Georgia Casualty & Surety Company v. Excalibur Reinsurance Corporation
Filing
22
ORDER AND OPINION granting defendants Motion to Dismiss the First Amended (Verified) Complaint 11 and denying as moot defendants earlier Motion to Dismiss 6 , Plaintiffs Motion for an Expedited Hearing on Pending Motions and to Waive the Usual Pr ocedures 13 , Plaintiffs Motion for Leave to Submit New Evidence in Opposition to Defendants Motion to Dismiss and in Support of Plaintiffs Motion to Waive the Usual Procedures 17 , and Defendant's Motion to Strike 19 . Signed by Judge Julie E. Carnes on 3/13/14.(ddm)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
GEORGIA CASUALTY & SURETY
COMPANY,
Plaintiff,
CIVIL ACTION NO.
v.
1:13-cv-00456-JEC
EXCALIBUR REINSURANCE
CORPORATION f/k/a PMA Capital
Insurance Company,
Defendants.
ORDER & OPINION
This case is before the Court on defendant’s Motion to Dismiss
the First Amended (Verified) Complaint [11].
Having reviewed the
record and the arguments of the parties, the Court concludes that
defendant’s Motion to Dismiss the First Amended (Verified) Complaint
[11] should be GRANTED.
Because it is superseded, defendant’s
earlier Motion to Dismiss [6] is DENIED as moot. Further motions are
also rendered moot by this Order and are also DENIED as moot:
plaintiff’s Motion for an Expedited Hearing on Pending Motions and to
Waive Usual Procedures [13]; plaintiff’s Motion for Leave to Submit
New Evidence in Opposition to Defendant’s Motion to Dismiss and in
Support of Plaintiff’s Motion to Waive the Usual Procedures [17]; and
defendant’s Motion to Strike [19].
AO 72A
(Rev.8/82)
BACKGROUND
I.
THE PARTIES AND CONTRACTS
This case arises from a dispute over two reinsurance contracts.
Georgia Casualty & Surety Company (“plaintiff”) is an insurance
company, incorporated under Georgia law.
¶ 1.)
(Pl.’s Am. Compl. [9] at
It was acquired by Columbia Mutual Insurance Company (“CMI”)
in 2008.
(Id.)
Since August of 2009, plaintiff has divided its
management operations between Missouri and Georgia. (Id.) Excalibur
Reinsurance
Corporation
(“defendant”)
incorporated and based in Pennsylvania.
is
a
reinsurance
(Id. at ¶ 2.)
company
It is the
successor in interest and name to PMA Capital Insurance Company
(“PMA”).
(Id. at ¶ 3.)
Plaintiff and PMA entered into two reinsurance contracts, both
effective January 1, 2003.
(Pl.’s Am. Compl. [9] at ¶¶ 8-15.)
Under
one, the First Excess Multiple Line Reinsurance Contract (“First
Excess
Contract”),
plaintiff
bore
responsibility
for
the
first
$300,000 of ultimate net loss with respect to any one risk in each
loss, and defendant bore the remaining net losses up to $700,000 for
any one risk in each loss, with a cap of $1,400,000 for all risks in
any one occurrence.
IV.)
(Id. at ¶ 8; First Excess Contract [1-1] at Art.
Under the other contract, the Second Excess Multiple Line
Reinsurance Contract (“Second Excess Contract”), plaintiff bore the
first $1,000,000 of ultimate net loss with respect to any one risk in
2
AO 72A
(Rev.8/82)
each loss covered, and defendant was liable for the remainder, capped
at $5,000,000 for any single risk in each loss and capped at
$7,500,000 for all risks involved in any single occurrence.
(Pl.’s
Am. Compl. [9] at ¶ 12; Second Excess Contract [1-2] at Art. IV.)
Both contracts contain mandatory arbitration clauses.
(First
Excess Contract [1-1] at Art. XXIV; Second Excess Contract [1-2] at
Art. XXIV.)
The clauses are not identical.
Importantly for the
present dispute, the First Excess Contract has a choice of laws
provision that states, “[a]ny arbitration proceedings shall take
place at a location mutually agreed upon by the parties to this
Contract, but notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of the state
in which [plaintiff] has its principal office.”
(First Excess
Contract [1-1] at Art. XXIV(E).) Also important in this dispute, the
Second Excess Contract states that “any dispute arising out of this
Contract shall be submitted to the decision of a board of arbitration
composed of two arbitrators and an umpire, meeting in Atlanta,
Georgia, unless otherwise agreed.”
Art. XXIV(A).)
(Second Excess Contract [1-2] at
Thus, the First Excess Contract contains a choice of
laws provision but no forum selection clause, and the Second Excess
Contract contains a forum selection clause but no choice of laws
provision.
3
AO 72A
(Rev.8/82)
II.
THE UNDERLYING LITIGATION AND INSURANCE CLAIMS
The loss that forms the basis of the dispute between the parties
arises from a lawsuit filed in November of 2006 by Douglas Asphalt
Company (“DAC”) against Applied Technical Services, Inc. (“ATS”).
The facts and resolution of that dispute are more fully set out in
Douglas Asphalt Co. v. QORE, Inc., 657 F.3d 1146 (11th Cir. 2011).
Briefly, ATS, an insured of plaintiff, was found liable in tort after
a jury trial in district court.1
The verdict was appealed to the
Eleventh Circuit, which reversed on the grounds that the district
court erred in not granting ATS judgment as a matter of law.
1156.
Id. at
It seems probable that the case only made it to trial because
the law firm plaintiff hired to defend ATS, Drew, Eckl & Farnum, LLC
(“Drew Eckl”), neglected to move for summary judgment on all counts.
Id. at 1150.
While the ATS trial verdict was under appeal, plaintiff entered
a “high low memorandum of agreement” (“high-low agreement”) with ATS,
guaranteeing that, whatever the outcome of the appeal, plaintiff
1
ATS had been hired by the Georgia Department of Transportation
(“GDOT”) to test the asphalt used by DAC in DAC’s road paving
contract with GDOT.
(Pl.’s Am. Compl. [9] at ¶¶ 16-18.)
ATS
reported to GDOT that the asphalt samples it tested had deficient
amounts of hydrated lime, an ingredient that makes the asphalt
resistant to moisture damage. Douglas Asphalt Co., 657 F.3d at 114950.
GDOT subsequently declared DAC in default on the paving
contract. Id. at 1150. Based on the contention that ATS’ testing
was faulty, DAC sued ATS for defamation, negligence, and other causes
of action. (Pl.’s Am. Compl. [9] at ¶¶ 19-21.)
4
AO 72A
(Rev.8/82)
would pay ATS no less than $3,000,000 and no more than $12,000,000.
(Pl.’s Am. Compl. [9] at ¶ 23.)
Shortly after plaintiff concluded
this high-low agreement, the Eleventh Circuit vacated the judgment
against ATS.
estimates
Douglas Asphalt Co., 657 F.3d at 1154-56.
that
it
has
expended
$3,000,000
under
agreement and $2,641,692 in litigation expenses.
[9] at ¶ 25.)
the
Plaintiff
high-low
(Pl.’s Am. Compl.
By plaintiff’s calculations, there is “currently due
and owing from [defendant] to [plaintiff] the sum of $1,418,708 under
the two reinsurance contracts.”
Plaintiff
kept
defendant
(Id. at ¶ 27.)
apprised
of
these
litigation
and
settlement developments and notified it that there would likely be
reinsurance claims.
(Id. at ¶¶ 22 and 24.)
Defendant, however, has
thus far not paid the amounts plaintiff has claimed it owes under the
contracts.
(Id. at ¶ 25.)
Defendant admits this, but cites as
justification plaintiff’s promise that it would seek recovery for
malpractice against Drew Eckl and defendant’s lack of consent to the
high-low agreement.
(Mot. to Dismiss [11-1] at 4-5.)
Defendant
believes that recovery from Drew Eckl would cover any amounts
defendant would have to pay plaintiff under the contract and that a
suit against the above law firm is a prerequisite to determining
what, if anything, defendant is required to pay under the contracts.
(Id. at 6.)
In late 2012 and early 2013, Plaintiff demanded arbitration of
5
AO 72A
(Rev.8/82)
what it considered defendant’s breach of the contracts.
(Id. at 1.)
Defendant, for its part, demanded arbitration on a counterclaim that
plaintiff has unpaid premiums due on the First Excess Contract.
(Id.)
Although both parties are in agreement that arbitration is
appropriate,
defendant
has
refused
plaintiff’s
demands
for
consolidated arbitration of all the claims under both contracts.
(Id. at 2.)
Defendant also has informed plaintiff that it will
request that the arbitrators stay arbitration pending the resolution
of plaintiff’s claims against Drew Eckl.
6.)
(Mot. to Dismiss [11-1] at
Plaintiff believes this to be a delaying tactic, as it has
gathered evidence purporting to show that defendant is in dire
financial straits and will soon be unable to pay any judgment
required of it.
(Pl.’s Am. Compl. [9] at ¶ 48.)
Because of its belief that defendant is in breach of its
contractual
obligations,
including
its
obligations
under
the
arbitration agreement, plaintiff filed suit in this Court. Plaintiff
requests that the Court order consolidated arbitration to be held in
Atlanta, Georgia.
(Pl.’s Am. Compl. [9] at ¶¶ 29-37; Pl.’s First
Mem. [10] at 9-17.)
Plaintiff also seeks an order from the Court
denying
attempt
defendant’s
to
stay
arbitration
pending
the
resolution of plaintiff’s potential suit against the Drew Eckl.
(Pl.’s Am. Compl. [9] at ¶¶ 38-44; Pl.’s First Mem. [10] at 18-20.)
Based on its contentions that defendant is approaching insolvency,
6
AO 72A
(Rev.8/82)
plaintiff requests that this Court require defendant to post security
sufficient to cover the loss and loss adjustment expenses plaintiff
claims.
(Pl.’s Am. Compl. [9] at ¶¶ 45-50; Pl.’s First Mem. [10] at
20-25; Pl.’s Second Mem. [12] at 1-4.)
plaintiff the foregoing relief,
further
proceedings
arbitration.
in
this
Finally, if the Court grants
plaintiff further seeks a stay of
Court
pending
the
outcome
(Pl.’s Am. Compl. [9] at ¶¶ 51-53.)
of
the
Defendant has
moved to dismiss all of plaintiff’s claims.
DISCUSSION
I.
MOTION TO DISMISS STANDARD
In deciding a motion to dismiss under Federal Rule 12(b)(6), the
Court assumes that all of the allegations in the complaint are true
and construes all of the facts in favor of the plaintiff.
Scott, 610 F.3d 701, 705 (11th Cir. 2010).
Randall v.
That said, in order to
survive a motion to dismiss, a complaint “must contain sufficient
factual matter, accepted as true, to ‘state a claim [for] relief that
is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009)(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
A claim is “facial[ly] plausib[le]” when it is supported with facts
that “allow[] the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Id.
Courts will
“eliminate any allegations in the complaint that are merely legal
conclusions.”
Am. Dental Ass’n v. Cigna Corp., 605 F.3d 1283, 1290
7
AO 72A
(Rev.8/82)
(11th Cir. 2010). “Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.”
Iqbal, 556 U.S. at 678.
II.
PLAINTIFF’S COMPLAINT
A.
May the Court Order the Arbitration Proceedings to be
Consolidated and Located in Atlanta, Georgia?
For this Court to determine whether it is appropriate to order
consolidation of the arbitration proceedings it must first determine
the applicable law governing arbitration under the contracts.
Responding
to
“the
longstanding
judicial
hostility
toward
arbitration,” Congress in 1925 passed the Federal Arbitration Act
(“FAA”), 9 U.S.C. §§ 1-16.
Caley v. Gulfstream Aerospace Corp., 428
F.3d 1359, 1367 (11th Cir. 2005). Because arbitration is both in the
public interest, insofar as it is “speedier and less costly than
litigation,” and in private interests, in that parties bargain for it
in their contracts, the FAA “embodies a ‘liberal federal policy
favoring arbitration agreements.’”
Id.
Pursuant to these policy
goals, the FAA empowers a party to a contract relating to a maritime
transaction or interstate commerce to compel its counterpart to
arbitrate, rather than litigate, a dispute that has been made
arbitrable under the terms of that contract.
9 U.S.C. § 4; Jenkins
v. First Am. Cash Advance of Georgia, LLC, 400 F.3d 868, 876 (11th
8
AO 72A
(Rev.8/82)
Cir. 2005).2
In these situations, the FAA requires a court to order
the parties into arbitration, provided that it is satisfied that the
arbitration agreement is valid.
Id.
Arbitration under the FAA’s rules is not mandatory.
As the
Supreme Court has explained, although the FAA generally preempts
state arbitration laws:
[I]t does not follow that the FAA prevents the enforcement
of agreements to arbitrate under different rules than those
set forth in the Act itself. Indeed, such a result would
be quite inimical to the FAA’s primary purpose of ensuring
that private agreements to arbitrate are enforced according
to their terms. Arbitration under the Act is a matter of
consent, not coercion, and parties are generally free to
structure their arbitration agreements as they see fit.
Volt Info. Sci., Inc. v. Bd. of Tr. of the Leland Stanford Junior
Univ., 489 U.S. 468, 479 (1989).
Thus, the FAA does not necessarily
displace state law, even where the contract involves a maritime
transaction
or
interstate
commerce,
because
parties
to
those
contracts may opt for state arbitration laws or some other set of
2
The Supreme Court has indicated that the FAA should apply to
contracts falling within the scope of federal legislative power.
Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 274
(1995)(“[T]his Court has previously described the Act’s reach
expansively as coinciding with that of the Commerce Clause.”) For
nearly seventy years, the Supreme Court has found insurance to fall
within Congress’ legislative power under the Commerce Clause. See
United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533
(1944).
The parties are correct in recognizing that the FAA is
therefore applicable as the default law governing the contracts at
issue. See Protective Life Ins. Corp. v. Lincoln Nat’l Life Ins.
Corp., 873 F.2d 281 (11th Cir. 1989)(applying the FAA to arbitration
between insurers on an insurance contract).
9
AO 72A
(Rev.8/82)
rules in lieu of the FAA.
California
[Arbitration
Act]
Id. at 470 (“[A]pplication of the
is
not
preempted
by
the
Federal
Arbitration Act...in a case where the parties have agreed that their
arbitration
agreement
will
be
governed
by
the
law
of
California.”)(citation removed).
The liberty of contracting parties to choose between the FAA and
state arbitration law is important in this case because the FAA
treats the issue of consolidation differently than do some state
arbitration
laws.
Specifically,
the
FAA
lacks
any
provision
permitting courts to consolidate under a single arbitration disputes
arising from different contracts.
The Eleventh Circuit, reflecting
the majority view among the circuit courts, has made clear that this
absence means that courts may not order consolidation of arbitration
unless
the
contracts
involved
so
provide
for
consolidation.
Protective Life Ins. Corp. v. Lincoln Nat’l Life Ins. Corp., 873 F.2d
281, 282 (11th Cir. 1989)(“Parties may negotiate for and include
provisions for consolidation of arbitration proceedings in their
arbitration agreements, but if such provisions are absent, federal
courts may not read them in.”).
See also Employers Ins. Co. of
Wausau v. Century Indemnity Co., 443 F.3d 573 (7th Cir. 2006); Shaw’s
Supermarkets, Inc. v. United Food and Commercial Workers Union, Local
791, AFL-CIO, 321 F.3d 251 (1st Cir. 2003); Baesler v. Cont’l Grain
10
AO 72A
(Rev.8/82)
Co., 900 F.2d 1193 (8th Cir. 1990).3
As the Supreme Court has
recently emphasized in the related context of class arbitration, “a
party
may
not
be
compelled
under
the
FAA
to
submit
to
class
arbitration unless there is a contractual basis for concluding that
the party agreed to do so.”
Stolt-Nielsen S.A. v. AnimalFeeds Int’l
Corp., 559 U.S. 662, 684 (2010)(rejecting the notion that such
agreement may be inferred).
Thus, under the FAA, consolidation is
only permissible where explicitly stipulated by contract.
In contrast to the FAA, some state arbitration acts permit
courts to order consolidation under certain circumstances, even
absent contractual provisions permitting it. The Georgia Arbitration
Code (“GAC”) is typical of these and states in relevant part:
3
An earlier First Circuit decision that plaintiff relies upon
in arguing that the FAA permits consolidation is not on point, as it
merely held that a state arbitration law that permitted consolidation
and did not conflict with the FAA (which otherwise applied to the
arbitration agreement), permitted the court to consolidate.
New
England Energy Inc. v. Keystone Shipping Co., 855 F.2d 1, 5 (1st Cir.
1988), cert. denied, 489 U.S. 1077 (1989)(“We disagree that ordering
consolidation pursuant to a state statute when the contract is silent
on the subject improperly modifies the agreement struck by the
parties in violation of section four [of the FAA].”)
The First
Circuit, in one of only two subsequent cases discussing New England
Energy, Inc., made clear that the earlier decision did not authorize
courts to impose consolidation where there is neither statutory nor
contractual license. Seguro de Servicio de Salud de Puerto Rico v.
McAuto Sys. Grp., Inc., 878 F.2d 5, 8 (1st Cir. 1989)(stating that
New England Energy, Inc. did not answer the question of whether
courts “have the power to consolidate separate arbitration
proceedings [where] neither the contracts nor the state law governing
the contracts authorized the procedure”).
11
AO 72A
(Rev.8/82)
[u]nless otherwise provided in the arbitration agreement,
a party to an arbitration agreement may petition the court
to consolidate separate arbitration proceedings, and the
court may order consolidation of separate arbitration
proceedings when: (1) Separate arbitration agreements or
proceedings exist between the same parties or one party is
a party to a separate arbitration agreement or proceeding
with a third party; (2) The disputes arise from the same
transactions or series of related transactions; and (3)
There is a common issue or issues of law or fact creating
the possibility of conflicting rulings by more than one
arbitrator or panel of arbitrators.
O.C.G.A. § 9-9-6(e).4
Thus, in Georgia and other jurisdictions that
adopt similar laws, courts may consolidate arbitration where there
are common parties, common transactions, and common issues of law or
fact.
4
The GAC served in part as the model for the Revised Uniform
Arbitration Act (“RUAA”) of 2000, which is in turn the model for many
state arbitration laws. RUAA § 10, Comment 3 (“Section 10 is an
adaptation of consolidation provisions in the California and Georgia
statutes.”) The RUAA states that, absent express contract provision
to the contrary:
[T]he court may order consolidation of separate arbitration
proceedings as to all or some of the claims if: (1) There
are separate agreements to arbitrate or separate
arbitration proceedings between the same persons or one of
them is a party to a separate agreement to arbitrate or a
separate arbitration proceeding with a third person; (2)
The claims subject to the agreements to arbitrate arise in
substantial part from the same transaction or series of
related transactions; (3) The existence of a common issue
of law or fact creates the possibility of conflicting
decisions in the separate arbitration proceedings; and (4)
Prejudice resulting from a failure to consolidate is not
outweighed by the risk of undue delay or prejudice to the
rights of or hardship to parties opposing consolidation.
RUAA § 10(a).
12
AO 72A
(Rev.8/82)
Thus, there are two conditions under which a court may compel
arbitration
of
consolidated
separate
contractual
arbitration
disputes
proceeding.
If
under
the
FAA
a
or
single,
a
state
arbitration act lacking a statutory consolidation provision applies,
then a court may only consolidate the arbitration if the contracts
expressly
permit
consolidation.
Alternatively,
if
a
state
arbitration act that allows courts to impose consolidation regardless
of the contracts’ terms governs the contracts, then a court may order
consolidation where the statutory requirements are satisfied.
Turning to the contracts at issue in this case, the Second
Excess Contract lacks any choice of laws provision, and thus both
parties correctly recognize that it is governed by the FAA. Further,
the Second Excess Contract lacks any contractual provision expressly
permitting consolidation.
Contract,
and
the
FAA
Because the FAA governs the Second Excess
does
not
permit
courts
to
consolidate
arbitration where there is no express contractual provision allowing
consolidation, it may not be consolidated with the First Excess
Contract.
It takes two to consolidate, and therefore this disposes of the
issue of consolidation.
For purposes of completeness, however, the
Court analyzes the First Excess Contract.
As with the Second Excess
Contract, the First Excess Contract lacks a consolidation clause.
Here, the parties dispute what body of law governs the contract.
13
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(Rev.8/82)
Plaintiff believes Georgia law applies.
As discussed above, the GAC
permits courts to consolidate under certain circumstances. Defendant
believes that Missouri law, or alternatively the FAA, applies to the
contract, and that neither of these would permit the Court to
consolidate.
Article XXIV is the arbitration provision of the First Excess
Contract.
Subsection (E) reads: “Any arbitration proceedings shall
take place at a location mutually agreed upon by the parties to this
Contract, but notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of the state
in
which
[plaintiff]
has
its
principal
office.”
Contract, [1.1] at Art. XXIV(E))(emphasis added).
(First
Excess
Thus, there seems
a clear intent for arbitration not to be conducted under default FAA
rules.
The only ambiguity is the location of plaintiff’s principal
office, which determines what law applies.
At the time of contracting, the parties agree that plaintiff had
its principal office in Georgia. Since that time, however, plaintiff
was acquired by CMI and has moved most of its executive functions to
Columbia, Missouri.
Plaintiff contends that Georgia is still its
principal office, citing the facts that it remains incorporated under
Georgia law and still conducts its “underwriting, claims and loss
control and marketing functions” in Georgia.
at ¶ 1.)
Defendant, in contrast, points out that “principal office”
14
AO 72A
(Rev.8/82)
(Pl.’s Am. Compl. [9]
is statutorily defined in Georgia corporations law as “the office in
or out of this state so designated in the annual registration where
the principal executive offices of a domestic or foreign corporation
are located.”
O.C.G.A. § 14-2-140(22).5
In plaintiff’s most recent
annual registration statement, the “Statutory Home Office” lists a
Georgia
address,
but
the
“Main
Administrative
Office,”
“Mail
Address,” and “Primary Location of Books and Records” list Missouri
addresses, as do the officers and directors.
(Annual Statement [11-
16] at Ex. N, p.2.)
Because “principal office” is not defined in the contract, and
the contract was executed in Georgia, the Court finds the Georgia
statutory definition the best indication of the contract’s meaning.
It is clear from the annual registration statement that Missouri is
the location of the offices where plaintiff performs its executive
functions.
The only functions conducted from the Georgia offices
are, as plaintiff admits, “its underwriting, claims and loss control
and marketing functions.”
(Pl.’s Am. Compl. [9] at ¶ 1.)
5
It even
Regardless of the body of law that applies to the arbitration,
in interpreting the overall contract a district court presiding over
a diversity action must apply the choice of law rules of the forum
state.
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 497
(1941); Wammock v. Celotex Corp., 835 F.2d 818, 829 (11th Cir. 1988).
Because the contract was executed in Georgia, and Georgia follows the
doctrine of lex loci contractus, it is interpreted under Georgia law.
Gen. Tel. Co. of the Se. v. Trimm, 252 Ga. 95 (1984); Shorewood
Packaging Corp. v. Commercial Union Ins. Co., 865 F. Supp. 1577, 1578
(N.D. Ga. 1994).
15
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refers to its Missouri offices as its “administrative offices.”
(Id.)
On the basis of plaintiff’s admissions and the information in
its Annual Registration, the principal executive office of plaintiff
is plainly located in Missouri.
Thus, according to the contract
terms, Missouri law is the law indicated in the choice of laws
provision as governing the arbitration proceedings.
Missouri has adopted the original 1955 version of the Uniform
Arbitration Act (“UAA”) in its Missouri Arbitration Act (“MAA”). See
Mo. St. §§ 435.350-435.470.
The UAA, unlike the later 2000 version,
the Revised Uniform Arbitration Act (“RUAA”), lacks a consolidation
provision.
Whatever the reason for not adopting the RUAA, the
Missouri legislature has not done so.
As a result, nowhere in the
MAA is consolidation addressed, and this Court can find no precedent
supporting the notion that courts have interpreted the MAA to allow
courts to consolidate arbitration.
Thus, following the general
principles discussed above, the First Excess Contract is ineligible
for consolidation.
For this Court to rule otherwise would be to act
without statutory or contractual warrant.
Defendant provides an alternative theory that the FAA governs
the First Excess Contract.
Defendant argues that the choice of laws
provision in the First Excess Contract is insufficient to signal an
intent to opt out of the FAA, based on Supreme Court precedent.
16
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(Rev.8/82)
See
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995).6
Mastrobuono
presented
the
Supreme
Court
with
a
contract
that
contained a choice of laws provision that indicated New York state
law would apply to the contract, and an arbitration provision that
seemed to allow the arbitrators to award punitive damages, which ran
counter to New York arbitration law.
Id. at 59-60.
Faced with this
conflict, the Court held that “the best way to harmonize the choiceof-law provision with the arbitration provision is to read ‘the laws
of the State of New York’ to encompass substantive principles that
New York courts would apply, but not to include special rules
limiting the authority of arbitrators.”
Id. at 63-64.
Some circuits have construed Mastrobuono broadly. For instance,
the Fifth Circuit has stated that after Mastrobuono, “a choice-of-law
provision is insufficient, by itself, to demonstrate the parties’
clear intent to depart from the FAA’s default rules.” Action Indus.,
Inc. v. United States Fid. & Guar. Co., 358 F.3d 337, 342 (5th Cir.
6
Alone among the circuits, the Eleventh Circuit has not
addressed Mastrobuono on the issue of the adequacy of a choice of
laws provision to signal an intent to opt out of the FAA. See Action
Indus., Inc. v. United States Fid. & Guar. Co., 358 F.3d 337, 341-342
(5th Cir. 2004); Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1270 (9th
Cir. 2002); Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 293
(3d Cir. 2001); Porter Hayden Co. v. Century Indem. Co., 136 F.3d
380, 382-83 (4th Cir. 1998); Ferro Corp. v. Garrison Indus., Inc.,
142 F.3d 926, 937 (6th Cir. 1998); UHC Mgmt. Co., Inc. v. Computer
Sci. Corp., 148 F.3d 992, 997 (8th Cir. 1998); PaineWebber Inc. v.
Elahi, 87 F.3d 589, 593-94 (1st Cir. 1996); Nat’l Union Fire Ins. Co.
v. Belco Petroleum Corp., 88 F.3d 129, 134-35 (2d Cir. 1996).
17
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(Rev.8/82)
2004).
See also Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287,
296 (3d Cir. 2001)(“[W]e need to establish a default rule, and the
one we adopt is that a generic choice-of-law clause, standing alone,
is
insufficient
to
support
a
finding
that
contracting
parties
intended to opt out of the FAA’s default standards.”); Sovak v.
Chugai Pharm. Co., 280 F.3d 1266, 1270 (9th Cir. 2002)(“[A] general
choice-of-law clause within an arbitration provision does not trump
the presumption that the FAA supplies the rules for arbitration.”)
Even assuming the Eleventh Circuit would read Mastrobuono as
sweepingly as those circuits have done, the choice of laws provision
in the First Excess Contract would be sufficient to opt out of the
FAA, as it differs substantially from the contract in Mastrobuono.
First, it does not conflict with other parts of the contract, and
therefore requires no construction “to give effect to all [the
contract’s] provisions and to render them consistent with each
other.”
Mastrobuono, 514 U.S. at 63.
Second, it is placed within
the arbitration clause, strongly implying that it is meant to apply
to the arbitration of disputes.
The choice of laws provision in the
Mastrobuono contract was placed outside the arbitration provision,
which suggested to the Court that might cover only the “substantive
rights and obligations” of the parties and not the “decisional law”
to be applied in arbitration.
Contract’s
choice
of
laws
Id. at 60.
provision
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Third, the First Excess
specifically
instructs
the
arbitrators to apply state law in conducting the “proceedings,”
stating that “all proceedings pursuant hereto shall be governed by
the law of the state in which the Company has its principal office.”
([1-1] at Art. XXIV(E).) This implies an intent for state procedural
law to apply, in this context state arbitration law.
It would be
difficult to construe the clause as referring only to the substantive
rights and obligations under state law.
Finally, it is difficult to
see what would be sufficient to opt out of the FAA, if the instant
provision is inadequate. Indeed, it is similar in form and substance
to the one found sufficient to opt out of the FAA in Volt Info. Sci.,
Inc., which stated, “[t]he Contract shall be governed by the law of
the place where the Project is located.”
Volt Info. Sci., Inc., 489
U.S. at 470.
Thus, because neither contract contains a consolidation clause
nor
is
governed
by
arbitration
Court
permits
consolidation.
It follows that, because the Court may not order
consolidation,
it
not
plaintiff’s
judicial
this
may
refuse
that
consolidation,
also
must
law
designate
a
forum
plea
for
for
that
consolidated arbitration.7
7
The Court notes there is no forum indicated in the First
Excess Contract.
It merely states that “[a]ny arbitration
proceedings shall take place at a location mutually agreed upon by
the parties to this Contract . . .” (First Excess Contract [1-1] at
Art. XXIV(E).) In contrast, the Second Excess Contract specifies
that the arbitrators would meet “in Atlanta, Georgia, unless
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B.
May the Court
Arbitration?
Plaintiff
contends
Order
that
the
this
Arbitrators
Court
may
not
order
to
Stay
arbitration
immediately, in the face of defendant’s claim that it will petition
the arbitrators to stay arbitration until plaintiff pursues recovery
from Drew Eckl.
Defendant differs, contending that the decision to
stay arbitration is within the authority of the arbitrators, not this
Court.
Supreme Court jurisprudence on arbitration allocates to courts
the authority to determine any threshold “question of arbitrability,”
but to arbitrators the authority to decide “procedural questions.”
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002).
Questions of arbitrability arise:
[I]n the kind of narrow circumstance where contracting
parties would likely have expected a court to have decided
the gateway matter, where they are not likely to have
thought that they had agreed that an arbitrator would do
so, and, consequently, where reference of the gateway
dispute to the court avoids the risk of forcing parties to
arbitrate a matter that they may well not have agreed to
arbitrate.
Id. at 83-84.
See also Klay v. United Healthgroup, Inc., 376 F.3d
1092 (11th Cir. 2004)(“Howsam states that, unless an arbitration
agreement
otherwise
stipulates,
a
court
is
empowered
only
to
otherwise agreed.” (Second Excess Contract [1-2] at Art. XXIV(A).)
It thus seems that plaintiff may insist on arbitrating the Second
Excess Contract in Atlanta, but not the First Excess Contract.
20
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determine the ‘substantive’ issue of arbitrability--that is, whether
a particular dispute falls within the scope of an arbitration clause-and the necessary threshold question of whether that clause is
enforceable.”)(citation
removed).
This
is
consistent
with
the
principal that arbitration is a matter of contract, and therefore of
the parties’ consent to be bound.
See Volt Info. Sci., Inc., 489
U.S. at 478 (The FAA “simply requires courts to enforce privately
negotiated
agreements
to
arbitrate,
like
other
contracts,
in
accordance with their terms.”); Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth,
Inc.,
473
U.S.
614,
626
(1985)(Regarding
arbitration agreements, “as with any other contract, the parties’
intentions control.”); Brown v. ITT Consumer Fin. Corp., 211 F.3d
1217, 1221 (11th Cir. 2000)(“It is well established that arbitration
is a creature of contract and neither party can be compelled to
arbitrate when he has not agreed to do so.”)(internal quotations
removed).
Thus,
courts
have
generally
limited
questions
of
arbitrability to determinations of whether the contracting parties
actually agreed to arbitrate, whether an arbitration agreement binds
third
parties,
and
whether
the
arbitration
particular dispute between the parties.
clause
governs
a
Howsam, 537 U.S. at 84.
On the other hand, once a court has determined that the parties
have an agreement to arbitrate, “procedural questions which grow out
of the dispute and bear on its final disposition are presumptively
21
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not for the judge, but for an arbitrator, to decide.”
and internal quotations removed).
Id. (citation
Procedural questions reserved for
arbitrators include questions of standing, laches, res judicata,
procedural timeliness, collateral estoppel, and equitable estoppel.
Aluminum Brick and Glass Workers Int’l Union v. AAA Plumbing Pottery
Corp., 991 F.2d 1545, 1550 (11th Cir. 1993).
Only where the
arbitrators have departed from the requirements of the contract may
the courts intervene in the procedural decisions of the arbitrators.
See Sterling Fin. Inv. Grp., Inc. v. Hammer, 393 F.3d 1223, 1225
(11th Cir. 2004)(“[A] federal district court, pursuant to 9 U.S.C.
§ 4, has jurisdiction to enforce a forum selection clause in a valid
arbitration agreement that has been disregarded by the arbitrators.”)
This division of labor requires the court to tread carefully so
as not to exceed the authority granted to it and thereby violate the
“principle that, in determining whether a dispute is arbitrable, a
court should not rule on the potential merits of the underlying
claims.”
Aluminum Brick and Glass Workers Int’l Union, 991 F.2d at
1549-50.
On this basis, the question as to whether this Court may
order the arbitrators not to stay the arbitration pending any
potential recovery against Drew Eckl is easily answered: it may not.
If defendant is not contractually required to reimburse plaintiff
until plaintiff has pursued recovery against Drew Eckl, as defendant
contends, then the Court would be infringing on the defendant’s
22
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contractual
rights
arbitration.
Court
in
in
ordering
the
arbitrators
not
to
stay
That is, determining this issue would entangle the
questions
involving
the
contractual
prerequisites
to
defendant’s obligation to reimburse plaintiff, questions that would
go to the merits of the dispute between the parties.
See Id. at 1550
(Addressing whether a particular party is a necessary participant in
arbitration “requires interpretation of the [underlying contract] and
must be decided by an arbitrator.”)
C.
Thus, this Court must decline.
May the Court Require Defendant to Post Security?
Plaintiff contends that defendant is likely nearing insolvency,
and thus that the Court should require defendant to post a security
bond to ensure that any future judgment will be paid.
Plaintiff
alternatively argues that the contract itself requires defendant to
post security.
Defendant responds that this would involve the Court
in matters proper to the arbitrators, and in any case is contrary to
law.
Defendant further denies plaintiff’s accusation that defendant
is approaching insolvency.
Plaintiff relies on a First Circuit case for the proposition
that “a district court can grant injunctive relief in an arbitrable
dispute
pending
arbitration,
provided
injunctive relief are satisfied.”
797 F.2d 43, 51 (1st Cir. 1986).
the
prerequisites
for
Teradyne, Inc. v. Mostek Corp.,
These prerequisites for injunctive
relief are those generally recognized both in this Circuit and the
23
AO 72A
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First Circuit: “(1) a substantial likelihood of success on the
merits; (2) a substantial threat of irreparable injury if the
injunction were not granted; (3) that the threatened injury to the
plaintiffs outweighs the harm an injunction may cause the defendant;
and (4) that granting the injunction would not disserve the public
interest.”
Levi Strauss & Co. v. Sunrise Int’l Trading Inc., 51 F.3d
982, 985 (11th Cir. 1995)(quoting Church v. City of Huntsville, 30
F.3d 1332, 1342 (11th Cir. 1994)).
See Teradyne, Inc., 797 F.2d at
51-52 (listing the same factors).
Plaintiff believes that it can
satisfy these factors, and thus that it should be granted injunctive
relief.
However, this is not quite the case.
First,
the
Teradyne
court’s
view
that
a
court
may
grant
preliminary injunctive relief in an otherwise arbitrable dispute has
not been adopted in this Circuit.
In fact, the Eleventh Circuit has
discussed the Teradyne approach with disapproval.
Rosen v. Cascade
Int’l, Inc., 21 F.3d 1520, 1529 (11th Cir. 1994)(It “tortures the
express language of [the precedent upon which it was based] and runs
counter to established equitable principles.”) The Rosen court began
with the principle that “[i]t is axiomatic that equitable relief is
only available where there is no adequate remedy at law; cases in
which the remedy sought is the recovery of money damages do not fall
within the jurisdiction of equity.”
Id. at 1527.
It follows from
this that courts may not grant injunctive relief in the form of
24
AO 72A
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requiring a defendant to post security when the plaintiff ultimately
seeks only money damages in the case.
Id. at 1529 (finding asset
freeze inappropriate where the plaintiff ultimately sought only money
damages); see also Levi Strauss & Co., 51 F.3d at 987 (distinguishing
from Rosen where the plaintiff sought a permanent injunction in
addition to the preliminary relief of the asset freeze).
present
case,
what
plaintiff
plainly
seeks
from
In the
defendant
reimbursement under the terms of the reinsurance contracts.
is
With
such reimbursement, plaintiff would have no further claim for relief.
Plaintiff does not seek a permanent injunction or other equitable
remedy to make it whole.
As such, the matter falls well within the
rule of Rosen.
Alternatively, plaintiff points to the contracts to support its
argument that defendant is, if not equitably required to post
security, contractually required to do so. (Pl.’s First Mem. [10] at
20-25; Pl.’s Second Mem. [12] at 1-4.)8
This argument, whatever its
ultimate merits, runs afoul of the rule of this Circuit, discussed
above, that in an arbitrable contract dispute, the courts may not
engage in further contractual interpretation than what is necessary
8
Plaintiff bases this argument on the “Unauthorized Reinsurers”
clauses of the contracts, claiming that those provisions require
defendant, because it is alleged now to be an unauthorized reinsurer
under Georgia law, to provide letters of credit, escrow accounts, or
cash advances to plaintiff. (See First Excess Contract [1-1] at Art.
XXII and Second Excess Contract [1-2] at Art. XXII.)
25
AO 72A
(Rev.8/82)
to determine arbitrability.
Thus, as with plaintiff’s plea for this
Court to order the arbitrators not to stay proceedings pending the
resolution of any malpractice recovery from Drew Eckl, this Court may
not delve into the contract to determine if it requires defendant to
post security.
D.
Should the Court Stay This Action Pending the Outcome of
the Arbitration?
Plaintiff’s final plea is for the Court to stay this litigation
pending the outcome of the arbitration that plaintiff seeks this
Court to order.
However, plaintiff’s request was made contingent
upon its success on the other issues.
(Pl.’s
Am.
Compl.
[9]
at
¶ 52.) Because this Court dismisses those pleas for relief, there is
no reason to grant the stay.
CONCLUSION
It is ordered by this Court that defendant’s Motion to Dismiss
the First Amended (Verified) Complaint [11] be GRANTED.
Because it
is superseded, defendant’s earlier Motion to Dismiss [6] is DENIED as
moot.
Further
motions
are
also
rendered
moot
by
this
Order.
Plaintiff’s Motion for an Expedited Hearing on Pending Motions and to
Waive the Usual Procedures [13] is DENIED as moot.
Plaintiff’s
Motion for Leave to Submit New Evidence in Opposition to Defendant’s
Motion to Dismiss and in Support of Plaintiff’s Motion to Waive the
Usual Procedures [17] is DENIED as moot.
26
AO 72A
(Rev.8/82)
Defendant’s Motion to
Strike [19] is DENIED as moot.
The Clerk shall close this action.
SO ORDERED, this 13th day of MARCH, 2014.
/s/ Julie E. Carnes
JULIE E. CARNES
CHIEF UNITED STATES DISTRICT JUDGE
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