Fire & Casualty Ins v. Trustmark Ins Co
Filing
205
ORDER: The Court declines to adopt the Report and Recommendation 199 . Petitioner's motion to enforce the judgment 103 is DENIED, and Respondent's motion to reinstate the July 2009 Order 106 is DENIED as moot, to the extent that Respon dent seeks to reinstate the July 2009 Order, and GRANTED, to the extent that the Court recognizes the 2007 Amended Judgment as the Final Judgment. Respondent's Motion to Strike 108 is also DENIED. Signed by Judge Janet Bond Arterton on 3/29/2013. (Flagg, K.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
ARROWOOD INDEMNITY COMPANY, as
successor to FIRE AND CASUALTY INSURANCE
COMPANY OF CONNECTICUT,
Petitioner,
Civil No. 3:03cv1000 (JBA)
v.
TRUSTMARK INSURANCE COMPANY,
Respondent.
March 29, 2013
MEMORANDUM OF DECISION
Pending before the Court is Petitioner Fire and Casualty Insurance Company’s
(“FCIC”)1 motion [Doc. # 106] for an order granting its motion for judgment and for
contempt, based on the evidentiary record developed, and for entry of judgment against
Respondent Trustmark for $9,424,337, and Respondent Trustmark Insurance Company’s
(“Trustmark”) motion [Doc. # 103] to reinstate the Court’s July 15, 2009 Order and
vacate the Panel’s Second Reply, dated June 24, 2010.2
In 2011, the judge originally assigned to this case, the Honorable Peter C. Dorsey,
referred this matter to Magistrate Judge Thomas P. Smith for an evidentiary hearing,
which Judge Dorsey had originally been scheduled to conduct. (See Scheduling Order
[Doc. # 115].) At the time of Judge Dorsey’s death, this hearing had already taken many
1
Arrowood Indemnity Company is the successor by merger in 2007 to Security
Insurance Company of Hartford, which in turn was the successor by merger in 2004 to
Fire and Casualty Insurance Company of Connecticut. (See Pet.’s Mem. Supp. [Doc. # 492] at 1 n.1). For brevity, the Court refers to Petitioner as “FCIC.”
2
Also pending is Respondent’s motion [Doc. # 108] to strike portions of
Petitioner’s motion for judgment and contempt. Inasmuch as the Court is considering the
parties’ motions on the basis of the evidentiary record that has been created,
Respondent’s motion [Doc. # 108] to strike portions of Plaintiff’s motion is DENIED.
days, and after case reassignment, this Court ordered expedited conclusion of this
prolonged hearing. (See Ruling on Motions and Order of Referral [Doc. # 170].) In total,
Magistrate Judge Smith presided over “at least fifteen days of evidentiary hearings and
many hours of argument,” and has issued his Report and Recommendation [Doc. # 199]
(“R&R”), to which Respondent objects on numerous grounds and which Petitioner seeks
to modify slightly.
For the reasons that follow, the Court declines to adopt the R&R, concludes as a
matter of law that the 2007 Amended Judgment confirming the arbitration award is the
final judgment, and based on the evidentiary record developed, denies Petitioner’s
motion for an order of contempt and entry of judgment against Trustmark. The Court
also denies Respondent’s motion to reinstate the Court’s 2009 Order.
Factual Background3
I.
FCIC was Trustmark’s fronting reinsurance company, pursuant to which it
entered into a Reinsurance Agreement with UniCARE (now Fremont
Indemnity
Company). FCIC submitted to Trustmark for payment the payments it had made to
UniCARE/Fremont which Trustmark disputed were covered under the Parties’
Retrocession Agreements, as well as Trustmark’s future obligations. These issues were
submitted by Trustmark and FCIC to an arbitration. This case originated with a petition
to confirm the ensuing arbitration award, but has transmogrified over the years to
become the antithesis of the speedy, inexpensive dispute resolution process that the
Federal Arbitration Act (“FAA”) intends. See Conticommodity Serv., Inc. v. Philipp &
Lion, 613 F.2d 1222, 1224 (2d Cir.1980) (“Arbitration is intended to provide the parties to
3
For a full recitation of the facts underlying this dispute, see Ruling and Order
Staying the Proceeding [Doc. # 43] at 2–6.
2
a dispute with a speedy and relatively inexpensive trial before specialists.”); see also 9
U.S.C. § 1 et seq. Briefly, the Arbitration Panel selected by the parties to resolve these
disputes issued an award on May 23, 2003, which found that “[u]nder the terms of the
Retrocession Agreement, Trustmark did not assume liability for the following:
(a) Small group business as defined in the broker placing material
dated February 26, 1998;
(b) Fines, interests or penalties assessed under the California Labor
Code against UniCARE or its designated agents; and
(c) Continuous trauma claims allocable to periods outside that
covered by the Retrocession Agreement.
2. As of February 28, 2003, UniCARE/Fremont has misallocated and
improperly reported to FCIC and Trustmark for payment pursuant to the
Reinsurance Agreement the following for which Trustmark did not
assume liability under the Retrocession Agreement:
Small Group:
$ 837, 026
Continuous Trauma Claims: $ 8,470,119
Fines, Interest, and Penalties: $117,192
TOTAL: $9,424,337
3. The Panel finds that $15,766,788 less $9,424,337 . . . or $6,342,451 is due
and owing to FCIC by Trustmark.4
4. Panel believes that FCIC is entitled to reimbursement of the $9,424,337
paid by it to UniCARE/Fremont pursuant to the Reinsurance Agreement.
The Panel hereby orders the following alternative procedures regarding
this matter:
(a) In the event that FCIC, in its sole discretion, determines that
offset will not provide it with the timely recapture of these monies,
it may pursue its arbitration or other legal rights pursuant to the
Reinsurance Agreement and applicable state law. Because the
evidence of the misallocated and improperly reported amounts set
forth in Paragraph 2 above resides in the hands of Trustmark and
its witnesses, FCIC shall, in its sole discretion, prepare and execute
a power of attorney enabling Trustmark to initiate an arbitration or
other appropriate legal proceeding in FCIC’s name against
4
Trustmark has already paid FCIC this undisputed amount.
3
UniCARE/Fremont. FCIC shall bear all the expenses in connection
with this arbitration or other legal proceeding. In the event that the
arbitration or other legal expenses exceed 25% of the ultimate
award, Trustmark shall pay one-half of any such expenses in excess
of 25%. In the event that it is found in an arbitration or other legal
proceeding that UniCARE/Fremont did not misallocate or
improperly report to FCIC and Trustmark any or all of the
amounts set forth in Paragraph 2 above, Trustmark shall promptly
return such amounts to FCIC.
(b) In the event that Trustmark refuses to bring an arbitration
proceeding on behalf of FCIC against UniCARE/Fremont within
six (6) months from the date of the execution of the FCIC power of
attorney, then it shall pay $9,424,337 to FCIC.
(c) In the event that UniCARE/Fremont voluntarily pays
$9,424,337 to FCIC, no arbitration or other legal proceeding . . . is
necessary.
(d) In the event that FCIC decides not to seek reimbursement of
the amounts set forth in Paragraph 2 above or enforce its rights by
means of an arbitration or other proceeding against
UniCARE/Fremont pursuant to Paragraph 4(a) above, Trustmark
shall have no responsibility to FCIC for the amounts set forth in
Paragraph 2 above.
(e) In any proceeding conducted pursuant to Paragraph 4(a) above,
both FCIC and Trustmark shall afford each other full and complete
cooperation.
(Award, Ex. D to Grais Decl. [Doc. # 8] at 2–3.)
This arbitration award was confirmed on Petitioner’s application on July 21, 2003
[Doc. # 19]. More than three years later, and after UniCARE/Fremont was ordered into
liquidation proceedings, Petitioner moved for a finding of contempt against Trustmark,
because it had not brought “an arbitration proceeding on behalf of FCIC against
UniCARE/Fremont” under the literal terms of ¶ 4(b) of the award. In the context of the
Award as a whole, Trustmark claimed, and Judge Dorsey agreed, that 4(b) was ambiguous
4
because of its omission of “or other legal proceeding” from only ¶ 4(b). Hence Judge
Dorsey remanded the award to the Panel and asked for “instruction . . . as to whether it
was Trustmark’s option to pursue the question of redress of the $9,424,337 in another
legal proceeding, without altering Trustmark’s ultimate responsibility to FCIC,
diminished only by whatever it received from arbitration or any other legal proceeding, if
anything.” (Ruling and Order Staying the Proceeding at 9.) In April 2007, the Panel
clarified that Trustmark had the option to “pursue the question of redress” in “another
legal proceeding” in addition to arbitration. (See April 21, 2007 Panel Reply [Doc. # 46].)
Judge Dorsey entered an amended judgment confirming the award, with this clarification
on June 1, 2007. (See Amended Judgment [Doc. # 48].)
Thereafter, on November 25, 2008, Petitioner again moved for contempt against
Trustmark, this time because Trustmark did not pursue setoff remedies on FCIC’s behalf.
In July 2009, Judge Dorsey denied this motion for contempt and for entry of judgment
against Trustmark, ruling that in spite of Petitioner’s contention that the filing of a Class
7 claim in the UniCARE/Fremont liquidation would be “worthless,” “[t]he Award does
not require Trustmark to take any particular action in the legal proceedings on behalf of
Trustmark.”5 (See Order on Motions for Judgment and to Dismiss [Doc. # 74] at 5.) He
found that Respondent had not violated a court order, and thus could not be found in
contempt, and rejected Petitioner’s assertion that the arbitration award required
Trustmark to exercise set off on behalf of FCIC, noting “[t]he Award is clear that FCIC
could choose either to exercise a right of set off or to have Trustmark pursue a legal
proceeding on its behalf. FCIC chose the lat[t]er, apparently preferring a legal proceeding
to set off.” (Id.)
5
This is the Order that Respondent asks the Court to reinstate.
5
Petitioner then moved for reconsideration of this Order, and in October 2009,
though Judge Dorsey declined to alter his Order after reconsideration, he stated that he
had been persuaded that another ambiguity had arisen, this time from the language of the
April 21, 2007 Panel Reply’s to the remand order:
The parties have convincingly disputed whether the phrase “ultimate
responsibility,” as used in the April 21, 2007 Response re Ruling and
Order, includes a duty by Trustmark to pay FCIC the $9,424,337 in
question. . . . As the dispute at hand concerns the scope of the Arbitration
Award, the Arbitration Panel is the most appropriate body to clarify the
meaning of the above phrase.
(Order on Motion for Reconsideration [Doc. # 84] at 2.) This phrase does not appear in
the original award, only in the remanded question and Panel Reply incorporation of it.
Judge Dorsey remanded four questions to the Panel, which the Panel majority addressed,
over Respondent’s objection, in the July 2010 Reply.6 Two of these questions, with the
Panel majority’s responses, are reproduced below.
I)
If Trustmark fails to recover anything from the Fremont estate, is
Trustmark liable to FCIC for the $9,424,337?
Panel Response. Based on the record before us, the Panel’s answer is yes
by a majority vote. If the Panel were to have conducted a post–Final Order
evidentiary proceeding, we would have endeavored to determine the facts
and the law regarding two key issues: (1) Whether Respondent, as
attorney–in–fact appointed pursuant to the Petitioner’s . . . Forward–
Looking Power of Attorney and . . . Misallocation Power of Attorney,
breached any of its duties to the Petitioner as its attorney–in–fact under
the two powers of attorney. . . . The Panel Majority rejects Respondent’s
interpretation of Para. 4(a) of our final Order, i.e., that Petitioner’s
determination that offset would not provide it with the timely recapture of
the $9,424,337 paid by it to Fremont and its decision to execute the
6
When the Panel majority proceeded to respond substantively, it is likely that at
that point this case entered what Magistrate Judge Smith calls the “Big Muddy,” because
the panel was then functus officio, both parties had not agreed to the Panel’s further
actions and its responses did not simply clarify the original award. The Court addresses
this issue infra in Section II.A.
6
Misallocation Power of Attorney and file a proof of claim in the Fremont
liquidation proceeding precluded the assertion of those setoff rights in any
subsequent arbitration or other legal proceeding initiated by Respondent
in Petitioner’s name against Fremont. It was our intent that Petitioner’s
setoff rights could be pursued in any subsequent arbitration or other legal
proceeding regardless of whether it was initiated by Petitioner itself or by
Respondent as its attorney-in-fact.
If the answer to question I is ‘yes,’ is Trustmark liable to FCIC for the
$9,424,337 even if Trustmark used best faith efforts to recover the sum
from Fremont?
Panel Response. If “best faith efforts” means Respondent’s full and
complete compliance with all of its duties as attorney-in-fact to its
principal, the Petitioner . . . the answer is no; however, such a
determination would be contingent upon the findings of fact and
conclusions of law reached with regard to the issues set forth above in the
Panel majority’s response to Question I which this Panel cannot do
because it is beyond what we were asked to arbitrate.
II)
(June 24, 2010 Panel Reply [Doc. # 102-1.)
Thus, after the Panel’s second response, this case morphed into an evidentiary
hearing on whether Respondent’s post–arbitration conduct in pursuing a Class 7 claim in
the liquidation proceeding as “an arbitration or other appropriate legal proceeding in
FCIC’s name against UniCARE/Fremont” (Award ¶ 4(a)) reflected a reasonable discharge
of its duties under the Award. This evidentiary record is now available for this Court’s use
in deciding Petitioner’s motion for contempt and for judgment.
II.
Discussion
A. Respondent’s Motion to Dismiss for Lack of Subject Matter
Jurisdiction
The FAA provides the exclusive, and limited, authority for federal court review of
an arbitral award, Hall St. Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), and
Respondent maintains that the second round of questions should not have been
remanded to the Panel in 2009 because the arbitration panel, having decided the
7
submitted issues in 2008, was functus officio, i.e., “discharged from its work,” and lacked
the authority to further consider its award in the context of the 2009 remand.
Section 10 of the FAA only allows a district court to vacate an arbitration award
under narrow circumstances: “where the award was procured by corruption, fraud, or
undue means,” “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 “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.” See 9 U.S.C. §§ 10(a)(1)–(4). The award ambiguities asserted and found,
then compounded by subsequent commentary on their intention, arguably support the
“imperfect execution” grounds in this case, but neither party has moved to vacate the
award.
The district court is also limited in its authority to modify or correct an arbitration
award. Section 11 of the FAA provides:
In either of the following cases the United States court in and for the
district wherein the award was made may make an order modifying or
correcting the award upon the application of any party to the arbitration—
(a) Where there was an evident material miscalculation of figures or an
evident material mistake in the description of any person, thing, or
property referred to in the award.
(b) Where the arbitrators have awarded upon a matter not submitted to
them, unless it is a matter not affecting the merits of the decision upon the
matter submitted.
(c) Where the award is imperfect in matter of form not affecting the merits
of the controversy. The order may modify and correct the award, so as to
effect the intent thereof and promote justice between the parties.
9 U.S.C. § 11. In Hall St. Associates, the Supreme Court, construing these sections,
reasoned that “the text compels a reading of the §§ 10 and 11 categories as exclusive. To
8
begin with, even if we assumed §§ 10 and 11 could be supplemented to some extent, it
would stretch basic interpretive principles to expand the stated grounds to the point of
evidentiary and legal review generally.” 552 U.S. at 586. It would be at best, “irregular” to
apply this FAA section to the dispute which has ensued over the Panel majority’s Second
Reply, although “imperfection” is probably an apt term. The mandate to modify or
correct to “promote justice between the parties” would have helped frame the outcome of
pending motions, except that a “modification” on this basis would be time-barred by
Section 12, which provides that the time to modify an award pursuant to § 11 is limited to
three months:
Notice of a motion to vacate, modify, or correct an award must be served
upon the adverse party or his attorney within three months after the award
is filed or delivered. . . . For the purposes of the motion any judge who
might make an order to stay the proceedings in an action brought in the
same court may make an order, to be served with the notice of motion,
staying the proceedings of the adverse party to enforce the award.
9 U.S.C. § 12 (emphasis added). This time limit is “strict.” Argentine Republic v. Nat'l Grid
Plc, 637 F.3d 365, 368 (D.C. Cir. 2011) cert. denied, 132 S. Ct. 761 (2011) (“[C]ourts have
consistently interpreted the FAA notice provision [in section 12] to create a strict
deadline.”); see also Florasynth, Inc. v. Pickholz, 750 F.2d 171, 175 (2d Cir. 1984) (“No
exception to this three month limitations period is mentioned in the statute. Thus, under
its terms, a party may not raise a motion to vacate, modify, or correct an arbitration
award after the three month period has run, even when raised as a defense to a motion to
confirm.”).
Thus, although neither party ever moved to vacate, modify, or correct the award,
Petitioner seeks to “enforce” it by the procedural mechanism of a contempt motion
dependent on Petitioner’s interpretation of the award language, which Respondent has
9
disputed throughout. Moreover, the Panel majority’s second response produced more
than a clarification of its award; it altered its finding of Trustmark’s non-obligations to
FCIC by setting out new means by which Trustmark would become liable to FCIC
(compare May 23, 2003 Award with Panel 2010 Reply).7
Since the Panel issued its final award, and as the Second Panel Reply noted, both
parties did not agree to have the Panel re-determine its award, the Panel was functus
officio at the time it elected to substantively respond to the 2009 questions. “[I]f the
parties have asked the arbitrators to make a final partial award as to a particular issue and
the arbitrators have done so, the arbitrators have no further authority, absent agreement
by the parties, to redetermine that issue.” Trade & Transp., Inc. v. Natural Petroleum
Charterers Inc., 931 F.2d 191, 195 (2d Cir. 1991). While there remains “limited authority”
to remand to a panel “to correct certain mistakes,” such as was done with the first
remand, the Panel was not asked to correct other “evident material mistakes,” see Hyle v.
Doctor’s Assocs., Inc., 198 F.3d 368, 371 (2d Cir. 1999), only to, in effect, give advisory
opinions on the terms used in the questions—i.e., “ultimate responsibility” and “best faith
efforts”—and resultingly expanded its award to encompass further circumstances under
which Respondent would become liable to Petitioner for $9,424,377. (See Panel 2010
Reply at 3–4 (“In the Panel majority’s responses to Questions I, II, and III above, we offer
the Court our assessment of the factual and legal questions at the heart of the current
dispute. To go further would require an evidentiary hearing to determine the post-Final
Order facts and law that we have no power to conduct.”).)
7
The Dissenting Arbitrator, in response to the first question posed on second
remand, noted: “[t]he wording in the Panel’s Final Order [May 2003] is clear and
unambiguous and was specifically designed by the Panel to address Trustmark’s nonobligation to FCIC. . . . Nothing has changed the Panel’s order in this regard.” (See Panel
2010 Reply at 3 (emphasis added).)
10
Thus the Court concludes that the Panel was without authority to further
determine Trustmark’s “ultimate responsibility to FCIC” and role of Trustmark’s “best
faith efforts” beyond its original award, and the 2007 Amended Judgment should remain
in force. Whatever dispute the parties have now about how Trustmark carried out its
duties under its power of attorney (“POA”) is not within the scope of this case and must
be litigated in an independent proceeding.
B. Petitioner’s Motion for Entry of Judgment Against Trustmark
Petitioner asks the Court to enter judgment against Trustmark in the amount of
$9,424,337 because, under the terms of the “clarified” award, it has shown that Trustmark
was “required” to exercise offset on FCIC’s behalf (see Pet’r’s Reply [Doc. # 184] at 2),
and that because it did not, Trustmark is now responsible to FCIC for the $9,424,377.8
The Court has now reviewed the transcripts and exhibits from the evidentiary
hearing afforded to Petitioner on its motions. The record clearly reflects that Respondent
had consistently interpreted the terms of the May 23, 2003 Award differently than did
FCIC—and, it bears noting, in the same manner that Judge Dorsey interpreted the Award
in 2009—i.e., that FCIC could elect to exercise offset on its own behalf or elect to assign
Trustmark POA to bring an arbitration or other legal proceeding to recover the monies.9
8
While FCIC’s expert Mr. Maisel’s opinion addresses the subject of Trustmark’s
duties as attorney–in–fact to its principal, FCIC, albeit without arbitral award context, see
infra, it underscores how far from the original award the Panel majority strayed with its
Second Reply.
9
The parties were aware, as early as 2006, that the Court had interpreted the
Award in this manner. The 2006 Ruling denying Petitioner’s first motion for contempt
[Doc. # 43] stated “[w]hile it is clear and unambiguous that the Order provides FCIC with
two options, either to recapture its monies by offset or to have Trustmark pursue a claim
on FCIC’s behalf in some sort of legal proceeding, the Order is ambiguous as to whether
or not the second alternative requires Trustmark to initiate arbitration or whether
11
The Panel majority “clarified” its original award after the California Liquidation Office
(“CLO”) proceedings were completed to make offset an option available to both FCIC “in
its sole discretion” and Trustmark acting as FCIC’s attorney-in-fact. This, however, does
not render offset a requirement under the award, contrary to Petitioner’s contention.
Thus the Court will analyze whether the evidentiary record supports Petitioner’s claim
that Trustmark failed to discharge its duties in filing a Class 7 unsecured creditor claim
on behalf of FCIC with the CLO such that it should be responsible to FCIC for the
$9,424,337.
The Report of Attorney Christopher Maisel, FCIC’s expert witness on customs
and practices in insurance insolvency—including liquidations under California’s
statutory rubric—provided a general description of how the reinsurance industry
operates in insurance liquidations and how claims are prioritized in California by classes,
with “[c]laims under contracts of reinsurance against the insolvent [such as Respondent
filed] . . . included in Class 7.” (Maisel Expert Report [Pet’r Ex. 54] at 4.) His description
of reinsurers’ customs and practices regarding setoff, however, does not address whether
Trustmark was required to file both setoff and Class 7 claims under the arbitration award.
Thus, while he opines that after the Misallocation POA was issued by FCIC to
Trustmark, Trustmark should have also exercised FCIC’s right of setoff in addition to
filing the proof of claim in the Fremont liquidation estate for the $9,424,377, to put the
burden on the liquidator to arbitrate, he does not relate this duty to the procedure
ordered by the arbitration. The five breaches of duty of care as a fiduciary acting under a
another appropriate legal proceeding will suffice. “ (See Ruling at 7.) FCIC never moved
for reconsideration or appealed the Court’s ruling that the Award unambiguously
“provides FCIC with two options, either to recapture its monies by offset or to have
Trustmark pursue a claim on FCIC’s behalf.” (Id.)
12
power of attorney are not grounded in the duties imposed by the award, and curiously,
when asked by Magistrate Judge Smith whether he had accused Trustmark of breaching
its fiduciary duty, Mr. Maisel responded that “[n]o,” he had not. (Tr. 1253:8–12.)
Although Mr. Maisel’s report tracks FCIC’s position that Trustmark was required
to assert FCIC’s setoff rights, but it does not address in anyway the narrow question
here—that is, what was Trustmark obligated to do under the award. The evidence
presented shows no common understanding between the parties as to their respective
obligations to each other within the context of this Award. Shortly after the original
Award was issued in May 2003, FCIC and Trustmark began the process of drafting and
executing the Forward Looking and Misallocation Powers of Attorney described in the
2003 Award. (See Nov. 5, 2003 Forward Looking POA; Apr. 28, 2004 Misallocation POA.)
At some point during this time period, UniCARE/Fremont was forced into liquidation
proceedings, and Trustmark began to work with the CLO. Furthermore, between the time
these POAs were signed and Trustmark filed the Class 7 claim in the liquidation
proceeding, FCIC’s own actions regarding setoff were inconsistent, or at minimum gave
mixed signals to Trustmark.
FCIC clearly had the right to assert its setoff rights against UniCARE/Fremont
under the contract, but retained its “sole discretion” to determine that “offset will not
provide it with the timely recapture of these monies.”10 It seems nonsensical that, if FCIC
made such a determination of why it would not seek offset itself, that Trustmark, acting
on its behalf, could fare any better, thus giving strength to Trustmark and Judge Dorsey’s
10
Mr. Haver testified that at the time the POAs were executed, FCIC had
determined that offset would not have provided it with such timely recapture, as “the
amount owed or the amount that UniCARE was claiming it was owed did not equal, was
less than 9.4 million.” (Tr. 81.)
13
view that FCIC had “two options, either to recapture its monies by offset or to have
Trustmark pursue a claim on FCIC’s behalf in some sort of legal proceeding.” (Ruling
[Doc. # 43] at 7.) Mr. Maisel’s opinion that Trustmark was obligated to do both clearly is
unrelated to the award obligation to do one or the other.
In October 2007, Mr. Haver sent an email to Trustmark indicating that he would
like offset rights to be included as part of the CLO Commutation Agreement. Mr.
Raymond Lester responded on behalf of Trustmark, and said that if FCIC wanted to
exercise offset “at this late date,” Trustmark would be willing to permit FCIC to withdraw
its Power of Attorney. (See Resp. Ex. 28 at 65-A.) This is consistent with Respondent’s
repeatedly-articulated interpretation of the structure of the Award: that FCIC had two
options—the first, to exercise offset on its own, and the second, to assign Trustmark POA
to pursue the funds in an arbitration or other legal proceeding.11 Mr. Haver responded
that “[a]t this point we do not wish to withdraw either Power of Attorney that we gave to
Trustmark after the 2003 arbitration award”) (id. at 69-A), but also noted that he believed
Trustmark to be in violation of its duties under the Award because of its refusal to
exercise offset on FCIC’s behalf. (See Tr. 371–373.)
FCIC again asked Trustmark to pursue setoff rights on its behalf on November 6,
2007 (see Tr. at 150), but then at the meeting held the next day with the CLO on
November 7, 2007, it sat silently and did not object while the details of the Commutation
Agreement, which included a waiver of the right to offset, were negotiated.12
11
In fact, Mr. Maisel describes offset as a “self help remedy” triggering certain
action by the liquidator, which makes sense as to why the award distinguishes between
offset and arbitration or other legal proceeding.”
12
Mr. Dennis Haver, Vice President and Assistant General Counsel to Arrowood
and serving as FCIC’s representative at the time, testified that he did not believe that the
14
Mr. Maisel’s report does not address these mixed signals and disputed
interpretations of the parties’ respective obligations under the award. Notwithstanding
these two contrasting interpretations of the award in late 2007 and early 2008,13 FCIC
never requested any arbitral or judicial clarification. It was only after Judge Dorsey’s
ruling in July 2009, well after the Commutation Agreement with the CLO had been
signed, the Class 7 claim had been accepted by the CLO, and Trustmark had made the
payment agreed to, that FCIC filed its second motion for contempt and judgment [Doc.
# 49], contending that Trustmark had violated the arbitration award or that the award
had another, latent ambiguity that required clarification.
This record does not support FCIC’s claim that Trustmark failed to discharge its
responsibilities under the award, based on its own reasonable interpretation of the award,
when it settled FCIC’s claim with the CLO in its particular chosen manner. Petitioner’s
assertion that because it did not waive its right to offset under the Award, Trustmark was
required to exercise such rights under the award is not supported by the evidence or the
language of the award. Whether Trustmark breached its fiduciary duty to FCIC in other
ways, as Mr. Maisel opines, is far beyond the scope of this limited confirmation and
enforcement of the arbitral award.
Powers of Attorney entitled him to object to the legal strategies taken by Trustmark on
FCIC’s behalf. (See also Jan. 7, 2008 Letter from Dennis Haver to Raymond Lester [Resp.
Ex. 28] at CORR00079 (“FCIC has not protested the proposed settlement directly to the
CLO because of the broad scope of the power to deal with the CLO that FCIC designated
to Trustmark.”).)
13
Mr. Haver’s testimony reflects his awareness of the parties’ differing
understandings of the Award. For example, when asked on cross-examination whether
“each time you demanded offset, Mr. Lester wrote back and said, Trustmark doesn’t have
to offset because you made an election?” Mr. Haver testified, “[t]hat was his position,
yes.” See Tr. at 373:22–25.
15
Petitioner relies on Zeiler v. Deitsch, 500 F.3d 157 (2d Cir. 2007) for the
proposition that it is within the Court’s discretion to enforce a judgment of $9,424,377
against Trustmark, but this presumes that the Court finds that under the terms of the
award, Trustmark is responsible for making that payment. See Zeiler, 500 F.3d at 169 (“A
district court confirming an arbitration award does little more than give the award the
force of a court order. At the confirmation stage, the court is not required to consider the
subsequent question of compliance.”). Since, for the reasons discussed above, the Court
declines to interpret the award as FCIC urges, “the judgment to be enforced encompasses
the terms of the confirmed arbitration awards and may not enlarge upon those terms.” id.
at 170, enforcement of the terms of the Award precludes entry of an order that Trustmark
is subject to a $9 million judgment in favor of FCIC. 14
C. Petitioner’s Motion for Contempt
FCIC also moves for a finding of contempt against Trustmark. A party may be
held in civil contempt for failure to comply with a court order if “(1) the order the
contemnor failed to comply with is clear and unambiguous, (2) the proof of
noncompliance is clear and convincing, and (3) the contemnor has not diligently
attempted to comply in a reasonable manner.” King v. Allied Vision, Ltd., 65 F.3d 1051,
1058 (2d Cir.1995).
Based on the evidence discussed above, FCIC has not established that Trustmark
should be held in contempt. As to the first requirement, the Award that FCIC claims
Trustmark violated, which it now maintains is “clear and unambiguous,” previously
14
As discussed supra, it is the Court’s view that the Panel lacked the authority, on
the second remand, to “expand” the scope of the original award in the manner that it did.
Because of this, the Court declines to modify the Amended Award to incorporate the
Panel’s Second Reply.
16
produced two remands to the Panel on account of claimed ambiguities in the Award, and
FCIC has not objected to the R&R’s proposed third remand for clarification of the most
recent “clarified” award which Magistrate Judge Smith characterizes as “opaque at best”
(R&R at 2), and thus is not a “clear and unambiguous” order.
Next, FCIC has not established by clear and convincing evidence that Trustmark
violated the terms of the Award. The evidence shows that Trustmark, once given the
Forward Looking and Misallocation POAs on behalf of FCIC, submitted the proof of
claim on FCIC’s behalf and settled all claims in the Fremont liquidation proceeding with
full knowledge of FCIC, to whom it had offered to return the POA if FCIC wanted to
pursue offset, which FCIC declined. FCIC has failed to show that this conduct was clearly
and convincingly non-compliant.
Trustmark maintained its position that offset was for FCIC to exercise, and FCIC
explained that it did not elect to exercise setoff because of its limited potential for
financial return. Because Trustmark’s interpretation of the award is reasonable (and
consistent with Judge Dorsey’s interpretation), FCIC fails to show that Trustmark has not
diligently attempted to comply in a reasonable manner. That FCIC may receive no
distribution from the insolvent estate, as Mr. Maisel predicts, and what different outcome
would likely have occurred if both offset and a Class 7 claim were simultaneously pursued
without settlement, are left for another forum to address. Thus, Petitioner has not met its
burden of proof for a finding of contempt and its motion will be denied.
D. Respondent’s Motion to Reinstate the July 2009 Order
Trustmark asks the Court to reinstate Judge Dorsey’s July 2009 Order denying
Petitioner’s motion for contempt and judgment, thereby confirming the Award as
clarified after the first remand and staying the case. As the Court has found that FCIC has
17
not proved that Trustmark failed to reasonably discharge its duties under the Award in its
representation of FCIC, no money judgment in FCIC’s favor will be entered against
Respondent. The 2007 Amended Judgment confirming the Award as clarified in the first
Panel Reply remains in effect, and this case will now be closed. Therefore, Respondent’s
motion is largely moot.
III.
Conclusion
It is now time for these parties to either accept this outcome or to move on to the
appellate stage, or commence an independent civil action. Because, in the Court’s view, a
third remand to the Panel is neither authorized, nor likely to be productive, the Court
declines to adopt the Report and Recommendation [Doc. # 199], though it is very grateful
to the Magistrate Judge for having developed the factual record permitting this final
determination.
Accordingly, Petitioner’s motion to enforce the judgment [Doc. # 103] is
DENIED, and Respondent’s motion to reinstate the July 2009 Order [Doc. # 106] is
DENIED as moot, to the extent that Respondent seeks to reinstate the July 2009 Order,
and GRANTED, to the extent that the Court recognizes the 2007 Amended Judgment as
the Final Judgment. As discussed above, Respondent’s Motion to Strike [Doc. # 108] is
also DENIED.
The Clerk is directed to close the case.
IT IS SO ORDERED.
/s/
Janet Bond Arterton, U.S.D.J.
Dated at New Haven, Connecticut this 29th day of March, 2013.
18
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