TEE AND GEE UNDERWRITING MANAGERS, LP v. AMERICAN MILLENNIUM INSURANCE CO. (L-0817-21, SOMERSET COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0018-21
TEE AND GEE UNDERWRITING
MANAGERS, LP,
Plaintiff-Appellant,
v.
AMERICAN MILLENNIUM
INSURANCE CO.,
Defendant-Respondent.
______________________________
Argued September 29, 2022 – Decided October 28, 2022
Before Judges Sumners and Geiger.
On appeal from the Superior Court of New Jersey, Law
Division, Somerset County, Docket No. L-0817-21.
Edwin F. Chociey, Jr., argued the cause for appellant
(Riker Danzig Scherer Hyland & Perretti, LLP,
attorneys; Edwin F. Chociey, Jr., of counsel and on the
briefs; Siobhan A. Neary, on the briefs).
Alan J. Sorkowitz (Rubin, Fiorella, Friedman &
Mercante, LLP) of the New York Bar, admitted pro hac
vice, argued the cause for respondent (Rubin, Fiorella,
Friedman & Mercante, LLP, attorneys; Bruce M.
Friedman (Rubin, Fiorella, Friedman & Mercante,
LLP) of the New York Bar, admitted pro hac vice, of
counsel; James E. Mercante and Alan J. Sorkowitz, on
the brief).
PER CURIAM
Plaintiff Tee and Gee Underwriting Managers, LP (Tee and Gee) appeals
from the Law Division order denying its order to show cause to vacate an
arbitration panel ("the panel") award in favor of defendant American
Millennium Insurance Company (AMIC). The order entered final judgment
confirming the award which required Tee and Gee to pay: AMIC $874,883.50;
all outstanding arbitrator fees and expenses; and six percent interest on all
amounts due beginning June 11, 2021. We affirm because, contrary to Tee and
Gee's contention, the panel adhered to the arbitration guidelines set forth in the
parties' Managing General Agency Agreement ("MGA" or "agreement") in
issuing its award.
I
In 2015, Tee and Gee, an insurance underwriter/administrator domiciled
and licensed in Texas, and AMIC, a New Jersey insurance company, entered
into the MGA detailing their business relationship covering AMIC's
appointment of Tee and Gee as an independent contractor to serve as the policy
administrator of its commercial automobile liability insurance business.
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Relevant to this appeal, the agreement provided they would arbitrate "any
dispute or difference of opinion with respect to [the MGA] or the business
conducted pursuant to [the MGA]." Their agreement stated that any arbitration
would be governed by the American Arbitration Association Commercial
Arbitration Rules and Mediation Procedures (AAA Rules) and Illinois state law.
On the same day the MGA was reached, Tee and Gee entered into a Segregated
Account Participation Agreement (Participation Agreement) with Uberrimae
Fidei Insurance Company Ltd. (UFIC).
Almost five years later, AMIC demanded arbitration to resolve its dispute
with Tee and Gee. After the parties had each selected an arbitrator and an
umpire was selected by the chosen arbitrators to form the panel, they jointly
requested the panel dismiss arbitration without prejudice and conduct a separate
arbitration between UFIC and Tee and Gee. The panel agreed to do so upon the
payment of all outstanding arbitrator fees. Although AMIC paid its share of the
fees, Tee and Gee did not, and the panel denied the joint request to dismiss
arbitration.
Due to Tee and Gee's non-payment of fees, AMIC moved before the panel
for pre-hearing security. The panel granted the motion, ordering Tee and Gee
to post security of $739,722, the damages claimed by AMIC plus arbitration fees
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and costs. The panel then denied Tee and Gee's motion for reconsideration,
modification, or correction of the pre-hearing security order. The panel also
determined its ruling would be decided solely on written submissions. Tee and
Gee , however, failed to post security. The panel still proceeded to arbitrate the
dispute.
In response to the panel's order, the parties submitted their written
arguments and documents, including witness affidavits. On May 27, 2021, the
panel issued a final order requiring Tee and Gee to pay: $874,883.50 to AMIC;
all outstanding arbitrator fees and expenses; and six percent interest on all
amounts due beginning June 11, 2021.
In accordance with Rule 4:67-1(a), Tee and Gee filed an order to show
cause to stay enforcement of the arbitration award pending the outcome of its
verified complaint to vacate the arbitration award. AMIC opposed and filed a
motion for interlocutory injunction to require Tee and Gee to provide a bond
for, or to deposit in court, the $874,883.50 arbitration award. Upon considering
the parties' written submission and telephonic oral argument, the trial court
denied Tee and Gee's application, rejecting its contention that the panel
exceeded its authority under the MGA and AAA Rules, refused to hear material
evidence, and prejudiced its rights by being impartial. The court also denied
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AMIC's motion for an interlocutory injunction. Final judgment confirming the
arbitration award was entered requiring Tee and Gee to pay the panel's award.
II
Under Illinois law, the controlling law in accordance with the MGA, a
party can vacate an arbitration award where:
(2) there was evident partiality by an arbitrator
appointed as a neutral or corruption in any one of the
arbitrators or misconduct prejudicing the rights of any
party;
(3) the arbitrators exceeded their powers;
(4) the arbitrators refused to postpone the hearing upon
sufficient cause being shown therefor or refused to hear
evidence material to the controversy or otherwise so
conducted the hearing, contrary to the provisions of
Section 5 [710 ILCS 5/5], as to prejudice substantially
the rights of a party; or
[710 ILCS 5/12(a)(2-4).]
"[A] court's review of an arbitrator's award is extremely limited . . . [and]
there is a presumption that the arbitrator did not exceed his authority." Herricane
Graphics, Inc. v. Blinderman Constr. Co., 820 N.E.2d 619, 623 (Ill. App. Ct.
2004) (citations omitted). "A court must construe an award, if possible, so as to
uphold its validity. . . . In fact, an arbitrator's award will not even be set aside
because of errors in judgment or a mistake of law or fact." Ibid. Judicial review
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does not address the merits of the arbitration award but "if the award is within
the submission, and contains the honest decision of the arbitrators, after a full
and fair hearing of the parties, a court . . . will not set it aside for error either in
law or fact." Edward Elec. Co. v. Automation, Inc., 593 N.E.2d 833, 838 (Ill.
App. Ct. 1992) (quoting Burchell v. March, 58 U.S. 344, 349 (1855)).
Our review of a trial court's order confirming an arbitration award is a
question of law; "we owe no special deference to the judge's interpretation of
the law and the legal consequences that flow from the established facts."
Yarborough v. State Operated Sch. Dist. of City of Newark, 455 N.J. Super. 136,
139 (App. Div. 2018). Our standard of review is thus de novo. Manger v.
Manger, 417 N.J. Super. 370, 376 (App. Div. 2010). In addition to this statutory
criterion, "a court, 'may vacate an award if it is contrary to existing law . . . .'"
Middletown Twp. PBA Loc. 124 v. Township of Middletown, 193 N.J. 1, 11
(2007) (quoting N.J. Tpk. Auth. v. Loc. 196, 190 N.J. 283, 294 (2007)).
With these principles in mind, we turn to defendant's arguments on appeal.
A.
Tee and Gee makes three contentions to establish the trial court erred in
not finding the panel exceeded its authority by denying the parties' joint
application to dismiss the arbitration without prejudice. First, Tee and Gee
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asserts the court erroneously relied on F. R. Civ. P. 41(a)(2) and Rule 4:37-1(b).
It notes that, while both rules state the relevant court must approve a dismissal,
F. R. Civ. P. 41(a)(1) and Rule 4:37-1(a) provide voluntary dismissal is
permissible upon the parties' stipulation. Tee and Gee maintains the trial court
misapplied these rules because the panel disregarded the parties joint request to
dismiss the arbitration.
Second, Tee and Gee argues Illinois law also permits voluntary dismissal
of an action through the parties' stipulation. Tee and Gee points to Morrison v.
Wagner, 729 N.E.2d 486, 488 (Ill. 2000), where it was held that under 735 ILCS
5/2-1009––with two inapplicable exceptions––plaintiffs have "unfettered right
to voluntarily dismiss their claims without prejudice, upon proper notice and
payment of costs, 'at any time before the trial or hearing begins.'"1 Thus, Tee
and Gee asserts Illinois law was misapplied by the trial court, leading it to
erroneously affirm the arbitration award.
1
The exceptions are: (1) "where a previously-filed defense motion could result
in a final disposition of the cause of action if ruled upon favorably by the court,
the court has the discretion to hear and decide that motion before ruling on the
plaintiff's motion for voluntary dismissal[;]" and (2) "where the circumstances
of the case are such that dismissal . . . would directly conflict with a specific
rule of this court, the terms of the court take precedence." Morrison, 729 N.E.2d
at 488.
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Third, Tee and Gee asserts the trial court disregarded the AAA Rules in
affirming the arbitration award. Although AAA Rule 57 provides authority for
arbitrators to suspend or terminate proceedings due to nonpayment of fees, Tee
and Gee argues the panel failed to provide adequate reasoning for denying the
parties' dismissal request and accuses the panel of ordering the continuation of
the arbitration for "the self-serving reason to recoup their own fees."
Additionally, Tee and Gee notes there is no AAA Rule which permits an arbitral
panel from denying a joint dismissal request as that rule would "contravene the
inherently voluntary nature of arbitration." Therefore, the trial court erred in
not vacating the arbitration award because the panel failed to properly exercise
its discretion when it had a proper reason to terminate the arbitration
proceedings.
There is no merit to Tee and Gee's contentions to vacate the arbitration
award. The panel did not exceed its authority under the MGA, Illinois law, nor
AAA rules in proceeding with the arbitration and issuing its award even though
the parties requested the arbitration be dismissed without prejudice.
There is no provision of the MGA which addresses the dismissal of
arbitration once one of the parties has demanded arbitration, but they
subsequently mutually agreed to dismiss the proceeding. Under Illinois law,
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735 ILCS 5/2-1009(a),2 a plaintiff's right to voluntary dismissal without
prejudice is relatively unfettered––aside from the noted two inapplicable
exceptions––if costs are paid. See Morrison, 729 N.E.2d at 488. Thus, the
panel's condition of requiring payment of arbitration fees to dismiss arbitration
was consistent with Illinois law, and Tee and Gee has no reasonable basis to
complain that its request to dismiss arbitration was not honored when it failed
to pay its share of arbitration fees.
The AAA rules do not include a provision governing voluntary dismissal.
AAA Rule 57(e), however, states "the arbitrator . . . at the request of the AAA
or a party[] may order the suspension of the arbitration" upon nonpaym ent of
fees. And AAA Rule 57(f) permits the arbitrator, following suspension for
nonpayment, to terminate proceedings if the parties fail to pay within the time
requested. This rule gives the panel the discretion to suspend or terminate
arbitration, but it does not require the proceeding to be dismissed. We thus agree
with AMIC that the panel had authority under AAA Rule 47(b) to rule on all
pre-hearing matters, including the joint proposal to dismiss arbitration without
2
735 ILCS 5/2-1009(a) provides: "The plaintiff may, at any time before trial
or hearing begins, upon notice to each party who has appeared or each such
party’s attorney, and upon payment of costs, dismiss his or her action or any part
thereof as to any defendant, without prejudice, by order filed in the cause."
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prejudice and conduct a separate arbitration between UFIC and Tee and Gee.
Even if the AAA Rules did not specifically give the panel authority to place
conditions on the dismissal request, the MGA required the panel to apply Illinois
law to prescribe the arbitration procedures––which it did. See Vasa N. Atl. Ins.
Co. v. Selcke, 633 N.E.2d 865, 868 (Ill. App. Ct. 1994).
In short, the panel granted the parties' request to dismiss the arbitration
without prejudice subject to payment of arbitration fees. Thus, the panel did not
exceed its authority by going forward with arbitration because Tee and Gee did
not pay its share of the arbitration fees.
B.
Tee and Gee contends the arbitration was fundamentally unfair because
the panel prejudiced its right to present material evidence by only allowing it to
provide a written submission and not affording it the opportunity to present
witness testimony, cross-examine AMIC's witnesses, and make oral argument at
a hearing. Tee and Gee contends the lack of a hearing violated both the AAA
rules and Illinois law.
Tee and Gee maintains the panel failed to adhere to AAA Rule 32, which
requires direct and cross-examination of witnesses. AAA Rule 32(d) specifies
that the only instance where an oral hearing cannot be held is when both parties
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waive oral hearing. Additionally, AAA Rules 24-29 calls for an oral hearing in
all arbitrations by detailing the procedural and logistical operations of an
arbitration hearing. Since Tee and Gee did not waive an oral hearing, it asserts
the panel exceeded its authority by unilaterally dispensing with an oral hearing.
Tee and Gee's reliance on AAA Rules 24-29 and 32 is misplaced because
the panel limited arbitration to written submission without a hearing, where
there could be direct and cross-examination of witnesses, as a sanction for Tee
and Gee's non-compliance with the panel's pre-hearing security order. In
accordance with the expansive discretion permitted under AAA Rule 58(a),3 the
panel limited the parties' participation in the arbitration to written submissions,
including factual contentions and legal arguments, prior to making its decision
and issuing an award. Given that both parties were subject to the same
3
AAA Rule 58(a) states:
The arbitrator may, upon a party’s request, order
appropriate sanctions where a party fails to comply
with its obligations under these rules or with an order
of the arbitrator. In the event that the arbitrator enters
a sanction that limits any party’s participation in the
arbitration or results in an adverse determination of an
issue or issues, the arbitrator shall explain that order in
writing and shall require the submission of evidence
and legal argument prior to making of an award. The
arbitrator may not enter a default award as a sanction.
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limitations, Tee and Gee was not disadvantaged in presenting its positions to the
panel. By deciding the matter on the papers, the panel issues an award in a faster
and less costly manner. Furthermore, the proceedings were fundamentally fair
under the AAA Rules, and Tee and Gee was not prejudiced. See AAA Rule
32(a) ("The arbitrator has the discretion to vary this procedure, provided that the
parties are treated with equality and that each party has the right to be heard and
is given a fair opportunity to present its case.").
With respect to Illinois law, Tee and Gee asserts 710 ILCS 5/5 of the
Illinois Uniform Arbitration Act, 710 ILCS 5/1 to 5/23, grants the right to an
oral arbitration hearing "unless otherwise provided by the agreement." Tee and
Gee relies upon Generica Ltd. v. Pharm. Basics, Inc., 125 F.3d 1123, 1130 (7th
Cir. 1997) and Int'l Bhd. Elec. Workers v. CSX Transp., Inc., 446 F.3d 714, 720
(7th Cir. 2006), for the proposition that the parties must be allowed to present
evidence at a hearing for arbitration to be fundamentally fair. While 710 ILCS
5/5 provides parties to an arbitration are entitled to be heard, present evidence,
and cross-examine witnesses, the panel's decision can only be vacated if, under
710 ILCS 5/12(a)(4), the denial of cross-examination substantially prejudiced a
party's rights. This was not the case as Tee and Gee's arguments were heard
through its written submission, including its documentary evidence and
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affidavits. See Griffin Indus., Inc. v. Petrojam, Ltd., 58 F. Supp. 2d 212, 220
(S.D.N.Y. 1999) (reviewing a final arbitration order under §10(a)(3) of the
Federal Arbitration Act, which is materially identical to 710 ILCS 5/12(a)(4),
the court determined "as long as an arbitrator's choice to render a decision based
solely on documentary evidence is reasonable[] and does not render the
proceeding 'fundamentally unfair[]' the arbitrator is acting within the liberal
sphere of permissible discretion."). Tee and Gee's contentions are based upon
its expectation as if the parties' dispute was decided in a trial court proceeding.
Arbitration, however, is not equivalent to trial court litigation and is "a system
essentially structured without due process, rules of procedure, rules of evidence,
or any appellate procedure." Hawrelak v. Marine Bank, 735 N.E.2d 1066, 1070
(Ill. App. Ct. 2000). Despite these differences, Tee and Gee's rights were
substantially protected under Illinois law by the panel.
Tee and Gee contends the MGA provision stating the parties will arbitrate
in New Jersey is indicative of their intent to have an arbitration hearing. Tee
and Gee further explains there is no MGA provision in which Tee and Gee
waived its right to a hearing or authorized the panel not to conduct a hearing as
a sanction. While it was contemplated that a hearing would be held in New
Jersey, there is nothing in the MGA requiring the panel to conduct a hearing.
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Moreover, as noted, the lack of a hearing was the result of the panel's sanction ,
which it had the discretion to impose––and did so, fairly and without prejudice
to Tee and Gee.
Lastly, Tee and Gee argues the panel could not evaluate witness credibility
through the conflicting affidavits submitted by the parties as it states in its
ruling. Without the ability to cross-examine AMIC's affiants or submit
responses to their affidavits, Tee and Gee states it was denied due process. We
realize that, if properly executed, cross-examination is an effective tool to reveal
the truth of a witness's assertions. Nevertheless, in examining the totality of the
circumstances, we conclude the panel's sanction to evaluate the witnesses'
credibility based solely on written affidavits is not a sufficient reason to vacate
the panel's award given our limited review. The panel based its decision on a
full and fair presentation by the parties, albeit in writing. Tee and Gee has not
shown how a hearing in which the panel could assess the credibility of witnesses
by seeing them testify would have benefitted its position.
To the extent we have not specifically addressed any of Tee and Gee's
arguments, we conclude they lack sufficient merit to warrant discussion in a
written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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