1 NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

_____________
No. 09

- 3963

_____________ PMA CAPITAL INSURANCE COMPANY; HIGH MOUNTAIN REINSURANCE
, LTD

. (Cayman) ; PMA RE CORPORATE CAPITAL, LTD.

v.

PLATINUM UNDERWRITERS BERMUDA, LTD.,
Appellants

_____________ On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2

- 09

- mc

- 0084)
District Judge: Honorable Paul S. Diamond

_____________ Submitted Under Third Circuit LAR 34.1(a)

October 7, 2010

Before: FUENTES, JORDAN and ALDISERT, Circuit Judges

(Opinion Filed November 8, 2010 )

_____________
OPINION OF THE COURT

_____________
A LDISERT, Circuit Judge

.2

Pl atinum Underwriters (“Platinum”) appeals f rom the District Court of the E astern
District of Pennsylvania ‟ s vacatur of an arbitration award. 1 We must deter mine whether

the Court exceeded its authority under the Federal Arbitration Act (“FAA”)
, 9 U.S.C.

§ 10(a)(4)

. In the process
, we must interpret a n “ honorable engagement ” contract clause
,
which required the arbitrators in this case to

i nterpret this Agreement as an honorable engagement and not as merely a legal obligation. They are relieved of all judicial formalities and may abstain from following the strict rules of law. They will

m ake their award with a view to e ffecting the general purpose of the Agreement in a reasonable manner rather than in accordance with the literal interpretation of the language.

We hold that t he District Court correctly vacated the award, because the arb it rators in this

case exceeded their powers under the FAA
, s ee Matteson v. Ryder Sys

. Inc.
, 99 F.3d 108
,
112

- 113 (3d Cir. 1996) (construing § 10 of the FAA ), even taking into account the

“ honorable engagement ” provision . Accordingly, w e will affirm.

I.
Because we write for the parties, who are familiar with the events that gave rise to
this appeal, we state the facts of this case only as nec essary to explain our reasoning.

PMA Capital is an insurance company and Platinum is a reinsurance company

. In 2003
,
PMA and Platinum made a contract under which Platinum indemnified PMA for
obligations arising from its insurance policies. The contract included a “ d eficit carry

f orward p rovision ” that entitled Platinum to reimbursement for losses carried from one

year to the next

. In 2008, a dispute arose between PMA and Platinum concerning the

1 The District Court had jurisdiction under 9 U.S.C. § 203. We have jurisdiction under 9 U.S.C. § 16(a), (d).3

scope of the d eficit carry f orward provision . PMA argued that Platinum was not entitled
to carry forward any los ses from 1999

- 2001 , and Platinum contended it was entitled t o
carry forward roughly $10.7 million . Platinum demanded arbitration, seeking
a declaration that the 2003 contract does provide for Platinum to retain the amount of any deficit [ carr y forward ] . We‟ ll ask the panel for [a] declaration about how that deficit carry forw ard is to be calculated, and we‟ ll ask the panel for an order that at the time the deficit [ carr y forward] is made concrete by the future payment of losses, that PMA is required to disburse those funds to Platinum

. . . . PMA Capital Ins. Co. v . Platinum Underwriters Berm. , Ltd.
, 659 F. Supp. 2d 631, 638

(E.D. Pa. 2009). A panel of a rbitrators received evidence, testimony and argument , and

issued a one

- page award, which i n i ts entirety provided :

1. The Panel hereby orders [PMA] to pay [Platinum] $6,000,000.00 within 30 days of the date of thi s award. If any portion of the $6,000,000.00 is no t paid within 30 days of the date of thi s Final Award, interest will run at the rate of 6% simple interest per annum on the unpaid balance until paid in full.

2. Upon payment under paragraph one above, the Panel hereby orders that any and all references to a “ deficit carry forward ” in the Reinsurance Agreement ( “ the Agreement ” ) effective January 1, 2003, are hereby removed from the contract. Furthermore, any futu re rights or claims under the Agreement which require a

“ deficit carry forward ” , including but not limited to Article 15, paragraph I , are hereby extinguished.

3. All other request s for relief by both parties are denied.

PMA successfully petitioned the District Court to vacate the award, and Platinum now
appeals from that order

.

II.
Although a court ‟ s review of an award under the FAA is highly deferential, “ the
courts are neither entitled nor encouraged simply to „ rubber stamp ‟ the interpretations and

decisions of arbitrators. ” Matteson , 99 F.3d at 113

. Under § 10
, “ an arbitrator may not4

venture beyond the bounds of his or her authority ” and an award is “ enforceable only to
the extent it does not exceed the scope of the parties ‟ submission

. ” Id

. at 112

- 113
(construing § 10(a)(4))

. Courts should vacate an arbitration award if : (1) the form of the

award cannot “ be rationally derived either from the agreement between the parties or
from the parties submissions to the arbitrators ” an d (2) the terms of the award are

“ completely irrational. ” Mut

. Fire, Marine & Inland Ins. Co. v. Norad Reins

. Co.
, 8 68

F.2d 52, 56 (3d Cir. 1989).

III.

T he District Court held that the arbitrators in this case exceeded their power

when they awarded Platinum $6 million and eliminated the “ deficit carry forward ”
portio n of the contract

. It held this relief exceeded the arbitrators ‟ powers because it was
not sought by either p arty , and was completely irrational because it wrote material terms

of the contract out of existence

. The District Court also concluded that the “ honorable

engagement ” language in the contract did not authorize the award:
The Honorary Engagement Clause allowed the Arbitrators to st r ay from “ judicial formalities ” and the 20 03 Contract ‟ s “ literal language ” to effectuate in a

“ reasonable manner ” the Contract ‟ s “ general purposes. ” No court has held that such a clause gives arbitrator s au t hor it y to re

- write the contract they are charged with interpreting.

. . . The 2003 “ contrac t itself ” requires the enforcement of the Deficit Carry Forward Provision, not its elimination.

PMA
, 659 F. Supp. 2d

. at 636

- 637 . We agree with the District Court in all respects

. T he
arbitrators in this case, by ordering unrequested relief and rewriting material terms of the
contract they purported to implement
, went beyond th e scope of their authority. That the
honorable engagement clause permitted the arbitrators to stray from jud icial formalities5

did not give them authority to reinvent the contract before them, or to order relief no one
requested.

*****
We have considered all of the parties‟ contentions, and we conclude that no further
discussion is necessary

.
We will affirm the judgment of the Distric t Court

.