Court Opinion

ID: 3004517
Source: CourtListenerOpinion
Date Created: 2015-09-24 23:04:12.813397+00
Date Added: 2024-06-11T18:02:06.876382
License: Public Domain

In the

United States Court of Appeals
                 For the Seventh Circuit

Nos. 11-2343 & 11-2757

B LUE C ROSS B LUE S HIELD OF M ASSACHUSETTS, INC., et al.,

                                                 Petitioners-Appellees,
                                    v.

BCS INSURANCE C OMPANY,

                         Respondent / Cross-Petitioner-Appellant.

              Appeals from the United States District Court
          for the Northern District of Illinois, Eastern Division.
          No. 11 C 2954—James F. Holderman, Chief Judge, and
                    Joan Humphrey Lefkow, Judge.

     A RGUED D ECEMBER 1, 2011—D ECIDED D ECEMBER 16, 2011

  Before E ASTERBROOK, Chief Judge, C UDAHY, Circuit Judge,
and P RATT, District Judge.
  E ASTERBROOK, Chief Judge. BCS Insurance Co. is owned
by the Blue Cross and Blue Shield insurers (“plans”)
across the nation (one in each state). BCS is a captive
insurer, with the plans themselves as residual claimants.


    Of the Southern District of Indiana, sitting by designation.
2                                   Nos. 11-2343 & 11-2757

This creates the possibility of conflict if one or more of
the plans attempts to have BCS reimburse it for an
expense that the plans in other states have not incurred.
Conflicts also can arise if some plans have purchased
coverage that others did not. The contracts that govern
the arrangement between BCS and the plans provides
for arbitration should a plan seek reimbursement that
BCS declines to provide.
  In 2003 healthcare providers filed class action suits in
Florida against every Blue Cross Blue Shield plan in the
nation. (The details of claims made in these suits are
not important for current purposes.) Twelve plans, which
had purchased errors-and-omissions insurance from
BCS, asked it to assume the defense and indemnify them
should they lose. BCS declined, and the plans demanded
arbitration. They made a joint demand, inaugurating a
consolidated proceeding. The plans named one arbitrator,
and BCS named another. When these two could not
agree on a third to complete the panel, seven of the
twelve plans asked a district court to appoint the neu-
tral. Section 5 of the Federal Arbitration Act, 9 U.S.C. §5,
authorizes that relief.
  BCS replied with what it described as a cross-petition
to compel a de-consolidated arbitration. It contended that
Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130
S. Ct. 1758 (2010), which holds that arbitrators may en-
tertain class actions only if the parties have authorized
this procedure by contract, also conditions consolidation
on the parties’ express assent. Moreover, BCS contended,
the decision whether the demands of several parties
Nos. 11-2343 & 11-2757                                     3

may be consolidated for a single arbitration must be
made by the court rather than the arbitrators. BCS ac-
knowledged Employers Insurance Co. of Wausau v. Century
Indemnity Co., 443 F.3d 573 (7th Cir. 2006), which holds
that arbitrators may resolve this question for them-
selves (subject to judicial review after an award has
been made), but it maintained that Stolt-Nielsen super-
sedes Wausau and requires the court to resolve the
issue before the arbitration can proceed. District
Judge Lefkow concluded, however, that Stolt-Nielsen
did not displace Wausau and that the arbitrators there-
fore may resolve this and other procedural questions
for themselves. See Howsam v. Dean Witter Reynolds,
Inc., 537 U.S. 79 (2002).
  Although that decision was interlocutory—the plans’
request under §5 remained pending—BCS immediately
appealed. That appeal has been docketed as No. 11-2343.
Chief Judge Holderman concluded that the third arbitra-
tor should, and may, be appointed while that appeal
was pending, and did so. BCS filed a second appeal
(No. 11-2757) from that decision. Its only argument in
the second appeal is that the first caused the district
court to lose jurisdiction and prevented it from acting on
the plans’ request for the appointment of a third arbitrator.
See Apostol v. Gallion, 870 F.2d 1335 (7th Cir. 1989).
  Because the case is over in the district court, and appeal
No. 11-2757 contests the final decision, it might seem
unnecessary for us to decide whether the interlocutory
appeal (No. 11-2343) is within our jurisdiction. But
that subject cannot be elided, because the propriety of
4                                   Nos. 11-2343 & 11-2757

the interlocutory appeal is the sole issue contested
between the parties on the appeal from the final deci-
sion. If the interlocutory appeal is proper, then Chief
Judge Holderman should not have acted. If the inter-
locutory appeal is improper, however, then jurisdiction
remained in the district court and there was no
obstacle to the appointment of a third arbitrator and
entry of the final judgment.
  BCS captioned its motion one to compel arbitration, and
the district court used that language when denying it.
(“BCS Insurance Company’s cross-petition to compel
arbitration is denied.”) As BCS sees things, this ensures
appellate jurisdiction, for 9 U.S.C. §16(a)(1)(B) provides
that an appeal may be taken from any order “denying a
petition under section 4 of this title to order arbitration
to proceed”. Yet how would it be possible to call BCS’s
request one to “order arbitration to proceed”? Arbitration
was already proceeding: the plans had demanded arbitra-
tion, and both the plans and BCS had named arbitrators.
That arbitration was under way, and that the two arbitra-
tors had reached an impasse, is why the plans filed
suit seeking the appointment of a third arbitrator under §5.
   The caption on BCS’s motion is an example of artful
pleading. It wanted to disrupt the arbitration, and help
itself to an interlocutory appeal, so instead of calling
the request what it was—a proposal that a federal judge
order the panel in an ongoing arbitration to decide a
particular issue in a specified way—the litigant captioned
its motion one to “compel arbitration” under its preferred
procedures. Unlike Humpty Dumpty, however, a litigant
Nos. 11-2343 & 11-2757                                      5

cannot use words any way it pleases. The phrase “order
arbitration to proceed” appears in a federal statute, and
its meaning depends on federal law; judges rather than
litigants decide what it means to “order arbitration to
proceed.” That the parties may call a procedure for
having a neutral third party make a binding decision
“expert resolution” does not make that procedure less
“arbitration”. Omni Tech Corp. v. MPC Solutions Sales, LLC,
432 F.3d 797 (7th Cir. 2005). Similarly, that a litigant calls
a motion to disrupt arbitration one to compel arbitration
does not make it so. Abraham Lincoln once was asked
how many legs a donkey has if you call its tail a leg.
His answer was four: calling a tail a leg does not
make it one. See Lloyd Reinhardt, Warranted Doability,
63 Philosophy 471 (1988). Just so with BCS’s motion.
  We observed earlier this year that judges must not
intervene in pending arbitration to direct arbitrators to
resolve an issue one way rather than another. Trustmark
Insurance Co. v. John Hancock Life Insurance Co., 631 F.3d 869
(7th Cir. 2011). Review comes at the beginning or the
end, but not in the middle. If BCS wanted a judge to
decide whether the plans’ demands should be arbitrated
jointly or separately, it should have refused to appoint
an arbitrator. The plans then would have filed suit
seeking an order compelling BCS to arbitrate, and BCS
could have asked the district judge to address the
question whether Stolt-Nielsen supersedes Wausau. But
that’s not what happened. Both sides appointed their
arbitrators, and the proceeding got under way. BCS
apparently has thought better of its decision, but it cannot
obtain mid-arbitration review by putting a misleading
caption on its motion.
6                                  Nos. 11-2343 & 11-2757

   Our point is not that the policy against mid-arbitration
judicial review trumps §16(a)(1)(B). The statute is what
it is, and judges must implement its rule whether or not
they think it wise, and whether or not they think the
appeal meritorious. Arthur Andersen LLP v. Carlisle,
556 U.S. 624 (2009). Our point, rather, is the same as
President Lincoln’s: the meaning of a word depends on
what it denotes to members of the appropriate linguistic
community, not on idiosyncratic usages that people
may be able to devise. See also Ludwig Wittgenstein,
Philosophical Investigations (G.E.M. Anscombe translation
1953). Meaning is objective and external to the speaker.
What BCS actually wanted was an order directing the
arbitrators to hold separate rather than consolidated
proceedings; when denying that request, the district
court did not refuse to “order arbitration to proceed”
as §16(a)(1)(B) uses that phrase. We therefore dismiss
appeal No. 11-2343 for want of jurisdiction.
   This means that the district court was entitled to
appoint a third arbitrator; it did not need to wait for us
to dismiss the appeal, which was ineffectual from the
outset. (The district court followed the procedure pre-
scribed by Apostol and proceeded only after certifying
its belief that BCS’s appeal was unauthorized.) BCS
does not contend that the district court abused its discre-
tion or otherwise erred in selecting the third arbitrator
under §5. And, for reasons we have already explained,
BCS is not entitled to a mid-arbitration review of the
choice between separate and consolidated proceedings.
If a party could run to court and contest every procedural
ruling that it believes is erroneous and not squarely
Nos. 11-2343 & 11-2757                                     7

covered by the contract (which rarely tells arbitrators
what procedures to use), arbitration would fail to offer
an attractive alternative to litigation. Litigation usually
entails only one proceeding in the district court, followed
by one appeal. If BCS were right, however, every arbitra-
tion could be contested (with an appeal) before it
begins; every supposed procedural error could be con-
tested in a separate suit (with another appeal) in mid-
arbitration; and then the outcome could be contested in
a proceeding to confirm or vacate the award, with yet
another appeal. That would make arbitration both inter-
minable and impossibly expensive.
  For completeness we add that, even had BCS refused
to appoint an arbitrator and thus forced the plans to
initiate a genuine proceeding to compel arbitration, the
district court would have allowed the arbitrators to
decide in the first instance whether a consolidated pro-
ceeding is permissible under the contracts and, if so,
whether it is appropriate. That’s the upshot of Wausau, and
Stolt-Nielsen does not hold otherwise. It reached the
Supreme Court after arbitration had been concluded.
Whether the arbitrators had exceeded their powers, and
thus whether the award could be set aside under 9 U.S.C.
§10(a)(4), was the only question presented by the peti-
tion for certiorari.
  The subject was before the Supreme Court in Green Tree
Financial Corp. v. Bazzle, 539 U.S. 444 (2003), but that case
did not produce a majority. The plurality opinion
(Breyer, J., joined by Scalia, Souter, and Ginsburg, JJ.)
concluded that arbitrators are entitled to make the initial
8                                   Nos. 11-2343 & 11-2757

decision about whether class arbitration has been autho-
rized. 539 U.S. at 450–54. Chief Justice Rehnquist, joined
by Justices O’Connor and Kennedy, thought that a
court should make the initial decision. Id. at 456–60.
Justices Stevens and Thomas participated but did not
address the question. Stolt-Nielsen did not do so either.
This leaves in place our post-Bazzle decision in Wausau.
   Apparently BCS believes that any party to arbitration
is entitled to litigate in advance whether arbitrators
would exceed their powers if they reached a particular
procedural decision during the course of an arbitration.
Nothing in the Federal Arbitration Act authorizes that
sort of anticipatory review, which in many situations
would entail an advisory opinion. After all, the arbitrators
might end up agreeing with the party’s position—here,
the neutral arbitrator may well agree with BCS that
there should be twelve proceedings rather than one. Or
it may turn out that BCS will prevail in the arbitration,
and the dispute about consolidation will not need
judicial resolution. The only question that a court
should address before arbitration starts is whether the
parties have agreed to arbitrate at all. See AT&T Tech-
nologies, Inc. v. Communications Workers, 475 U.S. 643
(1986). BCS and the plans have agreed to arbitrate; the
arbitrators themselves resolve procedural questions in
the first instance (and usually the last instance).
  At oral argument counsel for BCS suggested that
a consolidated proceeding that resolves the rights of BCS
vis-à-vis multiple plans isn’t “really” arbitration at all
but is some extra-contractual monstrosity. Counsel quoted
Nos. 11-2343 & 11-2757                                     9

language from Stolt-Nielsen about how class actions
differ from individual litigation by turning small claims
into potentially multi-million-dollar, bet-your-company
gambles that also require complicated notices to missing
class members who have never asserted an interest in
arbitrating. Yet the Court in Stolt-Nielsen did not deny
that class-wide arbitration is still “arbitration”; it just
held that certifying a class exceeds an arbitrator’s
powers unless the parties have consented to class pro-
cedures. If class-wide arbitration is still “arbitration,” so
is consolidated arbitration.
  Not even BCS denies that a panel of arbitrators
could resolve one plan’s claim and then apply that
decision to the others via doctrines of claim preclusion
or issue preclusion. (Deciding the preclusive effect of an
award is one of the many procedural subjects securely
within an arbitrator’s powers. See Brotherhood of Mainte-
nance of Way Employees v. Burlington Northern R.R., 24 F.3d
937 (7th Cir. 1994); Production & Maintenance Employees
v. Roadmaster Corp., 916 F.2d 1161 (7th Cir. 1990).) Con-
solidating the plans’ claims does not change the stakes;
whether it would be simpler and cheaper to handle
twelve claims separately or together is the sort of issue
an adjudicator—whether judge or arbitrator—resolves
all the time.
  Class actions always have been treated as special. One
self-selected plaintiff represents others, who are entitled
to protection from the representative’s misconduct or
incompetence. Often this requires individual notice to
class members, a procedure that may be more complex
10                                    Nos. 11-2343 & 11-2757

and costly than the adjudication itself. See Eisen v. Carlisle
& Jacquelin, 417 U.S. 156 (1974). As a practical matter the
representative’s small stake means that lawyers are in
charge, which creates a further need for the adjudicator
to protect the class. Finally, class actions can turn a
small claim into a whopping one. Unsurprisingly, Fed.
R. Civ. P. 23 imposes stringent requirements on class
certification. Consolidation of suits that are going to
proceed anyway poses none of these potential problems.
That’s why Fed. R. Civ. P. 42(a) leaves to a district
judge’s discretion—and without any of Rule 23’s proce-
dures and safeguards—the decision whether to con-
solidate multiple suits. Just as consolidation under
Rule 42(a) does not change the fundamental nature of
litigation, so consolidation of the plans’ claims would not
change the fundamental nature of arbitration.
  This is not to say that this arbitral panel should handle
all of the plans’ claims at one go. That’s up to the panel,
which must both interpret the contract and exercise any
discretion that the contract allows. All we conclude is
that BCS is not entitled to a peremptory order that
would take the question out of the arbitrators’ hands.
  Appeal No. 11-2343 is dismissed for want of jurisdic-
tion. In No. 11-2757 the judgment is affirmed.

                           12-16-11