Philadelphia Elec. Co. v. Nuclear Elec. Ins. Ltd.

• Decision Date: 04 March 1994
• Docket Number: No. 92 Civ. 3097 (JES).,92 Civ. 3097 (JES).
• Citation: 845 F. Supp. 1026
• Parties: In re Arbitration Between PHILADELPHIA ELECTRIC COMPANY, Plaintiff, v. NUCLEAR ELECTRIC INSURANCE LIMITED, Defendant.
• Court: U.S. District Court — Southern District of New York

845 F. Supp. 1026

In re Arbitration Between PHILADELPHIA ELECTRIC COMPANY, Plaintiff, v. NUCLEAR ELECTRIC INSURANCE LIMITED, Defendant.

No. 92 Civ. 3097 (JES).

United States District Court, S.D. New York.

March 4, 1994.

Harry P. Begier, Jr., Philadelphia, PA, Fried, Frank, Harris, Shriver & Jacobson, New York City (Robert E. Juceam, of counsel), for plaintiff.

Baker & McKenzie, New York City (Lawrence W. Newman, of counsel), for defendant.

MEMORANDUM OPINION AND ORDER

SPRIZZO, District Judge.

Petitioner, Philadelphia Electric Company ("PECO"), moves to vacate an arbitration award issued on January 19, 1993 (the "Award") in favor of Respondent, Nuclear Electric Insurance Limited ("NEIL"), by an arbitration panel agreed upon by the parties. For the reasons that follow, PECO's motion to vacate is denied.

BACKGROUND

This litigation arises out of a dispute between PECO, a utility that owns and operates nuclear power plants, and NEIL, a mutual insurance company owned by its member insureds, including PECO, over insurance coverage under extra expense insurance policies purchased by PECO from NEIL for three shut-downs of one of its nuclear power plants, Peach Bottom Atomic Power Station Unit 3 ("Unit 3"). The shut-downs were allegedly caused by intergranular stress corrosion cracking ("IGSCC") damage to its recirculation piping system ("the Unit 3 claim."). See Affidavit of Lawrence W. Newman, Esq. dated May 21, 1993 ("Newman Aff."), Ex. 2 (Sworn Statement in Support of Claim and Proof of Loss).

This litigation began on April 29, 1992, when PECO filed a complaint in this Court seeking a stay of its arbitration with NEIL and a declaratory judgment on the issue of the collateral estoppel effect of a prior arbitration award on the Unit 3 claim. See Complaint. On May 29, 1992, PECO filed a motion for a preliminary injunction and declaratory judgment. On July 2, 1992 this Court, ruling from the bench, denied PECO's motion and entered an appropriate Order stating, in part, "The Clerk of the Court is directed to close the above-captioned action." See Order dated July 6, 1992. On July 7, 1992, the Clerk marked the case closed on the docket record. See Newman Aff. Ex. 9.

The parties proceeded to arbitration and, on January 20, 1993, a panel of three arbitrators (the "Panel") unanimously ruled that PECO's Unit 3 claim against NEIL is barred by the preclusive effect of a prior unanimous award dated March 27, 1991 in an arbitration brought by PECO against NEIL, Newman Aff., Ex. 3 (the "Prior Award"). In that arbitration, PECO had sought extra expense insurance coverage for damage resulting from two shutdowns at Peach Bottom Atomic Station Unit 2 ("Unit 2") and allegedly caused by the same phenomenon, IGSCC, in the same recirculation piping system under a policy issued to PECO by NEIL identical to that at issue in the Unit 3 claim. See Newman Aff. Ex. 4 (Sworn Statement of Insured in Support of Claim and Proof of Loss); see also Newman Aff., Ex. 1 ("Award") at 2, 4.

PECO now moves for summary judgment in the above-captioned action and a vacatur of the Award on the ground that the Panel's decision was based on insufficient evidence, that the Panel clearly disregarded settled law on collateral estoppel and that the Panel exceeded its authority in arbitrating the issue of collateral estoppel.

DISCUSSION

NEIL argues that, since the Court issued an order closing out the action in which PECO's present motion was filed, PECO was required to file a separate petition to vacate the award and that such relief would now be untimely. This argument, however, erroneously assumes that the Court's July 6, 1992 Order administratively closing the above-captioned action constituted a substantive dismissal of PECO's complaint. In fact, an administrative closing has no effect other than the removal of all case records to the Closed Records office and, in some instances, to warehouse storage outside of the courthouse. In no event does such an order bar a party from restoring the action to the Court's active calendar upon an appropriate application.

Moreover, NEIL's contention that PECO was required to file its motion to vacate as a separate action under a new docket number and to serve such a motion on NEIL within three months of the delivery of the Award is unsupported by the language of the Federal Arbitration Act, 9 U.S.C. § 12. Title IX, 9 U.S.C. § 12, requires only that "notice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered." NEIL admits that PECO effected timely service of its motion to vacate on NEIL's counsel and thus complied with the Federal Arbitration Act.

NEIL's citation of Matter of Chung and President Enterprises, 943 F.2d 225 (2d Cir.1991), is misplaced. In Matter of Chung, the Second Circuit held only that a party may appeal an order compelling arbitration in an "independent action," i.e., where the plaintiff seeks only an order compelling or staying arbitration or a declaration that a dispute is or is not arbitrable, but not in an "embedded action," in which the Court's order compelling arbitration leaves other issues unresolved. Id. at 228. In such "independent actions," a Court is divested of jurisdiction, because the order compelling arbitration in such circumstances is a final judgment. Id. Since no judgment, final or otherwise, was entered in this case on July 6, 1992, or indeed at any other time, Matter of Chung has no relevance here.

However, while the Court has concluded that it has jurisdiction to resolve the merits of the motion to vacate, it is clear that that motion must be denied. A finding that the Panel manifestly disregarded the law requires "something beyond and different from a mere error in the law or failure on the part of the arbitrators to understand or apply the law." Fahnestock & Co. v. Waltman, 935 F.2d 512, 516 (2d Cir.1991) (citations omitted). See Carte Blanche (Singapore) v. Carte Blanche Int'l, 888 F.2d 260, 265 (2d Cir.1989); Merrill Lynch, Pierce, Fenner & Smith v. Bobker, 808 F.2d 930, 933-34 (2d Cir.1986); Siegel v. Titan Indus. Corp., 779 F.2d 891, 892 (2d Cir.1985). The alleged error "must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator," and the governing law alleged to have been disregarded by the arbitrators must be "well defined, explicit, and clearly applicable." Carte Blanche (Singapore) v. Carte Blanche Int'l, 888 F.2d 260, 265 (2d Cir.1989) (quoting Merrill Lynch, Pierce, Fenner & Smith v. Bobker, 808 F.2d 930, 933-34 (2d Cir.1986). Tested by that standard, PECO has plainly failed to carry its burden of demonstrating that the Panel deliberately disregarded clearly applicable law. See Fried, Krupp, GmbH v. Solidarity Carriers, Inc., 674 F.Supp. 1022, 1026 (S.D.N.Y., aff'd, 838 F.2d 1202 (2d Cir.1987).

Indeed, Leddy v. Standard Drywall, Inc., 875 F.2d 383 (2d Cir.1989), relied on by PECO to demonstrate that its legal position was compelling, is in fact inapposite. The dispute in Leddy involved the preclusive effect of an unconfirmed arbitration award in a subsequent federal court proceeding, not in a subsequent arbitration. On the other hand, New York case law presented to the Panel by NEIL supported the Panel's proposition that unconfirmed arbitration awards can have collateral estoppel effect in subsequent arbitrations. See, e.g., Protocom Devices, Inc. v. Figueroa, 173 A.D.2d 177, 569 N.Y.S.2d 80, 81 (N.Y.Sup.Ct.1991); County of Rockland v. Aetna Casualty and Surety Co., 129 A.D.2d 606, 514 N.Y.S.2d 102, 103 (N.Y.Sup.Ct.), app. denied, 70 N.Y.2d 603, 518 N.Y.S.2d 1026, 512 N.E.2d 552 (1987); Hilowitz v. Hilowitz, 85 A.D.2d 621, 444 N.Y.S.2d 948 (N.Y.Sup.Ct.1981). It follows that since PECO has not demonstrated that the law was clearly established in its favor and that the Panel "`understood and correctly stated the law but proceeded to ignore it,'" Fahnestock, 935 F.2d at 516 (quoting Siegel v. Titan Indus., 779 F.2d 891, 893 (2d Cir.1985)), the award may not be vacated on that ground.

Similarly, there is no merit to PECO's contention that the evidence was insufficient to support the conclusion that PECO's Unit 3 claim was barred by the collateral estoppel effect of the Prior Award. The record demonstrates that the Panel held two hearings devoted to the collateral estoppel issue, see Newman Aff., Exs. 25 and 19, and carefully considered PECO's Response to the Arbitrator's Questions of August 20, 1992, see Motion to Vacate, Ex. 3, which purports to identify non-identical issues before the prior arbitration's panel. The Panel specifically found, however, that despite PECO's assertions, the issues in the two arbitrations were identical. See Newman Aff., Ex. 1 at 3. Moreover, at the conclusion of the final oral argument held on December 22, 1992, the Panel asked PECO's counsel if he wished to submit any further material on the collateral estoppel issue and PECO's counsel declined to do so on the record. Newman Aff., Ex. 19 at 353-54.

In sum, PECO has made no showing that the Panel's decision was bereft of any rational support or rendered in manifest disregard of clearly established law. Nor can that conclusion be based, as here, merely upon the fact that the Panel rejected PECO's arguments that the Prior Award could have been based on non-identical or unnecessary issues.

Finally, PECO has failed to satisfy its heavy burden of proving that the arbitrators exceeded their powers. The Second Circuit has held that "a court must accord the `narrowest of readings' to the `excess of powers' provisions of 9 U.S.C. § 10(d)." Kerr-McGee Refining Corp. v. M.T. Triumph, 924 F.2d 467, 471 (2d Cir.1991), quoting Andros Compania Maritima, S.A. v. Marc Rich & Co., A.G., 579 F.2d 691, 703 (2d Cir.1978). Since federal arbitration policy requires courts to "construe arbitration...