Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CALIFORNIA DISTRICT COURT FINDS PETITIONER’S DEFENSES TO CONFIRMATION ARE BARRED BY THE STATUTE OF LIMITATIONS

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Since a motion to vacate, modify, or correct an award must be served within 3 months after the award is filed or delivered (9 U.S.C. § 12), and Plaintiff filed its opposition to confirmation nearly four months after the award was signed by the arbitrator, the Eastern District Court of California found Plaintiff’s defenses were barred by the statute of limitations, and the award was confirmed.

Plaintiff’s action in Federal Court was stayed as the parties were compelled to arbitrate. Although Plaintiff commenced AAA arbitration, the arbitrator ordered Plaintiff to add the corporation he owned as a party and secure counsel. Plaintiff did not meet the deadline, despite numerous extensions and as a result, the arbitrator issued an order dismissing the Complaint with prejudice if Plaintiff failed to provide AAA with a letter of representation within 20 days. When Plaintiff again failed to obtain counsel, Defendants moved to confirm the arbitration award.

Plaintiff opposed confirmation because: (1) the order of dismissal did not constitute an award under 9 U.S.C. § 11(b); and (2) the arbitrator exceeded her power because she refused to hear material evidence. The Court disagreed on statute of limitations grounds, and the award was confirmed.

Dinh Nguy v. Cinch Bakery Equipment, LLC, et al., 2:13-cv-02283 (USDC E.D. Cal. May 5, 2016)

This post written by Nora A. Valenza-Frost.

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NINTH CIRCUIT AFFIRMS DISTRICT COURT’S DECISION THAT BANKRUPTCY COURT DID NOT ABUSE ITS DISCRETION IN DENYING MOTION TO COMPEL ARBITRATION

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This appeal is from an order by a district court in California, affirming a bankruptcy court’s denial of a motion to compel arbitration in a Chapter 7 bankruptcy trustee’s adversary proceeding, in which the trustee sought avoidance of fraudulent transfers.

The trustee for EPD Investment Co. and Jerrold Pressman (collectively “EPD”) had filed an adversary proceeding against defendant John Kirkland, an attorney who acted as counsel for EPD, claiming that Kirkland transferred assets from EPD, a purported Ponzi scheme, to a family trust named the “Bright Conscience Trust.” Kirkland moved the bankruptcy court to compel arbitration of the bankruptcy proceeding, which was denied. Kirkland then appealed the bankruptcy court’s decision to the California district court, which affirmed the bankruptcy court’s decision, and an appeal followed to the Ninth Circuit.

The Ninth Circuit noted that the bankruptcy court has jurisdiction over “core proceedings,” and that in a core proceeding, “a bankruptcy court has discretion to decline to enforce an otherwise applicable arbitration provision only if arbitration would conflict with the underlying purposes of the Bankruptcy Code.” The Ninth Circuit agreed with the bankruptcy court that the trustee’s causes of action for fraudulent conveyance, subordination, and disallowance were core proceedings, “thereby giving the bankruptcy court discretion to weigh the competing bankruptcy and arbitration interests at stake.” The Ninth Circuit found that the bankruptcy court did not abuse its discretion by determining that the arbitration provisions in Kirkland’s agreements with EPD conflicted with the Bankruptcy Code’s purposes of having bankruptcy law issues decided by bankruptcy courts, of centralizing resolution of the dispute and protecting parties from piecemeal litigation, and thus affirmed the district court’s ruling.

In the Matter of EPD Investment Co., No. 14-56478 (9th Cir. May 9, 2016).

This post written by Jeanne Kohler.

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PENNSYLVANIA INSURANCE DEPARTMENT AMENDS REQUIREMENTS FOR QUALIFIED AND CERTIFIED REINSURERS TO CONFORM WITH NAIC’S MODEL LAW AND REGULATION

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On May 14, 2016, Pennsylvania issued Bulletin No. 16-819, advising that the Pennsylvania Insurance Department amended Chapter 161 of the Pennsylvania Insurance Code related to the requirements for qualified and certified reinsurers. The change made to the Chapter was deleting the requirement that a reinsurer be listed on the successor list to the Non-Admitted Insurance Listing (now known as the ”Quarterly Listing of Alien Insurers”) published by the National Association of Insurance Commissioners (NAIC) to be considered for qualification under Section 319.1 of the Code. This amendment conforms Pennsylvania’s regulation to the model law and regulation developed by the NAIC entitled ”Credit for Reinsurance Model Law” and ”Credit for Reinsurance Model Regulation.” The change to the Pennsylvania Insurance Code will take effect on June 13, 2016.

This post written by Jeanne Kohler.
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CIRCUIT SPLIT DEVELOPS OVER THE ENFORCEABILITY OF CLASS WAIVERS IN EMPLOYMENT AGREEMENTS

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Affirming a district court’s denial of a motion to compel arbitration, the United States Court of Appeals for the Seventh Circuit has held unenforceable a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.”  The provision further provided that  if the waiver provision was unenforceable, “any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction.”  Employees were not permitted to opt out of this provision; it was a requirement of continued employment.  The Court found the waiver of collective action prohibited by the National Labor Relations Act (“NLRA”), and rejected the contention that the case involved any conflict between the NLRA and the Federal Arbitration Act (“FAA”).  This decision appears to conflict with decisions of the Second, Fifth, Eighth and Ninth Circuits, laying the potential basis for the review of this issue by the Supreme Court.

The Court found that the contractual waiver of the right to proceed in a collective manner was an unlawful restriction of the exercise by the employee of the right to collective action protected by section 7 of the NLRA, a right it termed substantive and “at the heart” of the purpose of the NLRA rather than a procedural right.  Addressing the employer’s contrary interpretation of section 7, the Court found persuasive interpretations of the scope of the protections of section 7 by the National Labor Relations Board, which the Court found to be “a sensible way to understand the statutory language, and thus we must follow it.”

The Court then rejected the employer’s assertion that the case involved a conflict between the NLRA, as it interpreted it, and the FAA, as interpreted by the Supreme Court.  The Court reasoned that since the contractual provision at issue is unlawful under section 7 of the NLRA, “it is illegal, and meets the criteria of the FAA’s savings clause for nonenforcement.”  The FAA’s savings clause provides that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  Stating that finding the NLRA in conflict with the FAA “would render the FAA’s savings clause a nullity,” the Court rejected the contention that its decision created a Circuit split, contending that none of the opinions from the other four Circuits “has engaged substantively with the relevant arguments.”  Regardless of the analytical claim, the result of the Seventh Circuit’s opinion does conflict with the result of the decisions of the other Circuits on the same issue, and accords the FAA a different role and emphasis than do the opinions of other Circuits. Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016).

This post written by Rollie Goss.
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COURT PARTIALLY GRANTS AND PARTIALLY DENIES MOTION FOR SUMMARY JUDGMENT IN CROP INSURANCE COMMISSION DISPUTE

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Plaintiff Hudson Insurance Company brought suit against DuRussel Insurance Agency, Inc. and Blue Water Agribusiness LLC concerning the alleged breach of two separate crop insurance contracts issued by Hudson. The first contract was between only Hudson and DuRussel and provided that DuRussel would sell crop insurance and place it with Hudson. The first contract also provided that commissions might be paid by Hudson to DuRussel in advance based on projected policy placement and that DuRussel would be obligated to Hudson for any resulting overpayment of commissions. Both parties conceded the existence of this obligation and that DuRussel owed Hudson an amount of overpaid commissions. The second contract was between all three parties and provided an identical sale structure and advance commission provision as the first contract. The parties conceded that Hudson did not pay Blue Water any advance commissions pursuant to the second contract.

On Hudson’s motion for summary judgment, the court examined each contract separately. For the first contract, the court granted summary judgment against DuRussel because there was no genuine dispute between the parties as to DuRussel’s obligation to pay back any overpaid commission and the pending amount owed to Hudson. Although DuRussel claimed that since Hudson sought summary judgment against both DuRussel and Blue Water, its otherwise meritorious claim against just DuRussel cannot be sustained, the court reasoned that either Blue Water is not liable because it signed a separate agreement, or it is jointly liable with DuRussel because it signed the same agreement. For the second contract, the court held that summary judgment for breach of contract was inappropriate against Blue Water because Hudson did not pay Blue Water any advance commissions. Hudson Insurance Co. v. DuRussel Insurance Agency, Inc., No. 15-cv-12073 (USDC E.D. Mich. May 9, 2016).

This post written by Brian Perryman.

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