Court Opinion

ID: 2996763
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:31:15.997972+00
Date Added: 2024-06-11T11:45:31.121728
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                         ____________

Nos. 03-2484, 03-2771
EMPLOYERS INSURANCE OF WAUSAU,
                                                Petitioner-Appellee,
                                 v.

EL BANCO DE SEGUROS DEL ESTADO,
                                            Respondent-Appellant.
                         ____________
            Appeals from the United States District Court
               for the Western District of Wisconsin.
            No. 98 C 521—Barbara B. Crabb, Chief Judge.
                         ____________
    ARGUED JANUARY 5, 2004—DECIDED FEBRUARY 3, 2004
                         ____________

  Before POSNER, KANNE, and ROVNER, Circuit Judges.
   POSNER, Circuit Judge. The procedurally intricate litigation
that has culminated in these twin appeals arises from a
dispute between the parties to several contracts of reinsur-
ance. Back in the 1960s and 1970s, Employers Insurance of
Wausau had reinsured, with a number of insurance compa-
nies including an instrumentality of the Uruguayan govern-
ment called El Banco de Seguros del Estado (“state insur-
ance bank”), insurance obligations of Wausau. Wausau
sustained losses from claims arising out of asbestos-related
illness that it tried to offload on to the reinsurers. They
2                                      Nos. 03-2484, 03-2771

resisted. Wausau demanded arbitration pursuant to the
reinsurance contracts, and in 1995 an arbitration panel
awarded Wausau some $7.8 million, of which Banco’s share
was $181,000. The award, confirmed by a Wisconsin state
court in In re Employers Ins. of Wausau, 552 N.W.2d 420 (Wis.
App. 1996), provided that reinsurers—expressly including
Banco—who failed to pay the award within 45 days would
have to “provide a Letter of Credit to Employers of Wausau
in the amount of $9,000,000 in a form acceptable to the
Wisconsin Insurance Department and to secure payment of
the ultimate liability in this matter.” All the reinsurers paid
within 45 days except Banco, which neither paid nor posted
a letter of credit. Years passed and in 1998 Wausau peti-
tioned the district court in the Western District of Wisconsin
to confirm the award against Banco, which, although both
named in the state-court confirmation proceeding as a de-
fendant and served, had not appealed or otherwise partici-
pated in that proceeding yet claimed not to be bound by the
judgment in it. It is unclear why Wausau sought relief in
federal district court for Banco’s defiance rather than
instituting contempt proceedings in the state court. But
Banco does not challenge the propriety of Wausau’s choice
of forum and there is no doubt that the federal court had
jurisdiction under the treaties concerning disputes over
arbitration with foreign entities. 9 U.S.C. §§ 203, 302.
  Banco defended in the district court on the ground that it
had not received proper notice of the arbitration. The
district court rejected the defense and confirmed the award,
and we affirmed. 199 F.3d 937 (7th Cir. 1999). Banco refused
to comply with the award even after the judge issued a writ
of execution, and so Wausau instituted a further
postjudgment proceeding. In response, Banco acknow-
ledged its obligation to pay the $181,000 plus interest and
attorneys’ fees, which had also been part of the award. But it
Nos. 03-2484, 03-2771                                         3

refused to post the $9 million letter of credit on the ground
that all that the arbitrators back in 1995 had required it to do
was to post a letter of credit to secure the payment of so
much of the award as remained unpaid, so that once Banco
paid what it owed no purpose would be served by the
posting of a letter of credit except to secure Wausau against
future debts of Banco to it that might arise from the reinsur-
ance contracts. Yet while acknowledging that it owed
Wausau $181,000 plus interest and attorneys’ fees, Banco
neither paid anything nor posted a letter of credit in any
amount or on any terms.
  Rejecting Banco’s argument, the district court in
September of 2001 ordered Banco to post the $9 million
letter of credit and pay the award, including interest and
attorneys’ fees. Banco appealed, but we dismissed the
appeal on the ground that the district court’s order was
neither a final judgment nor an injunction. A motion to hold
Banco in contempt remained pending in the district court,
and while the order to post a letter of credit was an in-
terlocutory injunction, it was not immediately appealable
under 28 U.S.C. § 1292(a)(1) because it merely reiterated the
previous injunction, which we had affirmed, commanding
Banco to post the letter of credit. Gautreaux v. Chicago
Housing Authority, 178 F.3d 951, 956-58 (7th Cir. 1999).
Meanwhile, however, Banco had finally admitted defeat to
the extent of paying Wausau $1.5 million, which included
the $181,000 awarded by the arbitrators, the interest and
attorneys’ fees also awarded by the arbitrators, plus attor-
neys’ fees incurred by Wausau subsequent to the arbitra-
tion, although the payment of interest fell short by $16,000
(eventually it was paid, however). But Banco still refused to
post the letter of credit.
  Shortly afterwards the district court socked Banco with
another $50,500 in sanctions to punish it for a suit it had
4                                       Nos. 03-2484, 03-2771

brought in a federal district court in New York that had
been transferred to the Western District of Wisconsin. In it
Banco had sought an interpretation of the arbitrators’ award
that would have excused it from having to post the letter of
credit. It had sued in New York because Wausau had filed
the judgment that it had obtained in the Western District of
Wisconsin there believing Banco might have assets in New
York that it could levy on to satisfy the judgment it had
obtained in the Western District. The filing of the judgment
in New York did not justify Banco’s mounting what
amounted to a collateral attack on the Western District’s
judgment. The circumstances in which collateral attacks are
permitted in civil matters are circumscribed, see Fed. R. Civ.
P. 60(b), and were never present in this case. Had Wausau
tried to levy on the judgment in New York, Banco could
have resisted on various grounds, such as that the amount
of the judgment was incorrectly shown on the papers filed
by Wausau (it was) or that Banco had no assets in New York
that Wausau would be entitled to levy on. Banco did not do
this; probably Wausau had given up on trying to collect
anything in New York.
  A year after the transfer of Banco’s frivolous New York
lawsuit back to the Western District of Wisconsin, and even
though the district court’s judgment requiring the posting
of a letter of credit had already become final by virtue of our
having affirmed it, Banco demanded that Wausau arbitrate
the issue whether Banco was required to post a letter of
credit. Wausau responded by asking the district court to
enjoin arbitration and impose sanctions for Banco's contin-
ued refusal to post the letter of credit. It was thereby seeking
postjudgment relief to protect the earlier judgment that it
had obtained from the district court, requiring the posting
of the letter of credit, from being undone. E.g., Resolution
Trust Corp. v. Ruggiero, 994 F.2d 1221, 1224 (7th Cir. 1993);
Nos. 03-2484, 03-2771                                        5

EEOC v. Gurnee Inns, Inc., 956 F.2d 146, 148 (7th Cir. 1992);
Webb v. Ada County, 195 F.3d 524, 526 (9th Cir. 1999). The
district court issued the injunction and also imposed civil
contempt sanctions for disobeying the order to post the
letter of credit, ordering Banco to pay the court $2,000 a day,
rising in stages to $4,000 on May 16, 2003, until Banco
complied with that order, and to pay Wausau an additional
$240,000 in attorneys’ fees incurred in efforts to obtain the
relief that the district court had ordered earlier. The clock
continues to tick. Banco, which could have limited
its liability to $181,000 in 1995, has already paid more
than $1.5 million and if we affirm the sanctions and the
additional attorneys’ fees ordered will owe in excess of
$1 million more. No doubt it has also incurred very sub-
stantial attorneys’ fees of its own over the past eight years;
a modest guess would be $500,000. If this is right, Banco
stands to lose more than 15 times the amount of its original
liability to Wausau.
  The appeals challenge the sanctions, the additional at-
torneys’ fees, the injunction against arbitrating the dispute
over Banco’s duty to post a letter of credit, and the district
court’s order to post it. The issues are intertwined. The
frivolous demand for arbitration, set against the backdrop
of Banco’s seemingly irrational obduracy throughout the
eight years since the issuance of the arbitrators’ award,
showed that Banco would never comply with the order to
post a letter of credit unless subjected to the strongest pos-
sible penalty for civil contempt. The basis of the demand for
arbitration was the disagreement between the parties over
whether, as Wausau believes, the arbitrators intended that
any reinsurer who did not pay the arbitration award would
have to issue an irrevocable letter of credit that Wausau
could use to secure future debts that the reinsurer might
owe Wausau under its reinsurance contracts, or whether as
6                                        Nos. 03-2484, 03-2771

Banco contends the intention was just to require a letter of
credit to secure payment of the arbitrators’ award; in that
event Banco’s eventual satisfaction of the award discharged
its duty to issue a letter of credit. That is a legitimate
disagreement. Indeed, we think Banco has the better of the
argument. But the time to have sought arbitral clarification
was when the award was issued, not eight years later. There
was no legal basis for so belated a demand for clarification.
   It is true that although there is a three-month limit on
motions to vacate, modify, or correct an arbitral award,
9 U.S.C. § 12, there is no fixed deadline for a motion to
remand for purposes of obtaining a clarification of the
award. Hyle v. Doctor’s Associates, Inc., 198 F.3d 368, 371 n. 1
(2d Cir. 1999); United Steelworkers of America, Local 4839 v.
New Idea Farm Equipment Corp., 917 F.2d 964, 968 (6th Cir.
1990). But when no deadline for filing a motion or other
pleading is specified, the inference is not that the motion
can be filed at any time before the Day of Judgment, but that
it must be filed within a reasonable time. Eight years is not
a reasonable time. It is a separate question what the dead-
line is for requesting clarification from the original ar-
bitrators directly, as distinct from asking a court to remand
the case to the arbitrators. The former deadline “is essen-
tially a matter of contract between the parties,” Brown v.
Witco Corp., 340 F.3d 209, 218 n. 8 (5th Cir. 2003), but if there
is no applicable contractual term, again a reasonable time is
the default rule. Glass, Molders, Pottery, Plastics & Allied
Workers Int’l Union, AFL-CIO, CLC, Local 182B v. Excelsior
Foundry Co., 56 F.3d 844, 848 (7th Cir. 1995); Brown v. Witco
Corp., supra, 340 F.3d at 219; cf. International Brotherhood of
Teamsters, Chauffeurs, Warehousemen & Helpers of America,
AFL-CIO, Local 631 v. Silver State Disposal Service, Inc., 109
F.3d 1409, 1410, 1412 (9th Cir. 1997). Not only is eight years
unreasonable (quite apart from the fact that one of the
Nos. 03-2484, 03-2771                                          7

arbitrators has died), but we can’t imagine a panel of
arbitrators being willing to clarify an award after the award
had been challenged in federal court and enforced, unless
directed to do so by the court. See Legion Ins. Co. v. VCW,
Inc., 198 F.3d 718, 720 (8th Cir. 1999).
  Alternatively, without seeking clarification Banco could
have posted a $9 million letter of credit that by its terms
would terminate when it paid the entire amount that it
owed Wausau. That would have placed the burden on
Wausau to challenge the adequacy of the letter of credit.
Banco didn’t do that either.
   The remaining question is whether Banco has in fact to
issue an unconditional letter of credit. The tail of exposure
created by its reinsurance contracts with Wausau is a long
one because of the length of time that it takes asbestos
claims to ripen. Wausau believes that before coverage ends,
Banco may owe it more than $9 million, so it would very
much like to have a letter of credit that would guarantee its
being able to collect from Banco whatever money turns out
to be due. And while letters of credit are sometimes used to
secure debts that arose before the letter was issued, In re
Compton Corp., 831 F.2d 586, 594 (1987), modified on unre-
lated grounds, 835 F.2d 584 (5th Cir. 1988) (per curiam); In
re El Paso Refinery, LP, 171 F.3d 249, 254 (5th Cir. 1999); In re
Air Conditioning, Inc., 845 F.2d 293, 296-97 and n. 3 (11th Cir.
1988), they are more commonly (Transparent Products Corp.
v. Paysaver Credit Union, 864 F.2d 60, 63 (7th Cir. 1988)) used
to secure future debts, as in Tippecanoe Beverages, Inc. v. S.A.
El Aguila Brewing Co., 833 F.2d 633, 636 (7th Cir. 1987);
Colonial Courts Apartment Co. v. Proc Associates, Inc., 57 F.3d
119, 123 (1st Cir. 1995), and Chase Manhattan Bank v.
Equibank, 550 F.2d 882, 884-85 (3d Cir. 1977).
8                                      Nos. 03-2484, 03-2771

  But we do not think the arbitrators’ award in this case can
sensibly be interpreted to require such a guaranty. Remem-
ber that the duty to post a letter of credit was imposed by
the arbitrators in respect of their having imposed liability on
the reinsurers for a past default, and that it was conditional
on a reinsurer’s failing to pay the money part of the arbitral
award within 45 days. The implication (supported by the
arbitrators’ statement that the purpose of requiring the letter
of credit was “to secure payment of the ultimate liability in
this matter” (emphasis added)) is that the purpose of
requiring a defaulting reinsurer to post a letter of credit was
to secure the debt created by the award, not future, unre-
lated debts. The judgment of the Wisconsin state court
confirming the arbitrators’ award also states that the
purpose of the letter of credit is “to secure the amounts” that
the reinsurers had been determined by the arbitrators to
owe Wausau. So when Banco finally paid the award, it was
no longer obligated by its terms to post a letter of credit. Of
course it should have sought clarification of the matter at
the outset, as we said. But as no court or arbitral panel has
ever ruled on the scope of the obligation (it appears not to
have been an issue in the state court proceeding), the failure
to have sought clarification has not waived or forfeited
Banco’s right to an adjudication of the issue.
   It might seem, though, that in asking for clarification at
this late date Banco is trying once again to mount a collat-
eral attack on the judgment of the district court, which re-
quired the posting of the letter of credit. But that court
explicitly left open the question what the letter of credit
means: whether it is just meant to secure Banco’s existing
liability to Wausau, or whether as Wausau claims it secures
future debts as well. If the former, then since Banco has at
last satisfied that liability, it has no obligation to post the
letter of credit. The former is the correct interpretation. No
Nos. 03-2484, 03-2771                                        9

purpose would be served by returning the case to the
district court for the identical determination.
  This ruling does not affect the accrued sanctions. Judicial
orders must, unless stayed, be obeyed even when wrong.
Pasadena City Bd. of Education v. Spangler, 427 U.S. 424, 439-
40 (1976). Because of Banco’s impressive record of obsti-
nacy, moreover, we shall not lift the $4,000 a day sanction.
When and if Banco pays the court and Wausau all moneys
owing them, including all reasonable attorneys’ fees incur-
red by Wausau in defending against Banco’s appeal from
the sanctions order and the denial of arbitration and in all
subsequent proceedings in the district court required to
extract the moneys due from Banco, the daily sanction shall
cease to accrue.
  The judgment is vacated insofar as it orders the posting of
a letter of credit but is otherwise affirmed, with costs of the
appeal to be borne by the respondent. The case is returned
to the district court for the limited purpose of assuring
Banco’s compliance with the judgment as modified in this
opinion. Further obduracy by Banco will result in the
imposition of additional sanctions that will make $4,000 a
day seem like the touch of a feather.
     AFFIRMED IN PART, VACATED IN PART, AND REMANDED.

A true Copy:
       Teste:
                           _____________________________
                            Clerk of the United States Court of
                              Appeals for the Seventh Circuit

                     USCA-02-C-0072—2-3-04