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Irb-Brasil Resseguros S.A v. National Indemnity Company

November 29, 2011

IRB-BRASIL RESSEGUROS S.A., PETITIONER,
v.
NATIONAL INDEMNITY COMPANY, RESPONDENT.



The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge

MEMORANDUM AND ORDER

This is the latest chapter in an ongoing arbitration dispute between IRB-Brasil Resseguros S.A. ("IRB") and National Indemnity Company ("NICO"). Despite this Court's October 5, 2011 Memorandum and Order denying petitions from both parties, the parties have been unable to progress and have again filed cross-petitions requesting various forms of relief from this Court. For the reasons discussed below, both petitions are granted in part and denied in part.

BACKGROUND*fn1

On December 31, 2008, NICO commenced two arbitrations against IRB, one in London, England ("Arbitration 1") and the other in New York City ("Arbitration 2"). (IRB Pet. ¶ 12.) These arbitrations concerned two reinsurance policies issued by NICO to IRB, for which nearly $250 million in coverage obligations are now in dispute. (Id.) The arbitration clause in both reinsurance policies provides for the following procedure to select arbitrators:

If any dispute shall arise among the Reinsured and the Reinsurer with reference to the interpretation of this Insurance or rights with respect to any transaction involved, whether such dispute arises before or after termination of this Insurance, such dispute, upon the written request of either party, shall be submitted to three arbitrators, one to be chosen by either party, and the third by the two so chosen.

If either party refuses, or neglects to appoint an arbitrator within 30 days after receipt of written notice from the other party requesting it to do so, the requesting party may appoint two arbitrators. If the two arbitrators fail to agree in the selection of a third arbitrator within 30 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots. All arbitrators shall be active or retired officers of insurance or reinsurance companies not under the control of either party to this Certificate. (Id. ¶ 19.) The parties selected arbitrators in Arbitration 1 according to the above procedure. (Docket no. 1 ¶ 21.) On November 16, 2010, the panel in Arbitration 1 determined that it lacked jurisdiction and dismissed the arbitration. (Id. ¶ 28.) That same day, NICO commenced a third arbitration against IRB in New York City ("Arbitration 3"), under the same reinsurance policy as that underlying Arbitration 1. (Id. ¶ 34.)

Before the panel in Arbitration 1 issued its decision, IRB and NICO had begun the process of selecting the panel for Arbitration 2. On January 30, 2009, IRB appointed James White as its party-appointed arbitrator for Arbitration 2, and on June 22, 2009, NICO appointed James Dowd as its party-appointed arbitrator. (IRB Pet. ¶ 20.) On September 15, 2009, each party nominated two candidates for the neutral third arbitrator ("umpire") position. (Id. ¶ 21.) Specifically, IRB nominated William Trutt and Jonathan Rosen, and NICO nominated Caleb Fowler and Dan Schmidt. (Id.) A short time thereafter, both parties agreed to postpone selection of the umpire in Arbitration 2 so that they could conduct confidential, without-prejudice settlement discussions. (Id. ¶ 22.) These discussions concluded in December 2009 without an agreed-upon settlement, and no umpire was ever selected in Arbitration 2. (Id.)

On December 16, 2010, IRB appointed James White as its arbitrator in Arbitration 3. (Id. ¶ 24.) On March 1, 2011, NICO appointed Jonathan Rosen as its arbitrator in Arbitration 3. (Id. ¶¶ 25-26.) IRB objected to NICO's appointment of Rosen because IRB had previously nominated Rosen as an umpire candidate for Arbitration 2. On March 21, 2011, IRB filed a petition in this Court to disqualify Rosen from serving in Arbitration 3 and to compel consolidation of Arbitrations 2 and 3. (Docket no. 1.) NICO filed a cross-petition seeking court-appointment of an umpire for Arbitration 3. (Docket no. 7.)

In an October 5, 2011 Memorandum and Order, this Court denied both petitions. See IRB-Brasil Resseguros S.A. v. Nat'l Indem. Co., No. 11 Civ. 1965 (NRB), 2011 WL 4686517 (S.D.N.Y. Oct. 6, 2011). Finding little authority to support IRB's request, we declined to disqualify Rosen as NICO's party-appointed arbitrator in Arbitration 3. See id. at *2-3. However, in so doing, we suggested that because NICO had chosen Rosen as its arbitrator in Arbitration 3, NICO could be considered to have exercised its option to strike Rosen as one of IRB's umpire candidates in Arbitration 2 - leaving William Trutt as IRB's remaining nominee for the umpire position. See id. at *3. We added that "[w]e [saw] no further barrier to the parties concluding the relatively straightforward process of selecting the arbitrators in Arbitration 2 according to the terms of their agreement."*fn2 Id.

Unfortunately, our faith that Arbitration 2 would proceed without issue proved misplaced. By letter dated October 11, 2011, IRB informed the party-appointed arbitrators in Arbitration 2 -- James White for IRB and James Dowd for NICO -- that NICO had effectively struck Rosen as an umpire candidate for Arbitration 2 (based on IRB's understanding of this Court's October 5, 2011 Memorandum and Order), and that IRB had struck Caleb Fowler as NICO's umpire nominee. (McCormack Decl., Ex. 4.) This left William Trutt (nominated by IRB) and Dan Schmidt (nominated by NICO) as the remaining candidates to be the umpire in Arbitration 2. (Id.) IRB's letter requested that White and Dowd draw lots to determine whether Trutt or Schmidt would serve as umpire. (Id.)

This plan was not to be. The same day that IRB sent this letter, counsel for NICO allegedly communicated to IRB that NICO would not permit the drawing of lots until IRB's umpire nominee -- Trutt -- completed a questionnaire concerning his history as an arbitrator and any conflicts he may have with the parties to the arbitration. (Id. ¶ 9.) Two days later, NICO's party-appointed arbitrator -- Dowd - abruptly emailed counsel for both parties and stated that he was resigning from his position. (Id., Ex. 6.) It would later come to light that counsel for NICO had requested that Dowd submit this resignation. (Id., Ex. 9.) Just minutes after Dowd submitted his resignation, NICO announced that it had appointed Rosen to serve as its party-appointed arbitrator in Arbitration 2 (thus making Rosen NICO's party-appointed arbitrator in both Arbitrations 2 and 3). (Id., Ex. 7.)

Against the backdrop of these recent events, the parties filed the instant petitions. IRB now asks the Court (1) to prohibit NICO from changing its party-appointed arbitrator in Arbitration 2 from Dowd to Rosen, or alternatively, to permit IRB to pick NICO's arbitrator in Arbitration 2; (2) to prohibit NICO from placing conditions on the drawing of lots in Arbitration 2 and to order the immediate drawing of lots in Arbitration 2; and (3) to stay Arbitration 3 pending the decision in Arbitration 2 on consolidation.

In its cross-petition, NICO asks the Court (1) to disqualify Trutt as an umpire candidate in Arbitration 2; or (2) in the alternative, to require that ...


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