Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Court Grants Nigeria’s Second § 1782 Application for Discovery in Foreign Proceeding in Dispute Over $10B Arbitration Award Related to Gas Supply Agreement

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The U.S. District Court for the Southern District of New York granted the 28 U.S.C. § 1782 application of the Federal Republic of Nigeria to issue subpoenas on four U.S. entities and two individuals, the respondents, in aid of an upcoming fraud trial against Process and Industrial Developments Ltd. (P&ID) before the English High Court of Justice in London, England. In that proceeding, Nigeria seeks to set aside a $10 billion arbitral award, which arose from a gas supply and processing agreement between P&ID and Nigeria that Nigeria claims was fraudulently procured. According to Nigeria, P&ID is a “shell entity whose only asset” is the arbitration award. Nigeria sought to issue a subpoena to each respondent concerning the acquisition of P&ID, financial records, P&ID’s business operations relating to the agreement and the arbitral award, and other issues.

Under section 1782(a), the “district court in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal.” “The order may be made … upon the application of any interested person and may direct that the testimony or statement be given, or the document or other thing be produced, before a person appointed by the court.”

The court found that it had jurisdiction to grant an application under section 1782 because the respondents reside or are found within the Southern District of New York, the discovery is for use in the proceeding before a foreign tribunal, and the application was made by an interested person.

The court also determined that Nigeria met the Supreme Court’s four-factor test in exercising its discretion to grant the application (the Intel factors): (1) whether the person from whom the discovery is sought is a participant in the foreign proceeding (they are not); (2) the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or the court or agency abroad to U.S. federal-court judicial assistance (English courts are receptive to section 1782 assistance); (3) whether the section 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States (it did not); and (4) whether the section 1782 application contains unduly intrusive or burdensome discovery requests (it did not).

Regarding the fourth Intel factor, the court rejected the respondents’ argument that, because Nigeria previously filed a different section 1782 application arising out of a separate criminal case, seeking similar discovery from the same respondents, Nigeria should not be permitted to proceed simultaneously on the two section 1782 applications. The court held that there was no legal basis for the respondents’ contention that successive section 1782 applications related to two different foreign proceedings should be prohibited.

In re Petition of Federal Republic of Nigeria, No. 1:21-mc-00007 (S.D.N.Y. Sept. 14, 2022).

SDNY Confirms Unopposed Arbitration Award Using Summary Judgment Framework

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A Turkish manufacturer of motor coaches entered into a distribution agreement with a Delaware-based corporation for the exclusive distribution of its motor coaches in the United States. Years later, a dispute arose over the Delaware corporation’s (CH Bus) nonpayment for 72 motor coaches and its failure to repay a $1 million loan from the Turkish company (Temsa). Temsa commenced arbitration before the International Centre for Dispute Resolution, a division of the American Arbitration Association, pursuant to the arbitration clause contained within the parties’ distribution agreement. After a hearing, the arbitration panel awarded Temsa approximately $17.2 million. Temsa then sought confirmation of the award in the U.S. District Court for the Southern District of New York.

CH Bus did not oppose or otherwise appear in the action. Nevertheless, the court noted: “Default judgments in the context of confirmation and vacatur proceedings are generally inappropriate; an unopposed petition should instead be resolved under a summary judgment framework.” The court found that it had jurisdiction over the award pursuant to chapter 2 of the Federal Arbitration Act. Next, the court stated that an arbitration agreement falls within the scope of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards if four requirements are met:

  1. There must be a written agreement;
  2. It must provide for arbitration in the territory of a signatory of the Convention;
  3. The subject matter must be commercial; and
  4. The agreement cannot be entirely domestic in scope.

Here, the distribution agreement was written; the United States is a signatory to the Convention; the subject matter was commercial (i.e., the sale of motor coaches); and the distribution agreement was a non-domestic agreement because the importation of motor coaches from Turkey was not entirely domestic in scope.

The court then discussed the seven grounds for nonrecognition of an award under the Convention:

  1. The parties to the arbitration agreement were under some incapacity or the agreement “is not valid” under the law designated by the parties, or in the event they have not designated any, the law of the country where the award was made;
  2. The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
  3. The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
  4. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place;
  5. The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made;
  6. The competent authority in the country where recognition and enforcement is sought finds that the subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
  7. The competent authority in the country where recognition and enforcement is sought finds that the recognition or enforcement of the award would be contrary to the public policy of that country.

None of the bases provided by the Convention for refusing to recognize and enforce an arbitration award applied here. The court also noted that, in this case, because the arbitration took place in the United States, the award was also subject to the FAA provisions governing domestic arbitration awards, including the four grounds enumerated by the FAA for vacatur. However, none of those grounds applied either. As such, the court confirmed the arbitration award in favor of Temsa.

Temsa Ulasim Araclari Sanayi Ve Ticaret A.S. v. CH Bus Sales, LLC, No. 1:22-cv-00492 (S.D.N.Y. Sept. 1, 2022).

New York Federal Court Holds Questions of Arbitrability to Be Resolved by Arbitrator in Labor Dispute

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In a recent decision, a New York federal magistrate judge considered whether threshold questions of arbitrability were to be decided by the court or by an arbitrator in a labor dispute between a Jewish religious organization and its former employees.

Upon leaving employment at the Kabbalah Centre, the plaintiffs signed separation agreements, which included arbitration clauses providing that any disputes related to employment or to the separation agreement itself were to be decided in arbitration. The plaintiffs nonetheless brought an action against the Kabbalah Centre in federal court, arguing that the separation agreements and their arbitration clauses were the products of improper, coercive tactics by their former employer and were therefore unenforceable. The Kabbalah Centre moved to compel arbitration under the terms of the separation agreements.

As an initial matter, the court distinguished between challenges to an arbitration clause in a contract, and challenges to the contract as a whole. Citing Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010), the court noted that the former type of challenge must be decided by the court, while the latter type of challenge was within the purview of the arbitrator.

In granting the Kabbalah Centre’s motion to compel arbitration, the court found that the plaintiffs did not challenge the facial validity of the separation agreements’ arbitration provisions but rather asserted that the contract as a whole should be deemed void. As such, the court looked to the arbitration provisions themselves to determine whether they addressed threshold issues of arbitrability. The court concluded in the affirmative, noting that the separation agreements delegated questions of arbitrability to the arbitrator by incorporating the rules of the American Arbitration Association and JAMS. The court rejected the plaintiffs’ additional arguments and granted the Kabbalah Centre’s motion to compel arbitration accordingly.

 Greene v. Kabbalah Centre International, Inc., No. 1:19-cv-04304 (E.D.N.Y. Sept. 1, 2022).

Sixth Circuit Holds That District Court Erred by Not Analyzing Whether Non-Signatory Consented to Arbitration

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The Sixth Circuit Court of Appeals recently vacated and remanded an order concluding that a party was not bound by an arbitration award after concluding that the district court failed to consider whether that party may have consented to arbitration through its actions even though it was not a signatory to the collective bargaining agreement that contained the arbitration clause.

Greenhouse Holdings LLC did business as Clearview Glass and Glazing in Kentucky. Greenhouse also owned 90% of Clearview Glass and Glazing Contractors of Tennessee LLC. The International Union of Painters and Allied Trades District Council 91 filed a grievance against “Clearview Glass” alleging that it violated a collective bargaining agreement the union had. It was unclear whether “Clearview Glass” meant Greenhouse (based on its trade name Clearview Kentucky), Clearview Tennessee, or both. The union argued that Greenhouse was bound by the collective bargaining agreement and an arbitration clause therein. Greenhouse disputed that. The arbitrator apparently sided with the union and issued an order that affected Clearview Kentucky (i.e., Greenhouse). Greenhouse challenged that award.

The district court vacated the arbitrator’s award “to the extent it applies to Greenhouse.” The district court “held that Greenhouse wasn’t a party to the [collective bargaining agreement] and thus the arbitrator acted outside his authority to the extent the award applied to Greenhouse.”

The Third Circuit vacated the district court’s decision. It held that the district court “didn’t address this threshold question” of whether Greenhouse had consented to arbitration even though it did not sign the collective bargaining agreement that contained the arbitration clause. The Third Circuit explained that “an agreement to arbitrate need not be in writing” and that courts “may infer agreement when a party willingly participates in [an] arbitration without objecting to the arbitrator’s jurisdiction.”

The Third Circuit further explained that whether a party has consented to arbitration it otherwise may not have agreed to is a fact-intensive inquiry, and it remanded the case to the district court to analyze that question under the facts of the case.

Greenhouse Holdings, LLC v. International Union of Painters & Allied Trades District Council 91, No. 21-6164 (6th Cir. Aug. 8, 2022).

New York Federal Court Finds Arbitration Award Is Subject to Confirmation Even Though It Doesn’t Dispose of All Claims Submitted to Arbitration

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In a recent decision, a New York federal district court considered whether two arbitration awards issued by a tribunal in an ongoing arbitration were “mutual, final, and definite” and thus subject to confirmation proceedings in the district court.

The underlying arbitration involved a long-running dispute between Gerling, a German insurance company, and Tosco Corp., a petroleum refining company, in which Tosco (through successor-in-interest Phillips 66 Co.) sought indemnity and defense costs arising out of its manufacture and sale of petroleum products containing methyl tertiary-butyl ether. On July 13, 2021, Gerling reimbursed Phillips 66 $725,412.94 pursuant to the Gerling policy’s “loss payable” provision in connection with defense costs incurred in certain ongoing lawsuits against Phillips 66. However, on November 26, 2021, the tribunal decided Gerling was not obligated to reimburse Phillips 66 under the “loss payable” provision until the underlying cases had been finally resolved. When Phillips 66 refused to repay the $725,412.94 amount to Gerling, the tribunal issued another order on December 21, 2021, directing Phillips 66 to repay that amount and reaffirming the tribunal’s prior interpretation of the “loss payable” provision. Gerling then sought to have the tribunal’s December 2021 award confirmed by the district court.

In confirming the portion of the tribunal’s December 2021 award directing repayment by Phillips 66, the court noted that that award “required specific action and did not serve as a preparation or basis for further decisions.” Rather, the court characterized it as a “separate and independent claim” that “can be confirmed even though it does not, in and of itself, dispose of all claims.” The court further noted that even though Phillips 66 had repaid the required amount six days before Gerling’s motion to confirm, “the fact that the arbitration award has been complied with is not a ground for refusing to confirm it.”

The district court declined to confirm the portion of the tribunal’s December 2021 award addressing the “loss payable” provision on the grounds that that portion of the award “merely decides issues that bear on future determinations as to claims that still must be made … in order to establish liability.” As a result, the district court granted in part and denied in part Gerling’s motion to confirm the December 2021 arbitration award.

HDI Global SE v. Phillips 66 Co., No. 1:22-cv-00807 (S.D.N.Y. Aug. 26, 2022).