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Fifth Circuit Affirms That District Court in Texas Lacks Jurisdiction to Vacate Arbitration Award in Florida

October 22, 2020 by Nora Valenza-Frost

Defendants-appellees picked up work orders from the plaintiff-appellant in its Florida offices, performed field work in Florida, and sent invoices to the plaintiff-appellant in Texas, who eventually stopped paying the invoices. The defendants-appellees commenced a AAA arbitration, and a Florida arbitrator eventually found in their favor. The plaintiff-appellant filed suit in Texas seeking to vacate the arbitration award under state law, which defendants-appellees opposed under FRCP 12(b)(2), (b)(3), (b)(5) and under the Colorado River abstention doctrine. The Western District of Texas dismissed the suit for lack of personal jurisdiction.

The circuit court focused on whether the defendants-appellees had “minimum contacts” in Texas, such that a Texas court could exercise specific personal jurisdiction over them. Looking at the parties’ contract, the place of performance was Florida. The circuit court dismissed the remainder of the plaintiff-appellant’s arguments in favor of jurisdiction, notably the argument that the parties’ agreement contained a Texas choice-of-law clause. “While such clauses can be probative of purposeful availment, they’re never dispositive.” Here, despite the Texas choice-of-law clause, the parties’ agreement does not suggest that they expected to resolve their disputes in Texas. In fact, the agreement required arbitration take place in accordance with the AAA’s venue-selection rules, i.e., as close as possible to the project in Florida. Finding no jurisdiction, the circuit court concluded that, “[i]n short, this is Florida’s problem. Not Texas’s.”

Sayers Const., LLC v. Timberline Const., Inc., et al., No. 19-51099 (5th Cir. Oct. 2, 2020)

Filed Under: Arbitration / Court Decisions, Jurisdiction Issues

Fourth Circuit Vacates and Remands Denial of Motion to Stay Case Pending Arbitration After District Court Refuses to Consider Evidence Beyond the Pleadings

October 21, 2020 by Brendan Gooley

The Fourth Circuit recently vacated and remanded an order denying a motion to stay proceedings pending arbitration after concluding that the district court erroneously failed to consider evidence beyond the pleadings because the motion to stay was part of a motion to dismiss.

Brenda C. Noe sued City National Bank of West Virginia on behalf of a putative class of similarly situated plaintiffs claiming that the bank’s fee practices violated contractual provisions and the West Virginia Consumer Credit and Protection Act, among other things.

The bank filed a motion to dismiss and, in the alternative, moved to stay the action pending referral to arbitration. The district court found it possible that a subsequent agreement altered Noe’s original agreement with the bank such that an agreement to arbitrate was eliminated. The district court then “refused to consider the bank’s evidence calling that elimination into question because the court believed the question was unfit for resolution on a motion to dismiss.”

The bank appealed and the Fourth Circuit vacated and remanded. After determining that it had jurisdiction over the appeal (the circuit court concluded that the bank’s alternative request to stay the case pending arbitration “equated to a motion seeking enforcement of a purported arbitration agreement,” the denial of which conferred appellate jurisdiction), the court concluded “that the district court should have treated the bank’s motion as a motion to stay the litigation and compel arbitration” and that, had the district court done so, it could have considered the bank’s evidence and held a hearing to consider any unresolved questions of fact regarding arbitration.

The Fourth Circuit therefore vacated the district court’s decision denying the bank’s alternative motion to stay and remanded for a determination as to whether the case should be referred to arbitration and, if necessary, a hearing to resolve any related questions of material fact.

Brenda C. Noe v. City National Bank of West Virginia, No. 20-1230 (4h Cir. Sept. 17, 2020)

Filed Under: Arbitration / Court Decisions, Arbitration Process Issues

Western District of Washington Reverses Course and Compels Arbitration

October 20, 2020 by Nora Valenza-Frost

Following unsuccessful motions to dismiss, the defendants moved to compel arbitration, arguing that they had not moved to compel the matter to arbitration earlier because the plaintiffs had not yet completed all stages of the dispute resolution procedures required before the parties could arbitrate. The court found that Aliera Companies, Inc. and Aliera Healthcare, Inc. (collectively, “Aliera”) demonstrated it had not waived its right to compel arbitration, as Aliera’s initial motion to dismiss did not seek to dismiss the matter on the merits, and thus, Aliera did not act inconsistently with their right to compel arbitration.

As to Trinity HealthShare, Inc. (“Trinity”), the court found that Trinity’s motion to dismiss the complaint as a matter of law with prejudice did seek a resolution on the merits, and thus Trinity acted inconsistently with its right to compel arbitration. Notwithstanding, the court found that the plaintiffs were not prejudiced by Trinity’s action, and thus could not establish that Trinity waived its rights to arbitration. The court’s prior decision denying the defendants’ motion to compel arbitration was vacated, and the parties required to arbitrate.

Jackson, et al. v. The Aliera Companies, Inc., 2:19-cv-01281 (W.D. Wash. Oct. 6, 2020)

Filed Under: Arbitration / Court Decisions, Arbitration Process Issues

Eastern District of California Grants Partial Summary Judgment to Plaintiffs in Reinsurance Mortgage Kickback Class Action; Reinsurer May Still Prevail

October 19, 2020 by Brendan Gooley

The Eastern District of California recently granted partial summary judgment to a class of plaintiffs suing a reinsurer and related entities with respect to a reinsurance arrangement regarding private mortgage insurance that allegedly involved illicit kickbacks. The reinsurer and its related entities may still prevail, however, because the court concluded it could not rule on whether or not the reinsurer and its related entities were entitled to a safe harbor that negates liability.

Home buyers who cannot put down 20% of the purchase price on their house are generally required to purchase private mortgage insurance (PMI) from a mortgage insurer (MI). Mortgage lenders usually direct home purchasers (borrowers) to one of the lender’s preferred MIs.

MIs began transferring some of the risk they took on through PMI by obtaining reinsurance. Mortgage lenders, in turn, created affiliate reinsurers that provided reinsurance to MIs. Through captive reinsurance agreements (CRAs), the MIs allegedly purchased reinsurance from the reinsurers affiliated with the lenders in exchange for PMI referrals from those lenders.

For example, PHH Mortgage Corporation (“PHH Mortgage”), a lender, owns Atrium Insurance Corporation (“Atrium”), a reinsurer that has agreements with MIs to which PHH Mortgage refers a great deal of its borrowers in order for the borrowers to obtain PMI. The MIs then cede a portion of the premiums obtained from PMI to Atrium through captive reinsurance agreements.

The potential problem with that arrangement is that the Real Estate Settlement Procedures Act (RESPA) prohibits giving or accepting “any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise [in relation to the referral of] a real estate settlement service involving a federal related mortgage loan.” RESPA also contains a safe harbor that provides that it does not prohibit “the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed.”

A class of plaintiffs sued PHH Mortgage, Atrium, and related entities claiming that the arrangement PHH Mortgage had with Atrium and certain MIs violated RESPA by effectuating kickbacks on mortgage loans. The parties eventually cross-moved for summary judgment.

After addressing Daubert motions, the court granted in part the plaintiffs’ motion for summary judgment and denied the defendants’ motion for summary judgment, finding that the plaintiffs had established a prima facie case of a RESPA violation based on the reinsurance arrangement. They concluded that a genuine issue of fact existed as to whether the defendants were protected by RESPA’s safe harbor. Specifically, the court concluded that plaintiffs had satisfied the three elements of a prima facie case: (1) because the “MIs ceded a percentage of their PMI premiums to Atrium pursuant to the CRAs, and those ceded premiums constituted a payment or thing of value,” the requirement that a payment or exchange of a thing of value was satisfied; (2) “payments were made pursuant to an agreement to refer real estate settlement services” involving federally-related mortgage loans because substantial evidence established that “PHH had a practice of referring PMI business to MIs that had agreed to CRAs with Atrium, and that the captive MIs ceded premiums to Atrium pursuant to the CRAs”; (3) a referral occurred because it was “undisputed that PHH directed the vast majority of its borrowers who needed PMI to one of the four captive MIs” and “at no point during the class period did PHH direct less than 80% of its retail PMI business to the captive MIs” (i.e., the ones that obtained reinsurance from Atrium).

The court then turned to RESPA’s safe harbor, which required it to determine whether the MI’s “payment to the lender was a bona fide payment for the reinsurance rather than a disguised payment for the lender’s referral of a customer to the insurer?” The answer to that question turned on whether the payments to Atrium were “more than the reasonable market value of the reinsurance” obtained. The court found that, although there was “substantial evidence” supporting the plaintiffs’ theory that “no real risk was transferred, and thus, Atrium did not provide actual reinsurance services” (there was evidence that Atrium procured substantial profits and that its dividends far surpassed its reinsurance claims, though the court noted that was not necessarily determinative), there also was evidence that Atrium suffered losses during several book years and thus that the reinsurance agreements had actually transferred real risk to Atrium. Thus, the court concluded that there was “a sufficiently genuine dispute . . . that the court [could not] resolve on summary judgment [as to] whether Atrium provided actual reinsurance services to the captive MIs.” PHH Mortgage and Atrium may, therefore, still prevail in this class action.

The court also rejected the defendants’ defenses regarding compliance with governing law and the filed rate doctrine, standing arguments, and their motion for class decertification.

Efrain Munoz et al. v. PHH Mortgage Corp. et al., No. 1:08-cv-00759-DAD-BAM (E.D. Cal. August 12, 2020).

Filed Under: Reinsurance Transactions

Ninth Circuit Affirms That Uber Driver Not Engaged in “Foreign or Interstate Commerce” for Purposes of Exemption to FAA

October 15, 2020 by Alex Silverman

The Ninth Circuit denied a petition seeking to vacate an order compelling arbitration of an Uber driver’s putative class action. The district court held that rideshare drivers who pick up and drop off passengers at airports did not fall within an exemption in the Federal Arbitration Act (FAA) for workers engaged in foreign or interstate commerce, and therefore the petitioner may be judicially compelled to arbitrate in accordance with the terms of his employment contract. The Ninth Circuit affirmed, finding the decision was not clearly erroneous as a matter of law.

Section 1 of the FAA provides that arbitration clauses in “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” are “exempt” from the FAA’s coverage. In response to Uber’s motion to compel arbitration, the petitioner argued that he drives passengers engaged in interstate travel to and from airports, and thus qualifies for the exemption. The Ninth Circuit has interpreted section 1 as applying only to employees who “actually transport people or goods in interstate commerce,” although the court acknowledged that several recent federal court decisions have interpreted the clause more broadly. Notwithstanding the tension between those decisions and the district court’s ruling here, the court declined to find the district court’s decision was “clearly erroneous as a matter of law.” Analogizing the petitioner’s employment to that of local taxicab services, the court found that the petitioner never crossed state lines during his work, and cited no precedent holding that rideshare drivers, as a class, are “engaged in foreign or interstate commerce.” As such, the petition for a writ of mandamus was denied.

In re William Grice, No. 20-70780 (9th Cir. Sept. 4, 2020)

Filed Under: Arbitration / Court Decisions

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