IDS Life Insurance v. Royal Alliance Assoc.

• Decision Date: 12 September 2001
• Docket Number: No. 00-2009,00-2009
• Citation: 266 F.3d 645
• Parties: (7th Cir. 2001) IDS Life Insurance Company and American Express Financial Advisors, Inc., Plaintiffs-Appellants, v. Royal Alliance Associates, Inc., et al., Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 645

266 F.3d 645 (7th Cir. 2001)

IDS Life Insurance Company and American Express Financial Advisors, Inc., Plaintiffs-Appellants, v. Royal Alliance Associates, Inc., et al., Defendants-Appellees.

No. 00-2009

In the United States Court of Appeals For the Seventh Circuit

Argued January 23, 2001

Decided September 12, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 95 C 1204, 95 C 1212--Wayne R. Andersen, Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before Posner, Easterbrook, and Ripple, Circuit Judges.

Posner, Circuit Judge.

The plaintiffs appeal from an order confirming a decision by an arbitration panel that denied the plaintiffs all the relief they had sought. The plaintiffs are a securities broker-dealer and a life insurance company, both owned by American Express and both members of the National Association of Securities Dealers (the insurance company sells variable annuities, which are considered securities). The defendants are broker- dealers that compete with the plaintiffs. They also belong to the NASD and are affiliated with insurance companies that sell variable annuities and compete with the plaintiff insurance company, IDS. The plaintiffs charge that beginning in 1992 the defendants tortiously interfered with the plaintiffs' contracts with their broker employees, for example by falsely representing to the brokers that the one- year covenants not to compete that the brokers had agreed to in their contracts with the plaintiffs were unenforceable. In 1995 the plaintiffs brought this suit against the defendants (and other parties, not before us on this appeal) for tortious interference with contract, basing federal jurisdiction on diversity of citizenship. The defendants demanded arbitration, citing rules of the NASD that require members to arbitrate "any dispute . . . arising out of the employment . . . with any member, with the exception of disputes involving the insurance business of any member which is also an insurance company."

At the defendants' behest, the district court stayed the suit while the parties arbitrated. After preliminary skirmishes discussed in our opinions in IDS Life Ins. Co. v. SunAmerica, Inc., 103 F.3d 524, 525-26 (7th Cir. 1996), and 136 F.3d 537, 539-41 (7th Cir. 1998), and in several unpublished orders, the arbitration was conducted in 154 sessions over a period of 14 months beginning in January of 1997, resulting in an award so incomprehensible that three years later the judges and the parties are still trying to figure it out.

The plaintiffs sought from the arbitrators an injunction against the defendants' "raiding" the plaintiffs' brokers, and damages for loss of business caused by the previous raids. The defendants sought a declaration that the covenants not to compete in the plaintiffs' contracts with their brokers were unenforceable. In May of 1998 the arbitrators rendered their decision. They denied all the requests of the parties for relief but stated that "where the Respondents [the plaintiffs in the district court, the two American Express companies] are concerned, all actions of the panel . . . pertain only to [the broker-dealer firm]. No contentions pertaining specifically to IDS Life Insurance Company were presented to the panel."

The plaintiffs asked the district court to vacate the panel's award on the ground that the arbitrators had "so imperfectly executed [their powers] that a mutual, final, and definite award upon the subject matter submitted was not made." This is one of the grounds on which the Federal Arbitration Act, which is applicable to this arbitration because the parties' dispute arises out of a contract that evidences a transaction involving commerce, see 9 U.S.C. sec. 2; Southland Corp. v. Keating, 465 U.S. 1, 10-11 (1984), authorizes the vacation of an arbitral decision. 9 U.S.C. sec. 10(a)(4); Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 147 (1968); Flender Corp. v. Techna-Quip Co., 953 F.2d 273 279 (7th Cir. 1992); Eljer Mfg., Inc. v. Kowin Development Corp., 14 F.3d 1250, 1253 (7th Cir. 1994). Persuaded that the arbitral award was incomplete, the district judge in February of 1999 remanded the case to the arbitrators, who in June of that year responded that the second sentence that we quoted from the award ("No contentions pertaining specifically to IDS Life Insurance Company were presented to the panel") was intended to have been the basis of the first sentence (about the panel's actions pertaining only to the broker-dealer affiliate). They added: "The panel gave full consideration to all issues and claims presented to it. When read in its entirety, our Award encompasses all of the parties to this action as filed"--and the list that follows includes IDS Life Insurance Company.

The plaintiffs again asked the district court to vacate the arbitrators' award as incomplete. They pointed out that the award says nothing about IDS's damages claims, and in addition they argued that the award is internally inconsistent because it denies relief to the plaintiffs while refusing to hold that the covenants not to compete, on which the plaintiffs' claim of tortious interference is based, are unenforceable. If they were unenforceable, soliciting the plaintiffs' employees to break them would not be tortious interference with contract; there would be nothing to break. The plaintiffs also argued that IDS's claims were not arbitrable, because it is an insurance company and its claims involve the insurance business. The district court rejected these arguments and confirmed the award, precipitating this appeal by the plaintiffs, who also appeal from the denial of their motion for sanctions, an issue we defer to the end of this opinion.

We sympathize with the plaintiffs' dissatisfaction with the arbitrators' response to the direction to clarify their award. The response is unclear, and its lack of clarity is of a piece with their response to previous requests for clarification. See 136 F.3d at 539-40. The plaintiffs point us to portions of the arbitration record which suggest that the arbitrators lacked the professional competence required to resolve the parties' disputes. The length of the arbitration hearing (154 separate sessions over a period of 14 months that followed two years of prehearing preparation), a recent overhaul by the NASD of its arbitration procedures, and the inarticulateness and unresponsiveness of the arbitrators, give color and substance to the plaintiffs' criticisms.

But the grounds for challenging an arbitration award are narrowly limited, reflecting the voluntary contractual nature of commercial arbitration. Within exceedingly broad limits, the parties to an arbitration agreement choose their method of dispute resolution and are bound by it however bad their choice appears to be either ex ante or ex post. Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 709 (7th Cir. 1995); Chicago Typographical Union No. 16 v. Chicago Sun-Times, Inc., 935 F.2d 1501, 1505 (7th Cir. 1991); Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 679 (7th Cir. 1983); UHC Management Co. v. Computer Sciences Corp., 148 F.3d 992, 997 (8th Cir. 1998); Ford v. Nylcare Health Plans, 141 F.3d 243, 247-48 (5th Cir. 1998); Davis v. Prudential Securities, Inc., 59 F.3d 1186, 1193 (11th Cir. 1995). The plaintiffs did not have to join the NASD (though they could not become broker-dealers without doing so); by choosing to do so they became contractually bound by the association's rules governing the resolution of employment disputes. Austin v. American Association of Neurological Surgeons, 253 F.3d 967, 968 (7th Cir. 2001). They point to nothing in the rules that gave them a contractual right to insist on arbitrators abler, swifter, or more articulate than the ones they got. They point to nothing that entitles us to scour the record for signs of arbitral incompetence. The grounds on which the plaintiffs can attack the award are limited to those set forth in the Federal Arbitration Act. (The plaintiffs wisely do not invoke the controversial nonstatutory ground, "manifest disregard of the law," which we have limited to the situation in which the arbitral award directs the parties to violate the law. George Watts & Sons, Inc. v. Tiffany & Co., 248 F.3d 577, 580-81 (7th Cir. 2001).) Unless there is a specific ground for vacating an award, it must be confirmed. Menke v. Monchecourt, 17 F.3d 1007, 1009 (7th Cir. 1994); Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 708 (2d Cir. 1985); Taylor v. Nelson, 788 F.2d 220, 225 (4th Cir. 1986).

The only ground pertinent to this case is the one we quoted earlier, that the arbitrators "so imperfectly executed [their powers] that a mutual, final, and definite award upon the subject matter submitted was not made." We take "mutual" and "final" to mean that the arbitrators must have resolved the entire dispute (to the extent arbitrable) that had been submitted to them, Dreis & Krump Mfg. Co. v. International Ass'n of Machinists & Aerospace Workers, 802 F.2d 247, 250-51 (7th Cir. 1986); Fradella v. Petricca, 183 F.3d 17, 19 (1st Cir. 1999), and "definite" to mean (much as in the case of injunctions, Fed. R. Civ. P. 65(d)) that the award is sufficiently clear and specific to be enforced should it be confirmed by the district court and thus made judicially enforceable. Flender Corp. v. Techna-Quip Co., supra, 953 F.2d at 279-80; Diapulse Corp. of America v. Carba, Ltd., 626 F.2d 1108, 1111 (2d Cir. 1980). We note parenthetically that some cases deem an arbitral award final if it finally resolves a separate claim, or the liability of a particular party, even if other claims or other parties remain before the arbitrators. Publicis Communication v. True North Communications, Inc., 206 F.3d 725, 729 (7th Cir. 2000); Hart Surgical, Inc. v. Ultracision, Inc., 244 F.3d 231, 233-34 (1st Cir. 2001). These...