Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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).

Second Circuit Confirms Arbitration Awards That Are (Literally) Out of This World

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Arbitration over whether a South Korean company or a Bermuda company headquartered in Hong Kong owns a geostationary satellite in light of an order from a South Korean regulatory agency can be complicated. The Second Circuit recently affirmed a decision confirming an arbitration award adjudicating ownership of the satellite in question and awarding damages related to a party’s failure to obtain regulatory approvals necessary to complete the sale over claims that the arbitration panel exceeded its power, disregarded the law, and violated public policy.

KT Corp., a Korean company, agreed to sell a satellite to ABS Holdings Ltd., a Bermuda company headquartered in Hong Kong. The companies signed a purchase agreement to convey the title to the satellite and an operations agreement under which KT agreed to operate the satellite on behalf of ABS. Both agreements contained New York choice-of-law provisions and mandatory arbitration clauses. The purchase agreement required KT to obtain and maintain all necessary licenses and authorizations for the sale and the continued operation of the satellite.

The sale was completed and title to the satellite was transferred.

Nearly two years later, a South Korean regulatory agency issued an order declaring the purchase agreement null and void because KT had failed to obtain a required export permit. The agency canceled KT’s permission to use certain frequencies to operate the satellite.

KT and ABS arbitrated who held title to the satellite and whether KT had violated the purchase agreement before a panel of the International Chamber of Commerce. In two awards, the panel concluded that ABS held title to the satellite because title had lawfully passed when the conditions precedent to the purchase agreement were completed when there was no requirement that KT obtain an export permit. And even if that was not the case, the panel concluded, the regulatory order had no effect because it was issued retroactively without notice to the parties in violation of New York law, and KT breached its obligations by failing to obtain all the approvals necessary for the continued operation of the satellite (even though an export permit may not have been required for the sale of the satellite, one was necessary to maintain the satellite’s operations).

KT petitioned the Southern District of New York to vacate the award, and ABS petitioned the court to confirm it. The district court granted ABS’ petition and confirmed the panel’s award.

The Second Circuit affirmed. KT argued that the panel had exceeded its authority and that the award disregarded the law and violated public policy. KT claimed that the panel’s conclusion that the regulatory order was without effect violated due process principles. The court disagreed, noting that KT had not challenged the order, its counsel had questioned its validity, and the panel did not rest on the validity of the order; the panel referenced the propriety of the order as an alternate basis for its primary conclusion that title to the satellite properly changed hands. The court also rejected KT’s argument that the panel had disregarded New York contract law. Regarding public policy, although the court recognized that it is the public policy of the United States to enforce foreign judgments that are not repugnant to U.S. policy, it was unclear whether that public policy extended to foreign regulatory orders, and it was not even clear that the regulatory order in this case was enforceable under South Korean law according to KT’s expert.

KT Corp. v. ABS Holdings, Ltd., No. 18-2300 (2d Cir. Sept. 12, 2019).

Nevada Supreme Court Reverses Ordered Arbitration as the FAA Preempts NRS 597.995

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Nevada Revised Statutes section 597.995 requires agreements that include an arbitration provision to also include a specific authorization for the arbitration provision showing that the parties affirmatively agreed to that provision. When a settlement agreement referenced a licensing agreement that included an arbitration provision, the trial court denied the motion to compel arbitration, “concluding the arbitration provision was unenforceable because it did not include the specific authorization required by NRS 597.995.”

In reversing the decision, the Nevada Supreme Court held that the Federal Arbitration Act, 9 U.S.C. § 2, which provides that written provisions for arbitration are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,” preempts section 597.995 and that the statute did not void the arbitration clause. The court cited Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996), wherein the “Supreme Court explained that under the FFA, courts may not ‘invalidate arbitration agreements under state laws applicable only to arbitration provisions,’ as Congress has ‘precluded states from singling out arbitration provisions for suspect status’ and requires arbitration provisions to be placed on ‘the same footing as other contracts.'” The parties were thus compelled to arbitrate.

MMAWC, LLC v. Zion Wood Obi Wan Tr., No. 75596 (Nev. Sept. 5, 2019).