Woodmen of the World Life Insurance v. Lewis

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT December 17, 2004
Charles R. Fulbruge III
Clerk
No. 03-60870
WOODMEN OF THE WORLD LIFE INSURANCE COMPANY,
Plaintiff —— Counter-Defendant —— Appellant,
versus
ROLAND C. LEWIS,
Defendant —— Third-Party Plaintiff ——
Counter-Claimant —— Appellee,
versus
MONARCH LIFE INSURANCE COMPANY,
Third-Party Defendant —— Appellant.
--------------------
Appeal from the United States District Court
for the Southern District of Mississippi
No. 3:02-CV-182-WS
--------------------
Before REAVLEY, DAVIS, and WIENER, Circuit Judges.
PER CURIAM:*
Plaintiff —— Counter-Defendant —— Appellant Woodmen of the
World Life Insurance Society (“Woodmen”) and Third-Party Defendant
—— Appellant Monarch Life Insurance Company (“Monarch”) appeal the
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
district court’s denial of their motion to compel arbitration.
Woodmen and Monarch seek to enforce what they construe as a binding
agreement to arbitrate against one of its insurance policyholders,
Defendant —— Third-Party Plaintiff —— Counter-Claimant —— Appellee
Roland C. Lewis. We reverse and render.
I. FACTS AND PROCEEDINGS
Woodmen is a fraternal benefit society that provides various
insurance benefits to its members. Roland Lewis is a Woodmen
policyholder. In 1988, Woodmen issued two policies to Lewis: (1)
a disability overhead policy that provides benefits up to $20,000
per month for a maximum reimbursement of $480,000, and (2) a
disability income policy that provides maximum monthly disability
income of $5,050. Both policies contain a provision that states,
“The Articles of Incorporation and the Constitution and Laws and
any amendments to them are binding on you and any beneficiary but
will not take away or reduce any of the benefits of this policy.”
In December 1996, Woodmen amended its Constitution to include
a Problem Resolution Procedure (“PRP”). Woodmen published the PRP
in the December 1997 issue of the Woodmen magazine, which is mailed
to all members. The PRP was further publicized in a May-June 1999
article. Woodmen also filed the amendment with the Mississippi
Department of Insurance, as required by statute. The PRP provides,
in pertinent part:
Sec. 2. Resolution of Individual Disputes
2
(a) Purpose. The purpose of this Section 2 is to
provide opportunities for members and benefit
certificate owners and beneficiaries to be promptly
heard and to seek fair resolution of any disputes
regarding any individual rights or individual
interests they have or claim to have as members,
benefit certificate owners or beneficiaries. . .
(b) Scope. This Section 2 shall apply whenever a
member or benefit certificate owner or beneficiary
of the Society makes a claim for damages, or claims
any form of redress for a violation of his or her
individual rights or a denial of individual
privileges or benefits which he or she claims as a
member or benefit certificate owner or beneficiary
. . . No lawsuit may be filed against the Society
or any officer, employee or agent of the Society .
. . until the procedures described herein have been
exhausted.
In August 1999, Lewis submitted a claim to Woodmen for
disability resulting primarily from dementia. His claims under the
overhead expense policy were for the full twenty-four month period
provided by the policy; he continues to submit claims under the
disability income policy on approximately a monthly basis. Lewis’s
claims are administered by Monarch Life Insurance Company
(“Monarch”), Woodmen’s third-party administrator.
Woodmen1 has paid benefits to Lewis under a reservation of
rights for the entire duration of his claim because Lewis has
allegedly refused to provide sufficient information to allow
Woodmen to determine whether and to what extent it is liable for
Lewis’s benefits. Following a lengthy exchange of correspondence,
in which the parties disputed their respective rights and
1
Because Woodmen and Monarch are represented by the same
counsel and advance the same claims, any reference to “Woodmen”
also necessarily encompasses “Monarch.”
3
obligations under both policies, Woodmen brought suit in the
Southern District of Mississippi to compel Lewis to arbitrate his
disability claims. Woodmen’s pleadings contained an alternative
prayer for declaratory judgment as to its liability under the
policy in the event, but only in the event, that the court failed
to compel arbitration. In opposing Woodmen’s motion to compel
arbitration, Lewis filed a counterclaim against Woodmen and a
third-party complaint against Monarch in which he sought punitive
and other damages for their alleged bad faith handling of his
claims under both policies.
The district court, ruling only on the motion to compel
arbitration, held that Woodmen’s constitution required arbitration
only as to claims brought by its members, not as to claims Woodmen
brings itself. The court refused to compel arbitration and ruled
in favor of Lewis. Woodmen timely filed its notice of appeal.2
II. DISCUSSION
A. Motion to Compel Arbitration
1. Standard of Review
We review a district court’s denial of a motion to compel
arbitration de novo.3
2
Interlocutory appeals from a district court’s denial of a
motion to compel arbitration are permitted pursuant to 9 U.S.C. §
16.
3
Am. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 708 (5th
Cir. 2002) (citations omitted).
4
2. Applicable Law
The Federal Arbitration Act4 liberally favors arbitration and
establishes a strong federal policy that fosters enforcement of
arbitration agreements.5 As arbitration is a matter of contract,
however, a party will not be required to submit a dispute to
arbitration absent an express agreement to do so.6 To ascertain
whether such an express agreement exists, we consider (1) whether
there is a valid agreement to arbitrate between the parties and (2)
whether the dispute in question falls within the scope of that
arbitration agreement.7 Doubts as to whether an agreement
expressly provides for arbitration are usually resolved in favor of
arbitration.8 We look to ordinary state-law principles of
contract interpretation to decide whether the parties agreed to
arbitrate the dispute in question.9 If a valid agreement to
arbitrate exists, we then determine whether other legal constraints
foreclose arbitration.10
4
9 U.S.C. § 1 et. seq.
5
Texaco Exploration & Prod. Co. v. AmClyde Engineered Prods.
Co., 243 F.3d 906, 909 (5th Cir. 2001).
6
Pers. Sec. & Safety Sys. v. Motorola, Inc., 297 F.3d 388,
392 (5th Cir. 2002).
7
Id.8
Id.9
Webb v. Investacorp, Inc., 89 F.3d 252, 258 (5th Cir. 1996).
10
Id.5
Under Mississippi law, courts give undefined contractual terms
their ordinary, everyday meaning.11 Clear, unambiguous contracts
are construed as written,12 and ambiguities as to the meaning of
terms are construed against the drafter.13 In this exercise, courts
are concerned primarily with what the parties said, not what they
intended, as this is the better measure of assigning meaning fairly
and accurately.14
3. The Correspondence Claims and Woodmen’s Claims
The central issue here is whether the PRP requires arbitration
of claims that Woodmen brings, as distinguished from claims brought
by members and policy beneficiaries. Woodmen contends that the
PRP, incorporated by reference into its contract with Lewis,15
requires arbitration of all disputed claims of its policy holders
and members, regardless of who initiates (or refrains from
11
Sanderson Farms, Inc. v. Gatlin, 848 So. 2d 828, 836 (Miss.
2003).
12
IP Timberlands Operating Co. v. Denmiss Corp., 726 So. 2d
96, 104 (Miss. 1998).
13
Id.14
Sanderson Farms, 848 So. 2d at 836.
15
We reject as meritless Lewis’s claim that there exists no
valid agreement to arbitrate between the parties. There is no
question that the PRP was incorporated into the disability policies
between Woodmen and Lewis. First, both of Lewis’s policies contain
provisions that expressly incorporate “any amendments” —— which the
PRP was —— to Woodmen’s Articles of Incorporation and the
Constitution. Second, there is no record evidence that a majority
of the voting members did not approve the PRP as an amendment to
the Constitution. The district court correctly determined that
there exists a valid agreement to arbitrate between the parties.
6
initiating) arbitration. Clearly equating the PRP’s use of
“claims” with “lawsuits,” Lewis maintains that the plain language
of the PRP requires arbitration only for claims brought —— actions
filed —— by members or policy holders against the Society and not
for claims brought by the Society against its members.16 Woodmen
counters that reading the PRP to bind Woodmen’s members only and
not itself is a crabbed interpretation of its procedure, which does
not comport with the Woodmen’s fraternal nature or with settled
federal law favoring arbitration and interpreting arbitration
clauses expansively.
The express language of the contract between Lewis and Woodmen
requires arbitration of a member’s claim when that member asserts
a “claim for damages, or claims any form of redress for a violation
of his or her individual rights or a denial of individual
privileges or benefits which he or she claims as a member or
benefit certificate owner or beneficiary.” It does not, though it
easily could have, refer to claims brought by Woodmen or even by
“the parties.” The language of the contract consistently refers
only to claims brought by members and/or beneficiaries.
16
Lewis also attacks Woodmen’s motion to compel arbitration
on the merits. Specifically, Lewis argues that Woodmen did not
properly invoke the procedure before asking for arbitration and
that Woodmen did not comply with Lewis’s request for discovery
under the procedure. Woodmen correctly points out that our role
is only to ascertain whether the arbitration clause covers the
claims at issue, not to consider the merits of the case. See Snap-
On Tools Corp. v. Mason, 18 F.3d 1261, 1268 (5th Cir. 1994).
Therefore, we need not consider Lewis’s attacks on Woodmen’s
compliance with its own PRP.
7
Woodmen points out that Lewis repeatedly asserted claims
against it between February and November 2001 in the correspondence
between his counsel and Woodmen’s counsel. Lewis counters by
arguing that he never made a claim against Woodmen because he had
no need to do so —— Woodmen consistently paid his disability
benefits, albeit under a reservation of rights. This is not
entirely so. The correspondence in the record demonstrates, inter
alia, a dispute over the timeliness of Woodmen’s payment of Lewis’s
benefits. Lewis repeatedly asked that Woodmen tender to him the
$5,050 in individual disability benefits that were due at the
beginning of each month. Lewis also disputed Woodmen’s right to
have a third-party —— Monarch —— adjust or administer Lewis’s
claims. In addition, Lewis continually insisted that the “bad
faith actions by Woodmen of the World cease and desist.” Lewis’s
references to bad faith actions targeted Woodmen’s repeated
requests for further medical evidence to support Lewis’s claims of
dementia. And, Lewis asserted to Woodmen that because it was
paying his benefits under a reservation of rights, it would be
liable for his attorneys’ fees: “Request is further made that
Woodmen of the World inform Roland Lewis that it will pay all
reasonable attorney’s fees to date as necessitated by Woodmen of
the World’s continuing assertion of ‘Reservation of Rights,’
including possible demand for repayment.”
Lewis’s repeated demands in the correspondence to Woodmen fit
well within the PRP’s definition of “claim[ing] any form of redress
8
for a violation of his or her individual rights or a denial of
individual privileges or benefits which he or she claims as a
member or benefit certificate owner or beneficiary.”17 We do not
read the policy language —— “claims for damages” or “claims any
form of redress” —— so narrowly as to require a legal claim, i.e.,
Lewis did not have to file suit first for his claims to fall within
the language of the PRP.18 Lewis’s claims —— his repeated requests
for “redress” as a benefit policyholder —— generated this
protracted dispute with Woodmen. The effect of Lewis’s behavior in
continuing to make claims without either filing suit or invoking
arbitration forced Woodmen’s hand: Lewis left Woodmen no choice but
to seek judicial constraint to compel arbitration of claims that it
disputed with Lewis. This in turn required Woodmen to include its
own claims against Lewis in the event that arbitration was not
compelled.
Bearing in mind the strong federal policy in favor of
arbitration, and our duty to resolve doubts of an arbitration
clause’s coverage in favor of arbitration, we hold that Lewis’s
demands clearly fall within the meaning of “claims” as used in the
PRP and that the district court erred when it denied Woodmen’s
17
Emphasis added.
18
Our conclusion is buttressed by the broad language in
Section 2(a) of the PRP entitled “Purpose:” “The purpose of this
Section 2 is to provide opportunities for members and benefit
certificate owners and beneficiaries to be promptly heard and to
seek fair resolution of any disputes regarding any individual
rights . . . .” (emphasis added).
9
motion to compel arbitration. Accordingly, we reverse the district
court’s denial of Woodmen’s motion to compel arbitration, and we
render judgment compelling arbitration of the dispute between
Woodmen and Lewis.
4. Counterclaim and Third-Party Complaint
Woodmen explains that the claims that Lewis now proffers in
his counterclaim against Woodmen and his third-party complaint
against Monarch, are the very claims that must be arbitrated.19
Lewis tries to avoid this by explaining that he was required by the
Federal Rules of Civil Procedure to assert mandatory counter claims
and third party claims in a civil proceeding, lest he risk
forfeiting those claims.20
Although the district court did not reach this issue because
it denied Woodmen’s motion to compel on the basis of Woodmen’s
claims only, we find the record before us complete as to this
question. Thus, a remand would only prolong unnecessary
19
A non-signatory party to an agreement may compel arbitration
against a signatory party if the events in dispute are covered by
the arbitration agreement. Monarch may thus properly request
arbitration of Lewis’s claims against it. See Texaco Exploration
& Prod. Co. v. AmClyde Engineered Prods. Co., 243 F.3d 906, 909
(5th Cir. 2001).
20
See Fed. R. Civ. P. 13(a), 14. See also Montgomery Elevator
Co. v. Building Engineering Servs. Co., 730 F.2d 377, 380 (5th Cir.
1984). Rule 14 does not compel Lewis to file a third-party
complaint against Monarch, though it is certainly in his interests
to do so.
10
litigation.21 Lewis’s counterclaim against Woodmen and his third-
party complaint against Monarch, for “all sums due him under the
certificates of insurance,” punitive damages, and attorneys’ fees,
are indisputably “claims for damages” and claims for redress under
the PRP. Further, Lewis has cited to no legal authority —— and we
have found none —— to support the argument that an otherwise
arbitrable claim becomes non-arbitrable simply because it is
asserted as a compulsory counterclaim under the Federal Rules of
Civil Procedure. Indeed, such a contention is illogical as well,
inasmuch as these are the very “claims” that required Woodmen to
seek to compel arbitration in the first place. Accordingly, Lewis
must arbitrate his counterclaim and his third-party claims.
5. Unconscionability and Waiver
Lewis also argues that the PRP is unconscionable and that
Woodmen waived its right to compel arbitration. As Lewis did not
raise the issue of unconscionability in the district court, we will
not consider it.22 Neither shall we consider the issue of waiver.
21
See, e.g., Matter of Zedda, 103 F.3d 1195, 1206 (5th Cir.
1997) (“This conclusion follows as a matter of law from the
undisputed documents and testimony, rendering remand for further
finding unnecessary.”).
22
In re Fairchild Aircraft Corp., 6 F.3d 1119, 1128 (5th Cir.
1993) (“In short, the argument must be raised to such a degree that
the trial court may rule on it . . . The argument here was not even
identified by name, much less advocated.”); United States v.
Drobny, 955 F.2d 990, 995 (5th Cir. 1992) (“As a general principle
of appellate review, this Court will not consider a legal issue or
theory not presented to the [federal district court].” (citations
and quotations omitted)).
11
Although Lewis perfunctorily raised waiver as an affirmative
defense in his answer to Woodmen’s complaint, he failed to brief
the issue in his Answer to Motion to Compel Arbitration before the
district court.23
III. CONCLUSION
When we step back from Woodmen’s and Lewis’s individually-
asserted claims and analyze them in a broader context, we see that
Woodmen’s claims against Lewis, and Lewis’s claims against both
Woodmen and Monarch, are nothing more than opposite sides of the
same coin. In other words, the individual claims form part of a
larger, all-encompassing and protracted dispute over Lewis’s claim
for disability benefits that began and evolved during the
correspondence between the parties. Even though we recognize that
the parties, through cautious lawyering, preserved their claims
judicially once Woodmen filed suit, it is not the individual claims
as such that we send to arbitration but the entire dispute over
Lewis’s claim for benefits.
We reverse the district court’s order denying Woodmen’s motion
to compel arbitration of its claims against Lewis and render
judgment for Woodmen, compelling Lewis to arbitrate these matters.
Our reversal of the district court includes reversal of its order
denying Woodmen’s motion to compel arbitration of Lewis’s
23
Drobny, 955 F.2d at 995.
12
counterclaim and third-party claims, and we hold that these claims
are part and parcel of the dispute to be arbitrated.
REVERSED AND RENDERED.
13