Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co.

• Court: U.S. Court of Appeals — Fourth Circuit
• Writing for the Court: Before RUSSELL and WIDENER, Circuit Judges, and CHAPMAN; CHAPMAN; Lacey; Uncontroverted evidence was presented and the district court found that Judge Lacey was unaware of his professional relationship with Mr. Nolan during the arbitration proceeding
• Citation: Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 991 F.2d 141 (4th Cir. 1993)
• Decision Date: 20 April 1993
• Docket Number: No. 92-1614,92-1614
• Parties: PEOPLES SECURITY LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. MONUMENTAL LIFE INSURANCE COMPANY; B. Larry Jenkins; Ronald J. Brittingham; Thomas R. Jenkins; Willard E. Hines, Defendants-Appellants.

Page 141

991 F.2d 141

61 USLW 2708

PEOPLES SECURITY LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. MONUMENTAL LIFE INSURANCE COMPANY; B. Larry Jenkins Ronald J. Brittingham; Thomas R. Jenkins Willard E. Hines, Defendants-Appellants.

No. 92-1614.

United States Court of Appeals Fourth Circuit.

Argued Feb. 2, 1993.

Decided April 20, 1993.

Sheila Mosmiller Vidmar, Piper & Marbury, Baltimore, MD, argued (Donald E. Sharpe, Elizabeth C. Kelley, Joanne B. Marshall, on brief), for defendants-appellants.

Alan Mitchell Wiseman, Howrey & Simon, Washington, DC, argued (Gaspare J. Bono, Charles H. Samel, Lisa J. Saks, Susan M. Donovan, Howrey & Simon, Washington, DC, Lillard H. Mount, James H. Hughes, Maxwell & Hutson, Durham, NC, on brief), for plaintiff-appellee.

Before RUSSELL and WIDENER, Circuit Judges, and CHAPMAN, Senior Circuit Judge.

OPINION

CHAPMAN, Senior Circuit Judge:

This is an appeal from an order and judgment of the district court, which refused to vacate the arbitration award that found Monumental Life Insurance Co. ("Monumental") liable to Peoples Security Life Insurance Co. ("Peoples Security") for violation of an agreement dated September 13, 1984. Appellant Monumental claims partiality and bias of one of the arbitrators, that the arbitration tribunal disregarded the applicable law in finding it liable for the tort of unfair competition, and that the tribunal exceeded its authority in awarding treble damages for the North Carolina portion of the damages and in awarding prejudgment interest. We find no merit to these exceptions, and we affirm.

On August 1, 1986, Peoples Security filed an action in the United States District Court for the Middle District of North Carolina alleging violation of a September 13, 1984 agreement ("the Agreement") between its parent, Capital Holding Corp. ("Capital") and appellant Monumental. ¹ Peoples Security is based in Durham, North Carolina and Monumental is based in Baltimore, Maryland.

The essence of Peoples Security's claim was that Monumental recruited and hired-away Peoples Security's agents in violation of the Agreement. Peoples Security claimed that its former agents, enticed into working for Monumental, visited Peoples Security's policyholders and, by use of underhanded sales tactics, replaced Peoples Security's policies with policies issued by Monumental.

The case was transferred to the United States District Court for the District of Maryland, and shortly thereafter, Monumental filed a Motion to Compel Arbitration and for Stay Pending Arbitration. In Peoples Security Life Insurance Co. v. Monumental Life Insurance Co., 867 F.2d 809 (4th Cir.1989), we held that the parties were "bound by the Settlement Agreement to arbitrate their differences" and remanded the case to the district court "for the purpose of entering an appropriate order to arbitrate." Id. at 814.

The case was then submitted to a three-member arbitration panel approved by the parties ("the Tribunal") which awarded Peoples Security $9,424,651.00. Monumental filed a motion in the district court to vacate the award claiming that one of the arbitrators lacked impartiality, and that the Tribunal exceeded its power by awarding damages beyond the scope of the Agreement.

The district court denied this motion, affirmed the arbitration award and entered judgment for Peoples Security. The judgment was amended to reflect accrued interest, and the total of the amended judgment being appealed is $9,700,851.19.

Facts

Monumental and Peoples Security are competitors in the sale of insurance products through the "home service" method of distribution. In both companies, employee agents regularly visit a list of customers (a "debit") to service policies, add or subtract coverage, and collect premiums.

This appeal arises from the language of the Agreement dated September 13, 1984, which prohibited Monumental and Peoples Security from hiring or soliciting agents away from one another for a period of three years.

In its Complaint, Peoples Security alleged that Monumental had violated the terms of the Agreement (1) by hiring and soliciting its managers and agents, (2) by unlawfully appropriating trade secrets and confidential information concerning Peoples Security policyholders in violation of Peoples Security's agents' employment contracts, ² (3) by encouraging agents to roll over the policies of their former debits in violation of their non-complete clauses, and (4) that these acts constituted deceptive trade practices in violation of the North Carolina Unfair Trade Practices Act ("NCUTA"). N.C.Gen.Stat. § 75-1.1(a) (1988). ³

Pursuant to the Agreement and the mandate of this court, upon remand, all of Peoples Security's claims were submitted to the Tribunal, a distinguished three-member arbitration panel. The first member selected was Frederick B. Lacey, a federal judge on the United States District Court for the District of New Jersey from 1971-1986. From 1983 to 1986 he served on the Judicial Ethics Committee of the Judicial Conference of the United States. After retiring from the bench in February 1986 he became a member of the law firm LeBoeuf, Lamb, Leiby & McRae ("LeBoeuf") in its Newark, New Jersey and New York offices. The LeBoeuf firm is comprised of more than 450 attorneys who operate out of 17 offices worldwide. Judge Lacey was the only member of the panel to be selected and approved directly by the parties. His was the only name selected by both sides from a list of more than 70 names submitted by the American Arbitration Association ("AAA"). The remaining members of the Tribunal were selected by the AAA because the parties were unable to agree on any other available arbitrators.

The Tribunal's chairman was Lloyd N. Cutler, Esq., a founding partner of the law firm of Wilmer, Cutler & Pickering, and Counsel to President Jimmy Carter. The other arbitrator was Penrose Wolf, Esq., a partner in the Hartford, Connecticut law firm of Wiselman, Horowitz & Thayer. Mr. Wolf, served as corporate counsel to the Hartford Insurance Group from 1980 to 1984, and is a recognized expert in insurance law.

Following pre-trial hearings, the Tribunal bifurcated the proceedings into liability and damage phases. The liability hearings commenced February 20, 1990 and concluded April 9, 1990. On this issue, the Tribunal heard the live testimony of 34 witnesses, over a period of 22 days, resulting in a transcript of more than 4,600 pages. Both parties then filed extensive post-trial briefs, and on August 29, 1990, the Tribunal issued a unanimous 110 page opinion, which found Monumental liable for violating the Agreement.

Specifically, the Tribunal found Monumental liable for the tort of unfair competition, improper use of Peoples Security's "debit books" (customer lists), inducement of Peoples Security's agents to violate their non-compete clauses, and improper replacement of Peoples Security's business in violation of the "spirit" clause of the agreement.

The Tribunal awarded treble damages for violation of the NCUTA because it found that Monumental had violated the first sentence of paragraph 6 of the Agreement, the so-called "spirit clause." Paragraph 6 reads as follows:

Full compliance with the spirit and the terms of this agreement is intended and expected by both sides. Any question, charge, complaint or grievance believed to constitute a breach or violation shall be immediately communicated between counsel and the party alleged to be in breach of the agreement and shall have five days to respond, correct or justify its action.

If the aggrieved party is not then satisfied, the matter shall be submitted to the American Arbitration Association for final and mutually binding resolution by it including the award of damages or other relief. If the Arbitrator finds that there has been a hiring in violation of this Agreement; he shall award damages commensurate with the loss he finds has been, or is expected to be, sustained up to but not exceeding $50,000 for each such hire.

The Tribunal found that the spirit clause imposed wide responsibilities and duties on the parties that were related to, but not expressly contained within the Agreement. Specifically, the tribunal interpreted the spirit clause to be "an implied contractual commitment not to engage in the tort of unfair competition regarding the subject matter of the Agreement."

Hearings on damages were conducted between May 13 and May 21, 1991. Both parties then submitted post-trial briefs and on September 10, 1991 the Tribunal, in a very detailed 78 page unanimous decision, awarded damages to Peoples Security of more than $9.4 million. This amount included damages for violations of the Agreement, pre-award interest, and treble damages for unfair competition in violation of the NCUTA.

In its opinion on damages, the Tribunal held that the $50,000 damage cap only applied when there had been a hiring that violated the agreement. The Tribunal classified Monumental's violations into four categories: (1) violations of the recruiting provisions that resulted in hirings, (2) violations of the recruiting provisions that did not result in hirings, (3) unfair competition in violation of the "spirit" clause, and (4) misappropriation of proprietary information in violation of the agreement.

The Tribunal held that the $50,000 damage cap applied to recruiting violations that resulted in hirings and violations of the "spirit" clause that resulted in hirings. It found that the $50,000 cap did not apply to damages for misappropriation of Peoples Security's confidential and proprietary information or to the Tribunal's ability to grant pre-award interest.

Issues

Monumental claims the arbitration award should be set aside for three reasons. First, that one of the arbitrators, Judge Lacey, possessed "evident partiality" in violation of the Federal Arbitration Act. 9 U.S.C. § 10(a)(4) (Supp.1992). Second, that the arbitrators exceeded their authority in violation...