Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

D.C. Circuit Affirms Award of Fees

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This case arose out of an employment dispute between Preeminent Protective Services Inc., which provides security services in and around the District of Columbia, and the Service Employees International Union Local 32BJ. When Preeminent took over a contract, it refused to hire two guards who had previously worked there. The union claimed the refusal violated a collective bargaining agreement.

The union filed a petition to compel arbitration of that claim in federal court in the District of Columbia. In May 2018, the district court granted summary judgment to the union and ordered the parties to arbitrate. After Preeminent stalled the arbitration for more than a year, the district court held Preeminent in contempt for failing to comply, and awarded $51,000 in costs and attorneys’ fees to the union based on a “lodestar” figure, reflecting the number of hours worked by each union lawyer multiplied by a reasonable hourly rate for each lawyer.

Preeminent appealed all three orders of the district court: the motion to compel arbitration, the contempt order, and attorneys’ fees. However, the D.C. Circuit lacked jurisdiction to review the arbitration and contempt orders, which were final decisions not timely appealed. On appeal, Preeminent raised three challenges to the fee award.

First, Preeminent argued it was impermissibly punitive to use prevailing market rates as opposed to actual rates. The D.C. Circuit rejected that argument, noting that the court has repeatedly upheld the use of prevailing market rates in determining appropriate awards under statutory fee-shifting provisions.

Second, Preeminent claimed that the district court miscalculated the prevailing market rates. The D.C. Circuit again rejected that argument, finding that although the union’s attorneys charged discounted rates, they were nevertheless worthy of market rates given their experience and credentials.

Finally, Preeminent argued the district court should have lowered the award to account for Preeminent’s inability to pay. The D.C. Circuit rejected that argument based on contradicting evidence that showed Preeminent had active contracts worth more than $2.5 million.

The D.C. Circuit therefore affirmed the district court’s fee award on the merits.

Service Employees International Union Local 32BJ v. Preeminent Protective Services Inc., No. 19-9157 (D.C. Cir. May 18, 2021).

Second Circuit Affirms Denial of Vacatur of Employment Arbitration Award Due to Failure to Provide Evidence of Alleged Perjury in Arbitration Proceedings

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The district court had denied a motion filed by a former employee of a department store for vacatur of an arbitration award that rejected a grievance filed by the employee’s union against the store. On appeal, the employee argued that the district court erred when it denied vacatur because the award was obtained by fraud, namely, false testimony. The Second Circuit affirmed, holding that, because the employee provided no record evidence of the arbitration testimony, and only repeated “unsupported allegations,” the appellant failed to show (1) the existence of fraudulent activity; (2) that, even with the exercise of due diligence, he could not have discovered the fraud prior to the award issuing; and (3) that the fraud materially related to an issue in the arbitration. The court concluded: “Without providing at least the challenged testimony, [the appellant] has failed to show that any perjury occurred or even that the testimony he wishes to challenge was materially related to the arbitrator’s decision.” The court affirmed, ruling that the employee failed to demonstrate any error with the denial of the motion for vacatur.

Bright-Asante v. Saks & Co., No. 20-1280 (2d Cir. May 14, 2021).

Private Employment Arbitration Agreement Not Binding on Secretary of Labor When Bringing an Enforcement Action on Behalf of One Party to Agreement Against the Other

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The Department of Labor brought an enforcement action against Arizona Logistics Inc. for alleged violations of the FLSA’s minimum wage, overtime, record-keeping, and anti-retaliation requirements resulting from the alleged misclassification of delivery drivers as independent contractors rather than employees. Arizona Logistics moved to compel arbitration under its agreements with the drivers, and the Arizona district court denied the motion on the authority of the Supreme Court’s decision in EEOC v. Waffle House Inc.

The Ninth Circuit Court of Appeals affirmed the denial, noting that the FAA does not provide that agreements to arbitrate are enforceable against nonparties, and the secretary of labor was not a party to the agreement. In addition, the court highlighted the fact that, under the statutory scheme enacted by Congress, the secretary is “master of [his] own case,” that the remedial statute at issue “unambiguously authorizes the Secretary to obtain monetary relief on behalf of specific aggrieved employees,” and that the enforcement action may be a vehicle to “vindicate broader governmental interests,” such as deterring other employers from violating the FLSA and protecting compliant employers from unfair wage competition. Moreover, the secretary not only controlled the case, but the employee did not even have a right to intervene in the secretary’s action once the secretary filed suit.

Quoting Waffle House, the Ninth Circuit concluded that a contrary holding “would undermine the detailed enforcement scheme created by Congress simply to give greater effect to an agreement between private parties that does not even contemplate the Secretary’s statutory function.”

Walsh v. Arizona Logistics, Inc., No. 20-15765 (9th Cir. May 18, 2021).

English High Court Blocks Financial Services Group From Bringing Excess Insurance Claim Against UK Reinsurers in South Africa Where Courts of England and Wales Had Exclusive Jurisdiction Under Excess Layer Reinsurance Contracts

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After paying out more than $21 million in settlements for its mishandling of a collective investment scheme that collapsed in 2009, financial services group ABSA filed suit in South Africa against its reinsurers to enforce reinsurance contracts that purportedly provided compensation for the settlement of lawsuits and arbitration.

The U.K.-based reinsurers claimed that the proceedings brought against them in South Africa by ABSA were in breach of the reinsurance contracts, which provided that the courts of England and Wales should have exclusive jurisdiction.

The reinsurers applied for an interim anti-suit injunction. An interim anti-suit injunction restraining ABSA from pursuing the South African proceedings was granted until the return date. On the return date, Nicholas Vineall QC, sitting as a judge at the High Court, addressed what, if any, anti-suit injunction was appropriate — mainly whether he should continue, or vary, or decline to continue, the interim injunction.

Finding no strong reasons for refusing to restrain the South African proceedings on the excess layers, the High Court judge held he would keep in place the anti-suit injunction preventing a claim from being brought in South Africa under the excess layers, reasoning that the excess layer coverage was governed by an exclusive jurisdiction clause that required disputes to be litigated in the courts of England and Wales. However, the High Court judge refused to continue the injunction preventing a South African proceeding over the primary layer of reinsurance, as that primary layer of coverage had no such exclusive jurisdiction clause.

Recognizing that the end result was not ideal because it leaves most of the parties involved in two sets of proceedings, the High Court judge reasoned that its decision “reflects the different wording of the agreements which the parties entered into,” and “[t]he result does give effect to and enforce those agreements.”

Axis Corporate Capital UK II Ltd. v. ABSA Group Ltd., No. CL-2020-000871, [2021] EWHC 861 (Comm), in the High Court of Justice, Business and Property Courts of England and Wales, Commercial Court (Apr. 13, 2021).

Party Opposing Confirmation of Non-Domestic Arbitration Award Subject to Convention May Also Assert FAA Defenses If Award Rendered in the U.S. or Under U.S. Arbitral Law

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In 2006, Goldgroup and DynaResource entered into a contract relating to a gold mining operation in Mexico, which contained a dispute resolution provision requiring that the disputes be submitted to binding arbitration in Denver, Colorado, under the rules of the American Arbitration Association (AAA). Goldgroup initiated arbitration in Denver, but DynaResource refused to participate, relying on a Mexico City court’s ruling in 2015 that the arbitration agreement was unenforceable because Goldgroup had waived its right to arbitration by submitting to the jurisdiction of Mexico courts in prior disputes.

In 2016, the arbitrator ruled in Goldgroup’s favor and awarded it monetary and equitable relief. The arbitrator also found that the arbitration clause was valid and enforceable, that Goldgroup had not waived its right to arbitrate by participating in any other lawsuits, and that DynaResource engaged in forum shopping by asking the Mexico City court to rule on the arbitrability of Goldgroup’s claims.

Goldgroup then sought confirmation of the non-domestic arbitration award in the Colorado district court. DynaResource opposed recognition of the award under the Inter-American Convention on International Commercial Arbitration (the Convention) and moved to vacate the award under the Federal Arbitration Act (FAA), arguing that the award should not be confirmed because the arbitrator exceeded the scope of his authority by ruling on the issue of whether Goldgroup had waived its right to arbitrate and whether the Mexico City court’s ruling effectively annulled the subsequent award issued in the arbitration. The district court confirmed the award and entered final judgment against DynaResource. After unsuccessfully moving to alter or amend the judgment, DynaResource appealed.

On appeal, DynaResource argued that the district court erred in holding that waiver was a question for the court without making a factual determination as to whether Goldgroup in fact waived its right to arbitration. Goldgroup contended that DynaResource did not raise the issue with the district court and thus failed to preserve it. The Tenth Circuit Court of Appeals agreed, finding that the district court was not required to decide whether Goldgroup waived its right to arbitrate because the issue was not properly before it, and DynaResource had not preserved the issue for the appellate court’s review.

In addition, Goldgroup argued that even if DynaResource had preserved the issue, waiver is not available as a defense to confirmation of the award because FAA defenses, such as waiver, do not provide grounds for vacating an award subject to the Convention.

On an issue of first impression, the Tenth Circuit addressed whether the FAA’s vacatur standards apply when a U.S. court is considering the confirmation of a non-domestic arbitration award subject to the Convention and rendered in the United States or under U.S. arbitral law.

The Tenth Circuit rejected Goldgroup’s argument, holding that the Convention’s defenses for opposing the confirmation of a non-domestic arbitration award are not exclusive and that a party may also assert FAA defenses to oppose confirmation if the non-domestic arbitration award was rendered in the United States or under U.S. arbitral law.

Despite its holding that DynaResource could seek vacatur under the FAA, the Tenth Circuit rejected DynaResource’s argument under the FAA that the arbitrator exceeded his authority by ruling on the issue of arbitrability, finding that the contracting parties manifested a clear intent to arbitrate the issue of arbitrability by incorporating the AAA rules into their arbitration agreement. Moreover, the circuit court found DynaResource failed to show that any alleged error by the arbitrator in ruling on the waiver issue warranted vacatur.

The circuit court also rejected DynaResource’s argument under the Convention that the Mexico City court’s ruling effectively annulled the subsequent arbitration award, holding that the defense does not apply preemptively to awards not yet rendered. The circuit court also found the defense was inapplicable because the Mexico City court improperly applied Mexican law rather than U.S. law, where the arbitration was pending. Therefore, the Tenth Circuit affirmed confirmation of the award.

Goldgroup Resources, Inc. v. DynaResource de Mexico, S.A. de C.V., No. 20-1143 (10th Cir. Apr. 16, 2021).