Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SECOND CIRCUIT AFFIRMS DISMISSAL OF LAWSUIT BASED ON ARBITRATION PROVISIONS BUT REFUSES TO ORDER SANCTIONS

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Ipcon Collections sued Costco over a dispute regarding a series of agreements in which Costco agreed to sell karaoke systems on a consignment basis on behalf of Ipcon’s predecessor in interest. Costco initiated arbitration and moved to dismiss the lawsuit based on arbitration clauses in the agreements, and for sanctions. The lower court granted Costco’s motion to dismiss in favor of the pending arbitration proceedings and denied its motion for sanctions. The Second Circuit affirmed. The Court of Appeals held that Ipcon’s argument that Costco “never intended to honor” the contracts sounded in fraud in the inducement, and it was up to the arbitrators to decided the merits of such claim. The court also rejected Ipcon’s alternative argument that there had been no “meeting of the minds,” holding that the executed contracts constituted objective evidence of a meeting of the minds. Though finding that Ipcon’s argument was “weak,” the court affirmed the decision not to award Costco sanctions “given the confusing nature of the division of responsibility between courts and arbitrators as to contract formation.” Ipcon Collections, LLC v. Costco Wholesale Corp., No. 11-3944 (2d Cir. Oct. 9, 2012).

This post written by Ben Seessel.

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Florida Appellate Court Affirms Jurisdiction Over Foreign Entities IN DISPUTE OVER OFF-SHORE INVESTMENTS

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A Florida appellate court affirmed a ruling denying a motion to dismiss based on claims of improper forum. ABA Capital Markets Corporation, a foreign entity based in the British Virgin Islands, was sued in Florida state court by Venezuelan reinsurer Provincial De Reaseguros, in connection with payment disputes arising from the parties’ bond trades and other off-shore investment transactions. Addressing common law factors, the Court found that (1) Venezuela would have been an adequate alternative forum; but that (2) private, practical interests, including the residence of some key witnesses in Florida, militated against transfer to another forum or dismissal; (3) public interests, including ABA’s connection to the forum, militated against transfer or dismissal; and (4) inconvenience/prejudice to the parties were not factors. ABA Capital Markets Corp. v. Provincial De Reaseguros C.A., No. 3D12-130 (Fla. Ct. App. Nov. 7, 2012).

This post written by John Pitblado.

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THIRD CIRCUIT REFUSES TO RECONSIDER DECISION DENYING REINSURANCE COVERAGE DUE TO INSURER’S LATE NOTICE

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Pacific Employers Insurance Company petitioned for rehearing of a Third Circuit decision ordering that judgment of non-liability be entered in favor of Global Reinsurance Corporation of America regarding a coverage dispute under the parties’ facultative reinsurance contract. As we earlier reported, the Third Circuit reversed a lower court decision in favor of Pacific under Pennsylvania law. The Third Circuit reversed and, applying New York law, held that Pacific’s late notice of underlying asbestos-related litigation that would likely give rise to claims precluded coverage, even absent a showing of prejudice to Global.

Moving for rehearing, Pacific argued that the court misapprehended and overlooked three points of New York law. First, Pacific argued that the court misapprehended New York law on contract interpretation by, in effect, rewriting the parties’ reinsurance contract to require Pacific to submit a definitive statement of loss even where no liability for a claim had yet been incurred, which could not be read harmoniously with a provision requiring Global to promptly pay Pacific after receiving a definitive statement of loss. Pacific further argued that the court overlooked that there had been no determination that the asbestos-related lawsuits the court held should have been promptly reported by Pacific were claims or occurrences for which Pacific later sought indemnity. Finally, Pacific argued that Global waived its late notice defenses by failing to raise them in its initial brief on appeal. The court denied the petition for panel rehearing without opinion. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, No. 11-3234 (3d Cir. Oct. 3, 2012).

This post written by Ben Seessel.

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ARBITRATION ROUND-UP

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Employment Disputes

Mesa Airlines, Inc. v. Air Line Pilots Association International, Case No. 2:11-cv-02106 (USDC D. Ariz. Sept. 14, 2012) (granting summary judgment upholding labor arbitration award; arbitrator’s reinstatement of airline pilot did not exceed jurisdiction by ignoring language of collective bargaining agreement, did not violate public policy, and did not exhibit bias by ignoring evidence).

Hamerslough v. Hipple, Case No. 1:10-cv-03056 (USDC S.D.N.Y. Oct. 25, 2012) (denying petition to vacate award; granting cross-petition to confirm award; award providing additional commissions to former salesperson, but only based on revenue collected prior to termination, was not based on arbitrator “exceeding their powers,” was not a “manifest disregard,” and was not contrary to public policy, including determination that salesperson was not “prevailing party” for purposes of awarding attorney’s fees).

Class Waiver

Webster v. Freedom Debt Relief, LLC, Case No. 1:12-cv-01654 (USDC N.D. Ohio Sept. 25, 2012) (denying petition to vacate award finding that underlying agreement precluded class arbitration; arbitrator did not commit “manifest disregard”).

Exceeding Authority/Manifest Disregard

Estate of Wildhaber v. Life Care Centers of America, Case No. 2:10-cv-00015 (USDC D. Nev. Oct. 23, 2012) (granting application for confirmation of award; denying motion to vacate and modify award; award for $1.5 million for pain and suffering and statutory double damages was not excessive for wrongful death, elder abuse, and elder neglect; no “manifest disregard” for award of prejudgment interest on attorney’s fees, statutory double damages, and grief and sorrow).

Day & Zimmerman, Inc. v. SOC-SMG, Inc., Case No. 2:11-cv-06008 (USDC E.D. Pa. Oct. 22, 2012) (granting motion to confirm award; denying motion to vacate award; rejecting argument that filing of “complaint” to vacate award instead of “motion” under FAA was grounds for dismissal of action, but confirming award because arbitrators did not exceed authority and other vacatur arguments were not viable under FAA).

Oehme, Van Sweden & Associates, Inc. v. Maypaul Trading & Services Ltd., Case No. 1:12-cv-00005 (USDC D.D.C. Nov. 6, 2012) (granting motion to confirm award; denying motion to vacate award; non-signatory bound to arbitration agreement under “apparent agency”; arbitrator did not commit “manifest disregard”).

CD&L Realty LLC v. Owens-Illinois, Inc., Case No. 1:11-cv-07248 (USDC D.N.J. Sept. 25, 2012) (granting motion to confirm award after removal; denying vacatur; arbitrator did not exceed authority, or violate public policy; plaintiff could not challenge arbitrator’s rejection of fraud and breach of contract claims for legal or factual error).

Procedural Issues

Degrate v. Broadcast Music Inc., Case No. 1:12-cv-01700 (USDC S.D.N.Y. Oct. 25, 2012) (dismissing sua sponte pro se petition to vacate award as untimely; deadlines for petition under state law and FAA would not be extended due to “unique circumstances” or “equitable tolling”).

Nuzzi v. Coachmen Industries, Inc., Case No. 3:09-cv-00116 (USDC N.D. Ind. Oct. 26, 2012) (denying motion to vacate award; action stayed against entities that filed Chapter 7 bankruptcy, but would proceed against viable defendant parent company; perceived “unfairness” of summary arbitration procedures not viable grounds for vacatur under FAA; arbitrator did not commit “manifest disregard”).

This post written by Michael Wolgin.

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ARBITRATION AWARD PLACING A PARTY AT RISK OF VIOLATING FEDERAL REGULATIONS FOUND NOT TO BE A MANIFEST DISREGARD OF THE LAW

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The First Circuit affirmed a district court’s denial of a motion to vacate an arbitration award issued in a dispute between Bangor Gas, a pipeline owner, and H.Q. Energy, a natural gas supplier, concerning responsibility for certain costs regulated by the Federal Energy Regulatory Commission. The arbitration panel designed a remedy consistent with the FERC’s shipper-must-have-title rule, but that placed Bangor at risk for violating a different FERC regulation. Following the arbitration award’s issuance, Bangor received guidance from the FERC staff that the panel’s remedy “would violate the Commission’s posting and bidding regulations.” While the First Circuit does not recognize “manifest disregard of the law” as a valid ground for vacating an arbitral award, it analyzed the award as if the doctrine applied since there is a circuit split on the issue. The court determined that the arbitrators did not disregard the law because the FERC’s intentions were not clear cut. The staff’s guidance is not binding on FERC and the arbitrators provided for the contingency of a violation in the award. Bangor Gas Co. v. H.Q. Energy Servs. (U.S.) Inc., No. 12-1386 (1st Cir. Sept. 26, 2012).

This post written by Abigail Kortz.

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