Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

TENNESSEE SUPREME COURT HOLDS THAT STATE UNCONSCIONABILITY LAW DOES NOT IMPLICATE CONCEPCION AND IS NOT PREEMPTED BY FAA

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The Supreme Court of Tennessee reversed the lower courts’ rulings that a non-mutual arbitration provision in an installment contract on the sale of a manufactured home was unconscionable and unenforceable. In doing so, however, the court rejected the argument that the state court precedent on unconscionability of arbitration agreements was preempted by the FAA ala the U.S. Supreme Court’s Concepcion decision. Because the state court precedent did not adopt a per se rule that any degree of non-mutuality of remedies in an arbitration provision in an adhesion contract renders the provision unconscionable, the doctrine was not implicated by Concepcion and was not preempted by the FAA. Indeed, the court held, state law would determine unconscionability based on “all the facts and circumstances of a particular case.” The fact that the state law “makes mutuality of remedies an important consideration in determining unconscionability does not overly burden arbitration agreements, so long as all of the circumstances of the particular agreement are taken into account.” Berent v. CMH Homes, Inc., Case No. E2013-01214-SC-RLL-CV (Tenn. June 5, 2015).

This post written by Michael Wolgin.

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SIXTH CIRCUIT REVERSES VACATUR OF AWARD STRESSING LIMITED SCOPE OF PERMISSIBLE JUDICIAL REVIEW

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The district court had vacated an arbitration award that had reinstated a terminated hospital employee under a collective bargaining agreement. The district court based its ruling on its interpretation of the CBA, which it believed did not authorize an arbitrator to modify the degree of discipline imposed on an employee. The Sixth Circuit reversed, holding that at best, the district court had adopted one of multiple reasonable interpretations of the CBA (another reasonable one being the interpretation of the arbitrator). Because the arbitrator was “arguably construing” the contract, and was not acting fraudulently or dishonestly, the district court should have refrained “from imposing [its] interpretation of the contract on the parties.” The Sixth Circuit reversed and reinstated the arbitration award. Oakwood Healthcare, Inc. v. Oakwood Hospital Employees Local 2568, Case No. 14-2155 (6th Cir. June 15, 2015).

This post written by Michael Wolgin.

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IN BATTLE OVER EMPLOYMENT COMPENSATION, SECOND CIRCUIT AFFIRMS DISTRICT COURT DECISION TO DENY ARBITRATION

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On interlocutory appeal, the Second Circuit affirmed a district court decision denying arbitration because a later-signed compensation agreement did not retroactively apply as it contravened the intent of a prior independent contractor agreement.

Plaintiff-Appellees Timothy Pratt, William Burrell (“plaintiffs”) and others brought a putative class action suit against Cellular Sales of New York and its parent company (together “Cellular”) for a denial of compensation and other benefits as plaintiffs were considered independent contractors instead of employees. Cellular required plaintiffs to create a separate corporate entity and also sign an independent sales agreement before acting as a representative to sell Verizon Wireless services. Cellular later hired plaintiffs as full-time employees and where the parties executed a new compensation agreement, which contained an arbitration provision. At issue was whether plaintiffs were required to arbitrate claims that occurred prior to the new compensation agreement.

Plaintiffs argued that the compensation agreement should not be applied retroactively and only prospectively. Defendants argued that the compensation agreement did not contain an “express temporal limitation” and therefore could apply to claims prior to the memorialization of the compensation agreement. The court noted that the plaintiffs and Cellular had an evolving relationship, whereby Cellular only started to provide employee benefits to plaintiffs after the new compensation agreement was executed. Additionally, the court noted that Cellular “affirmatively stated that [plaintiffs] were not employees for over a year, it rings hollow for them to now argue that the parties intended the word “employment” in the Compensation Agreements to apply retroactively as to this dispute.” For these and other reasons, the court denied Cellular’s motion to compel arbitration. Holick v. Cellular Sales of New York, LLC, No. 14-4323 (2nd Cir. Sept. 22, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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SECOND CIRCUIT AFFIRMS DISTRICT COURT DECISION TO COMPEL ARBITRATION IN PATENT INFRINGEMENT BATTLE BETWEEN LG AND WI-LAN

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A Second Circuit 3-judge panel affirmed a district court decision denying a request for declaratory and injunctive relief while subsequently compelling arbitration in a licensing infringement suit. On appeal, LG Electronics, Inc. and its US affiliate (together “LG”) alleged that Wi-LAN, Inc. and its US affiliate (together “Wi-LAN”) waived their right to arbitrate and further alleged that Wi-LAN should not be allowed to arbitrate the parties’ patent licensing agreement (“PLA”) while also litigating the infringement suit.

The panel considered three factors to determine whether Wi-LAN waived its right to arbitrate the PLA agreement, specifically: “(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice.” Considering these factors, the panel determined that LG did not suffer from either substantive prejudice or prejudice based on cost or delay. The panel noted that LG had not yet produced discovery and the litigation’s limited motion practice mostly occurred after Wi-LAN’s arbitration demand. Additionally, Wi-LAN’s two week demand for arbitration was not sufficient to cause delay.

Finally, the court considered LG’s claim splitting argument noting that the “doctrine does not bar arbitration of claims or defenses that the parties have agreed to arbitrate, while litigating overlapping claims or defenses that the parties have not agreed to arbitrate.” Citing Supreme Court precedent, the court found that because the parties had agreed to arbitrate the PLA, arbitration is appropriate to determine whether the agreement is effective. LG Electronics, Inc. v. Wi-LAN USA, No. 14-3035 (2nd Cir. Sept. 10, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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LOUISIANA LEGISLATION REPEALS AUTHORITY TO ENTER NIMA

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The Louisiana House of Representatives’ Bill 259, effective July 1, 2015 as Act 386, repeals the authority of the state’s insurance commissioner to enter the Non-Admitted Insurance Multi-State Agreement (“NIMA”) or other cooperative compacts or agreements with other states for the purpose of allocating surplus lines premium on multi-state policies and tax revenues. Act 386 provides that the entire surplus lines premium of a surplus lines policy of which Louisiana is the home state of the policyholder would be subject to the surplus lines tax, which the Act sets at 4.85%.

H.B. 259, 2015 Reg. Sess. (La. 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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