Employers Ins. Co. of Wausau v. OneBeacon American Insurance , 744 F.3d 25 ( 2014 )

United States Court of Appeals
For the First Circuit
No. 13-1913
EMPLOYERS INSURANCE COMPANY OF WAUSAU,
Plaintiff, Appellee,
and NATIONAL CASUALTY COMPANY,
Plaintiff,
v.
ONEBEACON AMERICAN INSURANCE COMPANY,
EMPLOYERS COMMERCIAL UNION INSURANCE COMPANY,
AMERICAN EMPLOYERS INSURANCE COMPANY,
THE EMPLOYERS' FIRE INSURANCE COMPANY,
THE NORTHERN ASSURANCE COMPANY OF AMERICA,
and EMPLOYERS LIABILITY ASSURANCE CORPORATION,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Howard, Circuit Judge,
Souter,* Associate Justice,
and Stahl, Circuit Judge.
Mark C. Kareken for Appellant.
*
Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
Michael A. Knoerzer, with whom Kevin J. O'Connor, Clyde & Co.
US LLP, and Hermes, Netburn, O'Connor & Spearing were on brief, for
Appellees.
February 26, 2014
STAHL, Circuit Judge. Plaintiffs National Casualty
Company ("National Casualty") and Employers Insurance Company of
Wausau ("Wausau") filed a petition for declaratory relief regarding
the preclusive effect of a prior arbitration. Defendants OneBeacon
American Insurance Company, Employers Commercial Union Insurance
Company, American Employers Insurance Company, Employers' Fire
Insurance Company, Northern Assurance Company of America, and
Employers Liability Assurance Corporation (collectively
"OneBeacon")1 filed a motion to dismiss Plaintiffs' collateral
estoppel claim and a cross-petition to compel arbitration. The
district court granted OneBeacon's motion to dismiss and Wausau
appealed. We affirm.
I. Facts & Background
Between 1966 and 1986, OneBeacon had a program known as
"Multiple Line Excess Cover" ("MLEC Program") under which it
annually entered into reinsurance contracts ("MLEC Agreements")
with various reinsurers. National Casualty, Wausau, and Swiss
Reinsurance America Corporation ("Swiss Re") participated as
reinsurers in the MLEC Program. Wausau entered into MLEC
Agreements with OneBeacon in 1973 and 1974 that are identical in
all relevant respects to OneBeacon's MLEC Agreements with Swiss Re
from 1975 through 1980.
1
Defendants describe themselves as "various OneBeacon
entities."
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In December 2007, OneBeacon demanded arbitration under
its contracts with Swiss Re seeking reinsurance recovery for losses
arising out of claims against OneBeacon by several policyholders.
The arbitration panel decided in favor of Swiss Re, and the
District Court of Massachusetts confirmed the award. In April
2012, OneBeacon demanded arbitration with Wausau and National
Casualty under MLEC Agreements from 1971–74 and 1980–85 seeking
coverage for a number of claims. According to Wausau, "[t]he
demand included billings of approximately $100,000 to Wausau under
the 1973–74 [MLEC Agreements] for the very same . . . claims
OneBeacon arbitrated and lost against Swiss Re."
Following the demand for arbitration, OneBeacon, Wausau,
and National Casualty entered into an "Agreement for the
Consolidation of Arbitration," which combined the parties'
arbitrations into a single proceeding. Subsequently, Wausau and
National Casualty petitioned the District Court of Massachusetts
for a declaratory judgment that the prior arbitration award between
OneBeacon and Swiss Re had preclusive effect on the arbitration
pending between OneBeacon and Wausau.2 The district court denied
the petition, holding that "the preclusive effect of a prior
arbitration is a matter for the arbitrator to decide." Nat'l Cas.
2
Wausau also raised several other issues before the district
court that are not presently before us on appeal.
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Co. v. OneBeacon Am. Ins. Co., No. 12-cv-11874, 2013 WL 3335022, at
*8 (D. Mass. July 1, 2013). Wausau appeals.
II. Analysis
The single issue on appeal is whether a dispute over the
preclusive effect of a prior arbitration is arbitrable. More
specifically, when an arbitration decision is confirmed by a
federal court order, is the preclusive effect of that decision on
a subsequent arbitration a matter for the federal court or the
arbitrator to decide? Wausau offers two arguments against
arbitrability in these circumstances.
First, it argues that federal courts have the exclusive
authority to determine the preclusive effects of their judgments,
so an arbitrator lacks the authority to determine the preclusive
effect of a prior arbitration once it has been confirmed by a
federal court. Second, Wausau argues that when the parties
negotiated their arbitration agreement in the early seventies, the
applicable case law did not hold that preclusion was an arbitrable
issue. Thus, the parties could not have intended for the scope of
their arbitration agreement to cover the preclusive effect of prior
arbitrations. The first argument is unpersuasive and the second
argument is waived.
A. Enforcement of Court Orders Confirming Arbitration Awards
Section 2 of the Federal Arbitration Act ("FAA") provides
that written agreements to submit disputes to arbitration "shall be
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valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract." 9
U.S.C. § 2. "A party who is seeking to compel arbitration must
demonstrate 'that a valid agreement to arbitrate exists, that the
movant is entitled to invoke the arbitration clause, that the other
party is bound by that clause, and that the claim asserted comes
within the clause's scope.'" Soto-Fonalledas v. Ritz-Carlton San
Juan Hotel Spa & Casino, 640 F.3d 471, 474 (1st Cir. 2011) (quoting
Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 375
(1st Cir. 2011)). The issue before us relates only to the scope of
the clause – whether it covers disputes over the preclusive effect
of prior arbitrations.
The arbitration agreements in this case are broadly
worded. They cover "any irreconcilable dispute between [the
parties] in connection with" the MLEC Agreements. Thus, by their
plain terms they would appear to include disputes over the
preclusive effect of prior arbitrations. See Nat'l Union Fire Ins.
Co. of Pittsburgh, Pa. v. Belco Petroleum Corp., 88 F.3d 129, 136
(2d Cir. 1996) (finding an arbitration clause with similar language
"sufficiently broad to encompass disputes about what was decided in
a prior arbitration"). Moreover, there is broad agreement among
the circuit courts that the "effect of an arbitration award on
future awards . . . is properly resolved through arbitration."
Courier-Citizen Co. v. Bos. Electrotypers Union No. 11, 702 F.2d
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273, 280 (1st Cir. 1983); see also Indep. Lift Truck Builders
Union v. NACCO Materials Handling Grp., Inc., 202 F.3d 965, 968
(7th Cir. 2000) ("[T]he preclusive effect of the first arbitrator's
decision is an issue for a later arbitrator to consider.")
(internal quotation marks omitted); Chiron Corp. v. Ortho
Diagnostic Sys., Inc., 207 F.3d 1126, 1132 (9th Cir. 2000) ("[A]
res judicata objection based on a prior arbitration proceeding is
a legal defense that, in turn, is a component of the dispute on the
merits and must be considered by the arbitrator, not the court.");
U.S. Fire Ins. Co. v. Nat'l Gypsum Co., 101 F.3d 813, 817 (2d Cir.
1996) ("[T]he issue-preclusive effect of a prior arbitration is
arbitrable and so must be arbitrated."); Oil, Chem. & Atomic
Workers Int'l Union, Local 4-367 v. Rohm & Haas, Tex. Inc., 677
F.2d 492, 494 (5th Cir. 1982) (per curiam).
Wausau's argument rests entirely on the fact that in this
case there is a federal court order confirming the prior
arbitration award. Wausau offers a straightforward syllogism: (1)
Section 13 of the FAA provides that an order confirming an
arbitration award "shall have the same force and effect, in all
respects, as, and be subject to all the provisions of law relating
to, a judgment in an action," 9 U.S.C. § 13; and (2) enforcement
of a federal judgment, including the determination of its
preclusive effect, is the "exclusive province of federal courts";
therefore, (3) only federal courts have the authority to determine
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the preclusive effect of an arbitration award after it has been
confirmed by a court order. Any other conclusion, according to
Wausau, would violate the unambiguous text of Section 13 placing
orders confirming arbitration awards on equal footing with all
other court orders.
The First Circuit has not addressed this issue. The
district court relied on the Ninth Circuit's opinion in Chiron to
conclude that judicial confirmation of an arbitration award "does
not warrant deviation from the general rule that the preclusive
effect of a prior arbitration is a matter for the arbitrator to
decide." Nat'l Cas. Co., 2013 WL 3335022, at *8. We agree with
the district court's conclusion.
The flaw in Wausau's logic is that a federal judgment
confirming an arbitration award is distinct from the arbitration
award itself. The federal judgment very rarely considers the
merits of the arbitrator's decision. See UMass Mem'l Med. Ctr.,
Inc. v. United Food and Commercial Workers Union, 527 F.3d 1, 5
(1st Cir. 2008) ("[T]he district court's review of arbitral awards
must be extremely narrow and exceedingly deferential. . . . [T]hat
a reviewing court is convinced that the arbitrators committed error
– even serious error – does not justify setting aside the arbitral
decision." ) (internal citations and quotation marks omitted);
Dennis v. Wachovia Sec., LLC, 429 F. Supp. 2d 281, 287 (D. Mass.
2006) ("[C]ourts have no business weighing the merits of the
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grievance or considering whether there is equity in a particular
claim." (quoting Major League Baseball Players Ass'n v. Garvey, 532
U.S. 504, 509-10 (2001))) (alteration in original) (internal
quotation marks omitted). Under the FAA, the federal court's
review of an arbitration decision serves two very limited purposes;
it determines whether the decision should be vacated or amended on
one of the specific grounds enumerated in Section 10(a),3 and it
provides a mechanism for enforcement, 9 U.S.C. § 13. Generally,
that is the extent of the confirmatory order's substantive
significance. See Chiron Corp., 207 F.3d at 1133 ("[The FAA]
3
Section 10(a) provides that:
In any of the following cases the 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--
(1) where the award was procured by corruption, fraud, or
undue means;
(2) where there was evident partiality or corruption in
the arbitrators, or either of them;
(3) 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
(4) 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.
9 U.S.C. §10(a)
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requires the court to enter judgment upon a confirmed arbitration
award, without reviewing either the merits of the award or the
legal basis upon which it was reached.")
A collateral estoppel analysis requires the court to
determine whether "(1) the issues raised in the two actions are the
same; (2) the issue was actually litigated in the earlier action;
(3) the issue was determined by a valid and binding final judgment;
and (4) the determination of the issue was necessary to that
judgment." Manganella v. Evanston Ins. Co., 700 F.3d 585, 591 (1st
Cir. 2012). That inquiry inherently involves an examination of the
details of the prior arbitration; the arbitrator's path to reaching
the decision on the merits determines the preclusive effect of the
arbitration. But, as explained, a federal judgment confirming the
arbitration award generally does not address the steps leading to
the decision on the merits at all. Since these matters are outside
of the purview of the court order confirming the arbitration
decision, there is no reason why that order should give the federal
court the exclusive power to determine the preclusive effect of the
arbitration. The prerogative of the federal court to protect its
own judgments does not need to extend beyond the scope of the
judgment itself.
This conclusion does no violence to the text of Section
13 or the Congressional intent underlying it. Nor does it harm the
federal court's power to enforce its own judgments. It simply
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means that the federal court will protect its judgments within
their proper bounds. For example, if a federal court, in enforcing
an arbitration award, held that the arbitration was not fraudulent,
and thus was enforceable, a subsequent arbitrator would not be able
to decide to the contrary. But if a federal court has nothing to
say about the merits of the arbitration decision that it confirms
(which is almost always the case), then a subsequent arbitrator
does not infringe on the prerogatives of the federal court by
determining the preclusive effect of that arbitration decision.
Therefore, we will not deviate here from the general rule that the
preclusive effect of a prior arbitration is an arbitrable issue.
B. Doctrine at the Time of Contracting
Wausau's second argument is that at the time the parties
negotiated the MLEC Agreements, "the law then in existence – that
became part of the reinsurance contract here – required that the
question of the collateral estoppel effect of a federal judgment
entered on an arbitral award would be decided by a court, not
arbitrators." Wausau did not raise this argument before the
district court. "[I]t is a virtually ironclad rule that a party
may not advance for the first time on appeal either a new argument
or an old argument that depends on a new factual predicate."
Cochran v. Quest Software, Inc., 328 F.3d 1, 11 (1st Cir. 2003). By
failing to raise the argument below, Wausau waived it.
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Wausau attempts to avoid waiver by arguing that "[t]he
law at the time of contracting is a long-standing maxim of contract
interpretation. Since arbitrability, which requires contract
interpretation, was before the District Court, Wausau has not
transgressed the 'raise-or-waive' rule by addressing the point
before this Court." This argument skirts absurdity. When a party
places an issue as broad as "contract interpretation" before the
court, it does not thereby preserve every argument that might fall
under that rubric. This court has held repeatedly that "theories
not squarely presented below typically cannot be advanced here."
Medina-Rivera v. MVM, Inc., 713 F.3d 132, 141 (1st Cir. 2013)
(emphasis added) (citing cases); Curet-Velazquez v. ACEMLA de
Puerto Rico, Inc., 656 F.3d 47, 53 (1st Cir. 2011). As we held in
Curet-Velazquez, "[t]here is nothing sufficiently compelling about
this case to warrant relaxation of such a fundamental rule." 656
F.3d at 53.
III. Conclusion
For the foregoing reasons, we AFFIRM the district court
order. Costs to Appellee.
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