Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Eighth Circuit Affirms Ruling That NLRB Retains Jurisdiction to Review Arbitration Decision on NRLA Charge, Not Court

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An arbitrator resolved a dispute between the parties in favor of the union, deciding that Exide Technologies had violated the collective bargaining agreement and the National Labor Relations Act (NLRA) by unilaterally changing its procedures for implementing the Family and Medical Leave Act without bargaining with the union. Exide sought to vacate the award and the union sought to confirm it. The U.S. District Court for the Western District of Arkansas confirmed the arbitrator’s finding of a collective bargaining agreement violation but concluded that it lacked jurisdiction to review the NLRA finding.

Procedurally, the union had filed a grievance, and then filed two unfair labor practice charges with the National Labor Relations Board (NLRB). The NLRB deferred pursuant to its policy that “the NLRB will conditionally dismiss a case when a set of facts may present not only an alleged violation of the NLRA but also an alleged breach of the collective-bargaining agreement subject to arbitration. However, the NLRB retains limited jurisdiction to decide, among other things, whether an arbitrator has reached a result repugnant to the NLRA.” The parties proceeded to arbitration.

The district court confirmed the arbitrator’s collective bargaining agreement ruling, because it drew its essence from the parties’ agreement. However, the district court decided it lacked jurisdiction to review the arbitrator’s NLRA ruling and that Exide should have moved the NLRB to reopen the deferred unfair labor practice charges so that the NLRB can review the arbitrator’s findings. The Eighth Circuit ruled that when a court possesses jurisdiction to decide a collective bargaining agreement issue under section 301 of the Labor Management Relations Act, it is not preempted from exercising its jurisdiction by the fact that the employer’s conduct may also violate the NLRA. However, section 301 does not provide the court with original jurisdiction to decide whether Exide violated the NLRA, and the NLRA had retained jurisdiction to determine whether the arbitrator’s actions were appropriate.

Exide Technologies v. International Brotherhood of Electrical Workers, Local No. 700, No. 19-2317 (8th Cir. July 10, 2020).

First Circuit Vacates Order Compelling Arbitration Over Arbitrator Selection Clause

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The First Circuit vacated an order compelling arbitration after finding that the arbitrator selection clause was unconscionable. The court nevertheless remanded the case to the district court to determine if the selection clause was severable from the remainder of the arbitration agreement and whether arbitration could therefore proceed. The court also rejected several other challenges to the district court’s arbitration order, including claims based on a forum selection clause, a claim of waiver, and an argument that a statutory claim was not subject to arbitration.

Austin Trout, a boxer from New Mexico, sued the World Boxing Organization (WBO), which is based in Puerto Rico, in New Mexico state court for removing him from the rankings for a certain weight class. The WBO successfully removed the case and had it transferred to the U.S. District Court for the District of Puerto Rico. The WBO then moved to compel arbitration. While its motion was pending, Trout engaged in discovery, which prompted the WBO to do the same. The district court granted the WBO’s motion. It then denied Trout’s motion for reconsideration, which asserted for the first time that the WBO’s discovery precluded arbitration.

Trout appealed, and the First Circuit vacated and remanded.

The court first rejected Trout’s argument that the WBO’s championship regulations precluded arbitration because of a clause allowing claims to be brought in Puerto Rico state or federal court. The regulations contained two clauses. The first, a forum selection clause, provided that claims could only be maintained in Puerto Rico’s state or federal courts. The second, an arbitration clause, provided that “the sole and exclusive remedy for any claim” was an arbitration proceeding through the WBO’s Appeals and Grievance Committee. Trout claimed the former clause rendered the latter clause a nullity. The First Circuit disagreed, concluding that the former clause was more expansive than the latter and that the regulations read as a whole provided that only Puerto Rico courts could hear claims not subject to the arbitration clause.

The court also rejected Trout’s claim that the WBO waived its right to seek arbitration by (1) removing and transferring the case; and (2) engaging in discovery. The First Circuit explained that (1) the WBO did not waive its rights under the forum selection clause to select the forum to have its motion to compel decided; and (2) Trout’s discovery argument was improperly raised because it was first raised in a motion for reconsideration and it was meritless in any event because the WBO’s discovery “was not of a kind or of a scope that made it an abuse of discretion for a district court not to find an implicit waiver based on litigation conduct.”

The First Circuit then rejected Trout’s contention that his claim under the Muhammad Ali Boxing Reform Act was not subject to arbitration. Although the court recognized that Congress can provide that certain statutory claims are not subject to arbitration, the act’s text did not “explicitly preclude[] arbitration” and Trout’s claim therefore failed.

The First Circuit agreed with Trout’s final claim that the WBO’s arbitrator selection provision was unconscionable under Puerto Rico contract law, however. That clause allowed the WBO’s president to designate three arbitrators. Even though the arbitrators could not be members of the WBO’s executive committee, they could, for example, be the president’s “direct aides.” Nevertheless, the First Circuit noted that the WBO’s regulations contained a savings clause that provided that “[i]f any of these Rules are determined to be unenforceable, the balance of these Rules shall remain in full force and effect.” Thus, the court left it to the district court to determine whether that clause allowed arbitration to proceed under a different selection process.

Trout v. Organización Mundial de Boxeo, Inc., No. 19-1068 (1st Cir. July 10, 2020).

SDNY Grants 28 U.S.C. § 1782 Application for Discovery in Dispute Involving Republic of Lithuania

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The applicant sought to require documents and deposition testimony from an individual located in, and a corporation headquartered in, New York for use in an international arbitration initiated against the Republic of Lithuania arising out of Lithuania’s nationalization of a bank. The court found all three statutory requirements of the application were met, which provided the court with the authority under 28 U.S.C. § 1782 to order the discovery sought by the applicant: (1) the individual and corporation are located in New York; (2) the discovery is for use in an international arbitration; and (3) the application is made by the complaining party – and thus an “interested party” in the arbitration.

As to the court’s discretion, looking at the factors set forth in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the court found the factors weighed in favor of granting the application: (1) the individual and corporation were not participants in the international arbitration; (2) there is no reason to doubt that the foreign tribunal would be receptive to U.S. federal-court judicial assistance because, while the tribunal did not address the question of admissibility of evidence obtained by the applicant, it did not preclude the applicant from pursuing this proceeding; (3) granting the applicant’s request would not allow it to circumvent foreign proof-gathering restrictions or other policies, as the discovery is to be used in an international proceeding, with its own rules governing discovery and admissibility of evidence; and (4) the applicant’s request is not unduly intrusive or burdensome, as its requests “go to the heart of their case in the arbitration, and appear to be proportionate to their needs.” The individual and corporation were free to apply to the court for a protective order or for other relief as necessary to appropriately limit discovery consistent with federal law. The court permitted the applicant to issue subpoenas for documents in substantially the same form as those filed in support of its application.

In re Application of the Fund for Protection of Investor Rights in Foreign States pursuant to 28 U.S.C. § 1782 for an Order Granting Leave to Obtain Discovery for Use in a Foreign Proceeding, No. 1:19-mc-00401 (S.D.N.Y. July 8, 2020).

Second Circuit Affirms Ruling That Chinese Arbitration Organization Is Not a “Foreign or International Tribunal” Under Section 1782

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In February 2019, the U.S. District Court for the Southern District of New York denied petitioner Hanwei Guo’s discovery application after determining that the China International Economic and Trade Arbitration Commission (CIETAC) did not qualify as a “foreign or international tribunal” under 28 U.S.C. § 1782(a). That ruling – blogged about here – was based primarily on the Second Circuit’s decision in National Broadcasting Co. (NBC). On appeal, Guo argued that NBC was no longer good law, having been overruled or otherwise undermined by the U.S. Supreme Court’s decision in Intel Corp. While acknowledging that courts following Intel have reached diverging conclusions on the issue of whether a private foreign arbitration falls within section 1782(a), the Second Circuit rejected the notion that Intel undermined NBC. Rather, the court declared that NBC remains binding in the Second Circuit.

Turning to the merits of the appeal, the Second Circuit agreed with the district court that CIETAC arbitration is a private international commercial arbitration, thus falling outside the scope of section 1782(a)’s “foreign or international tribunal” requirement. The court clarified that in determining whether arbitration is a “foreign or international tribunal,” the inquiry does not turn on the governmental or nongovernmental origins of the entity in question, but whether the body possesses the functional attributes most commonly associated with private arbitration. Considering the relevant factors, the functional attributes of CIETAC arbitrations were found to clearly fall outside the scope of the tribunals contemplated by section 1782. As such, the Second Circuit affirmed the district court order denying Guo’s petition.

In re Application of Hanwei Guo, No. 19-781 (2d Cir. July 8, 2020).

Hawaii District Court Compels Arbitration of Only Part of a Claim Where There Was a Clear Agreement to Arbitrate

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In this matter, plaintiff Marisco Ltd. hired defendant GL Engineering & Construction (GL E&C) to construct and deliver a floating dry dock. Marisco alleged that GL E&C’s principals misrepresented their experience and ability with respect to constructing dry docks, causing GL E&C to deliver the dry dock late, unfinished, and not according to specifications. GL E&C filed a counterclaim alleging that Marisco failed to pay the full amount due under their agreement and failed to pay for change orders. Marisco challenged the counterclaim by way of two motions, one for judgment on the pleadings and one for summary judgment, the latter of which sought to compel GL E&C to arbitrate the matters raised in the counterclaim.

Count I of GL E&C’s counterclaim asserted breach of contract based on Marisco’s failure to pay the $148,400 due on the final progress payment and failure to pay amounts owed on certain change orders. Count II of GL E&C’s counterclaim (now part of Count I) asserted that Marisco breached the implied covenant of good faith and fair dealing by approving change orders but then failing to pay for the extra work covered by the change orders, and by pressuring GL E&C to complete the construction of the dry dock in spite of delayed payments. Count III of GL E&C’s counterclaim asserted that Marisco was unjustly enriched by getting the dry dock without having paid for all of it.

In its first motion, Marisco sought judgment on the pleadings as to Counts II and III of the counterclaim, but the court only granted judgment on the pleadings as to Count II.

In its second motion, Marisco sought summary judgment, arguing that the counts in the counterclaim must be arbitrated, or that Marisco was entitled to judgment as a matter of law with respect to the counterclaim. The court found that to the extent Count I concerned the $148,000 allegedly due on the final progress payment, Marisco failed to show that the parties agreed to arbitrate that claim. The court analyzed the terms of the dry dock construction agreement and noted that with respect to progress payments, the parties appeared to have contemplated arbitration of disputes as to whether the state of construction triggered Marisco’s progress payment obligations. However, because there was no dispute that GL E&C delivered the dry dock to Marisco, thereby triggering the obligation to pay the final progress payment, any claim arising out of nonpayment of the full amount of the last progress payment did not appear to involve the type of dispute of which the parties contemplated arbitration.

Conversely, the court found that both the Federal Arbitration Act and the terms of the dry dock agreement required the parties to arbitrate only GL E&C‘s breach of contract claim (Count I) arising out of Marisco’s failure to pay invoices for the change orders. The court declined to order the parties to arbitrate the unjust enrichment claim (Count III).

As to the matters not referred to arbitration, the court denied summary judgment given the questions of fact as to which party was responsible for the delays.

Marisco, Ltd. v. GL Eng’g & Constr. Pte., Ltd., No. 1:18-cv-00211 (D. Haw. June 26, 2020).