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

• Decision Date: 28 January 2002
• Docket Number: No. 00-3577.,00-3577.
• Citation: 278 F.3d 621
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. The HOME INSURANCE COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

278 F.3d 621

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

No. 00-3577.

United States Court of Appeals, Sixth Circuit.

Argued October 26, 2001.

Decided and Filed January 28, 2002.

COPYRIGHT MATERIAL OMITTED

Randolph Carson Wiseman (briefed), Stephen C. Gray (briefed), Bricker & Eckler LLP, Columbus, OH, Michael L. Cohen (argued and briefed), Cohen & Buckley LLP, Baltimore, MD, for Plaintiff-Appellee.

Gerald P. Ferguson (briefed), Vorys, Sater, Seymour & Pease LLP, Columbus, OH, Clifford H. Schoenberg (argued and briefed), Harry P. Cohen (briefed), Philip J. Loree, Jr. (briefed), Cadwalader, Wickersham & Taft, New York, NY, for Defendant-Appellant.

Before: BOGGS, GILMAN, and BRIGHT, Circuit Judges.^*

OPINION

GILMAN, Circuit Judge.

In 1995, Nationwide Mutual Insurance Company filed suit against The Home Insurance Company for breach of contract. The district court referred the parties to arbitration because their agreement contained an arbitration clause. Prior to the final resolution of the dispute, Nationwide sought confirmation of various interim decisions issued by the arbitration panel. The district court confirmed the panel's interim decisions and denied Home's motion for discovery on the alleged bias of the arbitrators. For the reasons set forth below, we AFFIRM the judgment of the district court.

I. BACKGROUND

Nationwide entered into a reinsurance agreement with Home in 1977. Under this agreement, Home undertook to cover certain claims that might be asserted against Nationwide. CIGNA Corporation subsequently assumed Home's obligation under the agreement.

Nationwide sued Home and CIGNA for breach of contract in 1995. Because the agreement between Home and Nationwide contained an arbitration clause, the district court entered a stay and ordered Home and Nationwide to submit the case to binding arbitration. The district court later ordered CIGNA to also submit to arbitration, but, on appeal, this court concluded that CIGNA could not be compelled to arbitrate, and that Nationwide had no claim directly against CIGNA. Nationwide Mut. Ins. Co. v. Home Ins. Co., 150 F.3d 545, 549 (6th Cir.1998).

Pursuant to the district court's opinion, Nationwide and Home submitted their dispute to arbitration. The arbitration panel consisted of three arbitrators: Simon Twigden, who was appointed by Nationwide; Robert C. Reinarz, who was appointed by Home; and William C. Hassard, who was then appointed by Twigden and Reinarz. On November 6, 1997, the arbitration panel ordered "Home to post pre-hearing security in the amount of $5,000,000 in the form of a letter of credit, a bond, or a deposit into an escrow account." Home objected to the decision, but the arbitration panel affirmed its ruling on September 11, 1998 (the security decision).

Prior to the final resolution of their dispute, Nationwide filed a new lawsuit seeking confirmation of the interim decisions issued by the panel of arbitrators. Home filed cross-motions to stay confirmation or to vacate the decisions, and for additional discovery on whether the arbitrators were biased.

On March 30, 2000, the district court denied Home's motion for discovery on the issue of arbitral bias and confirmed all of the arbitration panel's interim decisions. Nationwide Mut. Ins. Co. v. Home Ins. Co., 90 F.Supp.2d 893 (S.D.Ohio 2000). Home now appeals the district court's denial of its motion for additional discovery and the court's confirmation of the following three decisions by the arbitration panel: (1) the March 6, 1998 denial of Home's rescission claim (the rescission decision); (2) the July 6, 1999 order that Home pay $300,000 in costs (the costs decision); and (3) the December 17, 1999 order construing what constitutes a final decision under the arbitration agreement (the interpretation decision).

II. ANALYSIS

A. Subject matter jurisdiction

Although Home initially claimed that the district court lacked subject matter jurisdiction to confirm the arbitration panel's interim decisions, it subsequently withdrew that contention as an issue on appeal. We thus have no need to consider the question as part of this opinion.

B. The district court did not err in refusing to vacate the costs decision on grounds of prejudicial misconduct

Home argues that the district court erred in not vacating the arbitration panel's costs decision under 9 U.S.C. § 10(a)(3). Section 10(a)(3) provides that a district court may vacate an arbitration decision "[w]here the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced."

Home contends that the arbitration panel was guilty of misconduct because its costs decision was based on spreadsheets that were prepared by Nationwide without Home having an opportunity to conduct discovery. Specifically, Home maintains that: (1) Nationwide's documentation of costs was inadequate, (2) the panel ordered Nationwide to produce more details, (3) Nationwide never provided more details, and (4) the panel denied discovery and failed to hold a hearing before ordering Home to pay costs.

We accept the district court's findings of fact unless clearly erroneous, and consider questions of law de novo when reviewing its denial of a motion to vacate an arbitration decision. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). Additional deference is warranted where courts are called upon to review an arbitrator's decision. Dawahare v. Spencer, 210 F.3d 666, 669 (6th Cir.2000) ("It is well established that courts should play only a limited role in reviewing the decisions of arbitrators.") (internal quotation marks and citation omitted); Lattimer-Stevens Co. v. United Steelworkers, 913 F.2d 1166, 1169 (6th Cir.1990) ("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."). "Arbitrators are not bound by formal rules of procedure and evidence, and the standard for judicial review of arbitration procedures is merely whether a party to arbitration has been denied a fundamentally fair hearing." National Post Office v. U.S. Postal Serv., 751 F.2d 834, 841 (6th Cir. 1985).

The arbitration panel considered Nationwide's submissions and Home's objections before "unanimously and finally" awarding Nationwide $300,000 for the costs it incurred in defending against rescission. This court has rejected the contention that an arbitration panel is required to hold a hearing or permit discovery on a nonmerits issue. Louisiana D. Brown 1992 Irrevocable Trust v. Peabody Coal Co., No. 99-3322, 2000 WL 178554, at *5-6 (6th Cir. Feb.8, 2000) (citations omitted) (unpublished table decision) (rejecting the argument that a losing party has "an absolute right to present evidence and confront witnesses"). "Fundamental fairness requires only notice, an opportunity to present relevant and material evidence and arguments to the arbitrators, and an absence of bias on the part of the arbitrators." Id. at *6. Because Home received copies of Nationwide's submissions on the costs it incurred in defending against rescission, and the arbitration panel gave Home an opportunity to respond to these submissions, it is not clear what purpose discovery or a hearing on this issue would have served. At the very least, Home had notice of Nationwide's claims and an opportunity to present counter-arguments. We therefore conclude that the arbitration panel's procedure met the minimal standard of fundamental fairness. Accordingly, we affirm the district court's denial of Home's motion to vacate the July 6, 1999 costs decision.

C. The district court did not err in refusing to vacate the rescission and costs decisions on grounds of evident partiality

Home also argues that the district court erred in not vacating the arbitration panel's rescission and costs decisions pursuant to 9 U.S.C. § 10(a)(2). Section 10(a)(2) provides that a district court may vacate an arbitration decision "[w]here there was evident partiality or corruption in the arbitrators, or either of them." Home cites the following five instances of purported "evident partiality": (1) arbitrator Hassard's undisclosed involvement in a dispute with Home; (2) arbitrator Twigden's marketing meetings with Nationwide; (3) collusion between Nationwide and the arbitration panel to insulate the security decision from review; (4) the arbitration panel's hostility toward Home; and (5) the arbitration panel's security decision.

This court has 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." Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 328-29 (6th Cir.1998) (internal quotation marks and citation omitted). "The alleged partiality must be direct, definite, and capable of demonstration, and the party asserting evident partiality must establish specific facts that indicate improper motives on the part of the arbitrator." Id. at 329 (internal quotation marks and citations omitted).

Home's first argument is that Hassard failed to disclose his involvement in a dispute with Home. It acknowledges, however, that during an organizational meeting of the arbitration panel with Home and Nationwide, Hassard disclosed that he served as Chairman of the Board for a company, Republic Financial Services, that had "a runoff relationship" with Home. Nationwide Mut. Ins. Co., 90 F.Supp.2d at 899. But Home claims that Hassard did not disclose that he was engaged in discussions concerning a dispute between Home and Republic regarding unpaid balances in the runoff account. Home also asserts that, contrary to the district court's $7,000...