Banco De Seguros Del Estado v. Mut. Marine Office

• Decision Date: 18 September 2003
• Docket Number: Docket No. 02-9354.,Docket No. 02-9173.
• Citation: 344 F.3d 255
• Parties: BANCO DE SEGUROS DEL ESTADO, Plaintiff-Appellant, v. MUTUAL MARINE OFFICE, INC. and Mt. McKinley Insurance Company, as successor of the Gibraltar Casualty Company, Defendants-Appellees,
• Court: U.S. Court of Appeals — Second Circuit

344 F.3d 255

BANCO DE SEGUROS DEL ESTADO, Plaintiff-Appellant, v. MUTUAL MARINE OFFICE, INC. and Mt. McKinley Insurance Company, as successor of the Gibraltar Casualty Company, Defendants-Appellees,

Docket No. 02-9173.

Docket No. 02-9354.

United States Court of Appeals, Second Circuit.

Argued: June 16, 2003.

Decided: September 18, 2003.

COPYRIGHT MATERIAL OMITTED

David A. Cobin, Of Counsel, Law Office of Jorge W. Moreira, New York, New York, (Jorge W. Moreira, David A. Cobin, Angelo D. Tartaro, and Scott Zarin, on the brief) for Plaintiff-Appellant.

Daniel Hargraves and James D. McConnell, Jr., Hargraves, McConnell & Costigan, P.C., New York, New York, for Defendant-Appellee Mutual Marine Office, Inc.

Edward K. Lenci, Wilker & Lenci, LLP, New York, New York, for Defendant-Appellee Mt. McKinley Insurance Co.

Before: McLAUGHLIN, LEVAL and RAGGI, Circuit Judges.

MCLAUGHLIN, Circuit Judge.

This consolidated appeal arises out of two separate reinsurance arbitrations. Banco de Seguros del Estado ("Banco"), a reinsurance corporation wholly owned by the Government of Uruguay, entered into two separate Casualty Umbrella Liability Quota Share Agreements ("Umbrella Agreements") with Mutual Marine Offices, Inc. ("MMO") and Mount McKinley Insurance Co. ("McKinley"), corporations in the insurance and reinsurance business. MMO and McKinley separately commenced arbitration proceedings claiming that Banco failed to comply with its contractual obligations under the Umbrella Agreements.

In each case, an arbitration panel (the "Panel") granted defendants' motions to require Banco to post pre-hearing security pending a final determination by the Panel. Banco moved to vacate both interim orders in the United States District Court for the Southern District of New York (Scheindlin, J.) and (Pauley, J.). The district courts in both cases confirmed the interim orders.

On appeal, Banco claims that as a wholly-owned foreign corporation it is protected from a pre-hearing security order by Foreign Sovereign Immunities Act ("FSIA"). Banco argues that in awarding pre-hearing security, the MMO and McKinley Panels: (1) exceeded their authority; (2) acted in manifest disregard of the law; (3) offended public policy; and (4) violated fundamental fairness.

We need not decide today whether the FSIA applies to arbitration proceedings. Instead, we will assume arguendo that it does. Even so, we find that Banco explicitly waived its immunity to the posting of pre-hearing security in the Umbrella Agreements. We therefore affirm both district courts.

BACKGROUND

Banco is a reinsurance corporation wholly owned by the Government of Uruguay. This consolidated appeal involves two distinct reinsurance arbitrations.

Banco was a party to two separate Umbrella Agreements, one with MMO and the other with McKinley. The Umbrella Agreements were reinsurance contracts in which Banco agreed to be responsible for a percentage of MMO and McKinley's net liability on certain policies. Each Umbrella Agreement contained substantially identical terms, including an arbitration clause.

The arbitration clause provided that "any dispute" must be referred to arbitration and that "[t]he arbitrators shall consider this Treaty an honourable engagement rather than merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law." The clause also provided that "[t]he decision in writing of any two arbitrators ... shall be final and binding on both parties."

Another clause in the Umbrella Agreement provided that Banco must "apply for and secure delivery to [MMO] a clean irrevocable Letter of Credit issued by a bank acceptable to such Insurance Department in an amount equal to [Banco's] proportion of said reserves." Banco never furnished the Letter of Credit.

MMO and McKinley started separate arbitration proceedings claiming that Banco failed to comply with its obligations under the Umbrella Agreement. In both cases, there was an Organizational Meeting, after which the Panels issued interim orders requiring Banco to post pre-hearing security.

A. The Mutual Marine Arbitration (Scheindlin, J.)

Before the Organizational Meeting, the Panel ordered the parties to exchange brief position statements. MMO notified the Panel that it would make a pre-hearing motion seeking security and submitted its Statement of Position one week before the Meeting. MMO argued that: (1) such security was required under New York Insurance Law § 1213; (2) the security was also required by the Umbrella Agreement; and (3) unless there were a provision precluding security, the arbitrators had the inherent power to order such relief.

Banco's Statement of Position posited that, as an instrumentality of a foreign state, it was immune under the FSIA from having to post pre-hearing security. It claimed that such immunity could only be waived by an explicit contractual provision, and requested the Panel to withhold any determination on MMO's claim for pre-hearing security until after the parties had an opportunity to engage in discovery and to present their evidence at a hearing.

At the Organizational Meeting, the Panel heard the parties' arguments and ruled that it was authorized under the Umbrella Agreement to order pre-hearing security. It instructed the parties to confer about the proper amount of that security.

After receiving documents reflecting the sums MMO claimed were due and after conducting a telephone conference, the Panel issued an interim order directing Banco to post as security an irrevocable letter of credit for $708,714.04. Banco moved for reconsideration. The Panel denied Banco's motion in a second interim order.

Banco then moved to vacate the Panel's interim orders in the United States District Court for the Southern District of New York (Scheindlin, J.). The district court, as a threshold issue and a matter of first impression, determined that the Panel's interim orders constituted "arbitral awards" and were therefore reviewable. The court denied Banco's motion, finding that the Panel did not act in manifest disregard of the law or exceed the scope of its authority by awarding pre-hearing security. See Banco de Seguros del Estado v. Mutual Marine Offices, Inc., 230 F.Supp.2d 362, 371-75 (S.D.N.Y.2002) ("Banco I").

Banco moved before Judge Scheindlin for reconsideration asserting that: (1) the court should have employed a de novo standard in reviewing the arbitral awards; (2) the arbitration award was against public policy; (3) the court erred in finding that the panel did not act in manifest disregard of the law; and (4) the Panel erroneously relied on the terms of the Umbrella Agreement in finding that Banco was required to post pre-hearing security.

The district court granted the motion to reconsider solely because it had overlooked Banco's public policy argument raised on the initial motion. The district court then found that: (1) the standard of review was proper; (2) Banco did not cite any controlling authority or any factual matter overlooked by the court when it determined that the Panel did not act in manifest disregard of the law; and (3) even if the Umbrella Agreements did not expressly provide for an award of pre-hearing security, case law cited to the Panel provided an adequate basis to confirm the interim orders. Banco de Seguros Del Estado v. Mutual Marine Offices, Inc., 230 F.Supp.2d 427, 429-30, 431-32 (S.D.N.Y. 2002) ("Banco II"). Finally, the district court found that, although Banco identified an "explicit public policy," it failed to show how enforcing the arbitral award "explicitly conflicts" with that public policy. Id. at 431.

B. The Mt. McKinley Arbitration (Pauley, J.)

Pursuant to a different Umbrella Agreement, but under circumstances mirroring those with MMO, Mt. McKinley brought an arbitration proceeding against Banco claiming it failed to comply with its contractual obligations. At the Panel's Organizational Meeting, McKinley made a motion to compel Banco to post pre-hearing security. Banco — as it did in the MMO arbitration — opposed the motion, claiming to be immune from pre-hearing security under the FSIA. Subsequently, the Panel directed Banco to post an irrevocable letter of credit for $278,238.96.

Banco moved in the United States District Court for the Southern District of New York (Pauley, J.) to vacate the Panel's interim order requiring Banco to post pre-hearing security. The district court denied the motion, citing the MMO Opinion and Order.

Banco now appeals both district court judgments.

DISCUSSION

I. Standard of Review

In reviewing a district court's confirmation of an arbitral award, we review legal issues de novo and findings of fact for clear error. Pike v. Freeman, 266 F.3d 78, 86 (2d Cir.2001).

The scope of the district court's review of an arbitral award is limited. See Sperry Int'l Trade, Inc. v. Gov't of Israel, 689 F.2d 301, 304 (2d Cir.1982). "[A]n arbitration award should be enforced, despite a court's disagreement with it on the merits, if there is a `barely colorable justification for the outcome reached.'" Landy Michaels Realty Corp. v. Local 32B-32J, Serv. Employees Int'l Union, AFL-CIO, 954 F.2d 794, 797 (2d Cir.1992) (quoting Andros Compania Maritima, S.A. v. Marc Rich & Co., 579 F.2d 691, 704 (2d Cir.1978)).

II. The Foreign Sovereign Immunities Act

Banco asserts that, as an instrumentality of a foreign state, it is immune from posting pre-hearing security under the Foreign Sovereign Immunities Act ("FSIA"). 28 U.S.C. §§ 1330(a), 1441(d), 1602-1611. We disagree.

The FSIA is designed to "protect the rights of both foreign states and litigants in United States courts." 28 U.S.C. § 1602 (emphasis added). It "sets forth the sole and exclusive standards to be used in resolving questions of sovereign immunity raised by foreign states before Federal and State courts in the United States." H.R.Rep. No. 94-1487, 94th Cong., 2d Sess. (1976), reprinted...