Reinsurance Focus

City Beverages LLC, doing business as Olympic Eagle Distributing, and Monster Energy Co. entered into an agreement under which Monster had exclusive distribution rights for its products in a certain territory for 20 years. Monster exercised its contractual right to terminate the agreement and, in response, Olympic invoked Washington’s Franchise Investment Protection Act, which prohibits termination of a franchise contract absent good cause. Monster thereafter initiated an arbitration proceeding before JAMS pursuant to a mandatory arbitration clause in the parties’ agreement. The parties chose an arbitrator, who submitted disclosure statements prior to the arbitration. The arbitrator ultimately issued a final award in favor of Monster.

Monster filed a petition to confirm the award, and Olympic cross-petitioned to vacate the award based on later-discovered information that Olympic alleged demonstrated that the arbitrator was not impartial. The court vacated the arbitration award. Initially, the court explained that the Federal Arbitration Act permits a court to vacate an arbitration award when there is evident partiality on the part of the arbitrators. Evident partiality includes instances in which the arbitrator fails to disclose to the parties any dealings or interests that might create an impression of possible bias. Here, the arbitrator failed to disclose his ownership interest in JAMS, and that JAMS had administered 97 arbitrations for Monster over the past five years. Based on these facts, the court held that vacatur of the arbitration award was necessary on grounds of evident partiality.

Monster Energy Co. v. City Beverages, LLC, Nos. 17-55813, 17-56082 (9th Cir. Oct. 22, 2019).

The petitioner moved to confirm an arbitration award, and the respondent cross-moved to vacate, claiming the arbitrator was guilty of misconduct in refusing to postpone the hearing upon the unexpected passing of a witness’ father, then refusing to consider testimony of a different witness, and for showing manifest disregard of the law. The court explained that litigants carry a heavy burden when seeking to vacate an award based on arbitrator misconduct, noting that not every failure to consider relevant evidence requires vacatur. Only when an arbitrator refuses to accept evidence from a “key witness,” such that the opposition’s critical arguments would go unopposed, would the misconduct rise to the level ordinarily required for vacatur. Here, the respondent essentially admitted that one of the excluded witnesses was not “key” and that the other was meant only to corroborate the respondent’s own evidence, rather than rebut the petitioner’s. For these and other reasons, the court held that the arbitrator’s refusal to consider these witnesses was not improper, much less misconduct requiring vacatur. The court also found no evidence to suggest that this was one of the “exceedingly rare” instances in which an award may be vacated for manifest disregard of the law. The court therefore granted the petitioner’s motion to confirm the award, and denied the respondent’s cross-motion.

Eaton Partners, LLC v. Azimuth Capital Mgmt. IV, Ltd., No. 1:18-cv-11112 (S.D.N.Y. Oct. 18, 2019),

Plaintiffs Kevin Struss, Struss Farms LLC, and Struss & Cook Farms brought certain tort and breach of contract claims against Rural Community Insurance Co. (RCIC) and Scott Laaveg, RCIC’s claims representative. The claims arose from insurance contracts between the parties under which RCIC insured the plaintiffs’ crops.

After motions were made to compel arbitration, the court ordered briefing on the issue of the scope of the arbitration clause. The court compelled arbitration of all claims against RCIC and stayed all claims against Laaveg. The defendants moved to reconsider, arguing that only the contract claims should be arbitrated, not the tort claims.

The court explained that a motion to reconsider is based on: (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error or prevent manifest injustice. It is generally not appropriate for a court to reconsider issues that it has already addressed. The court noted that the defendants never advanced any argument in their prior filings or supplemental briefing concerning the scope of the arbitration clause as between contract and tort claims, or otherwise. Therefore, the court declined to reconsider its prior ruling and referred all claims against RCIC to arbitration. Similarly, the court held that it was not appropriate to revisit its decision to stay the claims against Laaveg.

Struss v. Rural Community Ins. Servs., No. 2:18-cv-02187 (D. Kan. Oct. 11, 2019).

The Southern District of New York granted a motion to compel arbitration of an employment dispute between the petitioners and the respondent. The petitioners also filed a motion to dismiss or stay a concurrent proceeding that the respondent had filed in federal court in Colorado. The respondent did not dispute that the claims he asserted in the Colorado action fell within the scope of an arbitration clause in his employment agreement with the petitioners. Rather, he argued that the arbitration clause was invalid because: (1) the employment agreement limited the petitioners’ liability in certain respects; and (2) a fee-shifting clause in the arbitration provision was unconscionable. The court rejected both arguments. First, the court held that “validity” challenges under Section 2 of the Federal Arbitration Act are limited to the validity of the arbitration clause itself, which is severable from the remainder of the contract. The respondent’s “limitation of liability” argument was not premised on the validity of the arbitration provision, but on two sections of the agreement that had no bearing on the arbitration clause, including its validity. Second, the court held that the fee-shifting provision was not unconscionable, and noted that the respondent failed to identify a single federal or New York court that had invalidated an arbitration agreement based on a fee-shifting clause. As such, the court granted the petitioners’ motion to compel arbitration, but denied the petitioners’ motion to stay the Colorado action, finding it lacked jurisdiction to do so.

Crispin Porter & Bogusky LLC v. Watson, No. 1:18-mc-00384 (S.D.N.Y. Oct. 10, 2019).