Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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)

District Court Grants Motion to Compel Arbitration, Finding Arbitration Provision Not Severable From Allegedly Void Contract

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A Pennsylvania federal district court granted a motion to compel arbitration pursuant to 9 U.S.C. § 4 of the Federal Arbitration Act, over objection by the defendant on severability grounds. The defendant argued that its contract with the plaintiff was void ab initio and thus unenforceable. While the contract contained an arbitration clause, the defendant argued that under Pennsylvania law, an arbitration provision is not severable from the remainder of a void contract, and as such, the arbitration clause at issue was unenforceable. The court disagreed, however, finding the proposition to be “directly at odds” with U.S. Supreme Court precedent. The court noted that the Supreme Court explicitly held in Buckeye that “an arbitration provision is severable from the remainder of the contract” and that “unless the challenge is to the arbitration clause itself,” a challenge to the validity of the contract as a whole must go to the arbitrator in the first instance. Because the defendant here challenged the validity of the contract as a whole, the court granted the plaintiff’s motion to compel arbitration.

Thrivest Specialty Funding, LLC v. Wright, No. 2:18-cv-04764 (E.D. Pa. June 5, 2019)

Ninth Circuit Affirms Order Denying Arbitration, Applying Precedent That State Law Does Not Overcome the New York Convention’s Signatory Requirement to Compel Arbitration

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In a trademark dispute, Shrinivas Sugandhalaya LLP (SS LLP), an incense manufacturing company based in Mumbai, appealed the denial of its motion to compel arbitration against Balkrishna Setty and his company Shrinivas Sugandhalaya (BNG) LLP, located in Bangalore. SS LLP sought to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention), by invoking the arbitration clause in a partnership agreement to which SS LLP was not a signatory. The Ninth Circuit affirmed the denial of arbitration, relying on the requirement under the New York Convention that the party seeking to compel arbitration be a party to the arbitration agreement. The court explained that to the extent the FAA would permit a nonsignatory to invoke arbitration through certain state contract or equitable laws, the Convention’s bar of arbitration would control over the FAA. The court also rejected other arguments of SS LLP, finding that they were not raised before the district court.

Setty v. Shrinivas Sugandhalaya LLP, No. 18-35573 (9th Cir. June 6, 2019).

Court Compels Arbitration Under the New York Convention and Dismisses Case in Windstorm Insurance Claim Dispute

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The underlying insurance policy was issued by Certain Underwriters at Lloyd’s London and contained an arbitration clause. The court applied the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention) under the FAA. The court found that all four requirements under the Convention were met. The court easily determined that there was a written agreement and that the agreement arose out of a commercial relationship. With respect to the requirement that the agreement provide for arbitration in the territory of a signatory of the Convention, the court found that the requirement was met where the insurance policy (although separate from the arbitration clause), provided that “any action brought against [the insurer] must be in the United States of America, ‘in a court having proper jurisdiction.'” And regarding the final requirement of the Convention, that a party to the agreement is not an American citizen or that the commercial relationship has a reasonable relation with a foreign state, the court found it was met because a portion of the insurance policy was subscribed to by Lloyd’s Syndicate 2001, which is wholly owned by a company that is organized and principally based in the United Kingdom.

Although Section 3 of the FAA states that district courts “shall” stay proceedings pending arbitration upon the motion of a party, the court found that it is appropriate to dismiss the lawsuit where all of the issues presented are arbitrable and the plaintiff has not requested a stay. The complaint only raised one claim, which the court found subject to arbitration, and the plaintiff did not respond to the motion to compel or otherwise request a stay. As a result, the court dismissed the complaint with prejudice.

German Int’l Sch. of Fort Lauderdale, LLC v. Certain Underwriters at Lloyd’s, London, No. 0:19-cv-60741 (S.D. Fla. May 14, 2019).