Scottsdale Insurance Company v. John Deere Insurance Company

Filing 33

ORDER: Petitioner Scottsdale Insurance Company's Motion for an Order to Modify or Correct Arbitration Award 19 is denied; Respondent John Deere Insurance Company's Motion to Confirm Award and Enter Judgment 22 is granted; the Final Awar d of the Arbitration Panel, dated 1/14/15, is confirmed by the Court; Respondent John Deere Insurance Company is awarded its reasonable attorneys' fees and costs it incurred in seeking the confirmation of the final arbitration award as provided in this Order, its application for fees and costs shall be filed no later than 3/18/16; the Clerk shall enter a judgment in favor of respondent John Deere Insurance Company confirming the Final Award of the Arbitration Panel, dated 1/14/15. Signed by Senior Judge Paul G Rosenblatt on 2/16/16. (REW)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9
10
11
12
13
14
15

)
In re Arbitration Proceeding Between: )
Scottsdale Insurance Company,
)
)
Petitioner,
)
)
vs.
)
)
John Deere Insurance Company,
)
)
Respondent.
)

No. CV-15-00671-PHX-PGR
ORDER

16

Petitioner Scottsdale Insurance Company (“Scottsdale”) commenced this

17

action by filing a Petition for an Order to Modify or Correct Arbitration Award (Filed

18

Doc. 18). In response thereto, respondent John Deere Insurance Company (“John

19

Deere”) filed a Cross-Application for Confirmation of Arbitration Award and Entry of

20

Judgment (Filed Doc. 26). Pending before the Court are Scottsdale’s Motion for an

21

Order to Modify or Correct Arbitration Award (Filed Doc. 19) and John Deere’s

22

Motion to Confirm Award and Enter Judgment (Filed Doc. 22). Having considered

23

the parties’ memoranda, the Court finds that the arbitration award should be

24

confirmed as entered by the arbitration panel.1

25
26

1

The Court has intentionally discussed herein only those arguments it
considered necessary to resolve the issue of whether the arbitration award should

1

Background

2

This diversity of citizenship-based matter arises from two reinsurance

3

agreements between the parties. Scottsdale, after settling a consolidated class

4

action proceeding, known as the Billieson action, against its insured for $57 million,

5

allocated the settlement amount equally between the two policy years covered by

6

its insurance and then billed the loss payment to its reinsurers, one of which was

7

John Deere, as ten occurrences in each policy year. Scottsdale billed John Deere

8

the sum of $1,173,014.26 based on its calculation of the percentage of loss that

9

John Deere assumed through its reinsurance agreements. John Deere disputed

10

Scottsdale’s settlement amount and the manner in which Scottsdale allocated the

11

settlement to various occurrences. Pursuant to a binding arbitration provision in the

12

reinsurance agreements, the parties submitted their dispute to a three-person

13

arbitration panel consisting of insurance and reinsurance professionals.

14

arbitration panel, after conducting a three-day hearing and considering additional

15

post-arbitration briefing, issued its final award on January 14, 2015. The final award

16

stated in its entirety:

17
18
19
20
21
22

The

After conducting a final hearing in this arbitration between
Scottsdale Insurance Company (“Scottsdale”), on the one hand; and
John Deere Insurance Company (“John Deere”), on the other hand; on
October 28, 2014, October 29, 2014 and December 17, 2014;
considering testimony, documentary evidence, briefs, and arguments
of the parties; and deliberating on these matters, the Panel, hereby;
1. Declares that the September 15, 2002 trial court ruling in the
Billieson action is not binding on Scottsdale as “law of the case”;

23
24
25
26

be confirmed or modified, and other arguments raised by the parties, such as John
Deere’s argument that Scottsdale’s acceptance of its payment of the award amount
constituted an accord and satisfaction, were deemed not to be necessary to that
resolution.
-2-

1
2
3
4
5

2. Directs John Deere to pay its respective share of reinsurance,
based on an adjusted settlement amount of $43.16 million for
reinsurance billing purposes, which results in a total payable by John
Deere of $888,198.12 within fourteen (14) calendar days of this award;
3. The Panel determined that no other further relief is award in
this arbitration[.]

6

John Deere has paid Scottsdale the amount ordered by the arbitration panel.

7

Discussion

8

In its petition, Scottsdale seeks to modify and correct the arbitration award

9

pursuant to § 11(a) of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 11(a), and the

10

Arizona Uniform Arbitration Act, A.R.S. § 12-1513(A)(1); in its memoranda,

11

Scottsdale relies mainly on Arizona law to support its position, whereas John Deere

12

contends that the FAA governs this matter.

13

Both reinsurance agreements provided that “[t]o the extent not otherwise

14

mutually agreed or provided for in this Article, the procedures and rules applicable

15

to arbitration under the laws of the state of Arizona, as from time to time set forth, will

16

govern the procedures of the arbitration with the appointed umpire fulfilling the rule

17

and authority of the judge unless the parties otherwise mutually agree.” The same

18

arbitration article in both agreements further provided that “[e]ither party may apply

19

to the United States District Court in Arizona for an order confirming the award; a

20

judgment of such Court will thereupon be entered on the award.”

21

The Court concludes that while Arizona law governed the procedures

22

applicable to the arbitration process itself, the parties’ arbitration provision does not

23

clearly and unambiguously provide that Arizona law is to govern the procedure for

24

confirming the arbitration award. Fidelity Federal Bank v. Durga Ma Corp., 386 F.3d

25

1306, 1311-12 (9th Cir.2004) (Court noted that there is a strong presumption that the

26

-3-

1

FAA, not state law, supplies the rules for arbitration and that to overcome that

2

presumption, the parties to an arbitration agreement “must evidence a clear intent

3

to incorporate state rules for arbitration.”)

4

concluded that an arbitration clause providing that disputes were to be resolved by

5

arbitration “in accordance with the laws of the State of California and the rules of the

6

American Arbitration Association” meant that the parties elected California

7

substantive law but federal procedural law and that a challenge to the arbitration

8

award had to be resolved under the FAA.) (some internal quotation marks omitted).

9

The Court will thus resolve the issues involved in this action pursuant to the FAA. Cf.

10

Kyocera Corp. v. Prudential-Bache Trade Services, Inc., 341 F.3d 987, 1000 and

11

1003 (9th Cir.2003) (en banc) (Court, in concluding that “[p]rivate parties may design

12

an arbitration process as they wish, but once an award is final for the purpose of the

13

arbitration process, Congress has determined how the federal courts are to treat that

14

award[,]” further stated that “[o]nce a case reaches the federal courts, ... the private

15

arbitration process is complete, and because Congress has specified standards for

16

confirming an arbitration award, federal courts must act pursuant to those standards

17

and no others.”)

Based on this standard, the court

18

Under the FAA, the Court’s authority to review an arbitration award is

19

exceedingly limited. Id., at 998 (The FAA provides “an extremely limited review

20

authority[.]”); accord, U.S. Energy Corp. v. Nukem, Inc., 400 F.3d 822, 830 (10th

21

Cir.2005) (“[T]he standard of review of arbitral awards is among the narrowest

22

known to the law.”) (internal quotation marks omitted); AIG Baker Sterling Heights

23

v. American Multi-Cinema, 508 F.3d 995, 1001 (11th Cir.2007) (same); Maine Central

24

Railroad Co. v. Brotherhood of Maintenance of Way Employees, 873 F.2d 425, 428

25

(1st Cir.1989) (same).

26

-4-

1

Section 9 of the FAA mandates that the award must be confirmed unless it is

2

required to be vacated, modified or corrected under §§ 10 or 11. Scottsdale

3

contends that the award must be modified pursuant to § 11(a), which permits an

4

application to modify or correct an arbitration award “[w]here there was an evident

5

material miscalculation of figures or an evident material mistake in the description

6

of any person, thing, or property referred to in the award.”2 Scottsdale’s argument

7

is that the arbitration panel committed a computational error that is plain on the face

8

of the award because

9
10
11
12
13
14
15
16

in identifying $888,198.12 as the amount of [John Deere’s] respective
share of reinsurance, the panel miscalculated the manner in which the
respective layers of reinsurance applied to the loss. Rather than
calculate [John Deere’s] respective share of reinsurance based on its
respective share of the limit and retention applicable to the “adjusted
settlement amount,” the panel appears to have simply reduced the
original amount billed in proportion to the reduction in the overall
settlement amount. As a result, the amount the Award directs [John
Deere] to pay - $888,198.12 - is $284,816.20 less than [John Deere’s]
actual “respective share of reinsurance” based on the adjusted
settlement amount.

17
18

Under § 11(a), the issue to be resolved by the Court is not whether the

19

arbitration panel reached what the Court believes is the correct decision based on

20

the underlying facts, but solely whether the panel’s alleged mathematical

21

miscalculation is plainly evident from the face of the award. See e.g., Apex Plumbing

22

Supply v. U.S. Supply Co., 142 F.3d 188, 194 (4th Cir.1998) (Court held that an

23
24
25
26

2

Scottsdale’s reliance on Arizona law does not change the outcome here
because Arizona’s standard for modifying or correcting an arbitration award under
A.R.S. § 12-1513(A)(1) is the same as that under § 11(a).
-5-

1

arbitration award could not be modified under § 11(a) because the alleged

2

mathematical miscalculation was not “evident” because it did not appear on the face

3

of the award.) Notwithstanding Scottsdale’s contention that the award provides the

4

necessary input for the Court to conclude that the panel miscalculated the amount

5

due Scottsdale, the Court concurs with John Deere that a finding of a computational

6

error would require improper speculation because such an error is not patently

7

obvious from the face of the award.

8

The panel’s award did not detail its computational reasoning, and the panel

9

was not required to do so. A.G. Edwards & Sons v. McCollough, 967 F.2d 1401,

10

1403 (9th Cir.1992) (“[A]rbitrators are not required to state the reasons for their

11

decisions[,]” and “[t]he rule that arbitrators need not state their reasons presumes the

12

arbitrators took a permissible route to the award where one exists.”) As the record

13

shows, Scottsdale submitted a proposed form of an award to the panel wherein it

14

requested a payment of $1,173,014.20 from John Deere, which is an amount that

15

the panel obviously rejected. See McIlroy v. Painewbber, Inc., 989 F.2d 817, 821 (5th

16

Cir.1993) (“Receipt of less than one requests in an arbitration proceeding does not,

17

standing alone, constitute a miscalculation under section 11 of the [FAA].”); Kenneth

18

H. Hughes, Inc. v. Aloha Tower Development Corp., 654 F.Supp.2d 1142, 1152

19

(D.Hawaii 2009) (“The fact that the arbitrator did not agree with all of Petitioner’s

20

damage estimates, and granted Petitioner less money that requested, is not

21

evidence of a material miscalculation.”) Although Scottsdale asserts that the panel

22

found that Scottsdale’s billing of the loss as ten occurrences was proper, the Court

23

cannot determine the correctness of that assertion from the face of the award given

24

that the panel’s award did not include Scottsdale’s proposed award provision to that

25
26

-6-

1

effect and the award did not otherwise specifically say anything about the issue.3

2

Scottsdale also asserts that the panel’s reduction in the per occurrence loss amount

3

from $2,800,000 to $2,158,000 in its award did not result in a reduced payment by

4

reinsurers and that John Deere’s “respective share of reinsurance” based on the

5

adjusted settlement amount remained the same as the amount that Scottsdale

6

originally billed it. The Court also does not know whether this assertion is correct

7

since the face of the award does not set forth how or why the panel reduced the per

8

occurrence loss amount, if that is in fact what it did to reach its adjusted settlement

9

amount. While Scottsdale’s contention that the panel erred by misapprehending the

10

reinsurance agreements’ retention and limit provisions in arriving at its award

11

amount may be correct, it is well established, given the FAA’s highly deferential

12

standard of review, that neither an arbitration panel’s erroneous legal conclusions

13

nor unsubstantiated factual findings justify federal court review of an arbitral award.

14

Bosack v. Soward, 586 F.3d 1096, 1102 (9th Cir.2009); French v. Merrill Lynch,

15

Pierce, Fenner & Smith, Inc., 784 F.2d 902, 905 (9th Cir.1986); accord, Apex

16

Plumbing Supply, 142 F.3d at 194 (“[C]ourts have held generally that even a mistake

17

of fact or misinterpretation of law by an arbitrator provides insufficient grounds for the

18

modification of an award.”); see also, Kyocera, 342 F.3d at 1003 (“The risk that

19

arbitrators ... may make errors with respect to the evidence on which they base their

20
21
22
23
24
25
26

3

The record establishes that Scottsdale’s proposed award included a
provision that stated that the panel “[d]eclares that Scottsdale’s presentation of the
Billieson class action loss settlement as ten ‘occurrences’ under the terms of the
Casualty Excess of Loss Reinsurance Agreements ... is reasonable and
permissible[.]” For a reason not explained in the panel’s award, that proposed
provision was not included in the final award. The Court cannot determine from the
face of the award whether the panel’s computation was based on its agreement or
disagreement with Scottsdale’s position as to this issue.
-7-

1

rulings, is a risk that every party to arbitration assumes[.]”)

2

Since the Court cannot grant Scottsdale’s motion to modify or correct the

3

arbitration award based on its conclusion that there is no “evident material

4

miscalculation” or other basis justifying Scottsdale’s request, it concludes that John

5

Deere’s motion to confirm the award should be granted pursuant to the mandatory

6

terms of § 9 of the FAA.

7

confirmation order is necessary or proper since John Deere has already paid the

8

award. Collins v. D.R. Horton, Inc., 361 F.Supp.2d 1085, 1093 (D.Ariz. 2005) (In a

9

confirmation action in which the defendant argued that the plaintiffs’ confirmation

10

request was spurious because they had already paid the arbitration award, the court,

11

noting that satisfaction of an arbitration award and confirmation of the award are

12

separate issues, rejected the defendant’s argument on the ground that § 9 of the

13

FAA is phrased in mandatory terms that require the entry of a confirmation order

14

unless the arbitration award is modified, corrected or vacated.); accord, Gorsuch,

15

Ltd. v. Wells Fargo National Bank Ass’n, 2013 WL 4494304, at *1-2 (D.Colo. Aug.

16

21, 2013) (Court concluded that confirmation of an arbitration award was required

17

by § 9 of the FAA notwithstanding that the award had been complied with because

18

there was no basis for vacating, modifying or correcting the award.)

The Court rejects Scottsdale’s argument that no

19

John Deere has requested an award of its reasonable attorneys’ fees and

20

costs incurred in seeking confirmation of the arbitration award, which Scottsdale

21

opposes. While there is nothing in the FAA which provides for attorney’s fees to a

22

party who is successful in obtaining confirmation of an arbitration award, Menke v.

23

Monchecourt, 17 F.3d 1007, 1009 (7th Cir.1994), both of the parties’ reinsurance

24

agreements specifically provided that if this Court enters an order confirming the

25

arbitration award, “the attorneys’ fees of the party so applying and court costs will be

26

-8-

1

paid by the party against whom confirmation is sought.” The Court will grant John

2

Deere its reasonable fees and costs associated with its application and motion to

3

confirm the arbitration award, provided that it timely files an application for its fees

4

and costs that complies with the requirements of LRCiv 54.2(d) and (e). Scottsdale

5

may file a timely response to John Deere’s application in compliance with LRCiv

6

54.2(f). Therefore,

7
8
9

IT IS ORDERED that petitioner Scottsdale Insurance Company’s Motion for
an Order to Modify or Correct Arbitration Award (Filed Doc. 19) is denied.
IT IS FURTHER ORDERED that respondent John Deere Insurance

10

Company’s Motion to Confirm Award and Enter Judgment (Filed Doc. 22) is granted

11

and that the Final Award of the Arbitration Panel, dated January 14, 2015, is

12

confirmed by the Court pursuant to § 9 of the Federal Arbitration Act, 9 U.S.C. § 9.

13

IT IS FURTHER ORDERED that respondent John Deere Insurance Company

14

is awarded its reasonable attorneys’ fees and costs it incurred in seeking the

15

confirmation of the final arbitration award as provided in this Order, and its

16

application for fees and costs shall be filed no later than March 18, 2016.

17

IT IS FURTHER ORDERED that the Clerk of the Court shall enter a judgment

18

in favor of respondent John Deere Insurance Company confirming the Final Award

19

of the Arbitration Panel, dated January 14, 2015.

20

DATED this 16th day of February, 2016.

21
22
23
24
25
26

-9-