USA. v. Bankers Ins. Co.

Decision Date02 November 2000
Docket NumberNo. 00-1342,00-1342
Parties(4th Cir. 2001) UNITED STATES OF AMERICA, Plaintiff-Appellee, v. BANKERS INSURANCE COMPANY, Defendant-Appellant. Argued:
CourtU.S. Court of Appeals — Fourth Circuit

Appeal from the United States District Court for the District of Maryland, at Greenbelt. J. Frederick Motz, Chief District Judge.

(CA-99-3538-JFM)

[Copyrighted Material Omitted] COUNSEL: ARGUED: Barry Steven Simon, WILLIAMS & CONNOLLY, L.L.P., Washington, D.C., for Appellant. S. Hollis Fleischer, Assistant United States Attorney, Baltimore, Maryland, for Appellee. ON BRIEF: William R. Murray, Jr., Eric R. Delinsky, WILLIAMS & CONNOLLY, L.L.P., Washington, D.C., for Appellant. Lynne A. Battaglia, United States Attorney, Baltimore, Maryland, for Appellee.

Before WIDENER and KING, Circuit Judges, and Margaret B. SEYMOUR, United States District Judge for the District of South Carolina, sitting by designation.

Reversed and remanded by published opinion. Judge King wrote the opinion, in which Judge Widener joined. Judge Seymour wrote an opinion concurring in part and dissenting in part.

OPINION

KING, Circuit Judge:

This appeal arises from a civil suit initiated by the Government in November 1999 in the District of Maryland, on behalf of the Federal Emergency Management Agency ("FEMA"), against Bankers Insurance Company. In its Complaint, the Government asserts three common law theories of recovery, plus a separate statutory claim under the False Claims Act, 31 U.S.C. SS 3729-3733 ("FCA"). Bankers sought to stay the litigation proceedings pending arbitration, but the district court denied its stay request. Bankers has appealed the district court's ruling pursuant to 9 U.S.C. S 16(a)(1)(A) (authorizing interlocutory appeals to review denials of motions to stay proceedings pending arbitration). For the reasons explained below, we reverse and remand.

I.
A.

Bankers is a private insurance company that sells and administers flood insurance policies through the National Flood Insurance Program ("NFIP").1 In 1983, the Federal Insurance Administration ("FIA"), which is charged by FEMA with administration of the NFIP, see 44 C.F.R. S 2.31 (1999), established the Write-Your-Own ("WYO") program, under which commercial insurance companies sell and administer flood insurance policies to the public. See 44 C.F.R. S 62.23 (1999). Bankers has been a participant (an "insurer" and a "WYO Company") in the WYO program since its inception, when Bankers entered into a Financial Assistance/Subsidy Arrangement ("Arrangement") with FEMA and the FIA. According to the Complaint, Bankers and the Government renewed the Arrangement annually from 1984 until 1997. The Arrangement, which tracks a form agreement promulgated and mandated by FEMA in the Code of Federal Regulations, governs the terms and conditions of all WYO program insurers in their sale and administration of federal flood insurance. See 44 C.F.R. S 62 app. A. Of significance to this appeal, both the Arrangement and the C.F.R. form agreement contain the following arbitration provision:

Article VIII -Arbitration

If any misunderstanding or dispute arises between the Company [Bankers] and the FIA with reference to any factual issue under any provisions of this Arrangement . . . such misunderstanding or dispute may be submitted to arbitration for a determination [that] shall be binding upon approval by the FIA.

Id. and J.A. 42.

In its Complaint, the Government has sued Bankers for a variety of alleged contract breaches stemming from a course of conduct beginning in fiscal year 1989 and lasting until September 1997. The Complaint asserts, inter alia, that Bankers failed to turn over to the Government all interest earned on NFIP funds under the Arrangement, and also that Bankers failed to provide the FIA with true and accurate information regarding administration of the NFIP and the interest earned on NFIP funds. The four bases for recovery embodied in the Complaint are: violation of the False Claims Act (Count I), breach of contract (Count II), negligent misrepresentation (Count III), and unjust enrichment (Count IV).2 Bankers responded to the Complaint by filing its motion to stay the proceedings pending arbitration under Article VIII of the Arrangement. The district court, by letter opinion of March 14, 2000 (the "Order"), denied the stay request and allowed the Government's suit to proceed without arbitration of its claims.

In the Order, the district court correctly observed that, "as a general proposition, there is a `heavy presumption of arbitrability.'" Order, at 1 (citing American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 92 (4th Cir. 1996)). The court ruled, however, that traditional principles governing arbitration have no application to a "suit brought by a federal agency asserting, inter alia, a claim under the False Claims Act." Order, at 1. While this appeal appears to present a question of first impression -whether the existence of an FCA claim precludes arbitration of a contract dispute involving the Government -we address this issue with substantial guidance. The federal courts have on numerous occasions spoken on issues relating to arbitration and the obligations of the Government when it enters into contracts with private parties.

B.

Bankers advances several contentions in support of its position that the arbitration provision contained in the Arrangement is binding in this case. First, Bankers asserts that the applicable authorities prescribe that arbitration clauses similar to that in this case -clauses that speak permissively (i.e., "may be submitted to arbitration") -are in fact typically construed as mandatory arbitration clauses. Second, Bankers contends that the district court erred when it ignored the "heavy presumption of arbitrability" simply because this litigation involves the assertion of an FCA claim. Finally, Bankers stresses that, since all claims in the Complaint arise from the Arrangement, each (including the FCA claim) must be submitted to arbitration pursuant to the arbitration agreement.

The Government counters by echoing the reasoning of the district court, and it revives an argument presented to -but not addressed by -the court below: sovereign immunity. The Government contends that sovereign immunity precludes application of the arbitration agreement absent the Government's current consent to arbitrate. Additionally, the Government's opposition to arbitration is premised on the permissive nature of the arbitration provision and the NFIA's specific statutory prohibition against binding arbitration.3 Finally, the Government asserts that since the Attorney General was not a party to the Arrangement, he cannot be bound to arbitrate an FCA claim arising thereunder.

II.

Under the Federal Arbitration Act ("FAA"), a court is required to stay "any suit or proceeding" pending the arbitration of "any issue referable to arbitration under an agreement in writing for such arbitration." 9 U.S.C. S 3.4 Because ascertaining the scope of an arbitration agreement is primarily a task of contract interpretation, we review de novo a district court's determination of the arbitrability of a dispute. See Cara's Notions, Inc. v. Hallmark Cards, Inc. , 140 F.3d 566, 569 (4th Cir. 1998). However, "in applying [common law] principles of contract interpretation to the interpretation of an arbitration agreement within the scope of the [FAA], due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration." Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76 (1989) (internal citations omitted); see also Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983) ("[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration[.]"). If the issues in the case are within the contemplation of the arbitration agreement, the FAA's stay-of-litigation provision is mandatory, and there is no discretion vested in the district court to deny the stay. In re Complaint of Hornbeck Offshore Corp., 981 F.2d 752, 754 (5th Cir. 1993); see also Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 937 (4th Cir. 1999).

III.
A.

The Government first contends that it has not waived its sovereign immunity, and therefore it cannot be forced to engage in the arbitration process contemplated in the Arrangement. We see the Government's reliance on the doctrine of sovereign immunity as misplaced, and in these circumstances it borders on frivolous. The Government prepared the terms of the Arrangement -including its arbitration provision -and imposed them, through its WYO program, on Bankers.5 The Government now purports not to be bound by its own words, leaving it free to litigate at its whim. Sovereign immunity is not a sword, but a shield; and as a shield it means simply that "the United States cannot be sued at all without the consent of Congress." Block v. North Dakota, 461 U.S. 273, 287 (1983). Sovereign immunity does not permit the Government to sue a third party and then pick and choose the judicial constraints and contractual obligations with which it will abide. See Guaranty Trust Co. v. United States, 304 U.S. 126, 134 (1938) ("By voluntarily appearing in the role of suitor [the sovereign] abandons its immunity from suit and subjects itself to the procedure and rules of decision governing the forum which it has sought.").6

Put simply, the doctrine of sovereign immunity is not in any way implicated or threatened by the Government's compliance with its contract obligations. When the Government chooses to seek damages in a civil action, it -like all parties -should abide by the law, including an arbitration process to which it is contractually bound.

B.

Because sovereign immunity does not apply here, our...

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