Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

PENNSYLVANIA FEDERAL COURT FINDS CONTINUING VIOLATIONS DOCTRINE APPLICABLE TO RESPA CLAIMS

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A Pennsylvania federal court applied the continuing violations theory to RESPA’s one-year statute of limitations, and allowed Plaintiffs leave to amend their complaint to modify their RESPA claim.

The Court recognized that “ordinarily RESPA’s statute of limitations begins running on the date that a homeowner closes on his or her home loan. However, the question of when a statute of limitations begins to run (by default) is entirely separate from the question of whether or not subsequent kickbacks, fees, and referrals are violations of RESPA that can trigger new limitations periods. This is because under the continuing violation theory, the statute of limitations runs from the date of the last alleged violation rather than the first.”

The Court found “RESPA would be violated each and every time an unlawful fee or kickback was delivered or accepted. Each alleged violation, in turn, reset RESPA’s one-year statute of limitations. Therefore, the plaintiffs’ claims would be untimely only if there had been no alleged kickback, fee or referral within the one year leading up to the day they filed their complaint.” The RESPA kickbacks and fees alleged in this case were explicitly prohibited by statute, thus making them “all a part of one reinsurance scheme, the very nature of which requires the defendants to make continuous and periodic illegal kickbacks.”

In discussing Cunningham v. M & T Bank Corp., 814 F.3d 156 (3d Cir. 2016), the Court noted the Third Circuit “spoke only to the application of equitable tolling” and “did not address whether RESPA may be violated each time there is an illegal kickback, fee or referral.” As noted in the decision, the Third Circuit has never spoken on the continuing violations doctrine’s applicability to RESPA.

Blake, et al. v. JPMorgan Chase Bank, N.A., et al., 5:13-cv-06433 (USDC E.D. Pa. April 26, 2017)

This post written by Nora A. Valenza-Frost.

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FIRST CIRCUIT FINDS FAA APPLICABILITY A QUESTION FOR COURT AND HOLDS FAA EXEMPTION APPLICABLE TO INDEPENDENT-CONTRACTOR RELATIONSHIP

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The case presented two issues to the court: 1) whether a court must determine the applicability of the FAA to the case when asked to compel arbitration, where parties delegated questions of arbitrability to the arbitrator; and 2) whether the FAA’s transportation worker exemption applies to independent contractors. The court answered both questions in the affirmative.

Oliveira, a truck driver, participated in an apprenticeship program established by New Prime (“Prime”), a trucking company. Upon completion of the program, Prime told Oliveira that he would make more money as an independent contractor than as a company driver. Thereafter, Oliveira signed an independent contractor operating agreement with Prime. Oliveira brought suit against Prime for violation of the Fair Labor Standards Act (FLSA). He claimed that the FAA transportation worker exemption covers his contract, and Prime moved to compel arbitration under the FAA arguing that applicability of the FAA exemption is a question the parties had delegated to the arbitrator. The district court held that the applicability question was for the court and that the section 1 exemption does not apply to independent contractors. Prime appealed.

On the first issue, Prime relied on the Eighth Circuit’s holding that “application of the FAA’s transportation worker exemption is a threshold question of arbitrability” which the parties delegated to an arbitrator. However, the court found the Eighth Circuit’s characterization of the issue as “a question arbitrability” a flawed premise. In doing so, the court borrowed the reasoning of a Ninth Circuit case and explained that for a district court to compel arbitration, the FAA must first apply to the case and confer on a district court the authority to compel arbitration. Following this reasoning, the First Circuit held that the question of the court’s authority to act under the FAA is an antecedent determination for the district court before it can compel arbitration.

On the second issue, Prime argued that the exemption does not apply to independent contractors, citing numerous district court decisions. The First Circuit disagreed, noting that statutory interpretation is not simply a “numbers game.” The court explained that the ordinary meaning of “contracts of employment” is simply “agreements to do work,” which encompasses works of independent contractors and that such interpretation is consistent with Congress’s concern with transportation workers and their necessary role in the free flow of goods at the time Congress enacted the FAA. As such, the court affirmed denial of Prime’s motion to compel arbitration. Oliveira v. New Prime, Inc., No. 15-2364 (1st Cir. May 12, 2017).

This post written by Rollie Goss.

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THE SIXTH CIRCUIT HOLDS THAT CLASS ACTION ARBITRATION WAIVERS ARE PROHIBITED UNDER THE NATIONAL LABOR RELATIONS ACT

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The Sixth Circuit enforced a National Labor Relations Board’s (“NLRB”) order finding that Alternative Entertainment Inc., a Michigan-based satellite television retailer, violated the National Labor Relations Act (“NLRA”) by requiring employees to sign arbitration agreements that precluded them from pursuing class or collective arbitration claims. The Sixth Circuit noted that the NLRA guarantees the right to concerted legal action and does not permit employers to force individual arbitration of employees’ employment or workplace-related claims, stating “[m]andatory arbitration provisions that permit only individual arbitration of employment-related claims are illegal pursuant to the NLRA and unenforceable pursuant to the [Federal Arbitration Act’s] saving clause.”

The NLRB was seeking enforcement of its order finding that Alternative Entertainment violated the NLRA when it forbade an employee from talking with his co-workers about a proposed compensation change and by firing the employee for complaining to management about it, as well as when it barred employees from pursuing class action litigation or collective arbitration of work-related claims. The NLRB sought to enforce the award, and Alternative Entertainment sought relief from the order.

In holding that the NRLA prevents employers from pursuing class action litigation or collective arbitration of workplace-related claims, the Sixth Circuit joined previous rulings by the Seventh and Ninth Circuits. To the contrary, the Fifth and Eighth Circuit have held the opposite and have found class arbitration waiver provisions to be enforceable despite the NLRB’s claim that this kind of arbitration provision violates Section 7 of the NLRA.  The Supreme Court has accepted this issue for review and presumably will resolve this Circuit conflict.  National Labor Relations Board v. Alternative Entertainment, Inc., No. 16-1385 (6th Cir. May 26, 2017).

This post written by Jeanne Kohler.
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KENTUCKY FEDERAL COURT FINDS SUBJECT-MATTER JURISDICTION HAS NOT BEEN “REVERSE PREEMPTED” BY APPLICATION OF KENTUCKY’S INSURERS REHABILITATION AND LIQUIDATION LAW

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The question presented to the Court was “whether federal law has opened the door for state law to ‘reverse preempt’ the diversity jurisdiction statute.” The McCarran-Ferguson Act was enacted by Congress to prevent federal laws from interfering with state insurance regulation. The Liquidator sought to expand the existing McCarran-Ferguson “reverse preemption” framework to prevent the Defendant from exercising their right of removal pursuant to 28 U.S.C. § 1441. The Court determined that application of the Kentucky Insurers Rehabilitation and Liquidation Law (“IRLL”) had exclusive jurisdiction over the matter, which “would directly conflict with federal law” and “therefore, the IRLL jurisdiction provision must be preempted by the federal removal and diversity subject matter jurisdiction statute.”

Having established subject-matter jurisdiction necessary to adjudicate the dispute, the Court declined to abstain from exercising its jurisdiction under the Colorado River doctrine, as the Liquidator included a demand for common law contract damages, and there was no longer a parallel state proceeding. The Court requested additional briefing on the issue of whether the FAA can apply in light of the parties’ “Governing Law” agreement that restricted the Court to the law of Kentucky.

H. Brian Maynard, Liquidator of Kentucky Health Cooperative, Inc. v. CGI Technologies and Solutions, Inc., 3:16-cv-00037 (USDC E.D. Ky. Jan 3, 2017)

This post written by Nora A. Valenza-Frost.

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ARBITRATION PROVISION ENFORCEABLE DESPITE QUESTIONS ABOUT LEGITIMACY OF REMAINDER OF AGREEMENT

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A New York state trial court has denied a motion to stay arbitration in an action brought by plaintiffs, a private equity firm and its affiliate, against defendants, two of plaintiffs’ former officers, despite plaintiffs’ argument that the employment and separation agreements containing the relevant arbitration clauses were invalid.

Plaintiffs’ lawsuit alleged, inter alia, that defendants breached their fiduciary duties and committed fraud by engaging in multiple transactions in plaintiffs’ names for defendants benefit. Defendants responded with five counterclaims and nine affirmative defenses, including that the dispute was subject to arbitration. In opposing arbitration, Plaintiffs relied upon a case in which a court held that the plaintiff had “raised a threshold issue regarding the validity of the parities’ agreement” and that “the validity of the arbitration provision was thus an issue for the court to decide.” The court found this case inapposite, finding that defendants’ employment and separation agreements left no doubt that matters regarding their employment would be resolved by arbitration. Emphasizing that doubts regarding whether an arbitration clause covers a particular dispute should be resolved in favor of coverage, the court held that the arbitration provisions were valid and binding, even if the rest of the employment agreements were not valid, because plaintiffs had failed to show “that the arbitration agreements were permeated by fraud.”

Plaintiffs also challenged a portion of the arbitration agreement stating that plaintiffs “shall pay all fees in excess of those which would be required if the dispute was decide in a court of law,” arguing that the burden of this cost would prevent them from pursuing their claims against defendants. However, emphasizing that courts are loathe to interfere “with the freedom of consenting parties in structuring their arbitration relationship,” the court found that plaintiffs had not provided evidence showing that litigating the matter in court would be cheaper or that they were unable to bear these costs. The court also refused to dismiss defendants’ counterclaims for reimbursement of their legal fees and violation of a non-disparagement clause. However, it dismissed defendants’ claim for defamation, which was based on the allegations of plaintiffs’ complaint, because such statements are absolutely privileged, and dismissed their claim for harassment because New York does not recognize this as an independent cause of action.

Southport Lane Management, LLC et al. v. Adler et al., Index No. 155915/2016 (N.Y. Sup. Ct., April 14, 2017)

This post written by Jason Brost.

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