Nationwide Mut. Ins. Co. v. Home Ins. Co.

• Decision Date: 29 November 2005
• Docket Number: No. 04-4344.,04-4344.
• Citation: 429 F.3d 640
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. HOME INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

429 F.3d 640

NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. HOME INSURANCE COMPANY, Defendant-Appellee.

No. 04-4344.

United States Court of Appeals, Sixth Circuit.

Argued: September 13, 2005.

Decided and Filed: November 29, 2005.

ARGUED: Michael L. Cohen, Cohen & Buckley, Baltimore, Maryland, for Appellant. Philip J. Loree Jr., Cadwalader, Wickersham & Taft, New York, New York, for Appellee. ON BRIEF: Michael L. Cohen, Cohen & Buckley, Baltimore, Maryland, Randolph Carson Wiseman, Stephen C. Gray, Bricker & Eckler, Columbus, Ohio, for Appellant. Philip J. Loree Jr., Clifford H. Schoenberg, Cadwalader, Wickersham & Taft, New York, New York, Gerald P. Ferguson, Vorys, Sater, Seymour & Pease, Columbus, Ohio, for Appellee.

Before: CLAY, GIBBONS, and GRIFFIN, Circuit Judges.

OPINION

GRIFFIN, Circuit Judge.

Plaintiff Nationwide Mutual Insurance Company ("Nationwide") appeals a district court order denying its application for vacatur of a final arbitration award issued in this reinsurance dispute with defendant Home Insurance Company ("Home"). For the reasons set forth below, we affirm the judgment of the district court confirming the award.

I.

This long-running dispute originated in 1995, when Nationwide filed suit against Home for breach of a reinsurance contract that the parties had originally entered into in 1977. The district court referred the parties to arbitration pursuant to the terms of an arbitration clause in the reinsurance agreement. Numerous interim decisions of the arbitration panel were thereafter challenged in the district court, and, in fact, this is the fourth time this matter has come before the Sixth Circuit for review. The extensive procedural history and involvement of this Court is found at Nationwide Mut. Ins. Co. v. Home Ins. Co., 150 F.3d 545 (6th Cir.1998) (Nationwide I); Nationwide Mut. Ins. Co. v. Home Ins. Co., 278 F.3d 621 (6th Cir.2002) (Nationwide II); and Nationwide Mut. Ins. Co. v. Home Ins. Co., 330 F.3d 843 (6th Cir.2003) (Nationwide III). The facts are succinctly set forth in detail in these prior opinions and will not be reiterated here except to the extent necessary to dispose of the issues presented on this appeal.

After this Court's decision in Nationwide III, the parties proceeded to the third phase of arbitration, culminating in a merits hearing. On July 17, 2003, the three-member arbitration panel¹ rendered its unanimous final decision which, in pertinent part, awarded Home the sum of $1,250,000 in costs and interest.²

Nationwide filed suit in district court to vacate the final award and two interim rulings rendered by the arbitration panel. In the alternative, Nationwide sought vacation of the interim rulings and Paragraphs 9 and 11 of the final decision granting Home's request for recovery of its "fronting share administrative costs" (FSAC) and part of its costs in the arbitration. Home opposed the vacatur application and sought confirmation of the final order.

On September 24, 2004, the district court issued an opinion and order denying Nationwide's vacatur application, granting Home's cross-motion for confirmation of the arbitration award, and entering a final judgment in favor of defendant Home Insurance.

Nationwide now appeals the district court's denial of its vacatur application, primarily on the ground of evident partiality based on an arbitrator's alleged nondisclosure of certain business and social relationships with Home.

II.

The Federal Arbitration Act ("FAA") expresses a presumption that arbitration awards will be confirmed. 9 U.S.C. § 9; Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 328 (6th Cir.1998). "When courts are called on to review an arbitrator's decision, the review is very narrow; one of the narrowest standards of judicial review in all of American jurisprudence." Nationwide II, 278 F.3d at 625 (quoting Lattimer-Stevens Co. v. United Steelworkers, 913 F.2d 1166, 1169 (6th Cir.1990)). "[A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision." United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 38, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987). Thus, "[a] federal court may vacate an arbitration award only in very limited circumstances." Nationwide III, 330 F.3d at 845. "Those circumstances include `where the arbitrators exceeded their powers,' 9 U.S.C. § 10(a)(4), and where the arbitrators act with `manifest disregard for the law.'" Id. (quoting Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir.2000)). In addition, an arbitration award may be vacated upon application of any party to the arbitration "where there was evident partiality or corruption in the arbitrators, or either of them." 9 U.S.C. § 10(a)(2). When reviewing a district court's denial of a motion to vacate an arbitration decision, we accept the court's findings of fact, unless clearly erroneous, and consider questions of law de novo. Nationwide II, 278 F.3d at 625; Dawahare, 210 F.3d at 669.

III.

A.

In the district court, Nationwide sought to vacate the final award of the second arbitration panel on the ground that the Home-appointed arbitrator, Ronald Jacks, displayed evident partiality contrary to subsection 10(a)(2) of the FAA, 9 U.S.C. § 10(a)(2). Nationwide also alleged that Jacks engaged in improper ex parte contacts with one of Home's attorneys and with employees of ACE/INA Holdings, Inc., and CIGNA Corporation ("ACE/CIGNA").³ Specifically, Nationwide alleged that during the course of arbitration Jacks failed to disclose certain business and social relationships with Home and its counsel.⁴ Relying on Apperson v. Fleet Carrier Corp., 879 F.2d 1344, 1358 (6th Cir.1989), cert. denied 495 U.S. 947, 110 S.Ct. 2206, 109 L.Ed.2d 533 (1990), which held that evident partiality will be found only where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration, the district court concluded that Nationwide's claims of evident partiality were unfounded.

Nationwide now contends that, in assessing the effects of Jacks' alleged nondisclosures, the district court applied the wrong standard. Nationwide urges this Court to limit application of the Apperson standard to so-called "actual bias" cases, where the evident partiality claim is based on facts known or disclosed and objected to by the challenging party prior to or during the arbitration. Citing Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968),⁵ Nationwide maintains that the fact of the nondisclosure alone mandates vacatur under either a "reasonable impression of bias" or "appearance of bias" standard. We disagree.

In Apperson, this Court, addressing allegations of "evident partiality" in the context of the arbitration of a labor contract dispute,⁶ adopted the objective test utilized by the Court of Appeals for the Second Circuit in Morelite Construction Corp. v. New York City Dist. Council Carpenters Benefit Funds, 748 F.2d 79, 84 (2d Cir.1984), in which the Second Circuit held that evident partiality "will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration."⁷ Id. at 84 (quoted in Apperson, 879 F.2d at 1358). We also accepted Morelite's rejection, as dicta, of the appearance of bias standard espoused in the plurality opinion in Commonwealth Coatings. Apperson, 879 F.2d at 1358 n. 19.

Consequently, "[u]nder Apperson, the party seeking invalidation must demonstrate more than an amorphous institutional predisposition toward the other side; a lesser showing would be tantamount to an `appearance of bias' standard." Andersons, Inc., 166 F.3d at 329. "The alleged partiality must be direct, definite, and capable of demonstration, and `the party asserting [it]. . . must establish specific facts that indicate improper motives on the part of the arbitrator.'" Id. (quoting Consolidation Coal Co. v. Local 1643, United Mine Workers of Am., 48 F.3d 125, 129 (4th Cir.1995)).

We have since reiterated and followed the Apperson standard in Nationwide II, 278 F.3d at 626; Dawahare, 210 F.3d at 669; and Andersons, Inc., 166 F.3d at 329. We conclude that the present circumstances do not warrant deviation from Apperson's case-by-case objective inquiry into evident partiality, particularly where, as here, the complaint of evident partiality concerns a party-appointed, as opposed to a neutral, arbitrator. Accord, Sphere Drake Ins. Ltd. v. All Am. Life Ins. Co., 307 F.3d 617, 620-23 (7th Cir.2002); Delta Mine Holding Co. v. AFC Coal Prop., Inc., 280 F.3d 815, 821-22 (8th Cir.2001); Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753, 759 (11th Cir.1993); Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 679-80, 683 (7th Cir.1983).

The arbitration agreement in this case requires that the arbitrators come from within the insurance industry and further provides for a tripartite panel consisting of two party-appointed arbitrators and one neutral umpire. See Nationwide Mut. Co. v. Home Ins. Co., 90 F.Supp.2d 893, 901-02 (S.D.Ohio 2000). Thus, as the district court noted, the parties clearly agreed to submit their claims to panel members who are involved in the business of insurance.⁸ "The most sought-after arbitrators are those who are prominent and experienced members of the specific business community in which the dispute to be arbitrated arose. Since they are chosen precisely because of their involvement in that community, some degree of overlapping representation and interest inevitably results." Int'l Produce, Inc. v. A/S Rosshavet, 638 F.2d 548, 552 (2d Cir.1981).

Home's party-appointed arbitrator, Ronald Jacks, who is the focus of the present case, has extensive experience serving as an international reinsurance arbitrator, a fact noted by the Seventh Circuit in Sphere...