Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

PLAINTIFF SUES ARBITRATOR, AAA FOR DUE PROCESS VIOLATIONS

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The present action before the US District Court in Nevada arose from a dispute between Dr. Ronald Slaughter and Laboratory Medicine Consultants regarding a stockholder agreement. A state district judge ordered the parties to arbitrate claims. A state court compelled the parties to arbitrate their disputes. Slaughter subsequently submitted an arbitration demand against LMC in September, 2007, after which he then tried to disqualify arbitrator Howard Roitman (which was denied). While arbitration was proceeding, Slaughter filed a suit in the Nevada federal court seeking to litigate issues encompassed by the arbitration. Slaughter then sought a stay of the arbitrtation pending litigation, but the Court denied the stay and dismissed the federal case in its entirety. Undeterred, Slaughter then filed another suit in federal court, this time against the AAA, Arbitrator Roitman, and two employees of the AAA alleging that his due process rights were violated during the underlying arbitration proceedings. Meanwhile, the arbitration continued, with rulings adverse to Slaughter. Defendants moved to dismiss the action, stating that they had immunity pursuant to N.R.S. § 38.229 for their conduct in administering arbitration proceedings and that the federal case was an impermissible collateral attack on the underlying arbitration. The Court agreed and dismissed the motion, specifically finding that Nevada’s Uniform Arbitration Act (cited above) protected the defendants against the suit. Further, the Court found that Slaughter’s action was an attack on the arbitration award and that his only relief would be to pursue vacatur of the award under the Federal and Nevada Arbitration Acts. Accordingly, the federal action was dismissed in its entirety. Slaughter v. American Arb. Assoc., Case No. 10-01437 (USDC D. Nev. June 2, 2011).

This post written by John Black.

ARBITRATION WITH SOME PLAINTIFFS BUT NOT OTHERS DENIED DUE TO RISK OF CONFLICTING RULINGS

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In an action brought by twenty-three investors against a brokerage related to investment fraud by the broker, a California appellate court rejected the brokerage’s attempt to arbitrate with the twelve investors with whom the brokerage had signed client agreements and stay the court action as to the remaining investors. While the client agreements at issue contained express agreements to arbitrate “any and all controversies or claims,” California law provides that a court should not order arbitration where: (1) a party to the arbitration agreement is contemporaneously a party to a pending court action arising out of the same transaction; and (2) where “there is a possibility of conflicting rulings on a common issue of law or fact.” The court was not persuaded by the brokerage’s argument that no risk of conflicting rulings existed, where the twelve investors, who had signed client agreements, had a “different legal standing” than the eleven investors who were non-clients. The court explained that the brokerage failed to show how the client/non-client distinction was relevant and that, on the contrary, “a legal duty may exist outside of a written agreement.” Cianci v. Centaurus Financial, Inc., Case No. B222474 (Cal. Ct. App. May 5, 2011).

This post written by Michael Wolgin.

COURT VACATES “COMPLETELY IRRATIONAL” FINRA PANEL DECISION

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In an unusual case, a court has refused to enforce an arbitration award as “completely irrational.” The plaintiff employee sued the defendant for disability benefits under the parties’ employment agreement. She was awarded disability benefits by the court, but the parties reserved certain other disputes for submission to a FINRA arbitration. The FINRA panel held that plaintiff owed defendant repayment of a substantial portion – more than $700,000 – of a contingent signing bonus, including for the duration of time not worked due to plaintiff’s disability. Plaintiff moved to vacate the award, arguing that the panel’s decision was not rationally derived from a reading of the employment agreement or from the parties’ submissions to the arbitrators. The court agreed, finding the plaintiff met the high burden of proving the panel decision was “completely irrational.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Schwarzwaelder, Case No. 11-0107 (USDC W.D. Pa. May 17, 2011).

This post written by John Pitblado.

APPEALS COURT BALANCES DEFERENCE TO ARBITRATOR WITH LESS STRINGENT STANDARDS FOR PRO SE PARTIES

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The plaintiff, Sandra Parker, brought an employment discrimination suit against her employer, J.C. Penney, which moved to arbitrate the case. Plaintiff proceeded pro se in the arbitration, after her counsel filed a motion to withdraw. The arbitrator found in favor of J.C. Penney. The plaintiff moved to vacate the award in federal district court. The court denied vacatur and confirmed the arbitrator’s award. The plaintiff appealed to the Court of Appeals for the Fifth Circuit. Citing competing constraints of “exceedingly deferential” review of an arbitrator’s award, while nonetheless “liberally” construing a pro se litigant’s brief and generally applying a less stringent standard to parties proceeding pro se than to parties represented by counsel, the Fifth Circuit affirmed, holding that plaintiff failed to demonstrate any of the bases for vacatur provided for in the FAA. Parker v. J.C. Penney Corporation, Inc., No. 10-40280 (5th Cir. May 20, 2011).

This post written by John Pitblado. [Read more…] about APPEALS COURT BALANCES DEFERENCE TO ARBITRATOR WITH LESS STRINGENT STANDARDS FOR PRO SE PARTIES

COURT CHARACTERIZES CROSS-PETITION TO CONFIRM AWARD AS SUPERFLUOUS AND IMPROPER, BUT DECLINES TO STRIKE IT

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Century Insurance arbitrated a dispute with London Market Reinsurers under the parties’ treaty reinsuring Century’s exposure to asbestos claims. Century petitioned the federal district court to have the arbitration award confirmed. The reinsurers cross-petitioned, citing the same basis for confirmation as did Century, but using its filing to tell its side of the story. Century moved to strike the cross-petition, charging that it was redundant, misleading, violative of the parties’ confidentiality agreement, and an improper attempt to advance the reinsurers’ “public relations agenda.” The court agreed that the filing was improper, and that the parties should “conduct their own public relations campaign outside the Court,” but refused to strike the cross-petition, reasoning that orders striking papers should be sparingly granted because the public should have access to court filings. Century Insurance Co. v. Certain Underwriters at Lloyd’s London, Case No. 11 Civ. 1503 (USDC S.D.N.Y. May 23, 2011).

This post written by Ben Seessel.