National Casualty Company v. Arrowood Indemnity Company
ORDER transferring case to Southern District of New York in accordance with the forum selection clause of the parties' arbitration agreements and 28 U.S.C. 1404 and 1406. Signed by District Judge Barbara B. Crabb on 10/25/12. (krj)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - EMPLOYERS INSURANCE COMPANY OF WAUSAU,
OPINION AND ORDER
ARROWOOD INDEMNITY COMPANY,
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - NATIONWIDE MUTUAL INSURANCE COMPANY,
ARROWOOD INDEMNITY COMPANY,
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - NATIONAL CASUALTY COMPANY,
ARROWOOD INDEMNITY COMPANY,
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Petitioners Employers Insurance Company of Wausau, Nationwide Mutual Insurance
Company and National Casualty Company provide reinsurance to respondent Arrowood
Indemnity Company under a series of agreements entered into between 1967 and 1971.
After petitioners failed to pay claims that respondent submitted in 2009, respondent served
each petitioner with an arbitration demand in 2011. The disputes have reached this court
because the parties cannot agree on the panel of arbitrators.
Petitioners contend that respondent has failed to comply with the method in the
parties’ arbitration agreements for choosing the arbitrators and they seek an order
compelling respondent to comply with the agreements.
In a counterclaim, respondent
contends that not all of the agreements require the method petitioners want to use. It asks
the court to choose an arbitrator from a list of three that it has submitted because the parties
will not be able to agree on one.
Also before the court is respondent’s motion to consolidate the three cases.
Jurisdiction is present under 28 U.S.C. § 1332 because the citizenship of the parties is
diverse (respondent is a citizen of Delaware and North Carolina; petitioners are citizens of
Wisconsin and Ohio) and the amount in controversy in each case is well over $75,000
because respondent is seeking hundreds of thousands of dollars from each petitioner in
arbitration. America's MoneyLine, Inc. v. Coleman, 360 F.3d 782, 786 (7th Cir. 2004) ("In
the context of actions to compel arbitration, we have adhered to the rule that, in order to
ascertain whether the jurisdictional amount for the diversity statute has been met, the
appropriate focus is the stakes of the underlying arbitration dispute.").
A threshold question is whether venue is proper in this district. Respondent says it
is not because each of the arbitration agreements include a New York forum selection clause
and that, under 9 U.S.C. § 4, the clause must be enforced in the context of a petition to
compel arbitration. That view is consistent with the law of this circuit. Haber v. Biomet,
Inc., 578 F.3d 553, 558 (7th Cir. 2009) (“When an arbitration clause in a contract includes
a forum selection clause, ‘only the district court in that forum can issue an order compelling
arbitration. Otherwise, the clause of § 4 mandating that the arbitration and the order to
compel issue from the same district would be meaningless.’”) (quoting Merrill Lynch, Pierce,
Fenner & Smith v. Lauer, 49 F.3d 323, 327 (7th Cir. 1995)).
In response, petitioners make several arguments, but none are persuasive. First, they
say that the arbitration agreements do not contain “explicit forum selection clauses” because
they “merely permi[t] the arbitration to occur in New York, while recognizing the potential
for the arbitration to also occur elsewhere.” Pet. Br., dkt. #37, at 3. (The citations to the
record come from case no. 12-cv-283-bbc, but the briefs and supporting documents in each
case are nearly identical.) Petitioners’ argument does not withstand scrutiny. The clause at
issue states that “arbitration shall take place in New York, New York unless some other place
is mutually agreed upon.” Dotseth Decl. exh. 1 and 2, dkt. #22. Petitioners seem to be
arguing that the clause is permissive because it allows the parties to change the forum by
stipulation, but that makes no sense. Arbitration clauses are creatures of contract, Gore v.
Alltel Communications, LLC, 666 F.3d 1027, 1032-33 (7th Cir. 2012), so they always can
be changed if all relevant parties agree to the change, just like any other contract. Thus, the
clause petitioners cite simply emphasizes what is already implicit; it does not provide any
support for a view that the forum selection clause is “permissive.”
Second, petitioners rely on Cortez Byrd Chips, Inc. v. Bill Harbert Construction Co.,
529 U.S. 193, 196 (2000), in which the Supreme Court held that two statutes relating to
vacating or modifying an arbitration award do not limit venue, even though the statutes refer
only to “the district wherein the award was made.” 9 U.S.C. § 10 (“[T]he United States
court in and for the district wherein the award was made may make an order vacating the
award upon the application of any party to the arbitration.”); 9 U.S.C. § 11 (“[T]he 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.”).
Petitioners argue that § 4 should be viewed as similarly permissive.
This argument has two obvious and fatal problems. To begin with, §§ 10 and 11 have
nothing to do with forum selection clauses and there is no language in Cortez suggesting that
its holding would apply if such a clause were present. In fact, the Court discussed 9 U.S.C.
§ 9, which allows the parties to agree in advance where the arbitration award may be
confirmed. The Court did not question the validity of a forum selection clause in that
context, but instead concluded that §§ 10 and 11 must be construed so that parties may seek
to modify or vacate an award in the same district in which they agreed to confirm it, even
if that district was not where the arbitration occurred. Cortez, 529 U.S. at 200-01.
In addition, Cortez is not a case about the proper interpretation of § 4. Because the
Court of Appeals for the Seventh Circuit held in Haber (nine years after Cortez) that § 4
requires district courts to enforce forum selection clauses in arbitration agreements, I would
have no discretion to interpret that statute as petitioners suggest.
Third, petitioners argue that respondent waived the forum selection clause by
asserting its own counterclaim in this court. However, the general rule is that parties do not
waive objections to the forum by filing a counterclaim, so long as they raise the objection in
their answer. United States v. Ligas, 549 F.3d 497, 502 (7th Cir. 2008) (citing Rates
Technology Inc. v. Nortel Networks Corp., 399 F.3d 1302, 1308 (Fed. Cir. 2005); Frank's
Casing Crew & Rental Tools, Inc. v. PMR Technologies., Ltd., 292 F.3d 1363, 1372 (Fed.
Cir.2002); Bayou Steel Corp. v. M/V Amstelvoorn, 809 F.2d 1147, 1149 (5th Cir. 1987);
Gates Learjet Corp. v. Jensen, 743 F.2d 1325, 1330 (9th Cir.1984); Chase v. Pan-Pacific
Broadcasting, Inc., 750 F.2d 131, 132 (D.C. Cir. 1984)). In this case, respondent objected
to venue in its answers, dkt. #11, and then raised the issue in opposition to each of
petitioners’ motions to compel.
There is a twist in this case because respondent is asserting its venue objection as to
petitioners’ claims, but it believes that it may continue to assert its counterclaim in this court
because that counterclaim is not to enforce the arbitration agreement under 9 U.S.C. § 4,
but to appoint an umpire under 9 U.S.C. § 5, which does not include same venue limitation
as 9 U.S.C. § 4. However, respondent cites no authority to support its attempt to obtain a
tactical advantage over petitioners by objecting to venue on a claim by claim basis.
Particularly because petitioners’ and respondent’s claims are intertwined, it makes no sense
to try them in separate courts and it would be unfair to petitioners to do so. Thus, if
respondent prevails on its venue objection, it means that the entire case must transferred.
Finally, petitioners argue that they are relying not just on § 4, but § 5 as well, and
they agree with respondent’s view that the forum selection clause has no bearing on venue
in a case brought under § 5. An evaluation of this argument requires a review of the
language in § 5, which is titled “Appointment of arbitrators or umpire”:
If in the agreement provision be made for a method of naming or appointing
an arbitrator or arbitrators or an umpire, such method shall be followed; but
if no method be provided therein, or if a method be provided and any party
thereto shall fail to avail himself of such method, or if for any other reason
there shall be a lapse in the naming of an arbitrator or arbitrators or umpire,
or in filling a vacancy, then upon the application of either party to the
controversy the court shall designate and appoint an arbitrator or arbitrators
or umpire, as the case may require, who shall act under the said agreement
with the same force and effect as if he or they had been specifically named
therein; and unless otherwise provided in the agreement the arbitration shall
be by a single arbitrator.
9 U.S.C. § 5.
In arguing that § 5 authorizes a lawsuit to require parties to comply with an arbitrator
selection process in an arbitration agreement, petitioners rely on the first clause: “[i]f in the
agreement provision be made for a method of naming or appointing an arbitrator or
arbitrators or an umpire, such method shall be followed.” However, this provision is directed
at the parties, not the court. The only part of § 5 addressing the power of the court relates
to the appointment of the arbitrators, which is also the only subject of the title of the
statute. The more natural reading of the first clause is that it sets a condition precedent on
obtaining an appointment from the court, not that it provides independent authority to
enforce the agreement. Particularly because petitioners do not cite a single case in which a
court interpreted § 5 as granting it authority to enforce an arbitration clause about choosing
an umpire, I am reluctant to read in a provision that is not included in the statute.
It makes sense that § 5 would not address the court’s authority to require the parties
to follow a particular provision in the arbitration agreement because that authority is
provided by § 4. It also makes sense that § 5 would not be limited by a forum selection
clause in the arbitration agreement because a § 5 case does not involve interpretation or
enforcement of the agreement, but rather relies on the premise that court intervention is
needed because the agreement cannot solve the problem.
Even if I assume that petitioners are interpreting § 5 correctly, that would not provide
sufficient grounds for keeping the case in this district. Petitioners do not explain what would
happen to their § 4 claim if I allowed them to proceed in this court under § 5. They have
not agreed to abandon their § 4 claim and they do not suggest that their claims should be
split between Wisconsin and New York, which would make no sense in any event.
Presumably, petitioners would wish to reserve the right to assert both § 4 and § 5 on appeal,
if necessary. If the court of appeals concluded that § 5 did not provide the necessary
authority and that petitioners could not adjudicate the § 4 claims because of improper venue,
this would mean that all of the parties’ efforts would have been wasted and they would have
to start over in New York.
There is no dispute that venue is proper in the Southern District of New York for all
the claims and counterclaims in these cases. Thus, even if petitioners’ § 5 claims could be
litigated in Wisconsin, it would be in the interest of justice to transfer the cases to New York
under 28 U.S.C. § 1404. Although respondent seeks dismissal rather than transfer, that is
not the rule in this circuit. Mostly Memories, Inc. v. For Your Ease Only, Inc., 526 F.3d
1093, 1098 (7th Cir. 2008).
Because I am transferring these cases, I will leave it for the Southern District of New
York to decide whether consolidation is appropriate, though it is likely to make little
practical difference in a case like this one that does not involve a trial or significant issues
of case management.
IT IS ORDERED that these cases are TRANSFERRED to the United States District
Court for the Southern District of New York in accordance with the forum selection clause
of the parties’ arbitration agreements and 28 U.S.C. §§ 1404 and 1406.
Entered this 25th day of October, 2012.
BY THE COURT:
BARBARA B. CRABB
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