Considering Consolidation Panelists: Mitchell S. King Susan E. Grondine Steven J. Torres September 23, 2010

Considering Consolidation

Panelists:Mitchell S. KingSusan E. Grondine

Steven J. Torres

September 23, 2010

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Who Wants to Consolidate and Why?

Situations that could warrant consolidation

Single claim/single contract/multiple reinsurersSingle claim/multiple layers or inter-related

contracts/same reinsurer or multiple reinsurersMultiple claims/same contracts or inter-related

contracts/same reinsurer or multiple reinsurersMultiple claims/multiple contracts/same

reinsurerSame parties/multiple (unrelated) contracts

© 2010 Prince Lobel Glovsky & Tye LLP

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Advantages and Disadvantages from the Cedent’s Perspective

Proso Potentially more efficient and inexpensive

dispute resolution and collectiono Exploit diverse positions by multiple reinsurers

on same claim or issueo Expose conflicting positions by reinsurer on

same claim or common issue


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Advantages and Disadvantages from the Cedent’s Perspective

Cons o All eggs in one basket where outcome is not

predictable and appeal rights virtually non-existent

o Issue sharing among reinsurerso Added complexity in formation of panel(s) and

multiplication of parties and issueso May be difficult to convince panel to issue

prospective relief© 2010 Prince Lobel Glovsky & Tye LLP

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Advantages and Disadvantages from the Reinsurer’s Perspective

Proso Efficiency and closureo Consistent/cohesive application of decision(s)o Potential for offset


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Advantages and Disadvantages from the Reinsurer’s Perspective

Conso Possible unintended co-mingling of diverse

contract issueso Possible diverse positions by reinsurers o Diverse reinsurer positions potentially

compromise each othero Difficult to deal with requests for prospective

relief


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Who Decides Consolidation Issues?

The Arbitrator(s)

Basic rule of arbitrability found in: oGreen Tree Fin. Corp. v. Bazzle, 539 U.S. 444

(2003) (whether to allow class arbitration was question for arbitrators); and

oHowsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (arbitrators decide procedural matters).


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The courts decide so-called “gateway” questions, including whether the parties have agreed to arbitrate a matter and, if so, whether their controversy falls within their agreement (i.e., whether the parties should be arbitrating at all).

The arbitrator(s) decide procedural matters, including what kind of arbitration proceeding the parties agreed to.


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Stolt-Nielsen v Animal Feeds International Corp. 130 S. Ct. 1758 (2010) – A new game changer?

J. ALITO for 5 Justice majority: arbitration panel exceeded its powers in imposing class arbitration on parties who had stipulated that their agreement was “silent” on class arbitration; panel ruling was “fundamentally at war” with the principle that arbitration is contractual.

Highly critical of Bazzle “plurality” of 3 opinion which decided only whether the court or arbitrator should decide whether contracts were “silent” on class arbitration.


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Parties appear to have believed that Bazzle requires an arbitrator, not a court, to decide whether a contract permits class arbitration, a question addressed only by the plurality.

That question need not be revisited here because the parties expressly assigned that issue to the arbitration panel, and no party argues that this assignment was impermissible. Both the parties and the arbitration panel also seem to have misunderstood Bazzle as establishing the standard to be applied in deciding whether class arbitration is permitted. However, Bazzle left that question open.


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It may be appropriate to presume that parties to an arbitration agreement implicitly authorize the arbitrator to adopt those procedures necessary to give effect to the parties’ agreement. (Citing Howsam). But an implicit agreement to authorize class action arbitration is not a term that the arbitrator may infer solely from the fact of an agreement to arbitrate. The differences between simple bilateral and complex class action arbitration are too great for such a presumption.


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Where Do You Go From There?

No clear guidance unless expressly in the contract(s)

Various approaches adopted by the courts

Panels left to deal with sometimes complex administrative issues

Stolt-Nielsen a new “wild-card”?


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Where Have the Courts Gone From There?

Punt, Pass and Kick

Compel the appointment of multiple panels to consider the question simultaneously

Empanel arbitrators specifically for the purpose of considering consolidation

Refer the question to the earliest possible panel© 2010 Prince Lobel Glovsky & Tye LLP

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Compel the appointment of multiple panels to consider the question simultaneously

Employers Ins. Co. of Wausau v. Century Indemnity Co., 2005 U.S. Dist. LEXIS 37147 (W.D. Wis. 2005)

Clearwater Ins. Co. v. Granite State Ins. Co., 2006 U.S. Dist. LEXIS 74771 (N.D. Cal.)


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Empanel arbitrators specifically for the purpose of considering consolidation

Markel Int’l Ins. Co. v. Westchester Fire Ins. Co., 442 F. Supp. 2d 200 (D.N.J. 2006)

Certain Underwriters at Lloyd’s, London v. Cravens Dargan & Co., 2005 U.S. Dist. LEXIS 39724 (C.D. Cal.), aff’d 197 Fed Appx. 645 (9th Cir. 2006)


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Refer the question to the earliest possible panel

Dorinco Reins. Co. v. Ace Am. Ins. Co., 2008 U.S. Dist. LEXIS 4593 (E.D. Mich.)

Aegis Sec. Ins. Co. v. Phila. Contributionship, 416 F. Supp. 2d 303 (M.D. Pa. 2005)


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A 1st Cir/Massachusetts Wrinkle

New England Energy Inc. v. Keystone Shipping Co., 855 F.2d 1, 6-7 (1st Cir.1988)Where both FAA and MA law applied, the FAA did not

preempt the Massachusetts Arbitration Act (“MAA”) provision providing for consolidation under certain circumstances because the FAA is silent on consolidation and the MAA provisions are not inconsistent with the FAA’s primary goal of ensuring the enforcement of privately negotiated arbitration agreements.

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Where Do You Go From There?

Other approaches by agreement

Limited consolidation such as for joint discovery with separate hearings

Mutual “de-selection” of excess panels/arbitrators

Hybrid panels with different combinations of arbitrator/umpire selections

Limited consolidation for purposes of hearing common issues

Phased proceedings© 2010 Prince Lobel Glovsky & Tye LLP

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Key Contract Issues and Provisions to Consider

Do clauses provide for timing of arbitrator/umpire selection and procedures for panel formation in the event the other side is unresponsive?

Is the Scope of the arbitration clause similar or identical in the various contracts to be consolidated?

Are arbitrator/umpire credential requirements and selection procedures similar or identical within the contracts to be consolidated?


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Do clauses provide for honorable engagement allowing panels to avoid strict adherence to the law?

Are there timing elements in contracts (e.g., hearing to be held within 60 days) which could be used to force hearings and foreclose efforts to consolidate?


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Are there similar or identical choice of law and forum provisions in the contracts to be consolidated?

Are there non-FAA rules such as state arbitration acts or AAA rules that could impact the consolidation question?

Any other consistent or inconsistent terms (i.e., assessment of interest and costs, offset)?


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Practical Considerations For Panel Selection

The party seeking consolidation will appoint the same arbitrator under each contract and will likely proffer the same umpire candidates; the party seeking to avoid consolidation will obviously do the opposite.

Are your arbitrator/umpire candidates readily available and prepared for the proverbial race to Panel organization?

Once in place, will the arbitrator/umpire candidates work with other panels or take control over them?


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Practical Considerations For Panel Selection

Are your arbitrator/umpire candidates sufficiently assertive and aggressive to handle unusual situations and possible competing arbitrations?

Whatever your position, choose decisive panel members prepared to act quickly and decisively in and against competing arbitration proceedings.

Does the disputed business warrant the litigation and panel expenses inherent in the process?


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Be Careful What You Wish For!?


Documents

Considering Consolidation Panelists: Mitchell S. King Susan E. Grondine Steven J. Torres September 23, 2010