O'Brien v. Hanover Ins. Co.

• Decision Date: 08 April 1998
• Citation: 427 Mass. 194,692 N.E.2d 39
• Parties: William J. O'BRIEN v. HANOVER INSURANCE COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 39

692 N.E.2d 39

427 Mass. 194

William J. O'BRIEN v. HANOVER INSURANCE COMPANY.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Feb. 5, 1998.

Decided April 8, 1998.

Owen Gallagher, for defendant.

Edwin A. McCabe, Boston (Philip Y. Brown, with him), for plaintiff.

Before WILKINS, C.J., and ABRAMS, LYNCH, GREANEY, FRIED, MARSHALL and IRELAND, JJ.

FRIED, Justice.

Pursuant to an arbitration agreement, Hanover Insurance Company and its former president, William J. O'Brien, submitted to arbitration the question whether O'Brien violated his severance agreement with Hanover. When Hanover subsequently commenced a multi-count suit against O'Brien and others, the arbitration panel temporarily stayed its proceedings. At the conclusion of the trial, and while some issues were on appeal, Hanover and O'Brien disagreed as to whether there was further need for arbitration. The arbitration panel stipulated with the parties to submit the issue to the Superior Court. In accordance with the stipulation, O'Brien filed an application for stay of arbitration in the Superior Court, and the Superior Court judge ordered a stay pending entry of the final judgment on all issues currently on appeal. Hanover appealed from the stay, and O'Brien moved for a dismissal of Hanover's appeal. We granted Hanover's application for direct appellate review, and now remand the matter to the Superior Court for further proceedings consistent with this opinion.

I

O'Brien resigned as the president of Hanover, and subsequently entered into an agreement with Hanover for the period between January 1, 1992, and December 1, 1994 (severance agreement). For the agreement period, O'Brien agreed to render consulting, advisory, and other related services to Hanover, and also agreed

"not to directly or indirectly solicit the insurance business of any insured of Hanover and/or its subsidiaries or assist any other person to do so or solicit, recruit or assist or encourage a third party to solicit or recruit the services of any current employee, agent or broker of Hanover and/or its subsidiaries."

In exchange, Hanover agreed to pay O'Brien $12,500 a month for the agreement period.

The arbitration section of the severance agreement provided that any disputes arising out of the severance agreement would be referred to arbitrators. The section of the severance agreement entitled "Remedies" states:

"You acknowledge that any breach of the provisions of this letter agreement shall result in serious and irreparable injury to Hanover ... for which Hanover ... cannot be adequately compensated by monetary damages alone. You agree, therefore, that in addition to any other remedy which they may have, Hanover ... shall be entitled to specific performance of this letter agreement by you and to seek both temporary and permanent injunctive relief (to the extent permitted by law) without the necessity of proving actual damages."

On August 31, 1994, Hanover served a formal demand for arbitration on O'Brien alleging that O'Brien had not complied with the nonsolicitation clause of the severance agreement, and arbitration commenced shortly thereafter. Hanover claimed that O'Brien had assisted in recruiting Hanover's then vice-president, John Sutton, for Insurance Partnerships, Inc. (IPI). IPI is an insurance company founded by Sutton, O'Brien, and another Hanover executive in 1992.

In December, 1994, Hanover filed suit (Sutton litigation) against Sutton, O'Brien, IPI, and William J. O'Brien, Inc. (WJO), an entity formed by O'Brien which was not a party to the severance agreement. In a multi-count complaint, Hanover alleged, among other things, that IPI and WJO tortiously interfered with Hanover's contractual relationship with O'Brien. In count eight, the only count against O'Brien personally, Hanover sought specific performance of the severance agreement and injunctive relief. The arbitration panel stayed all further arbitration until there was no longer a potential for conflict between its decision and that of the Superior Court.

The Sutton litigation was tried to a jury in February, 1995. On March 22, 1995, the judge made his findings and ruling on the nonjury counts. On count eight, one of the nonjury counts, the judge ruled that, because the term of the severance agreement had expired, specific performance would not be granted. At a subsequent hearing, the judge ruled that arbitration could continue and that he did not take any position "with respect to any preclusiveness" of the finding in the Sutton litigation. On May 9, 1996, the judge entered final judgment on count eight:

"Judgment shall enter in favor of the Defendant William J. O'Brien on Count VIII without costs and without prejudice to the rights of the parties to arbitrate pursuant to the Severance Agreement."

Although several parties appealed from certain aspects of the final judgments on other counts, no party appealed from the judgment on count eight.

In November, 1996, the parties met with the arbitration panel to discuss the status of the arbitration proceeding. Hanover's counsel argued that arbitration should proceed. O'Brien's counsel argued that there was no further need for arbitration as all relevant issues had been litigated in the Sutton litigation. The arbitration panel decided that the parties should file briefs setting forth their arguments concerning the impact of the Sutton litigation on arbitration. On February 26, 1997, the arbitration panel entered into a stipulation with the parties that the panel members are "in doubt about their authority to decide the issues on arbitrability and claims preclusion, and ... that the issue is appropriate for a decision by the trial court." It was further stipulated that either party could apply to any court of competent jurisdiction for a stay of the arbitration proceeding.

On April 3, 1997, pursuant to the stipulation and G.L. c. 251, § 2, O'Brien filed an application for a stay of arbitration. The matter was heard by the same Superior Court judge who heard the Sutton litigation. On July 2, 1997, the judge allowed the application for a stay "pending entry of final judgment on all issues currently on appeal," from which Hanover has appealed. On November 26, 1997, O'Brien moved for a dismissal of Hanover's appeal.

We first address the question of appealability of the Superior Court judge's order. Second, we consider whether the Superior Court or the arbitration panel should decide the issues of waiver and issue preclusion. Concluding that the Superior Court in this case should decide both issues, we consider finally whether the judge should have decided these issues immediately or awaited entry of final judgment on issues as to which an appeal was pending.

II

O'Brien argues that Hanover's appeal should be dismissed because the judge's order was interlocutory, and therefore is not appealable. This argument is without merit. General Laws c. 251, § 18, specifically provides for appeal of the judge's order. The relevant portion of § 18 states:

"(a ) An appeal may be taken from:--... (2) an order granting an application to stay arbitration made under paragraph (b ) of section two [of this chapter]...."

O'Brien argues that § 18 (a ) (2) is unavailable as an avenue of appeal here because his application to stay arbitration was not based on G.L. c. 251, § 2 (b ). In his application for a stay of arbitration, O'Brien stated that he made the application pursuant to G.L. c. 251, § 2 (c ). Subsection (c ), ¹ however, merely designates the court that has jurisdiction to entertain an application for an order directing the parties to proceed to arbitration made pursuant to § 2 (a ), or an application for a stay of an arbitration proceeding made pursuant to § 2 (b ). Section 2 (c ) itself does not provide an independent avenue for applying for a stay of an arbitration proceeding. Section 2 (b ) is the only such avenue.

Section 2 (b ) states:

"Upon application, the superior court may stay an arbitration proceeding commenced or threatened if it finds that there is no agreement to arbitrate. Such an issue, when in substantial and bona fide dispute, shall be forthwith and summarily determined, and if the court finds for the applicant it shall order a stay of arbitration; otherwise the court shall order the parties to proceed to arbitration."

In Home Gas Corp. of Mass., Inc. v. Walter's of Hadley, Inc., 403 Mass. 772, 532 N.E.2d 681 (1989), we rejected a reading of § 2 (b ) that would preclude its applicability to any case where it is conceded that there is an arbitration clause. In that case, we took jurisdiction and affirmed the Superior Court judge's order granting a stay on the ground that the defendant's actions constituted a waiver of its right to arbitrate. Here too, O'Brien's application for a stay of arbitration is based on an alleged waiver. And we are unaware of any reason against considering issue preclusion as another sound basis for a § 2 (b ) stay application. Section 2 (b ) provides the only and, according to our decision in Home Gas, a correct avenue for such an application, and a stay pursuant to such an application is appealable under § 18 (a ) (2).

III

We next consider whether the Superior Court or the arbitration panel had jurisdiction to decide the issues of waiver and issue preclusion. Only if these issues were for the court was its stay properly granted.

The arbitration panel correctly referred the waiver issue to the Superior Court. "Whether a party has waived arbitration is a question of arbitrability for the court to determine." Martin v. Norwood, 395 Mass. 159, 162, 478 N.E.2d 955 (1985). Cf. United Nuclear Corp. v. General Atomic Co., 93 N.M. 105, 122, 597 P.2d 290, cert. denied, 444 U.S. 911, 100 S.Ct. 222, 62 L.Ed.2d 145 (1979) ("[I]t is the province of the court to determine whether there has been a default. The parties are precluded from contracting to exclude the court from jurisdiction over this issue"), ...