Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REFUSES TO COMPEL ARBITRATION OVER “COLLATERAL” MATTERS IN THE INTERESTS OF JUSTICE AND JUDICIAL ECONOMY

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In a shareholder dispute over the alleged improper termination of a company president, a court recently compelled arbitration of issues central to the case, but retained jurisdiction over a collateral issue related to ownership of corporate shares. The underlying shareholder agreement provided that all parties agreed to arbitrate “any controversy relating to [the] Agreement.” The court held that “all issues and claims raised in the plaintiffs’ complaint, relating to defendant’s performance of his duties as president and his alleged breaches of duty to plaintiffs” related to the shareholder agreement and therefore should be referred to arbitration. With respect to an ancillary dispute as to the status of the company shares of a former shareholder who left the United States, the court decided to retain jurisdiction in “the interests of justice and judicial economy.” The court explained that matters relating to the ownership dispute were collateral to the termination dispute, and that at least one pending issue would continue to involve the court “even were the question of share ownership referred to arbitration.” Boz Export & Import, Inc. v. Karakus, Case No. 8738/11 (N.Y. Sup. Ct. Sept. 15, 2011).

This post written by Michael Wolgin.

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FIFTH CIRCUIT HOLDS CLASS ARBITRATION NOT EQUIVALENT TO CLASS ACTION FOR PURPOSES OF CAFA

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Homeland Insurance Company recently appealed to the Fifth Circuit Court of Appeals a district court’s remand of a class action to Louisiana state court. The action arose when a medical doctor brought a putative class action in Louisiana state court on behalf of Louisiana medical providers against a number of Louisiana and non-Louisiana PPO providers. One defendant agreed to settle, but before the settlement was approved, another defendant removed to federal court under CAFA. The settling defendant moved for (and was granted) remand to state court based on the local controversy exception to the Class Action Fairness Act. Subsequently, another of the defendants (Homeland Insurance) filed the instant motion to appeal the remand.

The Court of Appeals affirmed the remand order under the local controversy exception, finding that (a) at least two-thirds of the class (business entities incorporated in the state) are Louisiana citizens; (b) at least one of the defendants was a “local” defendant; (c) the principal injuries occurred in Louisiana, and (d) no other class action has been filed alleging similar facts against any of the defendants in the prior three years. Two key facts are important to consider. First, the Court of Appeals noted that even inactive corporations are still citizens of the state in which they were incorporated. Second, class arbitration does not count as a class action for purposes of the CAFA local controversy exception. Williams v. Homeland Ins. Co. of New York, No. 11-30646 (5th Cir. Sept. 19, 2011).

This post written by John Black.

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SPECIAL FOCUS: FEDERAL INSURANCE OFFICE CONFERENCE

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The Dodd-Frank Act requires that the Federal Insurance Office (“FIO”) submit a report to Congress regarding the “modernization” of the regulation of the business of insurance. The FIO recently held a conference as part of the preparation of that report. Our Special Focus article summarizes that conference.

This post written by Rollie Goss.

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CALIFORNIA COURT OF APPEALS FINDS ARBITRATION PROVISION UNCONSCIONABLE, AVOIDS APPLYING CONCEPCION

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A purchaser filed a putative state class action against a car dealer alleging state law violations related to the sale of automobiles. The car dealer filed a motion to compel arbitration pursuant to a provision in the sales contract, which also contained a class action waiver. The trial court determined that the class action waiver was unenforceable, and, based upon this denial, a “poison pill” clause in the contract went into effect making the entire arbitration provision unenforceable. The trial court’s invalidation of the class arbitration waiver provision arguably could not stand in light of the US Supreme Court’s recent decision in AT&T Mobility LL v. Concepcion, 131 S.Ct. 1740 (2011). However, the Court of Appeals affirmed based upon another ground, that the arbitration provision itself was a product of adhesion and unequal bargaining power and hence unconscionable. The court found that Concepcion preserved the ability of state courts to invalidate entire arbitration provisions on the basis of unconscionability. However, the California “Discover Bank rule” disapproved by the Supreme Court in Concepcion was premised on a conclusion that the class arbitration waiver was the product of adhesion, and the Supreme Court found that justification insufficient to overcome the objectives of the Federal Arbitration Act. The Sanchez court’s invalidation of the entire arbitration provision on the same ground may raise a question as to whether this decision is consistent with the principles articulated by the Supreme Court in Concepcion. Sanchez v. Valencia Holding Co., LLC, No. BC433634 (Cal. Ct. App. Oct. 24, 2011). The Court of Appeals granted a petition for rehearing and issued a modified opinion affirming the lower court’s decision. In the new opinion, the Court of Appeals emphasized that unconscionability itself survived the Concepcion ruling, and that here, the unconscionability permeated the entire agreement with numerous unconscionable clauses. Again, the Court of Appeals took pains to limit the scope of the Supreme Court’s Concepcion opinion. Sanchez v. Valencia Holding Co., LLC, B228027 (Cal. Ct. App. Nov. 23, 2011).

This post written by John Black.

IOWA INTRODUCES BILL CONCERNING NONADMITTED REINSURANCE REFORM ACT

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House Study Bill 181 has been introduced into the General Assembly of the State of Iowa. If the Bill is enacted, Iowa would join other states in signing on to the surplus lines insurance multistate compliance compact, stipulating to the provisions of the Nonadmitted Reinsurance Reform Act (the “Act”), which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The stipulations in the Act provide, among other things, that placement of nonadmitted insurance will be subject to the statutes and regulations of the insured’s home state and, furthermore, that premium taxes on nonadmitted insurance will be paid only to the insured’s home state. The stipulations also contemplate the establishment of a multistate compliance compact commission that will have rulemaking and enforcement authority. H. Study B. 181 (IA 2011).

This post written by Ben Seessel.