Continental Casualty v. Staffing Concepts

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 07-2475
CONTINENTAL CASUALTY CO., AMERICAN CASUALTY CO.
OF READING, TRANSPORTATION INSURANCE CO., et al.,
Plaintiffs-Appellants,
v.
STAFFING CONCEPTS, INC., STAFFING CONCEPTS INT’L, INC.,
STAFFING CONCEPTS NAT’L, INC., and VENTURE RESOURCES
GROUP, LLC,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 06 C 5473—Ronald A. Guzmán, Judge.
____________
ARGUED JANUARY 7, 2008—DECIDED JANUARY 11, 2008Œ
OPINION ISSUED AUGUST 6, 2008
____________
Before POSNER, ROVNER, and WOOD, Circuit Judges.
WOOD, Circuit Judge. This complex appeal arises from
an order issued by the district court striking a motion to
Œ
On January 11, 2008, this court issued an order dismissing
the appeal for want of appellate jurisdiction and indicated that
an opinion would follow. This opinion explains why that
disposition was required.
2 No. 07-2475
compel arbitration. The district court had pending before
it questions relating to personal jurisdiction and venue. It
decided to strike without prejudice the motion to com-
pel arbitration pending resolution of those questions, but
it indicated at the same time that it would welcome a
refiling after the questions were sorted out. We find that
this constitutes a “delay incident to an orderly process,”
Middleby Corp. v. Hussman Corp., 962 F.2d 614, 616 (7th
Cir. 1992), and that we therefore do not have appellate
jurisdiction to hear an interlocutory appeal.
Continental Casualty, American Casualty, Transportation
Insurance, and National Fire are all in the insurance
business, affiliated as CNA. (When referring to them
collectively, we will call them “CNA”; otherwise we
will use the name of the particular corporation.) Continen-
tal also has two subsidiaries that figure prominently in
this litigation: CNA ClaimPlus and RSKCo Services, Inc.
RSKCo was the initial claims servicer for the agreements
at stake here; ClaimPlus is, arguably, the successor
claims servicer. Staffing Concepts and its similarly named
affiliates are “professional employer organizations,”
which take clients, employ their client’s employees, and
lease the employees back to the clients. In effect, Staffing
Concepts and its affiliates take care of the human resources
paperwork for the client. We will refer to them collectively
as “Staffing Concepts.” Staffing Concepts purchased
workers’ compensation insurance policies from CNA.
This litigation revolves around two sets of agreements.
The “Financing Agreements” deal with the financial side
of the arrangements between CNA and Staffing Concepts,
including the deductibles of the insurance plans. For
the years relevant to this litigation (2001-03), Financing
Agreements were struck between a subset of the CNA
No. 07-2475 3
affiliates that changed each year and Staffing Concepts
International (only). There is no arbitration clause in any
of the Financing Agreements.
The “Claim Services Agreements” are the second set of
agreements between the two sides; they focus on how
claims are to be dealt with by each party. Unlike the
Financing Agreements, the Claim Services Agreements
have a consistent pair of signatories: RSKCo (a nonparty
subsidiary of CNA) and Staffing Concepts International.
The 2001 and 2002 Claim Services Agreements do con-
tain broadly written arbitration clauses.
The litigation was set in motion when various Staffing
Concepts entities made claims against the insurance
policies. Under the policies, Staffing Concepts was alleg-
edly supposed to reimburse CNA for the deductible
portion of the claims it presented. CNA paid the
claims Staffing Concepts presented, but Staffing Concepts
did not reimburse CNA for the deductibles (which ran,
CNA says, from $250,000 to $750,000 per claim). As a
result, CNA asserts, it has incurred more than $44 million
in losses. At some point, CNA replaced RSKCo with
CNA ClaimPlus as the claims servicer.
On October 10, 2006, the four CNA insurers filed a
complaint against the ten Staffing Concepts insureds for
breach of the policies and Finance Agreements. At the same
time, ClaimPlus (the claims servicer) filed an arbitration
claim against Staffing Concepts International, alleging
a failure to pay claim handling fees. In theory, this had
the effect of bifurcating the overall dispute into arbitrable
claims that were sent to arbitration and nonarbitrable
claims that went to the district court.
On December 7, 2006, Staffing Concepts National filed
a motion to transfer venue to the United States District
4 No. 07-2475
Court for the Middle District of Florida, while all of the
other Staffing Concepts affiliates filed a motion to dismiss
for lack of personal jurisdiction. Then on April 30, 2007,
four of the Staffing Concepts family (Staffing Concepts
International, Staffing Concepts, Inc., Staffing Concepts
National, and Venture Resources Group) filed an answer
to the complaint, containing both defenses and counter-
claims against a shifting subset of the CNA insurers, as
well as nonparty RSKCo.
On May 21, 2007, the CNA insurers moved to stay the
district court proceedings in favor of the arbitration already
underway between ClaimPlus and Staffing Concepts
International. See 9 U.S.C. §§ 3-4. Two days later, the
district court issued the order that gave rise to this
appeal, stating that the motion “to dismiss or to stay
Defendants’ Affirmative Defenses and Counterclaims in
Favor of Prior Pending Arbitration . . . is stricken without
prejudice and may be refiled after [the] court rules on
pending motions to dismiss for lack of personal jurisdic-
tion and to transfer venue.”
This court immediately expressed its concerns about
appellate jurisdiction and requested briefing on the sub-
ject, eventually postponing the issue for oral argument.
Having heard both sides out on the matter, we ruled in
an order issued January 11, 2008, that there is no proper
appellate jurisdiction.
Under the Federal Arbitration Act, an appeal may be
taken from a district court order “refusing a stay of any
action . . . under this title,” or “denying a petition . . . to
order arbitration to proceed.” 9 U.S.C. § 16. The district
court here did neither: it struck the motion without preju-
dice, and at the same time it expressly invited a later
refiling of the same motion. CNA equates every post-
No. 07-2475 5
ponement with denial, while Staffing Concepts argues
that a more finely tuned analysis is required. This particu-
lar order, it says, should be characterized as a “delay
incident to an orderly process,” Middleby, 962 F.2d at 616,
that does not constitute an appealable denial or refusal
of the petition.
Middleby suggests that the relevant question here is
similar to the question that arises when a court is con-
sidering an injunction: under what circumstances is a
delay of a ruling equivalent to a denial. “The Supreme
Court’s answer has been: when the passage of time
causes irreparable injury to the person claiming entitle-
ment to relief.” Id. Only if the CNA insurers can show
irreparable harm resulting from the district court’s decision
to take up personal jurisdiction and venue first can it
demonstrate that the district court effectively denied its
petition to compel arbitration, and thus that appellate
jurisdiction exists under 9 U.S.C. § 16.
This court extended Middleby to the very situation
presented to us here in IDS Life Ins. Co. v. SunAmerica, Inc.,
103 F.3d 524, 526-27 (7th Cir. 1996). In IDS, the district
court left ambiguous whether it had granted or denied the
stay on proceedings while it considered a preliminary
injunction, but it invited a refiling after the preliminary
injunction was straightened out. Applying Middleby, the
court in IDS concluded that the district court’s deferral of
consideration of the stay until after the preliminary injunc-
tion hearing did not give rise to an appealable order,
explaining when justifiable delay is transformed into
constructive denial of relief as follows:
A showing of unjustifiable delay coupled with irrepa-
rable injury if an immediate appeal is not allowed
is enough to make a constructive denial appealable, if
6 No. 07-2475
a formal denial would be. . . . Maybe a showing of
delay at once inordinate and unjustified, . . . —the kind
of thing that would excuse a person challenging
administrative action from having to exhaust his
administrative remedies, . . . or an applicant for fed-
eral habeas corpus from having to exhaust his state
remedies, . . . —is also enough. Otherwise the lower
court or agency would have the judicial or admin-
istrative equivalent of a pocket veto.
Id. at 526-27 (citations omitted).
Sharif v. Wellness Int’l Network, Ltd., 376 F.3d 720 (7th Cir.
2004), illustrates the other side of this coin. In that case,
the district court never set a schedule for dealing with
the motion to stay court proceedings in favor of arbitra-
tion and never even indicated when such a motion might
be appropriate. Instead, the district court denied the
motion, labeling it “superfluous” because of a pending
venue motion. Id. at 726. Here, in contrast, the district
court explicitly set its own affairs in order, indicating
that it wanted to deal first with the venue and personal
jurisdiction issues before turning to the motion to compel
arbitration. In striking the motion with an invitation to
refile, it signaled that it was not going to let the matter
languish.
The only harms to which CNA points are those related
to a then-approaching discovery deadline. This type of
harm is easily averted, however, by a simple request to
the district court for an order extending the deadline or
limiting discovery to threshold issues of arbitrability. CNA
did not do this; it chose to assume that all interim motions
would be futile. More than that is necessary before we
would jump to the conclusion that the district court was
going to allow “inordinate and unjustified” time to pass
before it ruled on the motion to compel arbitration.
No. 07-2475 7
The “delay incident to an orderly process” that occurred
in this case provides no ground for appellate jurisdiction
unless irreparable damage could be shown. CNA has
shown none, and so there is no basis for us to hear its
appeal. This appeal is DISMISSED for want of appellate
jurisdiction.
USCA-02-C-0072—8-6-08