Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

First Circuit Holds That Motion to Reconsider Appealable Interlocutory Order Denying Motion to Compel Arbitration Is Not Appealable

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In Powers v. Receivables Performance Management, LLC, the First Circuit Court of Appeals considered the defendant’s interlocutory appeal of the denial of a motion to reconsider an underlying denial of its motion to compel arbitration.

The case, a putative class action arising from defendant Receivables Performance Management’s (RPM) alleged improper debt collection practices, was brought in Massachusetts state court under the Massachusetts Consumer Protection Act. RPM moved to compel arbitration, which the state court denied. RPM then removed the action to federal court, where RPM again moved to compel arbitration. The district court treated this as a motion for reconsideration of the state court order denying arbitration, and RPM did not object. The district court denied the motion for reconsideration, and RPM appealed.

On appeal, the First Circuit began its analysis by noting that even where a decision qualifies as an appealable interlocutory order, a motion to reconsider that underlying decision is not itself appealable “absent some newly available evidence, law, or a new stage of the proceedings.” But here, RPM had based its motion to reconsider on a “manifest error of law” rather than new evidence or law. Noting that RPM cited no case law to the contrary, the court concluded that while “manifest error of law” could serve as valid grounds for the district court to reconsider a motion to compel arbitration, “manifest error of law” does not provide a basis for appellate jurisdiction over that interlocutory reconsideration decision the way “newly available evidence or law” can. The First Circuit dismissed RPM’s appeal of the denial of its motion to reconsider accordingly.

Powers v. Receivables Performance Management, LLC, No. 22-1500 (1st Cir. June 8, 2023).

Third Circuit Affirms Judgment Allowing Creditors of Venezuela Who Obtained Arbitration Awards to Attach U.S. Assets of Venezuela’s National Oil Company

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The Third Circuit Court of Appeals has again allowed creditors of Venezuela to attach assets belonging to Venezuela’s national oil company to satisfy arbitration awards against Venezuela. The Third Circuit rejected Venezuela’s arguments that it was entitled to sovereign immunity and that changes in Venezuela’s government negated a prior holding that its national oil company was its alter ego.

To make a long story short, Venezuela allegedly breached various contracts with foreign creditors. A number of those creditors initiated arbitration and obtained awards.

One such creditor, Crystallex International Corp., confirmed a $1.2 billion award in the U.S. District Court for the District of Columbia and then moved to attach assets held in the United States by a subsidiary of Petróleos de Venezuela, S.A. (PDVSA), Venezuela’s national oil company, to satisfy its award. The U.S. District Court for the District of Delaware held that PDVSA was Venezuela’s alter ego and allowed the attachment. The Third Circuit affirmed in a 2019 decision.

Six other creditors then invoked Crystallex’s strategy by seeking to attach assets held by PDVSA to satisfy their arbitration awards. Venezuela objected. It claimed that the Foreign Sovereign Immunities Act (FSIA), which generally requires the United States to recognize the sovereign immunity of foreign nations, precluded the creditors’ attempts to satisfy arbitration awards against Venezuela through U.S. courts. Venezuela also claimed that changes in its government since 2019 resulted in PDVSA no longer being Venezuela’s alter ego.

The Third Circuit rejected Venezuela’s arguments. It noted that the FSIA is not absolute, that the FSIA allows U.S. courts to issue writs of attachment to an entity’s nonimmune assets where that entity is the alter ego of a foreign state, and that PDVSA remained Venezuela’s alter ego.

The Third Circuit analyzed the Bancec factors to determine alter ego status: (1) the level of economic control by the government; (2) whether the entity’s profits go to the government; (3) the degree to which government officials manage the entity or otherwise have a hand in its daily affairs; (4) whether the government is the real beneficiary of the entity’s conduct; and (5) whether adherence to separate identities would entitle the foreign state to benefits in U.S. courts while avoiding its obligations.

The Third Circuit noted that Venezuela still “exerts significant economic control over PDVSA,” that all of PDVSA’s profits go to the Venezuelan government, that “Venezuelan officials are vital to management of PDVSA and maintain a strong presence in its daily affairs,” that “PDVSA exists to benefit Venezuela,” and that Venezuela “derives significant benefits from the U.S. judicial system” because “PDVSA enjoys the benefits and protections of United States law.”

OI European Group B.V. v. Bolivarian Republic of Venezuela, Nos. 23-1647, 23-1648, 23-1649, 23-1650, 23-1651, 23-1652, 23-1781 (3d Cir. July 7, 2023).

Federal Circuit Vacates Arbitrator’s Decision Removing Federal Employee From Position, Remands for Further Review

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The Federal Circuit Court of Appeals vacated an arbitrator’s final decision upholding the petitioner’s removal from a position with the Federal Bureau of Prisons, finding that the arbitrator failed to conduct an independent analysis to determine if alternative sanctions, other than removal, were appropriate.

The petitioner, Jacquana Williams, was employed by the BOP as a correctional officer at a Texas federal correctional complex. She had a relationship with a former prisoner who she was aware had been incarcerated but did not know had been in federal custody. The two became engaged and had a child. The BOP placed Williams on administrative leave and conducted an internal investigation, after which it determined that she had engaged in improper contact with a former inmate and did not timely report the contact. After she was removed from her position, Williams challenged the removal with an arbitrator per the established grievance procedure. The arbitrator sustained the improper contact charge, rejected the failure-to-timely-report charge, and upheld the penalty of removal.

The court of appeals vacated the arbitrator’s ruling, concluding that because the arbitrator did not sustain all of the BOP’s charges, he was required to independently determine the maximum reasonable penalty to be imposed on Williams. The court then found the arbitrator failed to conduct the required independent analysis, vacated the decision of removal, and remanded the matter with direction to the arbitrator to “pay close attention to the adequacy of lesser sanctions.”

Williams v. Federal Bureau of Prisons, No. 22-1575 (Fed. Cir. July 6, 2023).

Fifth Circuit Affirms Order Dismissing Tesla Lawsuit in Favor of Arbitration

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In Lynch v. Tesla Inc., the Fifth Circuit Court of Appeals affirmed a district court order adopting a magistrate judge’s recommendation that the plaintiffs’ lawsuit should be dismissed in favor of arbitration. The plaintiffs were former Tesla employees who brought an action in district court alleging that Tesla violated the Worker Adjustment and Retraining Notification Act and a similar California statute by failing to provide employees with 60 days’ notice prior to termination and by requiring the employees to sign separation and release agreements. Tesla also had arbitration agreements with its employees. The employees moved for a protective order seeking, in part, an order requiring Tesla to notify all terminated employees that a lawsuit had been filed challenging the terminations. Tesla also moved to compel arbitration. The magistrate judge ordered Tesla to notify terminated employees about the lawsuit and then recommended that the district court grant Tesla’s motion dismissing the lawsuit in favor of arbitration. The district court adopted the magistrate judge’s recommendation and dismissed the action in favor of arbitration. After an unsuccessful motion for reconsideration, the plaintiffs appealed, arguing that the district court should have required Tesla to first notify terminated employees about the lawsuit before dismissing the action and compelling arbitration.

The Fifth Circuit rejected the plaintiffs’ argument that the district court should have considered that the magistrate judge intended to have Tesla issue notice of the lawsuit before dismissing the lawsuit. The court noted that the district court “was under no obligation to accept the magistrate judge’s proposed timeline for reviewing the motions” since the judge’s recommendation of dismissal was not an order but a recommendation related to a dispositive motion. The court also rejected the plaintiffs’ argument that the district court should not have compelled arbitration because there was a pending emergency motion by Tesla to stay the magistrate judge’s order when the case was dismissed in favor of arbitration. The court found that since the entire case was subject to arbitration, there was “no error in adopting the magistrate judge’s recommendation prior to ruling on Tesla’s objection and emergency motion.”

Lynch v. Tesla, Inc., No. 22-51018 (5th Cir. July 5, 2023).

Fifth Circuit Affirms Denial of Arbitration, Rejects Arbitration Provisions in “Battle of the Forms” Between Buyer and Seller in UCC Transaction

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The case involved the sale of mist eliminators (demisters) from MECS Inc. to Axiall Canada Inc., an owner of a Canadian manufacturing facility. A key issue involved the terms of the parties’ contractual relationship as formed through the sale and delivery process of the demisters: MECS typically would issue a proposal to Axiall; Axiall then sent a purchase order; MECS then sent an order acknowledgment; and Axiall would last accept the demisters. MECS’ proposals and order acknowledgments contained an arbitration clause. Axiall’s purchase order forms, however, did not contain an arbitration clause and contained language that acceptance of its purchase orders indicated an “irrevocable agreement” to Axiall’s general terms and conditions, which contained a no-modification provision and a forum-selection clause permitting Axiall to select a forum within either Louisiana or Kentucky.

When Axiall experienced problems with the demisters, Axiall sued MECS in Louisiana state court. MECS removed the case to federal court and then moved to dismiss, or alternatively stay, and compel arbitration under MECS’ proposal and order acknowledgment forms. The district court, however, denied MECS’ motion, holding that under Louisiana law, the parties had not agreed to the arbitration clauses.

On appeal to the Fifth Circuit, the court held that the case presented a “battle of the forms,” which is governed by two provisions of Louisiana’s version of the UCC adopted in its Civil Code: Article 2601 concerning additional terms in an acceptance of an offer to sell movables (such as demisters); and Article 2602 concerning contracts formed by the conduct of the parties. Applying these provisions, the court found that neither Axiall’s purchase orders nor MECS’ order acknowledgments “were communications that, when read in succession, were sufficient to form contracts under Article 2601.” However, the conduct of MECS’ shipping of the demisters following its sending of the order acknowledgment and Axiall’s accepting delivery, created a contract for “an agreed-upon quantity of demisters delivered at the agreed upon price.” This conduct-based contract, as construed by the court, did not include the arbitration clause as a term. The court rejected MECS’ argument that its order acknowledgments were counteroffers whose terms Axiall accepted by performance. There was no arbitration agreement because the parties never mutually agreed to MECS’ proposed arbitration clauses. The court thus affirmed the district court’s denial of MECS’ motion to compel arbitration.

Axiall Canada, Inc. v. MECS, Inc., No. 21-30105 (5th Cir. June 14, 2023).