Source: http://lettersblogatory.com/tag/new-york-convention/page/13/
Timestamp: 2015-04-19 10:52:18
Document Index: 386465638

Matched Legal Cases: ['§ 202', '§ 202', '§ 202', '§ 10', '§ 10', '§ 10']

New York Convention | 13/22 | Letters Blogatory
January 27, 2012Arbitrationarbitration, FAA, New York Convention, UKTed Folkman	The case of the day is Mead Johnson & Co. v. Lexington Insurance Co. (S.D. Ind. 2012). Mead and PBM Products were competitors in the infant formula business. PBM claimed that Mead was guilty of false advertising. It won a $13.5 million judgment against Mead in 2009, which the Fourth Circuit affirmed in 2011.
Mead was insured by Lexington and National Union Fire Insurance Co. After the judgment, National Union brought an action in the Southern District of Indiana for a declaration that it had no duty to defend or indemnify. The case of the day was a separate action in the same court, which Mead brought against Lexington for breach of contract. The National Union action was plainly within the court’s jurisdiction, because the parties were of diverse citizenship. But both Mead and Lexington were citizens of Delaware, so Mead asserted that jurisdiction was proper under the FAA. What was the basis for the assertion of jurisdiction? According to Mead, Mead and an affiliate of Lexington, AIU Insurance Co., had previously arbitrated a dispute that concerns AIU’s obligation to defend PBM Product’s claims. The policies are substantially identical, except that the AIU policy had “European Liability Market Slip Policy Wording,” which required arbitration of disputes in London.
Mead writes: “… arbitration agreements and awards fall under the New York Convention where they were made within the legal framework of another country and particularly where they are pronounced in accordance with foreign law.” It cites Jain v. de Mere (7th Cir. 1995), but Jain involved an arbitration between two aliens. None of the other cases Mead cited involved an arbitration between two US citizens. Industrial Risk Ins. v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998) (German manufacturer was party to the arbitration); Yusuf Ahmed Alghanim & Sons, WLL v. Toys “R” Us, Inc., 126 F.3d 15 (2d Cir. 1997) (Kuwaiti business was party to the arbitration); Ministry of Defense of Islamic Republic of Iran v. Gould, Inc., 887 F.2d 1357 (9th Cir. 1989) (the name of the case says it all); Ledee v. Ceramiche Ragno, 684 F.2d 184 (1st Cir. 1982) (Italian corporation). Some cases that do involve disputes between US citizens have held that the mere fact that a case is to be arbitrated in England and the arbitration conducted pursuant to English law is not enough to create a “reasonable relationship” with England so as to bring the case within the scope of the Convention, as defined by § 202. In Jones v. Sea Tow Services Freeport NY, Inc., 30 F.3d 360 (2d Cir. 1994), for example, a pleasure boat capsized when hit by a wave and ended up on the beach on Long Island. A professional salvage company arrived on the scene and provided aid after the owners of the yacht signed the Lloyd’s Open Form agreement, a form salvage agreement that contains an arbitration clause requiring arbitration in London. The salvor initiated an arbitration in London seeking its fees. The yacht owners sued for a declaration that the arbitration clause was not within the scope of the Convention as defined by § 202. The court agreed:
So despite Mead’s vigorous brief, I think that the decision ultimately is correct. You should not be able to boot-strap yourself into federal jurisdiction by claiming that an arbitration agreement that calls for arbitration abroad is by itself sufficient to bring an agreement within § 202. Otherwise the exception would swallow the rule.	Leave a comment	Case of the Day: Century Indemnity Co. v. Certain Underwriters at Lloyd’s
January 26, 2012Arbitrationarbitration, New York ConventionTed Folkman	The case of the day is Century Indemnity Co. v. Certain Underwriters at Lloyd’s of London (S.D.N.Y. 2012). Century, a Pennsylvania insurer, had a reinsurance agreement with certain reinsurers in the London Market in 1968. The reinsurance agreement covered certain asbestos claims. In 2001, the reinsurers imposed new documentation requirements for claims made under the reinsurance agreement, and from 2001 to 2005, they withheld payments from Century on the grounds that it had not complied with the new requirements. The agreement had an arbitration agreement, and Century initiated an arbitration, asserting that the new documentation requirements were improper. In 2006, the tribunal issued an order denying Century’s motion for pre-hearing security but requiring one of the reinsurers, Harper Insurance, to post letters of credit with respect to certain reserves and claims. In 2007, after an evidentiary hearing, the tribunal issued a final interim order, which established documentation requirements that Century would have to meet and guidelines for reconciliation of the parties’ accounts. Later in 2007, the tribunal issued another interim order that modified the prior order and indicated that the tribunal would meet fifteen months later to consider whether it needed to exercise continued jurisdiction. In 2008, a dispute arose about Harper’s obligation to provide letters of credit for “incurred but not reported” accounts, and the tribunal issued an order reaffirming the 2006 order and stating that Harper was not required to post letters of credit for those accounts. In January 2009, the tribunal met and determined that it did not need to continue to exercise jurisdiction, and it issued a final award on February 5, 2009.
In 2011, Century sought confirmation of the final award and the interim awards that the tribunal had made in 2007, which, according to Century, were “necessarily incorporated” in the final award. Harper cross-moved for confirmation, but in its view, the final award also “necessarily incorporated” the interim orders relating to the letters of credit. The judge confirmed the final award and the two interim awards that the parties agreed were necessarily incorporated. On the award concerning the letter of credit, the court noted that an interim order mandating a letter of credit “is sufficiently final for federal court review and confirmation,” citing Banco de Seguros del Estado v. Mutual Marine Offices, Inc., 230 F. Supp.2d 362, 368 (S.D.N.Y. 2002). It therefore confirmed that order as well. Leave a comment	Case of the Day: Agility Public Warehousing Co. v. Supreme Foodservice
January 23, 2012Arbitrationarbitration, FAA, New York ConventionTed Folkman	The case of the day is Agility Public Warehousing Co. v. Supreme Foodservice GmbH (S.D.N.Y. 2011). Supreme wanted to bid on a US government contract to supply food to the troops in Afghanistan. It made a contract with Agility Public Warehousing and Professional Contract Administrators, firms that supplied food to troops in Iraq, Kuwait, and Jordan, under which APW and PCA were to provide food pricing and supply chains for use in Supreme’s bid. Supreme won the contract in 2005, but as the war went on, the government asked Supreme to expand the scope of services and to provide food to forward operating bases. Supreme agreed, and it made a side agreement that provided for compensation for APW and PCA on account of the changed circumstances. In 2007, Supreme learned that APW was being investigated for illegal procurement practices. APW and PCA refused to provide pricing information to Supreme, and Supreme terminated the agreement for material breach and ceased making payments—including some payments for services provided prior to the termination. APW and PCA commenced an arbitration in New York under the AAA rules, seeking the unpaid amounts, or in the alternative, seeking the contractually defined post-termination fee. While the arbitration was pending, a grand jury indicted APW for fraud. The basic allegation was that APW had misrepresented its buying power for food items in the Iraq/Kuwait/Jordan contract. Supreme then asserted, in the arbitration, that APW and PCA had fraudulently induced it to enter into the contract by “making promises that they intended to fulfill only by illegal means.” At the arbitration hearing, Supreme sought the testimony of several APW executives, but they refused to testify—though they did not formally invoke their Fifth Amendment privilege against self-incrimination. Supreme argued that the executives’ failure to testify was fatal to APW’s claims, because under New York law, where a claimant’s material witnesses invoke the Fifth Amendment, the claim should be dismissed. Supreme also asked the tribunal to infer from the refusal to testify that APW had in fact acted illegally. Finally, Supreme argued that APW could not recover, because a contract procured by fraud is unenforceable.
The tribunal awarded damages to APW and PCA, finding that they were entitled to the payments relating to the pre-termination period Supreme had refused to make, and to the reduced termination payment rather than the greater regular payments that would have been due post-termination had the termination been improper. The tribunal also dismissed Supreme’s claims for rescission and fraudulent inducement. The total damages awarded to APW and PCA were more than $38 million. The tribunal rejected the argument that the witnesses’ failure to testify was fatal to the claim, though the tribunal did draw an inference against APW that led to the conclusion that APW had materially breached the agreement. APW and PCA moved to confirm the award. Supreme moved to vacate the award under § 10(a)(3) and (4) of the FAA, which provides:
In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration:
Supreme also argued for vacatur on the grounds that the award was in manifest disregard of the law, and it opposed confirmation on the grounds that the award was contrary to public policy, which is one of the grounds for refusing confirmation permitted by the New York Convention. (That is, the public policy point is a permitted ground for refusing confirmation. Manifest disregard is highly contested and is probably not a permitted ground).
Judge Marrero confirmed the award. He held that under New York law, dismissal was not a mandatory consequence of a claimant failing to produce its material witnesses to testify. Therefore, the tribunal did not violate public policy or manifestly disregard the law by refusing to dismiss the claim on that basis. The court did not really discuss the details of the § 10(a)(3) argument, other than to make the general point that it applies only when “fundamental fairness is violated”, and not in cases of ordinary errors in the admission of evidence. [N.B. I have a case on appeal now involving the Uniform Arbitration Act’s equivalent to § 10(a)(3) and so I am not going to give a detailed discussion of my views of the statute here].
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