Court Opinion

ID: 768482
Source: CourtListenerOpinion
Date Created: 2012-04-18 09:06:34+00
Date Added: 2024-06-11T15:16:08.869356
License: Public Domain

210 F.3d 771 (7th Cir. 2000)
Connecticut General Life Insurance Company,  et al.,    Petitioners/Cross-Respondents/Appellees,v.Sun Life Assurance Company of Canada, et al.,    Respondents/Cross-Petitioners/Appellants,v.Unicover Managers, Inc., et al.,    Third-Party Respondents/Appellees.
Nos. 99-4085, 99-4106
In the  United States Court of Appeals  For the Seventh Circuit
Argued March 27, 2000Decided April 27, 2000

Appeals from the United States District Court  for the Northern District of Illinois, Eastern Division.  Nos. 99 C 6491 & 6512--William J. Hibbler, Judge.
Before Posner, Chief Judge, and Flaum and Williams,  Circuit Judges.
Posner, Chief Judge.

1
These consolidated appeals  ask: When does a federal district court have the  power to order the consolidation of arbitration  proceedings before a single arbitral panel? The  question grows out of a reinsurance contract  between two (overlapping) sets of insurance  companies. One set, the three "retrocessionaires"  (Sun, Phoenix, and Cologne), agreed to reinsure  workers' compensation reinsurance policies issued  by the other set, the seven "retrocedents." (Two  of the retrocessionaires, Phoenix and Cologne,  are also retrocedents.) For clarity we'll call  the retrocessionaires the "reinsurers," and the  retrocedents the "insurers," though in fact both  sets of companies are reinsurers, there being  many layers of reinsurance in the workers'  compensation insurance market.

2
The contract was negotiated on behalf of the  insurers by Unicover Managers, Inc., described in  the contract as their "manager." Unicover is a  middleman in the workers' compensation  reinsurance market. Although not technically an  insurance company, it issues reinsurance  contracts to insurance companies (the  retrocedents in this case) and then in effect  assigns these contracts to other insurance  companies (the retrocessionaires), who then bear  the risk created by the contracts and reap the  premiums that the contracts specify.

3
The contract contains an arbitration provision  pursuant to which Sun and Phoenix served a demand  for arbitration on Unicover and its insurers.  Four of the latter responded by filing their own  demands, each seeking a separate arbitration  between itself, on the one hand, and Sun and  Phoenix, on the other. Each of the six companies  filed a motion in the federal district court in  Chicago (the venue prescribed by the arbitration  provision of the contract) pursuant to section 4  of the Federal Arbitration Act, 9 U.S.C. sec. 4,  to compel arbitration. The district court denied  the reinsurers' motion for a single arbitration and granted the insurers' motions for separate  arbitrations; its order, which wound up the  proceedings in the district court, is appealable  under 9 U.S.C. sec. 16(a)(3). See Iowa Grain Co.  v. Brown, 171 F.3d 504, 507-08 (7th Cir. 1999);  Napleton v. General Motors Corp., 138 F.3d 1209,  1212 (7th Cir. 1998); Augustea Impb Et Salvataggi  v. Mitsubishi Corp., 126 F.3d 95, 99 (2d Cir.  1997). (Whether our test for the appealability of  such orders is too demanding is at present before  the Supreme Court. See Randolph v. Green Tree  Financial Corp.-Alabama, 178 F.3d 1149, 1152-57  (11th Cir. 1999), cert. granted, 2000 WL 122150  (U.S. Apr. 3, 2000); Napleton v. General Motors  Corp., supra, 138 F.3d at 1216-18 (dissenting  opinion).) Two of the other insurers settled, and  the position of the remaining two (which includes  one of the companies that is both a  retrocessionaire and a retrocedent, Cologne Life  Reinsurance Company) is unclear. Sun and Phoenix  stated in their demand for arbitration that they  were seeking rescission of the reinsurance  contract, plus damages, on the ground of fraud by  Unicover (for which, they contend, the insurers,  as Unicover's principals, are liable) in both the  inducement and the performance of the contract.  The potential damages could, we are told, exceed  $2 billion.

4
None of the parties contends that the issue of  one versus many arbitrations is for the  arbitrators rather than the court to decide. The  arbitration provision in the contract does not  address the question of who decides, cf. First  Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,  945 (1995), and there are compelling practical  objections to remitting the question to the  arbitrators. See Thomas J. Stipanowich,  "Arbitration and the Multiparty Dispute: The  Search for Workable Solutions," 72 Iowa L. Rev.  473, 513 (1987). Arbitral panels are ad hoc,  making it difficult to coordinate their decisions  on such a question. And there are no contractual  or statutory provisions for transferring cases  between panels, should multiple arbitrations be  commenced when the contract envisaged a single  consolidated one.

5
In defending the district court's refusal to  order the single arbitration sought by their  opponents, the insurers press upon us a series of  cases in this and other courts that, they say,  hold that a federal district court cannot grant a  motion to consolidate separate arbitration  proceedings unless the contract on which the  arbitration is founded expressly authorizes  consolidation. Champ v. Siegel Trading Co., 55 F.3d 269, 275-77 (7th Cir. 1995); Glencore, Ltd.  v. Schnitzer Steel Products Co., 189 F.3d 264 (2d  Cir. 1999); Government of United Kingdom v.  Boeing Co., 998 F.2d 68, 71-74 (2d Cir. 1993);  American Centennial Ins. Co. v. National Casualty  Co., 951 F.2d 107 (6th Cir. 1991); Baesler v.  Continental Grain Co., 900 F.2d 1193 (8th Cir.  1990); Protective Life Ins. Corp. v. Lincoln  Nat'l Life Ins. Corp., 873 F.2d 281 (11th Cir.  1989) (per curiam); Del E. Webb Construction v.  Richardson Hospital Authority, 823 F.2d 145, 150  (5th Cir. 1987); Weyerhaeuser Co. v. Western Seas  Shipping Co., 743 F.2d 635 (9th Cir. 1984). All  that these cases actually hold, however, is that  unless the contract provides for consolidated  arbitration, the court cannot order it. E.g.,  Government of United Kingdom v. Boeing Co.,  supra, 998 F.2d at 72 ("Each of our sister  circuit courts that has considered the question  since these Supreme Court decisions has held that  district courts do not have the authority under  the FAA to consolidate arbitrations absent the  parties' consent") (emphasis added); American  Centennial Ins. Co. v. National Casualty Co.,  supra, 951 F.2d at 108 ("we align ourselves with  the view taken by the Fifth, Eighth, Ninth, and  Eleventh Circuits, and hold that a district court  is without power to consolidate arbitration  proceedings, over the objection of a party to the  arbitration agreement, when the agreement is  silent regarding consolidation") (emphasis  added).

6
A court can in appropriate circumstances  consolidate cases before it (just as we have  consolidated the three separate appeals taken  from the district court's order), whether or not  the parties want the cases consolidated, e.g.,  Fed. R. Civ. P. 42(a), or stay or transfer a case  in order to enable the consolidated or otherwise  orderly disposition of multiple proceedings.  E.g., 28 U.S.C. sec. 1404; Finova Capital Corp.  v. Ryan Helicopters U.S.A., Inc., 180 F.3d 896  (7th Cir. 1999); Evans Transportation Co. v.  Scullin Steel Co., 693 F.2d 715 (7th Cir. 1982).  But it cannot consolidate, transfer, etc.  arbitration proceedings in defiance of the  parties' wishes or contractual undertakings. The  arbitration of contractual disputes pursuant to  an arbitration clause in the contract is not a  stage in a judicial proceeding but an alternative  to such a proceeding, and the court cannot mess  in the arbitrators' procedures beyond the very  limited extent permitted by sections 9 and 10 of  the Federal Arbitration Act (the provisions  governing judicial review of arbitration awards).  E.g., Baravati v. Josephthal, Lyon & Ross, Inc.,  28 F.3d 704, 709 (7th Cir. 1994); UHC Management  Co. v. Computer Sciences Corp., 148 F.3d 992, 997  (8th Cir. 1998). But we cannot see any reason  why, in interpreting the arbitration clause for  purposes of deciding whether to order  consolidation, the court should (as the language  we quoted from the American Centennial case  might, if read literally, be thought to suggest)  place its thumb on the scale, insisting that it  be "clear," rather than merely more likely than  not, that the parties intended consolidation. It  is not as if consolidation of arbitration  proceedings were somehow disfavored; quite the  contrary--the same considerations of adjudicative  economy that argue in favor of consolidating  closely related court cases argue for  consolidating closely related arbitrations. To  repeat, the court has no power to order such  consolidation if the parties' contract does not  authorize it. But in deciding whether the  contract does authorize it the court may resort  to the usual methods of contract interpretation,  just as courts do in interpreting other  provisions in an arbitration clause. See, e.g.,  First Options of Chicago, Inc. v. Kaplan, supra,  514 U.S. at 944; Mastrobuono v. Shearson Lehman  Hutton, Inc., 514 U.S. 52, 62-63 (1995); Volt  Information Sciences, Inc. v. Board of Trustees,  489 U.S. 468, 475 (1989); Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987); Brennan v. King, 139 F.3d 258, 264 (1st Cir. 1998).

7
The arbitration provision in this case neither  clearly permits nor clearly forbids  consolidation. In fact, it's a muddle, suggesting  that the parties did not think about the issue.  So far as bears on the question of consolidation,  the provision reads as follows:

8
Any dispute arising out of the interpretation,  performance or breach of this Agreement,  including the formation or validity thereof, will  be submitted for decision to a panel of three  arbitrators. . . . One arbitrator will be chosen  by each party [and the party-designated  arbitrators will then choose a third, a neutral  to preside over the panel and presumably cast the  deciding vote in a close case] . . . . Unless  otherwise mutually agreed by the parties,  arbitration will take place in Chicago . . . . If  more than one Retrocessionaire is involved in  arbitration where there are common questions of  law or fact and a possibility of conflicting  awards or inconsistent results, all such  Retrocessionaires will constitute and act as one  party for purposes of this Article [the  arbitration provision] . . . .

9
The insurers argue that since each of them is a  party to the contract, it is impossible that each  could have a right to select one arbitrator if a  panel of three arbitrators is to decide a dispute  involving more than one party on the insurers'  side. There is no problem if there is more than  one party on the reinsurers' side, by virtue of  the last sentence we quoted, whereby all the  reinsurers are to constitute a single party. But  that does not solve the problem of multiple  parties on the insurers' side, because there is  no corresponding clause authorizing them to be  treated as one. The insurers argue that this  asymmetry is powerful evidence against such  treatment.

10
But this leaves out of account that any dispute  is to be referred to a panel of three  arbitrators, not just a dispute between the  reinsurers and a single insurer. As normally  understood, the word "dispute" (a word not  defined in the contract) does not exclude a  dispute involving multiple parties. So far as can  be inferred from the parties' demands for  arbitration--which are our only clue to the  nature of the fight between the parties--there is  indeed a single dispute between the reinsurers on  the one hand and the insurers on the other,  arising out of the conduct of Unicover in  negotiating and administering the reinsurance  contract.

11
If "dispute" is taken in its ordinary sense and  "party" in the sense in which each of the  insurers is a separate party to these appeals  (the sense in which we used the word earlier in  this opinion), then the first two sentences that  we quoted from the arbitration provision are in  hopeless conflict. What to do? As a semantic  matter, it is easier to dissolve the conflict by  reading "party" to mean "side," a common usage,  than it is to read "dispute" to mean a dispute  with only one party on each side, an uncommon  usage. But what then of the fact that the  arbitration provision expressly makes the  reinsurers one party for purposes of arbitration  yet is silent about the insurers? The sensible  answer--which incidentally demonstrates the  limited utility, see, e.g., In re Continental  Casualty Co., 29 F.3d 292, 294 (7th Cir. 1994);  In re American Reserve Corp., 840 F.2d 487, 492  (7th Cir. 1988); Illinois Dept. of Public Aid v.  Schweiker, 707 F.2d 273, 277 (7th Cir. 1983); In  re Sealed Case No. 97-3112, 181 F.3d 128, 132  (D.C. Cir. 1999) (en banc); William N. Eskridge,  Jr., "Norms, Empiricism, and Canons in Statutory  Interpretation," 66 U. Chi. L. Rev. 671, 676-77  (1999), of the rule of interpretation that goes  by the impressive name of expressio unius est  exclusio alterius--is that the contract itself  makes the insurers one party but not the  reinsurers, so that making the reinsurers a  single party for purposes of arbitration suggests  if anything an intent to have a single  arbitration proceeding when there is a single  dispute, even if it's a dispute with more than  one of the insurers. The contract was negotiated  on the insurers' side by Unicover as their agent,  and Unicover is also the administrator of the  contract. The parties could foresee that any  dispute arising out of either the formation or  the administration of the contract would be a  dispute between the reinsurers and (or over the  behavior of) Unicover. Unicover didn't want to be  in the position of having to arbitrate separately  with each reinsurer, so the arbitration provision  specifies that the reinsurers shall constitute a  single party. Presumably the reinsurers didn't  want to arbitrate separately with each insurer,  either, especially since the contract places no  limit on the number of insurers that Unicover  might bring into the pool of insurers to whom it  would be issuing reinsurance policies and then  laying off the risk created by those policies on  the reinsurers. Another straw in the wind is the  provision for arbitration in Chicago, which just  happens to be Unicover's headquarters but not  that of any of the other parties.

12
We cannot say that these textual inferences are  conclusive in favor of consolidation, but they  support it, as do practical considerations, which  are relevant to disambiguating a contract,  because parties to a contract generally aim at  obtaining sensible results in a sensible way.  See, e.g., Bratton v. Roadway Package System,  Inc., 77 F.3d 168, 173 (7th Cir. 1996); In re  Villa West Associates, 146 F.3d 798, 803 (10th  Cir. 1998); William C. Atwater & Co. v. Panama  R.R., 159 N.E. 418, 419 (N.Y. 1927); Rubin v.  Laser,703 N.E.2d 453, 459 (Ill. App. 1998); E.  Allan Farnsworth, Contracts sec. 7.10, p. 466 (3d  ed. 1999). To have the identical dispute  litigated before different arbitration panels is  a formula for duplication of effort and a fertile  source, in this case, of disputes over esoteric  issues in the law of res judicata (the kind of  dispute that would also arise if the question of  consolidation were for the arbitrators rather  than the district court to answer). If separate  arbitrations are ordered and the reinsurers lose  the first one, will the decision by that  arbitration panel have res judicata or collateral  estoppel effect in the other arbitrations? See,  e.g., W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 764-65 (1983); Independent Lift Truck  Builders Union v. NACCO Materials Handling Group,  Inc., 202 F.3d 965, 968 (7th Cir. 2000); Chiron  Corp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126,1132-33 (9th Cir.2000); John Hancock Mutual Life Ins. Co. v.  Olick, 151 F.3d 132, 139-40 (3d Cir. 1998); National Union Fire Ins. Co. v. Belco Petroleum  Corp., 88 F.3d 129, 135-36 (2d Cir. 1996). Will  it if the first order is confirmed first? See  Miller v. Runyon, 77 F.3d 189, 193-94 (7th Cir.  1996); Chiron Corp. v. Ortho Diagnostic Systems,  Inc., supra, 1133-34; John Hancock Mutual Life Ins.  Co. v. Olick, supra, 151 F.3d at 137-39. What if  the second order is confirmed first? See  Consolidation Coal Co. v. United Mine Workers of  America, District 12, Nos. 99-1640 and 99-1641  (7th Cir. appeal pending, argued Jan. 13, 2000).  If the reinsurers win, this would not bind any  other insurer than the one involved in the  particular arbitration--unless the insurers are  deemed to be in privity with each other because  of the common agency of Unicover. E.g., We Care  Hair Development, Inc. v. Engen, 180 F.3d 838,  842 (7th Cir. 1999); Canedy v. Boardman, 16 F.3d 183, 185 (7th Cir. 1994). All these problems are  avoided by interpreting the contract to allow the  reinsurers to demand a single arbitration, provided there is a single dispute, as appears to  be the case; should this turn out not to be the  case, severance would be possible.

13
The insurers have some practical arguments of  their own, two related ones in fact. They ask:  What if the insurers disagree about the choice of  an arbitrator? Standing alone this is a very weak  argument; the arbitration clause expressly  requires the reinsurers to act as one party and  thus agree on a single arbitrator, so apparently  the parties thought this a feasible requirement  to impose. The insurers seek to strengthen the  argument by pointing out that two of the  reinsurers are also insurers, and so are on both  sides of the dispute. One of them, however,  Phoenix, has thrown in its lot with the  reinsurers, and does not claim--and obviously  does not have--any right to participate in the  choice of the insurers' arbitrator. The status of  the other, Cologne, is unclear, but obviously it  will have to decide which side it's on before the  arbitrators are chosen.

14
We conclude that the balance of both the textual  and the practical arguments favor the reinsurers,  and we therefore reverse the judgment of the  district court and remand for further proceedings  consistent with this opinion.