Gulf Guarnt Life Ins v. CT Gen Life Ins Co ( 2002 )

REVISED SEPTEMBER 27, 2002
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 01-60582
____________________
GULF GUARANTY LIFE INSURANCE COMPANY
Plaintiff - Appellant
v.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY; CIGNA
REINSURANCE COMPANY
Defendants - Appellees
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Mississippi
_________________________________________________________________
August 30, 2002
Before KING, Chief Judge, and PARKER, Circuit Judge, and ELLISON,
District Judge.*
KING, Chief Judge:
Plaintiff-Appellant Gulf Guaranty Life Insurance Company
filed an initial claim in the district court in 1996 alleging
that Defendant-Appellee Connecticut General Life Insurance
*
District Judge of the Southern District of Texas,
sitting by designation.
Company breached a reinsurance contract between them. Gulf
Guaranty subsequently filed claims in the district court in 2000
alleging that Connecticut General breached an agreement to
arbitrate the reinsurance dispute, as well as claims for
conspiracy and malice allegedly committed by Connecticut General
with respect to Connecticut General's conduct in the arbitration
process. The district court consolidated the 1996 and 2000
actions and compelled arbitration of the consolidated action.
The district court further denied a motion by Gulf Guaranty to
re-open discovery and granted a motion by Connecticut General to
remove a chosen arbitrator, Gary Fagg, from service. For the
following reasons, we AFFIRM the district court's order
compelling arbitration of all disputes between Gulf Guaranty and
Connecticut General in the consolidated action; we AFFIRM the
district court's decision dismissing Gulf Guaranty's claims for
breach of the arbitration agreement and for conspiracy and
malice; we AFFIRM the district court's decision denying Gulf
Guaranty's motion to re-open discovery; but we REVERSE the
district court's decision granting the motion to strike Fagg from
service as an arbitrator.
I. FACTUAL AND PROCEDURAL HISTORY
In 1981, Plaintiff-Appellant Gulf Guaranty Life Insurance
Company (“Gulf Guaranty”) entered into a contract with Defendant-
Appellee Connecticut General Life Insurance Company (“Connecticut
2
General”) by which Connecticut General agreed to reinsure Gulf
Guaranty on certain credit life insurance certificates issued by
Gulf Guaranty. Their reinsurance contract contained an
arbitration provision governing disputes under the contract.1 In
1991, a third-party holder of one of the insurance certificates
sued Gulf Guaranty for payment. Following judgment in favor of
that certificate holder, Gulf Guaranty sought reimbursement from
Connecticut General pursuant to their reinsurance contract.
Connecticut General offered Gulf Guaranty payment in an amount
that Gulf Guaranty found unsatisfactory. On or about September
17, 1996, Gulf Guaranty sued Connecticut General and Defendant-
Appellee Cigna Reinsurance Company (“Cigna”)2 (collectively, “the
Defendants”) in Mississippi state court for breach of contract
and “wrongfully placing conditions on payment.” This was the
1996 first-filed suit.
1
The arbitration provision in the Gulf Guaranty-
Connecticut General reinsurance contract reads in relevant part:
Should a disagreement arise between the two companies
regarding the rights or liabilities of either company
under any transaction under this agreement, the same
will be referred to arbitrators, one to be chosen by
each company from among the officers of other life
insurance companies and a third to be chosen by the
said two arbitrators before entering upon arbitration.
The arbitrators will regard this document as an
honorable agreement and not merely as a legal
obligation, and their decision will be final and
binding upon both companies.
2
Cigna was a non-signatory to the arbitration agreement
between Gulf Guaranty and Connecticut General that acted as
Connecticut General’s agent.
3
The 1996 first-filed suit was removed to federal court in
October of 1996. Connecticut General and Cigna sought to compel
arbitration pursuant to the Connecticut General-Gulf Guaranty
reinsurance contract. In January of 1997, a magistrate judge
stayed all proceedings in the 1996 first-filed suit against
Connecticut General and compelled arbitration of the reinsurance
dispute. In April of 1997, the district court likewise stayed
the action against non-signatory Cigna pending arbitration.
In September of 1999, Gulf Guaranty appointed Gary Fagg as
its arbitrator of choice. In January of 2000, the Defendants
appointed Oscar R. Scofield as their arbitrator of choice.
It is undisputed that Scofield and Fagg discussed selection of
Peter Jaynes to serve as the third arbitrator. Whether the two
arbitrators agreed upon and appointed Jaynes as the third
arbitrator, or whether his selection was merely discussed between
them, is a matter of dispute.3 Based on this dispute over
selection of arbitrators, on August 23, 2000, Gulf Guaranty filed
a second lawsuit in Mississippi state court that alleged breach
of the arbitration agreement by the Defendants, alleged waiver of
the Defendants’ right to arbitrate, and alleged conspiracy and
3
Gulf Guaranty contends that Scofield and Fagg agreed on
Jaynes's selection and in fact appointed Jaynes to serve.
Scofield, Connecticut General's chosen arbitrator, counters that
Jaynes's appointment as the third arbitrator was merely discussed
between Scofield and Fagg, but that those two arbitrators never
agreed upon, nor appointed, Jaynes to serve.
4
malice and reckless disregard for Gulf Guaranty’s rights. This
was the 2000 second-filed suit.
The 2000 second-filed suit was likewise removed to federal
court. On December 14, 2000, the district court re-opened the
1996 first-filed suit and consolidated it with the 2000 second-
filed suit. On June 22, 2001, upon motion by the Defendants to
compel arbitration and to dismiss the 2000 second-filed suit, the
district court issued an order finding that the Defendants had
not waived their right to arbitrate. In that June 22 order, the
court also granted the Defendants’ motion to compel arbitration
and granted the Defendants motion to "Dismiss the lawsuit filed
by Plaintiff Gulf Guaranty on August 23, 2000," making no mention
of the status of the 1996 first-filed suit component of the
underlying consolidated action as stayed or dismissed. In the
same June 22 order, the district court further denied Gulf
Guaranty’s motion to re-open discovery and granted the
Defendants’ motion to strike Fagg from service as an arbitrator.
On July 26, 2001, the district court stayed enforcement of
its June 22 order compelling arbitration pending appeal of that
order to this court. On September 18, 2001, the district court
denied a motion by Gulf Guaranty for relief from the district
court’s judgment pursuant to FED. R. CIV. P. 60(b). Gulf
Guaranty now timely appeals the district court’s order of June
22, 2001 that compelled arbitration and dismissed Gulf Guaranty’s
5
claims for waiver, breach and conspiracy; denied Gulf Guaranty’s
motion to re-open discovery; and struck arbitrator Fagg.
II. THE ORDER COMPELLING ARBITRATION
A. This Court's Jurisdiction Over Appeal of the District Court's
June 22 Order Compelling Arbitration
The parties agree that this court should have jurisdiction
over the district court's June 22 order compelling arbitration of
the consolidated action, but such agreement is insufficient to
confer jurisdiction on this court. Due to procedural ambiguity
within the June 22 arbitration regarding the precise status of
the 1996 first-filed suit of the consolidated action as stayed or
dismissed, there is some question as to whether this court has
jurisdiction subsequent to the Supreme Court's decision in Green
Tree Fin. Corp. - Ala. v. Randolph, 531 U.S. 79 (2000). In Green
Tree, the Supreme Court addressed the appealability of orders
compelling arbitration under the Federal Arbitration Act, 9
U.S.C. § 16(a)(3) (1999) ("the FAA").4 The Supreme Court held
in Green Tree that, when a district court issues an order
compelling arbitration, that order is appealable as a final
decision under section 16(a)(3) only if the district court
dismisses the underlying action. See 531 U.S. at 86-87. The
court further held in Green Tree that when a district court
4
Section 16(a)(3) of the FAA states in relevant part:
"(a) An appeal may be taken from -- ... (3) a final decision with
respect to an arbitration that is subject to this title." 9
U.S.C. § 16(a)(3).
6
compels arbitration but "enter[s] a stay instead of a dismissal [
of the underlying action,] ... that order would not be
appealable" under the FAA. Id. at 87 n.2 (citing 9 U.S.C.
§ 16(b)(1) (1999)).5
It is undisputed that the district court's June 22 order
explicitly dismissed the underlying 2000 second-filed suit that
was filed on August 23, 2000. However, because the district
court neglected to explicitly address the status of the 1996
first-filed suit, which 1996 suit that court acknowledged it had
re-opened for the purpose of consolidating the 1996 suit with the
2000 second-filed suit, this court must determine, pursuant to
the dictates of Green Tree, whether we can hear this appeal of
the June 22 order compelling arbitration. Because we conclude
that the record shows clear intent by the district court that its
June 22 order compelling arbitration be immediately appealable to
this court pursuant to the Supreme Court's mandate in Green Tree,
we further conclude that we have jurisdiction to hear appeal of
that order under § 16(a)(3) of the FAA, and in accordance with
Green Tree.
The Supreme Court's decision in Green Tree did not confront
the circumstance of consolidated actions. Subsequent to that
decision, no other court of appeals has yet confronted the
5
Section 16(b)(1) of the FAA states: "Except as otherwise
provided in section 1292(b) of title 28, an appeal may not be
taken from an interlocutory order -- granting a stay of any
action under section 3 of this title ...." 9 U.S.C. § 16(b)(1).
7
precise circumstance of this case of determining appellate
jurisdiction over an order compelling arbitration of a
consolidated action that explicitly dismissed only a portion of
the claims in that action and neglected to declare the status of
the remaining claims as stayed or dismissed. The Supreme Court
noted in Green Tree that Congress did not define the term "final
decision" as it is used within the FAA. See 531 U.S. at 86. The
court thus held that the term final decision should be
"accord[ed] its well established meaning [,]" as "a decision that
ends the litigation on the merits and leaves nothing more for the
court to do but execute the judgment." Id. (citations and
quotation omitted).
We recently construed a district court's order compelling
arbitration that did not precisely conform with the dismissal
language of Green Tree as providing the functional equivalent of
the required dismissal of the underlying case, and thus to allow
for our exercise of jurisdiction over that appeal in accordance
with Green Tree. See Am. Heritage Life Ins. Co. v. Orr, 294 F.3d
702, 706-08 (5th Cir. 2002) (citing Green Tree, 531 U.S. at 89).
In the order compelling arbitration at issue in that case, the
district court used the term "clos[ed]" rather than "dismiss[ed]"
to indicate the status of the underlying case. See id. We
concluded that there "is no practical distinction between
'dismiss' and 'close' for purposes of this appeal," where “the
application of each word results in a termination on the merits,
8
leaving the judgement-rendering [sic] court with nothing more to
do but execute the judgment" so that we determined "the decision
[to be] 'final' within the contemplation of § 16(a)(3) of the
FAA." Id. Thus, we have previously inferred that an order that
did not precisely conform with the Supreme Court's requirement in
Green Tree that claims be dismissed per se to allow appellate
jurisdiction nonetheless constituted a final decision for the
purposes of our jurisdiction in conformance with Green Tree.
The district court in the instant case took the following
actions that suggest that court's intent to issue a final
decision in its June 22 order compelling arbitration that would
be immediately appealable to this court, in full accord with
Green Tree. We note first that the district court lifted the
stay on the 1996 first-filed suit by re-opening that case when it
consolidated the actions, so that no stay of the first-filed suit
remained in effect. We further note that there was no motion
before the district court by any party to stay any portion of the
consolidated action at the time that court issued its June 22
order compelling arbitration of the entire consolidated action.
Rather, there was only a motion to dismiss filed by the
Defendants along with the Defendants' motion requesting the
district court to re-compel the parties to arbitrate their entire
9
dispute.6 In its June 22 order compelling arbitration, the
district court did dismiss the 2000 second-filed suit in order to
compel the entire action to arbitration in accord with the
previous order compelling arbitration of the 1996 first-filed
suit.
Additionally, in its subsequent order of July 26, 2001, the
district court stayed enforcement of its June 22 order compelling
arbitration pending appeal to this court of that June 22 order,
referencing the cause numbers of both the 1996 and 2000 filed
suits in that July 26 stay order. Moreover, in that July 26
order, the district court expressly referenced its June 22 order
compelling arbitration and described that order as follows: "This
[June 22] Order is considered a final judgment for the purposes
of appeal. See 9 U.S.C. § 16(a)(3); Green Tree Fin. Corp. v.
Randolph, 531 U.S. 79 (2000)." The district court's express
reference to Green Tree when describing its June 22 order is very
compelling evidence that the district court clearly intended to
issue a final decision compelling arbitration in its June 22
order for the purposes of this court's jurisdiction to entertain
immediate appeal of that order fully in accord with Green Tree.
Last, the district court subsequently entertained and denied
a motion made by Gulf Guaranty pursuant to FED. R. CIV. P. 60(b)
6
We acknowledge that this motion by the Defendants
seeking an order re-compelling arbitration of the entire dispute
only requested dismissal of the 2000 second-filed suit.
10
for relief from the district court's judgment of June 22. We
note that trial courts have no jurisdiction to entertain Rule
60(b) motions for relief from a judgment except from an order
that is a "final judgment, order, or proceeding ...." FED. R.
CIV. P. 60(b).7 Thus, the district court's acceptance of
jurisdiction over, and denial of, Gulf Guaranty's Rule 60(b)
motion further evinces that court's belief that its June 22 order
constituted a final decision immediately appealable to this
court. We conclude from this record that the district court's
order of June 22 compelling arbitration of the entire instant
consolidated action constitutes a final decision within the
meaning of Green Tree, 531 U.S. at 85. The district court’s
failure to reference explicitly the 1996 first-filed suit as
dismissed in the court's June 22 order compelling arbitration of
the entire consolidated action was simply an oversight. Clearly,
the intention, as well as the effect, was to dismiss it.
B. No Waiver By Connecticut General of Its Right to Arbitrate
In the 2000 second-filed suit, Gulf Guaranty claimed that
Connecticut General waived its right to arbitrate based on
Connecticut General's alleged attempted veto of the selection of
Jaynes as a third arbitrator by Scofield and Fagg. Based on this
dispute over arbitrator selection, Gulf Guaranty alleged that
7
Rule 60(b) states in relevant part: "On motion ... the
court may relieve a party ... from a final judgment, order, or
proceeding for the following reasons: (1) mistake ...." FED. R.
CIV. P. 60(b).
11
Connecticut General refused to move forward with arbitration,
took active steps to prevent arbitration, and attempted to
"counsel or coerce" Scofield into repudiating an agreement that
Gulf Guaranty alleges was completed between Scofield and Fagg and
appointed Jaynes as the third arbitrator. The district court
granted the Defendants' motion to dismiss the waiver claim. We
agree with the district court that, even taking Gulf Guaranty's
allegations as true at the motion to dismiss stage, such
allegations regarding Connecticut General's participation in the
dispute over the composition of the arbitration panel do not
indicate sufficient overt acts evincing a desire by Connecticut
General to litigate, instead of arbitrate, the reinsurance
dispute that would constitute waiver of Connecticut General's
contractual right to arbitrate.
This court reviews de novo a district court's dismissal of a
claim that a party waived its right to arbitrate. See Subway
Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999)
(waiver); Copeland v. Wasserstein, Perella & Co., Inc., 278 F.3d
472, 477 (5th Cir. 2002) (motion to dismiss). As the district
court correctly set forth, a party claiming that another party
waived the contractual right to arbitrate bears a heavy burden to
establish the claim. "There is a strong presumption against" a
finding that a party waived its contractual right to arbitrate,
and "any doubts thereabout must be resolved in favor of
arbitration." Texaco Exploration & Prod. Co. v. AmClyde
12
Engineered Prods. Co., Inc., 243 F.3d 906, 911 (5th Cir. 2001)
(citing Subway, 169 F.3d at 329). Ordinarily a party waives its
right to arbitrate when it "initially pursues litigation and then
reverses course and attempts to arbitrate ...." Id. However,
waiver "can also result from 'some overt act in Court that
evinces a desire to resolve the arbitrable dispute through
litigation rather than arbitration.'" Id. (quoting Subway, 169
F.3d at 329).
However, "mere delay falls far short of the waiver
requirements ...." Id. (citing Subway, 169 F.3d at 326). In
Subway, for example, this court rejected a claim of waiver even
where it was alleged a party sought related judicial bankruptcy
proceedings involving issues separate from the arbitration in an
affirmative attempt to delay that arbitration. See 169 F.3d at
329. Similarly, in Texaco Exploration, this court rejected a
claim of waiver based on a party's seeking litigation of another
dispute with the same opposing party that was separate from the
arbitrable dispute, even where this court recognized that the
unrelated litigation had the effect of delaying the arbitration
and narrowing its scope. 243 F.3d at 911-12. This court has
further recognized that, even where a party takes substantial
steps toward litigation of the arbitral dispute, or participates
substantially in litigation procedures, it ordinarily will not
waive the right to arbitrate. See Tenneco Resins, Inc. v. Davy
Int'l, AG, 770 F.2d 416, 420-21 (5th Cir. 1985) (collecting
13
cases). In Tenneco, for example, this court found that a party
had not waived its right to arbitrate when it waited "almost
eight months before moving that the district court proceedings be
stayed pending arbitration, and in the meantime participated in
discovery." Id. This court noted that "this and other courts
have allowed such actions as well as considerably more activity
without finding that a party has waived a contractual right to
arbitrate." Id. at 421 (citing Southwest Indus. Import & Export,
Inc. v. Wilmod Co., Inc., 524 F.2d 468 (5th Cir. 1975)); see also
Gen. Guar. Ins. Co. v. New Orleans Gen. Agency Inc., 427 F.2d
924, 928-29 (5th Cir. 1970) (finding no waiver although a party
filed an answer to a court claim denying liability and filed
counterclaims, as well as attempted to implead parties and
allowed taking of two depositions before demanding arbitration).
In contrast, in one of the few cases in which we have
recognized a party's waiver of the right to arbitrate, we found
that the party had "demonstrated a clear and unmistakable
'disinclination' to arbitrate" to "substantial detriment and
prejudice" of the other party, including the bringing of a state
court suit that did not "rely on or even mention the arbitration
clause," and where the parties did not attempt to schedule an
arbitration hearing until almost three years later. See Miller
Brewing Co. v. Fort Worth Distrib. Co., Inc., 781 F.2d 494, 497
(5th Cir. 1986); cf. Ernst, Inc. v. Manhattan Constr. Co. of
Tex., 559 F.2d 268, 269 (5th Cir. 1977) (finding that "extensive
14
postsuit [sic] actions in all phases of this complex litigation
served as waiver of [a party's] right to demand" that an opposing
party arbitrate grievances). Connecticut General did not
initiate any litigation action in this case; it merely defended
itself against Gulf Guaranty's court claims. Gulf Guaranty
offers no authority supporting its proposition that, even taking
its allegations as true, Connecticut General's participation in
the dispute over the composition of the arbitration panel -- even
if protracted and deliberately causing delay in arbitration --
rises to the level of the type of overt act that would indicate
Connecticut General’s desire to resolve the underlying
reinsurance dispute via litigation rather than arbitration for
the purposes of waiver. We find no such authority either. We
thus agree with the district court that Connecticut General did
not waive its right to arbitrate its dispute with Gulf Guaranty.
III. DISMISSAL OF GULF GUARANTY'S CLAIMS FOR BREACH OF THE
ARBITRATION AGREEMENT AND CONSPIRACY AND DENIAL OF GULF
GUARANTY'S MOTION TO REOPEN DISCOVERY
A. Dismissal of Gulf Guaranty's Remaining Claims for Damages for
Breach of the Arbitration Agreement, Conspiracy, and a Tort of
Malicious, Willful, or Reckless Disregard for Gulf Guaranty's
Rights
We review a district court's grant of a motion to dismiss
claims de novo. See Copeland, 278 F.3d at 477. In Gulf
Guaranty's August 23, 2000 complaint alleging that Connecticut
General "refused to move forward with arbitration" based on the
dispute over selection of Jaynes as a third neutral arbitrator,
15
Gulf Guaranty claimed that Connecticut General breached the
arbitration agreement, conspired to deprive Gulf Guaranty of its
rights under the reinsurance agreement, and committed malicious,
willful, or reckless disregard for Gulf Guaranty's rights, which
latter claim Gulf Guaranty indicated constituted an "independent
tort." Gulf Guaranty sought actual damages, attorneys’ fees and
costs, as well as "punitive damages in an amount sufficient to
punish these defendants and to deter others from similar
misconduct ...." In its June 22 order, once the district court
found that Connecticut General did not waive its right to
arbitrate and compelled arbitration, that court granted the
Defendants' motion to dismiss the entire lawsuit filed on August
23, thus including Gulf Guaranty's claims for breach, conspiracy
and malice. The court did so without any further reference by
the court to those claims or discussion of their merits.
The dismissal without discussion suggests that the district
court declined to reach the merits of those claims. Gulf
Guaranty argues that this was an improper dismissal of the claims
on the merits and further contends that, even if its pleaded
allegations failed to make out its claim of waiver, Gulf
Guaranty's allegations of breach and conspiracy and malice, if
taken as true, are nevertheless sufficient to survive a motion to
dismiss. The Defendants contend that the district court properly
dismissed these three claims on their merits and posit that the
district court must have done so based on a conclusion by that
16
court that such claims were merely reiterative of Gulf Guaranty's
failed waiver claim.
We disagree with the parties' assumption that the district
court dismissed Gulf Guaranty's claims for damages for breach,
conspiracy and reckless and malicious behavior on the merits. We
acknowledge that it is not entirely clear from the June 22 order
upon which ground the district court based its dismissal of those
two claims -- whether on the merits or without reaching the
merits. However, we are "not restricted to ruling on the
district court's reasoning, and may affirm a district court's
grant of a motion to dismiss on a basis not mentioned in the
district court's opinion." See In re Comshare, Inc. Sec. Litig.,
183 F.3d 542, 548 (6th Cir. 1999) (citation omitted); see also
Razzoli v. Fed. Bureau of Prisons, 230 F.3d 371, 376 (D.C. Cir.
2000) (explaining that an appellate court "can affirm a correct
decision even if on different grounds than those assigned in the
decision under review")(internal quotation and citation omitted).
Consequently, because we conclude that it was proper for the
district court, when compelling arbitration, to dismiss Gulf
Guaranty's breach, conspiracy and malice claims without reaching
the merits of those claims, we affirm the order dismissing those
claims.
Gulf Guaranty offers no basis for a court's jurisdiction to
adjudicate claims for damages of the type made by Gulf Guaranty
that arise from the alleged failure or breach of the agreed upon
17
arbitral process with respect to selection of Jaynes as
arbitrator, and we find none. No court appears to have addressed
the precise instant circumstance in which a party alleges failure
of the arbitral process and seeks damages, rather than compelled
arbitration, from the court for breach of a valid arbitration
agreement, as well as damages for conspiracy and tort. However,
review of the applicable principles regarding a court's limited
authority to intervene in the arbitral process when there is a
valid and enforceable arbitration agreement indicates that it was
proper for the district court to dismiss Gulf Guaranty's breach,
conspiracy, and malice claims without addressing the merits of
those claims.
Under the FAA, jurisdiction by the courts to intervene into
the arbitral process prior to issuance of an award is very
limited. See Larry's United Super, Inc. v. Werries, 253 F.3d
1083, 1085 (8th Cir. 2001). Courts are limited to determinations
regarding whether a valid agreement to arbitrate exists and the
scope and enforcement of the agreement, including the
arbitrability of given underlying disputes under the agreement.
See id. at 1085-86 ("'[A] court compelling arbitration should
decide only such issues as are essential to defining the nature
of the forum in which a dispute will be decided.'") (quoting
Great Western Mtg. Corp. v. Peacock, 110 F.3d 222, 230 (3d Cir.
1997)); Republic of Nicaragua v. Standard Fruit Co., 937 F.2d
18
469, 478 (9th Cir. 1991) ("Our role is strictly limited to
determining arbitrability and enforcing agreements to arbitrate
...."). Section 4 of the FAA provides for a court's role in the
arbitral process prior to issuance of an award in the event of a
claimed "default" of that process pursuant to a valid agreement:
A party aggrieved by the alleged failure, neglect, or
refusal of another to arbitrate under a written
agreement for arbitration may petition ... [a] district
court ... for an order directing that such arbitration
proceed in the manner provided for in such agreement
.... The court ... upon being satisfied that the making
of the agreement for arbitration or the failure to
comply therewith is not in issue, ... shall make an
order directing the parties to proceed to arbitration
in accordance with the terms of the agreement .... If
the making of the arbitration agreement or the failure,
neglect, or refusal to perform the same be in issue,
the court shall proceed ... to the trial thereof ....
If the jury find that an agreement for arbitration was
made in writing and that there is a default in
proceeding thereunder, the court shall make an order
summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.
9 U.S.C. § 4 (1999). The FAA does not provide therefore for any
court intervention prior to issuance of an arbitral award beyond
the determination as to whether an agreement to arbitrate exists
and enforcement of that agreement by compelled arbitration of
claims that fall within the scope of the agreement even after the
court determines some default has occurred. Moreover,
enforcement of an agreement to arbitrate under the FAA does not
appear to include any mechanism beyond those geared toward
returning the parties to arbitration, thus appearing not to
authorize compensation by a court to parties in the form of
19
damages prior to issuance of an arbitral award. Cf. Moses H.
Cone Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1982) ("The
[FAA] provides two parallel devices for enforcing an arbitration
agreement: a stay of litigation in any case raising a dispute
referable to arbitration, 9 U.S.C. § 3, and an affirmative order
to engage in arbitration, § 4. Both of these sections call for
an expeditious and summary hearing, with only restricted inquiry
into factual issues.").
We have at least once rejected a claim for damages arising
from an alleged failure in the arbitral process and ordered the
parties instead to resume arbitration. See Folse v. Richard Wolf
Med. Instruments Corp., 56 F.3d 603, 604-06 (5th Cir. 1995). In
Folse, we found that a district court erred by refusing to compel
parties to return to arbitration and refusing to stay a court
action that included a claim for damages from "failure of
arbitration" arising from an arbitral process that was ongoing
for more than three years without resulting in an award. Id. In
so doing, we noted that, although it was "unfortunate" that the
arbitration "has failed the expectations of at least one, if not
both, of the parties[,] ... [n]onetheless, ... these facts do not
permit us to intervene until the parties see this arbitration
through to a final award." Id. at 606.
Additionally, this court follows the rule by which
challenges to the procedural aspects of arbitration are for the
arbitrator to decide, while challenges to the substantive
20
arbitrability of disputes are for the courts to decide. See
Smith Barney Shearson, Inc. v Boone, 47 F.3d 750, 753-54 (5th
Cir. 1995) (finding that a party's claim that arbitration was
time-barred was a proper dispute regarding arbitration procedure
for the arbitrator where rules regarding timeliness were
incorporated into the agreement to arbitrate and the parties
agreed to have any dispute between them resolved by arbitration);
Ala. Educ. Ass'n v. Ala. Prof'l Staff Org., 655 F.2d 607 (5th
Cir. Unit B Sept. 8, 1981) (citing United Steelworkers v. Am.
Mfg. Co., 363 U.S. 564 (1960)); see also Livingston v. John Wiley
& Sons, Inc., 313 F.2d 52, 62 (2d Cir. 1963) ("[I]ssues of
compliance with grievance and arbitration procedure ... are
properly within the competence of the arbitrator."). As the
Fourth Circuit has explained, "[g]enerally, objections to the
nature of arbitral proceedings are for the arbitrator to decide
in the first instance ... [f]airness objections should generally
be made to the arbitrator subject only to limited post-
arbitration judicial review as set forth in section 10 of the
FAA." See Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 940-41
(4th Cir. 1999). There are circumstances in which courts will
intervene in the arbitral process when a challenge goes to the
making of the agreement or suggests that the agreement is void or
warrants rescission. In Hooters of America, for example, the
Fourth Circuit found that a party "materially breached" its
21
arbitration agreement by promulgating rules under that agreement
that were so biased in favor of an employer that the rules were
tantamount to unconscionability, thus requiring the extreme
8
remedy of rescission of the agreement. See id. We have
recently similarly determined that a court may entertain a
challenge to the enforcement of arbitration agreements based on a
theory that the agreement is void as against public policy. See
Inv. Partners, L.P. v. Glamour Shots Licensing, Inc., No. 01-
60651, 2002 WL 1498721, at *3 (5th Cir. July 15, 2002). However,
Gulf Guaranty's claims for damages arising from breach of the
arbitration agreement, and from conspiracy and a tort of malice,
based on its allegations regarding Connecticut General's
8
The Fourth Circuit in Hooters of America strictly
limited the reach of its decision on the egregious nature of the
facts of that case, cautioning:
[O]ur decision[s] [should not] be misunderstood as
permitting a full scale assault on the fairness of
proceedings before the matter is submitted to
arbitration .... This case ... is the exception that
proves the rule: fairness objections should generally
be made to the arbitrator subject only to limited post-
arbitration judicial review as set forth in section 10
of the FAA. By promulgating this system of warped
rules, [employer] Hooters so skewed the process in its
favor that [the employee] has been denied arbitration
in any meaningful sense of the word. To uphold the
promulgation of this aberrational scheme under the
heading of arbitration would undermine, not advance,
the federal policy favoring alternative dispute
resolution.
173 F.3d at 941.
22
responsibility for failure in the arbitrator selection process,
make no such challenges to the making of or validity of the
arbitration agreement, nor do these claims suggest that the
agreement is void, unenforceable, or worthy of rescission based
on public policy or any other ground. Rather, Gulf Guaranty
appears improperly to attempt to cast challenges that essentially
go to the procedure of arbitration, specifically the arbitrator
selection process, and to the alleged unfairness of that process,
as claims for damages for breach of contract and tort injury. We
find no authority under the FAA for a court to entertain such
challenges prior to issuance of the arbitral award.
The parties do not dispute that they have a valid agreement
to arbitrate and that their underlying reinsurance dispute is
arbitrable under that agreement. The district court has already
provided for enforcement of the valid agreement pursuant to the
mechanisms outlined in the FAA via that court's June 22 order
compelling arbitration. As we indicated in Folse, prior to
issuance of an arbitral award, a party's prayer for actual and
punitive damages for any alleged failure of that process does not
appear to fall within the ambit of a court's authority to enforce
a valid arbitration agreement under the FAA. See 56 F.3d at 603-
05. We conclude, therefore, based on a court's limited authority
under the FAA to intervene in the arbitral process prior to
issuance of an award, that it was appropriate for the district
court in this case to dismiss Gulf Guaranty's claims seeking
23
damages for breach, conspiracy, and malice without addressing
their merits when that court issued an order re-compelling the
parties to arbitration.
B. Denial of Gulf Guaranty's Motion to Re-open Discovery
We review a district court's refusal to re-open discovery
for abuse of discretion. See Martin's Herend Imports v. Diamond
& Gem Trading, 195 F.3d 765, 775 (5th Cir. 1999). Gulf Guaranty
requested that the district court re-open discovery with respect
to the issue of whether Scofield in fact agreed with Fagg to
appointment of Jaynes as a third arbitrator. Once the district
court disposed of Gulf Guaranty's other claims, that court denied
the discovery motion in its June 22 order without further
discussion. Under this circumstance, we conclude that decision
was proper. The district court properly found that any alleged
coercion regarding the composition of the panel, including
whether Jaynes was appointed as an arbitrator, was insufficient
as a matter of law to constitute waiver of Connecticut General's
right to arbitrate. Any further evidence regarding the dispute
over Jaynes' appointment would not alter that finding.
Additionally, once the district court properly dismissed Gulf
Guaranty's other claims for breach of the arbitration agreement,
conspiracy, and malice, and then compelled any remaining disputes
between the parties to arbitration, no court claims remained
before the district court for which discovery by Gulf Guaranty
24
would have been necessary at that time. Moreover, in the event
that arbitration resolved all of the issues between the parties,
such discovery in pursuit of Gulf Guaranty's court claims would
have been wasteful. We conclude, therefore, that the district
court did not abuse its discretion by denying Gulf Guaranty's
motion to re-open discovery regarding the dispute over Jaynes's
appointment as an arbitrator.
IV. THE STRIKING OF FAGG AS AN ARBITRATOR BY THE DISTRICT COURT
PRIOR TO ISSUANCE OF AN ARBITRAL AWARD
The Defendants filed a motion with the district court to
strike Gulf Guaranty's chosen arbitrator, Gary Fagg, from
service. The district court interpreted the language of the
arbitration agreement to require that only executives of a "life
insurance company" may serve as arbitrators. The court thus
concluded that, because Fagg is the executive of a reinsurance
company, which the court concluded is not a "life insurance
company," then Fagg's "qualifications" fail to satisfy a
"condition precedent" in the arbitration agreement for Fagg to
serve as an arbitrator. The district court thus granted the
Defendants' motion to strike Fagg from service as an arbitrator.
Gulf Guaranty appeals that decision on the ground that the
district court erred in determining that the court had authority
to remove Fagg from service as an arbitrator prior to issuance of
25
an arbitral award based on any qualification of Fagg to serve.9
We agree.
As the Supreme Court has acknowledged, the congressional
purpose of the FAA is to "move the parties to an arbitrable
dispute out of court and into arbitration as quickly and easily
as possible." Moses H. Cone Hosp., 460 U.S. at 22.
Additionally, the FAA does not expressly provide for court
authority to remove an arbitrator prior to issuance of an
arbitral award. Under the FAA, courts may intervene into the
arbitral process to select an arbitrator upon application of a
party, if the parties fail to avail themselves of a method for
arbitrator selection within their agreement or "if for any reason
there shall be a lapse in the naming of an arbitrator." See 9
U.S.C. § 5 (1999).10 However, there is no authorization under
9
Because we determine that the district court lacked
authority to remove Fagg as an arbitrator on the ground of Fagg's
qualification to serve, we need not address Gulf Guaranty's
alternative argument that the district court erred in that
court's interpretation of the arbitration agreement to determine
that Fagg was not qualified to serve.
10
Section 5 of the FAA states in relevant part:
If in the agreement provision be made for a method
of naming or appointing an arbitrator ... or an umpire,
such method shall be followed; but if no method be
provided ... or if a method be provided and any party
thereto shall fail to avail [itself] of such method, or
if for any other reason there shall be a lapse in the
naming of an arbitrator ... or in filling a vacancy,
then upon application of either party to the
controversy the court shall designate and appoint an
arbitrator or arbitrators or umpire, as the case may
require ....
26
the FAA's express terms for a court to remove an arbitrator from
service. Rather, even where arbitrator bias is at issue, the FAA
does not provide for removal of an arbitrator from service prior
to an award, but only for potential vacatur of any award. See 9
U.S.C. § 10 (1999).11 Thus, the FAA does not expressly endorse
court inquiry into the capacity of any arbitrator to serve prior
to issuance of an arbitral award. More importantly, the FAA
appears not to endorse court power to remove an arbitrator for
any reason prior to issuance of an arbitral award.12
9 U.S.C. § 5.
11
Section 10 of the FAA authorizes appeal to the courts
seeking vacatur of an arbitral award as follows:
In any of the following cases the United States court
... may make an order vacating the [arbitral] award
upon application of any party to the arbitration - (1)
Where the award was procured by corruption, fraud, or
undue means. (2) Where there was evident partiality or
corruption in the arbitrators .... (3) Where the
arbitrators were guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, or
in refusing to hear evidence pertinent and material to
the controversy; or any other misbehavior by which the
rights of any party have been prejudiced. (4) Where
arbitrators exceed their powers, or so imperfectly
execute them that mutual, final, and definite award ...
was not made ....
9 U.S.C. § 10.
12
The district court conceded that if the Defendants
challenged that Fagg was biased, the court had no power to review
a challenge to Fagg's ability to serve on that basis prior to
issuance of an arbitral award.
27
As the district court conceded, it is well established that
prior to issuance of an award, a court may not make inquiry into
an arbitrator's capacity to serve based on a challenge that a
given arbitrator is biased. See Aviall, Inc. v. Ryder Sys.,
Inc., 110 F.3d 892, 895 (2d Cir. 1997) ("Although the FAA
provides that a court can vacate an award 'where there was
evident partiality or corruption in the arbitrators,' ... it does
not provide for pre-award removal of an arbitrator.") (quoting 9
U.S.C. § 10).13 This court has never confronted the question
whether, prior to issuance of an arbitral award, a court has
authority to remove an arbitrator, as did the district court,
based on the type of challenge to the arbitrator's qualification
to serve under the terms of the arbitration agreement that is
made here. The Second Circuit has found that the FAA's
prohibition on removal of arbitrators prior to issuance of an
award extends to prohibit "'judicial scrutiny of [either] an
arbitrator's qualifications to serve,’" or bias "'other than in a
13
As the Defendants correctly note, the single unpublished
district court decision relied upon by Gulf Guaranty in support
of its argument that the district court lacked authority to
entertain a challenge to Fagg's qualifications, Nat'l Union Fire
Ins. Co. v. Holt Cargo Sys., Inc., No. 99 Civ. 3699, 2000 WL
328802, at *1 (S.D.N.Y. Mar. 28, 2000), involved only a court
claim filed by a party prior to an arbitral award, which claim
sought removal of an arbitrator for bias. That case did not
implicate other qualifications of the arbitrator to serve under
the terms of the arbitration agreement of the type asserted by
the Defendants in this case. See id. We agree with the
Defendants, therefore, that National Union Fire is not persuasive
in this circumstance.
28
proceeding to confirm or vacate an award, which necessarily
occurs after the arbitrator has rendered his service.'" Id.
(quoting Florasynth, Inc. v. Pickholz, 750 F.2d 171, 174 (2d Cir.
1984) (citing Michaels v. Mariforum Shipping, S.A., 624 F.2d 411,
414 n.4 (2d Cir. 1980)); see also Cox v. Piper, Jaffray &
Hopwood, Inc., 848 F.2d 842, 843-44 (8th Cir. 1988) ("Appellants
cannot obtain judicial review of the arbitrators' decisions about
the qualifications of the arbitrators ... prior to the making of
an award.") (citing Stroh Container Co. v. Delphi Indus., Inc.,
783 F.2d 743, 748-49 (8th Cir. 1986)). In Aviall, the Second
Circuit further acknowledged, however, that a court would have
the power to remove an arbitrator pursuant to section 2 of the
FAA if "the agreement to arbitrate before a particular arbitrator
... is subject to attack under general contract principles ...."
110 F.3d at 895 (citing 9 U.S.C. § 2 (1999)).14 However, the
Second Circuit in Aviall indicated that such removal power
"simply manifest[s] the FAA's directive that an agreement to
arbitrate shall not be enforced when it would be invalid under
general contract principles." Id. at 896. The Second Circuit
further suggested that it was appropriate for courts to
adjudicate claims regarding the capacity of arbitrators to serve
14
Section 2 of the FAA provides in relevant part: "A
written provision ... in any ... contract ... involving commerce
to settle by arbitration a controversy ... arising out of such
contract ... shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation
of any contract." 9 U.S.C. § 2.
29
only when there is a claim, for example, that there was "fraud in
the inducement" or some other "infirmity in the contracting
process" regarding the parties' establishing arbitral
qualifications, which ground would invalidate the agreement to
arbitrate. Id. The Aviall court thus affirmed a district
court's summary judgment that it was premature for a court to
hear a claim requesting a declaratory judgment that an appointed
arbitrator "could not arbitrate the underlying suit." Id. at
895.
In Aviall, the terms of the arbitration agreement required
that arbitral disputes would only be submitted to the designated
arbitrator if it were an "'independent auditor'" of both parties
to the agreement. Id. at 894. The party seeking removal of the
arbitrator claimed that the designated accounting arbitrator was
not "independent" from one of the parties, as required by the
express terms of the agreement, but partial due to a "business
relationship" with one of the parties. Id. at 893. The Second
Circuit affirmed the district court's decision not to adjudicate
the dispute over which arbitrator would hear the underlying
arbitral dispute because that court of appeals found that the
dispute over whether the auditor arbitrator was sufficiently
"independent" to satisfy the terms of the arbitration agreement
did not constitute a claim "invalidating the contract" or a claim
of some type of fraud in the inducement that would suggest that
the validity of the agreement to arbitrate is under attack under
30
general contract principles. See id. at 895-97. We agree with
this approach by the Second Circuit interpreting the FAA to mean
that a court may not entertain disputes over the qualifications
of an arbitrator to serve merely because a party claims that
enforcement of the contract by its terms is at issue, unless such
claim raises concerns rising to the level that the very validity
of the agreement is at issue.15
We further note that, as one district court within the
Second Circuit correctly pointed out, a "prime objective of
arbitration law is to permit a just and expeditious result with a
minimum of judicial interference" and any other such rule could
"spawn endless applications [to the courts] and indefinite delay"
and that otherwise "there would be no assurance that [the party
seeking removal] would be satisfied with [the removed
15
We acknowledge that at least two lower courts have
entertained disputes over the qualifications of arbitrators to
serve in a manner that arguably supports court intervention into
the challenge made by the Defendants' to Fagg's qualification to
serve. See Jefferson-Pilot Life Ins. Co. v. LeafRe Reinsurance
Co., No. 00-C-5257, 2000 WL 1724661, at *2(N.D. Ill. Nov. 20,
2000) (finding by the district judge that "whether a party
challenges an arbitrator's qualifications - just like a party who
challenges bias - must wait until the post award stage to
complain ... I do not think that is necessary"); In re
Arbitration Between Certain Underwriters at Lloyds, London, 1997
WL 461035, at *4, 5 (N.D. Ill. Aug. 11, 1997) (arguably
misconstruing Aviall, 110 F.3d at 895-97, to endorse the district
court's conclusion that it could entertain a party's challenge to
an arbitrator's qualification to serve based on the arbitrator's
status as an "executive officer" pursuant to the terms of the
arbitration agreement in that case). We find however, that these
decisions conflict with the purpose of the FAA and its policy
favoring arbitration of disputes prior to court intervention.
31
arbitrator's] successor and would not bring yet another
proceeding to disqualify him or her." Marc Rich & Co. v.
Transmarine Seaways Corp., 443 F. Supp. 386, 387-88 (S.D.N.Y.
1995) (finding that "this objective can best be achieved by
requiring an arbitrator ... to declare any possible
disqualification, and then to leave it to his or her sound
judgment to determine whether to withdraw ... of course be[ing]
aware that such a decision would be subject to judicial review
after the award had been made" pursuant to the limits of section
10 of the FAA). We agree with this assessment by that district
court of the danger prior to issuance of an arbitral award in
allowing courts to adjudicate a challenge such as that made by
the Defendants to Fagg's qualification to serve, based on whether
Fagg is the executive of a reinsurer or an insurer pursuant to
the terms of the arbitration agreement. We conclude, therefore,
that the dispute regarding Fagg's qualification to serve,
although framed as a request to the court to enforce the
arbitration agreement by its terms, is not the type of challenge
that the district court was authorized to adjudicate pursuant to
the FAA prior to issuance of an arbitral award. We further
conclude, therefore, that the district court had no authority to
strike Fagg from service as an arbitrator and reverse that
decision.
V. CONCLUSION
32
For the foregoing reasons, we AFFIRM the district court’s
order compelling arbitration of the entire dispute between Gulf
Guaranty and Connecticut General in this consolidated action. We
also AFFIRM the district court's decision dismissing Gulf
Guaranty's claims for breach of the arbitration agreement, and
dismissing Gulf Guaranty's claims for breach, conspiracy, and
some tort of malice. We likewise AFFIRM the district court's
decision denying Gulf Guaranty's motion to re-open discovery.
However, we REVERSE the district court's decision granting the
Defendants' motion to strike Gary Fagg from service as an
arbitrator. Costs shall be borne by Gulf Guaranty.
33