Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

STATES CONTINUE TO AMEND CAPTIVE INSURER PROVISIONS

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Competition continues among the states with respect to captive insurer regulation.

  • The proposed Missouri regulations described in our March 10, 2008 post relating to the financial management and control of captives has been adopted, with an effective date of June 30, 2008.

  • On May 20, 2008, the Governor of Arizona signed an enacted bill which amended its captives law to permit branch captives to cover any risk a traditional single-parent captive could write. Last year, Arizona amended its rules to permit its branch captives to fund employee benefit risks.

  • On June 2, 2008, the Governor of Connecticut signed into law Senate Bill 281 (mentioned in our March 10, 2008 post), which provides for the formation and regulation of captives under Connecticut law. See an analysis of the new law and its final text.

This post written by Rollie Goss.

COURT OF APPEAL DECLINES TO ADDRESS WHETHER MANIFEST DISREGARD OF LAW DOCTRINE SURVIVES HALL STREET V. MATTEL

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In Rogers v. KBR Technical Services Inc., No. 08-20036 (5th Cir. June 9, 2008), the Fifth Circuit was presented with the applicability of the manifest disregard of law standard for vacating arbitration awards after the Supreme Court’s decision of Hall Street Associates v. Mattel (see March 28, 2008 post on Mattel, and the Special Focus posting of April 28, 2008 relating to the future of the manifest disregard of law doctrine after the Mattel decision). The court declined to rule on the issue, instead confirming the award on other grounds. This pro se case involved a claim for benefits by Rogers, an employee of Halliburton, arising out of his provision of services in Afghanistan. His lawsuit was stayed pending arbitration pursuant to a process contained in his employment agreement.

After an award was issued in his favor in the amount of only $252.84, Rogers moved to vacate the award, Halliburton moved to confirm, and after the award was confirmed, Rogers filed a FRCP 59 post-trial motion to alter or amend the final judgment. Some of the bases for the Rule 59 motion alleged that the arbitrator had manifestly disregarded the law, raising the issue of whether the manifest disregard of law doctrine survived Mattel. The court confirmed the arbitration award, finding that the arbitrator’s decision could be reasonably inferred from the provisions of the employment agreement. The court held that “because we affirm the district court and hold that the arbitration award is confirmed, there is no need in the instant case to determine whether those non-statutory grounds for vacatur of an arbitration award remain good law after Mattel.” The court essentially rejected the substance of the manifest disregard arguments on the basis that the actions of the arbitrator were rationally based upon the specific provisions of the employment agreement and the rules applicable to the arbitration.

Since the briefs are not available on PACER or Westlaw in this unreported, pro se case, it is not possible to determine the extent to which the continuing viability of the manifest disregard of law doctrine was briefed. The Mattel decision was issued after the Appellant filed his initial brief, but prior to the opposition and reply briefs being filed. It is unlikely that the Appellee would have raised the issue, and if the issue was raised for the first time in Appellant’s reply brief, the court likely would have permitted a supplemental response from the Appellee. According to the docket sheet, no supplemental briefing was submitted, and the case was decided less than four months after the briefing notice was issued, without oral argument.

Although not addressing the issue of the impact of Mattel on the manifest disregard of law doctrine, this decision does indicate that Mattel brings into question the continued viability of the manifest disregard of law doctrine. Expect further developments in this area.

This post written by Rollie Goss.

ARBITRATION AWARD CONFIRMED WHEN PETITION TO VACATE DENIED

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In Sanluis Developments, LLC v. CCP Sanluis, LLC, Case No. 06-11531 (USDC S.D.N.Y. Je. 3, 2008), the court held that under the Federal Arbitration Act, when a party moves to dismiss a motion to vacate an arbitration award, the court may, sua sponte, treat the motion to dismiss as a motion to confirm the award, and deny vacation and instead confirm the award.

This post written by Rollie Goss.

COURT RULES THAT IT CANNOT CONFIRM AN ARBITRATION AWARD THAT CONFLICTS WITH A SUPERSEDING AGREEMENT BETWEEN THE PARTIES

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A labor union cannot continue litigating the validity of an arbitration award concerning a contract that no longer controlled the parties’ relationship, an Arkansas federal district court has held. In 2006, the plaintiff corporation became the successor in interest to a collective bargaining agreement that had been entered into in 2005 with the defendant labor union. This 2005 CBA was scheduled to terminate in February 2008. After a dispute arose over the plaintiff’s right to oppose the defendant’s attempts to organize employees, the defendant filed a grievance with an arbitrator, who upheld the grievance in July 2007. The plaintiff subsequently moved in federal district court to vacate the arbitration award. While the litigation was pending, the 2005 CBA expired. In the interim, the parties had entered into a new collective bargaining agreement which did not contain the same limitations on the plaintiff’s right to oppose employee organization that had been contained in the 2005 CBA. The plaintiff, therefore, sought to dismiss the case as moot, which the defendant opposed, requesting that the court confirm the arbitration award. In its ruling, the court sided with the plaintiff, and dismissed the case as moot. The court noted that judicial economy counseled against confirming an arbitration award where it would not effect the present relations of the parties, and that the arbitration award conflicted with the now-controlling 2008 CBA. Windstream Corp. v. Communication Workers of America, AFL-CIO, Case No. 07 CV 1158 (USDC E.D. Ark. May 9, 2008).

This post written by Brian Perryman.

ARBITRATION PROVISIONS IN ANCILLARY AGREEMENTS DO NOT WARRANT ARBITRATION AS TO ISSUES ARISING OUT OF THE PRINCIPAL AGREEMENT

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In a case presenting a messy set of facts, a federal district court ordered the arbitration of certain claims, allowed litigation to proceed as to other claims, but ordered a stay of the litigation pending the outcome of the arbitration. The defendants acquired certain intellectual property rights from the plaintiff inventors. The parties’ acquisition agreement addressed potential litigation, but not arbitration. However, attached to the acquisition agreement as exhibits were eleven separately executed ancillary agreements, including a consulting agreement and net sales agreement which did contain arbitration agreements. The consulting agreement governed the parties’ rights and obligations with respect to one of the plaintiff’s post-closing consulting services for one of the defendants. The net sales agreement governed the parties’ rights and obligations with respect to specific post-closing sales. Three other agreements which referenced the acquisition agreement, but which were not incorporated into the acquisition agreement, were also relevant: an operating agreement, trust agreement and subscription agreement. Of these, only the operating agreement contained an arbitration clause; that agreement governed the parties’ rights with respect to defendants’ business operations and internal governance.

The defendants paid the plaintiffs $2 million at closing, and agreed to pay additional consideration in connection with the acquisition. However, before the additional consideration was tendered, the defendants filed an arbitration principally alleging that the plaintiffs breached at closing by misrepresenting inventorship and ownership of the subject products. That same day, the plaintiffs filed a lawsuit in federal district court principally alleging that the defendants breached at closing by not transferring the closing documents to a trustee as required in the trust agreement and acquisition agreement. The defendants moved to stay the litigation and to compel arbitration. After initially determining that there were valid arbitration agreements, the court turned to the question of the agreements’ scope. The defendants argued that the plaintiffs should not be allowed to pursue litigation on selective portions of the acquisition dispute to avoid the inventorship/ownership issue. The court disagreed, finding that the plaintiffs did not agree to arbitrate all claims simply because three ancillary agreements contained arbitration provisions. The acquisition agreement contemplated litigation alone on disputes relating the plaintiffs’ claims. The court did conclude, however, that the defendants’ claims for breach of the consulting agreement, net sales agreement and operating agreement were arbitrable. This limited conclusion was not disputed by the plaintiffs. The court, exercising its discretion, also ordered a stay of the arbitration pending resolution of the inventorship/ownership issue because certain aspects of the plaintiffs’ nonarbitrable claims could have a preclusive effect on resolution of the arbitrable claims. Brennan v. Global Safety Labs, Inc., Case No. 07 CV 546 (USDC N.D. Okla. May 29, 2008).

This post written by Brian Perryman.