## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N o. 09

- 3682 T RUS T MAR K I NSURANCE C O ., P la intif f-A pp ellee, v. J OHN H ANC OCK L IF E I NSURANCE C O M PA NY (U
. S. A
. ), D e f e ndan t

-Appe l l ant
.
A pp eal from the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No . 09 C3959

—Jam es B. Z agel, Ju dge .
A RG UE D J AN UA RY 6, 2011

— D ECI DE D J AN UA RY 31, 2011

Befo re E A S T E RB R OO K, Chi e f Judg e, a nd C UDAH Ya nd R OV NER, C ircu it Judges . E A S T E RB R OO K, Chi e

f Judg e . Tw o insurance com panie s a g r e e d i n 1 9 9 7 th a tT r u s t ma r kw o u l d r e i n s u r e s o me r i sk s unde r w ritten byJ o hn H an co ck
. The de ta i l s o fthe p arties’ m ultiple con trac t s a re un im p ortan t for ou r pu rposes . I t i s e n ou gh to s ay that the insurer s di sag re e about the m eani ng o f“London M ar ketRetr oce ssi onal Ex cess o fLoss busi ness” , wh i ch Tru st m ark nee d not2 N o. 09

- 3682

re i nsure. The part i es subm i tte d thei r dispu te to arbi tr atio n u n d er th e c on tr ac ts ’ br oa d arb itr at ion cla u se s. In M ar ch 200 4 a tr ip arti te panel ( one arbi tr ato r sel ecte d by ea chs i de, a nd the se t wo s el ec tinga thi r d, c al l ed th e um pir e) m ade i ts aw ard, supp or ti ng H ancock ’ s v i ew o f Trustm ar k’ s obl i gat i ons. The award w as confi rm ed by a d ist ric t c ou rt . 200 4 U .S . D ist . L EXIS11 37 0 (N .D . I ll. Jun e 17, 2004 ). Tr us tmar kwas di ss at i sfi ed an d r efus ed to pa y the bi l l s that Hancock s ent o n the vi ew thatthe confir m ed aw ar d gove rned al lo fthe parti es’ dealings
. Thi s l ed H ancockto co m m ence a new arb i tr ati on in Octobe r 2004
. Trustm ar k re sponded by ar gui ng ( am ong other th i ngs) tha t Ha nc o c k ha d s e c ur e d the M a r c h 2 0 0 4 a w ar d by f ai l i ng to di scl ose f our docum ents du ring arbi tr aldi sc ov er y, an om iss ion t h a t T ru st m ar k la b ele d “fra u d .” H an co ckna m ed as its arbi tr at o r M ar kS
. Gur ev i tz , who h ad p ar tic ip at ed in t h e f i rs t a rb itr at ion as w ell. T rustm ar k pi cked a per son w ho had notpart i ci pated i n the ear l i erp ro c ee ding. The two party- chose n arbi tr ato rs se l ected a neutra lum pir e. One ofthe fi rs t i ssues the thre e- perso n pa n el had to t ackl e was wh at w ei ght to gi ve the 2 004 deci si on. H ancockco ntended that i t was l ar gel y di sp osi ti ve; Trust m ar k c onte nd ed that i t s houl d be i gnor ed and the pro ceed ings re sta rt ed fr o m s c r a t c h
. C o n s i d e r a t i o n o fth i s p o i n tw a s c o mp l i c a t e d b y a c o n fi d e n t i a l i t y a g r e e me n t th att he p ar ti e s h ad rea c h ed d u rin g t h e firs t p ro c ee d in g. T h is ag r ee m en t

— w hi ch d i d not incl ud e i ts own arbi tr ati on cl ause

— preve nted Trustm ar k a nd H ancockfrom di scl o singthe e vi den ce , pr o ce eding s, and a war d. TheN o. 09

- 3682 3 parti es debated wh etherthi s a gr ee m en t co ver ed all di scl osur es, ev en to l aw yer s a nd succe sso r arbi tr ato rs , o r onl y di scl osur es to the outsi de w or l d (s uch as the fi rm s’ bu siness ri vals and the p ress). G u r e vitz and the u m p ire con clud ed that the arb itrators them selves (and the p arti es ’ l awy er s) ar e en ti tl ed to k no w a nd co ns i d er the ev i den ce pr es en te d, a nd the r es ul ts r ea ch ed, i n the fi r sta rbi tr at i o n. Befo r e the p a ne lc o mm e nc e d i t s h e a r i ngo n the m er i ts, Trustm ar k l aunched thi s s uitund er the dive rs i ty j uri sd iction. T he suit, fi led in 2009 , i nitiall y asked t h e cou rt to vacate the deci si on that had co nfi rm ed the 2004 aw ar d . Th at req u es t is so ob vio u s l y u n tim ely

— th e t i me to appeal the dist ri ct j ud ge’ s deci si on had expi re d fi ve yea rs ea rl i er, and Fed. R. Ci v. P. 60 ( b) does notal l ow that deci si on t o be r eopened

— that T ru stm ar k s oo n re form ulated i ts p rincipa l con ten tion, asking th e cou rt to e nj o i n fur th era rbi tr at i o n a s l o nga s Gur ev i tz r emai ns a m em b er of th e n ew p an el. T h e c on tr ac ts req u ire all three a rbi tr at o r s to b e “di sint er es te d”. Tr us tmar kc o ntended that G urev i tz i s no t, bec ause he kno w s what happ ened i n the fi rs t a rbi tr ati on. I t a l so i nsi ste d that the ne w arbi tr alpaneli s no t e nti tl ed to f or m o r act on a ny vi ew abo ut the m eanin g of the co nfi denti al i ty agr eem ent, bec ause that agr eem ent doe s no t inc lude an arbi tr ati on cl au se . Onlya j ud ge, Trust m ar k insi ste d, can deter m i ne wh at the c onfi denti al i ty agr eem ent r equi re s. The dis tr i ct c ourtag re ed w i th Trust m ar k and i ssued an i nj u n c t i o n . 6 8 0 F
. S u p p . 2 d 9 4 4 ( N. D. I l l
. 2 0 1 0 )
. The j ud ge w ro te that Gu re vi tz i s no t “ disinter est ed” bec ause4 N o. 09

- 3682 he kno w s what happened du rin g the fi rs t a rbi tr ati on and coul d be ca l l ed as a f act w i tness abo ut tho se proceedi ngs. The j ud ge al so rul ed that the s eco nd panel i s no t en ti tl ed to c o ns i derthe de ci si o n made by the fi rs t panel
. The i nj uncti on s topped the a rbi tr atio n i n i ts t r a c k s . Ha nc o c kh a s a pp e a l e d. Equi tabl e r el i efde pen ds o n irrepa r ab l e i nj ur y, a nd the fi rst qu e stion w e m us t ad d ress is w he th er Tru stm ark showed any. H er e i s the di str i ct c ourt ’ s e nti re di scussi on o fthatsubj ect: Trustm ar k c annot be for ced to a rbi tr ate i ssues that i t d i d not agr ee to arbi tr ate
. S ee A T & TTechnologies v. Co m m unicati ons Workers of Am er ica , 475 U
. S. 64 3, 64 8 ( 1986 )
. “F or ci ng a party to arbi tr ate a m att er thatthe partyneve r agr eed to arbi tr ate , re gar dle ss of the fi nal re sul t thro u gh arbi tr ati on o r j udi ci al revi ew, una l te r ab l y de pr i ve s th e p ar ty of its righ t t o s ele c t t h e fo ru m in w h i c h it w ish es to res olv e d isp u t e s [,]” c au sin g irr ep ar ab le h ar m . C hic ago S ch o o l R efo rm B d. o f Trustees v . D ivers i f i e d Phar m ac e ut i ca l S e r vi ces , Inc . , 40 F. S up p. 2d 987, 99 6 ( N
. D. I l l
. 19 99)
. This i s a har m f aced uni que l y b y Tr us tmar ki fi t i s den i ed reli efa nd su chha r m t i ps th e sc al e i n f av o r o fg r an tingi nj uncti on. Thi s i rr eparabl e har m , co up l ed w i th T ru st m ar k’s su c c es s o n th e m e r i t s, m ilita te s in f avo r ofgr anti ng an i nj uncti on in thi s ca se. 6 8 0 F
. S u p p . 2 d a t9 4 9
. T h e r e a r e t wo pr i nc i p a lp r o b l e ms w i th thi s underst anding.N o. 09

- 3682 5 First, Tru stm arkdidag ree to arbi tr ate the questi on w h et h er th e c on tr ac ts p ro vid e re in su ra n c e fo r c er ta in r i sk s. Ye t th e di stric t co ur t bl o ck ed r athe r tha n e nf or ced thatco ntra ctualundertak i ng. S e c o nd , the pr o po s i t i o n tha t g o i ng f o r wa r d wi th an arb i t r a t i o n “ un a l t e r ab l y de pr i v e s the pa r t y o f i t s r i ght t o s e l e c tth e f o r u m”

— a p rop ositi on for w hich the cou rt did not ci te any sta tute or appell ate d ec i si on

— i s f al se. Once the a rbi tr ati on e nd s, a partythatbel iev es t h e pr oc ee d in g fla w ed be c au se th e a rb itr at or s e x c ee d ed th eir r emi t h as a si m pl e r emedy : a pr o ce edingunde r the Fede r alArb i tr at i o n Actt o de ny e nf o r ce m en t to the a wa r d. S e e 9 U. S
. C. § 1 0 ( a ) ( 4 ) ( a w ar d mayb e s e ta s i de “whe r e th e arbi tr at o r s ex ceed ed the i r po wer s” )
. I fthe aw ar d shoul d be s et asi de, l i ti gat i on in the pr oper f or um would ensue. T he on ly p oten tial inj ury from w aiting un tilthe arbitrators ha ve m ad e the ir aw ard i s d elay and the ou t-ofp oc ke t c os ts of p a y i n g t h e a rb itr at or s a n d lega l co u n se l. Lo nga g o the S up r e me Co ur th e l d tha tthe del ay an d e xpe ns e o fa dj udi ca ti o n a r e no t “i r r epa r ab l e i nj ury”

— i ftheywere, ev er y d iscover y o rderwould cause irre p ar ab le inj u ry . See , e.g., P et roleu m Ex plorati on, Inc. v. Pub l i c Se r vi ceCom m issi on , 304 U
. S. 209, 222 (1938 ); Re n ego t i at i on Bo ar d v. Ba n n e r c r af tCl othi n g Co
. , 415 U.S
. 1, 24 (19 74 ); F TC v
. S t an da r d Oil Co
. , 449 U
. S. 232, 244 (1980 ). W e he l d i n Pa i n e We b b e rIn c . v . Fa r nam , 8 43 F. 2d 1050 ( 7th Ci r . 1 9 8 8 ) , a nd Grap hi c Com m uni ca t i ons U ni on v. Chica go Tr i b u n eCo ., 77 9 F.2 d 13 ( 7th Ci r. 19 85) , thatthe sor t o f ar gum ent Tr ustm ar k a dvances in i ts eff or t t o estab li sh “i rr eparabl e inj ury” i s fri vol ous.6 N o. 09

- 3682 W e co uld s top her e, but the di str i ct c ourt ’ s deci si on l eave s a cl oud ove r thi s a rbi tr ati on a nd the re p utati on of arbi trator G ure vitz, a re p u t a tion th at T rus tm ark se ems de te r m i ne d t o t arni sh
. W e therefo r e add th atthe d ist ri ct c ourter re d on the m er i ts i n additi on t o m i st a k e nly b e l i e vi ng tha tT r us t mar kh a s e s t ab l i s he d i r r e par abl e inj ury. The c o nt r ac ts r equi r e al lthr ee a rbi tr at o r s to b e “di sinte re st ed .” W h en u se d w ith res p ec t t o a dj u d ica tio n, th is w or d m eans l acking a fi nanci alo r othe r perso nalst ake inth e o u tc om e. Se e g en er ally C a perto n v . A .T . M a ssey Coa l Co
. , 129 S. Ct. 22 52 ( 2009 )
. N or m s o fi nsurance- i nd ustr y a rb itr at ion tra c k t h is u n d er st a n d in g. A R IA S• U .S., P rac tica l G uid e to R einsu ran ce A rbitra tio n P roc edu re§2 .3 ( r e v . e d . 200 4) (“ d isin te re st ” m ea n s n o fin an c ial st ak e in th e outc om e and not bein g un d er a p arty’s d irect cont rol)
. Gu re vi tz does not have any s tak e in the outco m e o f th is a rb itr at ion . L ike an y ot h er p r i v at ely ap p oin te d arb itr at or , he d oe s h av e a rep u ta tio n al in te re st : if his d ec isio n d isa p p oin ts th e p er so n w h o p u t h im on th e p an el, he i s l es s l i k ely t o b e se l ec te d a s a n arbi tr at o r i n the future. Fe deralj ud ges , byco ntra st , ser ve du ring g oo d be ha vi o r a nd ne ed no t wor r y abo utho w the i r de ci si o ns m ay affect thei r car eer s. But the i nter esti n potenti al future em plo ym ent i s e nd em i c t o arbi tr ati on that perm i ts parti es to c h oo se w ho wil ldeci de. S ee Sp here D r a k e In s uranc eLt d. v. Al l Am e r i ca n L i f eIns uranc eCo. , 30 7 F. 3d 617, 622 ( 7th Cir
. 2002 ) ( “evi dent parti ality” for arbitrators m ean s acts th at sim ultan eou sly show sup p ort f oron e si de and disr ega rd the r ule s; party- appoint edN o. 09

- 3682 7

arbi tr ato rs can’ t be di sm iss ed on the gr ound that they are incli n e d to sup p ort the p arty w ho n am ed them ). So m eti m es part i es agr ee that arbi tr ato rs wil lbe nam ed by i nd ependent enti ti es, such a s th e A m er i can Arbi tr ati on Associ ati on, bu t Trustm ar k a nd H ancockr ese rv ed the pow erof appoi ntm ent. A court cannot proper l y deem th e inter esti n re em plo ym ent c re ate d by thi s a rr angem ent a di squal i fyi ng ev ent. I nstea d ofas ki ng wh etherGurevi tz had a fi na n c i alo r othe r perso nalst ake i n the ou tc om e, the dist ri ct j ud ge ask ed w hetherhe ha d knowledge about the di spute. A ns w ering yes, th e j ud ge d eem ed the kn ow ledge a f orm of p ro h ibit ed “in te re st .” A s w e o b se rv ed inSp here D r ake, how ever, private p arties often select arbitrators p re c ise ly becau sethey know so m ethi ng ab out the c ontr ove r sy . 3 07F
. 3d at6 20
. Arb i tr at i o n n ee d n ot fo l l o w the pattern ofj ury tr i al s, i n w hi ch a f actfi nd er ’ s i gnor an ce i s a pri m e desi deratum . N othing i n the parti es ’ co ntra ct re quir es arbi tr ato rs to ar ri ve w i th em pty hea ds. Fe deral j ud ges , o fal lpeopl e, sho uld not co nfuse kno w l edge w ith a d i s q u alify in g “ in te re st .” Fo r j u d ge s re gu lar ly hearm ult i ple sui ts ar i si ng fro m the sam e co ntro ver sy. The d ist ric t j ud ge w ho r eso l ved thi s v er y di spute al so en te r ed th e o r dere nf o r cing the 2 00 4 awar d. I fkno wi ng abou t w ha t ha p p en ed in 2004 is an im p erm issible “ in terest, ” o r m ake s the per son a “fa ct w i tness ” about w hat had occur re d i n 200 4, then the di str i ct j ud ge sh ou l d have ste pp ed aside fr om the curr ent s uit
. Yet that w as not re quir ed. Kn owledge acqu i re d i n a j ud i ci alcapaci ty does not re quir e disqual i fi cati on. See Liteky v . U nited S t a tes , 51 0 U.S
. 54 0 ( 1994 )
. Li kewis e with knowle dge ac qui r ed i n a rbi tr at i o n.8 N o. 09

- 3682 A rbi tr ato r Gu re vi tz i s a s “ disinter est ed” as t he di str i ct j ud ge hi m sel fand j ust a s e nti tl ed to part i ci pat e. That Gu re vi tz si gn ed t he co nfi denti al i ty agr eem ent doe s no t affec t th i s co nc l us i o n; he s i gn ed a s a n a dj udi ca to r . The d istri ct j ud ge hi m sel fi m ple m ented the co nfi denti al i ty agr eem en t, i n a s i m i l aradj ud i cato rycapaci ty, wh en c on firm in g t h e firs t p an el’s aw ar d . 200 4 U .S. D ist . L EXIS 1 1 3 7 0 a t* 4

– 5
. I fth e r e i s a n y d i f f er e n c e b e t we e n th e t wo adj ud i cato rs , Gurevi tz has the stro ngerenti tl em ent t o parti ci pate in thi s s ec on d ro und , bec ause as w e s tr ess ed inSp he r eD r akei t t ake s m or e t o disqual i fy a n arbi tr ato r than to di squ al i fy a j ud ge. 30 7 F
. 3d at 621. S ee al so M e r i tIn s u ra n c eCo
. v . L e athe r b y In s u r an c eCo
. , 71 4 F
. 2d 673 ( 7th Ci r. 19 83)
. N o partyi n federa lco urt i s e nti tl ed to pickhi s j ud ge, but contr acts al l owing parti es to choose th ei r a rbi tr ators ar e co m m o n; the se pa r ti es ’ a r r an g ement i nstanti ate s the pra cti ce. W hen o n e party i s e nti tl ed to c h oo se it s o w n arb itr at or , an d in d oin g s o follo w s a ll co nt r ac tu alr equi r ement s, a c o ur t o ug htno t ab etthe othe r si de’s st ra tegy t o ej ect i ts opponent’ s cho i ce. The dist r i ctj udg e al so e r r ed i n c o nc l udi ngtha t th e arbi tr ato rs are pow er l ess to co nstr ue the confi denti al i ty ag re em ent. True, thatag re em ent l acks i ts own arbi tr ati on cl ause, but the par ti es didag re e t o a rb itr at e t h eir disputes abo ut r ei nsurance. A rbi tr ato rs wh o have been appoint ed to r esol ve a co m m er ci aldi spute ar e e nti tl ed to re sol ve anci l l ar y quest i ons that affect thei r tas k. S ee Howsa m v. D e an Wi t t e rReynol ds, Inc . , 537 U
. S. 79, 84 (2002). W ha t’ s m o r e, the c o nfi den ti al i tya g reem en t

— a stan d ard f or m i n i nsurance arbi tr atio n , si gned w hi l e the arbi tr ati on w as un d er w ay

— i s cl ose l y r el ate d to the s ubstanceN o. 09

- 3682 9

o fthe fi r sta rbi tr at i o n a nd pr es um pti ve l y wi th i n the scop e of th e reinsu ran ce con tracts ’ com p rehe ns ive arbi tr ati on cl auses , wh ich coveral ldi sputes a ri si ng o ut o f th e o rig in al d isp u te . C f. Swe e tD ream s U nl i m i t e d, Inc . v. D ial-A -M attres s Inte rnati ona l, Ltd
. , 1 F. 3d 639, 64 2 ( 7th C ir. 1993). Suppose th at Trustm ar k a nd H ancockhad agr eed to use the pro ceduralr ule s o fthe A m er i can Arb itr atio n A sso ci ati on, but had not incl ud ed a s epara te arbi tr ati on cl au se i n tha t co nt r ac t. The pa ne lc o ul d i nt er pr eta nd apply the AA A ’ s r ule s; a partydi ssa ti sfi ed bya procedur alr ul i ngc o ul d no t r un t o a fede r aldi st r i ctcou rt and get re vi ew in m i d-arbi tr ati on, o ne r uling ata ti m e, j ust be cause nei therthe A A A ’ s ruleb oo k no r the c ontr act adopti ng the m h ad a fre est anding arbi tr ati on cl ause. So , to o, with the te rm s o fthe Feder al A rb itr ati on Act. Se ver alpart s o fthi s s tatute g ove rn the m anage m ent o f arbitra tion. Fo r exam ple , §7sa ys that arbi tr ato rs m ay sum m on witnesse s a nd re quir e them to bring docum ents. 9 U.S
. C. §7. The A ct is a statut e; natur al l y i t doe s no t conta i n an arbit ra ti on cl ause; ye t no o ne supposes ( at l ea st, no o ne s hould suppose) thatev er y t i m e a n arbi tr ato r sum m ons ( or doesn’ t sum m on) a w i tness , or d eci des w hi ch docum ents the par ties m ust pro du ce, o ne o r both ofth e c o nt e s t a nt s c a n g e ti mm e di a t e r e v i e w i n a federa l dist ri ct c ourt
. Th at w oul d be the end ofarbi tr ati on a s a spe edya nd ( r el at i ve l y ) l o w-c o sta l te r na ti ve t o l i ti g at i o n. A rbi tr ato rs ar e e nti tl ed to deci de f orthem se l ves thos e proce du ra lquesti ons that ar i se on the way to a fi nal dispos i ti on, i ncl u d in g th e pr ecl usi ve effect ( i fany) o fan10 N o. 09

- 3682

ea rlier aw ar d
. Cons ol i dation C oal Co. v. U ni t e d M i ne Wo rke rs , 213 F.3d 40 4, 40 7 (7 th C ir. 20 00 ); Chic ago Typographi ca l U ni on v. Chi cago S un- Tim e s , Inc . , 86 0 F
. 2d 1420 , 1424 (7th Cir. 1988). I f in d oing s o t he arbitrators exceed t h eir pow er s, the cour t m ay vacat e the award at th e en d o fthe p rocee di ng . 9 U. S
. C. § 10 ( a) ( 4)
. Buta m o ng the powe rs o fan a rbi tr ato r i s the power t o i nter pret the w rit ten word, and thi s i m pli es the power to er r; an aw ar d n ee d n otbe co rr e c t t o b e e n for c ea b le. Se e, e.g ., M ajo r Leagu e B a sebal l P la yers A ss’n v . Ga rvey, 5 3 2 U. S. 50 4 ( 2001 ) . It is enough i fthe arbi tr ato rs hones tl y t ryto car ryo ut the gov er ni ng a gr eem ents. “[ T]he questi on for d ec isio n by a fed er al c o u r t a sk ed to se t a sid e a n arb itr ati on a w ar d
. . . i s no t whether the a rbi tr ato r orarbi tr ator s e rr ed in inte rpre ti ng the co ntra ct; i t i s no t whether they cl ear l y e rr ed i n i n te rp re ti ng the co ntra ct; i t i s no t w hethertheygr oss l y e rr ed i n i nterp reti ng the co ntra ct; it i s whether they i nter prete d the co ntra ct . ” Hil l v. N or f ol k & We s t e r n Ry
. , 8 14 F
. 2d 11 92 , 1 19 4– 95 ( 7th Ci r. 19 87 ). See als o, e.g., Ope r a t i n gE n g i n e e rs L o c a l 1 3 9 v . J
. H. F in d orff & Son, Inc. , 3 9 3 F
. 3 d 74 2 ( 7 th Ci r . 2 0 0 4 )
. When thi s a rbi tr ati on r esum es, the panel i s e nti tl ed to f ol l ow i ts own vi ew abou t th e m eani ng o fthe confi denti al i ty agr eem ent; i t nee d not knuckl e under to th e d i str i ct j ud ge’ s pre m atur el y a nnounced un derst anding. R EVER S ED

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