Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Delaware Supreme Court Finds Validity of Contract Containing Arbitration Clause to Be Decided By Arbitrator

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In a December 2022 decision, the Delaware Supreme Court considered whether the validity of an arbitration agreement is an issue to be decided by the court or by an arbitrator.

The plaintiff, Agspring LLC, was formed in 2012 by the defendant, NGP X US Holdings, LP, and two nonparties, Ranal Linville and Bradley Clark. In connection with Agspring’s formation, the parties entered into an LLC agreement and a related “services agreement,” both of which contained arbitration provisions providing for the use of JAMS arbitration rules. In 2015, NGP sold Agspring to a group of investors pursuant to a purchase agreement, which provided that any disputes regarding the purchase were to be submitted to state or federal court in Wilmington, Delaware. The 2015 purchase agreement contained an integration clause which stated in relevant part, “this agreement and the related agreements constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and supersede all prior negotiations, agreements, and understandings of the parties with respect to the subject matter hereof.”

In 2019, Clark and Linville sued Agspring in Kansas over matters related to their employment. NGP, Clark, and Linville were subsequently sued by Agspring’s new owners in Delaware state court, alleging fraud and unjust enrichment in connection with the 2015 sale of Agspring. NGP demanded indemnification of costs related to these two actions and Agspring refused, resulting in NGP initiating arbitration under the 2012 LLC agreement and services agreement. The arbitration panel ultimately found that the parties’ 2012 arbitration agreements survived the execution of the 2015 purchase agreement and concluded that NGP was entitled to indemnification for costs incurred in the above referenced lawsuits. Agspring filed a motion to vacate the arbitration award, which the trial court denied.

On appeal, Agspring argued that the trial court erred in concluding that the validity of the parties’ arbitration agreement was an issue for the arbitrator in the first instance. In considering this argument, the Delaware Supreme Court held that “whether a later in time agreement, in this case the [2015 purchase agreement], superseded the 2012 agreements, causing them no longer to exist, would, in our view, be a question to be decided by the court, unless the 2012 agreements show that the parties clearly and unmistakably agreed that such a question would be decided by arbitration.”

The Delaware Supreme Court ultimately concluded that the issue of the continued viability of the 2012 agreements was properly submitted to the arbitration panel, noting that “this result follows from the parties’ agreement [in the 2012 agreements] that the JAMS rules would apply,” including Rule 11(b) of those rules that “disputes, including disputes over the . . . existence . . . of the agreement under which arbitration is sought . . . shall be submitted to and ruled on by the arbitrator.” The Delaware Supreme Court rejected Agspring’s other arguments and affirmed the trial court’s denial of Agspring’s motion to vacate the arbitration award.

Agspring, LLC v. NGP X US Holdings, L.P., No. 2019-1021 (Del. Dec. 2, 2022).

Supreme Court of Arkansas Declines To Consider Part of Appeal Involving Court’s Failure To Consider Motion To Compel Arbitration

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The Supreme Court of Arkansas recently refused to consider the portion of an appeal involving a motion to compel arbitration because the lower court had not ruled on the motion and the court therefore concluded it did not have jurisdiction to consider the appeal.

Altice USA, Inc., d/b/a Suddenlink Communications provided phone, internet, and cable services to the City of Gurdon, Arkansas. In conjunction with its provision of services, Suddenlink assessed certain fees. The City of Gurdon filed a putative class action claiming that three of the fees assessed were improper. Suddenlink filed a motion to compel individual, non-class arbitration in response. The trial court granted class certification without ruling on Suddenlink’s motion even though Arkansas Code provided that a court “shall stay any judicial proceeding that involves a claim alleged to be subject to arbitration until the court renders a final decision” on the request for arbitration. Suddenlink then appealed the court’s failure to rule on its motion and the grant of class certification.

The Supreme Court of Arkansas concluded that it did not have jurisdiction to consider the portion of Suddenlink’s appeal that challenged the failure to rule on its motion to compel arbitration. The court noted, “only certain issues concerning arbitration are eligible for interlocutory appeal, namely orders denying motions to compel arbitration.” Because the trial court had “not entered an order denying Suddenlink’s motion to compel arbitration,” the court concluded, “the absence of an order foreclosed Suddenlink’s ability to appeal” the lack of a ruling on the motion to compel. The court also noted, “Suddenlink failed to seek an extraordinary writ to force the trial court to comply with” the provision of the Arkansas Code that seemingly required the trial court to stay proceedings pending a ruling.

The Supreme Court of Arkansas then affirmed the grant of class certification.

Altice USA, Inc. d/b/a Suddenlink Communications v. City of Gurden et al., No. CV-22-32 (Nov. 10, 2022).

Chancery Division of the High Court of England Sanctions Business Transfer Scheme Involving Applicant Insurance Companies Under the Financial Services Markets Act

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In Phoenix Life Ltd, Re, also known as: Reassure Life Ltd, Re Phoenix Life Assurance Europe Designated Activity Co, Re, the Chancery Division of the High Court of England sanctioned a plan by the applicant companies Reassure Life Ltd (RLL), Phoenix Life Ltd (PLL), and Phoenix Life Assurance Europe (PLAE) of an insurance business transfer scheme under the Financial Services and Markets Act.

United Kingdom insurers, PLL and RLL, were engaged in “closed-fund run off in the long-term sector” and PLAE was an Irish designated activity company established to facilitate the business transfer scheme. The business to be transferred had been written in Ireland, Iceland, Germany, Norway, and Sweden. The purpose of the scheme was to “ensure that policyholders in those countries obtained the full range of benefits following the UK’s departure from the European Union” by transferring “to PLAE the legal rights and obligations of PLL and RLL relating to the transferring policies together with their associated assets and liabilities.” Claims related to misselling and maladministration were not included in the scheme.

The conclusions of an independent expert who reviewed the scheme were submitted to and accepted by the Court, including the expert’s findings that “the scheme would not have a material adverse effect on the security of the benefits under the transferring policies … and the reasonable expectations of the transferring policyholders in respect of their benefits…” The Court also agreed with the independent expert’s conclusions that the nontransferring policyholders would not suffer any material adverse effects as a result of the scheme. The Court sanctioned the scheme concluding that “the technical requirements of the legislation had been complied with” and that the independent expert’s conclusion regarding PLAE’s financial strength was reasonable. In approving the scheme, the Court also agreed with several other conclusions reached by the independent expert, including that the reinsurance arrangements involved in the scheme would not create a “material adverse effect on the security of the benefits under the policies to be transferred under the scheme.”

Phoenix Life Ltd, Re, also known as: Reassure Life Ltd, Re Phoenix Life Assurance Europe Designated Activity Co, Re, (Chancery Division, High Court of England, Oct. 24, 2022)

Supreme Court of Idaho Finds That District Court Had Jurisdiction to Determine Enforceablity of Non-Compete Provision in Employment Agreement, Which Included a Mandatory Arbitration Provision

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In Blaskiewicz v. Spine Institute of Idaho, P.A., after being terminated with less than one year of employment, Donald Blaskiewicz, “a highly-trained neurosurgeon” filed a complaint for declaratory judgment in the state district court of Idaho to determine the enforceability of a Professional Services Agreement with his former employer, the Spine Institute of Idaho. The PSA contained a noncompete clause that “contractually proscribed Blaskiewicz from practicing medicine within fifty miles of the Spine Institute’s office (with an explicit exception for Caldwell) for a period of eighteen months, should his employment with the Spine Institute be terminated for any reason.” The PSA also included an arbitration clause, which required that “‘any dispute arising out of or related to [the PSA] be settled by arbitration in Ada County, Idaho.’”

The Spine Institute moved to dismiss, or in the alternative, to stay the proceedings, arguing that “the sole way … to challenge the noncompete provision was through arbitration and, as such, the district court was without jurisdiction to consider Blaskiewicz’s complaint.” Significantly, the Spine Institute “did not seek an order compelling arbitration, apparently because Blaskiewicz had not breached the PSA.” The district court denied the Spine Institute’s motion, concluding that it had jurisdiction over the matter. Thereafter, the district court granted Blaskiewicz’s motion for summary judgment, finding that the noncompete provision in the PSA was void as against public policy, and awarded attorney’s fees in favor of Blaskiewicz.

The Supreme Court of Idaho vacated the district court’s grant of summary judgment and remanded the case for further proceedings. First, the court addressed whether the appeal was moot, since the 18-month noncompete period had expired and Blaskiewicz did not accept employment during that time. The court concluded that the appeal was not moot since the district court had awarded attorney’s fees to Blaskiewicz, and “if we were to conclude the district court erred in granting summary judgment (as we do below) … this case presents a real and substantial controversy.”  Second, the court held that “the district court had jurisdiction to determine whether the noncompete provision was enforceable,” and that while the Spine Institute moved to dismiss the case or stay the proceedings, they did not file a demand for arbitration and “cannot now complain that this controversy should have been arbitrated.” Third, the court found that the district court erred in granting summary judgment in favor of Blaskiewicz, concluding that “there are genuine issues of material fact such that summary judgment was inappropriate as to whether the noncompete provision was void as a matter of public policy or otherwise enforceable.” Finally, the court vacated the district court’s award of attorney’s fees since Blaskiewicz was no longer the prevailing party, and remanded the case for further proceedings.

Blaskiewicz v. Spine Institute of Idaho, P.A., Docket No. 48785 (Supreme Court of Idaho, Oct. 31, 2022)

Ninth Circuit Court of Appeals Notes That Review of Arbitration Awards Under the MPPAA is “Notably Less Deferential” than under the FAA

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The Ninth Circuit Court of Appeals recently affirmed in part and reversed in part a district court’s order confirming an arbitration award under the Multiemployer Pension Plan Amendments Act of 1980, noting in the process that judicial review of such awards is “notably less deferential” than review of awards pursuant to the Federal Arbitration Act.

The MPPAA imposes liability on employers who withdraw — partially or completely — from multiemployer pension funds. MNG Enterprises, Inc. withdrew in 2014 from GCIU-Employer Retirement Fund, a multiemployer pension plan. The MPPAA imposes “withdrawal liability” on employers that withdraw from pension plans to cover the employer’s proportionate share of the plan’s unfunded vested benefits and to ensure that such pension plans remain viable.  After MNG’s withdrawal from the fund, GCIU’s actuary calculated its withdrawal liability. MNG disputed the actuary’s calculation and initiated arbitration pursuant to the dispute resolution requirements of the MPPAA.

The arbitrator agreed with MNG on two points but ruled for GCIU on the third. Both parties sought judicial review in the federal court for the Central District of California. The district court affirmed the arbitration award except for the interest rate it utilized, because the judge believed the arbitrator made a typographical error. Both parties appealed again, this time to the Ninth Circuit Court of Appeals.

The Ninth Circuit stated that “the standard of review for MPPAA arbitrations is notably less deferential than under the Federal Arbitration Act.” The court presumed that findings of fact made by the arbitrator were correct unless rebutted by a clear preponderance of the evidence, and further, reviewed the arbitrator’s conclusions of law de novo and applications of equitable relief for an abuse of discretion. Applying these standards of review, the Ninth Circuit affirmed in part and vacated in part the district court’s rulings. The court remanded for further consideration as to whether MNG, as a purchaser of earlier withdrawn participants in the GCIU, could have been liable as a successor as a matter of equity, and whether GCIU correctly applied the contribution histories at the time of the relevant asset sales.

GCIU-Employer Retirement Fund v. MNG Enterprises, Inc, Nos. 21-55864, 21-55923 (9th Cir. Oct. 28, 2022).