Administrative Management Services, Ltd., Inc. v. Royal American Managers, Inc., the Omaha Indemnity Company, a Corporation
Docket: 87-5573
Court: Court of Appeals for the Eleventh Circuit; September 14, 1988; Federal Appellate Court
Omaha Indemnity Company (OI) appeals a district court decision denying its motion to compel arbitration under Section 4 of the Arbitration Act, arguing a dispute regarding the arbitration provision in a retrocessional reinsurance agreement. However, the court finds it lacks jurisdiction to address the appeal. In this diversity action, Administrative Management Services Syndicate, Ltd. Inc. (AMS) is suing OI and Royal American Managers, Inc. (RAM) for breach of contract and fraud related to a 1983 Management Agreement, under which RAM managed reinsurance business for OI. A retrocessional reinsurance agreement was formed, retroceding some risks from RAM to AMS, which was to take effect simultaneously with the Management Agreement. OI later revoked RAM's authority without notifying AMS, leading to underreporting of business volume to AMS. AMS discovered in December 1985 that RAM had exceeded its maximum capacity to insure, resulting in significant losses and regulatory intervention. AMS initiated its lawsuit against RAM in February 1986, later adding OI and RAM's principals, Wining and Schonacher, as defendants. OI subsequently commenced a separate action against RAM and others in Missouri, which has been stayed pending arbitration, although discovery continues.
OI initiated arbitration proceedings against AMS and RAM based on the arbitration clause in their reinsurance contract. When AMS declined to participate, OI filed a petition in a Florida federal district court to compel arbitration. The court denied OI's motion, ruling that the arbitration provision was void due to lack of consideration and indefiniteness. Although the court determined that RAM was a party to both the reinsurance agreement and the arbitration clause, it found the ambiguity in the arbitration provision prevented it from reforming the clause to reflect the parties' intent.
OI subsequently appealed the district court's denial. AMS argued that the appellate court lacked jurisdiction to hear the appeal. After oral arguments, the appellate court requested additional briefs on jurisdictional issues. OI claimed jurisdiction under 28 U.S.C. Sec. 1291, asserting that its petition was an independent action initially filed in Nebraska before being transferred to Florida. However, the appellate court dismissed the appeal, emphasizing that not all claims or parties were included in OI's motion, violating the policy against piecemeal litigation inherent in Sec. 1291.
The court reiterated that appeals are typically only permissible when a district court's decision resolves all claims in a case. Previous rulings confirmed that jurisdiction under Sec. 1291 requires that all claims involved must be addressed in the motion. In a cited precedent, the motion to compel arbitration had encompassed all underlying claims, unlike in OI's situation.
In La Nacional Platanera v. North American Fruit Steamship Corp., 84 F.2d 881 (5th Cir. 1936), the Fifth Circuit established that it had jurisdiction under Section 1291 to review an order denying a Section 4 motion to compel arbitration. The case involved a breach of charter party contract where the plaintiff sought damages in state court, but the defendant moved the case to federal court. After the motion to remand was denied, the plaintiff's subsequent petition to compel arbitration was also denied. The Fifth Circuit characterized this as a 'suit at law' and deemed the district court's denial a final, appealable order. It was inferred that the motion to compel arbitration encompassed all claims from the underlying suit.
In Naples v. Prepakt Concrete Co., 494 F.2d 511 (5th Cir. 1974), the Fifth Circuit again asserted Section 1291 jurisdiction, this time over an order granting a motion to compel arbitration. The City of Naples sued Prepakt in state court, which was removed to federal court. The district court compelled arbitration, resulting in a $90,000 award to Prepakt. The City later sought an injunction against further proceedings in other federal courts. Although it was unclear if all claims were included in the Section 4 motion, the court in Miller v. Drexel Burnham Lambert, Inc., 791 F.2d 850 (11th Cir. 1986), characterized Naples as having all claims directed to arbitration. The Fifth Circuit noted that the City’s claim against Prepakt's surety was contingent on Prepakt's liability, suggesting all claims were resolved in the arbitration.
The court reaffirmed that if not all claims are included in a motion to compel arbitration, it lacks appellate jurisdiction. In Miller, it was stated that certain orders compelling arbitration might be final under 28 U.S.C. Section 1291 if they dispose of all issues before the district court, but the court declined jurisdiction over an order that did not dispose of all claims.
The plaintiff in Miller initiated a lawsuit against his broker and the broker's employer, alleging violations of the 1933 and 1934 Securities Acts and breaching fiduciary duty. The defendants sought to compel arbitration and stay judicial proceedings based on their brokerage agreements. The district court granted this motion for the 1934 Act and fiduciary duty claims. However, an appellate panel found it lacked Sec. 1291 jurisdiction because the claim under the 1933 Securities Act was deemed non-arbitrable, referencing Wilko v. Swan. Subsequently, jurisdiction was granted under Sec. 1292(a)(1), based on the now-overturned Enelow-Ettelson doctrine.
The appellate court ultimately concluded that the 1934 Securities Exchange Act claim was also non-arbitrable. Although the Supreme Court later determined that claims under the 1934 Act could be arbitrable (Shearson/American Express, Inc. v. McMahon), the court noted that the status of arbitrability for claims under Sec. 12(2) of the 1933 Act remains unresolved as Wilko has not been overruled. The Miller case established that if not all claims are included in a Sec. 4 motion to compel arbitration, Sec. 1291 jurisdiction cannot be invoked. The court expressed concern that unresolved claims would lead to wasted judicial resources, requiring parties to return to court after arbitration for those claims.
The reasoning applied in Miller extends to cases where arbitration is denied. If jurisdiction were asserted over a denial of a motion to compel arbitration that does not encompass all claims, the litigation would be unnecessarily prolonged. The court highlighted that the situation presented a stronger case against asserting Sec. 1291 jurisdiction compared to Miller, as not all claims and parties were included in the arbitration motion, threatening the policy intent behind Sec. 1291.
Omaha Indemnity argues for jurisdiction under the collateral-order exception to the finality requirement of 28 U.S.C. § 1291. According to Cohen v. Beneficial Industrial Loan Corporation, a district court's decision is appealable if it conclusively determines claims that are separable and collateral to the main action, are too significant to deny review, and are independent enough to not delay appellate consideration until the entire case is resolved. However, the third prong—whether the order is effectively unreviewable on appeal from a final judgment—is not satisfied here, as an erroneous denial of arbitration could be reversed upon final judgment, allowing for arbitration to occur. Thus, the court is precluded from reviewing Omaha Indemnity’s appeal under the collateral-order exception.
Omaha Indemnity also asserts jurisdiction under 28 U.S.C. § 1292(a)(1), which allows for appeals on orders that grant, modify, refuse, or dissolve injunctions. Previously, orders compelling arbitration could be seen as appealable injunctions under the Enelow-Ettelson doctrine; however, this doctrine was overruled by Gulfstream Aerospace, limiting § 1292(a)(1) to orders that grant or deny injunctions with serious consequences. Omaha Indemnity claims that the district court's denial of its motion to compel arbitration has the practical effect of a mandatory injunction, referencing Sinclair Refining Co. v. Atkinson, where similar orders were described as mandatory injunctions. The discussion also touches upon the jurisdictional implications of orders that compel arbitration under the Norris-LaGuardia Act, noting that while an order may direct specific actions, determining if it constitutes an injunction for jurisdictional purposes under § 1292(a)(1) is a separate issue.
Many courts, including this one, have determined that orders compelling arbitration do not qualify as injunctions under 28 U.S.C. § 1292(a)(1). The court referenced its previous ruling in Miller, which acknowledged that compelling arbitration effectively enjoins further judicial proceedings on the relevant claims, but clarified that the practical effect alone does not meet the standards of § 1292(a)(1). This section was upheld in the context of the Enelow-Ettelson rule, which mandates that the underlying action must be legal and the order must arise from an equitable defense or counterclaim for it to be appealable. The Supreme Court’s decision in Gulfstream Aerospace reinforced that an order must have serious, potentially irreparable consequences to be considered under this statute, adhering to the policy against piecemeal review and the limited exceptions to the final-judgment rule outlined in § 1292(a)(1).
OI argued that immediate appeal was necessary to prevent irreparable harm due to the Arbitration Act's policy favoring quick dispute resolution. However, the court noted that OI could still seek review of the district court's order after final judgment, indicating that the lack of immediate appeal would not lead to irreparable consequences. Consequently, the appeal was dismissed for lack of appellate jurisdiction. Additionally, AMS's amended complaint includes allegations of fraudulent inducement, fraud, breach of contract, and violations of both the RICO Act and the Florida RICO Act. OI initially filed its petition to compel arbitration in Nebraska but later transferred the case to Florida's district court, which accepted jurisdiction. Notably, OI did not challenge the district court's decision regarding RAM, as arbitration was already underway between them. Lastly, any decisions from the former Fifth Circuit prior to October 1, 1981, remain binding on this court.
In Mar-Len of Louisiana, Inc. v. Parsons-Gilbane, the Fifth Circuit incorrectly categorized La Nacional as a case asserting Sec. 1292(a)(1) jurisdiction under the Enelow-Ettelson doctrine, which contradicts La Nacional's text. La Nacional indicated that had the defendant filed a petition for arbitration, an order denying that right would be appealable under Shanferoke Coal Supply Corp. v. Westchester Service Corp. A footnote in La Nacional suggested that an order compelling arbitration is final and appealable under Sec. 1291. The current court interprets Coastal Industries as addressing Sec. 4 motions that resolve all underlying claims. AMS argues that not all claims were covered, noting OI's failure to appeal the denial of its Sec. 4 motion against RAM, which is moot since OI and RAM are already arbitrating their disputes. The court affirms that Sec. 1291 jurisdiction exists when all claims are disposed of by a Sec. 4 motion, but other circuits have adopted a stricter interpretation against piecemeal litigation, ruling that a Sec. 4 motion is not final if it is filed in a pending action. This approach aims to promote judicial economy and efficient dispute resolution.
