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GENTLEMEN’S CLUB CANNOT COMPEL ARBITRATION WHERE IT ACTIVELY LITIGATED MERITS OF DISPUTE

February 19, 2018 by Rob DiUbaldo

The Fourth Circuit upheld a district court’s decision refusing to compel arbitration in a labor dispute between a gentlemen’s club (“Crazy Horse”) and a putative class of entertainers because of Crazy Horse’s extensive merits-based litigation conduct. Plaintiff Degidio, an entertainer at Crazy Horse, sued the club under the FLSA and South Carolina labor laws for allegedly misclassifying entertainers as independent contractors rather than employees.

Crazy Horse answered the complaint, participated in discovery, filed several merits-based motions for summary judgment, opposed Degidio’s motions for certification of class and collective actions, and repeatedly moved to certify state law questions to the South Carolina Supreme Court. In the midst of this conduct and without informing the court, Crazy Horse began entering into arbitration agreements with its new entertainers. Three years after the litigation had commenced, Crazy Horse moved to compel arbitration against a handful of plaintiffs who had recently joined the suit. The district court declined to enforce the arbitral agreements.

On appeal, the Fourth Circuit affirmed. Under the Federal Arbitration Act (“FAA”), a party waives its right to compel arbitration when it has “so substantially utilized the litigation machinery that to subsequently permit arbitration would prejudice the party opposing the stay.” The court emphasized that Crazy Horse engaged in substantive litigation maneuvers for over three years, including extensive and substantive motions practice that indicated it was hoping for a favorable ruling on the merits. More, those same issues Crazy Horse pursued in court would need to be reargued before an arbitrator if the court were to compel arbitration. Thus, the court concluded the “only possible purpose” of the arbitration agreements was to grant Crazy Horse another “bite at the apple” if it lost on the merits in court.

Crazy Horse argued it could not have moved for arbitration earlier because the entertainers with whom it had entered arbitration agreements had only recently joined the case. The court rejected this argument because Crazy Horse failed to notify the court of the agreements as they occurred, thereby avoiding court supervision, and because compelling arbitration here would give perverse incentives to parties to delay the motion to compel arbitration as long as possible. The court also denounced Crazy Horse’s conduct in entering the arbitration agreements because they gave false impressions and the secretive manner in which Crazy Horse implied it sought to avoid the court’s supervisory role.

Degidio v. Crazy Horse Saloon & Rest. Inc., No. 17-1145 (4th Cir. Jan. 18, 2018).

This post written by Thaddeus Ewald .

See our disclaimer.

Filed Under: Arbitration Process Issues, Week's Best Posts

THIRD CIRCUIT UPHOLDS ARBITRATION AGREEMENT IN RETAIL INSTALLMENT AGREEMENT BETWEEN USED CAR BUYER AND DEALER

February 15, 2018 by Michael Wolgin

This dispute stemmed from a complaint filed by Edmondson, alleging claims under the Federal Odometer Act and the Magnuson-Moss Warranty Act, as well as state law claims for fraud, in relation to her purchase of a used car from Lilliston Ford, Inc. That purchase was made pursuant to a Retail Installment Agreement (the “Agreement”), whereby Edmondson agreed to trade a 2004 Lincoln LS for an $800 credit towards the purchase of a used Ford Focus. Despite Edmondson experiencing problems with the Ford Focus shortly after her purchase, Lilliston refused her attempt to return the car and demanded title to the Lincoln or reimbursement for the $800 credit that Edmonson received for the purchase. The parties progressed to arbitration pursuant to the Agreement, where a AAA arbitrator issued an award dismissing all of Edmondson’s claims and ordering her to vest clear title to the Lincoln to Lilliston within 14 days, or to refund the $800 and remove the Lincoln from Lilliston’s property. The District Court for the District of New Jersey confirmed the award, and this appeal ensued.

On appeal, the Third Circuit affirmed the District Court’s confirmation of the award and attorneys’ fees and costs to Lilliston. Reviewing the legal conclusions de novo and factual findings for clear error, the court found unpersuasive Edmonson’s argument that the arbitration clause was invalid because of Lilliston’s failure to register the arbitration provision with the American Arbitration Association (“AAA”) and because Lilliston had previously stated that it had “severed all ties” with the AAA. In rejecting this argument, the court found irrelevant Lilliston’s ties with the AAA, since the AAA administers arbitrations even where there is no AAA clause between the parties. What is more, the AAA did not require businesses to register arbitration clauses with the AAA until after Edmonson filed her initial complaint. As such, the Third Circuit affirmed. Edmonson v. Lilliston Ford, Inc., Case No. 17-1991 (3d Cir. Jan. 11, 2018).

This post written by Gail Jankowski.

See our disclaimer.

Filed Under: Confirmation / Vacation of Arbitration Awards

WYOMING ENACTS LEGISLATION AND ADOPTS NEW REGULATIONS GOVERNING CREDIT FOR REINSURANCE AND TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING

February 14, 2018 by Michael Wolgin

New regulations relating to credit for reinsurance and term and universal life insurance reserve financing took effect in Wyoming on November 30, 2017. The regulations implement amendments to Wyoming statutes that took effect last July, which were summarized by the Wyoming Legislative Service Office.

The statutory amendments revised requirements for insurers assuming liabilities of Wyoming domestic insurers in order for those domestic insurers to count the reinsurance as an asset. They also authorized the Insurance Commissioner to reduce an assuming insurer’s reserve requirements subject to certain conditions and granted her discretion to allow domestic insurers to take credit for reinsurance without posting 100% collateral. The Wyoming Department of Insurance revised Chapter 50 of the Department’s regulations to account not only for these statutory changes, but also to make the remainder of Chapter 50 consistent with the current NAIC model regulation.

In addition, the Department promulgated an entirely new chapter, Chapter 69, relating to term and universal life insurance reserve financing, so as to fully implement the statutory changes rendered last summer. The new Chapter 69 is also based on the associated NAIC model regulation. These changes ensure that the Wyoming Department of Insurance maintains its financial accreditation with the NAIC. Wyoming credit for reinsurance reg effective 1.5.1

This post written by Benjamin E. Stearns.
See our disclaimer.

Filed Under: Reinsurance Regulation, Reserves

FOLLOWING CUNNINGHAM, PENNSYLVANIA DISTRICT COURT FINDS CAPTIVE REINSURANCE PUTATIVE CLASS ACTION CLAIMS ARE TIME-BARRED

February 13, 2018 by Michael Wolgin

In this putative class action, plaintiffs alleged unlawful practices related to mortgage insurance practices, including a violation of the Real Estate Settlement Procedures Act of 1974 (“RESPA”). This case was stayed pending ultimate resolution of a factually-similar case, Cunningham v. MT&T, on appeal in the Third Circuit. In both cases, the plaintiffs purchased primary mortgage insurance (“PMI”) from specific insurers, which in turn purchased reinsurance from their respective mortgagees’ captive reinsurance subsidiaries. Plaintiffs in both suits alleged that this scheme (between the mortgagee and the PMI insurer) violated RESPA’s anti-kickback and anti-fee splitting provisions between the mortgagee and the PMI insurer.

As we previously reported here, in 2016, the Third Circuit affirmed summary judgment in favor of the defendants in Cunningham, upholding its finding that plaintiffs’ claims were time-barred and that plaintiffs could not equitably toll the limitations period because they had not exercised reasonable diligence in investigating any potential RESPA claims within the statute of limitations.

The District Court for the Western District of Pennsylvania, like the Third Circuit in Cunningham, found significant that the homeowners were made aware of the captive reinsurance program through disclosures at the time of closing and did not elect to opt out, did not ask questions of the challenged scheme at or prior to closing, and did not investigate their mortgage until they were solicited by their current counsel. Moreover, the Court rejected the plaintiffs’ attempts to differentiate their case from Cunningham, which was decided at the summary judgment phase after limited discovery, and not, as in this case, on a motion for judgment on the pleadings. The Court went on to state, “[u]nfortunately for Plaintiffs, there are no answers to be had from discovery because there are no questions to ask. The similarities between this case and Cunningham cannot be overstated… Just like the plaintiffs in Cunningham, Plaintiffs had all the facts at the time of closing to allege their claim under RESPA, but their inaction during the limitations period bars the application of equitable tolling under a theory of fraudulent concealment.” The court therefore found the above claims to be time-barred, and also precluded the remaining claims under the filed-rate doctrine, which provides that a rate, such as that for PMI, filed with and approved by a governing regulatory agency is unassailable in judicial proceedings brought by ratepayers. The District Court granted defendants’ motion for judgment on the pleadings. Menichino v. Citibank, N.A., Case No. 2:12-cv-00058 (USDC W.D. Pa. Jan. 19, 2018).

This post written by Gail Jankowski.
See our disclaimer.

Filed Under: Contract Interpretation, Week's Best Posts

INSURANCE RECEIVER’S PREEMPTION ARGUMENT UNDER MCCARRAN-FERGUSON FAILS TO AVOID ARBITRATION OF REINSURANCE DISPUTE

February 12, 2018 by Michael Wolgin

The receiver for Gramercy Insurance Company sought to avoid arbitration of a reinsurance dispute with Contractor’s Bonding, Ltd., by arguing the FAA was reverse preempted under the McCarran-Ferguson Act. The receiver argued the federal court should abstain from exercising jurisdiction and remand the case to state court under Burford v. Sun Oil Co. The court noted, however, that Burford abstention is appropriate only when the district court has discretion to grant or deny relief. CBL argued the court lacked discretion regarding whether to compel arbitration under the FAA. The receiver argued the FAA was inapplicable because it was reverse preempted by the McCarran-Ferguson Act.

A state law may only reverse preempt a federal statute where, among other things, the “federal statute operates to invalidate, impair, or supersede the state law.” The FAA did not impair or supersede the relevant state statute because the statute expressly provided that it did not “deprive[] a party of any contractual right to pursue arbitration.” As such, the court denied the receiver’s motion to remand and enforced the forum selection clause contained within the party’s agreement by transferring the case pursuant to CBL’s motion. Gramercy Ins. Co. v. Contractor’s Bonding, Ltd. No. AU-17-CA-00723-SS (USDC W.D. Tex. Jan. 19, 2018).

This post written by Benjamin E. Stearns.
See our disclaimer.

Filed Under: Arbitration Process Issues, Jurisdiction Issues, Week's Best Posts

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