Hartford Lloyd's Ins. Co. v. Teachworth, 89-2041
| Decision Date | 26 April 1990 |
| Docket Number | No. 89-2041,89-2041 |
| Citation | 898 F.2d 1058 |
| Parties | , 16 Fed.R.Serv.3d 521 HARTFORD LLOYD'S INSURANCE COMPANY, Plaintiff-Appellant, Cross-Appellee, v. Walter J. TEACHWORTH d/b/a the Seasons Apartments, Defendant-Appellee, Cross-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Michael R. Knox, Deborah W. Schilcher, Knox, Beadles & Johnston, Dallas, Tex., Tom L. Lorance, Houston, Tex., for plaintiff-appellant, cross-appellee.
David Holman, Mike Gallagher, Fisher, Gallagher, Perrin & Lewis, Michael Maloney, Houston, Tex., for Teachworth.
Appeals from the United States District Court for the Southern District of Texas.
Before GEE, JONES, and SMITH, Circuit Judges.
The focal issue in this appeal is whether an insurance appraisal conducted pursuant to the terms of a Texas multi-peril insurance policy constitutes an "arbitration" within the coverage of the Federal Arbitration Act, 9 U.S.C. Secs. 1-15 (the "FAA"). Appellant Hartford Lloyd's Insurance Company brought this action, seeking a declaration that an appraisal award rendered in a dispute between itself and appellee Walter Teachworth is invalid. The district court, treating the appraisal as an arbitration, reviewed the award under the FAA, and affirmed the award after a non-jury evidentiary hearing. Having determined that such an insurance appraisal is not an arbitration under the FAA, we reverse and remand.
Appellee Walter Teachworth owns the Seasons Apartments in Galveston, Texas which were seriously damaged, first by Hurricane Alicia and later by freezing temperatures, in 1983. The property was insured for such risks by appellant Hartford Lloyd's Insurance Company ("Hartford"). However, Teachworth and Hartford were unable to agree on the extent of the damage. Teachworth's policy, which was on a form prescribed by the Texas State Board of Insurance, provided for resolving such disputes through an "appraisal". The appraisal provision in the policy reads:
Appraisal ... In case the insured and this Company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on request of the insured, or this Company, such umpire shall be selected by a judge of a district court of a judicial district where the loss occurred. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item: and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this Company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties equally.
Teachworth invoked the appraisal provision and appointed Jack Mendenhall to be one of the appraisers. Hartford named Milton Rudick to be the other appraiser. When Mendenhall and Rudick were unable to agree on an umpire, a Galveston County Judge appointed Russell Burwell to serve in that capacity.
After conducting their investigations, the appraisers did not agree on the amount of Teachworth's loss. Mendenhall estimated that the total loss was $4,154,681.00, while Rudick appraised the damage at $1,419,951. Pursuant to the policy, the appraisers submitted their differences to umpire Burwell. Burwell substantially agreed with Mendenhall, and the two of them rendered a written appraisal award in the amount of $3,770,043.
Hartford promptly filed this declaratory judgment action, alleging that the appraisal The court originally ruled that the validity of the award would be tried to a jury. However, the court reconsidered and reversed its ruling, sua sponte, on the basis that the appraisal award was an arbitration award to which the FAA must apply. Accordingly, the court decided that the appraisal award must be reviewed under sections 10 and 11 of the FAA, which circumscribe a court's authority to vacate or modify an arbitration award. The court then determined that sections 10 and 11 did not afford Hartford the opportunity for a jury trial on the validity of the award, and the issue of validity was tried to the bench. 2
award was invalid because Mendenhall had not acted impartially and because Teachworth had acted fraudulently during the appraisal process. 1 Teachworth counterclaimed for recovery under the policy. Hartford responded that Teachworth was not entitled to recover under the policy because his conduct during the appraisal process violated several policy provisions. The district court bifurcated the case and ordered that the validity of the award be tried separately from the rest of the case
After a four-day evidentiary hearing, the district court concluded that none of the grounds for vacating or modifying an award enumerated in section 10 or 11 existed in this case and affirmed the award. The court then disposed of the other issues in the case as if raised by cross-motions for summary judgment. In its final judgment, the court decreed that Teachworth was entitled to the full amount of the appraisal award, plus interest. Hartford appeals, contending that the district court erred by reviewing the appraisal award under the FAA.
Before reaching the merits of Hartford's argument that the FAA should not apply in this case, we must determine whether Hartford failed to preserve any such error for appeal. Teachworth contends that Hartford waived any error as to the applicability of the FAA because it failed to object to the court's sua sponte order in which it ruled that the FAA applied and that there would not be a jury trial on the validity of the award. In its sua sponte order, the court offered the parties five days in which to move for reconsideration. Hartford did not do so. 3 However, we believe that Hartford had sufficiently made its position on the applicability of the FAA known to the court before the order was made to satisfy the requirements of Fed.R.Civ.P. 46.
Rule 46 provides:
Formal exceptions to rulings or orders of the court are unnecessary; ... it is sufficient that a party, at the time the ruling or order of the court is made or sought, makes known to the court the action which the party desires the court to take....
The purpose of the rule is that the district court should be given notice of an alleged defect so the court has an opportunity to cure it. See 9 C. Wright & A. Miller, Federal Practice and Procedure 2472 (1971). Normally, "that purpose can be adequately served only by the making of an objection on the record, but if the court and the other litigants know what action a party desires the court to take, the purpose of the rule is served." Stone v. Morris, 546 F.2d 730, 736 (7th Cir.1976). In such In this case, there is no doubt that the district court and Teachworth knew Hartford's position on the applicability of the FAA. Beginning with its Brief in Opposition to Bifurcation of Trial, Hartford repeatedly argued to the district court that the insurance appraisal was not an arbitration and that the award should be reviewed under Texas law. After receiving another brief in which Hartford specifically contended that the FAA should not apply, the district court made its original ruling that the issue of the validity of the award should be tried to a jury. Then, thirteen days before the court made its sua sponte ruling that the FAA did apply, Hartford filed another brief in which it again contended that the appraisal award was not an arbitration award and that the award should accordingly be reviewed under Texas law. Under these circumstances, we believe the purpose of Rule 46 was satisfied, and Hartford's failure to move for reconsideration of the court's sua sponte order did not waive its challenge to the court's ruling.
circumstances, a formal objection is not required, "and the failure of the court to take the desired action may be asserted as error on appeal." Id.; see also Steinhauser v. Hertz Corp., 421 F.2d 1169, 1173 (2d Cir.1970) (no formal objection to jury charge required where counsel had made his position clear to the court before the ruling.)
The Federal Arbitration Act, 9 U.S.C. Secs. 1-15, sets forth the general federal law relating to arbitration. The Act was passed to ensure that courts would honor and enforce the contractual agreements of parties who choose to resolve their disputes through the informal process of arbitration. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-26, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985). The FAA is a congressional declaration of a national policy in favor of arbitration, Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983), and pursuant to its terms courts must "rigorously enforce agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985); see 9 U.S.C. Sec. 2. The Act provides for district courts to stay legal proceedings on issues referable to arbitration, 9 U.S.C. Sec. 3, and empowers the courts to compel arbitration of arbitrable issues, 9 U.S.C. Sec. 4. Once an arbitral award has been rendered, sections 10 and 11 of the FAA, 9 U.S.C. Secs. 10, 11, establish the circumstances in which a court may vacate or modify the award. See Diapulse Corp. of America v. Carba, Ltd., 626 F.2d 1108, 1110 (2d Cir.1980).
The sine qua non of the FAA's applicability to a particular dispute is an agreement to arbitrate the dispute in a contract which evidences a transaction in interstate commerce. Peoples...
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