Considering Consolidation
Panelists:
Mitchell S. King
Susan E. Grondine
Steven J. Torres
September 23, 2010
Who Wants to Consolidate and
Why?
Situations that could warrant consolidation
 Single claim/single contract/multiple reinsurers
 Single claim/multiple layers or inter-related
contracts/same reinsurer or multiple reinsurers
 Multiple claims/same contracts or inter-related
contracts/same reinsurer or multiple reinsurers
 Multiple claims/multiple contracts/same reinsurer
 Same parties/multiple (unrelated) contracts
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Who Wants to Consolidate and
Why?
Advantages and Disadvantages from
the Cedent’s Perspective
Pros
o Potentially more efficient and inexpensive dispute
resolution and collection
o Exploit diverse positions by multiple reinsurers on
same claim or issue
o Expose conflicting positions by reinsurer on same
claim or common issue
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Who Wants to Consolidate and
Why?
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 reinsurers
o Added complexity in formation of panel(s) and
multiplication of parties and issues
o May be difficult to convince panel to issue prospective
relief
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Who Wants to Consolidate and
Why?
Advantages and Disadvantages from
the Reinsurer’s Perspective
Pros
o Efficiency and closure
o Consistent/cohesive application of decision(s)
o Potential for offset
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Who Wants to Consolidate and
Why?
Advantages and Disadvantages from
the Reinsurer’s Perspective
Cons
o Possible unintended co-mingling of diverse contract
issues
o Possible diverse positions by reinsurers
o Diverse reinsurer positions potentially compromise
each other
o 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:
o Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444
(2003) (whether to allow class arbitration was
question for arbitrators); and
o Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
79 (2002) (arbitrators decide procedural matters).
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Who Decides Consolidation
Issues?
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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Who Decides Consolidation
Issues?
 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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Who Decides Consolidation
Issues?
 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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Who Decides Consolidation
Issues?
 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
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Where Have the Courts Gone
From There?
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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Where Have the Courts Gone
From There?
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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Where Have the Courts Gone
From There?
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
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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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Key Contract Issues and
Provisions to Consider
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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Key Contract Issues and
Provisions to Consider
 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!?
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