Utica Mut. Ins. Co. v. Emp’rs Ins. Co., No. 6: 12-CV-1293 (N.D.N.Y. Sept. 26, 2013).
A New York federal court denied a reinsurers’ motion to dismiss the cedent’s complaint in a case where the cedent sought a declaration that its counsel should not be disqualified and that arbitration should proceed without the obstruction by the reinsurers.
In an action against the underlying insured, the cedent and the reinsurers shared a common interest and were all represented by a certain law firm. A dispute between the cedent and the reinsurers developed regarding the appropriateness of the defense billings for the underlying claim. To resolve this dispute, the cedent used that same law firm to demand arbitration against the reinsurers. The reinsurers requested that the law firm withdraw from its representation of the cedent because the dispute being arbitrated was substantially related to the underlying matter in which the law firm represented the reinsurers. The law firm declined to step down.
One of the reinsurers filed a complaint in Wisconsin seeking disqualification of the law firm. In response, the cedent filed this action in New York. The reinsurers moved to dismiss on grounds that the New York federal court did not have subject matter jurisdiction and that the cedent failed to state a claim upon which relief could be granted.
In denying the motion to dismiss the action filed in New York federal court, the court noted that the reinsurers did not dispute the factual accuracy of the cedent’s allegations concerning the parties’ citizenship. Therefore, the court accepted these allegations as true and found that the complaint alleged diversity of citizenship. As a result, the court found the reinsurers’ arguments concerning subject matter jurisdiction unpersuasive. The court also noted that there was a lapse in the naming of an arbitrator. Accordingly, Section 5 of the Federal Arbitration Act (the “FAA”) afforded parties the opportunity to seek relief from district courts to designate and appoint an arbitrator. The cedent thus had the authority to seek the relief it sought in the New York federal court. Therefore, the court found the reinsurers’ motion to dismiss for failure to state a claim unpersuasive as well.
In the alternative, the reinsurers argued that the action in New York federal court should be stayed because the action in Wisconsin was filed first. The court disagreed on three grounds: the parties were different in the two actions; the causes of actions were different; and the relief sought was different. For these reasons, the court denied the reinsurers motion to dismiss the cedent’s complaint.