Natl. American Ins. v. Transamerica ( 2003 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-1992
___________
National American Insurance *
Company, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the District
* of Nebraska.
Transamerica Occidental Life *
Insurance Company, * [PUBLISHED]
*
Appellant. *
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Submitted: December 11, 2002
Filed: May 13, 2003
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Before WOLLMAN, HEANEY, and MELLOY, Circuit Judges.
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MELLOY, Circuit Judge.
During the course of arbitration between National American Insurance
Company (“NAICO”) and Transamerica Occidental Life Insurance Company
(“Transamerica”), one member of the three-member arbitration panel resigned. When
the parties could not agree on a replacement process, NAICO filed suit in district
court pursuant to 9 U.S.C. § 5 seeking a court-appointed replacement. Transamerica
counterclaimed that NAICO had waived the right to arbitrate because the disputed
contract was the subject of a prior arbitration. The district court1 appointed an
arbitrator and declined to rule on Transamerica’s counterclaim, concluding the issue
of waiver should be decided by the arbitration panel. Transamerica appeals and we
affirm.
This dispute arose out of two separate reinsurance contracts between
Transamerica and NAICO. Both contracts were effective April 1, 1990, and
contained an arbitration clause governing the selection of arbitrators:
As a precedent to any right of action hereunder, if any dispute
shall arise between the Reinsured and the Reinsurers with reference to
the interpretation of this Agreement or their rights with respect to any
transaction involved, whether such dispute arises before or after
termination of this Agreement, such dispute, upon the written request of
either party, shall be submitted to three arbitrators, one to be chosen by
each party, and the third by the two so chosen. If either party refuses or
neglects to appoint an arbitrator within thirty (30) days after the receipt
of written notice from the other party requesting it to do so, the
requesting party may appoint two arbitrators. If the two arbitrators fail
to agree in the selection of a third arbitrator within thirty (30) days of
their appointment, each of them shall name two, of whom the other shall
decline one and the decision shall be made by drawing lots. All
arbitrators shall be active or retired executive officers of insurance or
reinsurance companies not under the control of either party to the
Agreement.
On March 12, 1999, NAICO sent Transamerica a letter requesting arbitration
of a pending dispute between the two parties and naming its chosen arbitrator.
Transamerica responded by letter of April 11, 1999, naming an arbitrator. The two
1
The Honorable Joseph F. Bataillon, United States District Judge for the
District of Nebraska.
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appointed arbitrators named a third arbitrator. The panel met on January 6, 2000, and
established a discovery schedule. During the next year the panel presided over
discovery proceedings between the parties and issued discovery-related orders,
including awarding reasonable attorney fees to NAICO because Transamerica failed
to comply with a discovery order. On December 12, 2000, the arbitrator designated
by Transamerica resigned for health reasons. NAICO requested that Transamerica
appoint another arbitrator to fill the vacancy. Transamerica responded with the
demand that a new panel of arbitrators be appointed.
Pursuant to 9 U.S.C. § 5, NAICO sought a district court order naming an
arbitrator to fill the vacancy left by the resignation. Despite the fact that the parties
had been actively arbitrating their dispute for over a year before the vacancy arose,
Transamerica argued before the district court that NAICO had waived the right to
arbitrate because the 1990 reinsurance contracts were the subject of prior arbitration.
This allegation was based on the fact that NAICO engaged in arbitration with three
other insurance companies in 1994 concerning four reinsurance contracts, two of
which involved Transamerica and are the subject of the present dispute. A magistrate
judge2 recommended that a replacement arbitrator be appointed and that the waiver
issue be decided by the arbitration panel. The district court adopted the magistrate
judge’s report and recommendation in its entirety. With regard to appointing an
arbitrator, the district court stated:
This court finds and concludes that in accordance with the arbitration
clause requirements, one new arbitrator shall be designated and
appointed to serve the remainder of the term of the resigning member of
the panel. To form an entirely new panel of arbitrators and to start the
proceedings anew would cause inappropriate delay and waste resources.
The discovery proceedings have progressed for over a year. The parties
2
The Honorable Thomas D. Thalken, United States Magistrate Judge for the
District of Nebraska.
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have spent a substantial amount of their resources on this process. In the
event the new member of the panel appears to be at a disadvantage
because of his later arrival, the new panel, consisting of the two existing
members and the newly appointed member, can determine the proper
course of action to resolve the problem. Accordingly, this court agrees
with Magistrate Judge Thalken’s recommendation to fill the vacancy
with the arbitrator suggested by Transamerica . . . .
District Court Order, March 11, 2002, at 4-5.
In this appeal, Transamerica makes two distinct arguments. First, that the
district court was not statutorily authorized to appoint a replacement arbitrator. And
second, Transamerica contends that NAICO waived its right to arbitrate the dispute.
We agree with the district court’s interpretation of the 1990 arbitration
agreements. As correctly noted by the district court, the 1990 agreements do not
stipulate a method to replace an arbitrator in the event of a vacancy on the arbitration
panel. Because the agreements are silent on this issue, this dispute is governed by 9
U.S.C. § 5, which provides:
If in the agreement provision be made for a method of naming or
appointing an arbitrator or arbitrators or an umpire, such method shall
be followed; but if no method be provided therein, or if a method be
provided and any party thereto shall fail to avail himself of such method,
or if for any other reason there shall be a lapse in the naming of an
arbitrator or arbitrators or umpire, or in filling a vacancy, then upon
the application of either party to the controversy the court shall
designate and appoint an arbitrator or arbitrators or umpire, as the
case may require, who shall act under the said agreement with the same
force and effect as if he or they had been specifically named therein; and
unless otherwise provided in the agreement the arbitration shall be by a
single arbitrator.
9 U.S.C. § 5 (emphasis added). See also Marine Prod. Export Corp. v. M.T. Globe
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Galaxy, 977 F.2d 66, 68 (2d Cir. 1992) (noting that 9 U.S.C. § 5 “provid[es] federal
courts with [the] power, upon the application of either party, to designate arbitrators
‘as the case may require.’”).
Transamerica relies on Hugs & Kisses, Inc. v. Aguirre, 220 F.3d 890 (8th Cir.
2000), to argue that NAICO was obligated to bring a motion to compel arbitration
under 9 U.S.C. § 4 before the district court was empowered to act under Section 5.
We disagree. In Hugs & Kisses, the parties entered a contract that contained a clause
governing the resolution of disputes. Id. at 891. Each side accused the other of
breaching the agreement. Id. Hugs & Kisses filed a complaint in district court and
Aguirre moved to stay the proceedings pending arbitration. Id. at 891-92. The
parties stipulated that they would negotiate in good faith to reach an agreement on an
arbitrator to preside over the dispute. Id. at 892. In accordance with this stipulation,
the district court stayed the litigation. Id. Hugs & Kisses pursued the arbitration, but
Aguirre refused to arbitrate and would not participate in naming an arbitrator. Id.Hugs & Kisses unilaterally appointed an arbitrator and proceeded to arbitrate the
dispute before the National Arbitration Forum in Aguirre’s absence where an award
was entered in favor of Hugs & Kisses. Id. The district court confirmed the
arbitrator’s decision and Aguirre appealed. Id. We reversed, concluding that Aguirre
only consented to arbitration where both sides negotiated in good faith regarding the
choice of an arbitrator, not where Hugs & Kisses acted unilaterally throughout the
process. Id. at 893. Therefore, the award was void and the decision of the arbitrator
was vacated because the arbitrator exceeded his authority. Id. We stated:
“[Precedent] teaches that upon Aguirre’s failure to select an arbitrator, Hugs &
Kisses’ proper course was to attempt to reach agreement with appellants as to the
arbitrator, and, that failing, to move the district court to compel arbitration under 9
U.S.C. § 4 (1994).” Id. at 893 (citation omitted).
The sequence of events leading to suit in this case is significantly
distinguishable from that in Hugs & Kisses and renders that case inapposite. Hugs
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& Kisses involved one party unilaterally choosing an arbitrator and proceeding with
arbitration when the parties had agreed to negotiate in good faith over the choice of
an arbitrator. Had Transamerica refused to arbitrate the dispute at the outset, then
Hugs & Kisses would have been applicable and NAICO’s proper remedy would have
been an action under Section 4 of the Federal Arbitration Act. See id. at 893. Here,
however, NAICO and Transamerica each selected one arbitrator, and each party had
input, through its chosen arbitrator, in selecting a third, neutral arbitrator.
Furthermore, the parties engaged in active discovery for over a year under the
supervision of the previous panel which issued numerous discovery orders in the
matter. Given this history, Transamerica cannot now use the resignation of its chosen
arbitrator to abort the arbitration process.
Transamerica directs this court to decisions of other circuits that purportedly
support its position that a new panel of arbitrators be chosen when a panel member
resigns. See Marine Products Export Corp. v. M.T. Globe Galaxy, 977 F.2d 66 (2d
Cir. 1992). In Marine Products, the Second Circuit affirmed the district court’s
decision to start the arbitration process over with a new panel after one of the panel
members died prior to issuing an award. Id. at 68. In reaching that conclusion, the
Second Circuit cited the “general rule” that “where one member of a three-person
arbitration panel dies before the rendering of an award and the arbitration agreement
does not anticipate that circumstance, the arbitration must commence anew with a full
panel.” Id.Transamerica’s reliance on Marine Products is misplaced. Marine Products
involved an appeal of the denial of a motion to vacate an award, not a Section 5
action seeking the replacement of an arbitrator. Thus, the procedural posture of this
case is therefore materially different. In addition, this circuit has not adopted the
“general rule” cited in Marine Products and we decline to do so here given the
procedural context of the case. But see Trade & Transport, Inc. v. Natural Petroleum
Charterers Inc., 921 F.2d 191, 196 (2d Cir. 1991) (holding Section 5 applies to a
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pending arbitration and confers the court with the authority to appoint a replacement
arbitrator to an arbitration panel when one member died, and concluding that naming
a replacement arbitrator did not give the party the right to replace the existing neutral
arbitrator). For this court to accept Transamerica’s position and force the parties to
name an entirely new panel would vitiate Section 5.
Finally, Transamerica contends that NAICO has waived the right to arbitrate
because NAICO pursued litigation in the Oklahoma courts on reinsurance contracts
to which Transamerica is a party. However, the United States Supreme Court has
recently reiterated that “the presumption is that the arbitrator should decide
‘allegation[s] of waiver, delay, or a like defense to arbitrability.’” Howsam v. Dean
Witter Reynolds, Inc., — U.S. — , — (2002) (quoting Moses H. Cone Memorial
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). Therefore, once the panel
is reconstituted with the arbitrator appointed by district court, the issue of waiver may
be presented for the panel’s consideration.
Accordingly, the decision of the district court is affirmed.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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