Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

TWO RECENT DECISIONS ADDRESS WHETHER PREJUDGMENT RELIEF IS AVAILABLE IN ARBITRATION PROCEEDINGS

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The first decision involved reconsideration of an interim arbitration award of prejudgment security that the court initially refused to confirm as a manifest disregard of the law. The court had determined that the arbitrators erroneously awarded a prejudgment bond of $10 million or an injunction from transferring such an amount, in the alternative. The court had relied on a provision in the underlying contract that provided that the agreement would be enforced in accordance with New York law, which prohibits such provisional remedies. On reconsideration, however, the court focused on another provision of the agreement, which adopted the AAA International Dispute Resolution Procedures. Under those rules, such provisional remedies were permitted. The court held, “It lay with the parties to confer on the arbitrator whatever powers they wished. Having adopted rules that allowed the arbitrator to award interim security, [defendants] are bound by their bargain. Nothing about enforcing an order rendered in accordance with the procedures to which the parties agreed offends either New York law or New York public policy.” The court relied on a Second Circuit opinion, Banco de Seguros del Estado v. Mutual Marine Offices, Inc., as support for this holding, and as support for the underlying premise that interim security issues are reviewable prior to a final arbitration award. CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, Case No. 1:12-cv-08087 (USDC S.D.N.Y. Dec. 10, 2012).

The second decision involved a court’s refusal to prohibit a foreign sovereign-owned bank from litigating in a reinsurance dispute, notwithstanding the bank’s failure to post security as required by state law. The court held that the bank could not be compelled to post such security under the Foreign Sovereign Immunities Act, which prohibits “attachment” of the property of a foreign state or its instrumentalities. The court found that other courts that have considered this issue have determined that the practical effect of prejudgment security is akin to an attachment of property, and thus the FSIA’s immunity applied. The court also found that the bank did not waive this immunity, distinguishing the Second Circuit’s opinion in Banco De Seguros Del Estado v. Mutual Marine Offices, Inc. Whereas the Second Circuit opinion found waiver of FSIA immunity under an arbitration agreement that permitted the arbitrators to “abstain” from following “the strict rules of law,” this case involved no such agreement. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estado, Case No. 1:12-cv-06357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by Michael Wolgin.

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FOURTH CIRCUIT REVERSES ORDER DENYING MOTION TO COMPEL ARBITRATION BASED ON WAIVER, APPLYING FAA RATHER THAN STATE LAW

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In a recent opinion, the Fourth Circuit reversed a district court order denying a motion to compel non-class arbitration. The district court applied Maryland arbitration law and concluded that the party moving to compel arbitration waived its right to enforce arbitration because the moving party (1) waited six months from the date the complaint was filed to file a motion to compel arbitration, (2) participated in some discovery, and (3) made a strategic decision to delay seeking arbitration until the law regarding whether it would be forced into class arbitration was more certain (that certainty was provided by the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. __, 130 S. Ct. 1758 (2010)). The Fourth Circuit determined that the FAA, rather than Maryland law, applied and provides for more limited circumstances that give rise to a waiver of the right to compel arbitration. The only relevant factors under the FAA are the amount of delay and the extent of the moving party’s trial oriented activity, not the moving party’s reason for delay. Applying these factors, the Fourth Circuit found that the non-moving party was not prejudiced by the six month delay or the moving party’s minimal participation in litigation, focusing on the fact that the moving party did not file any dispositive motions. Rota-McLarty v. Santander Consumer USA, Inc., No. 11-1597 (4th Cir. Nov. 28, 2012).

This post written by Abigail Kortz.

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EIGHTH CIRCUIT APPLIES BROAD INTERPRETATION OF CONCEPCION TO UPHOLD CLASS-WAIVER ARBITRATION CLAUSE IN EMPLOYMENT DISPUTE

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The Eighth Circuit recently reversed a district court’s refusal to compel arbitration in an employment dispute under the Fair Labor Standards Act, enforcing a class-waiver arbitration clause. The district court interpreted the FLSA as providing a right to a class action, and had found that the class waiver in this case was therefore invalid. The district court had also held that Concepcion was not controlling in the employment context, relying on a recent National Labor Relations Board decision. The Eighth Circuit reversed, holding that nothing in the text or legislative history of the FLSA indicates a congressional intent to bar employees from agreeing to arbitrate FLSA claims individually, and that there is no conflict between the FLSA and the FAA. The Eighth Circuit further held that the NLRB decision relied on by the district court was not entitled to deference. In any event, the court explained, the NLRB decision limited its holding to arbitration agreements barring all concerted actions, unlike the agreement in this case, which did not preclude reporting to administrative agencies, which themselves could file representative class suits. The court also rejected the notion that Concepcion and other U.S. Supreme Court precedent upholding the enforceability of class waivers is limited to the consumer context. Owen v. Bristol Care, Inc., No. 12-1719 (8th Cir. Jan. 7, 2013).

This post written by Michael Wolgin.

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ARBITRATION PROCEDURE ROUNDUP

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Confirming/Vacating Arbitral Award

Fisher v. Wells Fargo Advisors, LLC, Case No. 12-1413-CM (USDC D. Kan. Dec. 18, 2012) (granting motion to confirm arbitration award; holding that allegedly erroneous discovery rulings did not deprive plaintiff of a fundamentally fair hearing nor constitute arbitrator misconduct)

Laughlin v. VMWare, Inc., Case No. 11-cv-00530-EJD (USDC N.D. Cal. Dec. 20, 2012) (denying motion to vacate arbitration award; holding that the arbitrator did not manifestly disregard the law by denying respondent’s motion to strike class allegations)

State Farm Insurance Cos. v. Padilla, No. 27-CV-11-23900 (Minn. Ct. App. Dec. 24 2012) (reversing order vacating no fault arbitration award; holding that the arbitrator did not exceed his powers by finding that insurer’s request for an examination under oath was unreasonable)

Stone & Youngberg, LLC v. Kay Family Revocable Trust, No. 11-16684 (9th Cir. Dec. 12, 2012) (holding that the arbitrator did not manifestly disregard negligence law and, further, that a court has no authority under the FAA to modify an arbitration award to prevent double recovery)

Compelling Arbitration

Baltazar v. Forever 21, Inc., No. B237173 (Cal. Ct. App. Dec. 20, 2012) (reversing order denying motion to compel arbitration; holding, among other things, that a provision in an arbitration agreement allowing either party to seek provisional remedies in court, such as injunctive relief, did not render the arbitration agreement unconscionable)

Taylor v. Community Bankers Securities, LLC, Case No. H-12-2088 (USDC S.D. Tex. Dec. 19, 2012) (denying motion to compel arbitration of action brought by receiver appointed to represent investors in Ponzi scheme due to absence of evidence that investors entered into arbitration agreements)

Botorff v. Amerco, Case No. 2:12-cv-01286-MCE-EFB (USDC E.D. Cal. Dec. 19, 2012) (dismissing UCL claim against truck rental company; holding that arbitration agreement referred to but not included in rental agreement was enforceable and, further, that small claims court exception to compulsory arbitration did not apply because plaintiff’s lawsuit was brought as a class action that could not be adjudicated in small claims court)

Stone v. Vail Resorts Development Co., Case No. 1:09-cv-02081 (USDC D. Colo. Dec. 20, 2012) (denying plaintiff’s motion to reopen case and reconsider order compelling arbitration)

Interim Arbitral Relief

United States f/b/o Clifford & Galvin Contracting, LLC v. Endicott Constructors Corp., Case No. 12-10152-MLW (USDC D. Mass. Dec. 13, 2012) (denying motion to dismiss Miller Act claims against surety and staying case pending arbitration between contractor and assured party)

Bergman v. Spruce Peak Realty, LLC, Case Nos. 2:11-cv-127, 2:11-cv-128 (USDC D. Vt. Dec. 13, 2012) (granting motion to consolidate two related class action cases and granting motion to stay consolidated action pending arbitrator’s decision on scope of arbitrable claims in one case)

Jurisdictional Issues

First Investment Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., No. 12-30377 (5th Cir. Dec. 21, 2012) (affirming that district court properly dismissed for lack of personal jurisdiction a petition to confirm a foreign arbitration award under the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards; affirming that defendant People’s Republic of China was properly dismissed for lack of subject matter jurisdiction)

This post written by Ben Seessel.

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COURT CERTIFIES APPEAL IN COMMUTATION/COMMISSION DISPUTE

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In our September 17, 2012 post, we reported on Acumen Re Management Corporation’s reinsurance-related suit against General Security National Insurance Company, in which it claimed that General improperly entered into commutation agreements with insurers with respect to accounts for which Acumen was receiving, and expected to continue receiving, premium commissions, based on the parties’ agency contracts. General denied any breach. The parties cross-moved for summary judgment. Acumen’s motion was denied outright. General’s motion was granted in part and denied in part. Acumen moved to reconsider, or, in the alternative, for certification for immediate appeal. The court declined reconsideration, but granted certification to appeal, finding the appeal could efficiently dispose of a number of issues before trial. Acumen Re Management Corp. v. General Security National Insurance Co., No. 09-Civ-1796 (USDC S.D.N.Y. Dec. 4, 2012)

This post written by John Pitblado.

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