Burlington Insurance v. Trygg-Hansa Insurance

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-2082
THE BURLINGTON INSURANCE COMPANY; FIRST
FINANCIAL INSURANCE COMPANY; BURLINGTON
INSURANCE GROUP, INCORPORATED,
Plaintiffs - Appellants,
versus
TRYGG-HANSA INSURANCE COMPANY AB,
Defendant - Appellee.
Appeal from the United States District Court for the Middle
District of North Carolina, at Durham. William L. Osteen, Senior
District Judge. (1:99-cv-00334-WLO)
Argued: October 30, 2007 Decided: January 17, 2008
Before WILKINSON and GREGORY, Circuit Judges, and Jerome B.
FRIEDMAN, United States District Judge for the Eastern District of
Virginia, sitting by designation.
Vacated and remanded by unpublished opinion. Judge Friedman wrote
the opinion, in which Judge Wilkinson joined. Judge Gregory wrote
an opinion concurring in part and dissenting in part.
ARGUED: Catharine Biggs Arrowood, PARKER, POE, ADAMS & BERNSTEIN,
L.L.P., Raleigh, North Carolina, for Appellants. Andrew S. Amer,
SIMPSON, THACHER & BARTLETT, L.L.P., New York, New York, for
Appellee. ON BRIEF: Brian D. Darer, PARKER, POE, ADAMS &
BERNSTEIN, L.L.P., Raleigh, North Carolina; Louis M. Solomon,
Margaret A. Dale, PROSKAUER & ROSE, L.L.P., New York, New York, for
Appellants. Josiah S. Murray, III, NEWSOM, GRAHAM, HEDRICK &
KENNON, P.A., Durham, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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FRIEDMAN, District Judge:
The Burlington Insurance Company, First Financial Insurance
Company and Burlington Insurance Group, Inc. (collectively referred
to as “Burlington”) seek appellate relief from a judgment entered
in the Middle District of North Carolina, affirming the second
arbitration award in this extensive litigation. The district court
determined the award issued by the second arbitration panel was
ambiguous and attempted to clarify that ambiguity by submitting a
single question to the arbitrators. After receiving responses from
only two of the arbitrators, the court determined the second
arbitration panel intended its award to incorporate the first
arbitration award for a total award to Burlington of $2 million.
For the reasons stated below, we reverse and remand.
I
In 1999, Burlington Insurance Company and First Financial
Insurance Company first commenced arbitration with Trygg-Hansa
Insurance Company AB (“Trygg”) to resolve disputes arising out of
reinsurance contracts between the parties.1 The first arbitration
1
In 1991, Trygg and Burlington Insurance Group entered into an
agreement in which Trygg agreed to loan $6 million to Burlington
Insurance Group to increase both First Financial Insurance Company
and Burlington Insurance Company’s underwriting capacity.
Burlington Insurance Group executed a promissory note for $6
million to secure the loan from Trygg and later that year, Trygg
became the reinsurer for Burlington Insurance Company and First
Financial Insurance Company. The disputes in both arbitrations and
the litigation spawn from this business relationship.
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panel dealt solely with claims arising from these reinsurance
contracts and Burlington Insurance Group took no part in the first
arbitration. The panel awarded amounts to all three parties,
resulting in a net award of $4.8 million to be paid by Trygg to
Burlington Insurance Company and First Financial Insurance Company.
That same year, in addition to the arbitration, Burlington
filed a lawsuit against Trygg alleging various state law claims.
These claims were held to be governed by the arbitration clauses in
the parties’ contract, and a second arbitration panel was convened
to hear these claims.2 On May 24, 2005, the second panel issued
its award (Award II):
Trygg shall pay Burlington the sum of $2 million. This
sum shall be in satisfaction of all claims between the
parties under all of their contracts, including the
Memorandum of Agreement (as amended), the Reconfirmation
of Agreement, the $3 million and $6 million promissory
notes and the first excess of loss treaties. In
determination of this sum, the Panel considered Trygg’s
obligation of approximately $4.8 million . . . all
accrued interest thereon through the date of payment
specified . . . below, and the note(s) evidencing the
loan from Trygg to Burlington. That note(s) shall be
considered to be fully paid by Burlington as a result of
Trygg’s payment of the $2 million ordered herein.
The district court determined that Award II was ambiguous because
it was unclear whether Award II incorporated the amounts Trygg owed
2
The district court initially interpreted the arbitration
clauses in the contract between Burlington and Trygg narrowly and
held that any claims between the parties that were not
contractually based were not subject to arbitration. On appeal,
this court held that all of the claims between the parties were
subject to arbitration. The Burlington Ins. Group v. Trygg-Hansa
Ins. Co. AB, 9 Fed. Appx. 196 (4th Cir. 2001).
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under the first arbitration award or if Award II supplemented the
amounts due under the first arbitration award. On December 2,
2005, the district court sent the following question to the panel
members, requesting only a “yes” or “no” answer:
Was the panel’s intent to make an award in Award II
separate from and in addition to Award I, meaning Trygg-
Hansa owes approximately $4.8 million to Burlington
Insurance and First Financial under Award I and the
additional amount of $2 million to Burlington Insurance,
First Financial, and Burlington Insurance Group, Inc.
under Award II, for a total of approximately $6.8 million
due from Trygg-Hansa?
Two panel members responded in the negative and one panel member
did not respond.
On May 16, 2006, the district court issued a memorandum
opinion and order, holding that the partial response from the
arbitrators was sufficient to determine the panel’s intent, and
Award II incorporated the first arbitration award, so the total
amount awarded to Burlington after both rounds of arbitration was
$2 million. The district court confirmed Award II, vacated the
prior judgment that confirmed the first arbitration award of $4.8
million, and entered a separate judgment against Trygg for the $2
million awarded in Award II.
II
The appellate court reviews the district court’s decision to
confirm an arbitration award de novo. See Peoples Sec. Life Ins.
Co. v. Monumental Life Ins. Co., 991 F.2d 141, 145 (4th Cir. 1993).
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The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-14, governs the
court’s review of the arbitration award and a court is to confirm
an arbitration award unless the award is vacated, modified or
corrected under the limited grounds specified in sections 10 and 11
of the Act. See 9 U.S.C. § 9. Although not provided for in the
FAA, the court may also remand the arbitration award back to the
panel if the award is ambiguous. See Colonial Penn Ins. Co. v.
Omaha Indem. Co., 943 F.2d 327, 333-34 (3rd Cir. 1991); Mutual
Fire, Marine & Inland Ins. Co. v. Norad, 868 F.2d 52, 58 (3d Cir.
1989); Americas Ins. Co. v. Seagull Compania Naviera, S.A., 774
F.2d 64, 67 (2d Cir. 1985); Island Creek Coal Sales Co. v. City of
Gainesville, 764 F.2d 437, 440 (6th Cir.), cert. denied, 474 U.S.
948 (1985); La Vale Plaza, Inc. v. R.S. Noonan, Inc., 378 F.2d 569,
573 (3d Cir. 1967).
We find that the district court properly determined that Award
II was ambiguous, as opposed to silent, on the issue of awarding a
setoff. See, e.g., Int’l Union of Operating Eng’rs, Local 841 v.
Murphy Co., 82 F.3d 185, 190 (7th Cir. 1996) (“[W]e assume the
arbitrator’s failure to mention offsets in his ruling means that no
offset was granted, not that the ruling is ambiguous.”). During
the second arbitration, Trygg presented the possibility of
offsetting the amount awarded by the second arbitration panel with
the amount awarded in the first arbitration panel. The panel’s
reference to the first arbitration award in Award II leads to
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different interpretations of the panel’s intent on the issue of
offsetting the awards. Burlington interpreted Award II as
supplementing the amount awarded by the first arbitration panel,
for a total amount of approximately $6.8 million. Trygg
interpreted Award II as awarding an offset and incorporating the
amount awarded by the first arbitration panel, for a total amount
of $2 million. Given the two opposing, and equally valid
interpretations of the award, the district court properly
determined that the award should be remanded to the arbitrators for
further clarification. See, e.g., Americas Ins. Co. v. Seagull
Compania Naviera, S.A., 774 F.2d 64, 67 (2d Cir. 1985)(stating that
“a court should not attempt to enforce an award that is ambiguous
or indefinite” and the award “should be remanded to the arbitrators
so that the court will know exactly what it is being asked to
enforce”); Mutual Fire, Marine & Island Ins. Co., 868 F.2d at 58
(“A district court itself should not clarify an ambiguous
arbitration award but should remand it to the arbitration panel for
clarification.”).
We find, however, that the procedure employed by the district
court to clarify the ambiguity was unsuccessful. The district
court chose to submit only one question to the arbitrators and
limited the response of the arbitrators to only a “yes” or a “no.”
Prior to submitting the question to the arbitrators, the court and
the parties acknowledged that a negative response would fail to
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clarify the ambiguity and further inquiry would be necessary.3
Upon receiving negative responses from only two of the arbitrators,
however, the district court decided not to submit additional
questions to the arbitrators. Additionally, while the court and
parties reasonably presumed that the arbitrators would meet and
confer before responding, it appears that they did not. Two of the
arbitrators submitted responses but the third arbitrator never
received the court’s question nor submitted a reply. We are,
therefore, unable to discern, without any further discovery into
the arbitrators’ intent, how the one-word response from two of the
arbitrators resolved the ambiguity. We find that the district
court erred in confirming Award II because it is still unclear
whether the second arbitration panel awarded a setoff with the
first arbitration award. Because we find Award II to still be
ambiguous, we do not need to decide the issue of whether the second
3
On November 28, 2005, the court and the parties conducted a
telephone conference to discuss the question to be submitted to the
arbitrators on remand. The court, in responding to Trygg’s concern
about what a “no” response would mean, stated “[i]f [the
arbitration panel] comes back with a no, I would be tremendously
surprised, because I think I understand what they intended to do
originally. If they come back with a no, I don’t think there is
any way to shortstop this thing; it’s open to a real mess. . . . If
they say no, I would have no idea what they meant, then.” (J.A.
363-364). The court went on to state “if they come back with a no
on that question, then we’re going to be in a position of having to
go back to them again, or take some other route, or let the court
–- there are any number of things that could happen here if they
come back with a no.” (J.A. 365).
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arbitration panel exceeded its authority if their intent was to
award a setoff.
Accordingly, we vacate the district court’s judgment and
remand to the district court.
VACATED AND REMANDED
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GREGORY, Circuit Judge, concurring in part and dissenting in part:
In remanding to the district court, the majority does not
address the vacated judgment from the first arbitration award.
Though I concur in the reasoning of the opinion, I would hold that
the district court exceeded its authority in vacating the first
award and would reinstate that judgment. Thus, I dissent from the
holding to the extent that it does not reverse the vacation of the
first award and reinstate the judgment order.
Under federal law, courts give strong deference to arbitration
decisions. We have explained that the
[r]eview of an arbitrator’s award is severely
circumscribed. Indeed, the scope of review of an
arbitrator’s valuation decision is among the narrowest
known at law because to allow full scrutiny of such
awards would frustrate the purpose of having arbitration
at all—the quick resolution of disputes and the avoidance
of the expense and delay associated with litigation.
Federal courts may vacate an arbitration award only upon
a showing of one of the grounds listed in the Federal
Arbitration Act, or if the arbitrator acted in manifest
disregard of law.
Apex Plumbing Supply v. U.S. Supply Co., 142 F.3d 188, 193 (4th
Cir. 1998) (citations omitted). Thus, courts may vacate
arbitration awards only if they meet the narrow statutory factors
of Section 10(a) of the FAA, see Wilko v. Swan, 346 U.S. 427, 436
(1953); see also Remmey v. PaineWebber, Inc., 32 F.3d 143, 146 (4th
Cir. 1994),1 or if the award demonstrates a “‘manifest disregard’
1
Section 10(a) provides:
(a) In any of the following cases the United States court
in and for the district wherein the award was made may
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of applicable law.” Gallus Invs., L.P. v. Pudgie’s Famous Chicken,
134 F.3d 231, 233-34 (4th Cir. 1998).2 Additionally, we have
explained that “[a]rbitration deprives the judiciary of
jurisdiction over the particular controversy and the courts have
long ruled that there must be strict adherence to the essential
terms of the agreement to arbitrate.” Bhd of Ry. & S.S. Clerks v.
Norfolk S. Ry. Co., 143 F.2d 1015, 1017 (4th Cir. 1944).
In this case, the arbitration agreement explains that “[t]he
majority decision of the board shall be final and binding upon all
parties to the proceeding. Judgment may be entered upon the final
decision of the arbitrators in any court of the proper
make an order vacating the award upon the 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, or either of them;
(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 of any other
misbehavior by which the rights of any party have been
prejudiced; or
(4) 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). None of these factors apply to the present case.
2
A manifest disregard occurs when “a court’s belief that an
arbitrator misapplied the law will not justify vacation of an
arbitral award. Rather, appellant is required to show that the
arbitrators were aware of the law, understood it correctly, found
it applicable to the case before them, and yet chose to ignore it
in propounding their decision.” Remmey, 32 F.3d at 149.
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jurisdiction.” (J.A. 15.) The judgment related to the first
arbitration was final and binding at the time the district court
offset that award. Given the strong deference toward arbitration
decisions, I do not see how the district court could vacate the
previous judgment in its consideration of the second arbitration
panel’s award. Consequently, I would reverse the district court’s
vacation of the first award and reinstate the judgment order to
give proper deference to the parties’ arbitration agreement, as
required by law.
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