Terry R. Balvin v. Rain and Hail, LLC ( 2019 )

United States Court of Appeals
For the Eighth Circuit
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No. 18-3018
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Terry R. Balvin
Plaintiff - Appellee
v.
Rain and Hail, LLC
Defendant - Appellant
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No. 18-3061
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Terry R. Balvin
Plaintiff - Appellant
v.
Rain and Hail, LLC
Defendant - Appellee
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Appeal from United States District Court
for the District of South Dakota - Sioux Falls
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Submitted: October 16, 2019
Filed: December 2, 2019
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Before SMITH, Chief Judge, GRUENDER and BENTON, Circuit Judges.
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GRUENDER, Circuit Judge.
Rain and Hail, LLC appeals the district court’s order vacating an arbitration
award, arguing that the district court did not properly defer to the arbitrator’s
decision. Claiming that the district court should have vacated the arbitration award
for additional reasons, Terry Balvin cross appeals. We affirm in part, reverse in part,
and remand to the district court to enter an order confirming the arbitration award.
Rain and Hail issues federal crop insurance policies through a Standard
Reinsurance Agreement with the Federal Crop Insurance Corporation (“FCIC”).
The FCIC reinsures crop insurance policies and is supervised by the Risk
Management Agency (“RMA”) of the United States Department of Agriculture. See
Davis v. Producers Agric. Ins. Co., 762 F.3d 1276, 1284-85 (11th Cir. 2014); 7
U.S.C. § 6933. To qualify for the reinsurance, insurers must comply with the Federal
Crop Insurance Act (“FCIA”) and FCIC regulations. Davis, 762 F.3d at 1284.
Though the policy is a contract between a farmer and an insurance provider, the
FCIC determines the terms and conditions of federal crop insurance policies. See
id. at 1284-85; 7 C.F.R. § 457.8.
Rain and Hail issued a crop insurance policy to Balvin, a South Dakota farmer,
in 2015. Balvin filed a claim under the policy later that year. He claimed he could
not timely harvest his crop due to moisture, a severe blizzard, and large snowfall.
Rain and Hail determined that the appraised value of Balvin’s crop exceeded his
policy’s guaranteed minimum crop production and denied his claim as a “non-loss.”
Balvin initiated arbitration proceedings in accordance with the terms of the
policy, and the arbitrator denied his claim. Balvin filed a motion to vacate the
arbitration award in the United States District Court for the District of South Dakota.
Rain and Hail filed a motion to confirm the arbitration award. The district court
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denied in part and granted in part Balvin’s motion and denied in part and granted in
part Rain and Hail’s motion. Rain and Hail appeals, arguing that the arbitrator did
not exceed his powers by interpreting a policy or procedure. Balvin cross appeals,
arguing that the arbitration decision should be vacated for an additional reason—the
arbitrator exceeded his powers by determining Balvin abandoned his crop.
We review de novo the district court’s legal conclusions, and we review its
findings of fact for clear error. See Ploetz for Laudine L. Ploetz, 1985 Tr. v. Morgan
Stanley Smith Barney LLC, 894 F.3d 894, 897 (8th Cir. 2018); Hoffman v. Cargill
Inc., 236 F.3d 458, 461 (8th Cir. 2001). We “accord an extraordinary level of
deference to the underlying award.” SBC Advanced Sols., Inc. v. Commc’ns Workers
of Am., Dist. 6, 794 F.3d 1020, 1027 (8th Cir. 2015) (internal quotation marks
omitted).
The Federal Arbitration Act specifies when a district court may vacate an
arbitration award. As relevant here, a district court may vacate the award “where
the arbitrators exceeded their powers, or so imperfectly executed them that a mutual,
final, and definite award upon the subject matter submitted was not made.” 9 U.S.C.
§ 10(a)(4). “It is only when an arbitrator strays from interpretation and application
of the agreement and effectively dispenses his own brand of industrial justice that
his decision may be unenforceable.” Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp.,
559 U.S. 662, 671 (2010) (brackets and internal quotation marks omitted). “An
arbitrator does not ‘exceed his powers’ by making an error of law or fact, even a
serious one.” Beumer Corp. v. ProEnergy Servs., LLC, 899 F.3d 564, 565 (8th Cir.
2018). “[S]o long as the arbitrator is even arguably construing or applying the
contract and acting within the scope of his authority, the award should be
confirmed.” Id. (internal quotation marks omitted).
Rain and Hail argues that, contrary to the district court’s decision, the
arbitrator did not exceed his powers by interpreting a policy or procedure when he
concluded that the appraised value of Balvin’s crop should be used to determine
whether Balvin had an insured loss, resulting in a denial of Balvin’s claim. The crop
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insurance policy states that the arbitrator cannot interpret the policy or FCIC
procedures: “[I]f the dispute in any way involves a policy or procedure
interpretation, regarding whether a specific policy provision or procedure is
applicable to the situation, how it is applicable, or the meaning of any policy
provision or procedure, either [Balvin] or [Rain and Hail] must obtain an
interpretation from FCIC . . . .” It further provides that “[f]ailure to obtain any
required interpretation from FCIC will result in the nullification of any agreement
or award.”
Balvin claims, and Rain and Hail agrees, that FCIC handbooks require a
production worksheet and a signed appraisal worksheet when an appraisal is
performed and that Rain and Hail did not complete a production worksheet nor was
the appraisal worksheet signed when Rain and Hail appraised Balvin’s crop. Balvin
thus argued before the district court that the arbitrator “exceeded his authority”
because the arbitrator’s determination required that he interpret the policy term
“appraised value.” The district court agreed, observing that the parties do not point
to an “applicable procedure for determining appraised value when a Production
Worksheet is not done and Appraisal Worksheets are not signed.” It therefore
concluded that the arbitrator exceeded his powers because Balvin’s argument about
appraised value “is precisely the type of dispute regarding the application of policy
and procedure that needed to be submitted to the FCIC for interpretation.”
On appeal, Rain and Hail argues that the arbitrator did not exceed his authority
because he “reasonably concluded that the dispute over the corn appraisals
completed by Rain and Hail was an evidentiary or factual dispute within his
authority to resolve.” Balvin, on the other hand, argues that whether the appraisal
dispute involves an interpretation is a threshold arbitrability question for a court to
decide. But the policy’s arbitration clause incorporated the American Arbitration
Association (“AAA”) rules. “By incorporating the AAA Rules, the parties agreed
to allow the arbitrator to determine threshold questions of arbitrability.” Green v.
SuperShuttle Int’l, Inc., 653 F.3d 766, 769 (8th Cir. 2011). Thus, the arbitrator was
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free to determine any threshold arbitrability questions to the extent they were at
issue.
After reviewing Balvin’s briefing and the arbitrator’s decision, we conclude
that the arbitrator did not exceed his powers because the dispute about the
interpretation of “appraised value” was not even before the arbitrator. Balvin argued
to the arbitrator that the appraisals were irrelevant and inaccurate. Though Balvin
did point out that the appraisals were not signed and were incomplete, he did not
argue that this required the arbitrator to interpret the policy term “appraised value,”
and Balvin acknowledged that “[t]he hearing officer in [his] arbitration [would] need
to decide whether to allow the appraisals to dictate the adjustment of the loss.”
The arbitrator addressed Balvin’s arguments, saying, “Claimant implied in his
testimony and argued in his post-hearing brief that the January and March appraisals
are ‘irrelevant,’ ‘questionable,’ or that the numbers may have been ‘fudged.’ There
is no evidence of a motive to falsify that might support such inferences.” Based on
this language and the arguments before the arbitrator, the arbitrator was at least
“arguably construing or applying the contract and acting within the scope of his
authority” because he was making a credibility determination about the appraisals,
rather than interpreting a policy or procedure. See Beumer Corp., 899 F.3d at 565.
It was not until after the arbitration decision that Balvin first raised the
argument that the arbitrator impermissibly interpreted a term of the policy. 1 An
arbitrator has not exceeded his powers where neither party suggested that a term of
1
The RMA has contemplated such a scenario. It issued a Final Agency
Decision in 2015 recognizing that a dispute about the interpretation of a policy or
procedure “may arise after the arbitration award has been rendered.” RMA Final
Agency Determination 230 (U.S.D.A. 2015). And according to a new FCIC
regulation, if either party to an arbitration “believes an award or decision was
rendered by . . . [an] arbitrator . . . based on a disputed provision in which there was
a failure to request a final agency determination or FCIC interpretation . . . the party
may request FCIC review the matter to determine if a final agency determination or
FCIC interpretation should have been sought.” 7 C.F.R. § 400.766(b)(4).
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the policy was subject to interpretation, but the interpretation dispute instead arose
after the arbitration proceedings. We emphasize that we “accord an extraordinary
level of deference” to the arbitrator’s decision. SBC Advanced Sols., 794 F.3d at
1027 (internal quotation marks omitted). The arbitrator thus did not exceed his
authority by denying Balvin’s claim based on the appraised value of his crops.
The arbitrator’s findings also support denial of Balvin’s claim on a different
ground—that he abandoned his crop—despite Balvin’s argument to the contrary in
his cross appeal. “To receive any indemnity,” Balvin’s policy requires “[t]hat the
loss was caused by one or more of the insured causes.” His policy provided coverage
for “unavoidable, naturally occurring events” and did not provide coverage for “[a]ll
other causes of loss.” The arbitrator found that “[f]or unexplained reasons, [Balvin]
abandoned his . . . crop by failing to harvest the crop in a timely manner,” a cause of
loss not covered under the policy. The arbitrator noted that Balvin’s neighbor was
able to harvest his entire crop and that no other farmer in Balvin’s county submitted
a claim for loss because they were not able to harvest their crops due to excess
moisture.
Balvin responds that the arbitrator could not properly make an abandonment
finding because such a finding involved a “good farming practices” determination.2
The crop insurance policy defines “abandon” to include the “failure to harvest in a
timely manner.” According to Balvin, an FCIC manual states that failure to timely
harvest cannot be considered abandonment unless the crop is in a condition where
“harvest would be considered as a good farming practice.” Balvin thus claims that
the arbitrator’s abandonment finding necessarily involved a good farming practices
2
It is less than clear that the arbitrator in fact made a good farming practices
determination. An RMA and FCIC handbook lists “What Does Not Qualify for GFP
[good farming practices] Determination,” which includes “identifying or
determining that an insured cause of loss was present.” U.S. Dep’t of Agric., FCIC
14060-1, Good Farming Practice Determination Standards Handbook 11-12
(2018). For the purposes of this appeal, we assume the arbitrator made a good
farming practices determination.
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determination. He additionally notes that the policy allows arbitration of disputes
about decisions Rain and Hail makes, but it excepts those decisions with respect to
good farming practices. Instead, the policy provides Balvin the right to request a
determination from the FCIC if he disagrees with Rain and Hail’s good farming
practices determination.
Balvin argues that the arbitrator did not have the authority to make a good
farming practices determination in the first instance under the terms of the policy
because Rain and Hail should have made the determination first, thereby giving
Balvin the option to appeal the determination to the FCIC. He urges us to vacate the
arbitration award on this ground. 3 Although the policy provides that Rain and Hail
initially would make any good farming practices determinations, it does not
expressly prohibit the arbitrator from making a good farming practices determination
for the first time in the event the need arises during an arbitration proceeding. See
CenterPoint Energy Res. Corp. v. Gas Workers Union, Local No. 340, 920 F.3d
1163, 1167 (8th Cir. 2019) (“The arbitrator’s disregard of the contract must be clear:
that an opinion includes an ambiguity that permits the inference that the arbitrator
may have exceeded his authority is not a reason for refusing to enforce the award.”
(internal quotation marks omitted)).
While the fact that the arbitrator made the good farming practices
determination in this case may be unusual given that the policy contemplates that
Rain and Hail would make such a determination, that does not necessarily mean the
3
At times in his briefs Balvin appears to raise arguments about which sections
of an FCIC manual the arbitrator should have applied. The district court did not
address these arguments, and it is not clear they were raised before the district court.
See Local 2, Int’l Bhd. Of Elec. Workers, AFL-CIO v. Anderson Underground
Constr., Inc., 907 F.2d 74, 76 (8th Cir. 1990) (declining to consider a challenge to
an arbitration award that was raised “for the first time on appeal”). To the extent the
arbitrator applied the wrong sections of the manual, “[t]he parties bargained for the
arbitrator’s decision; if the arbitrator got it wrong, then that was part of the bargain.”
Beumer Corp., 899 F.3d at 566.
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arbitrator exceeded his powers. “[A]s long as the arbitrator is even arguably
construing or applying the contract and acting within the scope of his authority, that
a court is convinced he committed serious error does not suffice to overturn his
decision.” Great Am. Ins. Co. v. Russell, 914 F.3d 1147, 1150 (8th Cir. 2019)
(alteration in original).
But even if the arbitrator did exceed his powers by making a good farming
practices determination, the error is harmless because he did not exceed his powers
in denying Balvin’s claim based on the appraised value of Balvin’s crop. See 9
U.S.C. § 10(a) (providing that courts “may” vacate an arbitration award where the
arbitrator exceeded his powers (emphasis added)); cf. Coutee v. Barington Capital
Grp., L.P., 336 F.3d 1128, 1134 (9th Cir. 2003) (“Arbitrators act beyond their
authority if they fail to adhere to a valid, enforceable choice of law clause agreed
upon by the parties. If such error is harmless, however, it is not grounds for vacatur.”
(citation omitted)); Brentwood Med. Assocs. v. United Mine Workers of Am., 396
F.3d 237, 243 (3d Cir. 2005) (“[T]he arbitrator’s error was harmless, since he would
have arrived at the conclusion he reached here, even absent the discussion of the
aberrant language.”). In other words, the abandonment finding was not necessary to
the arbitrator’s denial of Balvin’s claim.
For the foregoing reasons, we reverse in part, affirm in part, and remand to
the district court to enter an order confirming the arbitration award.
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