ambiguous as to be unenforceable.

The District Court, however, was not persuaded by that argument. Specifically, the Court held, “[w]hatever ambiguity existed by looking solely to the award section of the Final Award, it is resolvable by the record and the Arbitral Tribunal’s thorough Final Award opinion; it is clear what the Arbitral Tribunal decided.” More significant was the Court’s holding on ambiguity as grounds for refusal to confirm the award generally. In this regard, the Court held that “[w]hen sitting in secondary jurisdiction, as the Second Circuit has recently reminded district courts, the parameters within which a district court may refuse enforcement are rigidly circumscribed: ‘[T]he [New York] Convention is equally clear that when an action for enforcement is brought in a foreign state, the state may refuse to enforce the award only on the grounds explicitly set forth in Article V of the [New York] Convention.’” Therefore, because ambiguity is not a ground “explicitly set forth” in Article V, the Court determined that it is not a ground for consideration when determining whether or not to confirm a foreign award. BSH Hausgeräte GMBH v. Jak Kamhi, Case No. 17-5776, (USDC S.D.N.Y. Mar. 3, 2018).

This post written by Gail Jankowski.

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THE FAA’S PRESUMPTION IN FAVOR OF ARBITRATION DOES NOT REQUIRE ARGUABLE AMBIGUITIES IN ARBITRATION AGREEMENTS TO BE INTERPRETED AS “BROADLY AS POSSIBLE”

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In a dispute over the scope of a mandatory arbitration provision, the Sixth Circuit rejected the argument that it is required by the Federal Arbitration Act’s presumption in favor of arbitration to interpret an arbitration agreement “as broadly as possible” to compel arbitration. Rather, the FAA requires a court to interpret ambiguous provisions “only as broadly as [] remains consistent with the terms of the contract and the intention of the parties.”

The court found that the plain language of the provision required the parties to submit to arbitration only any disagreements that were included in a “Notice of Disagreement.” The district court interpreted (and the parties agreed) that this language only reached any disagreements that were “properly” included in the notice, although the word “properly” did not appear in the agreement. The defendant, however, sought to argue that the arbitration provision still applied to issues that arguably affected the proper subject matter of the notice, even though those issues themselves would not have been properly included in the notice. The court disagreed, distinguishing cases involving broadly written arbitration provisions from the relatively circumscribed provision involved here, noting that the FAA’s presumption “applies only where the arbitration provision could ‘fairly be read to cover’ the particular dispute.” Smith v. Altisource Solutions, Case No. 17-501 (6th Cir. Mar. 2, 2018).

This post written by Benjamin E. Stearns.

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FOURTH CIRCUIT INSTRUCTS DISTRICT COURT TO VACATE ARBITRATION AWARD THAT WAS NOT MUTUAL, FINAL, AND DEFINITE

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The Fourth Circuit reversed and remanded the district court’s order granting Norfolk Southern Railway Company’s motion to confirm an arbitration award determining the amount Sprint must pay to Norfolk Southern for continued use of railroad rights. Under the parties’ contract, because the parties’ respective appraisers disagreed as to the proper amount, a third appraiser was instructed to arrive at a compromise with one (or both) of the other appraisers. Ultimately, the third appraiser agreed with the amount set forth by Norfolk Southern’s appraiser, but conditioned his assent to the award subject to two conditions- (1) that Norfolk Southern had marketable title and (2) that the value used by Norfolk Southern’s appraiser was reasonable. The third appraiser also reserved the right to withdraw his assent if his assumptions proved to be incorrect. The AAA panel found that this decision constituted a final and binding arbitration award, which upon Norfolk Southern’s motion, the district court confirmed.

Sprint appealed the district court’s confirmation of the award, and despite the deferential standard of review accorded to arbitration awards, the Fourth Circuit found that the district court did err in determining that the third appraiser’s decision was a “final” award. Specifically, the Fourth Circuit found significant that the third appraiser “made clear that he might withdraw his assent — thus dissolving the compromise and the arbitration award itself — at some point in the future.” Moreover, the Court noted that the third appraiser “did not merely base his assent on certain assumptions, but rather reserved the right to withdraw his assent [even] if his assumptions proved to be incorrect… [and therefore, could not] be squared with any conception of ‘finality.’” As such, the Fourth Circuit instructed the district court to vacate the award. Norfolk So. Railway Co. v. Sprint Comm’s Co. L.P., Case No. 16-2017 (4th Cir. Feb. 22, 2018).

This post written by Gail Jankowski.

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D.C. CIRCUIT COURT RULES ON CURRENCY CONVERSION ISSUE IN ARBITRAL AWARD

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Following a Greek arbitration, Petitioner sought to confirm an arbitration award and enter judgment in the U.S. District Court for the District of Columbia. The arbitral award was issued on July 2, 2013 for €39,818,298 in damages and $162,500 in costs. Apply Rule 59(e), the District Court converted the entire award (plus interest) into U.S. dollars using the exchange rate in effect on July 2, 2013 – the date of the arbitral award – making the total judgment $62,731,104.80. Since the euro had declined over the course of the litigation, the judgment increased its value by approximately $11.9 million.

On Appeal, the D.C. Circuit Court found the District Court had erred in two ways: (1) it incorrectly concluded that Rule 59(e) precedent did not apply to Petitioner because it was not a “losing party;” and (2) it incorrectly concluded that it was “manifestly unjust to award [Petitioner] judgment in euros even though [Petitioner] had expressly sought relief in euros at least three times and had not asked for dollars until its post-judgment motion.”

The Circuit Court held that “under Rule 59(e), a district court may not convert a judgment to dollars if the movant contracted in euros, received its arbitral award in euros, requested euros in its complaint and filed three proposed order seeking euros, before reversing course post-judgment.” The matter was remanded with instructions to reenter judgment in accordance with the arbitral award.

Leidos, Inc. v. Hellenic Republic, No. 17-7082 (D.C. Cir. Feb. 2, 2018)

This post written by Nora A. Valenza-Frost.

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SEVENTH CIRCUIT REVERSES ORDER COMPELLING ARBITRATION OF DISPUTE BETWEEN TWO NON-SIGNATORIES TO ARBITRATION AGREEMENT

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The U.S. Court of Appeals for the Seventh Circuit recently held that state law governs whether a contract’s arbitration clause is binding on non-signatories. The dispute arises from a consumer protection action filed by the plaintiff in response to a spam text message he received promoting a Subway sandwich. Subway sought to compel arbitration of the action based on the arbitration clause in two cellphone contracts between T-Mobile and plaintiff’s mother. Although plaintiff was an authorized user under his mother’s account, plaintiff never signed and was not otherwise a party to the T-Mobile agreements. Applying federal law, the district court dismissed plaintiff’s action and compelled arbitration based on principles of equitable estoppel. The Seventh Circuit reversed, however, finding that state law estoppel applied and that Subway could not prove that it detrimentally relied on plaintiff’s statements or conduct as it relates to the T-Mobile arbitration clauses.

Warciak v. Subway Restaurants, Inc., No. 17-CV-01956 (7th Cir. Jan. 25, 2018)

This post written by Alex Silverman.

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