Reinsurance Focus

The Fourth Circuit confirmed a foreign arbitration award issued in favor of third-party defendant Chongqing Rato Power Co. Ltd., a Chinese equipment manufacturer, against defendant Roger Leon. The parties negotiated and executed several contracts in China, each containing an arbitration clause requiring any disputes be resolved before a Chinese arbitral commission. Rato commenced arbitration when the relationship soured and the panel issued an award in Rato’s favor, which it sought to confirm in this action. Leon opposed the effort, claiming the contracts, and their arbitration clauses, were invalid because he was not represented by Chinese counsel when the contracts were signed. The district court disagreed and the Fourth Circuit affirmed, agreeing that there was no evidence of fraud, coercion, material misunderstanding, obvious unfairness, or any other situation that would invalidate the agreements.

The Fourth Circuit also affirmed the district court order confirming the award. Leon argued that the award was invalid because the Chinese arbitration proceedings were initiated while Rato’s motion to compel arbitration was still pending in a North Carolina state court. But the Fourth Circuit ruled that a party need not await a ruling on a motion to compel in order to initiate arbitration, whether pursuant to section 4 of the Federal Arbitration Act or otherwise. Leon asserted other defenses under article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, each of which was rejected. As such, the district court order was affirmed.

Denver Global Products, Inc. v. Leon, No. 18-1853 (4th Cir. Jun. 8, 2020).

The Supreme Court of Washington recently affirmed the denial of Evergreen Hospital Medical Center’s motion to compel arbitration on the grounds that Evergreen waived its right to compel arbitration of claims arising under a collective bargaining agreement between Evergreen and the Washington State Nurses Association governing nurse employment.

A member employee brought this putative class action against her employer, Evergreen, alleging that Evergreen failed to give required rest and meal breaks. After nine months of litigation and the addition of a second named plaintiff, Evergreen moved to compel arbitration. The trial court denied the motion, and the court of appeals affirmed. Evergreen petitioned to the Supreme Court of Washington, which granted review.

The court analyzed three factors to determine whether Evergreen waived its right to arbitration: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that right; and (3) prejudice.

As to the first factor, the court found there was no dispute that Evergreen believed it had an existing right to arbitrate. As to the second factor, the court found that through its conduct, Evergreen chose to litigate for approximately nine months rather than arbitrate, and thus behaved inconsistently with a party seeking to arbitrate. The court noted that the parties engaged in discovery and litigation for approximately nine months without seeking mediation or awaiting a decision from the court in another case and that Evergreen did not move to compel until the third iteration of the complaint even though the complaint had almost identical claims throughout.

As to the third factor, the court found that granting the motion to compel arbitration this late in litigation would cause severe prejudice to the plaintiffs, who had already incurred more than $140,000 in legal fees (from discovery, sending the notice of the class action to all the nurses, and securing expert witnesses), and would improperly allow Evergreen to relitigate class certification on which it lost.

Thus, the Supreme Court affirmed the court of appeals on the ground that Evergreen waived the right to compel arbitration, and remanded to the superior court for further proceedings consistent with the Supreme Court’s opinion.

Lee v. Evergreen Hospital Medical Center, No. 97201-0 (Wash. June 4, 2020).

The plaintiff-appellant filed suit in Oklahoma state court seeking to rescind a contract it entered into with the defendants, claiming the contract was procured by fraud. Citing an arbitration clause in the contract, the defendants moved to dismiss the suit and to compel arbitration. The question thus became whether the court or an arbitrator should determine a challenge of fraudulent inducement to the entirety of a contract containing an otherwise valid arbitration clause. The Supreme Court of Oklahoma held that state and federal law were aligned on the issue and required that the question be decided by the arbitrator. Specifically, the court concluded that Oklahoma law and the Federal Arbitration Act both adhere to the “separability doctrine.” The doctrine states that when parties agree to arbitrate, attacks on the validity of the contract – as distinct from the validity of the arbitration clause itself – are to be resolved by the arbitrator in the first instance. Because the allegations of fraud here were directed to the contract as a whole, not specifically to the arbitration clause, the court agreed with the lower court that the fraud issue must be referred to arbitration. As such, the court vacated an appellate court order and affirmed the lower court order granting the defendants’ motions to dismiss and to compel.

Signature Leasing LLC v. Buyer’s Group LLC, No. 115100 (Okla. June 9, 2020).

This action involves plaintiff Living Steward Properties’ insurance claim for property damage caused by Hurricane Harvey. The insurer defendants moved to compel arbitration of the plaintiff’s claims that the insurer defendants underpaid the company for Hurricane Harvey damage.

The insurer defendants argued that this case presented the same arbitration language and the same issues that the U.S. District Court for the Southern District of Texas adjudicated in Corpus Christi Island Apartment Villas Management Group, LLC v. Underwriters at Lloyd’s London, No. 2:19-cv-00188, 2019 WL 8273959 (S.D. Tex. Oct. 18, 2019), in which the court found there existed a written agreement to arbitrate and an unchallenged delegation clause, which required all additional questions be resolved by the arbitrators. Because the plaintiff made no effort to distinguish its case from Corpus Christi Island, the court ordered that the plaintiff’s claims against the insurer defendants be submitted to arbitration.

The plaintiff also sued CJW, the public adjusting firm assigned to its claim, for unfair settlement practices under the Texas Insurance Code and breach of the common law duty of good faith and fair dealing. CJW argued that these claims and their underlying facts were inextricably intertwined with the claims against the insurer defendants such that they all belonged, together, before the arbitrators. CJW sought to compel arbitration of the claims made against it by joining with the insurer defendants to enforce the policy’s arbitration agreement and to extend that agreement to include the extra-contractual claims made against CJW. The court found that equitable estoppel prevented the plaintiff from avoiding the contractual arbitration agreement for claims against CJW, a nonparty to the insurance policy, because the plaintiff relied on the policy in making its claims against CJW, and the claims against both the insurer defendants and CJW were inextricably intertwined.

Because the plaintiff failed to brief any argument against the application of equitable estoppel, the court granted CJW’s joinder and ordered that the plaintiff’s claims against both the insurer defendants and CJW be submitted to arbitration.

Living Steward Properties, Ltd. v. Certain Underwriters at Lloyd’s London, No. 2:20-cv-00001 (S.D. Tex. May 18, 2020).