Todd v. STEAMSHIP MUT. UNDERWRITING ASS'N

• Decision Date: 18 March 2010
• Docket Number: No. 09-30177.,09-30177.
• Citation: 601 F.3d 329
• Parties: Anthony TODD, Plaintiff-Appellee, v. STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LIMITED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

601 F.3d 329

Anthony TODD, Plaintiff-Appellee, v. STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LIMITED, Defendant-Appellant.

No. 09-30177.

United States Court of Appeals, Fifth Circuit.

March 18, 2010.

William Steven Mannear (argued), Poynter, Mannear & Co., P.L.C., Baton Rouge, LA, for Plaintiff-Appellee.

Jeremy John Oliver Harwood (argued), Blank Rome, L.L.P., New York City, Wilton Ellwood Bland, III, Mouledoux, Bland, Legrand & Brackett, L.L.C., New Orleans, LA, for Defendant-Appellant.

Before GARWOOD, WIENER, and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

Appellant Steamship Mutual Underwriting Association (Bermuda) Limited ("Steamship") appeals from the district court's denial of its motion to compel Appellee Anthony Todd to arbitrate his claims against Steamship. The district court premised its denial exclusively on our previous decision in Zimmerman v. International Companies & Consulting, Inc., 107 F.3d 344 (5th Cir.1997). We conclude that the Supreme Court's recent opinion in Arthur Andersen LLP v. Carlisle, released after Steamship filed this appeal, has effectively overruled Zimmerman. ___ U.S. ___, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009). As a result, we reverse the district court's dismissal of Steamship's motion and remand this case for further proceedings to determine whether Todd can be compelled to arbitrate.

I.

Early in 2000, Todd was injured while serving as a chef onboard the M/V AMERICAN QUEEN, a replica steamboat owned and operated by the Delta Queen Steamboat Company ("Delta Queen"). When the injury occurred, the ship was cruising along the Mississippi River in the state of Louisiana. In 2001, Delta Queen filed for bankruptcy protection, but Todd won approval from the bankruptcy court to proceed with a suit against Delta Queen. Eventually, Todd won a judgment against Delta Queen in Louisiana state court in 2007, but Delta Queen has yet to satisfy this judgment.¹

At the time of Todd's injury, Steamship insured Delta Queen against liability for injuries to its employees. In 2008, Todd filed suit in Louisiana state court against Steamship, attempting to collect on his judgment against Delta Queen. Todd's suit is authorized by Louisiana's "direct action" statute, which allows injured individuals to proceed directly against insurers when an insured tortfeasor is insolvent. See La.Rev.Stat. Ann. § 22:1269 (2009).² Todd raised four causes of action against Steamship, asserting that (i) Steamship is liable to Todd for his injuries onboard the M/V AMERICAN QUEEN, less any deductible, (ii) Steamship failed to negotiate with Todd in good faith, (iii) Steamship failed to make reasonable efforts to settle with Todd, and (iv) Steamship's "members"—i.e., other entities insured by Steamship—should be declared jointly and severally liable to Todd.

In response, Steamship removed this suit to federal district court. It then asked the district court to stay the proceedings and to compel Todd to arbitrate his claims pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38. Steamship argued that since all of Todd's causes of action derive from Delta Queen's policy with Steamship, he should be bound by the clause in the policy requiring Delta Queen to arbitrate certain disputes with Steamship.³ However, the district court ruled that it would not compel arbitration, as it found that our decision in Zimmerman foreclosed referring this case to arbitration. Indeed, the court found Zimmerman to be so dispositive that it decided not to write an opinion explaining its decision, as it concluded that writing anything at all would be merely "wasting trees." Steamship has now appealed the district court's denial of its motion to stay this case and compel arbitration.

II.

We have appellate jurisdiction over this case under 9 U.S.C. §§ 16(a)(1)(A) and 16(a)(1)(C), which allow us to hear interlocutory appeals from orders "refusing a stay of any action under" the Federal Arbitration Act ("FAA") and orders "denying an application under the New York Convention to compel arbitration." See Carlisle, 129 S.Ct. at 1900 ("Any litigant who asks for a stay under the FAA is entitled to an immediate appeal from denial of that motion—regardless of whether the litigant is in fact eligible for a stay."). When we exercise this jurisdiction, we review denials of motions to compel arbitration de novo. Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir.2002).

Before we begin our analysis, we provide some brief background to help orient the reader with respect to the relationship between the New York Convention and the primary domestic source of federal arbitration law, the FAA, 9 U.S.C. §§ 1-16 (2006). In this case, Steamship must seek relief at least in part under the New York Convention, as Steamship seeks to compel Todd to arbitrate outside the United States.⁴ However, the FAA has some application to this case. The Convention's implementing legislation incorporates the entire FAA, at least to the extent that the FAA does not conflict with the Convention. See 9 U.S.C. § 208; Yusuf Ahmed Alghanim & Sons v. Toys "R" Us, Inc., 126 F.3d 15, 20 (2d Cir.1997) (explaining that "the FAA and the Convention have `overlapping coverage' to the extent that they do not conflict" (quoting Bergesen v. Joseph Muller Corp., 710 F.2d 928, 934 (2d Cir.1983))). For example, the Convention and its implementing legislation do not explicitly authorize staying litigation pending arbitration, and thus parties whose arbitration agreements fall under the Convention have had to seek authority for stays under 9 U.S.C. § 3, a provision of the domestic FAA. See, e.g., DiMercurio v. Sphere Drake Ins., PLC, 202 F.3d 71, 77-78 (1st Cir.2000); Energy Transp., Ltd. v. M.V. San Sebastian, 348 F.Supp.2d 186, 201 (S.D.N.Y.2004).

With this prologue complete, we now turn to the issues raised by this case. As explained above, the district court found that our decision in Zimmerman foreclosed ruling in favor of Steamship, and consequently it denied Steamship's motion to compel arbitration without authoring an opinion. However, after the district court denied Steamship's motion, the Supreme Court released its opinion in Carlisle. We conclude that Carlisle effectively overrules Zimmerman, at least insofar as Zimmerman would apply in this case to prevent Steamship from compelling Todd to arbitrate his claims. Additionally, we find that Carlisle also effectively overrules our earlier decision in In re Talbott Big Foot, Inc., which is factually indistinguishable from Zimmerman. 887 F.2d 611 (5th Cir.1989). As a result, since we have not benefitted from a full airing below of the issues presented by this case, we remand Todd's action to the district court for a determination of whether Todd can be compelled to arbitrate now that Zimmerman has been displaced. Nevertheless, we write to provide guidance for the district court on remand and to explain why we conclude that Carlisle invalidates Zimmerman and Big Foot.

A.

In Zimmerman and Big Foot, injured seamen filed claims against their employers' foreign insurers under Louisiana's direct action statute. Zimmerman, 107 F.3d at 345; Big Foot, 887 F.2d at 612. As explained above, the direct action statute allows injured individuals to proceed directly against tortfeasors' insurers in certain circumstances. See La.Rev.Stat. Ann. § 22:1269. In response to the direct actions, the insurers sought to stay the seamen's suits until the insurers had exercised their contractual right to arbitrate with the seamen's employers. Zimmerman, 107 F.3d at 345; Big Foot, 887 F.2d at 612. In both cases, we engaged in an analysis that largely focused on the FAA,⁵ and we found that a stay was inappropriate.⁶

The facts before us in this case are somewhat different. Unlike Zimmerman and Big Foot, a foreign insurer is not merely seeking to stay a direct action plaintiff's lawsuit until the conclusion of arbitration with its insured. Instead, Steamship is seeking to compel a direct action plaintiff to arbitrate. Another distinction is that unlike the direct action plaintiffs in Big Foot and Zimmerman, Todd has already won a judgment against Steamship's insured and is suing Steamship to collect on it. Despite these differences, however, if Zimmerman and Big Foot were still valid, their reasoning would sweep broadly enough to rule out arbitration under the facts of this case. Specifically, in Zimmerman, we determined that staying an injured worker's direct action would be inappropriate because:

The FAA does not require arbitration unless the parties to a dispute have agreed to refer it to arbitration. Likewise, the mandatory stay provision of the FAA does not apply to those who are not contractually bound by the arbitration agreement. Thus, the FAA, the source of the federal policy favoring arbitration, has no application to require direct action plaintiffs to arbitrate or to stay their lawsuits during arbitration.

107 F.3d at 346 (citations omitted).⁷ If Zimmerman were correct that the federal policy favoring arbitration has no application to direct action plaintiffs, then Steamship could not compel Todd to arbitrate.

In Carlisle, however, the Supreme Court rejected the reasoning in Zimmerman and Big Foot, concluding instead that nonsignatories to arbitration agreements (such as direct action plaintiffs) may sometimes be compelled to arbitrate. It clarified that while the FAA "creates substantive federal law regarding the enforceability of arbitration agreements, . . . background principles of state contract law" control the interpretation of the scope of such agreements, "including the question of who is bound by them." 129 S.Ct. at 1901-02. The Supreme Court then explained that "`traditional principles' of state law allow a contract to be enforced by or against nonparties to the contract through ...