Yasuda Fire & Marine Ins. Co. of Europe, Ltd v. Continental Cas. Co., s. 94-1197

• Decision Date: 07 October 1994
• Docket Number: 94-1986,Nos. 94-1197,s. 94-1197
• Citation: 37 F.3d 345
• Parties: The YASUDA FIRE & MARINE INSURANCE COMPANY OF EUROPE, LTD., Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, a CNA Group Company, Defendant-Appellee. CONTINENTAL CASUALTY COMPANY, a CNA Group Company, Plaintiff-Appellee, v. The YASUDA FIRE & MARINE INSURANCE COMPANY OF EUROPE, LTD., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 345

37 F.3d 345

The YASUDA FIRE & MARINE INSURANCE COMPANY OF EUROPE, LTD., Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, a CNA Group Company,

Defendant-Appellee.

CONTINENTAL CASUALTY COMPANY, a CNA Group Company, Plaintiff-Appellee, v. The YASUDA FIRE & MARINE INSURANCE COMPANY OF EUROPE, LTD.,

Defendant-Appellant.

Nos. 94-1197, 94-1986.

United States Court of Appeals Seventh Circuit.

Argued June 9, 1994.

Decided Oct. 7, 1994.

Susan A. Stone, Joseph T. McCullough, IV (argued), Jordan Schau, Sidley & Austin, Chicago, IL, for Yasuda Fire & Marine Ins. Co. of Europe, Ltd.

Michael H. Goldstein (argued), Lisa S. Post, Mound, Cotton & Wollan, New York City, Kenneth L. Cunniff, Chicago, IL, for Continental Cas. Co. and CNA Ins. Group.

Before MANION and KANNE, Circuit Judges, and SHABAZ, District Judge. ^*

KANNE, Circuit Judge.

Yasuda Fire & Marine Insurance Company of Europe, Limited ("Yasuda") brought this case to vacate an interim arbitration award in favor of Continental Casualty Company, a CNA Group Company ("CNA"). Yasuda argued to the district court that the arbitration panel charged with resolving Yasuda's dispute with CNA did not have authority to order Yasuda to post an interim letter of credit, that the letter of credit was excessive, and that the arbitration panel did not give Yasuda a fair hearing. The district court sua sponte denied Yasuda's Petition to Vacate Arbitration Awards ("Petition to Vacate"). In its memorandum opinion and order, the district court ruled that the arbitration panel had the power to order Yasuda to post an interim letter of credit in the amount of $2,549,660 and that the panel had afforded Yasuda a fair hearing. Yasuda Fire & Marine Ins. Co. v. Continental Casualty Co., 840 F.Supp. 578 (N.D.Ill.1993). Yasuda appeals, challenging the district court's holdings with regard to three issues: (1) Whether Yasuda's reinsurance agreement with CNA provided the arbitrators with the power to order Yasuda to post a Letter of Credit as interim security pending arbitration; (2) whether the reinsurance agreement permitted the amount of security which the arbitrators ordered; and (3) whether the arbitrators afforded Yasuda due process in determining the proper amount of the security.

In addition to the issues Yasuda raises, this Court considers whether an award of interim security pending arbitration constitutes an "award" within the meaning of 9 U.S.C. Sec. 10(a)(4) and whether a district court's refusal to vacate an interim security award is a final decision appealable under 9 U.S.C. Sec. 16(a)(3). Section 10(a)(4) confers jurisdiction on the district court to vacate arbitration awards in limited circumstances. If interim security does not constitute an award within this statute, the district court had no jurisdiction to hear this case. ¹ Section 16(a)(3) confers jurisdiction upon this court to hear appeals from final decisions of the district court relating to arbitration conducted under the Federal Arbitration Act. If the district court's disposition of Yasuda's Petition to Vacate does not constitute a final decision, we do not have jurisdiction to hear this case.

Background

Yasuda and CNA entered into four reinsurance agreements in the early 1980's. Yasuda is the reinsurer, CNA the reinsured. These agreements contain nearly identical provisions requiring the parties to submit disputes arising under them to a three-person arbitration panel. ² They also contain provisions requiring Yasuda to post letters of credit upon CNA's request (e.g., First Excess of Loss Reinsurance Agreement, Article 15, Appendix to Brief of Appellants, at A40). ³

On April 3, 1992, CNA served a demand for arbitration on Yasuda to resolve CNA's contention that Yasuda had failed to pay CNA its share of losses arising under policies properly ceded to the reinsurance agreements. On June 2, 1992, Yasuda served a cross-demand for arbitration on CNA. On November 30, 1993, the parties met for a preliminary hearing with the arbitration panel. At this hearing the arbitration panel considered CNA's claim for preliminary security in the amount of $2,549,660 against a possible future arbitration award. The arbitration panel awarded CNA's request for preliminary relief by ordering Yasuda to post an interim letter of credit in the amount of $2,549,660. Yasuda now appeals this order of the arbitration panel.

Analysis

I. Jurisdictional Issues

Before proceeding to the issues which Yasuda raises, we find it necessary to resolve two jurisdictional problems. The court has a duty to resolve apparent jurisdictional questions even where the parties do not raise them. Fed.R.Civ.P. 12(h)(3); see United Steelworkers v. Libby, McNeil & Libby, 895 F.2d 421 (7th Cir.1990) (stating that "Every federal appellate court has a special obligation to satisfy itself of the jurisdiction of the lower federal courts in a case under review." (citations omitted)).

a. "Award" Under 9 U.S.C. Sec. 10

First, we must consider whether an interim order of security (such as a letter of credit) constitutes an "award" subject to 9 U.S.C. Sec. 10, which provides:

(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration--

* * * * * *

(4) Where the arbitrators exceeded their powers;

9 U.S.C. Sec. 10(a)(4). Yasuda claims that the arbitration panel exceeded its powers when it ordered Yasuda to post an interim letter of credit. If the panel's order does not constitute a statutory award, Yasuda has failed to present a claim which the federal courts can adjudicate.

Other circuits have recognized that interim relief pending final arbitration can be subject to district court confirmation. ⁴ For example, the Sixth Circuit held that an interim arbitration award that required the defendant-city to continue performance of a coal purchase contract until the arbitration panel issued its final award was subject to confirmation. Island Creek Coal Sales Co. v. City of Gainesville, Florida, 729 F.2d 1046, 1049 (6th Cir.1984) (reasoning that the interim award disposed of a "separate, discrete, independent, severable issue": whether the city had to perform the contract during the pendency of the arbitration proceedings), cert. denied, 474 U.S. 948, 106 S.Ct. 346, 88 L.Ed.2d 293 (1985). The Second Circuit, though not addressing the issue, noted the district court's rejection of the argument that an arbitration panel's resolution of an interim dispute over a letter of credit was not ripe for confirmation. Sperry Int'l Trade v. Israel, 689 F.2d 301, 304 n. 3 (2d Cir.1982) (relating district court's conclusion that an interim award "was a final decision as to the severable issues regarding the letter of credit" in light of award's own stipulation that either party could seek confirmation).

The Ninth Circuit upheld the power of a district court to review an Interim Final Order (IFO) establishing an escrow account with the money a plaintiff claimed to be due under its contract with the defendant. Pacific Reinsurance v. Ohio Reinsurance, 935 F.2d 1019, 1023 (9th Cir.1991). The Pacific Reinsurance court reasoned that "[g]iven the potential importance of temporary equitable awards in making the arbitration proceedings meaningful, court enforcement of them, when appropriate, is ... essential to preserve the integrity of ... [the arbitration] process." Id. More precisely, the court held that "temporary equitable orders calculated to preserve assets or performance needed to make a potential final award more meaningful ... are final orders that can be reviewed for confirmation and enforcement by district courts under the FAA." Id. (citation omitted).

We find the Ninth Circuit's reasoning and conclusion persuasive. The arbitration panel in this case ordered Yasuda to post an interim letter of credit in order to protect a possible final award in favor of CNA. The panel concluded that if it did not order interim relief CNA would have to bear the risk that any final award it might win would be meaningless. Because this relief protects CNA's interests, CNA has the right to confirm the order in district court, which it has done. ⁵ Analogously, Yasuda should have the right to attack this relief if it believes that the panel exceeded its powers in granting the relief. The interim relief represents a "temporary equitable order[ ] calculated to preserve assets ... needed to make a potential final award more meaningful." Id. Accordingly, we find that the interim letter of credit constitutes an "award" under section 10 and that the district court had jurisdiction to consider Yasuda's Petition to Vacate.

b. "Final Order" Under 9 U.S.C. Sec. 16

Second, we must consider whether the district court has issued a final order over which this court has appellate jurisdiction. Generally, only a final decision of the district court is appealable to a court of appeals. 28 U.S.C. Sec. 1291; Shearson Loeb Rhoades Inc. v. Much, 754 F.2d 773, 775 (7th Cir.1985). The statute at issue here, 9 U.S.C. Sec. 16(a)(3), does not define the term "final decision" beyond the interpretation courts have understood under 28 U.S.C. Sec. 1291. Perera v. Siegel Trading Co., Inc., 951 F.2d 780, 783 (7th Cir.1992). Accordingly, this Court has assumed that Congress intended the term "final decision" in section 16 to retain its meaning under section 1291. Id. Thus, if dismissing a petition to vacate an interim order of security does not constitute such a final decision, we do not have jurisdiction to review the district court's disposition.

We have held that, where a district court vacates a damages award and remands it to the arbitrator for recalculation, we do not have jurisdiction under section 1291. Shearson Loeb Rhoades, 754 F.2d at 778. We noted in dicta, however, that "[t]his court would clearly have jurisdiction under section 1291 if the district court had...