China Media Express Holdings, Inc. ex rel. Barth v. Nexus Executive Risks, Ltd.

182 F. Supp. 3d 42, 2016 U.S. Dist. LEXIS 58158, 2016 WL 2609289
CourtDistrict Court, S.D. New York
DecidedApril 25, 2016
Docket15 Civ. 8429 (VM)
StatusPublished
Cited by7 cases

This text of 182 F. Supp. 3d 42 (China Media Express Holdings, Inc. ex rel. Barth v. Nexus Executive Risks, Ltd.) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
China Media Express Holdings, Inc. ex rel. Barth v. Nexus Executive Risks, Ltd., 182 F. Supp. 3d 42, 2016 U.S. Dist. LEXIS 58158, 2016 WL 2609289 (S.D.N.Y. 2016).

Opinion

DECISION AND ORDER

VICTOR MARRERO, United States District Judge.

Plaintiff China MediaExpress Holdings, Inc. (“CME”), by arid through court-appointed Receiver Karl P. Barth (“Barth” or “Receiver”), brought this action against defendants American Home Assurance Company (“American Home”), China Pacific Insurance Co., (H.K.) Ltd. (“China Pacific”), and China Ping An Insurance (Hong Kong) Company Ltd.(“China Ping An,” together with China Pacific “Second Excess Insurers”). These three defendants (collectively “Defendant Insurers”) are insurers of CME. The complaint (“Complaint,” Dkt. No. 6) asserts claims of breach of contract and breach of duty of good faith and fair dealing arising from Defendant Insurers’ failure to defend and indemnify CME for securities-related litigation against CME commenced in 2011.

American Home moved to dismiss the Complaint, arguing that the action should be dismissed in light of the arbitration clause in the insurance policy issued to CME by American Home (“Excess Policy”) or, alternatively, that the Court should compel arbitration in Hong Kong as dictated by the Excess Policy. (Dkt. No. 23.) Separately, the Second Excess Insurers moved to dismiss the Complaint and compel arbitration in Hong Kong pursuant to the arbitration clause in the insurance policy issued to CME by the Second Excess Insurers (“Second Excess Policy”). (Dkt. No. 30.) Both motions to dismiss (“Motions”) seek leave to initiate arbitration against Barth in his capacity as Receiver in Hong Kong. CME opposed the Motions separately. (Dkt. Nos. 26, 38.) American Home and the Second Excess Insurers each replied. (Dkt. Nos. 27, 39.)

[45]*45For the reasons set forth in this Decision and Order, the Court GRANTS the Defendant Insurers’ Motions to compel arbitration according to the terms of the Excess Policy and Second Excess Policy and stays all claims brought by the Receiver pending arbitration.

I. BACKGROUND1

A. THE UNDERLYING LAWSUITS AGAINST CME

1. The facts of the underlying litigation giving rise to this case have been detailed in the Court’s previous decisions in In re China MediaExpress Holdings, Inc. Shareholder Litigation.2 However, a review is warranted here. CME, a Delaware corporation -with its principal place of business in Hong Kong, was created in 2009 through a “reverse merger” of a Chinese firm with a publicly traded company in the United States. After the completion of the reverse merger, CME was the defendant in a series of lawsuits and administrative proceedings alleging accounting fraud and securities fraud. One of those actions was a 2011 class action suit brought by CME’s investors before this Court (“Securities Class Action,”) 3 alleging violations of federal securities law based on misstatements in public filings and press releases prior to a steep decline in CME’s share prices in early 2011. After CME’s counsel withdrew from representing CME in the Securities Class Action due to non-payment, a default judgment in the amount of $535.5 million was entered against CME pursuant to Rule 55(b)(2) of the Federal Rules of Civil Procedure. See In re China MediaExpress Holdings, Inc. Shareholder Litigation, 11 Civ. 804, Dkt. No. 193 (S.D.N.Y. Jan. 17, 2014). Further judgments were entered against CME in the other matters, including a $40 million arbitration award issued in a Hong Kong arbitration filed by investor Starr Investments Cayman II, Inc. and a $49 million penalty in a SEC administrative proceeding and civil lawsuit. The Court subsequently appointed Barth to serve as CME’s receiver for the limited purpose of marshaling CME’s assets. Barth’s responsibilities include “the filing of litigation or arbitration that may be necessary to enforce CME’s rights under [its] insurance policies.” In re China MediaExpress, 11 Civ. 804, Dkt. Nos. 224, 230 (S.D.N.Y. Aug. 18, 2014 and Aug. 26, 2014).

[46]*46B. THE INSURANCE POLICIES

From October 16, 2010 to October 15, 2011—the period in which the Securities Class Action and other related actions arose—CME maintained several layers of liability insurance. CME’s insurance consisted of: (1) a primary directors and officers liability insurance policy (“Primary Policy”) with a limit of $5 million in coverage writtén by Torus Insurance UK (“Torus”) and Starr Underwriting Agents Ltd. (“Starr”)(together with Torus, the “Primary Insurers”); (2) the Excess Policy written by American Home’s Hong Kong Branch with a $5 million limit in losses exceeding the coverage provided by the Primary Policy; and (3) the Second Excess Policy written by the Second Excess Insurers with a $10 million limit in losses exceeding the coverage provided by the Primary and Excess Policies, 60 percent of which would be paid by China Pacific and 40 percent of which would be paid by China Ping An. Each policy was negotiated and executed through CME’s insurance broker, which was also based in Hong Kong. The Excess Policy and Second Excess Policy were subject to all material terms and conditions of the Primary Policy, including the Primary Insurers’ obligations to fund the defense of covered claims against CME and to pay judgments against CME in excess of the Primary Policy’s retention.

The Primary Policy, Excess Policy, and Second Excess Policy all contain dispute resolution provisions mandating dispute resolution via mediation or arbitration. The Primary Policy, Section IX, provides:

It is agreed that any dispute or disagreements which arise in connection with this Policy and cannot be resolved through negotiation shall be resolved through final and binding arbitration. The dispute shall be submitted to the American Arbitration Association for resolution pursuant to its then prevailing commercial arbitration procedures. (Dkt. No. 6, Ex. A at 21.)

The Primary Policy provides in a separate endorsement that any dispute regarding any aspect of the operation of the Primary Policy must first be mediated before proceeding to arbitration. (Dkt. No. 6, Ex. A at 35.)

The Excess Policy, Condition No. 13, provides:

Any dispute between the Insurer(s) [American Home] and the Policyholder [CME] and/or between the Insurers and the Insureds arising out of this Policy which cannot be resolved by agreement between the Insurer(s) and the Insureds within 6 months, shall be referred to mediation at by the Hong Kong International Arbitration Centre (“HKIAC”) and in accordance with its Mediation Rules. If the dispute remains unresolved after mediation, it shall be referred to and determined and resolved by arbitration at HKIAC..., It shall be a condition precedent to any right of action or suit upon this Policy that an arbitration award should first be . obtained. (Dkt. No. 6, Ex. B at 8.)

The Second Excess Policy incorporates the Primary Policy’s arbitration provision mandating arbitration of any dispute arising “in connection with” the policy. The Second Excess Policy also includes Endorsement No. 1, which provides:

Any interpretation of this policy relating to its construction, validity or operation shall be determined by the laws of the jurisdiction in Hong Kong,...

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182 F. Supp. 3d 42, 2016 U.S. Dist. LEXIS 58158, 2016 WL 2609289, Counsel Stack Legal Research, https://law.counselstack.com/opinion/china-media-express-holdings-inc-ex-rel-barth-v-nexus-executive-risks-nysd-2016.