National American Insurance Company v. Transamerica Occidental Life Insurance Company
Docket: 02-1992
Court: Court of Appeals for the Eighth Circuit; June 17, 2003; Federal Appellate Court
During arbitration proceedings between National American Insurance Company (NAICO) and Transamerica Occidental Life Insurance Company (Transamerica), a member of the arbitration panel resigned, prompting NAICO to seek a court-appointed replacement under 9 U.S.C. § 5 after the parties failed to agree on a replacement process. Transamerica counterclaimed that NAICO had waived its right to arbitrate due to a previous arbitration involving similar reinsurance contracts. The district court appointed an arbitrator but deferred the waiver issue to the arbitration panel for resolution. The dispute originates from two reinsurance contracts effective April 1, 1990, which included provisions for arbitration. NAICO initiated arbitration in March 1999, leading to the appointment of a three-member panel that managed discovery and issued orders, including one requiring Transamerica to pay attorney fees to NAICO for non-compliance. Following the resignation of Transamerica's arbitrator in December 2000, NAICO requested a replacement, to which Transamerica countered with a demand for a new panel. The district court, after considering recommendations from a magistrate judge, ruled to appoint a replacement and to leave the waiver question to the arbitration panel, a decision that Transamerica subsequently appealed. The Court of Appeals affirmed the district court's decision.
The district court determined that, in accordance with the arbitration clause, a new arbitrator is to be appointed to complete the term of a resigning panel member, rather than forming a new panel and starting the process over, which would cause unnecessary delays and resource waste. The discovery process has already been extensive, lasting over a year, with significant resources invested by the parties. If the new arbitrator faces disadvantages due to their later appointment, the existing members can address this issue collectively. The court endorsed Magistrate Judge Thalken's recommendation to appoint the arbitrator proposed by Transamerica.
In the appeal, Transamerica raised two points: first, that the district court lacked the authority to appoint a replacement arbitrator, and second, that NAICO waived its right to arbitration. The court affirmed the district court's interpretation of the 1990 arbitration agreements, noting the absence of provisions for replacing an arbitrator. Consequently, the situation falls under 9 U.S.C. § 5, which allows a court to appoint arbitrators when no method for selection is provided in the agreement. This statute empowers federal courts to designate arbitrators as necessary, with the same authority as if they had been named in the original agreement.
Transamerica asserts that NAICO was required to file a motion to compel arbitration under 9 U.S.C. § 4 before the district court could act under Section 5, referencing Hugs, Kisses, Inc. v. Aguirre. In Hugs, Kisses, the parties had a contract with a dispute resolution clause, and after one party unilaterally appointed an arbitrator and proceeded with arbitration without the other’s participation, the court ruled that the arbitrator exceeded his authority, thus voiding the award. The court emphasized that Hugs, Kisses should have sought to compel arbitration under § 4 if the other party refused to cooperate.
In contrast, the current case differs significantly. Unlike Hugs, Kisses, where one party acted unilaterally, both NAICO and Transamerica selected their own arbitrators and cooperated in appointing a neutral arbitrator. They also engaged in extensive discovery under the previous arbitration panel. Therefore, Transamerica cannot terminate the arbitration process based on the resignation of its chosen arbitrator.
Transamerica also cites Marine Products Export Corp. v. M.T. Globe Galaxy, where the Second Circuit ruled that if a member of a three-person arbitration panel dies before an award is issued, the arbitration must restart with a full panel. However, the circumstances in this case do not align with that scenario, as both parties have already participated in the arbitration process.
Transamerica's argument based on Marine Products is flawed, as that case involved an appeal regarding a motion to vacate an award, not a Section 5 action for replacing an arbitrator. The procedural context differs significantly, and this circuit has not endorsed the "general rule" from Marine Products, which is not applied here. In contrast, Trade, Transport, Inc. v. Natural Petroleum Charterers Inc. supports that Section 5 permits court-appointed replacement of an arbitrator in pending arbitration, without granting the right to replace the existing neutral arbitrator. Accepting Transamerica's position would undermine Section 5. Furthermore, Transamerica claims NAICO has waived arbitration rights by litigating in Oklahoma courts related to reinsurance contracts involving Transamerica. However, the Supreme Court has emphasized that such waiver issues should be resolved by the arbitrator. Thus, upon reconstituting the arbitration panel with a court-appointed arbitrator, the waiver issue will be addressed by the panel. The district court's decision is therefore affirmed. Judge McMillian did not participate in the rehearing vote.
