National Risk Underwriters, Inc., In re
| Decision Date | 11 September 1989 |
| Docket Number | No. 88-2564,88-2564 |
| Citation | 1989 WL 100649,884 F.2d 1389 |
| Parties | Unpublished Disposition NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. In re NATIONAL RISK UNDERWRITERS, INC., Petitioner, |
| Court | U.S. Court of Appeals — Fourth Circuit |
Edward A. Dudek (Dennis M. Grzezinski, John G. Gehringer, Michael J. Klinker, Frisch, Dudek And Slattery, Ltd., Andrew J. Ellis, Jr., Mays & Valentine, on brief) for petitioner.
Peter Michael Foley (Stephanie L. Hutchins, Leboeuf, Lamb, Leiby & Macrae, on brief) for respondent.
Before DONALD RUSSELL and WILKINS, Circuit Judges, and RICHARD B. KELLAM, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.
Petitioner National Risk Underwriters, Inc. has requested a writ of supervisory mandamus to prevent the district court from allowing the Appellee herein, Occidental Fire & Casualty Company of North Carolina, to depose an arbitrator who sat on a panel that arbitrated a dispute between the parties. Because we conclude that to allow such a deposition would impermissibly interfere with the arbitral decision-making process, we grant the writ of mandamus.
On December 24, 1980, National Risk Underwriters, Inc. ("NRU") and Occidental Fire & Casualty Company of North Carolina ("Occidental") entered into an agreement ("the Agreement") wherein Occidental appointed NRU as its agent for the purposes of procuring, underwriting, and servicing captive insurance programs on Occidental's behalf. Occidental terminated the Agreement as of March 10, 1985, claiming that NRU's failure to perform pursuant to the Agreement resulted in losses to Occidental which exceeded $23 million dollars. On June 24, 1986, NRU filed a claim with Occidental for profit sharing pursuant to the Agreement as well as a claim for punitive damages. NRU also demanded binding arbitration of these claims pursuant to the Agreement and the Uniform Arbitration Act as adopted in North Carolina, N.C.Gen.Stat. 1-567.1-.14. Occidental, in turn, requested arbitration of its allegations of NRU's failure to perform certain aspects of the Agreement.
Although the Agreement provided that disputes were to be resolved by an arbitrator, NRU and Occidental were unable to agree on a single arbitrator. Consequently, the parties agreed to modify the arbitration provision in the Agreement so that a panel of three arbitrators could be selected. Occidental chose Bernard Buge, NRU chose William D. McGinn, and the two parties chose Otis Aldrich.
The parties' prehearing discovery began in spring, 1987. The arbitration hearing was held in New York City in November and December 1987 and January 1988, and lasted over twenty-one days. The three arbitrators heard testimony from twenty-one witnesses, and the hearings generated over 3,500 pages of transcript. Later that spring, the arbitrators reconvened in Philadelphia to decide the issue. On April 6, 1988, by majority vote, Arbitrators Aldrich and McGinn awarded NRU $343,995 on its profit-sharing claim, $347,502 in "run-off" compensation, and $500,000 in punitive damages. Arbitrators Aldrich and McGinn reduced Occidental's $23 million dollar claim to $600,000 as damages related to six of its ten claims. 1 Arbitrator Buge issued a minority report and subsequently submitted an affidavit (the "Affidavit") protesting the methods by which the decision was reached. 2
Pursuant to N.C.Gen.Stat. 1-567.10, Occidental petitioned the arbitrators to change their award to correct what it believed to be a mathematical error in the majority's calculation of profit-sharing due NRU. Occidental argued that pursuant to the terms of the Agreement, both Occidental and NRU apparently had subtracted previous profit-share payments to NRU in calculating the amount due NRU. NRU filed its objections for the application for a change of award pursuant to N.C.Gen.Stat. 1-567.10 and 1-567.14. Occidental replied. On April 22, 1988, Arbitrators Aldrich and McGinn declined to change the award.
NRU petitioned the District Court for the Eastern District of North Carolina to confirm the part of the arbitration award decided in its favor and enter judgment against Occidental. In its petition, NRU invoked Section 9 of the Federal Arbitration Act, 9 U.S.C. Sec. 9, for the first time. In reply, Occidental opposed NRU's petition and moved to vacate or modify the award pursuant to N.C.Gen.Stat. Sec. 1-567.13, alleging misconduct on the part of arbitrators McGinn and Aldrich. Occidental relied on Buge's Affidavit to support its allegations of misconduct. Occidental sought to depose Arbitrator Aldrich on the grounds that Aldrich and McGinn had engaged in specific acts of misconduct, namely: (1) disregarding the law in holding that Occidental's alleged contributory negligence was a defense to NRU's breach of fiduciary duty; (2) disregarding the Agreement because they failed to subtract profit-sharing payments previously made to NRU when they calculated the amount of profit-share payments owed NRU; and (3) acting in a way prejudicial to Occidental in meeting to consider the issues presented to the panel without telling Buge of the meeting.
Occidental issued a subpoena duces tecum commanding Aldrich to appear for his deposition on July 1, 1988. NRU moved to quash the subpoena or in the alternative for a protective order prohibiting or supervising the deposition. Occidental responded to NRU's motion to quash and presented the Buge Affidavit that supported Occidental's allegations of misconduct by Aldrich and McGinn. In an Order dated June 29, 1988, the district court held that on the basis of the briefs of the parties and the Affidavit, "an objective basis exists for a reasonable belief that some misconduct on the part of the arbitrators has occurred and that the respondent may depose arbitrator Aldrich relative to that misconduct." The district court denied NRU's motion to quash the subpoena and allowed Aldrich's deposition to proceed. The next day, the district court granted NRU's motion to stay Aldrich's deposition pending this court's decision on NRU's petition for a writ of supervisory mandamus. Consequently, NRU petitioned this court under the All Writs Act, 28 U.S.C. Sec. 1651, to order the district court to overturn its order denying NRU's motion to quash the subpoena for the deposition of Otis Aldrich. For the reasons discussed below, we grant NRU's petition for a writ of mandamus, and we remand the case to the district court.
The question before this court is whether a district court can order a deposition of an arbitrator pursuant to the request of the losing party involved in the arbitration absent an objective showing of fraud, misconduct, or bias.
Occidental urges this court to permit it to depose Arbitrator Aldrich. Occidental alleges that:
(1) McGinn and Aldrich disregarded the Agreement in arriving at their profit-sharing award (in disregarding the provision that prior profit-sharing payments were to be taken into account); (2) McGinn and Aldrich then changed the rationale of the award after Occidental pointed out the error; (3) McGinn and Aldrich, after concluding that NRU breached its fiduciary duty to Occidental, manifestly disregarded Occidental's losses of over $23 million and established their award of $600,000 out of thin air; and (4) McGinn and Aldrich violated legal and common sense precepts by conducting their deliberations outside the presence of Mr. Buge. (Occidental's Brief at 13-14)
Occidental's argument is summed up as follows:
The deposition of Mr. Aldrich is necessary in order to fully examine what occurred the evening between the first and second full day of deliberations. It is undisputed that Aldrich and McGinn discussed substantive aspects of the parties' claims on at least two occasions during that brief period. What else occurred, outside the presence of Mr. Buge, to cause Messrs. Aldrich and McGinn to agree on a $600,000 award to Occidental? What caused Mr. Aldrich to reverse himself between the first and second full day of deliberations and to award profit-sharing to NRU? These questions cannot be answered without the sworn testimony of Mr. Aldrich. (Occidental's Brief at 14)
As much as Occidental believes that the deposition of Aldrich is the only way to determine why he changed his mind (an occurrence, we would note, that would be wholly within the bounds of any decision-making process) we are unable to permit it to proceed with the deposition.
We begin our analysis of this case by noting that there exists a strong federal policy favoring arbitrability. Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Concomitant with this federal policy favoring arbitration is the belief that the arbitration process, as the forum selected by the parties for the resolution of their dispute, must operate with a minimum of judicial supervision. The arbitration process represents a faster and less expensive alternative to litigating disputes in court. As a result, the arbitration process must not become but the first step in the litigation process; to do so would be to defeat the very purposes for which the parties chose arbitration as a method of dispute resolution.
The Agreement provided that NRU and Occidental would be governed by the laws of North Carolina. The Supreme Court of North Carolina has held "that where an objective basis exists for a reasonable belief that misconduct has occurred, the parties to the arbitration may depose the arbitrators relative to that misconduct; and such depositions are admissible in a proceeding under G.S. 1-567.13 to vacate an award." Carolina-Virginia...
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