Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FOLKSAMERICA GIVEN 60 DAYS TO PERFECT SERVICE AGAINST CONSTRUCTORA DEL LITORAL

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The US District Court for the Southern District of Florida recently issued an opinion on defendant Constructora del Litoral’s Motion to Dismiss for Insufficiency of Service of Process by plaintiff Folksamerica Reinsurance. The action arises out of defendants’ alleged failure to indemnify Folksamerica for sums paid in connection with reinsuring surety bonds issued for a construction project in Ecuador. Plaintiff served process pursuant to the Inter-American Convention on Letters Rogatory and Additional Protocol. Constructora alleged in its Motion to Dismiss that service was improper under both Ecuadorian law and under the Convention. The Court concluded that, although defendants had met the burden in establishing that service of process was insufficient, Folksamerica should be given 60 days to perfect service and file proof with the Court. Further background is available in the motion to dismiss, and the opposition to the motion to dismiss. Folksamerica Reinsurance Co. v. Constructora del Litoral, S.A., Case No. 10-20560 (S.D. Fla. June 18, 2010).

This post written by John Black.

THIRD CIRCUIT HOLDS THAT A PARTY CANNOT “OPT OUT” OF THE FEDERAL ARBITRATION ACT IN ITS ENTIRETY

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The Third Circuit has affirmed a judgment in favor of several foreign reinsurers confirming arbitration awards against the statutory liquidator (the Pennsylvania Insurance Commissioner) for two insolvent insurance companies, but reversed a sanctions award against the Commissioner. Following an arbitration award rescinding three of the four reinsurance treaties at issue, the Commissioner filed a motion in state court to confirm in part, and to vacate in part, the award as part of the liquidation proceedings. The reinsurers removed the case to the District Court for the Eastern District of Pennsylvania pursuant to the Federal Arbitration Act’s removal provision in 9 U.S.C. § 205, and filed a motion to confirm the award. The Commissioner moved to remand the case, arguing that the parties had selected the Pennsylvania Uniform Arbitration Act to govern the arbitration and, thus, that the parties had opted out of the FAA. The district court denied the remand motion and confirmed the award, concluding that the FAA’s vacatur standards applied, not the PUAA’s standards. The district court also sanctioned the Commissioner for filing what the court perceived to be a frivolous remand motion.

On appeal, the Third Circuit initially concluded that removal was proper. That court rejected the Commissioner’s arguments that, first, the parties opted out of the FAA and, second, even if the FAA applies, the arbitration provisions at issue clearly expressed an intent to opt out of the removal provision in § 205. As a matter of law, parties cannot “opt out” of the FAA in its entirety “because it is the FAA itself that authorizes parties to choose different rules in the first place,” and the parties did not agree to waive the right of removal. Not only did the treaties’ arbitration provisions not make any mention of removal, the only provision referring to removal, a service-of-suit provision, stated that nothing in it should be understood to constitute a waiver of the reinsurers’ removal rights.

The Third Circuit next concluded that the FAA supplied the vacatur standards. In the absence of clear intent to the contrary, the FAA’s standards apply to an arbitral award rendered in favor of a foreign party and enforced in the United States. In addition, there was no clear intent to apply the PUAA vacatur standards. Although the treaties stated that “the arbitration shall be in accordance with the rules and procedures established by the [PUAA],” the service-of-suit provision specifically referred to enforcement of the arbitration award in federal courts. The award was thus confirmable under the FAA’s limited vacatur standards.

Finally, the Third Circuit reversed the order granting sanctions for the remand motion, in part because there was no basis in existing law for the district court to conclude that parties could not opt out of § 205 and divest a federal court of jurisdiction. Ario v. The Underwriting Members of Syndicate 53 at Lloyds for the 1998 Year of Account, No. 09-1921 (3d Cir. Aug. 18, 2010).

This post written by Brian Perryman.

FIFTH CIRCUIT HOLDS DEFENDANT WAIVED RIGHT TO ARBITRATE BY FILING MOTIONS TO DISMISS

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In In re Mirant Corporation, the Fifth Circuit affirmed the lower court’s finding that the defendant waived its right to arbitrate. The defendant had filed multiple motions to dismiss based, in part, on waiver and estoppel, over a span of eighteen months. The court held that whether a motion to dismiss constitutes a waiver of arbitration as an invocation of the judicial process is a case-by-case determination. Here, the court explained, the defendant’s multiple motions invoked the judicial process by seeking a decision on the merits and a dismissal with prejudice for failure to state a claim. The court was also persuaded by the fact that the defendant did not file its motions to dismiss as an alternative to arbitration, but instead filed them prior to seeking arbitration as a “backup plan.” Lastly, the court held that the plaintiff was prejudiced both legally and financially by the defendant’s tactics. In re Mirant Corp., No. 09-10451 (5th Cir. August 2, 2010).

This post written by Michael Wolgin.

ARBITRATION ROUND UP

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Manifest Disregard:

ABS Brokerage Services, LLC v. Penson Financial Services, Inc., Case No. 09-4590 (USDC D.N.J. July 8, 2010) (denying motion to vacate, granting motion to confirm, no manifest disregard)

Arora v. TD Ameritrade, Inc., Case No. CV-10-01216 (USDC N.D. Cal. July 26, 2010) (denying motion to vacate FINRA award, no manifest disregard).

Dealer Computer Services, Inc. v. Johnson Ford Lincoln Mercury Nissan, Inc., Case No H-10-719 (USDC S.D. Tex. July 26, 2010) (granting motion to confirm, denying motion to vacate, no manifest disregard, and awarding attorneys fees and court costs to plaintiff as defendant had “no legally non-frivolous” basis for its challenge to the award and refusal to pay award was in bad faith)

Alpaca Shop Franchise Co. v. Roxburgh, Case No. 3:05-cv-1203 (USDC D. Conn. July 22, 2010) (granting petition to confirm, no manifest disregard, no ambiguity in award)

The First Baptist Church of Glenarden v. New Market Metalcraft, Inc., Case No. 8:10-cv-00543 (USDC S.D. Md. July 30, 2010) (granting motion to confirm, no manifest disregard).

Evident Partiality:

Hernandez v. Smart & Final, Inc., Case No. 3:09-CV-02266 (USDC S.D. Cal. June 17, 2010) (granting petition to confirm, denying petition to vacate award, no manifest disregard, no evident partiality)

Haddad v. Jackson, Case No. 1:07-cv-01676 (USDC E.D. Cal. July 16, 2010) (granting motion to confirm, denying motion to vacate, no evident partiality)

Procedure / Jurisdiction:

Technologists, Inc. v. Mir’s Ltd., Case No. 09-1339 (USDC D.D.C. July 27, 2010) (granting Rule 60(b) motion to vacate default judgment on petition to vacate, re-opening post-arbitration proceeding to further briefing on confirmation/vacatur)

Cargill Inc. v. Morgan, Case No. 1:10-cv-00088 (USDC E.D. Mo. July 28, 2010) (denying motion to vacate award, no arbitrator misconduct, and failure to exhaust arbitration appeal process under National Grain and Feed Association rules)

Exceed Powers:

Valve Corp. v. Activision Blizzard, Inc., Case No. 09-35800 (9th Cir. July 30, 2010) (affirming order requiring further arbitration proceedings on an offset issue the arbitrator initially refused to decide, finding arbitrator’s refusal to decide properly presented issue exceeded powers)

Samaritan Medical Center v. Local 1199, Service Employees Int’l Union, Case No. 7:09-cv-01072 (USDC N.D.N.Y. July 19, 2010) (denying motion to vacate, granting motion to confirm, arbitrator did not exceed powers by crafting remedy not provided for in collective bargaining agreement)

This post written by John Pitblado.

TENTH CIRCUIT HOLDS POST-JUDGMENT INTEREST RATE IN “BROAD” ARBITRATION PROVISION TRUMPS STATUTORY RATE

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On November 17, 2008, we reported on a Colorado district court’s decision in a reinsurance dispute to alter the post-judgment interest rate provided in the arbitration panel’s final award and replace it with a statutory rate.

Earlier this month, however, the Tenth Circuit reversed the district court, holding that the post-judgment interest entitlement and rate decided by the arbitration panel should govern. The court reasoned that parties are permitted to set their own rate of post-judgment interest through contract, and the arbitration provision at issue in this case was a “broad” provision. The court further held that “the parties’ intent is a quintessential fact question, and we see no reason why an arbitration panel with authority to decide a contractual dispute cannot also determine whether the contract in question includes language clearly, unambiguously, and unequivocally stating the parties’ intent to bypass § 1961[, the post-judgment interest statute].” Newmont USA LTD v. Ins. Co. of N. Am., Nos. 08-1347 & 08-1370 (10th Cir. Aug. 11, 2010).

This post written by Michael Wolgin.