American Intern. v. Electronic Data Systems, 03-1526.

• Decision Date: 21 October 2003
• Docket Number: No. 03-1526.,03-1526.
• Citation: 347 F.3d 665
• Parties: AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Plaintiff-Appellant, v. ELECTRONIC DATA SYSTEMS CORPORATION and EDS/SHL CORPORATION, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

347 F.3d 665

AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Plaintiff-Appellant, v. ELECTRONIC DATA SYSTEMS CORPORATION and EDS/SHL CORPORATION, Defendants-Appellees.

No. 03-1526.

United States Court of Appeals, Seventh Circuit.

Argued September 3, 2003.

Decided October 21, 2003.

Rehearing and Rehearing En Banc Denied November 25, 2003.

Gregory D. Hopp (argued), Cozen O'Connor, Chicago, IL, for Plaintiff-Appellant.

Daniel P. Albers (argued), Barnes & Thornburg, Chicago, IL, for Defendants-Appellees.

Before POSNER, KANNE, and EVANS, Circuit Judges.

POSNER, Circuit Judge.

This is a procedurally complex case involving the arbitrability of subsidiary coverage in a liability insurance policy. The insurer, AISLIC, issued a claims-made liability policy to MCI "and its subsidiaries," the collectivity being designated on the first page of the policy as the "Named Insured." A provision on "Subsidiary Coverage" extends the protection of the policy to "any past ... Subsidiary of the Named Insured." The policy insures against "claims [of liability] that are first made against the Insureds during the Policy Period" arising out of "wrongful acts" committed by the insureds; and "Insureds" are defined redundantly as the Named Insured plus "any subsidiary of the Named Insured, but only with respect to wrongful acts which occur while it is a subsidiary and are otherwise covered by this policy." Disputes under the policy "shall be subject to the alternate dispute resolution process (`ADR') set forth in" the policy, and "the Named Insured shall act on behalf of all Insureds in selection of the ADR in accordance with this clause."

A subsidiary of MCI named MCIS did a project for the New York Police Department that gave rise to a claim by the Department against MCIS for damages caused by alleged "wrongful acts" within the meaning of the policy. Between the time the work was done and the claim for damages was made, MCIS was sold to EDS. Because the claim was made while the policy that AISLIC had issued to MCI was in force and arose from acts committed before MCI's sale of the subsidiary, EDS believed that the subsidiary, the former MCIS, retained coverage under the policy. AISLIC conceded as it must that the sale of a subsidiary does not eliminate coverage for wrongful acts committed before the sale, but denied that EDS/SHL (MCIS's new name after the sale) had a valid claim under the policy, because, among other things, it had failed to give AISLIC timely notice of the police department's claim or to obtain AISLIC's consent to EDS/SHL's $20 million settlement with the department.

EDS/SHL invoked the ADR clause of the policy, demanding arbitration (the clause authorizes a choice between arbitration and mediation) of its dispute with AISLIC, which responded by bringing this diversity suit against EDS/SHL to enjoin arbitration and declare that EDS/SHL's claim has no merit. AISLIC joined EDS as an additional defendant, doubtless to bolster its contention, discussed at the end of this opinion, that EDS/SHL is not a "real" subsidiary but an indistinguishable commingled pile of EDS assets. The defendants moved the district court under section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, for an order directing AISLIC to arbitrate the parties' dispute. The court granted the motion and arbitration was then conducted that resulted in an award to EDS/SHL of some $14 million, which the district court confirmed and which AISLIC, appealing the confirmation under 9 U.S.C. § 16(a)(1)(D), challenges on the sole ground that EDS/SHL had no right to arbitration. That is, AISLIC is not questioning the merits of the arbitration award; in effect it is saying, "the insured is right, but we want another tribunal to say so."

EDS/SHL seeks to block AISLIC at the threshold by arguing that AISLIC willingly participated in the arbitration (even to the extent of arguing nonarbitrability to the arbitrators) and by doing so forfeited any challenge to arbitrability. Now it is true that AISLIC could not be permitted to play heads I win tails you lose, by failing to challenge arbitrability until it had seen whether it had won or lost the arbitration. Jones Dairy Farm v. Local No. P-1236, United Food & Commercial Workers Int'l Union, AFL-CIO, 760 F.2d 173, 175-76 (7th Cir.1985); JCI Communications, Inc. v. International Brotherhood of Electrical Workers, Local 103, 324 F.3d 42, 49-50 (1st Cir.2003). But it didn't do that; it challenged arbitrability at the outset and participated in the arbitration only because the district court ordered it to do so. And the order may have been unappealable, in which event AISLIC could not have avoided participating in the arbitration by appealing to this court from the order to arbitrate. As a matter of fact, it tried to appeal from that order, and we dismissed the appeal, though, as we shall explain, not because it was unappealable.

The law relating to the appealability of judicial orders to arbitrate is intricate, as this case illustrates. An order directing (as distinct from one denying, 9 U.S.C. § 16(a)(1)(B)) arbitration is nonfinal, and is expressly made nonappealable by 9 U.S.C. § 16(b)(2) unless (with the important qualification discussed next) it is issued in a case brought to obtain that relief and nothing else. 9 U.S.C. § 16(a)(3); S+L+H S.p.A. v. Miller-St. Nazianz, Inc., 988 F.2d 1518, 1522-23 (7th Cir.1993); Perera v. Siegel Trading Co., 951 F.2d 780, 783, 785 (7th Cir.1992); University Life Ins. Co. v. Unimarc Ltd., 699 F.2d 846, 848 (7th Cir.1983); Stedor Enterprises v. Armtex, Inc., 947 F.2d 727, 730-32 (4th Cir.1991). This suit, in which the order to arbitrate was issued, wasn't filed by the party desiring arbitration, which is EDS/SHL, but by AISLIC, which was seeking an injunction against arbitration. It might seem to follow that the order to arbitrate was merely an interlocutory order in AISLIC's suit. But (and this is the qualification to which we alluded) if the district judge dismissed AISLIC's claim at the same time that it ordered arbitration, there would be nothing left of the case in the district court and so AISLIC could have appealed; an order that terminates proceedings in the district court is final and appealable, whatever it is called. Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 89, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000); Smith v. Steinkamp, 318 F.3d 775, 777 (7th Cir.2003); McCaskill v. SCI Management Corp., 298 F.3d 677, 678 (7th Cir.2002); Amgen, Inc. v. Kidney Center of Delaware County, Ltd., 95 F.3d 562, 566-67 (7th Cir.1996); In re Chicago, Milwaukee, St. Paul & Pacific R.R., 784 F.2d 831, 833 (7th Cir.1986); University Life Ins. Co. v. Unimarc Ltd., supra, 699 F.2d at 848-50. As the Supreme Court put it in Green Tree, an order to arbitrate is appealable, even if entered in a case in which other relief besides the order was sought, if the district court "plainly disposed of the entire case on the merits and left no part of it pending before the court," even though the winner of the arbitration might later seek a judicial order confirming the award. Green Tree Financial Corp.-Alabama v. Randolph, supra, 531 U.S. at 86-87, 121 S.Ct. 513. Cases which suggest that an order to arbitrate is either never final and appealable, such as Perera v. Siegel Trading Co., supra, 951 F.2d at 786, or that it is never final and appealable in a case in which other relief is sought, such as S+L+H S.p.A. v. Miller-St. Nazianz, Inc., supra, 988 F.2d at 1522, cannot survive Green Tree.

But did the judge in our case dispose of the entire case? His order is ambiguous. On the one hand it says that the "defendant's [sic—should be defendants'] motion to compel arbitration and to dismiss is granted" (emphasis added), but on the other hand it says that the "action is dismissed pending resolution of the arbitration proceedings as outlined in open court." This suggests—and the suggestion is reinforced both by the court's not entering a judgment consistent with Fed.R.Civ.P. 58 terminating the case and by the court's later action in confirming the arbitration award without requiring EDS/SHL to file a separate lawsuit—that the action was being stayed to await the outcome of the arbitration, at which point further relief might be sought from the court, for example—as happened here—an order to confirm the arbitration. Yet we have suggested, in the Amgen and Unimarc cases cited earlier, that if all the judge is retaining jurisdiction for is to allow the arbitrator's award to be confirmed without need for the filing of a separate lawsuit, the order to arbitrate is final (final enough might be the better way to put it) and therefore immediately appealable. If this is right (it does seem sensible, since whether the winner of the arbitration sues to confirm his award or moves to confirm it is an unimportant detail, unaffected by Green Tree), the district judge's order to arbitrate in this case was appealable.

Nor did we suggest otherwise in dismissing EDS/SHL's appeal. We dismissed it as untimely, adding that since no Rule 58 judgment—that is, a final judgment so denoted on a separate document—had been entered, EDS/SHL could refile its appeal after obtaining such a judgment. The absence of a Rule 58 judgment is evidence that the judge's decision is not a final, appealable order, but it is not conclusive evidence. If there is nothing left in the district court, his decision is final and appealable even if he has failed to enter a Rule 58 judgment. Bankers Trust Co. v. Mallis, 435 U.S. 381, 98 S.Ct. 1117, 55 L.Ed.2d 357 (1978) (per curiam); TMF Tool Co. v. Muller, 913 F.2d 1185, 1189 (7th Cir.1990). Even so, the time within which the appeal must be filed does not begin to run until the Rule 58 judgment is entered. United States v. Indrelunas, 411 U.S. 216, 93 S.Ct. 1562, 36 L.Ed.2d 202 (1973) (per curiam); In re Kilgus, 811 F.2d 1112, 1117 (7th Cir.1987). Wanting to have the issue of...