Employers Ins. Co. of Wausau v. OneBeacon American Insurance ( 2014 )


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  •           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."
    -3-
    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.
    -4-
    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
    -6-
    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
    -7-
    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
    -8-
    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)
    -9-
    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
    -10-
    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.
    -11-
    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.
    -12-