Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Third Circuit Addresses Interplay Between LMRA and FAA and Affirms Arbitration Award in Favor of Union Under Collective Bargaining Agreement

by

The case relates to the disposition of accrued vacation time of unionized nurses after a new employer (Prospect) assumed a collective bargaining agreement. Prospect construed the collective bargaining agreement differently than the prior employer and refused to allow more than 200% of the annual vacation time limit. An arbitrator ultimately decided in favor of the nurses’ ability to maintain the full amounts of their previously accrued vacation time, determining that the collective bargaining agreement did not curtail the nurses’ right to the full amount of their accumulated leave. The arbitrator further found that Prospect assumed the collective bargaining agreement and that Prospect, therefore, was obligated to honor the excess accumulated leave. After the district court upheld the arbitration award, Prospect appealed to the Third Circuit.

As an initial matter, the Third Circuit found that Prospect’s attempt to vacate the award was timely, rejecting the union’s argument that the state 30-day statute of limitations period authorized by the Labor Management Relations Act applied. Because Prospect was entitled to sue under the Federal Arbitration Act, which applies to collective bargaining agreements, it could rely on the lengthier three-month limitations period of the FAA.

Next, the Third Circuit rejected Prospect’s three arguments attempting to show that the award should be vacated under the FAA. First, the court rejected Prospect’s argument that the award was in excess of the arbitrator’s powers because the arbitrator failed to arguably interpret the collective bargaining agreement. The court found that the arbitrator’s ruling could be supported by a canon of contract construction and that “[w]hether or not that is the best reading of the CBA, it is certainly sufficient to uphold the arbitrator’s award.” Second, the court rejected Prospect’s argument that the arbitrator manifestly disregarded federal labor law pertaining to successor employers. Because the arbitrator “did not foreclose the possibility that Prospect, as a successor employer, could have, as an initial condition of employment, capped the nurses’ carry-over of vacation time” but, instead, found only that there was “no evidence that Prospect did so in time” it was not a manifest disregard of the principles of successor employment. And third, the court rejected Prospect’s argument that the arbitrator was guilty of misconduct in “refusing to hear evidence pertinent and material to the controversy” about a similar National Labor Relations Board decision in a different case. The Third Circuit ruled that the evidentiary ruling was “not patently incorrect,” and it was “certainly not an error that deprived Prospect of a fair hearing.” The Third Circuit, therefore, affirmed the order confirming the award.

Prospect CCMC LLC v. Crozer-Chester Nurses Association, Nos. 19-1439 & 19-1440 (3d Cir. Feb. 26, 2020).

Second Circuit Upholds Injunction Against Arbitration Based on Prior Singaporean Judgment

by

Big Port Service DMCC and China Shipping Container Lines Co. Ltd. (CSCL) litigated in Singapore a dispute regarding a supply of marine fuel oil for a CSCL vessel. CSCL subsequently filed suit in the Southern District of New York seeking a permanent injunction against arbitration. The Singapore litigation decided issues related to damages alleged by Big Port Service as well as whether the parties had entered into an arbitration agreement. The Singaporean court determined that CSCL could not be forced to arbitrate because there was no binding arbitration agreement between the parties. The Southern District of New York accorded that decision preclusive effect and entered a permanent injunction against arbitration.

On appeal, Big Port Service first argued that the district court lacked subject-matter jurisdiction, but the court rejected that argument. The court next held that it was proper to recognize the Singaporean judgment under principles of international comity. The Singapore judgment “was a full decision addressing the existence of the arbitration agreement,” which was the relevant issue before the Southern District of New York, and the liberal federal policy favoring arbitration did not require Big Port Service to get a “second hearing” regarding whether an agreement to arbitrate existed.

The court also held that it was proper to give preclusive effect to the Singaporean court’s determination regarding the existence of an arbitration agreement. To accord a foreign court’s determination preclusive effect, the American court must find that there is an “identity of issues” addressed by both courts, meaning that “the legal standards … must … be identical.” The foreign court need not consider or apply American law, in particular, to be accorded preclusive effect. Here, the legal standards applied to the dispute were “substantively the same” and the agency principles applied were “in accord with New York agency law.” As such, the court found there was a sufficient “identity of issues.” The court determined that Big Port Service had an opportunity to “fully and fairly litigate” the question of arbitrability in the Singapore action and that this issue was “necessary to the judgment,” which also supported the grant of preclusive effect.

Lastly, the court found that it was proper to enter a permanent injunction against arbitration, as “[f]ederal courts generally have remedial power to stay arbitration,” including in situations in which the court determines “that the parties have not entered into a valid and binding arbitration agreement.” As such, the district court had the authority to issue the permanent injunction and it was proper to do so.

China Shipping Container Lines Co. Ltd. v. Big Port Service DMCC, No. 19-1111 (2d Cir. Mar. 5, 2020).

District of Massachusetts Finds Subsequent Arbitration Not a Collateral Attack on Confirmed Award

by

In a dispute centering on the preclusive effect of an arbitration award, the defendant sought to enjoin the plaintiff’s arbitration demand as it was an attempt to collaterally attack the confirmed award. The plaintiff argued that it was not seeking to challenge the validity of the award but that the award did not address the manner of new reinsurance billings. The plaintiff further argued that the defendant was improperly asking the court to determine the preclusive effect of the arbitration award on their arbitration demand. The court denied the defendant’s request to enjoin the arbitration.

The issue before the court was not whether the plaintiff was seeking to attack the prior arbitration proceeding, but whether the award precluded arbitration regarding the new reinsurance billings. The court distinguished the cases cited by the defendant regarding impermissible collateral attacks on arbitration awards because the subsequent action challenged the arbitration proceeding. Ultimately, the preclusive effect of an arbitration award remains an arbitral issue, not for the court to resolve.

Century Indemnity Co. v. Certain Underwriters at Lloyd’s, London, No. 1:19-cv-11056 (D. Mass. Mar. 6, 2020).

Eleventh Circuit Affirms Confirmation of Arbitration Award Over Claims of Fraud, AAA Rule-Breaking, and Lack of Jurisdiction

by

The Eleventh Circuit recently affirmed the confirmation of an arbitration award in a dispute involving a contract to obtain signatures for a Florida solar energy ballot initiative over claims that the prevailing party engaged in fraud, violated AAA rules, and that the arbitrator lacked jurisdiction to add attorneys’ fees to his award months after the arbitration hearing.

PCI Consultants Inc. contracts with entities and organizations to obtain signatures for petitions for ballot initiatives in exchange for a fee. In 2015, PCI contracted with Floridians for Solar Choice Inc. and Solar Alliance for Clean Energy Inc. (together, the Solar parties) to obtain signatures to support a proposed ballot initiative for a solar energy amendment to the Florida Constitution. A dispute arose regarding payment. The Solar parties believed they paid PCI what it was due, but PCI withheld 217,000 signed petitions due to purported nonpayment. The dispute concerned additional expenses for a different ballot initiative concerning medical marijuana. PCI claimed the Solar parties agreed to share expenses with the medical marijuana campaign while the Solar parties disputed that they agreed to cover those expenses.

Floridians for Solar Choice sued alleging various claims in a U.S. District Court in Florida and moved to compel arbitration. The court granted that motion, and Solar Alliance subsequently appeared in the arbitration. After a three-day hearing, the single arbitrator who heard the dispute ruled in favor of the Solar parties and awarded $1,271,250 in damages. Several months later, the arbitrator also tacked on interest, costs, and fees for a total award of approximately $2,015,900.

The district court confirmed the award over PCI’s motion to vacate, agreeing that the award of interest, costs, and fees was proper. PCI appealed to the Eleventh Circuit.

On appeal, PCI claimed (1) the Solar parties committed fraud during the arbitration proceedings by altering their damages analysis; (2) the Solar parties violated AAA rules that PCI claimed required the appointment of three arbitrators rather than one; and (3) the arbitrator lacked jurisdiction to award fees months after the arbitration hearing.

The Eleventh Circuit rejected all of PCI’s claims and affirmed the award’s confirmation.

First, PCI claimed that the Solar parties committed fraud by increasing their claimed damages in their post-hearing brief. The Eleventh Circuit disagreed, noting that the requirements of the test it applied for the FAA’s fraud exception were not satisfied. The court noted that PCI cited no case holding that “a change in damages theory constitutes ‘fraud’ or ‘undue means’ under” the FAA’s fraud exception. The Solar parties’ post-hearing demand for more than $1,000,000 was supported by the record even though they initially sought less than $500,000. (The Solar parties apparently initially sought partial reimbursement for the per-signature fee of the 217,000 withheld petitions, but later successfully argued they were entitled to full reimbursement for those petitions.)

Second, the court rejected PCI’s contention that it was entitled to a three-arbitrator panel, noting that AAA rules allowed the parties to agree on one or three arbitrators and provided that if the parties were unable to agree and the claim involved more than $1 million, then the matter would be heard by three arbitrators. The facts established that PCI had agreed to a single arbitrator knowing that this case potentially involved more than $1 million. In its statement of claim, Floridians for Solar Choice demanded $500,000 to $1 million-plus punitive damages, and when Solar Alliance was added as a party it sought additional damages. Despite being on notice that the claimed damages exceeded $ million, PCI did not request a three-arbitrator panel and instead stipulated to one arbitrator.

Third, the Eleventh Circuit rejected PCI’s contention that the arbitrator lacked jurisdiction to award fees when he did so several months after the arbitration because the arbitrator lost jurisdiction over the case 30 days after the hearing. The court noted that it has rejected the notion that arbitrators act outside their authority merely because they do not follow the AAA’s rules regarding the time for issuing decisions. It also noted that several other circuits have held that whether an arbitration award was timely is not a jurisdictional issue. In this case, the parties also stipulated that all motions for attorneys’ fees would be resolved after the hearing.

Floridians for Solar Choice, Inc. v. Paparella, No. 18-12907 (11th Cir. Mar. 3, 2020).

California District Court Confirms Arbitration Award Properly Conducted Under ICC Rules

by

The defendant sought to vacate an arbitration award, arguing that the arbitrator prejudiced the defendant by refusing to order discovery it requested and failed to apply California law to the analysis of attorneys’ fees and costs. The Southern District of California disagreed with the defendant’s argument and confirmed the award.

As to the defendant’s argument concerning discovery, the court recognized that the arbitrator issued a series of procedural orders specifically addressing discovery and ordering the disclosure of documents. The court found that the defendant “failed to demonstrate that the arbitrator’s refusal to order disclosure of certain requested documents demonstrated deprived the defendant of an adequate opportunity to present its evidence and arguments” and concluded that the “arbitrator’s refusal to order disclosure of certain requested documents was not done in bad faith and was not so gross as to amount to affirmative misconduct.”

As to the defendant’s argument that the arbitrator failed to apply California law to the award of attorneys’ fees, the court found that the arbitrator did not exceed its authority by applying ICC rules to the award of costs and fees. The parties’ agreement provided that the arbitration “shall be conducted in accordance with the Rules of Conciliation and Arbitration of the ICC.” California law permits the parties to incorporate by reference into their contract the terms of another document. Here, the reference to the application of the ICC rules was “clear and unequivocal.” Moreover, the parties’ agreement provided that the arbitration award “may include an award of costs, including reasonable attorney’s fees and disbursements.” The court determined, “pursuant to the parties’ agreement, the award of attorneys’ fees in the arbitration award is governed by ICC Rules” and concluded that the arbitrator did not exceed its authority.

Aeryon Labs, Inc. v. Datron World Communications, Inc., No. 3:19-cv-02168 (S.D. Cal. Mar. 4, 2020).