The terms of a risk transfer contract may determine whether it is insurance or reinsurance. In a Treaty Tip, we discuss a recent case which had a somewhat surprising result.
This post written by Rollie Goss.
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FEDERAL COURT CONFIRMS ARBITRATION AWARD DESPITE DISSENTING ARBITRATOR’S “FAR MORE PERSUASIVE” ANALYSIS
Although a New York federal district court would have found the same result as the dissenting arbitrator if it were resolving this case as an original matter, the limited scope of judicial review of arbitral decisions prevented the court from vacating the arbitration award. The petitioner and respondent were parties to a license agreement concerning the operation of a Benihana restaurant. The respondent allegedly committed various breaches of the license agreement, and petitioner exercised its option to terminate the agreement. The respondent commenced arbitration to declare it was not in default. The panel construed the license agreement “to permit termination only when reasonable,” finding the petitioner was not reasonable as respondent’s breaches were “trivial” and it had taken corrective measures to cure them. A dissenting arbitrator concluded that the petitioner had been justified as a result of the numerous material breaches by the respondent, as New York law holds “a non-breaching party may terminate a contract where the other party committed a material breach” – precisely what occurred here.
The court was unable to review the panel’s findings of fact, even for manifest disregard, nor can a claim of factual error support vacatur. As to the petitioner’s challenge that principles of equity were not properly considered, it fell “short of showing either that the panel ‘ignored’ these principles where their application was clear, or that this misapplication ‘led to an erroneous outcome.’” Nor did the court find the panel exceeded its authority by construing the license agreement as it did, as the license agreement did not define “reasonableness,” a term the arbitration panel was left to determine. As to the petitioner’s last challenge – that the panel refused to hear evidence by rejecting the petitioner’s request to submit a decision in a separate case between the parties relating to similar misconduct of the respondent – such conduct did not rise to the level of a violation of fundamental fairness. Benihana, Inc. v. Benihana of Tokyo, LLC, Case No. 15 Civ. 7428 (USDC S.D.N.Y. July 15, 2016).
This post written by Nora A. Valenza-Frost.
See our disclaimer.
FIFTH CIRCUIT CONFIRMS AWARD UNDER FEDERAL ARBITRATION ACT’S “EXCEEDINGLY DEFERENTIAL” STANDARD
The United States Court of Appeals for the Fifth Circuit recently confirmed an arbitration award in an underlying employment dispute, finding that the appellant failed to demonstrate that the award was the product of corruption and adhering to the “exceedingly deferential” standard of review of an arbitrator’s factual findings required by the Federal Arbitration Act.
Plaintiff Tommy L. Parker brought suit against his former employer, ETB Management, L.L.C., alleging age discrimination and retaliation. The United States District Court for the Northern District of Texas compelled arbitration of the dispute, and an arbitrator found in ETB’s favor after hearing witness testimony and analyzing documentary evidence and briefing. After the District Court confirmed the award, Parker appealed seeking vacatur under the FAA on the grounds that the award was “procured by corruption” and that the arbitrator acted with “evidence of partiality or corruption.” Specifically, Parker argued that the arbitrator ignored conflicting statements given by ETB’s witnesses regarding the events that immediately preceded Parker’s firing, and thus that there was no factual basis to support the arbitrator’s findings. The Fifth Circuit rejected Parker’s arguments, declining to reexamine the witness credibility determinations of the arbitrator pursuant to the deferential standard of review afforded to arbitral decisions under the FAA, and noting that Parker had failed to make any showing that the arbitrator or the process was corrupt. Parker v. ETB Management L.L.C., No. 15-11128 (5th Cir. Aug. 4, 2016).
This post written by Rob DiUbaldo.
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FEDERAL COURT HAS SUBJECT-MATTER JURISDICTION TO DECIDE PETITION TO COMPEL; DETERMINES PARTY DID NOT WAIVE ARBITRATION BY AGREEING TO MEDIATION
Despite a pending motion to compel arbitration in state court, a party (MetLife) petitioned a Tennessee district court under the Federal Arbitration Act for the same relief. As that Act itself does not create federal-question jurisdiction, the court sua sponte looked to the citizenship of the parties and the amount in controversy. Finding both requirements met, and declining to invoke the doctrine of abstention as the respondent requested, the court determined the merits of the parties’ claims. Applying federal law, the court looked at the contract created by the parties’ exchange of emails while the issue of arbitrability was pending before the state court. The pertinent email from MetLife stated that it was agreeable to mediating within 90 days of the state court’s ruling on the arbitration issue. In the Sixth Circuit, a party waives a contractual right to arbitrate by “(1) taking actions that are completely inconsistent with any reliance on the arbitration agreement; and (2) delaying its assertion to such an extent that the opposing party incurs actual prejudice.” MetLife merely expressed its openness to mediation. The respondent also challenged the validity of the arbitration provisions themselves, characterizing them as unenforceable contracts of adhesion, which the court could determine under the Federal Arbitration Act. As the parties agreed that New York law governed the arbitration provisions, the court looked at the elements of adhesion and determined the account application the respondent signed contained enforceable and valid arbitration provisions. As to the account applications respondent directed her MetLife representative to sign, the court reserved a ruling on the issue of agency. Metlife Securities, Inc. v. Holt, Case No. 2:16-cv-32 (USDC E.D. Tenn. July 21, 2016).
This post written by Nora A. Valenza-Frost.
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FEDERAL COURT GRANTS CEDENTS’ REQUEST FOR EXPEDITED DISCOVERY IN REINSURANCE DISPUTE
A federal court in Georgia recently granted the plaintiffs-cedents’ motion for leave to conduct certain expedited discovery from their reinsurer, holding that the potential prejudice to the cedents if discovery is not allowed outweighs the prejudice to the reinsurer.
Canal Insurance Company and Canal Indemnity Company brought suit alleging that Golden Isles Reinsurance Company fraudulent transferred amounts due Canal under two reinsurance agreements. Golden Isle and certain individual defendants moved to dismiss in lieu of answering Canal’s complaint. While that motion was pending, Canal sought limited discovery from Golden Isles related to certain bank transfers it made to the various individual defendants. Defendants opposed on the grounds that such discovery was premature, given that their motion to dismiss was pending and no answer had been filed. Notwithstanding that, the United States District Court for the Northern District of Atlanta granted Canal’s motion for leave to conduct limited discovery, finding that their need for pre-answer discovery “outweighs the prejudice” to Golden Isles, warranting a deviation from the applicable local rules of procedure which conditioned discovery upon the filing of an answer. While the expedited discovery sought would not unduly burden or prejudice Golden Isles, the delay might impact Canal’s substantive claims. Canal Insurance Co. v. Golden Isles Reinsurance Co., Case No. 15-cv-3331 (USDC N.D. Ga. July 22, 2016).
This post written by Rob DiUbaldo.
See our disclaimer.