Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

DISTRICT COURT REJECTS APPLICATION OF NLRB HORTON CASE ON CLASS ARBITRATION WAIVERS

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We previously posted on the NLRB’s rejection of the application of the Supreme Court’s Concepcion decision in contracts subject to the National Labor Relations Act, invalidating a class arbitration waiver which Concepcion arguably would have upheld (In Re D.R. Horton, Inc.). A district court has refused to follow Horton in an action alleging that the assessment of redemption fees to cash voucher payments rendered wages below the legal minimum, ruling instead that temporary staffing service employees must arbitrate their claims on an individual basis against their employer pursuant to their employment agreements. Relying on Concepcion, the court rejected Plaintiffs’ argument that collective-arbitration waivers in adhesion contracts were per se unconscionable and ruled that the Federal Arbitration Act preempted the state’s unconscionability doctrine in both the consumer contract and employment contract contexts. The district court also excused Defendants’ fifteen-month delay in invoking arbitration, holding that Concepcion constituted a post-commencement “intervening change in the law” that unambiguously weighed against a finding of waiver.

In an opinion on a motion for reconsideration, Plaintiffs argued that Horton prohibits employers from compelling employees to waive their right to pursue collective litigation of employment claims in both arbitral and judicial forums, rendering the arbitration clause void. The court found the NLRA argument procedurally defective because it lacked binding authority and substantively defective because neither state nor federal courts possess jurisdiction over claims based on activity that is arguably subject to the NLRA’s exclusive collective action provisions. Brown v. Trueblue, Inc., No. 10-CV-0514, 2012 WL 1268644 (M.D. Pa. Apr. 16, 2012).

This post written by Rollie Goss.

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VACATION OF ARBITRAL AWARD REFUSED DUE TO PARTY’S FAILURE TO CHALLENGE AWARD IN FOREIGN FORUM

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Parties to a stock purchase agreement between two British Virgin Islands companies arbitrated a dispute in Miami, Florida. One party was required to pay a $11 million award. The prevailing party applied to the High Court of the British Virgin Islands (“the BVI court”) for enforcement of the award, pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, while the losing party moved to vacate the award in the U.S. District Court for the Southern District of Florida. Although the BVI court offered to stay the action pending the resolution of the district court case if the losing party posted bond, the losing party failed to either provide the requested $7 million security or appeal the order. The BVI court then granted the application and entered a judgment on the award, which the losing party failed to appeal. The BVI court appointed liquidators, who collected enough funds to satisfy the judgment. The losing party then moved to reopen the vacatur proceedings, which the district court had stayed at the liquidators’ request. The district court reopened the case and granted the prevailing party’s motion to dismiss, holding that it did not have subject matter jurisdiction over the motion to vacate the award.

On appeal, the Eleventh Circuit affirmed the dismissal on other grounds, concluding that the case was prudentially moot, as the district court would be unable to provide effective relief, holding that a party may not sit idly by while an arbitration award is confirmed and only then seek to vacate it. Emphasizing the uniqueness of the facts of the present case, the court stated that the failure to act in the BVI court and consent to a stay of the district court proceeding allowed the BVI case to take precedence. Furthermore, the BVI court had indicated that vacatur in the district court would not affect its final judgment, except in the case of fraud or mistake, which, combined with losing party’s own failure to act, made the likelihood of meaningful relief in the district court virtually non-existent. Ingaseosas Int’l. Co. v. Aconcagua Investing Ltd., No. 11-10914 (11th Cir. July 5, 2012).

This post written by Rollie Goss.

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SECOND CIRCUIT REJECTS MANIFEST DISREGARD ARGUMENTS

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The Second Circuit has summarily affirmed a district court’s denial of a petition to vacate an arbitration award, and granted the cross-petition to confirm. We noted in our December 15, 2010 post that the Southern District of New York confirmed the award to Bayou Funds, a group of bankrupt entities which had been run as a massive Ponzi scheme. The district court ruled that the arbitrator did not manifestly disregard the law, even though he did not explicate the reasons for his ruling. Goldman Sachs, Bayou Funds’ clearing broker, continued to argue on appeal that the award must be vacated because it was rendered in manifest disregard of the law. After confirming that the manifest disregard doctrine remains viable in the Second Circuit, the appeals court rejected, among other things, Goldman’s arguments that it was not an “initial transferee” under the Bankruptcy Code’s § 550(a), and that the panel manifestly disregarded the law in concluding that it was. A district court decision in a different case supported Bayou Funds’ position and, although the Second Circuit declined to expressly endorse that earlier decision, it was enough to hold there was no manifest disregard. Goldman Sachs Execution & Clearing L.P. v. The Official Unsecured Creditors’ Committee of Bayou Group, LLC, No. 10-5049 (2d Cir. July 3, 2012).

This post written by Brian Perryman.

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SECOND CIRCUIT FINDS NO DIRECT ACTION RIGHT AGAINST REINSURER

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The Second Circuit handed down a summary order affirming the dismissal of Callon Petroleum’s complaint in a reinsurance dispute against National Indemnity. The court found that because the reinsurance agreement made clear that third parties had no rights under the agreement, Callon did not have a right of action against National Indemnity. Thus, this case did not qualify for New York state’s exception (in cases where the agreement contains a “cut through” provision) to the general rule that, as contracts of indemnity, reinsurance agreements give the original assured no right of action against the reinsurer. The court also affirmed the denial of Callon’s request to amend its complaint. Callon Petroleum Co. v. National Indemnity Co., No. 11-241 (2d Cir. July 3, 2012).

This post written by John Black.

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COURT ORDERS PRODUCTION OF REINSURANCE AND RESERVE INFORMATION IN INSURANCE CLAIM SUIT, FINDING INFORMATION RELEVANT AND NOT SUBJECT TO THE COMMON INTEREST PRIVILEGE

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In an insurance coverage case arising out of the sinking and salvage of a dry dock, the insured sought the production of documents concerning reinsurance purchased by its insurer, from the procurement of the reinsurance through the claim submitted to the reinsurer. The insurer resisted production based upon two grounds: (1) relevance; and (2) the common interest privilege, claiming that it and its reinsurer had “a joint legal interest in the outcome of the litigation ….” The insured contended that the reinsurance documents were discoverable and potentially relevant in that the insurer had contended that the insured had fraudulently failed to disclose certain information to it about the dry dock, and the facts considered by the reinsurer in pricing the reinsurance might reveal that the information allegedly not disclosed was in fact known to the insurer. Accepting this argument, the court found the reinsurance file, including information concerning reserves, to be relevant and discoverable.

The court held that the common interest doctrine requires a two-part showing: (1) a common legal, rather than solely commercial, interest; and (2) an exchange of privileged information made in the course of formulating a common legal strategy, with an understanding that the communication would be in furtherance of a shared legal interest. The first element requires an oral or written agreement “embodying a cooperative and common enterprise towards an identical legal strategy.” Finding that the mere status of insurer-reinsurer did not establish these elements, and the fact of the reinsurer merely turning its file over to the insurer was insufficient, the court analyzed the facts and determined that neither of these two elements of the common interest privilege had been satisfied. Accordingly, it ordered the production of the reinsurance information. In a separate order, the court deferred other discovery issues not related to reinsurance to a later hearing. Fireman’s Fund Insurance Company v. Great American Insurance Company of New York, Case No. 10-1653 (USDC SDNY July 3, 2012).

This post written by Rollie Goss.

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