Cintas Corp. was sued by a group of its service sales representatives for back pay under the Fair Labor Standards Act, which provides for opt-in classes. The District Court entered an Order compelling 56 of the 65 named Plaintiffs to arbitrate, and a request for class-wide arbitration was filed with the American Arbitration Association. The Court held that the arbitrator should determine whether class-wide arbitration was appropriate. After approximately 2,400 Plaintiffs opted into the back pay lawsuit, Cintas filed 70 separate actions against such Plaintiffs, seeking to compel them to arbitrate the dispute in the Districts in which they were employed by Cintas. The Judicial Panel on Multidistrict Litigation created an MDL proceeding, transferring the 70 separate actions to the original forum court, for a determination of: (1) whether the parties named in the 70 separate actions were refusing to arbitrate within the meaning of section 4 of the Federal Arbitration Act; and (2) whether the parties were complying with that obligation by seeking class-wide arbitration. The Court held that the parties were refusing to arbitrate within the meaning of section 4 of the FAA, found that all common proceedings had been completed, and suggested that the cases be remanded to the transferor courts for further, individual, proceedings. In re: Cintas Corp. Overtime Pay Arbitration Lit., Case No. 06-1781 (USDC N.D. Cal. Jan. 12, 2007).
Connecticut statute requiring posting of collateral by unauthorized reinsurer enforced
A District Court has enforced a Connecticut statute requiring that prior to filing any pleading in any court action, non-admitted insurers post collateral in an amount “sufficient to secure the payment of any final judgment.” Conn. Gen. Stat. section 38a-27. The Court held that this statute applied to reinsurers, but instead of striking an answer that had been filed, gave the defendant 15 days to post the required security, failing which its Answer would be stricken. Security Ins. Co. of Hartford v. Universal Reinsurance Co., Case No. 06-158 (D. Ct. Jan. 25, 2007).
SEC settles claims against MBIA for sham reinsurance
The SEC has filed a Complaint against MBIA in District Court alleging securities fraud arising out of an allegedly sham reinsurance transaction in 2005, which MBIA had entered into to avoid having to recognize a $170 million loss on bonds guaranteed by MBIA. The SEC simultaneously commenced an administrative enforcement proceeding against MBIA and entered an agreed cease and desist Order settling the dispute. A SEC litigation release describes these events, and the underlying conduct by MBIA.
Fifth Circuit articulates evident partiality standard
In a software licensing dispute, a sole arbitrator entered an award, only to have the award vacated by a District Court on the basis that the arbitrator had failed to disclose an instance in which he had served as one of many co-counsel in a lawsuit with one of the counsel in the arbitration. The District Court vacated the arbitration award, on the basis that the prior relationship “might have conveyed an impression of possible partiality to a reasonable person.” A panel of the Fifth Circuit affirmed, but in an en banc decision, the full Fifth Circuit reversed, finding that the nondisclosure of “a trivial or insubstantial prior relationship” did not merit vacating the award under the evident partiality standard. The relevant legal standard arises out of a plurality Supreme Court opinion, and the en banc opinion noted a split of the Circuits as to what legal standard for evident partiality comes from the Supreme Court's opinion, with the en banc opinion alinging with the way in which the majority of Circuit Courts had interpreted the opinion. Positive Software Solutions, Inc. v. New Century Mortgage Corp., Case No. 04-11432 (5th Cir. Jan. 18, 2007). There is a prior Reinsurance Focus posting about this case dated June 6, 2006, which includes the Fifth Circuit panel opinion.
American Academy of Actuaries issues risk transfer testing practice note
The American Academy of Actuaries' Committee on Property and Liability Financial Reporting has published a Reinsurance Attestation Supplement 20-1: Risk Transfer Testing Practice Notice. This publication provides advisory, non-binding guidance to property/casualty actuaries regarding testing for risk transfer, in connection with the NAIC's new Supplement 20-1 titled the “Reinsurance Attestation Supplement: Attestation of Chief Executive Officer and Chief Financial Officer Regarding Reinsurance Agreements.”