Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Eleventh Circuit Denies Petition to Vacate Arbitration Award Based on Alleged Bias Where Arbitrator’s Prior Employment by Opposing Law Firm Was Disclosed

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A pro se litigant sought to vacate an adverse summary judgment in arbitration that rejected her wrongfully termination claim. At the outset of the arbitration proceeding, the parties agreed on the selection of the proposed arbitrator, even though his curriculum vitae showed that he had previously served as the managing shareholder of an office of the law firm representing the employer adverse to the pro se litigant. This fact was further mentioned by the law firm in an email to the pro se litigant, and again by the arbitrator himself in another email to the parties.

After the arbitrator entered judgment for the employer, the pro se litigant sought to vacate the award, alleging that the arbitrator had failed to disclose his friendship with one of the lawyers representing the employer. The pro se litigant based her argument in part on the discovery of a photograph of the arbitrator and opposing counsel “standing arm in arm in celebration of [the arbitrator’s] 50th birthday” and further that this “undisclosed relationship and their friendship demonstrates bias.”

The Eleventh Circuit found these arguments insufficient to demonstrate the requisite bias. The court noted that the arbitrator’s prior employment by the law firm had been disclosed and stated that “it follows necessarily from this disclosure that he likely has friendships with many of [the firm’s] employees.” Further, to the extent the alleged friendship “should have been separately disclosed, we have explained that standing alone, the fact that an arbitrator had previous contacts with counsel for one of the parties does not suggest evident partiality.” To demonstrate bias, the pro se litigant had to produce some additional basis, such as “financial incentives” or “concurrent representations” involving opposing counsel that “might give a reasonable impression of partiality.” The evidence that was presented offered “mere speculation of unfair bias … which is too remote, uncertain and speculative to create a reasonable impression of partiality.”

Perez v. Cigna Health & Life Insurance Co., No. 20-12730 (11th Cir. July 13, 2021).

Court Refuses to Vacate Award Stemming From Workplace Personal Injury

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The U.S. District Court for the Southern District of New York recently refused to vacate an arbitration award stemming from a workplace personal injury after the arbitrator concluded that the employee was primarily responsible for his own injuries.

Daniel Pacelli was working for Vane Line Bunkering Inc. (known as “Vane Brothers”), as a tankerman on one of Vane Brothers’ barges in New York Harbor when he slipped, fell, and was injured on ice while attempting to salt the deck of the barge. He initiated an arbitration action against Vane Brothers. A JAMS arbitrator heard the case and concluded that Pacelli had sustained $986,750 in damages and that both Pacelli and Vane Brothers were negligent. More specifically, the arbitrator concluded that Pacelli was 70% at fault while Vane Brothers was 30% at fault. The arbitrator therefore reduced Pacelli’s damages accordingly. Pacelli moved to vacate the award.

The district court declined to vacate the award. It rejected Pacelli’s arguments that the arbitrator had (1) manifestly disregarded the law; (2) been partial to Vane Brothers; (3) engaged in “misbehavior” by repeatedly delaying his decision; and (4) improperly failed to award interest.

With respect to manifest disregard, the court concluded that the arbitrator had applied the law regarding contributory negligence to the facts of the case and had supported his decision regarding comparative fault with evidence from the record, including evidence that Pacelli had acted carelessly by attempting to salt a narrow part of the deck at night and in freezing temperatures without seeking assistance. The court noted that the Second Circuit does not recognize manifest disregard of the evidence as a ground for vacating an award and refused to reweigh the evidence.

The court also rejected Pacelli’s argument that the arbitrator had been partial to Vane Brothers. After the arbitration hearing but months before the arbitrator issued his decision, the arbitrator disclosed that he had a small ownership interest in JAMS and JAMS disclosed that it had a small number of other arbitrations with Vane Brothers, its counsel, and/or its counsel’s law firm. The court noted that Pacelli had waived this argument by not raising it before the arbitrator. The court nevertheless also explained that the facts did not show improper partiality and rejected Pacelli’s argument that the arbitrator’s small ownership interest was material in any event.

Turning to Pacelli’s next argument — that the arbitrator’s delays warranted vacatur — the court noted that Pacelli had not pointed to any “authority to support his position that the arbitrator’s extension requests amounted to ‘misbehavior’ by the arbitrator such that Pacelli’s rights were prejudiced.” That was especially true because Pacelli had consented to the extensions.

Finally, the court rejected Pacelli’s contention that it should vacate the award because the arbitrator had not awarded prejudgment interest. Although the court acknowledged that it would have been proper for the arbitrator to award prejudgment interest, the court noted that Pacelli had failed “to point the Court to any case in which a district court vacated an arbitration award for failure to award prejudgment interest” and noted that courts had declined to do any such thing.

The court then went on to confirm the arbitration award.

Pacelli v. Vane Line Bunkering, Inc., No. 1:20-cv-09431 (S.D.N.Y. July 16, 2021).

Eleventh Circuit Declines to Compel Arbitration in Suit Against Rental Car Company Under Arbitration Clause in Orbitz’s Terms of Service

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The Eleventh Circuit recently declined a rental car company’s attempt to invoke an arbitration clause in Orbitz.com’s terms of use in a lawsuit brought by a disgruntled customer who booked his rental car through Orbitz despite the seemingly broad language of the clause.

Ancizar Marin used Orbitz.com to book a rental car from Sixt Rent A Car. When Marin booked his rental car, he agreed to Orbitz’s terms of use, which included an arbitration clause requiring Marin to arbitrate “[a]ny and all claims.” Orbitz’s terms defined “claims” as:

[A]ny disputes or claims relating in any way to [1] the Services, [2] any dealings with our customer service agents, [3] any services or products provided, [4] any representations made by us, or [5] our Privacy Policy.

Marin subsequently picked up his car from Sixt and returned it. A few weeks later, however, he received an email from Sixt claiming that he had damaged the car and seeking $700 related to that damage. Marin sued Sixt in a putative class action. He did not sue Orbitz.

Sixt moved to compel arbitration under the arbitration clause in Orbitz’s terms. The district court denied Sixt’s motion and Sixt appealed to the Eleventh Circuit Court of Appeals, which affirmed.

The Eleventh Circuit explained that whether Marin’s claims fell within the scope of the arbitration clause in Orbitz’s terms required the court to determine whether Marin’s suit was a “claim” within the meaning of Orbitz’s arbitration clause. That in turn required the court to determine whether Marin’s suit was a “dispute[] or claim[] relating in any way to … any services or products provided.” Although the court concluded that the answer to that question was not entirely clear, the court determined that Marin’s suit was not within the scope of Orbitz’s arbitration clause because the phrase in question related to Orbitz’s services or products, not the services or products of third parties that partnered with Orbitz. The court noted that the surrounding clauses all related “to services or products provided by Orbitz.” It also explained that Orbitz’s terms required customers asserting “claim[s]” to give written notice to Orbitz and that it would be strange to require customers to inform Orbitz about grievances they had with third parties. The Eleventh Circuit also noted that Orbitz’s terms recognized that customers would have agreements with the third-party vendors whose services they booked on Orbitz’s website. That further suggested that the phrase “services or products provided” in Orbitz’s terms referred to Orbitz’s services or products. The court also explained that “common sense” suggested that Orbitz was referring to its services and products, not third-party services or products.

The court next rejected Sixt’s argument that the Moses H. Cone canon that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration” applied. The court explained that the canon applied “only if Marin’s lawsuit against Sixt was an immediate, foreseeable result of the performance of [Marin] accepting Orbitz’s Terms” because the canon only applied if “the FAA governs the arbitration agreement at issue.” But Marin’s lawsuit was not an immediate, foreseeable result of accepting Orbitz’s terms; his dispute was with Sixt. The Eleventh Circuit also rejected Sixt’s argument that Florida law incorporated the canon.

The Eleventh Circuit therefore affirmed the district court’s denial of Sixt’s motion.

Calderon v. Sixt Rent A Car, LLC, No. 20-10989 (11th Cir. July 14, 2021).

Second Circuit Finds International Arbitral Tribunal Formed Under a Bilateral Investment Treaty Constitutes a “Foreign Tribunal” Under 28 U.S.C. § 1782

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Third-party defendants AlixPartners LLP and Simon Freakley (collectively, “AlixPartners”) appealed from a July 2020 order of the U.S. District Court for the Southern District of New York, which granted an application for discovery assistance pursuant to 28 U.S.C. § 1782. Section 1782 allows federal district courts to compel witness testimony or document production from any person or entity “residing” or otherwise “found” in the judicial district for “use in a proceeding in a foreign or international tribunal.” The Fund for Protection of Investor Rights in Foreign States sought assistance from the district court in seeking discovery from AlixPartners for use in an arbitration proceeding the fund had commenced against the nation of Lithuania. The fund brought the proceeding before an arbitral panel established pursuant to a bilateral investment treaty between Lithuania and Russia. The issues on appeal were: (1) whether an arbitration between a foreign state and an investor, which takes place before an arbitral panel established pursuant to a bilateral investment treaty to which the foreign state is a party, constitutes a “proceeding in a foreign or international tribunal” under section 1782; (2) whether the fund is an “interested person” within the meaning of section 1782; and (3) whether the district court abused its discretion in finding certain factors established by the U.S. Supreme Court in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), weighed in favor of granting the fund’s application.

Reinforcing its decision in In re Application of Hanwei Guo, 965 F.3d 96 (2d Cir. 2020), the Second Circuit held that the arbitration panel here qualified as a “foreign or international tribunal” under section 1782, as it was established in accordance with a bilateral investment treaty between two nations and was governed by the UNCITRAL rules. The court found this conclusion to be consistent with both Guo and legislative intent to broaden the reach of section 1782 to allow for discovery assistance within the context of intergovernmental tribunals. Because the fund was a party to the arbitration for which it sought discovery assistance, the court ruled that the fund was an “interested person” under section 1782. Having also determined that the district court did not err in its weighing of the so-called Intel factors, the Second Circuit affirmed the district court’s ruling granting the fund’s application for discovery assistance.

In re Fund for Protection of Investor Rights in Foreign States v. AlixPartners, LLP, No. 20-2653 (2d Cir. July 15, 2021).

Eighth Circuit Holds Claims Against Parent Company Were Precluded by Prior Arbitration Award and Confirmation Denying the Same Claims Against Company’s Subsidiary

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Cellphone network developer Daredevil Inc. brought an action in a Missouri federal district court against Chinese technology firm ZTE Corp., which manufactured and sold telecommunications infrastructure and cellular network equipment, asserting claims for breach of contract, fraud, unjust enrichment, and tortious interference with contract.

Daredevil’s case against ZTE was stayed pending a Florida arbitration of Daredevil’s claims against a New Jersey-based wholly owned subsidiary of ZTE. The arbitrator ultimately denied Daredevil’s claims against ZTE’s subsidiary, and a Florida federal district court confirmed the arbitration award, which was affirmed by the Eleventh Circuit Court of Appeals. Daredevil then reopened its case against ZTE in the Missouri district court, and ZTE moved for summary judgment on the grounds that Daredevil’s claims were precluded by the prior arbitration award and confirmation.

Agreeing with ZTE that Daredevil’s claims were precluded under Florida law by the arbitration award and confirmation, the Missouri district court granted ZTE’s motion for summary judgment. Daredevil appealed, arguing that the district court erred when it applied Florida law instead of Missouri law to the issue of claim preclusion and that its claims against ZTE were also not barred under Florida law because the parties and causes of action did not meet Florida law’s requirement of “identity” for claim preclusion to apply.

On appeal, the Eighth Circuit Court of Appeals held that Florida law governed the preclusive effect of the arbitration award that took place in Florida and was confirmed by the Florida federal district court. The Eighth Circuit also held that ZTE satisfied Florida’s “identity” requirement for claim preclusion to apply, finding that privity existed between ZTE and its subsidiary, and Daredevil’s claims against ZTE were “so closely related to” Daredevil’s arbitration claims against the subsidiary. As a result, the Eighth Circuit affirmed the Missouri district court’s decision.

Daredevil, Inc. v. ZTE Corp., No. 19-3769 (8th Cir. June 18, 2021).