182 F. Supp. 3d 42
S.D.N.Y.2016Background
- CME, a Delaware corporation with principal place of business in Hong Kong, faced multiple securities-related judgments (including a $535.5M default judgment) arising from actions beginning in 2011; a court-appointed receiver, Karl P. Barth, sued insurers for failing to defend and indemnify.
- CME had layered D&O insurance for the relevant period: a Primary Policy (Torus/Starr), an Excess Policy (American Home, HK branch), and a Second Excess Policy (China Pacific and China Ping An). Excess policies followed form to the Primary Policy.
- Each policy included dispute-resolution clauses requiring mediation followed by arbitration in Hong Kong and selected Hong Kong law.
- Primary insurers sought arbitration in Hong Kong; the Receiver obtained a temporary injunction enjoining that arbitration pending court review.
- Defendant Insurers moved to dismiss/compel arbitration (and for leave to arbitrate naming the Receiver) under the Federal Arbitration Act and the New York Convention; Receiver opposed.
- The Court held the Excess and Second Excess arbitration clauses are broad, compelled arbitration in Hong Kong, granted leave to arbitrate against the Receiver, and stayed (not dismissed) the federal action pending arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Excess/Second Excess arbitration clauses cover Receiver’s breach-of-contract and bad-faith claims | Receiver: claims concern pre-contract nondisclosures/fraud in the inducement and thus fall outside "ongoing policy" disputes | Insurers: clauses are broad (“arising out of”/“in connection with”), so coverage disputes and defenses belong in arbitration | Held: clauses are broad; claims "touch matters" covered by the policies and must be arbitrated |
| Whether FAA/Convention require enforcement of Hong Kong arbitration clauses | Receiver: equitable receivership powers or alleged fraud could keep disputes in court | Insurers: FAA and New York Convention compel referral to arbitration for international commercial agreements | Held: FAA and Convention apply; arbitration in Hong Kong compelled |
| Whether the Receiver can avoid arbitration by asserting rights as court-appointed receiver | Receiver: stands in receiver’s equitable role and may control litigation to protect assets | Insurers: Receiver stands in CME’s shoes and is bound by CME’s contracts, including arbitration agreements | Held: Receiver is bound by CME’s arbitration agreements and cannot avoid arbitration |
| Remedy: stay or dismissal while arbitration proceeds | Insurers sought dismissal or stay; Receiver did not request stay | Insurers: dismissal appropriate when all claims arbitrable; alternatively, compel arbitration | Held: Under Katz, court must enter a stay (not dismissal) when all claims are referred to arbitration; court stayed the action and granted leave to arbitrate in Hong Kong |
Key Cases Cited
- Smith/Enron Cogeneration Ltd. P’ship, Inc. v. Smith Cogeneration Int’l, Inc., 198 F.3d 88 (2d Cir. 1999) (New York Convention factors for compelling international arbitration)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. 1983) (strong federal policy favoring arbitration)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. 1985) (arbitration favored for international commercial disputes)
- Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading Inc., 252 F.3d 218 (2d Cir. 2001) (framework for broad vs. narrow arbitration clauses)
- Collins & Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16 (2d Cir. 1995) (broad arbitration clauses create presumption of arbitrability)
- Katz v. Cellco P’ship, 794 F.3d 341 (2d Cir. 2015) (district court must stay—not dismiss—when all claims are referred to arbitration)
- Ipcon Collections LLC v. Costco Wholesale Corp., 698 F.3d 58 (2d Cir. 2012) (arbitrator decides fraud-in-the-inducement issues unless clause specifically reserves that question for courts)
- In re Kinoshita & Co., 287 F.2d 951 (2d Cir. 1961) (distinguished; narrow "arising under" clause limited to contract interpretation)