Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Second Circuit Affirms Confirmation of ICC Decision Based on UAE Law

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The Second Circuit Court of Appeals recently affirmed a decision confirming a decision by the International Chamber of Commerce (ICC) that applied the law of the United Arab Emirates (UAE).

Cessna Finance Corp. leased several private jets to startup Prestige Jet Rental. Ghaith Al Ghaith, Prestige’s chairman, who was also the deputy chairman of Al Ghaith Holding Co. PJSC (AGHC), guaranteed the lease agreements in his capacity as deputy chairman of AGHC. When Prestige defaulted, Cessna initiated arbitration in the ICC pursuant to the lease agreements against AGHC. AGHC argued that Al Ghaith’s guarantee was invalid because its articles of association required the signatures of “two out of three” of its chairman, deputy chairman, and managing director to bind the company, and only Al Ghaith had signed the guarantee. The ICC rejected that claim, finding that “AGHC was bound by ‘good faith’ under … the UAE Civil Code.” Cessna moved to confirm the ICC’s award and AGHC cross-moved to vacate the award.

The district court confirmed the award. The Second Circuit affirmed. The Second Circuit rejected AGHC’s argument that the ICC had “manifestly disregarded the law,” explaining that it had applied the law of the UAE in a way that “provided at least a barely colorable justification for its decision.” The court noted that a barely colorable justification was all that was needed for an award to be enforced against a challenge that an arbitrator manifestly disregarded the law.

Cesfin Ventures LLC v. Al Ghaith Holding Co. PJSC, No. 20-1106 (2d Cir. Apr. 22, 2021).

California Federal Court Rejects Unconscionability Claims, Enforces Delegation Clauses in Arbitration Agreements

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Two former Aon employees sued Aon, claiming restrictive covenants in agreements they entered into with the company were void, illegal, and unenforceable. Aon moved to compel arbitration per arbitration provisions in the relevant contracts. The plaintiffs argued that the arbitration provisions were both procedurally and substantively unconscionable, and thus unenforceable. In response, Aon pointed to “delegation clauses” in the provisions, pursuant to which disputes about gateway arbitrability issues are to be decided by an arbitrator. The plaintiffs claimed the delegation clauses were also unconscionable, but the U.S. District Court for the Northern District of California disagreed.

To successfully challenge a delegation clause, the court explained that a party cannot challenge the broader arbitration agreement in which the clause is contained; rather, it must be shown that the specific delegation language is itself invalid based on a general principle of contract law. Here, the court ruled initially that the delegation clauses at issue “clearly and unmistakably” delegated gateway questions to an arbitrator, rejecting the plaintiffs’ effort to argue otherwise. The plaintiffs also claimed the clauses were unconscionable, but the court disagreed. While finding the clauses “[were] — at most — minimally procedurally unconscionable” insofar as they were non-negotiable conditions of employment, the court found the clauses were in no way substantively unconscionable. Thus, applying the “sliding scale” approach, the court held that the clauses were valid, enforceable, and required granting Aon’s motion to compel arbitration.

Norris v. Aon PLC, No. 3:21-cv-00932 (N.D. Cal. Apr. 2, 2021)

New York Federal Court Declines to Modify Arbitration Award to Include Attorneys’ Fees and Costs

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The plaintiff filed suit in the U.S. District Court for the Eastern District of New York seeking to modify an arbitration award to include reasonable attorneys’ fees, costs, and expenses. The award had been issued to the plaintiff and another similarly situated claimant in connection with their labor law claims against the defendants. The award provided that administrative fees and the arbitrator’s compensation “shall be borne as incurred” but did not address attorneys’ fees or other costs. The plaintiff therefore requested that the court modify the award pursuant to section 11(a) of the FAA on the basis that the arbitrator made “an evident material mistake” in failing to include attorneys’ fees and costs in the award.

At the outset, the court explained that section 11 provides the exclusive grounds for modifying an arbitration award and that the grounds are “grudgingly narrow.” Although relevant labor laws mandated that prevailing claimants be awarded reasonable attorneys’ fees and costs, it remains the claimant’s burden to submit documentation supporting the reasonableness and necessity of the fees and costs incurred. Absent support, the fees and costs cannot be awarded. Here, claimants’ counsel was given an opportunity to submit post-hearing briefing to the arbitrator, at which time the court noted it would have been appropriate for counsel to request and provide support for his attorneys’ fees and costs. Given counsel’s inexplicable failure to do so, the court found the post hoc request for the court to modify the award to include such fees and costs was foreclosed by the FAA. As such, the request to modify the award was denied.

Chen v. Kyoto Sushi, Inc., No. 2:15-cv-07398 (E.D.N.Y. Apr. 1, 2021)

No “Meeting of the Minds” Where Material Terms of Arbitration Agreement Were Changed After Party Electronically Signed Document

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This action concerned a dispute between the plaintiffs, two individual investors, and the defendants, a financial planning adviser and her firm. After the plaintiffs’ investments did not work out as they had hoped, the plaintiffs filed suit against the defendants in the Western District of North Carolina for state law contract and fraud claims.

The defendants moved to compel arbitration under the asset management agreement that the plaintiffs executed when they hired the defendants to manage their investments, which required the parties to arbitrate any dispute that may arise between the parties concerning any transaction or the construction, performance, or breach of the agreement. The defendants also moved to dismiss for lack of personal jurisdiction, to transfer venue, and to dismiss for failure to state a claim, but all motions, including the arbitration motion, were denied by the district court. Notably, the district court denied the defendants’ motion to compel, as the parties submitted different versions of the asset management agreement and therefore had not formed an agreement to arbitrate.

The Fourth Circuit affirmed the district court’s order, holding that the parties did not form an agreement to arbitrate. Calling it a “very simple contract dispute,” the circuit court relied on general principles of contract formation and found there was no “meeting of the minds,” and therefore no contract, because both parties did not agree to the same terms. The circuit court noted that the two versions of the agreement submitted to the district court differed as to a number of terms, including one that added an extra account to be managed and designated how it was to be managed. The circuit court found there was no evidence in the record to establish that the plaintiffs were ever informed of, let alone reviewed, such changes.

Because the designation of which accounts were to be managed and how they were to be managed would be of paramount importance for any couple turning over its hard-earned savings to a financial firm for management, the circuit court found that the fact that the defendants did not bother to solicit this information from the plaintiffs after they submitted the signed form through DocuSign, a commonly used online platform for signing and transmitting documents, was fatal to the formation of the contract.

The circuit court noted that while the defendants (a sophisticated certified financial professional and her firm) changing the terms of an agreement after a customer signs it does not add to the impression of fairness that one hopes to get from a financial institution managing an individual investor’s portfolio, what happened here was at best “sloppy” on the part of the defendants and precluded formation of a contract.

Rowland v. Sandy Morris Financial & Estate Planning Services LLC, No. 20-1187 (4th Cir. Apr. 7, 2021)

Seventh Circuit Holds EEOC Right-to-Sue Letter Does Not Trump a Binding Arbitration Agreement

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This case involved a dispute between Bruce Melton and his former employer, Pavilion Behavioral Health System, for unlawful discharge after a routine background check revealed Melton’s criminal convictions.

Melton first filed a charge with the Equal Employment Opportunity Commission, alleging discrimination based on his carpal tunnel disability, but the investigator found no evidence of discrimination, closed the file, and issued a right-to-sue letter. Melton thereafter sued Pavilion in federal court, claiming he was wrongfully discharged because he was in the process of expunging his criminal record and also because Pavilion discriminated and retaliated against him for taking medical leave for carpal tunnel surgery.

Relying on the parties’ arbitration agreement that required workplace concerns to be resolved through final and binding arbitration, the district court granted Pavilion’s motion to compel arbitration, finding Melton’s claims were covered by the arbitration agreement, which Melton adopted by signing the acknowledgment form and never opting out.

Ruling in favor of Pavilion, the arbitrator found there was no evidence to support Melton’s claims. Pavilion thereafter moved to confirm the award in district court. Melton opposed confirmation, claiming he was entitled to proceed in court under the EEOC’s right-to-sue letter. The district court granted Pavilion’s motion to confirm the award, reasoning that, although the arbitration agreement permitted Melton to file administrative charges with the EEOC, it prohibited him from pursuing any claims in court. Melton appealed, claiming he never signed the arbitration agreement himself but rather merely signed a form that referred to it.

On appeal, the Seventh Circuit affirmed, finding that the parties entered into an enforceable arbitration agreement and Melton presented no valid ground to vacate, modify, or correct the arbitration award.

The circuit court noted that it was undisputed that Melton signed a form acknowledging he received a copy of the arbitration agreement, which covered the claims Melton wanted to pursue, and understood that if he did not opt out within 30 days, he was bound by it. “True, the form that he signed was not the arbitration agreement itself, but by signing it he committed himself to that agreement.” The circuit court also found that the EEOC’s right-to-sue letter did not override the arbitration agreement; it merely allowed Melton to move beyond the administrative process and pursue any rights that he may have in court — rights that Melton had waived by previously entering into the binding arbitration agreement.

Melton v. Pavilion Behavioral Health System, No. 20-2399 (7th Cir. Apr. 9, 2021)