Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Denied: Pro Se Litigant’s Petition to Confirm Arbitration Award He Rendered Against Republican National Committee

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Peter Wirs has filed a series of actions against the Republican National Committee since at least 2009. Not finding success in the courts, he apparently decided to arbitrate his claims against the RNC, with “Wirs himself serv[ing] as the arbitrator.” When Wirs sought to confirm the award he had given himself, the RNC responded by invoking the Rooker-Feldman doctrine and res judicata. In applying the Rooker-Feldman doctrine, the court noted that the proper standard is not whether the plaintiff’s claim is “inextricably intertwined” with a prior state court adjudication, but rather “whether the plaintiff, having lost in state court, is seeking review of a state court’s judgment that injured him.” The court determined that Wirs’ claims were barred by both the Rooker-Feldman doctrine and res judicata and denied the petition to confirm. In addition, the court cautioned Wirs that it “will consider sanctions if he files repetitive, meritless, vexatious, or frivolous submissions.”

In re Motion to Confirm Arbitration Award, No. 19-3998 (3d Cir. Aug. 5, 2020).

Eleventh Circuit Affirms Denial of Motion to Arbitrate Where Appellant Was Not a Party to Arbitration Agreement

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The Eleventh Circuit Court of Appeals recently affirmed the denial of a motion to arbitrate where the appellants were not parties to the agreements containing arbitration clauses. The court also concluded that equitable estoppel did not apply to stop the plaintiffs from opposing arbitration.

A group of plaintiffs sued Herbalife, a global nutrition company that operates through a direct sales network of thousands of distributors, and some of Herbalife’s top distributors in a putative class action. The plaintiffs, who were also Herbalife distributors, claimed they were tricked into spending thousands of dollars to attend “circle of success” events and invest in their Herbalife distribution business by false promises of financial success from the top distributors.

Herbalife and the top distributors moved to compel arbitration. They cited arbitration clauses in the distributor agreements signed by some of the named plaintiffs and argued that the incorporation of Herbalife’s rules of conduct, which Herbalife amended to include an arbitration agreement, in the remaining distributor agreements rendered all the plaintiffs’ claims subject to arbitration. The district court disagreed and also refused to transfer the case to a different venue.

The top distributors appealed. The Eleventh Circuit affirmed the district court’s denial of their motion to compel arbitration. None of the top distributors were parties to the distributor agreements, which were between the plaintiff distributors and Herbalife. The top distributors therefore could not invoke the arbitration clauses. The court also rejected the argument that the district court should have sent the question of arbitrability to an arbitrator. Threshold questions of arbitrability are only questions for the arbitrator if the parties agree to make them so, and in this case there was no agreement between the plaintiff distributors and the defendant top distributors.

The Eleventh Circuit also rejected the top distributors’ argument that the plaintiffs were equitably estopped from opposing arbitration. The plaintiffs’ complaint did not so much as mention a single term from the distributor agreements, which made it difficult to conclude that the plaintiffs relied on those agreements. The agreements were also not so intertwined with the plaintiffs’ claims, which relied on conduct at best one step removed from the agreements, that equitable estoppel applied. The court also concluded that it did not have jurisdiction to review the district court’s decision not to transfer the case to a different venue.

Lavigne v. Herbalife, Ltd., No. 18-14048 (11th Cir. July 29, 2020).

Uber Price Fixing Class Action Award Still Fares Despite Arbitrator’s Unfunny Joke

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The petitioner unsuccessfully sought to vacate an arbitration award permitting Uber’s use of a “surge” pricing algorithm to set fares, arguing that comments made by the arbitrator reflected his “evident partiality” toward Uber in violation of 9 U.S.C. § 10(a)(2). Specifically, on the third day of the arbitration hearing, the arbitrator offered concluding remarks on the record including the statement: “I must say I act out of fear. My fear is if I ruled Uber illegal, I would need security. I wouldn’t be able to walk the streets at night. People would be after me.” The petitioner also argued the arbitrator was “starstruck” by the presence of Kalanick, Uber’s co-founder and then CEO, taking his picture on the first day of the hearing.

Uber first argued that the petitioner waived his right to seek vacatur by waiting until after the arbitrator ruled against him. The court agreed, as attacks on the qualifications of arbitrators on grounds previously known but not raised until after an award has been rendered are precluded. The petitioner’s claim that vacatur of an “openly partial award” is not waivable was “belied by Second Circuit precedent.” The court also agreed with Uber’s second argument, that the arbitrator’s conduct did not justify vacatur, finding the arbitrators remarks “were simply an attempt at humor – one of many made by the arbitrator throughout the hearing.”

Meyer v. Kalanick & Uber Technologies, Inc., No. 1:15-cv-09796 (S.D.N.Y. Aug. 3, 2020).

Tenth Circuit Refuses to Vacate FINRA Arbitration Dismissal

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The Tenth Circuit Court of Appeals recently rejected a claimant’s effort to vacate the dismissal of his FINRA claim following his repeated failure to comply with various deadlines.

Zane Piston initiated a FINRA arbitration against his former employer, Transamerica Capital Inc., claiming that Transamerica Capital incorrectly described the reason for his termination.

The arbitration panel issued a scheduling order. Piston’s attorney failed to make various filings in accordance with the scheduling order and timely respond to motions filed by Transamerica Capital.

Transamerica Capital eventually moved to have Piston’s claim dismissed with prejudice due to these failures. The arbitration panel held a hearing at which it required Piston to show good cause as to why his claim should not be dismissed. Piston’s counsel indicated that he had undergone surgery, been traveling in Europe, and that his wife had been hospitalized and that he had therefore been unable to make timely filings. The panel concluded that Piston’s counsel had not shown good cause for his various failings and dismissed Piston’s claim with prejudice as a sanction.

Piston moved to vacate that decision. The district court denied Piston’s motion, and Piston appealed to the Tenth Circuit. The Tenth Circuit affirmed the district court’s denial of Piston’s motion to vacate the dismissal of his claim. Piston primarily claimed that the arbitration panel exceeded its powers, disregarded the law, committed misconduct, and denied him a fair hearing because it allegedly dismissed his claim without a warning. The court rejected that claim. It concluded that the panel arguably interpreted and applied FINRA Rule 13212(c), which allows FINRA panels to dismiss a claim with prejudice as a sanction for material and intentional failure to comply with an order of the panel if prior warnings or sanctions proved ineffective. Whether the panel properly interpreted Rule 13212(c) was beyond the scope of the court’s review. The Tenth Circuit also rejected Piston’s claim that the panel misapplied the good cause standard, noting that Piston had to do more than show that the panel committed an error.

Piston v. Transamerica Capital, Inc., No. 19-1123 (10th Cir. July 21, 2020).

SDNY Finds Cedent Entitled to Indemnification for $20 Million Settlement Payment Under English Law

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The question before the Southern District of New York was whether, under English law, certain facultative reinsurance policies obligated a reinsurer to indemnify its cedent for a $20 million settlement. The finding was notwithstanding the three-year stated policy period of each of the reinsurance policies, as the insured was held liable on an “all sums” basis for a continuous injury occurring outside the relevant policy period.

Similar to the laws in the United States, “[u]nder English law, settlements paid under the reinsured policy are presumed to be covered as a matter of law by the reinsurance policy if the reinsured can prove: (1) that the reinsured has actually paid the settlement sums; and (2) that the claim arguably falls within the insurance/reinsurance policy under which the payment was made as a matter of law.” Further, English law has a strong presumption that liability under a proportional facultative reinsurance policy is “co-extensive” with the underlying insurance policy.

Accordingly, the court found both the cedent and the reinsurer assumed the risk that the cedent could be held liable on an “all sums” basis for continuous injury occurring outside the insured’s policy period. Thus, the reinsurer would have to indemnify the cedent for any settlement the cedent was required to pay its insured as a result of the injury under the follow-the-settlements provision in the reinsurance policies.

The court also rejected the reinsurer’s argument that the cedent breached its notice obligations by providing notice of the claims nearly six years after the cedent first became aware of an occurrence likely to result in a claim under the policies. The court found the reinsurer failed to meet its burden establishing its cedent acted with “extreme dishonesty” such that the reinsurer was “seriously prejudiced” under English law, or that its cedent acted in “bad faith” under New York law. The cedent’s motion for summary judgment was granted.

Insurance Company of Pennsylvania v. Equitas Insurance Ltd., No. 1:17-cv-06850 (S.D.N.Y. July 16, 2020).