New reinsurance-related and arbitration developments from Carlton Fields
The Nonadmitted and Reinsurance Reform Act, a piece of the Dodd-Frank Wall Street Reform and Consumer Protection Act, contemplates tax sharing agreements among the states to facilitate the equitable distribution of surplus lines premium tax revenues. In this Special Focus article, Karen Benson discusses how those agreements have largely failed to manifest.
This post written by Karen Benson.
On July 21, 2008 and August 20, 2008 we reported on the early stages of a class action lawsuit filed by mortgage loan borrowers against now-defunct Washington Mutual, Inc. (“WaMu”), for alleged violations of the Real Estate Settlement Procedures Act. The borrowers contended that WaMu collected illegal kickbacks from private mortgage insurance providers who had agreed to reinsure the borrowers’ mortgage insurance with WaMu’s captive reinsurer. After WaMu failed the court substituted as a party the FDIC in its capacity as receiver for WaMu. The court has now granted FDIC’s motion to dismiss the action. The court held that the relief sought by the borrowers, treble damages under RESPA, constitutes a penalty, which, under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, may not be awarded against the FDIC in its capacity as receiver. Alexander v. Washington Mutual, Inc., Case No. 07-4426 (USDC E.D. Pa. June 28, 2011).
This post written by Michael Wolgin.
In a breach of contract action, Plaintiff Ambac Assurance sought to recover damages for the loss of more than $1 billion from investment accounts created to fund notes it guaranteed issued by a special purpose vehicle established to reinsure term life insurance policies. Ambac alleges that plaintiff J.P. Morgan Investment Management (“JPMIM”) failed to manage the accounts, and instead continued to hold toxic subprime securities in the accounts while its corporate parent (J.P. Morgan Chase) reduced its exposure to the same type of securities because they “could go up in smoke.” JPMIM moved to dismiss based on Ambac’s concession that JPMIM adhered to the contractual limitations on purchasing subprime securities. The New York Appellate Division reversed a New York Supreme Court ruling dismissing the action, and held that, at this stage of the proceedings, the court should have accepted the plaintiff’s allegations as true, given the plaintiff every possible inference, and simply ascertained whether the plaintiff’s allegations evidenced a cognizable cause of action (which the Appellate Division concluded Ambac had done). The case was remanded to the Supreme Court for further proceedings. Ambac Assurance UK Limited v. J.P. Morgan Investment Mgmt., Inc., No. 09-650259 (N.Y. App. Div. July 14, 2011).
This post written by John Black.
A court has recently compelled arbitration in a pending putative class action lawsuit, based on the U.S. Supreme Court’s AT&T Mobility LLC v. Concepcion decision. The case involved a class action suit against title insurers for alleged price fixing. After the case had proceeded “for some time,” Concepcion was decided, which held that (1) the FAA preempts various state laws that invalidate arbitration agreements and that (2) courts must compel arbitration even in the absence of the opportunity for plaintiffs to bring their claims as a class action. The defendants then moved to compel arbitration. Plaintiffs resisted, arguing that the holding of Concepcion was limited to arbitration agreements that contained an express waiver of class treatment (the agreements in this case were silent on class issues). Plaintiffs contended that defendants had never been barred from seeking class arbitration previously, and had thus waived their right to seek arbitration at that late-stage of the litigation. The court disagreed and compelled arbitration, holding that a demand for class arbitration would have been futile prior to Concepcion due to the Supreme Court’s Stolt-Nielsen decision, which precluded class arbitration unless there was “a contractual basis for concluding that the party agreed to do so.” There may be further decisions sorting out the interplay between these two Supreme Court decisions. In re California Title Insurance Antitrust Litigation, Case No. 08-01341 (USDC N.D. Cal. June 27, 2011).
This post written by Michael Wolgin.
The Fourth Circuit Court of Appeal recently issued its decision concerning Central West Virginia Energy’s consolidated appeal of two judgments affirming an arbitration award handed down by a Charleston, WV arbitration panel in favor of Bayer Cropscience, arising out of actions by two different arbitral panels. The issue was whether the validity of a particular contract should have been decided by a court or the arbitral panels (and if by arbitrators, which ones). Interpreting the recent Stolt-Nielsen decision, the Fourth Circuit upheld the decision of the two district courts and determined that this was a procedural rather than a jurisdictional issue, and as such was subject to decision by the arbitral panels rather than the courts. The Court of Appeal, emphasizing the “highly deferential standard of review due arbitration awards,” upheld the award concluding that the Charleston Panel had not exceeded its powers. Central West Virginia Energy, Inc. v. Bayer Cropscience LP, No. 10-348 (4th Cir. July 14, 2011).
This post written by John Black.