Certain Underwriters at Lloyd's London v. Westchester Fire Insurance , 489 F.3d 580 ( 2007 )


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  •                                                                                                                            Opinions of the United
    2007 Decisions                                                                                                             States Court of Appeals
    for the Third Circuit
    6-12-2007
    Certain Underwriters v. W Chester Fire Ins
    Precedential or Non-Precedential: Precedential
    Docket No. 06-1457
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    Recommended Citation
    "Certain Underwriters v. W Chester Fire Ins" (2007). 2007 Decisions. Paper 845.
    http://digitalcommons.law.villanova.edu/thirdcircuit_2007/845
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    PRECEDENTIAL
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    No. 06-1457
    CERTAIN UNDERWRITERS
    AT LLOYD’S LONDON SUBSCRIBING
    TO REINSURANCE AGREEMENTS
    R69342, RE2238, RE1240,
    RE1249, RE6934, RE2239, RE1250, Third Comprehensive
    Catastrophe Liability Excess and Fourth
    Comprehensive Catastrophe Liability Excess,
    Appellants
    v.
    WESTCHESTER FIRE INSURANCE COMPANY
    (N.J. Civil No. 05-cv-03024)
    CERTAIN UNDERWRITERS
    AT LLOYD’S LONDON SUBSCRIBING
    TO REINSURANCE AGREEMENTS
    RE71365, RE2241 A AND B,
    AND RE1253F (Special Casualty Contingency),
    Appellants
    v.
    WESTCHESTER FIRE INSURANCE COMPANY
    (N.J. Civil No. 05-cv-03025)
    On Appeal from the United States District Court
    for the District of New Jersey
    (D.C. Nos. 05-cv-03024, 05-cv-03025)
    District Judge: Honorable William H. Walls
    Argued January 9, 2007
    Before: SLOVITER and RENDELL, Circuit Judges, and
    RUFE,* District Judge
    (Filed: June 12, 2007)
    Mary Ann 'Amato (Argued)
    Mendes & Mount
    New York, NY 10019
    William S. Wachenfeld
    Mendes & Mount
    Newark, NJ 07102
    Attorneys for Appellants
    Carter G. Phillips (Argued)
    Sidley Austin
    Washington, DC 20005
    Daniel J. Neppl
    Sidley Austin
    Chicago, IL 60603
    Seth G. Park
    Siegal, Napierkowski & Park
    Mount Laurel, NJ 08054
    Attorneys for Appellee
    *
    Honorable Cynthia M. Rufe, Judge of the United States
    District Court for the Eastern District of Pennsylvania, sitting by
    designation.
    2
    OPINION OF THE COURT
    SLOVITER, Circuit Judge.
    At issue in this appeal is whether an arbitrator or a court
    should decide whether coverage disputes under essentially
    identical insurance contracts should be arbitrated separately on a
    contract-by-contract basis or collectively in a consolidated
    arbitration. The District Court held that the issue of
    consolidation should be decided by an arbitrator. We believe
    that decision comports with the direction provided by two
    Supreme Court decisions and will affirm.
    I.
    The underlying dispute in this matter regards the payment
    of asbestos claims under reinsurance coverage1 that Westchester
    Fire Insurance Company (“Westchester Fire”) purchased from
    certain Lloyd’s of London reinsurers (the “Underwriters”). The
    parties disagree as to how to characterize the coverage at issue.
    Westchester Fire argues that we are dealing with two reinsurance
    programs: one being the Comprehensive Catastrophe Treaty,
    which was made up of six essentially identical contracts
    covering different time periods in effect from 1972-1985
    inclusive, and the other, the Special Contingency Treaty, made
    up of two essentially identical contracts in effect from 1974-
    1982 inclusive.
    By way of brief introduction to the industry terminology,
    “[t]here are two types of reinsurance contract: treaty and
    facultative.” North River Ins. Co. v. CIGNA Reinsurance Co.,
    
    52 F.3d 1194
    , 1199 (3d Cir. 1995). Unlike facultative
    1
    “In essence, reinsurance is insurance for insurance
    companies,” Cont’l Cas. Co. v. American Nat’l Ins. Co., 
    417 F.3d 727
    , 729 n.1 (7th Cir. 2005) (internal citation and quotation marks
    omitted), whereby a reinsured (here, Westchester Fire), cedes some
    of its risk to a reinsurer (in this case, the Underwriters), and shares
    its premium with the reinsurer.
    3
    reinsurance, which “entails the ceding of a particular risk or
    policy[,]” a reinsurance treaty involves an agreement by a
    reinsurer “to accept an entire block of business from the
    reinsured. . . . Because a treaty reinsurer accepts an entire block
    of business, it does not assess the individual risks being
    reinsured; rather, it evaluates the overall risk pool.” 
    Id.
    On May 13, 2005, Westchester Fire sent two arbitration
    demand letters to the Underwriters, each based upon one of the
    two treaties. Westchester Fire captioned one demand as
    referencing the “Comprehensive Catastrophe Excess of Loss –
    All Layers” treaty, effective “7/1/72 – 6/30/85 Inclusive,” App.
    at 169, and the other as referencing the “Special Casualty
    Contingency Excess of Loss” treaty, effective “7/1/74 –
    6/30/82.” App. at 220. Each letter stated that Westchester Fire
    “hereby demands and initiates arbitration under the above
    captioned Treaty . . . . [Underwriters] are requested and required
    in accordance with pertinent treaty provisions to name their
    arbitrator.” App. at 169-70; 220-21.
    In response to each demand, the Underwriters filed a
    Verified Petition to Compel Arbitration and Stay Arbitration in
    the District of New Jersey. Their petition in response to the
    Comprehensive Catastrophe arbitration demand argued that the
    Comprehensive Catastrophe Treaty consists of at least six
    separate contracts, each with its own arbitration clause, and that
    “[n]one of the agreements provide for the consolidation of
    arbitration proceedings, let alone consolidation with proceedings
    under other contracts.” App. at 36. They asked that the demand
    be stayed. Likewise, the petition in response to the Special
    Casualty Contingency arbitration demand argued that the
    demand should be stayed, as it was an effort to consolidate a
    dispute arising under at least two separate reinsurance contracts,
    each having its own arbitration clause.
    The Underwriters’ petitions also requested that the court
    order eight arbitrations in conjunction with the eight contracts
    the Underwriters had identified – i.e., six separate arbitrations in
    response to Westchester Fire’s demand under the
    Comprehensive Catastrophe program and two separate
    arbitrations under the Special Contingency program. The
    4
    Underwriters asked as well that Westchester Fire “produce all
    reinsurance agreements within the scope of its arbitration
    demand[,]” as there may exist “other agreements not presently
    known to petitioners[,]” App. at 40; 176-77, and sought a
    declaration that “Westchester may not consolidate proceedings
    without the consent of all parties to the agreements[.]” 
    Id.
    As the basis for its request for arbitration, Westchester
    Fire argues that the Underwriters have imposed onerous
    documentation and claim procedures before payment of asbestos
    claims that they had reinsured, and that these requirements differ
    from the parties’ prior course of dealing. It complains that the
    Underwriters have subjected it to repetitive audits and requests
    for information, and have not paid the billings that Westchester
    Fire submitted. It seeks an award enforcing the payment
    requirement and confirming that it is under no obligation to meet
    the extra-contractual documentation or claim procedures that the
    Underwriters have asserted.
    In response to each Underwriters’ petition, Westchester
    Fire cross-moved to compel arbitration. In regard to the Special
    Contingency petition, Westchester Fire argued that, “[a]lthough
    the contract wording for the Reinsurance Program varied in
    certain respects over the years, the contract wording for the
    Reinsurance Program provides that the contract between the
    parties is continuous, even though it changes in certain respects
    over time. Disputes under the Reinsurance Program are to be
    resolved by arbitration in Morristown, New Jersey.” App. at
    248. Westchester Fire responded similarly to the Underwriters’
    Comprehensive Catastrophe petition, arguing that, while “[t]he
    Reinsurance Program consisted of several layers over the
    years[,]” the agreement between the parties was continuous and,
    similarly, called for arbitration in Morristown, New Jersey.
    App. at 228.
    Following consolidation of the two actions, the District
    Court observed that it was “not presented with the question of
    whether a valid arbitration agreement exists[,]” but, rather, the
    question of whether the parties had contractually agreed to
    “separate arbitrations under the various contractual layers to the
    reinsurance program or [to] a single consolidated arbitration”
    5
    with respect to each petition. App. at 23. This, the District
    Court concluded, was an issue “for the arbitrators not the courts
    to decide.” 
    Id.
     It issued an order denying the Underwriters’
    petitions and granting Westchester Fire’s cross-motions to
    compel arbitration. The order directed the Underwriters to
    appoint a single arbitrator in response to each of Westchester
    Fire’s arbitration demands, and “proceed promptly with
    Westchester Fire Insurance Company to identify a single umpire
    in response” to each arbitration demand. App. at 4. The order
    also instructed that the “relief granted herein shall not, in any
    matter, preclude” the Underwriters from applying to the
    arbitration panel “for the same or similar relief sought in this
    proceeding nor in any way limit [the] Panel’s authority to grant
    such relief.” App. at 5.
    II.
    The District Court had jurisdiction under 
    9 U.S.C. § 203
    because, as the parties agree, these actions between domestic
    Westchester Fire and foreign Underwriters fall within the
    Convention on the Recognition and Enforcement of Foreign
    Arbitral Awards, 
    9 U.S.C. §§ 201-208
    . Bel-Ray Co., Inc. v.
    Chemrite Ltd., 
    181 F.3d 435
    , 439-40 (3d Cir. 1999); see also
    China Minmetals Materials Imp. & Exp. Co., Ltd. v. Chi Mei
    Corp., 
    334 F.3d 274
    , 280 (3d Cir. 2003) (explaining, in regard to
    the Federal Arbitration Act (“FAA”), 
    9 U.S.C. § 1
     et seq., that
    “the domestic FAA (chapter 1 of the FAA) is applicable to
    actions brought under the Convention (chapter 2 of the FAA) to
    the extent they are not in conflict [pursuant to] 
    9 U.S.C. § 208
    ”).
    We have jurisdiction over the Underwriters’ appeal under
    
    28 U.S.C. § 1291
     and section 16 of the FAA, 
    9 U.S.C. § 16
    .
    Sandvik AB v. Advent Int’l Corp., 
    220 F.3d 99
    , 102 (3d Cir.
    2000). This court exercises “plenary review over the legal
    questions concerning the applicability and scope of an arbitration
    agreement.” Medtronic AVE, Inc. v. Advanced Cardiovascular
    Sys., Inc., 
    247 F.3d 44
    , 53 (3d Cir. 2001).
    III.
    The Underwriters (the reinsurers) argue that the District
    6
    Court had no authority to order the parties to submit to an
    arbitral determination of the question of whether future
    arbitrations on the underlying merits issue would occur in
    consolidated or contract-by-contract fashion. The Underwriters
    argue that the arbitration clause in each agreement calls for an
    arbitration of all issues pertaining to that specific reinsurance
    contract, which they believe requires an “individually-convened”
    arbitration. Appellants’ Br. at 27. Therefore, they continue,
    forcing all parties into a unified threshold proceeding in
    connection with each demand is beyond the scope of what the
    parties agreed to arbitrate. The issue of consolidated arbitration,
    they insist, should be presented to individual arbitration panels
    convened in accordance with each contract.
    In contrast to the Underwriters, Westchester Fire argues
    that the question of whether the contracts should be arbitrated
    collectively or individually is itself a determination that must be
    made by an arbitrator. In the alternative, Westchester Fire
    argues that, were we to decide that it is the District Court that
    must make the consolidation decision, New Jersey law
    “authorizes court-ordered consolidation of multiple arbitrations
    under multiple contracts[.]” Appellee’s Br. at 39. In light of our
    determination, we need not reach this issue.
    “[A]rbitration is a creature of contract, and an arbitration
    panel has the authority to decide only the issues that have been
    submitted for arbitration by the parties.” Metromedia Energy,
    Inc. v. Enserch Energy Servs., Inc., 
    409 F.3d 574
    , 578 (3d Cir.
    2005); Medtronic, 
    247 F.3d at 54
     (noting that “arbitrators have
    the authority to resolve disputes only if the parties have agreed
    to submit to arbitration” and that “there must be sufficient
    evidence that the parties consented to arbitration in an express
    agreement”).
    In two recent cases, the Supreme Court has provided
    guidance on the sometimes vexing issue of the respective roles
    of the court and the arbitrators. In Howsam v. Dean Witter
    Reynolds, Inc., 
    537 U.S. 79
     (2002), an investor (Howsam),
    complaining that her broker (Dean Witter) had made
    misrepresentations in its investment advice, sought arbitration
    before the National Association of Securities Dealers (“NASD”).
    7
    
    Id. at 82
    . Dean Witter filed suit in federal court seeking a
    declaration that Howsam’s suit was untimely. 
    Id.
     The district
    court dismissed the action, holding that the NASD arbitrator
    should decide the issue. 
    Id.
    The Court of Appeals for the Tenth Circuit reversed on
    the ground that the question of whether Howsam’s claim was
    time-barred under a NASD arbitration rule presented a question
    of arbitrability for the court to decide. 
    Id.
     The Supreme Court
    reversed. It noted that although it had long recognized the
    liberal federal policy in favor of arbitration, the question of
    “whether the parties have submitted a particular dispute to
    arbitration, i.e., the ‘question of arbitrability,’ is an issue for
    judicial determination unless the parties clearly and
    unmistakably provide otherwise.” 
    Id. at 83
     (emphasis in
    original) (internal citations and quotation marks omitted). The
    Court stated that whereas one might call any potentially
    dispositive gateway question a “question of arbitrability,” “the
    phrase ‘question of arbitrability’ has a far more limited scope.”
    
    Id.
     Such questions of arbitrability are raised only in “narrow
    circumstance[s]” where courts must determine “gateway
    matter[s],” such as a dispute about “whether the parties are
    bound by a given arbitration clause” or whether “a disagreement
    about whether an arbitration clause in a concededly binding
    contract applies to a particular type of controversy.” 
    Id. at 83-84
    . In contrast, the Court explained, “‘procedural’ questions
    which grow out of the dispute and bear on its final disposition
    are presumptively not for the judge, but for an arbitrator, to
    decide.” 
    Id. at 84
     (emphasis in original) (internal citation and
    quotation marks omitted).
    In Howsam, the Court observed the inherent logic and
    efficiency of such a presumption. “[F]or the law to assume an
    expectation that aligns (1) decisionmaker with (2) comparative
    expertise will help better to secure a fair and expeditious
    resolution of the underlying controversy — a goal of arbitration
    systems and judicial systems alike.” 
    Id. at 85
    . Thus, “only when
    there is a question regarding whether the parties should be
    arbitrating at all” is a question of arbitrability raised for the court
    to resolve. Dockser v. Schwartzberg, 
    433 F.3d 421
    , 426 (4th
    Cir. 2006). “In other circumstances, resolution by the arbitrator
    8
    remains the presumptive rule.” 
    Id.
    The Court’s plurality decision in Green Tree Financial
    Corp. v. Bazzle, 
    539 U.S. 444
     (2003), provides further guidance
    as to the distinction between questions of arbitrability (for the
    court) and questions of arbitral procedure (for the arbitrator).
    Two sets of South Carolina customers who had contracted with
    Green Tree Financial Corp. for loans for either home
    improvement or home purchase filed separate actions claiming
    that Green Tree failed to provide them with the form legally
    required under South Carolina law advising that they had a right
    to name their own lawyers and insurance agents. 
    Id. at 448-49
    .
    Their contracts with Green Tree provided for mandatory
    arbitration, and they filed separate actions in South Carolina
    state courts. 
    Id. at 449
    . One set of plaintiffs, the Bazzles, asked
    the court to certify a class action, which the court did and
    compelled arbitration. 
    Id.
     The arbitrator, proceeding with the
    arbitration as a class arbitration, awarded $10,935,000 in
    statutory damages plus attorney’s fees. 
    Id.
     In the other
    proceeding, the arbitrator certified a class in arbitration and
    ultimately awarded $9,200,000 in statutory damages in addition
    to attorney’s fees. 
    Id.
    Green Tree appealed to the South Carolina Court of
    Appeals claiming that class arbitration was legally
    impermissible. 
    Id.
     The South Carolina Supreme Court assumed
    jurisdiction and held that, if an arbitration provision is silent on
    the question, then class-wide arbitration is permissible. 
    Id. at 450
    . The United States Supreme Court granted certiorari to
    consider whether the South Carolina Supreme Court’s holding
    was consistent with the FAA. 
    Id.
     In its decision, the Court held
    that the resolution of the threshold question of contract
    interpretation — “Are the contracts in fact silent, or do they
    forbid class arbitration as petitioner Green Tree Financial Corp.
    contends?” — should be “resolved in arbitration.” 
    Id. at 447
    .
    Drawing on Howsam, the plurality reasoned that unless
    one finds “clear and unmistakable evidence to the contrary” in
    an arbitration clause, only in certain “gateway matters” will a
    court “assume that the parties intended courts, not arbitrators, to
    decide a particular arbitration-related matter.” 
    Id.
     at 452
    9
    (internal quotation marks and citation omitted). Matters that
    concern “neither the validity of the arbitration clause nor its
    applicability to the underlying dispute between the parties” will
    not fall within this “narrow exception.” Id.; see also PacifiCare
    Health Sys., Inc. v. Book, 
    538 U.S. 401
    , 407 n.2 (2003)
    (rejecting argument that preliminary question of “whether the
    [contractual] remedial limitations at issue here prohibit an award
    of RICO treble damages” raised question of arbitrability for
    court to resolve, and concluding it presented question of contract
    interpretation to be resolved in arbitration); Buckeye Check
    Cashing, Inc. v. Cardegna, 
    546 U.S. 440
     (2006) (under the FAA,
    whether a contract is void for illegality is generally an issue for
    arbitrator, not court, to decide); Ehleiter v. Grapetree Shores,
    Inc., 
    482 F.3d 207
    , 217 (3d Cir. 2007) (concluding that Green
    Tree reaffirms “the general division of labor” between arbitrator
    and judge as “articulated in Howsam”). The Green Tree
    plurality therefore vacated the decision of the South Carolina
    Supreme Court and remanded the case “so that the arbitrator
    may decide the question of contract interpretation — thereby
    enforcing the parties’ arbitration agreements according to their
    terms.” 
    539 U.S. at 454
    .2
    2
    The Green Tree plurality was written by Justice Breyer,
    joined by Justices Scalia, Souter and Ginsberg. Justice Stevens
    authored a short concurrence, providing the fifth vote for the
    plurality’s judgment. “When a fragmented Court decides a case
    and no single rationale explaining the result enjoys the assent of
    five Justices, the holding of the Court may be viewed as that
    position taken by those Members who concurred in the judgments
    on the narrowest grounds.” Marks v. United States, 
    430 U.S. 188
    ,
    193 (1977) (internal quotation marks and citation omitted). Justice
    Stevens did not join because he concluded that, since (a) the South
    Carolina Supreme Court’s decision as to the availability of class
    arbitration was correct, and (b) petitioner Green Tree “merely
    challenged the merits of that decision without claiming it was made
    by the wrong decisionmaker,” there was no need for remand. 
    539 U.S. at 455
    . He would have simply affirmed the judgment of the
    South Carolina Supreme Court. 
    Id.
    Justice Stevens also noted that the “[plurality] opinion
    10
    Thus, Howsam and Green Tree together explain why no
    “question of arbitrability,” as the Supreme Court has recently —
    and narrowly — defined that phrase, has been raised here.
    Under section 4 of the FAA, federal courts, “upon being satisfied
    that the making of the agreement for arbitration or the failure to
    comply therewith is not in issue,” are authorized to “make an
    order summarily directing the parties to proceed to arbitration in
    accordance with the terms thereof.” 
    9 U.S.C. § 4
    ; see also 
    9 U.S.C. § 206
     (“A court having jurisdiction under this chapter
    may direct that arbitration be held in accordance with the
    agreement . . . .”). This, the District Court has done.
    As in Green Tree, the question here is “not whether the
    parties wanted a judge or an arbitrator to decide whether they
    agreed to arbitrate a matter,” but rather “what kind of arbitration
    expresses a view of the case close to my own,” and stated his
    agreement with the plurality that Howsam, “[a]rguably[,]” compels
    the conclusion that “the interpretation of the parties’ agreement
    should have been made in the first instance by the arbitrator, rather
    than the court.” 
    Id.
     Based on this language, therefore, we
    conclude that a “common denominator . . . implicitly” runs through
    the reasoning of the “five Justices who support the judgment” in
    the Green Tree decision. Rappa v. New Castle County, 
    18 F.3d 1043
    , 1057-58 (3d Cir. 1994) (internal quotation to King v. Palmer,
    
    950 F.2d 771
    , 781 (D.C. Cir. 1991) (en banc) omitted); see also
    Pedcor Mgmt. Co. Welfare Benefit Plan v. Nations Pers. of Texas,
    Inc., 
    343 F.3d 355
    , 358-59 (5th Cir. 2003) (“Justice Stevens did
    express his agreement, however, with the principle laid down by
    the plurality that arbitrators should be the first ones to interpret the
    parties’ agreement. As a result, the plurality’s governing rationale
    in conjunction with Justice Stevens’s support of that rationale
    substantially guides our consideration of this dispute.”). We
    recognize that the Seventh Circuit, concluding that it was only
    “likely,” rather than certain, “that Justice Stevens agreed with the
    plurality that an arbitrator should be the first to interpret the
    agreements,” has decided that identification of “a controlling
    rationale” in Green Tree would be too presumptuous, Employers
    Ins. Co. of Wausau v. Century Indem. Co., 
    443 F.3d 573
    , 581 (7th
    Cir. 2006), but we decline to adopt that conclusion.
    11
    proceeding the parties agreed to.” 
    539 U.S. at 452
     (emphasis in
    original). In this case, the parties agree that they agreed to
    arbitrate the matter — the question is merely whether they
    agreed to individualized or consolidated proceedings as a matter
    of procedure. Therefore, “any doubt” here about the “scope of
    arbitrable issues should be resolved in favor of arbitration.” 
    Id. at 445
     (internal quotation marks and citation omitted).3
    The Underwriters protest that there is no contractual
    authority for a threshold proceeding before an arbitrator on
    consolidation under each program. Yet, Westchester Fire’s
    demands for arbitration under the Comprehensive Catastrophe
    and Special Contingency treaties are based on express
    3
    The Underwriters rely in part on Certain Underwriters at
    Lloyd’s v. Century Indem. Co., 
    2005 WL 1941652
    , at *1 (E.D. Pa.
    Aug. 1, 2005), where a district court denied an insurance
    company’s request to order one arbitration panel for each
    reinsurance program between the parties, concluding that “none of
    the reinsurance contracts provide for consolidation of arbitration
    proceedings, and that [the reinsurers have] not consented to the
    [consolidated arrangement.]”
    The district court in that case did not address the reasoning
    of Howsam and Green Tree, and relied in its decision on an
    unpublished, pre-Green Tree decision of this court. Moreover, the
    matter before the district court in that case — competing requests,
    where one party sought to compel arbitration as it was provided for
    in each reinsurance contract, while the other sought to group each
    arbitration by the reinsurance program — is distinguishable from
    the instant case, in which we consider a request to have the
    decision of whether or not to consolidate be heard by an arbitrator.
    See In re Allstate Ins. Co. and Global Reinsurance Corp., 
    2006 WL 2289999
    , at *1 (S.D.N.Y. Aug. 8, 2006) (acknowledging Second
    Circuit precedent holding that a district court cannot consolidate
    arbitration proceedings arising from separate agreements to
    arbitrate absent the parties’ agreement to allow such consolidation,
    but observing that “Petitioner is not asking the Court to compel
    consolidation. Rather, Petitioner wants to require an arbitration
    panel to determine whether the two disputes shall be
    consolidated[,]” and so selecting such a panel).
    12
    contractual language between the parties that calls for tri-partite
    arbitration. Whether requiring the Underwriters to select an
    arbitrator for each program is consistent with the contractual
    language will be appropriately resolved by the arbitrators once
    the panels are convened. Such disputes on arbitral procedure are
    “[i]ncluded within the scope of [the] default rule” in favor of
    arbitral resolution, along with “the merits of the underlying
    dispute.” Dockser, 
    433 F.3d at 425, 427
     (noting that, in the face
    of contractual silence, arbitral resolution of procedural issues is
    presumed, and “the onus is on the party seeking litigation on a
    procedural issue to show that the agreement somehow excludes
    that issue from arbitration”).
    Moreover, such an argument — that, even absent any
    doubt about whether a matter is arbitrable, a court must examine
    the contractual language for conflict with the threshold
    arbitration’s procedure — has been rejected by a number of our
    sister circuits. In Employers Ins. Co. of Wausau v. Century
    Indemnity Co., 
    443 F.3d 573
     (7th Cir. 2006), the Court of
    Appeals for the Seventh Circuit refused to accept a reinsurer’s
    argument that “no mention of consolidation” in the agreements
    at issue between the parties necessarily meant that the reinsurer,
    Wausau, was “entitled to two separate arbitrations for the two
    reinsurance agreements it has with [the insured insurance
    company,] Century.” 
    Id. at 581, 574
    . The court stated that the
    “question of whether an arbitration agreement forbids
    consolidated arbitration is a procedural one, which the arbitrator
    should resolve.” 
    Id. at 577
    .
    On the question of how the parties were then to proceed
    with the mechanics of the arbitration, the Wausau court
    acknowledged that the district court had crafted an order that
    required “Wausau to appoint one arbitrator and proceed to one
    arbitration, covering both Agreements.” 
    Id. at 581
    . It then
    considered the reinsurer’s argument that the act of “ordering it to
    arbitrate both Agreements in one arbitration would conflict with
    the terms of the arbitration clauses, for example by not allowing
    ‘each party to appoint its arbitrator.’” 
    Id. at 581-82
    . The Court
    of Appeals soundly rejected any suggestion that the district
    court’s order was in error. Citing both Howsam and Green Tree,
    the court stated,
    13
    We should not and will not consider this argument. The
    question before us is whether the parties’ Agreements
    specify who is to decide whether consolidated arbitration
    is allowed — the court or the arbitrator. We have
    determined that the Agreements do not specify and that
    questions regarding consolidation are presumptively for
    the arbitrator. Wausau is free to argue at the arbitration
    that separate arbitrations for the First Excess Agreement
    and Second Excess Agreement are required under the
    contracts’ terms. If the arbitration panel agrees, it can
    require the parties to proceed as it deems appropriate.
    
    Id. at 582
     (emphasis in original).
    Similarly, in Dockser, the Court of Appeals for the
    Fourth Circuit rejected what it called a “chicken [or] egg”
    argument about the legitimacy of initial arbitral decisionmaking
    regarding procedure. In Dockser, the defendant, Schwartzberg,
    had filed a demand with the American Arbitration Association
    (“AAA”) alleging breach of a settlement agreement he had
    entered into with plaintiffs regarding their real estate business.
    Dockser, 
    433 F.3d at 427
    . The settlement agreement stated that
    if the parties could not agree on an arbitrator, the arbitrator
    should be chosen pursuant to AAA rules. 
    Id. at 423
    .
    Schwartzberg, in his cover letter to the AAA, requested that the
    dispute be arbitrated by a panel of three arbitrators pursuant to
    an AAA rule. 
    Id.
     In response, plaintiffs filed suit, arguing that a
    clause of the parties’ settlement agreement “expressly specif[ied]
    that a single arbitrator should hear the dispute[,]” and sought a
    declaratory judgment to that effect; it also requested that the
    court appoint a single arbitrator under section 5 of the FAA,
    which allows a court to designate an arbitrator or arbitrators if a
    party fails to avail himself of a method of appointment as
    specified in the parties’ agreement. 
    Id. at 424
    . Schwartzberg
    filed a motion to dismiss, arguing that the number-of-arbitrators
    question was inappropriate for judicial resolution, and the
    district court granted the motion. 
    Id.
    In light of Howsam and Green Tree, the Court of Appeals
    affirmed the dismissal. It concluded that the number-of-
    arbitrators question was not a “question of arbitrability,” as the
    14
    parties did not “dispute that their arbitration clause is binding.”
    
    Id. at 426
    . It also noted that, considering the relevance of AAA
    rules to resolution of the dispute, “[i]t is therefore not only
    legally proper, but eminently sensible, that the dispute here is
    presumptively one for the arbitral forum to resolve.” 
    Id. at 427
    .
    The Dockser court also firmly rejected any suggestion
    that convening an arbitral panel arguably in violation of
    contractual language would be per se illegitimate:
    Plaintiffs . . . [raise] the novel argument that arbitrating
    the question here would present an absurd ‘chicken and
    egg’ problem. They claim that if x number of arbitrators
    decide that there ought to be y number of arbitrators, the
    decision becomes ipso facto invalid. But many
    procedural questions exhibit this supposed bootstrapping
    problem, and accepting plaintiffs’ argument would nullify
    the rule that these questions are arbitrable. Under
    plaintiffs’ view, an arbitrator could not, for example,
    determine whether an arbitration agreement required
    arbitration in Boston instead of California, without
    succumbing to paralysis as to where to hold the
    proceedings necessary to decide the issue. A similar
    conundrum would arise regarding whether the
    permissibility of consolidating separate arbitration
    proceedings is an issue for a single arbitrator or a host of
    different ones. We need not countenance such a result,
    which would defy both the Supreme Court and the
    congressional policy favoring arbitration. By
    presumptively remitting procedural questions to the
    arbitral body, the FAA necessarily recognizes that
    decisionmaker’s authority to answer them.
    
    Id. at 427
     (emphasis added) (internal quotation marks and
    citations omitted).
    Other courts have held similarly. See Shaw’s
    Supermarkets, Inc. v. United Food and Commercial Workers
    Union, 
    321 F.3d 251
    , 254 (1st Cir. 2003) (“The issue before us is
    who should make the determination as to whether to consolidate
    the three grievances [under three separate collective bargaining
    15
    agreements] into a single arbitration: the arbitrator or a federal
    court. Since each of the three grievances is itself concededly
    arbitrable, we think the answer is clear. Under Howsam . . . this
    is a procedural matter for the arbitrator.”); Pedcor Mgmt. Co.
    Welfare Benefit Plan, 
    343 F.3d at 363
     (noting, in dictum, that
    “[t]o the extent that the issue of consolidation in arbitration is
    analogous to class arbitration, Green Tree’s holding that
    arbitrators, not courts, decide whether an agreement provides for
    class arbitration would appear to overrule [a prior Fifth Circuit
    case holding that a court should determine whether a contract
    provides for consolidated arbitration]”); Blimpie Int’l Inc. v.
    Blimpie of the Keys, 
    371 F. Supp. 2d 469
    , 473-74 (S.D.N.Y.
    2005) (“Whether an arbitration proceeding should be
    consolidated with one or more other arbitration proceedings is a
    question . . . . properly addressed by the arbitrator. . . . Like the
    question of class arbitration in Green Tree, the question of
    consolidated arbitration here concerns the nature of the
    arbitration proceeding agreed to, not whether the parties agreed
    to arbitrate. . . . [C]onsolidation is a procedural issue.”).
    Finally, we note that Westchester Fire has raised an
    argument that, because of certain “continuity” clauses appearing
    in the different wordings and layers of each treaty, each treaty is
    in essence one contract. The Underwriters, of course, disagree.
    We note that full consideration of this issue by this court would
    be inappropriate. According to the Underwriters, the complete
    universe of reinsurance writings relevant to the parties’ disputes
    may not be before this court. In any event, this “disputed issue
    of contract interpretation” is one which expert “[a]rbitrators are
    well situated to answer.” Green Tree, 
    539 U.S. at 450, 453
    .
    IV.
    In light of the above authority, the parties’ agreement to
    arbitrate their disputes, contractual silence as to the
    consolidation issue, and the longstanding federal policy favoring
    arbitration, we see no reason why this procedural issue should
    not be resolved in arbitration. Accordingly, we will affirm the
    District Court’s order.
    16
    

Document Info

Docket Number: 06-1457

Citation Numbers: 489 F.3d 580, 2007 U.S. App. LEXIS 13714

Judges: Sloviter, Rendell, Rufe

Filed Date: 6/12/2007

Precedential Status: Precedential

Modified Date: 11/5/2024

Authorities (16)

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Blimpie International, Inc. v. Blimpie of the Keys , 371 F. Supp. 2d 469 ( 2005 )

Pedcor Management Co., Inc. Welfare Benefit Plan v. Nations ... , 343 F.3d 355 ( 2003 )

William B. Dockser H. William Willoughby C.R.I., ... , 433 F.3d 421 ( 2006 )

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