Court Opinion

ID: 2654649
Source: CourtListenerOpinion
Date Created: 2014-02-27 01:00:10.08085+00
Date Added: 2024-06-11T12:18:04.573531
License: Public Domain

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

                                     -5-
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-