Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

New York Federal Court Confirms Arbitration Award Under Cyprus-Libya Bilateral Investment Treaty

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On March 23, 2022, a New York federal court confirmed an award in an arbitration before a tribunal of the International Chamber of Commerce (ICC) between Olin Holdings Ltd. and the state of Libya under a bilateral investment treaty. In the underlying ICC arbitration, Olin claimed that the Libyan government obstructed the operation of, and ultimately expropriated, Olin’s dairy factory in Libya’s capital city Tripoli in violation of the bilateral investment treaty between Libya and Cyprus, where Olin was formed. Olin sought $147,882,000 as compensation for the damages it allegedly incurred as a result.

In June 2016, the ICC tribunal issued a jurisdictional award, concluding that the bilateral investment treaty included an agreement to arbitrate the dispute and that Olin’s prior lawsuits against Libya in Libyan court did not preclude Olin from invoking the arbitration clause. The tribunal held an evidentiary hearing on the merits and issued a final award awarding Olin €18,225,000 in damages; $773,000 for the costs of arbitration; and €1,069,687.70 for general legal costs and expenses, plus simple interest at a rate of 5% per annum from the date of the final award.

Olin petitioned to confirm the final award in New York state court, and Libya removed the petition to federal court. Noting that courts are required to review arbitrators’ decisions “with considerable deference” if the record supplies “clear and unmistakable evidence” that the parties agreed to submit a given issue to arbitration, the court concluded that the terms of reference agreement entered into by the parties at the outset of the ICC arbitration constituted such clear and unmistakable evidence of the parties’ intent to arbitrate with respect to both arbitrability and the substantive issues in the dispute, indicating that deferential review was warranted.

The court noted that under this deferential standard, if the arbitrators “explain their conclusions in terms that offer even a barely colorable justification for the outcome reached, confirmation of the award cannot be prevented by litigants who merely argue, however persuasively, for a different result.” The court further noted that under the New York Convention, the court was required to confirm the final award unless it finds one of the seven grounds for refusal or deferral of recognition or enforcement of the award specified in the Convention. In finding that the ICC tribunal presented more than a “barely colorable justification” for the final award, the court noted that the final award was 143 pages long, and thoughtfully and thoroughly considered and rejected each of Libya’s defenses to Olin’s claims. The court further considered each of the seven enumerated grounds for refusing to confirm an award under the Convention and found that none of those grounds had been met. As a result, the court granted Olin’s motion to confirm the final award. The court separately denied Libya’s motion to dismiss the petition on forum non conveniens grounds, finding that Libya failed to meet its burden to establish any of the factors that would support dismissal of the action in favor of a foreign jurisdiction.

Olin Holdings Ltd. v. State of Libya, No. 1:21-cv-04150 (S.D.N.Y. Mar. 23, 2022).

Tenth Circuit Concludes Enforceability of Arbitration Clause Was Issue for Arbitrator

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The Tenth Circuit Court of Appeals recently concluded that whether an arbitration agreement could be enforced against a non-signatory who was allegedly a third-party beneficiary of the arbitration agreement was for the arbitrator, not the court, to determine where the arbitration provisions contained delegation language that the alleged beneficiary did not specifically challenge.

Ladonna Kay Rainwater was a patient at Casa Arena Blanca Nursing Center. Rainwater’s daughter Melanie Burris signed an admission agreement and a dispute resolution agreement that contained an arbitration clause as part of Rainwater’s admission to Casa Arena. The agreement provided that it was “between Kay Rainwater (‘Resident’) and/or Melanie Burris (‘Representative’), and Casa Arena Blanca (‘Facility’)” and further provided that Rainwater was a “third-party beneficiary of the agreement.” The agreement also included a “delegation clause” and incorporated JAMS rules, including JAMS rules regarding delegation.

After Rainwater passed away, her estate filed a wrongful death lawsuit alleging that Casa Arena failed to care for Rainwater properly. Casa Arena moved to compel arbitration. The district court denied Casa Arena’s motion and Casa Arena appealed.

The Tenth Circuit reversed and remanded. The court explained that there was no dispute that a contract had been formed, that the contract contained an arbitration clause, or that the arbitration clause included a delegation clause. The dispute was whether the arbitration clause should be enforced against Rainwater’s estate as a third-party beneficiary of the agreement.

That issue, the Tenth Circuit explained, was for the arbitrator in light of the delegation clause and the fact that Rainwater’s estate had not specifically challenged the delegation clause (and instead had generally asserted its arguments regarding enforceability as to the estate).

Casa Arena Blanca LLC v. Rainwater, No. 21-2037 (10th Cir. Mar. 22, 2022).

Texas Supreme Court Finds Erotic Dancer and Club Had “Meeting of the Minds” to Enforce Arbitration Agreement

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Stephanie Sotero Hernandez was killed in a car accident after leaving work at Baby Dolls Topless Saloons Inc. Hernandez’s estate filed a wrongful death suit against the club alleging it continued serving alcohol to Hernandez’s co-worker, the driver of the car, after knowing she was intoxicated. The club moved to compel arbitration based on the arbitration clause in its contract with Hernandez. A Texas court of appeals affirmed a trial court order denying the club’s motion, finding the terminology in the contract was “uncertain” and lacked “definiteness,” thus invalidating any agreement to arbitrate. The Texas Supreme Court reversed.

Hernandez’s estate argued the motion should be denied because there was never a “meeting of the minds” between Hernandez and the club. The court disagreed, finding that to conclude otherwise, as did the court of appeals, ignores that Hernandez and the club operated under the contract on a weekly basis for nearly two years before her untimely death. The court therefore rejected the notion that the parties never entered a valid contract. Hernandez’s estate also argued that the arbitration clause itself was limited in scope and inapplicable, but the court again disagreed, emphasizing the bolded and capitalized clause in the contract explicitly delegating gateway arbitrability issues of this sort to the arbitrator. The court thus reversed and remanded with instruction to grant the club’s motion to compel arbitration.

Baby Dolls Topless Saloons, Inc. v. Sotero, No. 20-0782 (Tex. Mar. 18, 2022).

Ninth Circuit Agrees Non-Signatory Cannot Be Compelled to Arbitrate Under California Law

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Defendants appealed a California federal district court order denying their motion to compel arbitration of the plaintiff’s claims for trade secret misappropriation, common law misappropriation, and unfair competition. The issue was whether the plaintiff could be equitably compelled to arbitrate, despite there being no contract in which it agreed to do so. The Ninth Circuit held there was no basis for compelling arbitration. The court noted that under California law, a non-signatory to an arbitration agreement may be compelled to arbitrate under two circumstances: (i) if its claims are “dependent, on or inextricably intertwined” with the underlying contractual obligations of the agreement containing the arbitration clause; or (ii) if it receives a “direct benefit” from the contract containing the arbitration clause. Agreeing that neither circumstance was present here, the court affirmed the district court order denying the defendants’ motion to compel.

Thrasio, LLC v. Boosted Commerce, Inc., No. 21-55621 (9th Cir. Mar. 18, 2022).

Second Circuit Affirms Order Confirming Arbitration Award Finding No Partiality Related to Arbitrator’s (Attenuated) Personal and Business Relations

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An individual appealed from an order confirming an arbitration award. The appellant argued that the district court erred in refusing to vacate the arbitration award on grounds of “evident partiality.” The appellant contended that this basis for vacatur existed because the arbitrator’s law clerk was the father-in-law of one of the petitioners’ brothers, and the arbitrator had a separate business relationship with the law clerk. The Second Circuit was not convinced. Under the FAA, evident partiality may be found only “where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.” Similarly, under applicable New York state law, partiality exists if “the arbitrator and the party or witness have some ongoing relationship” and it is shown that the losing party suffered “prejudice to its rights as a result.” The Second Circuit agreed with the district court that the arbitrator’s relationship to the underlying petitioners was not shown to have “crossed the line.” The court noted that this relationship was “far more attenuated than situations where this Court and New York courts have vacated awards for evident partiality.” And even assuming that the appellant had established partiality, which he had not, the Second Circuit agreed with the district court that, because the appellant had knowledge of the relationship in question during the arbitration proceedings, the “evident partiality” objection was waived.

Magid v. Waldman, No. 20-3216 (2d Cir. Feb. 25, 2022).