Phila Reinsurance v. Empl Ins Wausau

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
3-31-2003
Phila Reinsurance v. Empl Ins Wausau
Precedential or Non-Precedential: Non-Precedential
Docket 02-1943
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
NO. 02-1943
PHILADELPHIA REINSURANCE
CORPORATION
v.
EMPLOYERS INSURANCE OF WAUSAU,
A MUTUAL COMPANY,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 01-cv-05452)
District Judge: Hon. Clarence C. Newcomer
Argued March 12, 2003
Before: SLOVITER, NYGAARD, and ALARCÓN*, Circuit Judges
(Filed: March 31, 2003)
Keith Dotseth, Esq. (Argued)
Larson King, LLP
2800 MN World Trade Center
30 East Seventh Street
St. Paul, MN 55102
Attorney for Appellant
*
Hon. Arthur L. Alarcón, Senior Judge, United States Court of Appeals for the Ninth
Circuit, sitting by designation.
William M. Popalisky, Esq. (Argued)
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Steven Maniloff, Esq.
Montgomery, McCracken, Walker
& Rhoads, LLP
123 South Broad Street
Philadelphia, PA 19109
Attorneys for Appellee
OPINION OF THE COURT
ALARCÓN, Circuit Judge.
Employers Insurance of Wausau, A Mutual Company (“Wausau”), appeals from the
district court’s order granting Philadelphia Reinsurance Corporation’s (“Philadelphia Re”),
petition to compel consolidated arbitration. We affirm. Wausau’s representation before
the district court that it had an “informal agreement” with Philadelphia Re to consolidate
the arbitrations establishes the existence of an agreement to consolidate between the
parties pursuant to the doctrine of judicial admissions.
I
Between 1966 and 1985, Philadelphia Re and Wausau entered into ten separate
reinsurance contracts [hereinafter collectively “disputed contracts”]. Each of the disputed
contracts contains an arbitration clause that provides for the manner in which an arbitrator
should be selected. All ten contracts are silent on the issue of consolidation of arbitration.
2
Before the present dispute arose, Wausau and Philadelphia Re’s disagreement over
Wausau’s obligations to Philadelphia Re under the reinsurance contracts resulted in two
separate arbitration proceedings. In each of these disputes, the parties agreed to
consolidate the disputed contracts into one arbitration proceeding. Although there was a
conflict between the parties regarding Philadelphia Re’s appointment of its arbitrator for
the second arbitration, the consolidated proceedings went forward. Philadelphia Re
prevailed in both.
The most recent conflict between the parties arose from the fact that Philadelphia
Re entered into five additional commutation agreements with its reinsureds and alleged that
Wausau refused to pay its share of the payments required by those agreements.
Philadelphia Re advised Wausau on June 16, 2000 of its intent to demand arbitration in
these disputes. On July 18, 2000, Philadelphia Re notified Wausau that it planned to
appoint Ronald Jacks, who had presided over the second arbitration, as its party-appointed
arbitrator for the third arbitration. Wausau contended that Mr. Jacks could not remain fair
and impartial in the third arbitration and on April 4, 2001, petitioned the district court to
disqualify him. In its reply brief in support of its petition to disqualify Mr. Jacks, Wausau
included the following footnote [hereinafter “the footnote”]:
Philly Re’s brief likewise opens by pointing out that one of the nine contracts
between Wausau and Philly Re does not include a clause providing that the
arbitrators “shall not have a personal or financial interest in the result of the
arbitration.” Philly Re never explains the significance of this point and, given
the parties’ informal agreement to arbitrate the parties’ rights under all of the
retrocessional agreements simultaneously, there appears to be none. If
Philly Re believes the parties should allow Mr. Jacks to serve as an arbitrator
3
in a proceeding limited to the parties’ respective rights under the Second
Excess Agreement . . . Philly Re should say so. Of course, such an approach
logically would entail different arbitrators presiding over eight other
arbitrations for each of the other retrocessional agreements.
Appendix to Brief of Appellant at 474-75 n. 2 (citations omitted) (emphasis added).
On March 5, 2002, the district court entered an order granting Philadelphia Re’s
petition to compel consolidated arbitration. 1 The court held that “the interests of justice
and judicial economy are best served by enforcing the agreement to consolidate
arbitration.”
II
The district court had jurisdiction over this action under 28 U.S.C. § 1332. This
court has jurisdiction under 9 U.S.C. § 16(a)(3).2 A district court’s determination regarding
the construction of a contract and the “legal effect an agreement will have on an event the
parties did not foresee” is reviewed de novo. Ram Constr. Co. v. Am. States Ins. Co., 749
F.2d 1049, 1053 (3d Cir. 1984). This court “may affirm a judgment on any ground apparent
from the record, even if the district court did not reach it.” Kabakjian v. United States, 267
F.3d 208, 213 (3d Cir. 2001).
Wausau asserts that in order for the district court to compel arbitration, the parties
must have expressly agreed to consolidate the separate arbitrations. “[P]assage of the
1
In the same March 5, 2002 order, the district court denied Wausau’s petition for a
neutral umpire.
2
The pertinent portions of 9 U.S.C. § 16(a)(3) provide that “An appeal may be taken from
. . . a final decision with respect to an arbitration subject to this title.”
4
[Federal Arbitration] Act was motivated, first and foremost, by a congressional desire to
enforce agreements into which parties had entered.” Dean Witter Reynolds, Inc. v. Byrd,
470 U.S. 213, 220 (1985).3 A district court must therefore abide by the terms of the
parties’ agreement, even if it produces inefficient results. Id. See also Champ v. Siegel
Trading Co., 55 F.3d 269, 274-75 (7th Cir. 1995) (agreeing with “[t]he Second, Fifth, Sixth,
Eighth, Ninth and Eleventh Circuits [which] have held that absent an express provision in the
parties' arbitration agreement” district courts are barred from requiring parties to
consolidate arbitration “even where consolidation would promote the expeditious
resolution of related claims”).
Wausau contends that Philadelphia Re did not adduce any evidence of an explicit
agreement to consolidate the disputes between the parties. Philadelphia Re maintains that
the judicial admission contained in the footnote quoted above, standing alone, conclusively
establishes that the parties entered into an agreement to consolidate. “‘[J]udicial
admissions' [] are admissions in pleadings, stipulations, etc. [] which do not have to be
proven in the same litigation.” Giannone v. U. S. Steel Corp., 238 F.2d 544, 547 (3d Cir.
1956). “It has been held that judicial admissions are binding for the purpose of the case in
which the admissions are made including appeals, and that an admission of counsel during
the course of trial is binding on his client.” Glick v. White Motor Co., 458 F.2d 1287,
1291 (3d Cir. 1972) (citations omitted). See also ALA, Inc. v. CCAIR, Inc., 29 F.3d 855,
3
1 The Federal Arbitration Act is codified at 9 U.S.C. §§ 2-16.
5
862 (3d Cir. 1994) (stating that “judicial admissions are good evidence that an agreement
ha[s] been made”). When a party has admitted to a fact, the opposing party may “dispense
with proof of facts for which witnesses would otherwise be called” as to that issue, and
“any fact, bearing upon the issues involved, admitted by counsel, may be the ground of the
court's procedure equally as if established by the clearest proof.” Oscanyan v. Arms Co.,
103 U.S. 261, 263 (1880). Wausau’s statement that the parties had an “informal agreement
to arbitrate the parties’ rights under all of the retrocessional agreements simultaneously” is
a judicial admission. Therefore, Philadelphia Re was not required to produce any evidence
of a consolidation agreement.
“[T]o be binding, judicial admissions must be unequivocal.” Glick, 458 F.2d at
1291. An unequivocal statement is one that is clear, unambiguous and expresses only one
meaning. Webster’s Third New International Dictionary 2494 (4th ed. 1976). Wausau
argues that, when the footnote is read in its entirety, it demonstrates that any intention of
the parties to agree to a consolidated arbitration “remained contingent on the parties’
positions with regard to other issues, such as the method of selecting arbitrators.” We
disagree. The footnote does not reflect that there was a condition precedent to the
existence of the “informal agreement.” Wausau’s statement in the footnote that the parties
had an “informal agreement to arbitrate the parties’ rights under all of the retrocessional
agreements simultaneously” is an unambiguous and clear admission that an agreement
between the parties existed.
A district court may order the consolidation of separate arbitrations when the parties
6
have an explicit agreement to do so. See Volt Info. Scis, Inc. v. Bd. of Trustees of Stanford
Univ., 489 U.S. 468, 476 (1989) (emphasizing that the “the federal policy [of the Federal
Arbitration Act] is simply to ensure the enforceability, according to their terms, of private
agreements to arbitrate”). If the initial arbitration agreement between the two parties does
not include a clause requiring the parties to consolidate arbitration, the parties may
subsequently modify the original contract to incorporate such an agreement. Cf., Asplundh
Tree Expert Co. v. Bates, 71 F.3d 592, 596 (6th Cir. 1995) (holding that a subsequent letter
agreement that specifically referenced the arbitration agreement was a modification of the
original agreement); Compania Espanola de Petroleos v. Nereus Shipping, 527 F.2d 966,
973 (2d Cir. 1975), overruled on other grounds by United Kingdom of Great Britain and
Northern Ireland v. Boeing Co., 998 F.2d 68, 71 (2nd Cir. 1993) (holding that an additional
signatory to a contractual addendum could be bound by an arbitration clause contained in
the original contract); American Home Assur. Co. v. American Fidelity & Cas. Co., 356
F.2d 690, 691-92 (2d Cir. 1966) (holding that a subsequent letter constituted a
modification of the original contract which put any dispute “within the reach of the
arbitration agreement”). See also Connecticut Gen. Life Ins. Co. v. Sun Life Assur. Co. of
Can., 210 F.3d 771, 774 (7th Cir. 2000) (holding that “in deciding whether [a] contract . . .
authorize[s] [consolidation of arbitration] the court may resort to the usual methods of
contract interpretation, just as courts do in interpreting other provisions in an arbitration
clause”).
The remaining issue is whether the fact that the agreement between Wausau and
7
Philadelphia Re was “informal” is sufficient to bind the parties to a consolidation of
arbitration. Parties that have an informal agreement with each other have entered into an
informal contract. Accord H. B. Zachry Co. v. O'Brien, 378 F.2d 423, 426 (10th Cir.
1967) (explaining that an informal agreement is enforceable as an informal contract, even
if the parties intended to later commit the agreement to writing). Parties may create an
“informal contract” orally, through a course of business, or “by the simple act of handing a
job applicant a shovel and providing a workplace.” Hishon v. King & Spalding, 467 U.S. 69,
74 (1984). The existence of an informal contract between two parties gives rise to each
party’s expectation of performance and right of enforcement. Cf., id. (stating that an
informal contract is a contractual relationship of employment that “triggers the provision
of Title VII governing ‘terms, conditions, or privileges of employment’”) (quoting 42
U.S.C. § 2000e-2); Newspaper Readers Serv. v. Canonsburg Pottery Co., 146 F.2d 963, 965
(3d Cir. 1945) (stating that if “[t]he mutual assent which is required by law for the
formation of an informal contract is [] present” the informal contract is enforceable).
Therefore, the informal agreement between Wausau and Philadelphia Re is an enforceable
contract to consolidate arbitration.
Conclusion
Even though the parties did not agree to consolidate arbitration in any of the original
ten arbitration clauses in the disputed contracts, their subsequent “informal agreement” to
litigate the actions simultaneously served as a modification. The“informal agreement”
between Wausau and Philadelphia Re was therefore an “explicit” agreement to consolidate
8
and was enforceable by the district court. The district court did not err in ruling that the
parties agreed to consolidate their disputes.4
TO THE CLERK:
Please file the foregoing opinion.
/s/ Arthur L. Alarcon
Circuit Judge
4
We agree with Wausau that a district court cannot compel consolidation of arbitration
absent an explicit agreement between the parties. We expressly disavow the district court’s
alternative holding that“the interests of justice and judicial economy are best served” by
consolidating the arbitrations.