Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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COURT INTERPRETS CONTRACT CONTAINING MANDATORY DE NOVO REVIEW PROVISION OF ARBITRATION AWARD

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The Tenth Circuit Court of Appeals determined that an ADR provision of an agreement which called for arbitration, but also indicated that either party may “notwithstanding any provision of law bring an action against the other in a federal district court for the de novo review of any arbitration award” was legally invalid, rendering the arbitration clause unenforceable.

Relying on the Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc., which “makes clear de novo review is entirely incompatible with the expedited process envisioned in the FAA,” the Tenth Circuit was “unwilling to treat the mere provision of a federal forum in [the Indian Gaming Regulatory Act] as some implicit rejection of the applicability of the FAA review standards to arbitrations involving gaming compacts.”

The Court recognized that the ADR provision “makes clear that the parties’ agreement to engage in binding arbitration was specifically conditioned on, and inextricably linked to, the availability of de novo review in federal court” and would not sever the de novo language from the parties’ agreement.

Citizen Potawatomi Nation v. State of Oklahoma, No. 16-6224 (10th Cir. Feb. 6, 2018)

This post written by Nora A. Valenza-Frost.

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