Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Eighth Circuit Vacates Confirmation Over Lack of Personal Jurisdiction

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The Eighth Circuit recently vacated a judgment confirming an arbitration award after concluding that the district court lacked personal jurisdiction over the defendant.

Federated Mutual Insurance Co., a Minnesota insurer, owns various trademarks containing the word “Federated.” A Florida insurer changed its name to Federated National Holding Co. After Federated Mutual expressed concern about possible confusion related to its marks, the insurers entered into an agreement requiring Federated National to adopt a new name, inform Federated Mutual of its new name, and provide Federated Mutual with an opportunity to object. Federated National adopted the name “FedNat,” continued to use the name Federated National as well, and failed to give Federated Mutual the required notice and opportunity to object. Federated Mutual initiated arbitration.

The arbitrator allowed FedNat to continue using FedNat, but ordered it to stop using “Federated.” Federated Mutual filed a petition to confirm the award in the U.S. District Court for the District of Minnesota. Federated Mutual’s petition was successful.

FedNat appealed, and the Eighth Circuit vacated the award and remanded with instructions to dismiss the petition based on a lack of personal jurisdiction over FedNat. It ruled that the agreement between the parties, despite being relevant, did not give rise to personal jurisdiction merely because the agreement contained a Minnesota choice-of-law provision. The court also explained that FedNat had no meaningful connection to Minnesota: It did not do business or have a physical presence there, and the fact that FedNat’s name disrupted Federated Mutual’s business in Minnesota did not create contacts on the part of FedNat with Minnesota. Finally, the panel disagreed with the district court’s conclusion that the agreement between the parties contemplated regular communications in Minnesota. The agreement only required notice of Federated National’s new name and was silent as to where the notice was to be given. Such sporadic communications were not enough to establish personal jurisdiction in Minnesota.

Federated Mut. Ins. Co. v. FedNat Holding Co., No. 18-2430 (8th Cir. June 27, 2019).

Fifth Circuit Reverses Ruling That Procedural Unconscionability Is Decided by Arbitrator

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The plaintiff challenged the formation of an arbitration clause contained in her employment contracts and acknowledgment of employee handbooks, arguing: (1) there was no “meeting of the minds” and therefore there was not the mutual assent necessary for contract formation; and (2) the agreement was procedurally unconscionable because the plaintiff’s “assent was obtained through misrepresentation, she never had a meaningful opportunity to bargain, and there was a gross disparity in the parties’ bargaining power.” A Mississippi federal court rejected the plaintiff’s first argument, finding that there was a meeting of the minds, but deferred the procedural unconscionability argument to the arbitrator under the agreement’s delegation clause.

The Fifth Circuit upheld the ruling on contract formation, as the district court “correctly found that the electronic communications transmitting the Arbitration Agreement clearly identified an arbitration agreement as the subject of the communications … [and the plaintiff] was given the opportunity to read the Agreement and certified” that she had done so. The plaintiff’s “unilateral lack of diligence” in failing to do so “does not preclude contract formation under Mississippi law.”

However, the Fifth Circuit reversed with respect to procedural unconscionability, as that “objection challenges the formation of the Arbitration Agreement itself, the district court had the duty to resolve this challenge.” Thus, the case was remanded to the district court to resolve the issue.

Bowles v. Onemain Fin. Grp., LLC, No. 18-60749 (5th Cir. June 19, 2019)

Court Holds Prior Compliance Is Not a Ground to Refuse Confirmation of an Arbitration Award

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Tracey Schusterman and Rosa Mazzone jointly owned a financial services group. Pursuant to their agreement, they were bound to arbitrate any disputes regarding the financial services group before the Financial Industry Regulatory Authority Inc. Schusterman initiated an arbitration against Mazzone alleging that she attempted to solicit clients in violation of their agreement. The arbitration panel found that Mazzone breached the agreement and issued an award in favor of Schusterman. Schusterman then filed an action to confirm the award. Shortly thereafter, Mazzone made a payment to Schusterman in the full amount of the award and filed a motion to dismiss the petition asserting that the motion was not ripe, and the claims now moot based on her payment, along with a request for sanctions. The court confirmed the award and denied the motion to dismiss. The court explained that prior compliance “does not negate the right of the prevailing party … to seek judicial confirmation of the arbitral decision.” The court further held that sanctions were not appropriate. The court explained that Mazzone did not follow the proper procedures in filing the sanctions motion and further that Schusterman did not act with “objective unreasonableness” as she had the right under the FAA to petition to confirm an arbitration award.

Schusterman v. Mazzone, No. 1:19-cv-00212 (S.D.N.Y. June 19, 2019)

Failure to Specifically Challenge “Delegation” Clause in Arbitration Agreement Means Motion to Compel Arbitration “Must Be Granted”

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The plaintiff sued his former employer for discrimination, retaliation, hostile work environment, and violations of the Missouri Human Rights Act. The defendant moved to compel arbitration based on the parties’ Mutual Agreement to Arbitrate (MAA). The MAA incorporated the rules of the American Arbitration Association and the Judicial Arbitration & Mediation Services, both of which authorize the arbitrator to resolve threshold, or “gateway,” questions of arbitrability. As the court observed, the U.S. Supreme Court has held that the incorporation of these rules into an arbitration agreement constitutes a “clear and unmistakable” expression of the parties’ intent to delegate arbitrability issues to the arbitrator, “unless the provision delegating such authority to the arbitrator is specifically challenged.” Here, the plaintiff did not specifically challenge the MAA’s delegation provision; he argued only that the MAA as a whole was unenforceable for lack of consideration. As such, the court granted the defendant’s motion to compel arbitration.

Murphy v. Oracle Am., Inc., No. 4:19-cv-01207 (E.D. Mo. June 19, 2019)

Fifth Circuit Holds Parties Did Not Enter Into Arbitration Agreement Under the FAA

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Estella Trammell was an at-will employee of AccentCare. She challenged the district court’s order requiring her to arbitrate a pay dispute with AccentCare. The district court held that there was an enforceable arbitration agreement under the mailbox rule. AccentCare mailed the arbitration agreement to Trammell’s home, but Trammell asserted that she did not receive or sign the arbitration agreement and therefore should not be bound to arbitration. Trammell asserted that she notified AccentCare that she was having difficulty receiving and sending mail at her address. She further asserted that she reported to AccentCare that she had not received timesheets mailed to her address, and she had also mailed timesheets to AccentCare and the company did not receive them. Further, AccentCare admitted that it could not produce a signed copy of the arbitration agreement. The court held that under the FAA the parties did not enter into an arbitration agreement. In Texas, the mailbox rule holds that a letter property addressed, stamped, and mailed may be presumed to have been received by the addressee in the due course of the mail. However, the court explained that Trammell overcame this presumption and created a genuine issue of material fact regarding whether an arbitration agreement was formed.

Trammell v. AccentCare, Inc., No. 18-50872 (5th Cir. June 7, 2019)