Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Court Confirms Arbitration Award Under FAA’s Strong Presumption in Favor of Such Awards

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This case arises from a dispute over the parties’ obligations under several oil and gas leases. The parties engaged in an arbitration pursuant to an arbitration agreement. The arbitration panel entered awards in favor of defendants Alan Larson and others. Northeast Natural Energy LLC filed a complaint in the U.S. District Court for the Western District of Pennsylvania. Under the Federal Arbitration Act, there is a strong presumption in favor of an arbitration award and a court must grant an order confirming an arbitration award, except in few enumerated instances. One ground for vacating an award includes “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The court may also vacate an arbitration award when the arbitrators displayed a “manifest disregard” of the law. This means there must be “absolutely no support at all in the record justifying the arbitrator’s determinations.”

The court denied Northeast Energy’s motion to vacate the arbitration award and held that the panel did not exceed its powers and did not manifestly disregard the law. The court explained that there was nothing in the record to support that the panel exceeded its powers by rewriting the leases and failing to interpret the leases as written. The court further explained that the panel did not remove a provision from the leases, and the record supported the panel’s interpretation. The court found that the panel’s application of the parol evidence rule was not “completely irrational” as it cited appropriate legal authority and did not misapply Pennsylvania law. Lastly, the court held that the panel did not manifestly disregard the law in making awards to non-testifying defendants because the record revealed that the panel had sufficient information to make such findings.

Ne. Natural Energy LLC v. Larson, No. 3:18-cv-00240 (W.D. Penn. Sept. 20, 2019).

Ninth Circuit Reverses Dismissal of Case Involving Foreign Arbitration Award Based on Comity for French Appellate Ruling and Quasi in Rem Jurisdiction

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The parties entered into a contract under which the plaintiff Cerner Middle East Limited would provide hardware, software, and services to iCapital S/E to facilitate iCapital’s fulfillment of a contract that it had been awarded by the United Arab Emirates Ministry of Health. The contract required the parties to submit any disputes to binding arbitration under the rules of the International Chamber of Commerce, specified that the seat of arbitration would be in Paris, and provided a choice-of-law clause electing the law of the state of Missouri.

A dispute arose and Cerner issued a request for arbitration when iCapital failed to make payments due under the contract, to which iCapital responded by objecting to the arbitration. The principal of iCapital, Ahmed Saeed Mahmoud Al-Badi Al-Dhaheri, declined to respond at all. The International Court of Arbitration concluded that the arbitration should proceed against both iCapital and Dhaheri and appointed a tribunal. The tribunal issued an award against both iCapital and Dhaheri for $62 million in July 2015, determining that it had jurisdiction over the latter as he was the sole proprietor of iCapital and, alternatively, because he was the alter ego of the reorganized iCapital LLC.

Cerner sought to enforce the arbitration award in Oregon state court seeking to attach funds in an Oregon bank account owned by Dhaheri. Cerner relied on a quasi in rem theory to establish jurisdiction. The case involved “type two” quasi in rem jurisdiction, which requires that (1) a court of competent jurisdiction render a judgment against the defendant; and (2) the defendant owns property in the forum state. The defendants removed to federal court and moved to dismiss for lack of personal jurisdiction, arguing that Cerner did not possess a valid judgment against Dhaheri and therefore could not rely on quasi in rem to establish jurisdiction. The district court agreed and dismissed the case.

Cerner appealed to the Ninth Circuit Court of Appeals. While the appeal was pending, the Court of Appeal of Paris affirmed a French trial court decision that confirmed the arbitration award and found that the tribunal had jurisdiction over Dhaheri in addition to iCapital. In light of this development, the Ninth Circuit determined that it was not required to decide whether the district court was correct in deciding that the tribunal’s award had to be confirmed as valid by another court before quasi in rem jurisdiction could be exercised.

The defendants then argued that the Ninth Circuit should not recognize the tribunal’s award (or the Paris court’s ruling), in part because the French decision was not entitled to recognition under the principles of international comity. Citing to the U.S. Supreme Court, the Ninth Circuit stated that foreign decisions should be accorded deference unless an underlying issue renders the judgment suspect. The Ninth Circuit found that none of the grounds for disregarding a foreign judgment applied here, noting that a foreign judgment may be entitled to comity even if the U.S. court disagrees with its reasoning. The decision of the Paris court met the minimum standard of reasonableness, and therefore the decision deserved recognition under principles of international comity. The requirements for quasi in rem jurisdiction were thus met, and the action seeking to enforce the award should not have been dismissed for lack of jurisdiction.

Cerner Middle E. Ltd. v. iCapital, LLC, No. 17-35514 (9th Cir. Sept. 23, 2019).

Second Circuit Affirms Judgment Confirming Arbitration Award in Favor of Labor Union Involving Alleged Non-Signatory to Collective Bargaining Agreement

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The dispute involved a long-term health care provider and an assisted living services provider that was based in the same building. The union represented certain housekeeping employees at the location. The long-term health care provider was a signatory to the relevant collective bargaining agreements, and “for years” it applied the terms of the agreements to assisted living employees, including remitting union dues and health fund payments on their behalf. Another company began managing the housekeeping department at the property in 2013. The company signed an assumption agreement with respect to the operative collective bargaining agreement, under which the assisted living provider was not a signatory. The company ultimately stopped applying the 2008 collective bargaining agreement to the assisted living employees, and the union filed a grievance. Arbitration ensued, resulting in the issuance of the arbitration award at issue here.

On appeal, the defendants argued that the district court erred in confirming the arbitration award because the arbitrator exceeded his authority under the 2008 collective bargaining agreement, and, in doing so, the arbitrator violated public policy. The Second Circuit, however, affirmed the district court’s confirmation of the award based on the “strong presumption in favor of enforcing arbitration awards.” The Second Circuit relied on the fact that the collective bargaining agreement broadly authorized the arbitrator to resolve grievances, defined as “a dispute with regard to the application, interpretation or performance of an express term or condition” of the 2008 collective bargaining agreement. The court found that the arbitrator did resolve grievances within the meaning of the collective bargaining agreement here, as the arbitrator determined: (1) prior to 2013, the long-term health care and assisted living providers were treated as a single employer; (2) the assisted living provider was included in the “signatory employers list” of a prior collective bargaining agreement; (3) the long-term health care provider continued to provide those benefits under the 2008 collective bargaining agreement; and (4) the long-term health care provider and the management company violated the collective bargaining agreement by unilaterally removing assisted living employees from the bargaining unit.

The arbitrator also concluded that the long-term health care provider and assisted living provider’s single-employer status continued after the sale because the providers had interrelated operations, common management, centralized control of labor relations, and common ownership. The arbitrator’s determination of who was bound by the collective bargaining agreement by virtue of the parties’ conduct was within the scope of his authority and “an arguable construction of the agreement.” The Second Circuit rejected the defendants’ arguments that the award violated public policy by making the union the bargaining representative for assisted living employees and that the award did not draw its essence from the collective bargaining agreement.

1199 SEIU United Healthcare Workers E. v. Alaris Health at Hamilton Park, No. 18‐2898 (2d Cir. Sept. 17, 2019).

Court Compels Arbitration Based on Clause Incorporated Into Guaranty Agreement

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The U.S. District Court for the District of the Virgin Islands recently compelled arbitration after concluding that a personal guaranty incorporated an arbitration agreement from an underlying contract and rejecting various arguments to the contrary.

Solar Leasing Inc. signed a leasing agreement with Dun-Run Holdings to install solar panels at a golf course in the Virgin Islands. William Hutchinson, a principal at Dun-Run, guaranteed Dun-Run’s obligations in a personal guaranty. The leasing agreement contained an arbitration provision, but the personal guaranty did not. The personal guaranty did, however, provide that Hutchinson guaranteed the “performance of any and all financial obligations of the Lessee to the Lessor … subject to the terms and conditions contained in the … Leasing Agreement.”

Solar Leasing subsequently sought to bring suit claiming that Hutchinson, in his capacity as a principal at Dun-Run, had breached the leasing agreement’s terms by, among other things, selling the golf course. Hutchinson sought to compel arbitration under the terms of the leasing agreement. Solar Leasing opposed, arguing that the personal guaranty, which it was seeking to enforce, did not contain an arbitration provision, that even if the leasing agreement’s arbitration clause was incorporated into the personal guaranty, it was not enforceable, and that a condition precedent to arbitration had not been met because the parties were required to first engage in informal efforts to resolve their dispute and then proceed to mediation before arbitration.

The district court sided with Hutchinson and compelled arbitration. The plain language of the personal guaranty incorporated the arbitration provision from the leasing agreement. The personal guaranty did not incorporate only the financial obligations as Solar Leasing suggested. The limitation regarding financial obligations “only describe[d] what [was] being guaranteed, not how th[e] guaranty may be enforced.”

The leasing agreement, meanwhile, clearly articulated a desire to arbitrate by stating that a dispute regarding the leasing agreement would be “resolved by binding arbitration.” Although the leasing agreement did not delineate the process for selecting arbitrators, that was not fatal.

The dispute in the instant case was within the scope of the leasing agreement’s arbitration clause because all of the alleged breaches that Solar Leasing complained of were financial in nature. Even if that was not the case, however, the language was at best for Solar Leasing ambiguous and the court was required to resolve that ambiguity in favor of arbitration.

Solar Leasing, Inc. v. Hutchinson, No. 3:17-cv-00076 (D.V.I. Sept. 20, 2019).

District of Idaho Rejects Challenges to Arbitration Award

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The defendant sought to vacate an arbitration award on the basis of arbitrator misconduct and manifest disregard of the law or, in the alternative, modification of the award.

The defendant argued that the arbitrator committed misconduct by denying its motions to compel, failing to postpone or extend the hearing, excluding testimony from its non-retained experts, and disregarding the defendant’s evidence. The court rejected this argument, stating, “Unless a discovery mandate is found in a statute, contract provision, or the adopted rules, a party to arbitration has no legal right to prehearing discovery.” Pursuant to the parties’ agreements, limited discovery was permitted, but the defendant faulted the arbitrator for failing to compel supplemental discovery when the plaintiff’s discovery responses and 30(b)(6) deponent “purportedly fell short.” Moreover, a denial of discovery is not a basis for vacatur under the Federal Arbitration Act. The court dismissed the remainder of the defendant’s arguments because the arbitrator had acted in accordance with the parties’ agreement and Idaho law.

The defendant next argued that the arbitration award was “so fundamentally flawed in its manifest disregard of the law that it cannot be construed as final, mutual and definite.” The court did not find, nor did the defendant point to, any evidence in the record or the arbitration award to suggest that the arbitrator was “aware of the law and intentionally disregarded it” or that the arbitrator exceeded her powers in how she determined to award attorneys’ fees.

The defendant, in the alternative to vacatur, argued that the arbitration award should be remanded for clarification and modification pursuant to 9 U.S.C. § 11 because it was “incomplete, ambiguous and contradictory.” The court stated that while it certainly understood the defendant’s “desire for a more thorough opinion,” the defendant had not demonstrated that a remand for clarification or modification was warranted. The arbitration award was confirmed.

Twin Falls NSC, LLC v. S. Idaho Ambulatory Surgery Ctr., LLC, No. 1:19-cv-00009 (D. Idaho Sept. 23, 2019).