Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ORDER COMPELLING ARBITRATION REVERSED DUE TO FAILURE TO DETERMINE THE EXISTENCE AND SCOPE OF ARBITRATION AGREEMENT

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The Ninth Circuit recently reversed a trial court for compelling arbitration without issuing an order that (1) made “the necessary factual findings as to the parties’ communications,” (2) determined “the law applicable to contract formation,” and (3) ruled “as a matter of law what constituted the offer, acceptance, or terms of the contract.” The appellate court remanded for the trial court to “resolve factual issues and make legal conclusions regarding the scope of the parties’ agreement.” Due to the basic threshold error, the court determined that it did not need to consider the parties’ arguments regarding unconscionability, waiver, and due process. Cunico Corp. v. Custom Alloy Corp., Case No. 14-56544 (9th Cir. Sept. 6, 2016).

This post written by Michael Wolgin.

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SECOND CIRCUIT PANEL ADHERES TO CIRCUIT PRECEDENT AND AFFIRMS ENFORCEABILITY OF EMPLOYMENT CLASS ACTION WAIVERS

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The Second Circuit issued a summary order affirming a decision by the Southern District of New York compelling arbitration pursuant to class-action and collective-action waivers contained in an employment arbitration agreement. The agreement required employees to submit all employment and compensation-related claims to arbitration and mandated that such claims be decided on an individual basis. The sole issue on appeal was whether the arbitration provision’s “prohibition of class or collective adjudication of work-related claims illegally restrict[ed] employees’ substantive rights under the NLRA and the [Norris-La Guardia Act], and [was] unenforceable under the [Federal Arbitration Act].” The court described the landscape of the Circuit split on this issue, noting that the National Labor Relations Board (NLRB) and the Seventh and Ninth Circuits have rejected the class/collective action waivers, whereas the Fifth and Eighth Circuits have held that such waivers may be enforceable. The Second Circuit panel then followed its own precedent, citing its 2013 decision in Sutherland v. Ernst & Young LLP, which is aligned with position of the Fifth and Eighth Circuits. The court then affirmed the enforceability of the waivers here. Patterson v. Raymours Furniture Co., Inc., Case No. 15-2820-cv (2d Cir. Sept. 2, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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COURT COMPELS NON-SIGNATORY AFFILIATES, BUT NOT BROKER, TO ARBITRATE PREMIUM PAYMENT DISPUTE

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National Union Fire Insurance Company of Pittsburgh brought a petition in a New York federal court, to compel nine related companies to arbitrate a payment dispute relating to certain policies of insurance issued to the Beelman Truck Company. In connection with the insurance, Beelman Truck Company entered into premium payment agreements with National Union that contained an arbitration provision. The agreements were signed by Frank J. Beelman, III, on behalf of the Beelman Truck Company. The payment agreements (and the policies to which they related) defined the signatory, Beelman Truck Company, to include its subsidiaries and affiliates. National Union sought to compel not only Beelman Truck Company, but eight of its affiliates, to arbitrate the payment dispute. Beelman Truck Company conceded it must arbitrate, but the eight affiliates challenged the petition, arguing they were not signatories and should not be bound the agreements’ arbitration provisions. In addition, Beelman Truck Company brought a counter-petition to compel the broker who placed the policies to be included in the arbitration. The Court granted National Union’s petition, finding the payment agreements unambiguously included affiliates. However, it denied the counter-petition, finding no evidence that the broker was a signatory, or could otherwise be bound by the arbitration clause in the payment agreements under principles of estoppel. National Union Fire Insurance Company of Pittsburgh v. Beelman Truck Company, Case No. 15-cv-8799 (USDC S.D.N.Y. Aug. 24, 2016).

This post written by John Pitblado.

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THIRD CIRCUIT AFFIRMS DISMISSAL OF SUIT TO VACATE FINRA ARBITRATION AWARD

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This case involved an underlying arbitration before an arbitration panel operating under the Financial Industry Regulatory Authority (“FINRA”) rules, which was brought by Judith and Kenneth Goldman against their financial advisor, Barry Guariglia, and his employer Citigroup Global Markets. The Goldmans had followed their investment adviser when he left his prior employer, Merrill Lynch, and went to Citigroup. In the arbitration, they claimed that when they transferred their account to Citigroup, they were subjected to a “devastating margin call” that wiped out their retirement savings. After 10 days of evidence and argument, and after the Goldmans submitted their case in chief, Citigroup moved to dismiss for lack of evidence. The FINRA arbitration panel dismissed the case, noting that “[w]hile all the claims were quite stridently argued, not a single claim was proven to be true by evidence.”

The Goldmans then filed a motion to vacate the arbitration award in a Pennsylvania federal court, and Citigroup moved to dismiss for lack of subject matter jurisdiction, which was granted by the court. In its decision, the court noted that it did not have subject matter jurisdiction because the Federal Arbitration Act does not itself create federal subject matter jurisdiction, and that the parties were not diverse, and thus, federal question jurisdiction would be required for the court to consider a motion to vacate an arbitration award. The Pennsylvania federal court found that the Goldmans failed to raise a federal question and simply sought to “assert the same claims they unsuccessfully brought in their arbitration.” The Goldmans then appealed to the Third Circuit Court of Appeals.

In their appeal, the Goldmans asserted that a district court can “look through a motion to vacate” at the underlying subject matter, relying on footnote in a prior Third Circuit decision, Goldman Sachs v. Athena Venture Partners, which stated that the district court has subject matter jurisdiction over a motion to vacate because the arbitration included federal securities law claims. The Third Circuit, however, rejected that argument, and found that it was not bound to follow the footnote in that case, noting that the footnote was an “unexamined exercise of jurisdiction and so is without precedential effect” and that the “drive-by jurisdictional ruling” in Athena goes against Third Circuit precedent. Thus, the Third Circuit affirmed the Pennsylvania federal court’s order dismissing the suit for lack of subject matter jurisdiction.

Goldman et al. v. Citigroup Global Markets Inc., et al., No. 15-2345 (3d Cir. Aug. 22, 2016).

This post written by Jeanne Kohler.

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TEXAS APPEALS COURT DENIES PETITION FOR A WRIT OF MANDAMUS THAT TRIAL COURT ERRED IN DENYING MOTION TO VACATE ARBITRATION PANEL’S ORDERS

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A Texas appeals court denied a petition for a writ of mandamus filed by Irving Drobny, on behalf of National Accident Insurance Group (“NAIG”) and National Accident Insurance Underwriters (“NAIU”) (collectively, “NAIU”), challenging a trial court’s denial of NAIU’s motion to vacate an arbitration panel’s pre-hearing security and discovery orders in favor of American National Insurance Corporation (“ANICO”).

The background of this case can be found here. In sum, ANICO and NAIU were parties to an Underwriting Agreement, in which ANICO authorized NAIU to market, underwrite, issue and collect premiums for ANICO insurance policies. A dispute arose between the parties because one of NAIU’s vice presidents allegedly defrauded both NAIU and ANICO of approximately $43 million. The parties participated in an arbitration, in which ANICO filed a motion for pre-hearing security. On October 24, 2014, the arbitration panel granted ANICO’s motion and ordered NAIU to post $20 million in pre-hearing security. On January 12, 2015, the panel issued another order granting a motion to compel discovery responses and depositions, a motion to compel compliance with order requiring pre-hearing security and a motion for continuance. On March 4, 2015, NAIU filed in a Texas trial court a motion for temporary restraining order, temporary injunction and motion to compel arbitration, essentially asking the court to vacate the pre-hearing security order. The Texas court found that it had no authority to grant NAIU’s motion to vacate the panel’s pre-hearing security order because under the Federal Arbitration Act (the “FAA”), NAIU had failed to timely challenge it, and thus, the court denied NAIU’s motion. The court did not expressly rule on any discovery issues. NAIU appealed the trial court’s order, or in the alternative, requested that it be treated as a petition for a writ of mandamus. The Texas appeals court held that it did not have jurisdiction over NAIU’s appeal as it was interlocutory, and thus the appeal was treated as a petition for a writ of mandamus.

In its order, the Texas appeals court found that the trial court did not abuse its discretion in denying NAIU’s motion to vacate the arbitration panel’s pre-hearing security order because it was not timely challenged within the 90-day period under Texas law and the 3-month period under the FAA. With respect to NAIU’s argument that there is no authority for pre-hearing security during arbitration, the court noted while the FAA does not speak to pre-hearing security, Texas law allows for pre-hearing security. The court also noted that the trial court held a hearing on the motion to vacate the pre-hearing security order at which NAIU presented no evidence. Thus, the Texas appeals court held that the trial court did not abuse its discretion in denying the motion to vacate the panel’s award of pre-hearing security. Further, as the trial court did not rule on any discovery issues, the Texas appeals court overruled NAIU’s second issue and denied NAIU’s petition for a writ of mandamus.

In Re Irving Drobny, as Representative of National Accident Insurance Group, et al., No. 01-15-00435-CV (Tex. Ct. App. Aug. 30, 2016).

This post written by Jeanne Kohler.

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