Property v. Allied Provident Ins., Inc.
Decision Date | 26 September 2014 |
Docket Number | 13-cv-7865 |
Parties | Companion Property and Casualty Insurance Company, Petitioner, v. Allied Provident Insurance, Inc., Respondent. |
Court | U.S. District Court — Southern District of New York |
Before the Court are five petitions, motions, or cross-motions: Petitioner Companion Property and Casualty Insurance Company ("Companion")'s petition to confirm an interim arbitration award, Dkt. No. 1; Respondent Allied Provident Insurance, Inc. ("Allied Provident")'s cross-motion to vacate or stay the interim arbitration award, Dkt. No. 9; Allied Provident's motion to disqualify the existing arbitral panel and appoint a new panel or stay the arbitration proceedings, Dkt. No. 16; Companion's cross-petition to compel Allied Provident to select a new party arbitrator, Dkt. No. 30; and Allied Provident's motion to strike portions of the declaration of Robert M. Hall, Dkt. No. 38. The Court will address the first two motions together, the second two motions together, and the last motion separately.
For brevity, the Court discusses the factual background and procedural history only as it is necessary to decide the motions. The facts are drawn from the parties' declarations and attached exhibits and are, unless otherwise noted, uncontested.
Dkt. No. 34 at 3 n.1 (citing Hall Decl. ¶ 5). At some point, Allied Provident allegedly failed to pay the amounts Companion claimed were due under the Reinsurance Agreement, prompting the present dispute between the parties. Dkt. No. 1 ¶ 7.
The Reinsurance Agreement contains an arbitration provision that requires the parties to resolve all disputes arising under the agreement through arbitration. Dkt. No. 1 ¶ 3. On October 2, 2012, Companion demanded arbitration by letter seeking, among other things, collateral to secure Allied Provident's obligations under the Reinsurance Agreement in an amount not less than $5 million. Dkt. No. 1 ¶ 8. As provided for in the Reinsurance Agreement, an arbitral panel was convened with each side appointing its own member of the three-person panel and the two party-appointed members appointing the third. Dkt. No. 1 ¶ 8.
The parties proceeded with arbitration without incident from October 2012 until August 2013. But in August 2013, Companion moved the panel for interim protection in the form of security for amounts allegedly owed and replenishment of amounts in the collateral reinsurance trust as required by the Reinsurance Agreement. Dkt. No 1 at ¶ 10; Dkt. No. 36 ¶ 7 (Christakos Decl.). At roughly the same time, Allied Provident's appointed arbitrator, Frederick G. Carroll,was diagnosed with a brain tumor that required surgery in September 2013. Dkt. No. 10 ¶ 4 (Caroll Decl.). There is dispute regarding the level of Carroll's participation in the arbitration proceedings from that point on, which will be discussed in detail below, but on October 2, 2013 the arbitral panel issued Panel Decision No. 4 granting Companion's motion (the "Interim Award"). Dkt. No. 1 ¶ 11. The Award states: "[Allied Provident] is hereby ordered (1) within 15 days, to post security for unreimbursed losses and expenses by placing funds in escrow under the control of the panel in the amount of $6,606,997, and (2) within 15 business days, to deposit to the reinsurance trust the amount of $2,136,755 or provide [Companion] an irrevocable letter of credit in that amount." Dkt. No. 1 ¶ 11.
Fifteen days following the Interim Order came and went with no compliance from Allied Provident. Dkt. No. 1 ¶ 13. On November 5, 2013, Companion filed a petition in this Court to confirm the Interim Award. Dkt. No. 1 at 4. Companion's petition sparked the resulting flood of motions and cross-motions now before the Court, with Allied Provident seeking to vacate or stay the Interim Award, disqualify the existing arbitral panel and appoint a new panel or stay the arbitration proceedings, and strike the declaration filed in this Court of one of the arbitrators, and Companion seeking to compel Allied Provident to select a new party arbitrator so that the arbitration can resume.
Companion petitioned this Court for a confirmation of the Interim Award pursuant to Section 9 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 9, and Allied Provident, in turn, moved to vacate the Interim Award pursuant to Section 10 of the FAA, 9 U.S.C. § 10. A petition to confirm or vacate an arbitration award under the FAA is "a summary proceeding that merely makes what is already a final arbitration award a judgment of the court." D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006) (internal quotation marks omitted) (quoting Florasynth, Inc. v. Pickholz, 750 F.2d 171, 176 (2d Cir. 1984)). Section 6 of the FAA providesthat any application under the FAA to the district court "shall be made and heard in the manner provided by law for the making and hearing of motions . . . ." 9 U.S.C. § 6. Therefore, a court may decide the merits of a petition to confirm or vacate an arbitration award "based solely on the papers submitted by the parties in support of their motions." Productos Mercantiles E Industrials, S.A. v. Faberge USA, 23 F.3d 41, 46 (2d Cir. 1994) (citing Legion Ins, Co. v. Ins. Gen. Agency, Inc., 822 F.2d 541, 541-43 (5th Cir. 1987)); U.S. Ship Mgmt., Inc. v. Maersk Line, Ltd., 188 F. Supp. 2d 358, 363 (S.D.N.Y. 2002) ("Under the FAA's motion procedure, the Court may consider an arbitration action by summary proceeding on the basis of the fully briefed motion papers and without the requirement of a hearing." (citing Rocket Jewelry Box, Inc. v. Noble Gift Packaging, Inc., 157 F.3d 174, 175 (2d Cir. 1998)); see also Fed. R. Civ. P. 43(c) ().
Companion's motion to confirm the Interim Award and Allied Provident's cross-motion to vacate or stay the Interim Award raise two principal issues. First, does the Court have the power to confirm this Interim Award? Second, even if the Court has the power to confirm the Interim Award, should the Award be confirmed or vacated because of the way in which the Award was reached? For the reasons that follow, the Court holds that it may confirm the Interim Award and that it will not vacate the Award or stay its effect.
Generally, "a district court does not have the power to review an interlocutory ruling by an arbitration panel." Michaels v. Mariforum Shipping, S.A., 624 F.2d 411, 414 (2d Cir. 1980) (collecting cases). The policy reason behind this rule is that "[m]ost of the advantages inherent in arbitration are dissipated by interlocutory appeals to a district court." Id.
However, courts across the country have concluded that an exception to this rule is sometimes necessary to fulfill the general purposes of arbitration. An exception is required, for example, if a panel has granted "an award of temporary equitable relief such as a security award, separable from the merits of the arbitration . . . ." British Ins. Co. v. Water St. Ins. Co., 93 F.Supp. 2d 506, 514 (S.D.N.Y. 2000) (collecting cases). As the Second Circuit stated in Banco de Seguros del Estado v. Mutual Marine Office, Inc., "[i]t is not the role of the courts to undermine the comprehensive grant of authority to arbitrators by prohibiting an arbitral security award that ensures a meaningful final award." 344 F.3d 255, 262 (2d Cir. 2003) (citing Yasuda Fire & Marine Ins. Co. of Europe Ltd. v. Cont'l Cas. Co., 37 F.3d 345, 348 (7th Cir. 1994); Pac. Reinsurance Mgmt. Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1025 (9th Cir. 1991); Island Creek Coal Sales Co. v. City of Gainesville, Fla., 729 F.2d 1046, 1049 (6th Cir. 1984)). Indeed, "[d]istrict courts have not hesitated to confirm drastic interim security awards." Cragwood Managers, LLC v. Reliance Ins. Co., 132 F. Supp. 2d 285, 288 (S.D.N.Y. 2001) (collecting cases). Thus, judicial confirmation of interim security awards is permitted when such confirmation is necessary to ensure the integrity of arbitration.
The arbitral panel in this case issued its Interim Award for prehearing security on October 2, 2013 and set a deadline of fifteen days from the issuance of the Award for Allied Provident to comply. More than a month after the decision was rendered, Allied Provident had still not complied with the panel's decision. Allied Provident...
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