Fensterstock v. Education Finance Partners, et al.

(2^nd Cir. (N.Y.) July 12, 2010)

Plaintiff commenced this action asserting state law claims on behalf of himself and others similarly situated, alleging that defendants engaged in fraudulent and deceptive practices in connection with the solicitation, consolidation, and servicing of student loans.  Plaintiff alleged that defendants intentionally failed to disclose to borrowers that unless their payments were received on the precise day of the month on which they were due, defendants would alter the Amortization Schedule’s prescribed apportionment of the payment between interest and principal, diverting the entire payment to themselves as interest and preventing borrowers from paying off the principal of their loans.

Defendants moved for an order staying the action and compelling plaintiff to submit his claims to arbitration, pursuant to an arbitration clause contained in his promissory note, and to pursue them on an individual, rather than a class, basis.  The United States District Court for the Southern District of New York denied the motion, ruling that under California law, the arbitration clause of the agreement is unconscionable and therefore unenforceable.

Defendants appealed, arguing that the arbitration clause is not unconscionable under California law, or that if it is, then California law is preempted by the Federal Arbitration Act.  The United States Court of Appeals for the Second Circuit affirmed.  The court rejected defendants’ contention that the Federal Arbitration Act preempts California principles as to the conscionability of class arbitration waivers since California law places arbitration agreements with class action waivers on the exact same footing as contracts that bar class action litigation outside the context of arbitration. 

Additionally, the court applied California’s three-part test to determine whether a class action waiver in a consumer contract is unconscionable: (1) whether the agreement is a consumer contract of adhesion drafted by a party that has superior bargaining power; (2) whether the agreement occurs in a setting in which disputes between the contracting parties predictably involve small amounts of damages; and (3) whether it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.  The court held that the record in this case satisfied this test and concluded that the promissory note’s class action and class arbitration waiver clause was unconscionable.

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Toni Frain and Dan Gerber

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

Granite State Ins. Co. v. American Bldg. Materials  Inc.

(M.D. Fla. July 13, 2010)

Two insurers have filed suit against their insured, American Building Materials Inc. (“ABM”), a drywall supplier, and KB Home Inc., alleging that their policies do not cover claims arising from defective drywall installed in homes constructed by KB Home.

In 2009, ABM reported 35 homeowner claims to the plaintiff insurers. The claims arose from the “unusual release of sulfide gases” from ABM-supplied drywall used in the construction of homes by KB Home. ABM sought defense and indemnity against the claims for itself and KB Home. The insurers denied coverage based on the policies’ pollution exclusions. According to the insurers, “the mere presence of defective drywall is not ‘property damage’ and there is no coverage under the policies for any costs arising out of the process of repairing or replacing the drywall.” The insurers also denied coverage based on lack of an “occurrence,” damage outside the policy periods, and because no lawsuit had been filed seeking damages under the policies.

The U.S. Consumer Product Safety Commission reports that it has received thousands of complaints from residents who believe their health symptoms or the corrosion of certain metal components in their homes are related to drywall imported from China. Litigation involving insurance coverage for Chinese drywall claims is still in its infancy, however. Recently, a Louisiana judge held that a policy’s pollution exclusion did not bar coverage for Chinese drywall claims, while a federal court in Virginia decided in June that a policy’s pollution exclusion precluded coverage for the same type of claims.

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Carrie Appler and Dan Gerber

http://www.goldbergsegalla.com/attorneys/Appler.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

MCI Constructors v. City of Greensboro

4^th Cir. (N.C.), July 1, 2010

This appeal arises from a contract dispute concerning the construction of a wastewater treatment plant.  All concerned parties agreed to submit to an arbitration which yielded an award to defendant.  The district court then granted the defendant’s motion to confirm this award and this appeal followed.  Plaintiffs claims, among other things, that the district court should have vacated the awards because the liability award was obtained through undue means. 

In order for a court to vacate an arbitration award, the moving party must sustain the heavy burden of showing one of the grounds specified in the Federal Arbitration Act.  Plaintiffs’ difficulty is that no court has ever suggested that the term undue means should be interpreted to apply to actions of counsel that are merely legally objectionable.  While there is some evidence in the record to support plaintiffs’ assertions that the defendant presented its main arguments on rebuttal and at least on one occasion referred to evidence outside the record, plaintiffs failed to establish that these actions led to the procurement of the award.  The FAA does not provide for vacatur in the event of any fraudulent conduct, but only where the award was procured by corruption, fraud or undue means.  Since plaintiffs failed to proffer any evidence that the undue means in dispute actually factored into the arbitration panel’s liability determinations, plaintiffs’ motion to remand is denied and the district court’s decision is affirmed.

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Sarah Fang and Jeffrey Kingsley

http://www.goldbergsegalla.com/attorneys/Fang.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html

case provided courtesy of Lexis

Employers Reinsurance Corporation v. Massachusetts Mutual Life

(W.D.MO, June 16, 2010)

In a dispute of reinsurance coverage, a reinsurer filed a breach of contract action against its reinsured for allegedly mishandling a large number of claims covered under their agreement.  Specifically, the reinsurer sought a declaration that it had no obligation to follow the reinsured’s settlement actions.  After the court granted judgment in favor of the reinsured on this issue and an issue regarding the applicable statute of limitations, the reinsurer filed an application to certify the “follow the settlements” and statute of limitations issues for an immediate interlocutory appeal.  Finding that certification of the follow the settlements issue had previously been requested and denied, the court once again denied the application on that issue.  The court further denied certification of the statute of limitations issue, holding that it is not a purely abstract legal question as required for an interlocutory certification.

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Bryan Richmond and Michael Glascott

http://www.goldbergsegalla.com/attorneys/Richmond.html

http://www.goldbergsegalla.com/attorneys/MGlascott.html