Court Opinion

ID: 1024773
Source: CourtListenerOpinion
Date Created: 2013-07-05 06:38:57.575783+00
Date Added: 2024-06-11T15:37:11.351306
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 06-2082

THE  BURLINGTON   INSURANCE   COMPANY;   FIRST
FINANCIAL   INSURANCE   COMPANY;    BURLINGTON
INSURANCE GROUP, INCORPORATED,

                                             Plaintiffs - Appellants,

           versus

TRYGG-HANSA INSURANCE COMPANY AB,

                                                Defendant - Appellee.

Appeal from the United States District Court for the Middle
District of North Carolina, at Durham. William L. Osteen, Senior
District Judge. (1:99-cv-00334-WLO)

Argued:   October 30, 2007                 Decided:   January 17, 2008

Before WILKINSON and GREGORY, Circuit Judges, and Jerome B.
FRIEDMAN, United States District Judge for the Eastern District of
Virginia, sitting by designation.

Vacated and remanded by unpublished opinion. Judge Friedman wrote
the opinion, in which Judge Wilkinson joined. Judge Gregory wrote
an opinion concurring in part and dissenting in part.

ARGUED: Catharine Biggs Arrowood, PARKER, POE, ADAMS & BERNSTEIN,
L.L.P., Raleigh, North Carolina, for Appellants. Andrew S. Amer,
SIMPSON, THACHER & BARTLETT, L.L.P., New York, New York, for
Appellee.    ON BRIEF: Brian D. Darer, PARKER, POE, ADAMS &
BERNSTEIN, L.L.P., Raleigh, North Carolina; Louis M. Solomon,
Margaret A. Dale, PROSKAUER & ROSE, L.L.P., New York, New York, for
Appellants.   Josiah S. Murray, III, NEWSOM, GRAHAM, HEDRICK &
KENNON, P.A., Durham, North Carolina, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

                               -2-
FRIEDMAN, District Judge:

     The Burlington Insurance Company, First Financial Insurance

Company and Burlington Insurance Group, Inc. (collectively referred

to as “Burlington”) seek appellate relief from a judgment entered

in the Middle District of North Carolina, affirming the second

arbitration award in this extensive litigation. The district court

determined the award issued by the second arbitration panel was

ambiguous and attempted to clarify that ambiguity by submitting a

single question to the arbitrators. After receiving responses from

only two of the arbitrators, the court determined the second

arbitration panel intended its award to incorporate the first

arbitration award for a total award to Burlington of $2 million.

For the reasons stated below, we reverse and remand.

                                I

     In 1999, Burlington Insurance Company and First Financial

Insurance Company first commenced arbitration with Trygg-Hansa

Insurance Company AB (“Trygg”) to resolve disputes arising out of

reinsurance contracts between the parties.1   The first arbitration

     1
      In 1991, Trygg and Burlington Insurance Group entered into an
agreement in which Trygg agreed to loan $6 million to Burlington
Insurance Group to increase both First Financial Insurance Company
and   Burlington   Insurance   Company’s   underwriting   capacity.
Burlington Insurance Group executed a promissory note for $6
million to secure the loan from Trygg and later that year, Trygg
became the reinsurer for Burlington Insurance Company and First
Financial Insurance Company. The disputes in both arbitrations and
the litigation spawn from this business relationship.

                               -3-
panel dealt solely with claims arising from these reinsurance

contracts and Burlington Insurance Group took no part in the first

arbitration.   The panel awarded amounts to all three parties,

resulting in a net award of $4.8 million to be paid by Trygg to

Burlington Insurance Company and First Financial Insurance Company.

     That same year, in addition to the arbitration, Burlington

filed a lawsuit against Trygg alleging various state law claims.

These claims were held to be governed by the arbitration clauses in

the parties’ contract, and a second arbitration panel was convened

to hear these claims.2   On May 24, 2005, the second panel issued

its award (Award II):

     Trygg shall pay Burlington the sum of $2 million. This
     sum shall be in satisfaction of all claims between the
     parties under all of their contracts, including the
     Memorandum of Agreement (as amended), the Reconfirmation
     of Agreement, the $3 million and $6 million promissory
     notes and the first excess of loss treaties.          In
     determination of this sum, the Panel considered Trygg’s
     obligation of approximately $4.8 million . . . all
     accrued interest thereon through the date of payment
     specified . . . below, and the note(s) evidencing the
     loan from Trygg to Burlington. That note(s) shall be
     considered to be fully paid by Burlington as a result of
     Trygg’s payment of the $2 million ordered herein.

The district court determined that Award II was ambiguous because

it was unclear whether Award II incorporated the amounts Trygg owed

     2
      The district court initially interpreted the arbitration
clauses in the contract between Burlington and Trygg narrowly and
held that any claims between the parties that were not
contractually based were not subject to arbitration. On appeal,
this court held that all of the claims between the parties were
subject to arbitration. The Burlington Ins. Group v. Trygg-Hansa
Ins. Co. AB, 9 Fed. Appx. 196 (4th Cir. 2001).

                               -4-
under the first arbitration award or if Award II supplemented the

amounts due under the first arbitration award.      On December 2,

2005, the district court sent the following question to the panel

members, requesting only a “yes” or “no” answer:

     Was the panel’s intent to make an award in Award II
     separate from and in addition to Award I, meaning Trygg-
     Hansa owes approximately $4.8 million to Burlington
     Insurance and First Financial under Award I and the
     additional amount of $2 million to Burlington Insurance,
     First Financial, and Burlington Insurance Group, Inc.
     under Award II, for a total of approximately $6.8 million
     due from Trygg-Hansa?

Two panel members responded in the negative and one panel member

did not respond.

     On May 16, 2006, the district court issued a memorandum

opinion and order, holding that the partial response from the

arbitrators was sufficient to determine the panel’s intent, and

Award II incorporated the first arbitration award, so the total

amount awarded to Burlington after both rounds of arbitration was

$2 million.   The district court confirmed Award II, vacated the

prior judgment that confirmed the first arbitration award of $4.8

million, and entered a separate judgment against Trygg for the $2

million awarded in Award II.

                                II

     The appellate court reviews the district court’s decision to

confirm an arbitration award de novo.   See Peoples Sec. Life Ins.

Co. v. Monumental Life Ins. Co., 991 F.2d 141, 145 (4th Cir. 1993).

                               -5-
The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-14, governs the

court’s review of the arbitration award and a court is to confirm

an arbitration award unless the award is vacated, modified or

corrected under the limited grounds specified in sections 10 and 11

of the Act.    See 9 U.S.C. § 9.      Although not provided for in the

FAA, the court may also remand the arbitration award back to the

panel if the award is ambiguous.         See Colonial Penn Ins. Co. v.

Omaha Indem. Co., 943 F.2d 327, 333-34 (3rd Cir. 1991); Mutual

Fire, Marine & Inland Ins. Co. v. Norad, 868 F.2d 52, 58 (3d Cir.

1989); Americas Ins. Co. v. Seagull Compania Naviera, S.A., 774
F.2d 64, 67 (2d Cir. 1985); Island Creek Coal Sales Co. v. City of

Gainesville, 764 F.2d 437, 440 (6th Cir.), cert. denied, 474 U.S.
948 (1985); La Vale Plaza, Inc. v. R.S. Noonan, Inc., 378 F.2d 569,

573 (3d Cir. 1967).

      We find that the district court properly determined that Award

II was ambiguous, as opposed to silent, on the issue of awarding a

setoff. See, e.g., Int’l Union of Operating Eng’rs, Local 841 v.

Murphy Co., 82 F.3d 185, 190 (7th Cir. 1996) (“[W]e          assume the

arbitrator’s failure to mention offsets in his ruling means that no

offset was granted, not that the ruling is ambiguous.”).          During

the   second   arbitration,   Trygg    presented   the   possibility   of

offsetting the amount awarded by the second arbitration panel with

the amount awarded in the first arbitration panel.          The panel’s

reference to the first arbitration award in Award II leads to

                                   -6-
different interpretations of the panel’s intent on the issue of

offsetting     the    awards.         Burlington         interpreted         Award    II   as

supplementing the amount awarded by the first arbitration panel,

for    a   total     amount    of     approximately           $6.8    million.        Trygg

interpreted Award II as awarding an offset and incorporating the

amount awarded by the first arbitration panel, for a total amount

of    $2   million.         Given    the   two     opposing,         and    equally   valid

interpretations        of     the    award,       the    district          court   properly

determined that the award should be remanded to the arbitrators for

further clarification.              See, e.g., Americas Ins. Co. v. Seagull

Compania Naviera, S.A., 774 F.2d 64, 67 (2d Cir. 1985)(stating that

“a court should not attempt to enforce an award that is ambiguous

or indefinite” and the award “should be remanded to the arbitrators

so that the court will know exactly what it is being asked to

enforce”); Mutual Fire, Marine & Island Ins. Co., 868 F.2d at 58

(“A    district      court    itself       should       not    clarify       an    ambiguous

arbitration award but should remand it to the arbitration panel for

clarification.”).

       We find, however, that the procedure employed by the district

court to clarify the ambiguity was unsuccessful.                             The district

court chose to submit only one question to the arbitrators and

limited the response of the arbitrators to only a “yes” or a “no.”

Prior to submitting the question to the arbitrators, the court and

the parties acknowledged that a negative response would fail to

                                            -7-
clarify the ambiguity and further inquiry would be necessary.3

Upon receiving negative responses from only two of the arbitrators,

however, the district court decided not to submit additional

questions to the arbitrators.   Additionally, while the court and

parties reasonably presumed that the arbitrators would meet and

confer before responding, it appears that they did not.   Two of the

arbitrators submitted responses but the third arbitrator never

received the court’s question nor submitted a reply.        We are,

therefore, unable to discern, without any further discovery into

the arbitrators’ intent, how the one-word response from two of the

arbitrators resolved the ambiguity.    We find that the district

court erred in confirming Award II because it is still unclear

whether the second arbitration panel awarded a setoff with the

first arbitration award.   Because we find Award II to still be

ambiguous, we do not need to decide the issue of whether the second

     3
      On November 28, 2005, the court and the parties conducted a
telephone conference to discuss the question to be submitted to the
arbitrators on remand. The court, in responding to Trygg’s concern
about what a “no” response would mean, stated “[i]f [the
arbitration panel] comes back with a no, I would be tremendously
surprised, because I think I understand what they intended to do
originally. If they come back with a no, I don’t think there is
any way to shortstop this thing; it’s open to a real mess. . . . If
they say no, I would have no idea what they meant, then.” (J.A.
363-364). The court went on to state “if they come back with a no
on that question, then we’re going to be in a position of having to
go back to them again, or take some other route, or let the court
–- there are any number of things that could happen here if they
come back with a no.” (J.A. 365).

                                -8-
arbitration panel exceeded its authority if their intent was to

award a setoff.

     Accordingly, we vacate the district court’s judgment and

remand to the district court.

                                           VACATED AND REMANDED

                                -9-
GREGORY, Circuit Judge, concurring in part and dissenting in part:

       In remanding to the district court, the majority does not

address the vacated judgment from the first arbitration award.

Though I concur in the reasoning of the opinion, I would hold that

the district court exceeded its authority in vacating the first

award and would reinstate that judgment.          Thus, I dissent from the

holding to the extent that it does not reverse the vacation of the

first award and reinstate the judgment order.

       Under federal law, courts give strong deference to arbitration

decisions.         We have explained that the

       [r]eview   of   an    arbitrator’s  award   is   severely
       circumscribed.     Indeed, the scope of review of an
       arbitrator’s valuation decision is among the narrowest
       known at law because to allow full scrutiny of such
       awards would frustrate the purpose of having arbitration
       at all—the quick resolution of disputes and the avoidance
       of the expense and delay associated with litigation.
       Federal courts may vacate an arbitration award only upon
       a showing of one of the grounds listed in the Federal
       Arbitration Act, or if the arbitrator acted in manifest
       disregard of law.

Apex Plumbing Supply v. U.S. Supply Co., 142 F.3d 188, 193 (4th

Cir.       1998)    (citations   omitted).      Thus,   courts   may   vacate

arbitration awards only if they meet the narrow statutory factors

of Section 10(a) of the FAA, see Wilko v. Swan, 346 U.S. 427, 436

(1953); see also Remmey v. PaineWebber, Inc., 32 F.3d 143, 146 (4th

Cir. 1994),1 or if the award demonstrates a “‘manifest disregard’

       1
        Section 10(a) provides:
       (a) In any of the following cases the United States court
       in and for the district wherein the award was made may

                                      -10-
of applicable law.” Gallus Invs., L.P. v. Pudgie’s Famous Chicken,

134 F.3d 231, 233-34 (4th Cir. 1998).2                  Additionally, we have

explained    that      “[a]rbitration        deprives     the    judiciary    of

jurisdiction over the particular controversy and the courts have

long ruled that there must be strict adherence to the essential

terms of the agreement to arbitrate.”           Bhd of Ry. & S.S. Clerks v.

Norfolk S. Ry. Co., 143 F.2d 1015, 1017 (4th Cir. 1944).

     In this case, the arbitration agreement explains that “[t]he

majority decision of the board shall be final and binding upon all

parties to the proceeding.      Judgment may be entered upon the final

decision    of   the    arbitrators     in     any   court      of   the   proper

     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). None of these factors apply to the present case.

     2
      A manifest disregard occurs when “a court’s belief that an
arbitrator misapplied the law will not justify vacation of an
arbitral award. Rather, appellant is required to show that the
arbitrators were aware of the law, understood it correctly, found
it applicable to the case before them, and yet chose to ignore it
in propounding their decision.” Remmey, 32 F.3d at 149.

                                   -11-
jurisdiction.”     (J.A. 15.)   The judgment related to the first

arbitration was final and binding at the time the district court

offset that award.    Given the strong deference toward arbitration

decisions, I do not see how the district court could vacate the

previous judgment in its consideration of the second arbitration

panel’s award.   Consequently, I would reverse the district court’s

vacation of the first award and reinstate the judgment order to

give proper deference to the parties’ arbitration agreement, as

required by law.

                                -12-