463 F.3d 410 (5th Cir. 2006), 05-20380, Tittle v. Enron Corp.

Docket Nº:05-20380.
Citation:463 F.3d 410
Party Name:Pamela M. TITTLE, etc.; et al., Plaintiffs, Tittle Plaintiffs, Plaintiff-Appellee, Associated Electric & Gas Insurance Services Ltd.; Federal Insurance Co., Interpleader Plaintiffs-Appellees, v. ENRON CORPORATION; et al., Defendants, Mary K. Joyce; Robert A. Belfer; Norman P. Blake, Jr.; Ronnie C. Chan; John H. Duncan; Wendy L. Gramm; Robert K. Jae
Case Date:September 01, 2006
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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463 F.3d 410 (5th Cir. 2006)

Pamela M. TITTLE, etc.; et al., Plaintiffs,

Tittle Plaintiffs, Plaintiff-Appellee,

Associated Electric & Gas Insurance Services Ltd.; Federal Insurance Co., Interpleader Plaintiffs-Appellees,

v.

ENRON CORPORATION; et al., Defendants,

Mary K. Joyce; Robert A. Belfer; Norman P. Blake, Jr.; Ronnie C. Chan; John H. Duncan; Wendy L. Gramm; Robert K. Jaedicke; Charles A. Lemaistre; Mikie Rath; Sheila Knudsen; James G. Barnhart; Keith Crane; William Gulyassy; Roderick Hayslett; Paul Rieker; Cindy Olson; Tod A. Lindholm; David Shields, Defendants-Appellees,

v.

Linda Lay, as executrix of the Estate of Kenneth L. Lay, substituted in place and stead of Kenneth L. Lay, deceased; Jeffrey K. Skilling, Defendants-Appellants.

Severed Enron Employees Coalition (SEEC); et al., Plaintiffs,

v.

The Northern Trust Company; et al., Defendants,

Linda Lay, as executrix of the Estate of Kenneth L. Lay, substituted in place and stead of Kenneth L. Lay, deceased; Jeffrey K. Skilling, Defendants-Appellants,

v.

Phillip J. Bazelides; Joe H. Foy; James S. Prentice, Defendants-Appellees.

No. 05-20380.

United States Court of Appeals, Fifth Circuit

Sept. 1, 2006

Page 411

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Lynn Lincoln Sarko, Britt L. Tinglum, Keller Rohrback, Steve W. Berman, Clyde A. Platt, Hagens Berman, Seattle, WA, Robin Leaf Harrison, Campbell, Harrison & Dagley, Houston, TX, for Plaintiff-Appellee.

Jeff D. Lefkowitz, Winstead, Sechrest & Minick, Houston, TX, for Intervenors-Plaintiffs-Appellees.

Michael Robert Goodstein (argued), Bailey Cavalieri, Columbus, OH, for Associated Elec. & Gas Ins. Services Ltd.

Albert W. Turnbull, Hogan & Hartson, Washington, DC, for Federal Ins. Co.

Paul J. Ondrasik, Jr., Anthony C. Epstein, Floyd Michael Kail, Steptoe & Johnson, Washington, DC, for Rath, Knudsen, Barnhart, Crane, Gulyassy, Hayslett, Shields, Prentice and Lindholm.

Kathy Dawn Patrick (argued), Robin C. Gibbs, Jennifer Horan Greer, Michael Kenan Oldham, Brian T. Ross, Gibbs & Bruns, Houston, TX, for Blake, Chan, Duncan, Gramm, Jaedicke, LeMaistre and Foy.

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Karen M. Wahle, Jeffrey William Kilduff, Shannon M. Barrett (argued), O'Melveny & Myers, Washington, DC, Ronald G. Woods, Houston, TX, for Skilling.

Jacks C. Nickens, Paul D. Flack, Nickens, Keeton, Lawless, Farrell & Flack, Houston, TX, for Rieker and Olson.

James E. Coleman, Jr., Bruce William Collins, Jane A. Makela, Ann Marie Arcadi, Carrington, Coleman, Sloman & Blumenthal, Dallas, TX, for Linda Lay.

Appeal from the United States District Court for the Southern District of Texas.

Before KING, STEWART and DENNIS, Circuit Judges.

KING, Circuit Judge

In this interpleader insurance action, defendant-appellants Kenneth Lay and Jeffrey Skilling appeal the district court's denial of their motion to compel arbitration and to stay the interpleader action pending arbitration pursuant to 9 U.S.C. §§ 3, 4. For the reasons stated below, we AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The Fiduciary Liability Policies

This dispute centers around the interpretation of two fiduciary liability insurance policies issued by Associated Electric & Gas Insurance Services, Ltd. ("AEGIS"), and Federal Insurance Co. ("Federal") (collectively, "the Insurers") to Enron Corporation ("Enron"). For the sake of clarity, a brief overview of the policies and the specific provisions at issue is necessary before reviewing the procedural history of the lawsuit and settlement that underlie this appeal.

1. The Primary Policy

AEGIS issued to Enron its primary liability insurance policy, a Fiduciary and Employee Benefit Liability Insurance Policy with an aggregate limit of $35 million, for the period of May 15, 1999, to May 15, 2002 (the "Primary Policy"). In addition to the $35 million limit, the Primary Policy also includes a Defense Costs Coverage Endorsement to be paid out before the $35 million liability limit to cover the defense costs of the insureds up to $10 million. The Primary Policy defines the following as "INSURED": Enron, the Employee Benefit Programs, and "any past, present or future trustee, officer, director or employee" of Enron or the Employee Benefit Program or any fiduciaries or administrators of the benefit program. See 3 R. at 474. All parties acknowledge that, as a former director of Enron and Enron's former Chief Executive Officer, defendant-appellant Kenneth Lay ("Lay") 1 qualifies as an insured under the policy; likewise, they acknowledge that defendant-appellant Jeffrey Skilling ("Skilling") qualifies as an insured, having been a former director of Enron and Enron's former Chief Financial Officer and Chief Executive Officer.

2. The Excess Policy

For the same period, Federal issued to Enron an Excess Fiduciary Policy (the "Excess Policy") with an aggregate limit of $50 million in excess of the Primary Policy's $35 million limit. The Excess Policy includes an endorsement that generally incorporates

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the terms and conditions set forth in the Primary Policy, including the dispute resolution provisions. See 3 R. at 512.

3. The Arbitration Clause

Section IV(T) of the Primary Policy, titled "Dispute Resolution and Service of Suit," provides both non-binding and binding procedures for settling policy disputes. See 3 R. at 485-86. Sections IV(T)(1) and IV(T)(2), titled "Negotiation" and "Mediation" respectively, provide for non-binding dispute resolution procedures that must occur before binding arbitration. See id. Once the negotiation and mediation processes are exhausted and binding arbitration is invoked, the parties involved in the dispute must follow the specific binding arbitration procedures set forth in section IV(T)(3) (the "Arbitration Clause"). See 3 R. at 486. The preamble to the Arbitration Clause states:

Any controversy or dispute arising out of or relating to this POLICY, or the breach, termination or validity thereof, which has not been resolved by non-binding means as provided herein within ninety (90) days of the initiation of such procedure, shall be settled by binding arbitration in accordance with the CPR Institute Rules for Non-Administered Arbitration of Business Disputes (the "CPR Rules") by three (3) independent and impartial arbitrators.

Id.

Directly following this language, the remainder of the clause sets out specific procedures that "the SPONSOR ORGANIZATION" and "the COMPANY" must follow in the event that binding arbitration becomes necessary. Under section II(E) and (P) of the Primary Policy, "the SPONSOR ORGANIZATION" is defined as Enron, and "the COMPANY" is defined as AEGIS. 2 See 3 R. at 478-79. The Arbitration Clause specifies that, once binding arbitration has been invoked pursuant to the procedures set forth in section IV(T),

[t]he SPONSOR ORGANIZATION and the COMPANY each shall appoint one arbitrator; the third arbitrator, who shall serve as the chair of the arbitration panel, shall be appointed in accordance with the CPR Rules. If either the SPONSOR ORGANIZATION or the COMPANY has requested the other to participate in a non-binding procedure and the other has failed to participate, the requesting party may initiate arbitration before expiration of the above period. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1 et seg. [sic], and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The terms of this POLICY are to be construed in an evenhanded fashion as between the SPONSOR ORGANIZATION and the COMPANY in accordance with the laws of the jurisdiction in which the situation forming the basis for the controversy arose. Where the language of this POLICY is deemed to be ambiguous or otherwise unclear, the issue shall be resolved in a manner most consistent with the relevant terms of this POLICY without regard to authorship of the language and without any presumption or arbitrary interpretation or construction in favor of either the SPONSOR ORGANIZATION or the COMPANY ....

In the event of a judgment being entered against the COMPANY on an arbitration award, the COMPANY at the request of the SPONSOR ORGANIZATION, shall submit to the jurisdiction of any court of competent jurisdiction within

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the United States of America, and shall comply with all requirements necessary to give such court jurisdiction and all matters relating to such judgment and its enforcement shall be determined in accordance with the law and practice of such court.

3 R. at 486.

B. Procedural History

The lawsuit underlying this appeal is a class action breach of fiduciary duty suit, Tittle v. Enron Corp., No. H-01-CV-3913 (S.D.Tex.), brought in 2001 against Enron and its board of directors by various former employees of Enron (the " Tittle Plaintiffs"), alleging breach of fiduciary duties associated with Enron's collapse in violation of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001, et seq. The Secretary of Labor subsequently filed a similar action, Chao v. Enron Corp., No. 03-2257, which was consolidated into the Tittle class action. Many of the defendants to this class action, including Lay and Skilling, submitted claims for coverage of their defense costs under the Primary Policy. The Insurers began paying these claims to the defendants to the class action, including Lay and Skilling, out of the $10 million Defense Costs Coverage Endorsement as provided by the Primary Policy.

On April 15, 2004, a subset of defendants to the Tittle class action (the "Settling Defendants") reached a proposed settlement agreement with the Tittle Plaintiffs and the Department of Labor (the...

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