Pacific Reinsurance Management Corp. v. Ohio Reinsurance Corp.

• Decision Date: 10 April 1987
• Docket Number: No. 86-5740,86-5740
• Citation: 814 F.2d 1324
• Parties: PACIFIC REINSURANCE MANAGEMENT CORPORATION and Mission Insurance Company, Petitioners-Appellees, v. OHIO REINSURANCE CORPORATION; Walton Insurance Ltd.; Abeille-Paix Reassurances; Hamburg International Reinsurance Co.; Hassneh Insurance Co. of Israel, Ltd.; and Seguros America, S.A., Respondents-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1324

814 F.2d 1324

55 USLW 2570

PACIFIC REINSURANCE MANAGEMENT CORPORATION and Mission Insurance Company, Petitioners-Appellees, v. OHIO REINSURANCE CORPORATION; Walton Insurance Ltd. Abeille-Paix Reassurances; Hamburg International Reinsurance Co.; Hassneh Insurance Co. of Israel, Ltd. and Seguros America, S.A., Respondents-Appellants.

No. 86-5740.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 8, 1987.

Decided April 10, 1987.

Elliot M. Kroll, Los Angeles, Cal., for respondents-appellants.

Linda M. Lasley, Los Angeles, Cal., for petitioners-appellees.

Appeal from the United States District Court for the Central District of California.

Before PREGERSON and NORRIS, Circuit Judges, and REED, Jr., ^* District Judge.

EDWARD C. REED, Jr., District Judge:

FACTS

Appellee Pacific Reinsurance Management Corporation (Pacific Re) acted as a reinsurance pool manager for the other parties to this action from 1970 through June, 1984. In that capacity, Pacific Re provided underwriting and claims handling facilities to service the reinsurance business it assumed on behalf of the insurers who participated in the pool. Under the management agreement which Pacific Re entered into with the pool members, it had the authority to underwrite and sign reinsurance agreements on behalf of the pool members, collect premiums and settle claims, and bill the pool members for their share of the losses. One standard form of management agreement was used from 1970 to 1979 (the 1970 management agreement), and a revised version of the agreement (the 1979 management agreement) was executed by all of the companies participating in the pool from 1979 to June of 1984.

In addition, appellee Mission Insurance Company (Mission) "fronted" for pool members Walton and Ohio Reinsurance Corporation. Under this arrangement, Mission assumed reinsurance for itself, Walton, and Ohio, and then reinsured that portion of the reinsurance business it assumed on behalf of the other pool members. This fronting arrangement was documented by reinsurance agreements similar to the management agreements used by appellee Pacific Re. The reinsurance agreements also followed a standard form, created in 1970 (the 1970 reinsurance agreements) which was amended in 1979 (the 1979 reinsurance agreements).

All four forms of agreements contemplated arbitration of possible disputes between the parties. The 1970 management and reinsurance agreements did not establish any particular procedure for the selection of neutral umpires. Both the 1979 management and reinsurance agreements, however, incorporated a detailed procedure [a]ny dispute ..., upon the written request of either party, shall be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen.... If the two arbitrators fail to agree in the selection of a third arbitrator within thirty days of their appointment, each of them shall name two, of whom the other shall decline one and the designation shall be made by drawing lots.

for the selection of arbitrators and for the selection of a neutral third arbitrator to serve as an umpire. Specifically, the 1979 management and reinsurance agreements included a provision which indicated that

C.R. 23, ex. C. ¹

Because some of the appellants entered into more than one of the said forms of agreement with the appellees, twelve separate agreements thus existed between the parties to this action. Five of the agreements, the 1970 management and reinsurance agreements, contained no contractual procedure for the selection of a neutral umpire, while the other seven 1979 agreements did.

In February of 1985, the pool members filed suit against Pacific Re and Mission in the U.S. District Court for the Southern District of New York, seeking rescission of the twelve agreements, damages, and an accounting. In May of that year, Pacific Re petitioned the U.S. District Court for the Central District of California for an order compelling arbitration of the disputes contained in the pool member's New York action. That court granted Pacific Re's motion to compel arbitration on June 25, 1985, and specifically ordered the pool members to arbitrate their disputes with Pacific Re "according to the terms of their respective management agreements." C.R. 23, ex. C.

In accordance with the order of the court and with their contracts, the parties named their respective arbitrators, who then began their attempt to select a neutral third party to serve as umpire. Both arbitrators named two candidates for the position. They then attempted to reach agreement over which one of the four candidates should fill the position as the contract required, but they were ultimately unsuccessful. At this point, Mr. Koepke, the appellants' arbitrator, insisted that the lot-drawing procedure found in the seven 1979 agreements be used to select the umpire for all twelve of the contracts. Mr. Gilmartin, the appellees' arbitrator, was opposed to the lot-drawing procedure in general, and refused to follow it even for the seven agreements in which it had been selected as the means for ending arbitral impasse. The parties thus assumed an "all or nothing" approach to this dispute. The disagreement regarding the selection procedure lasted for five months, after which time the appellees requested a status conference with the district court to break the stalemate.

At this conference, on December 2, 1985, the parties presented the court with a joint status report which described their impasse. Judge Hatter then ordered both sides to prepare disclosure statements indicating which individuals were desired as umpire, with the intention that the court itself would appoint the neutral arbitrator. Before the court could follow through with its plan, however, the pool members filed an ex parte application to stay that order, and then sought review of the order from this court by means of petitions for writs of mandamus and prohibition. The motion for stay and the petitions for writs were all denied. The pool members then filed a notice of appeal from the December 2 order, which this court dismissed for lack of jurisdiction. On March 2, 1986, the district court entered its order selecting an umpire and two alternates, and the pool members filed the present appeal from that order.

DISCUSSION

FINALITY OF ORDER

Appellees contend that the district court order appointing the umpire is not reviewable by this court in that it is neither

                a final judgment under 28 U.S.C. Sec. 1291, nor an appealable collateral order under Sec. 1292.  The cases and arguments of the appellees are unpersuasive, however, in that this court has long held that orders compelling arbitration are final orders under Sec. 1291.   See, e.g. Howard Elec. & Mech. v. Frank Briscoe Co., 754 F.2d 847, 849 (9th Cir.1985);  Francesco's B, Inc. v. Hotel and Restaurant Employees and Bartenders Union, 659 F.2d 1383, 1388 (9th Cir.1981).  In that this order is essentially also an order compelling arbitration, see ante at 1327, we will also treat it as final for the purposes of Sec. 1291
                

STANDARD OF REVIEW

The appellant pool members argue that this court should review the district court's order de novo, whereas appellees suggest we apply a clearly erroneous standard. From a review of the record, it is clear that the facts of this case are not in dispute. The basis of the district court's orders of December 2 and March 6 was a joint status report prepared by both the appellant and the appellee. In this report, the parties set forth the nature of their disagreement over the selection of the umpire and discussed the method which should have been used to resolve the stalemate. The essential facts regarding the inability to select the umpire were thus stipulated by the parties. Where the facts are not in dispute, this court has held that questions of law regarding arbitration problems will be reviewed de novo. See Fisher v. A.G. Becker Paribas, Inc., 791 F.2d 691, 693 (9th Cir.1986).

In addition, we have regularly held that orders compelling arbitration are reviewable de novo. See Zolezzi v. Dean Witter Reynolds, Inc., 789 F.2d 1447, 1449 (9th Cir.1986); Howard Elec. & Mech. v. Frank Briscoe Co., 754 F.2d 847, 849 (9th Cir.1985). Although the order in this case was not technically labeled as an order compelling arbitration (the district judge had indeed already compelled arbitration), the order did function to compel the parties to accept a neutral umpire of the court's choice because of the parties' impasse. Such an order is dramatically similar to an order compelling arbitration. As with an order compelling arbitration, without the court's selection of the neutral umpire in this case, the parties would still likely be bickering over the selection process, and the resolution of the dispute would be permanently stalled. The de novo standard is therefore also appropriate here.

APPOINTMENT OF UMPIRE

The question presented here is one of first impression in this and all other circuits. The main thrust of appellants' complaint is that the district judge exceeded his authority when appointing the neutral umpire in spite of the contractual selection method which existed in seven of the agreements with the appellees. The district judge based his ruling on the Federal Arbitration Act, which provides in pertinent part that

[i]f in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if no method be provided therein, or if a method be provided and any party thereto shall fail to avail himself of such method, or if for any other reason there shall be a lapse in the naming of an arbitrator or arbitrators or umpire, or in the filling of a vacancy, then upon application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire as the case may require.

9 U.S.C. Sec. 5. This...