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DISTRICT COURT LARGELY DENIES DEFENDANTS’ REQUESTED PROTECTIVE ORDER ON VARIETY OF DISCOVERY REQUESTS IN CONSOLIDATED CLASS ACTIONS

January 31, 2018 by Carlton Fields

On November 15, 2017, we reported  on two class actions alleging that the “EquityComp” workers’ compensation insurance program marketed and sold by Applied Underwriters (“defendants”) violated California insurance law and regulations.  The class actions had been consolidated for pre-trial purposes.  Defendants recently moved for a protective order and sought protection from discovery on a host of interrogatories and requests for production.  The Eastern District of California granted the motion in part and denied it in part on the following grounds, largely rejecting defendants’ bid for protection against the discovery.

First, the court held plaintiffs were entitled to pre-certification discovery regarding absent class members, including personal and contact information. It noted that disclosure of putative class members’ information is “common practice” in this context and concluded defendants had failed to show any specific prejudice or harm associated with such production.

Second, the court described as “moot” a dispute over whether plaintiffs were entitled to documents regarding the SolutionOne program—different than the EquityComp program which the original plaintiffs participated in—because an amended complaint added a new plaintiff who did participate in the SolutionOne program. Even if it were not moot, the court said, defendants would not be entitled to protective order because they failed to allege more than a general “burden” to justify prevention.

Third, the court granted the protective order regarding plaintiffs’ request for defendants’ communications with non-California state regulators.  It concluded the requests were disproportionate where there was at most “slight” relevance because of the wide variety in state insurance regulatory regimes and the lack of a “specific factual basis” for believing the non-California communications would be relevant to defendants’ compliance with California law.

Fourth, the court ordered production regarding the submission of a Reinsurance Participation Agreement to the California Department of Insurance for approval because such information is relevant and because defendants did not satisfy their burden of showing harm or prejudice.

Fifth, the court rejected defendants’ request for a protective order regarding recently requested segregated “cell” accounts because there is a year left before the close of discovery, so defendants would not be harmed by the recent timing of the request.

Finally, the court allowed discovery of defendants’ total revenues related to the EquityComp program because it was relevant to plaintiffs’ central argument that defendants’ unfair and fraudulent business practices allowed them to “make hundreds of millions of dollars.” Nor, the court found, did defendants show harm from divulging their revenues.

Shasta Linen Supply, Inc. v. Applied Underwriters Inc., Case No. 16-158 (E.D. Cal. Jan. 12, 2018).

This post written by Thaddeus Ewald .
See our disclaimer.

Filed Under: Discovery

NINTH CIRCUIT CONSIDERS JURISDICTION TO HEAR APPEAL OF DECISION VACATING ARBITRATION AWARD AND REMANDING FOR A NEW ARBITRATION

January 30, 2018 by Carlton Fields

The Ninth Circuit has found that it had jurisdiction to hear an appeal of a district court decision vacating an arbitration award and remanding the case for a new arbitration.

The appeal arose out of a FINRA arbitration involving claims that a securities broker had mismanaged a client’s investment portfolio. The petitioner claimed damages of $100,000 in his complaint.  Because FINRA rules only provide for three arbitrator panels for claims over $100,000, the case was assigned to a single arbitrator.

Shortly before the arbitration hearing, the petitioner filed a brief in which he claimed his damages were $125,500, but he did not amend his complaint. The respondent objected to proceeding with a single arbitrator, but the arbitrator considered and rejected this objection, proceeded to hear the case alone, and awarded petitioner $75,000.  The respondent asked a district court to vacate this award on several grounds, which the court did on the basis that the arbitrator exceeded his powers by proceeding as a single arbitrator despite the increased damages claim.  The district court then remanded the case for a new arbitration before a three arbitrator panel.

On appeal, the court considered two issues: (1) whether the district court’s decision remanding the case for a new arbitration meant that the appellate court lacked jurisdiction over the case; and (2) if jurisdiction was present, whether the arbitrator had exceeded his authority.

In answer to the first question, the court found that while the FAA does not directly address the circumstance of a case that has been remanded for a new arbitration, the fact that the district court had vacated an award was enough under the statute to create appellate jurisdiction. In doing so, the court followed the lead of every circuit to have considered this issue, including the First, Second, Third, Fifth, and Seventh Circuits.

Having found that it had jurisdiction, the court found that the arbitrator had not exceeded his authority. The court emphasized that in order to overturn an arbitral award on the basis that the arbitrator exceeded his powers, the objecting party must show not simply that the arbitrator erred in his interpretation of the law or the agreement to arbitrate, but also that the arbitrator’s decision was “completely irrational” or showed a “manifest disregard of the law.”  Finding that the arbitrator’s interpretation of FINRA’s rules on when to use a three arbitrator panel, while arguably incorrect, was neither irrational nor showed a manifest disregard for the law, the court remanded the case so that the district court could consider the respondent’s other arguments in favor of vacating the arbitrator’s award.

Sanchez v. Elizondo, No. 16-17345 (9th Cir. Dec. 4, 2017).

This post written by Jason Brost.
See our disclaimer.

Filed Under: Confirmation / Vacation of Arbitration Awards, Jurisdiction Issues, Week's Best Posts

THIRD CIRCUIT REFUSES TO COMPEL ARBITRATION IN LIGHT OF ALLEGED FRAUDULENT INDUCEMENT TO SIGN ARBITRATION AGREEMENT

January 29, 2018 by Carlton Fields

The Third Circuit recently affirmed a lower court’s decision refusing car dealership defendants’ motion to compel arbitration pursuant to an arbitration agreement the plaintiffs were allegedly induced to sign. First, the court rejected the dealerships’ argument that the plaintiffs agreed to arbitrate because they signed the arbitration agreement.  It noted that a signed arbitration agreement does not necessarily demonstrate intent to be bound in all circumstances, nor did it negate plaintiffs’ argument they were induced to sign the agreement.  More importantly, the court held plaintiffs responded to the motion to compel with sufficient additional facts and evidence to place the arbitration agreement into dispute so as to warrant discovery whether the plaintiffs intended to be bound to arbitration.  Second, the court dismissed the dealerships’ claim that plaintiffs failed to specifically allege fraudulent inducement in signing the arbitration agreement rather than the contracts in whole, therefore requiring arbitration of the issue of arbitrability.  The court found plaintiffs specifically alleged the defense of fraud-in-the-inducement regarding the arbitration agreement, which, if proven, would be grounds to invalidate the arbitration agreement.  Therefore, the court affirmed and declined to compel arbitration.

Corchado v. Foulke Mgmt. Corp., No. 17-1433 (3d Cir. Dec. 21, 2017).

This post written by Thaddeus Ewald .
See our disclaimer.

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

MISSOURI COURT FINDS INSURANCE CONTRACT’S ARBITRATION CLAUSE UNENFORCEABLE AS AGAINST PUBLIC POLICY

January 25, 2018 by Michael Wolgin

This case arose from an accident at the General Motors plant in Kansas City, Kansas, where an electrician employed by Capital Electric Construction Company, Inc. was severely injured due to negligence by Solaris Power Services, LLC in failing to de-energize equipment on which he was working. Capital was insured by Liberty Mutual Fire Insurance Company. Associate Electric & Gas Insurance Services, LTD. (AEGIS), provided excess liability insurance to Capital. A coverage dispute arose after an uncontested $44 million judgment was entered against Solaris. Solaris alleged it was or should have been an additional insured under both policies, but that both insurance companies wrongly denied it coverage.

AEGIS moved to stay the litigation and compel arbitration on the grounds that its policy contained a mandatory arbitration clause. AEGIS argued that North Dakota law, rather than Missouri law, should apply to the dispute. While Section 435.350 of the Missouri Arbitration Act prohibits mandatory arbitration provisions in insurance contracts, AEGIS argued that under North Dakota law, the policy’s arbitration clause was valid and enforceable. The Court disagreed, reasoning that a Missouri court would apply the law of another jurisdiction only where “not contrary to a fundamental policy of Missouri.” The Court refused to do so here because the arbitration clause at issue directly contravened Missouri public policy. Alternatively, the Court found that the arbitration provision would still be found unenforceable even if it were to apply Kansas law per the policy’s choice of law provision. Simon v. Liberty Mut. Fire Ins. Co., Case No. 17-cv-0152 (USDC W.D. Mo. Dec. 8, 2017)

This post written by Gail Jankowski.

See our disclaimer.

Filed Under: Arbitration Process Issues

ENGLISH HIGH COURT OF JUSTICE ORDERS DISCLOSURE OF BANK’S RECORDS RELATED TO MISDIRECTED REINSURANCE PREMIUMS

January 24, 2018 by Michael Wolgin

In a proceeding seeking an order for disclosure of documents from Barclays Bank, the English High Court of Justice considered the scope of the agency involved in a run-off agreement between a reinsurance broker and another entity (“SMP”) in connection with collecting and transmitting of premiums under an Excess of Loss reinsurance policy issued by a Lloyd’s consortium. After SMP allegedly failed to pay $541,884.90 in premiums that it had received, a dispute arose whether the broker was responsible to repay the missing funds, or alternatively, whether the broker itself was damaged by SMP’s misuse of the funds. The consortium contended that the SMP was the agent of the broker, while the broker contended that SMP was simply entitled to collect the premiums due under the policy and pay them to the consortium, but that no agency relationship existed in that regard.

The court analyzed the run-off agreement and determined that the broker was entitled to assert that it was the beneficial owner of the premiums held in the account, even if it held those premiums on trust for the reinsured or was itself subject to obligations to pay them to the Consortium. The court therefore ruled that the order of disclosure from the bank was needed to enable the broker to identify the persons responsible for instructing the bank to pay the monies away, and to defend itself from the consortium’s potential claim. The court further found that the bank may have some culpability, which further supports its production of the documents. Miles Smith Broking Ltd. v. Barclays Bank PLC [2017] EWHC 3338 (Ch) (Dec. 15, 2017).

This post written by Michael Wolgin.

See our disclaimer.

Filed Under: Brokers / Underwriters, UK Court Opinions

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