Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

THIRD CIRCUIT REAFFIRMS HIGH BURDEN TO ESTABLISH DELEGATION OF CLASS ARBITRABILITY DETERMINATION

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Earlier this month, the Third Circuit Court of Appeals reaffirmed its holding that the availability of class arbitration constitutes a question of arbitrability to be decided by courts unless the arbitration agreement “clearly and unmistakably” provides otherwise and expanded this holding to encompass situations in which the alleged delegation occurs through incorporation of American Arbitration Association (AAA) rules. The case arose out of a dispute regarding leases over oil and gas with landowners in Pennsylvania.

The lease agreements contained an arbitration provision that said that “all such disputes shall be determined by arbitration in accordance with the rules of the” AAA. The AAA rules included various subparts which, among other things, allow an arbitrator to determine if an arbitration should go forward on a class basis.  A lessee filed an arbitration demand with the AAA on behalf of itself and other similarly situated, and the lessor countered by filing a declaratory judgment action seeking a declaration that a court must determine class arbitrability and that the leases at issue did not allow for this.

The trial court granted summary judgment to the lessor and vacated the arbitrators’ decision regarding class arbitrability. The Third Circuit has set out a two part test to determine whether an arbitrator may determine class arbitrability: 1) does the agreement provide that class-wide arbitration is a question of arbitrability; and, if so 2) does the agreement clearly and unmistakably provide for the arbitrator to make this determination.  The Third Circuit has set this standard as an “onerous” one that simply could not be done in a case such as this where the agreement of the parties purported to incorporate rules which have various subparts, some of which allowed for an arbitrator to make this determination.  For this reason, the Third Circuit affirmed the lower court’s determination. Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, No. 15-1275 (3d Cir. Jan. 5, 2016).

This post written by Zach Ludens.
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SECOND CIRCUIT REFUSES TO VACATE FINRA AWARD AS A MANIFEST DISREGARD OF THE LAW

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Raymond James had initiated a FINRA arbitration because Singh, a financial advisor who was a registered representative of Raymond James, had refused to indemnify Raymond James pursuant to the terms of their agreement. Following an arbitration award in favor Raymond James, Singh unsuccessfully attempted to vacate the arbitration award against him by arguing the award was a manifest disregard of the law. On appeal, the higher court also rejected Singh’s arguments, noting that unless it had “serious reservations about the soundness of the arbitrator’s reading of the contract” it could not vacate the award. The court further pointed out that it was prohibited from second guessing the arbitrators construing of the contract. Singh’s argument that the amount of the award was not justified by the evidence did not fare any better; arbitrators are not required to disclose their rationale for an award, the record showed that there was evidence presented to the panel, and the amount awarded was less than the amount sought by Raymond James. Singh v. Raymond James Financial Services, Inc., Case No. 14-3970 (2d Cir. Dec. 9, 2015).

This post written by Barry Weissman.

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UBER’S ATTEMPT TO COMPEL CLASS ARBITRATION REJECTED DUE TO UNCONSCIONABILITY OF ARBITRATION AGREEMENT

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The court held that a number of the provisions in the subject arbitration agreements were unconscionable, including a delegation clause providing that disputes involving the arbitration agreement be decided in arbitration. The court found this clause to be, not only ambiguous in light of a conflicting class action court jurisdiction clause, but unconscionable as a contract of adhesion that, when combined with a fee splitting provision, unfairly required “the payment of hefty fees simply to arbitrate arbitrability.” The court further found unconscionable the clauses requiring the drivers to waive class claims under the Private Attorney General Act (PAGA), under Ninth Circuit precedent and California state case law. Because the court found that the arbitration agreement was “permeated with unconscionability,” it determined that it would not sever particular clauses, but would reject the arbitration agreement entirely. As a result, the court did not consider plaintiffs’ alternative argument that the arbitration agreement was unenforceable because it violated the drivers’ rights under the National Labor Relations Act to file a class claim (as held by the NLRB in D.R. Horton). The court did appear to suggest, however, that such an argument would likely fail under the policies of the FAA as set forth by the U.S. Supreme Court in Concepcion. O’Connor v. Uber Technologies, Inc., Case No. 13-cv-03826-EMC (USDC N.D. Cal. Dec. 10, 2015).

This post written by Joshua S. Wirth, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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FILING OF FOUR LAWSUITS OVER TEN YEARS DID NOT WAIVE RIGHT TO ARBITRATE WHERE “LITIGATION MACHINERY” HAD NOT BEEN INVOKED

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Grigsby & Associates appealed an order confirming an arbitration award of compensatory damages and attorney fees to M Securities, in a dispute relating to underwriting fees owed in a municipal bond transaction. Grigsby claimed that the award should be vacated because the defendants waived their right to arbitration after filing four lawsuits concerning the bond transaction over ten years. The Eleventh Circuit held, however, that despite the prior lawsuits, M Securities still had not “substantial[ly] invoke[d] the litigation machinery prior to demanding arbitration.” M Securities did not effectuate service against Grigsby in three of the lawsuits, and the fourth litigation did not progress beyond the filing stage. And while delay in seeking arbitration generally weighs in favor of finding waiver, it must be coupled with other substantial conduct “inconsistent with an intent to arbitrate,” which M Securities did not display here. Nor did Grigsby demonstrate prejudice given “the extremely limited nature” of the prior lawsuits. Grigsby & Associates, Inc. v. M Securities Investment, Case No. 13-15208 (11th Cir. Dec. 28, 2015).

This post written by Joshua S. Wirth, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

See our disclaimer.