Pacific Reinsurance Management Corp. v. Ohio Reinsurance Corp.

• Decision Date: 05 June 1991
• Docket Number: Nos. 88-6242,88-6560 and 89-55550,s. 88-6242
• Citation: 935 F.2d 1019
• Parties: PACIFIC REINSURANCE MANAGEMENT CORP.; Mission Insurance Company, Plaintiffs-Appellees, v. OHIO REINSURANCE CORP.; Walton Insurance Ltd.; Abeille-Paix Reassurances; Hamburg International Reinsurance Company; Hassneh Insurance Company of Israel Ltd.; Seguros America S.A., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1019

935 F.2d 1019

PACIFIC REINSURANCE MANAGEMENT CORP.; Mission Insurance

Company, Plaintiffs-Appellees, v. OHIO REINSURANCE CORP.; Walton Insurance Ltd.;

Abeille-Paix Reassurances; Hamburg International

Reinsurance Company; Hassneh Insurance Company of Israel

Ltd.; Seguros America S.A., Defendants-Appellants.

Nos. 88-6242, 88-6560 and 89-55550.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 9, 1991.

Decided June 5, 1991.

Elliott M. Kroll, Kroll & Tract, Los Angeles, Cal., Barry L. Weissman, Knapp, Petersen & Clarke, Universal City, Cal., for defendants-appellants.

Linda M. Lasley, Buchalter, Nemer, Fields & Younger, Los Angeles, Cal., for plaintiffs-appellees.

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

Before ALARCON, NORRIS and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

Ohio Reinsurance Corp., et al. appeals the district court's denial of a partial stay of arbitration, confirmation of the arbitration panel's Interim Final Order (IFO), and the district court's supersedeas bond order pending appeal of the IFO. The Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq., does not confer independent jurisdiction on the federal courts. General Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 969 (9th Cir.1981), cert. denied, 455 U.S. 948, 102 S.Ct. 1449, 71 L.Ed.2d 662 (1982). However, diversity jurisdiction exists in this case, 28 U.S.C. Sec. 1332, and the appeal was timely. This court has jurisdiction under 28 U.S.C. Sec. 1292 governing appeals from interlocutory orders. We hold that the denial of partial stay of arbitration is not appealable. We reverse in part and affirm in part the district court's confirmation of the IFO, and the district court's supersedeas bond order.

BACKGROUND

The appellants, Ohio Reinsurance Corp., et al., were members of a reinsurance pool managed by the appellee, Pacific Reinsurance Management Corporation (PRMC). Each of the appellants executed a Management Agreement authorizing PRMC to develop, underwrite, and manage reinsurance business in their behalf. PRMC accepted much of its business in the name of one of the pool members, Mission Insurance Company. Unhappy with that practice and other matters, appellants sued PRMC for fraud and other wrongful conduct, seeking rescission of the Agreements and damages for any money due third parties from the pool. The district court ordered arbitration During the arbitration, the panel retained outside counsel to help it set up an escrow account for damages that might be due PRMC under the Agreements. The appellants petitioned the district court to grant a partial stay of the arbitration to prevent PRMC from asserting what appellants argued were non-arbitrable claims. The appellants also sought a ruling that the retention of outside counsel by the panel was an improper delegation of authority. The district court denied the petition. The appeal from that denial is the first of the three considered in this consolidated appeal. (No. 88-6242).

under the arbitration provisions of the Management Agreements.

In July, 1988, the arbitration panel issued an Interim Final Order (IFO) setting up an escrow account with the balances apparently due from appellants to PRMC if the Management Agreements prove valid after further investigation. The appeal from the district court's confirmation of the IFO is the second of the three considered in this consolidated appeal. (No. 88-6560).

The third appeal is from the order of the district court requiring supersedeas bonds for the full amount of the escrow order ($20,222,000) pending appeal of the IFO. (No. 89-55550).

DISCUSSION

I. THE DISTRICT COURT'S DENIAL OF A PARTIAL STAY

The 1988 amendments to the Federal Arbitration Act (FAA) added a new section to the Act, the relevant part of which prohibits an appeal from a district court's denial of a stay of arbitration:

... [A]n appeal may not be taken from an interlocutory order-- ...

(4) refusing to enjoin an arbitration that is subject to this title.

9 U.S.C. Sec. 15(b)(4). Because this amendment addresses remedies and procedures and does not alter substantive rights, it applies retroactively. Nichols v. Stapleton, 877 F.2d 1401, 1403 (9th Cir.1989). Therefore, this court has no jurisdiction over appeal No. 88-6242.

II. THE DISTRICT COURT'S POWER TO REVIEW THE INTERIM FINAL ORDER

The appellants argue that the IFO was a non-final award of the kind that is not confirmable under Ninth Circuit caselaw construing the FAA. The FAA allows a district court to vacate an award that is not a "mutual, final, and definite award upon the subject matter submitted...." 9 U.S.C. Sec. 10(d). The Ninth Circuit has said that because of the Congressional policy favoring arbitration when agreed to by the parties, judicial review of non-final arbitration awards "should be indulged, if at all, only in the most extreme cases." Aerojet-General Corp. v. American Arbitration Ass'n, 478 F.2d 248, 251 (9th Cir.1973) (arbitrator's choice of locale reviewed only for bad faith or exceeding authority); see also Millmen Local 550 v. Wells Exterior Trim, 828 F.2d 1373, 1377 (9th Cir.1987) (arbitrators' decision determining liability, but not remedy was not final and not confirmable); Sunshine Mining Co. v. United Steelworkers, 823 F.2d 1289, 1295 (9th Cir.1987) (final award that depended on future psychiatric examination should be remanded, not confirmed).

In Millmen and Sunshine, we refused to review awards that decided only part of the substantive issues submitted to arbitration. In contrast, the IFO in this case does not attempt to address, even partially, the substantive issues before the arbitrators--the validity and application of the Management Agreements. Rather, the IFO is in the nature of a preliminary injunction. It is temporary equitable relief that requires the appellants to place $20,222,000 in escrow pending the arbitrators' decision regarding the validity of the Management Agreements. Whether temporary equitable relief that is necessary to prevent a potential final award from being meaningless can be confirmed and enforced in the district courts is an issue of first impression for the Ninth Circuit.

Temporary equitable relief in arbitration may be essential to preserve assets or enforce performance which, if not preserved The reasoning of these courts is not inconsistent, as might first appear, with the policy favoring arbitration at the expense of the courts when it is chosen by the parties. Given the potential importance of temporary equitable awards in making the arbitration proceedings meaningful, court enforcement of them, when appropriate, is not an "undue intrusion upon the arbitral process," Southern Seas, 606 F.Supp. at 694, but is essential to preserve the integrity of that process. Therefore, we hold that temporary equitable orders calculated to preserve assets or performance needed to make a potential final award meaningful, such as the IFO in this case, are final orders that can be reviewed for confirmation and enforcement by district courts under the FAA.

                or enforced, may render a final award meaningless. 1   However, if temporary equitable relief is to have any meaning, the relief must be enforceable at the time it is granted, not after an arbitrator's final decision on the merits.  See Southern Seas Navigation Ltd. v. Petroleos Mexicanos, 606 F.Supp. 692, 694 (S.D.N.Y.1985).  Arbitrators have no power to enforce their decisions.  Only courts have that power.  Consequently, courts in other circuits that have been faced with arbitrators' temporary equitable awards have not characterized them as non-final awards on the merits which can only be reviewed in extreme cases.  Rather, they have characterized them as confirmable, final awards on an issue distinct from the controversy on the merits.  Island Creek Coal Sales Co. v. Gainesville, 729 F.2d 1046, 1049 (6th Cir.1984) ("The interim award disposes of one self-contained issue, namely, whether the City is required to perform the contract during the pendency of the arbitration proceedings.  Th[is] issue is a separate, discrete, independent, severable issue.");    Sperry Int'l Trade, Inc. v. Israel, 689 F.2d 301, 304 n. 3 (2d Cir.1982) (court notes that the district court rejected the argument "that the Award was an interim decision not ripe for confirmation....  [I]t was a final decision as to the severable issues regarding the letter of credit....");  Southern Seas, 606 F.Supp. at 694 (Order reducing the Notice of Claim of Lien was "not 'interim' in the sense of being an 'intermediate' step toward a further end.  Rather, it is an end in itself, for its very purpose is to clarify the parties' rights in the 'interim' period pending a final decision on the merits.")    To these courts, a temporary equitable award has an element of finality sufficient to be confirmed and enforced under the FAA
                

III. THE INTERIM FINAL ORDER

Granting that the IFO was properly before the district court, a decision to vacate the award could only have been based on the following narrow grounds listed in the FAA:

(a) Where the award was procured by corruption, fraud, or undue means.

(b) Where there was evident partiality or corruption in the arbitrators, or either of them.

(c) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.

(d) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. Sec. 10. The appellants argue that the IFO exceeded the arbitrators' authority, was tainted by the panel's misbehavior,

and was in manifest disregard of law and fact.

A. Did the arbitration panel exceed its powers?

Appellants argue...