PoolRe Insurance v. Organizational Strategies, Inc.
2015 U.S. App. LEXIS 5601
5th Cir.2015Background
- Capstone (administrator) and OSI contracted with AAA-based arbitration clauses in the Firm’s Billing Guidelines/Engagement Letter; PoolRe (insurer) and three captive insurers (the Captives) contracted with PoolRe under Reinsurance Agreements that required ICC arbitration and an arbitrator “selected by the Anguilla, B.W.I. Director of Insurance.”
- No Anguilla Director of Insurance exists; Conflict Resolution Systems (CRS) appointed Dion Ramos, who proceeded under AAA rules and joined PoolRe in the Ramos arbitration after PoolRe intervened.
- Ramos ruled he had jurisdiction, denied OSI’s objections, and issued an award (including a lump-sum attorney-fees award of $451,244.44 to Capstone, the Firm, and PoolRe).
- Parallel litigation occurred in Delaware and Texas; Delaware courts compelled some arbitration in Delaware; Texas district court later vacated Ramos’s award under 9 U.S.C. § 10(a)(4), finding Ramos exceeded his authority by (1) being chosen in a manner inconsistent with the Reinsurance Agreements and (2) applying AAA rules instead of ICC rules.
- The Fifth Circuit affirmed, holding Ramos acted contrary to express arbitrator-selection and forum-selection clauses and that vacatur of the entire award (not just PoolRe’s recovery) and denial of a motion to compel Phase II arbitration were proper.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitrator exceeded his authority by not being appointed per the Reinsurance Agreements (Anguilla Director of Insurance selection) | Capstone/PoolRe: Ramos was properly appointed by CRS and PoolRe’s intervention waived any selection-formalities | OSI: Reinsurance Agreements required selection by the Anguilla Director; Ramos wasn’t appointed per contract | Court: Ramos exceeded his authority; selection method was an express contractual term and was not followed, so award vacated |
| Whether applying AAA rules (instead of ICC rules specified in Reinsurance Agreements) violated the arbitration agreements | Capstone/PoolRe: submission of PoolRe dispute empowered the arbitrator to apply AAA rules and resolve claims | OSI: Reinsurance Agreements included an ICC forum-selection clause integral to the agreement; AAA rules are not a substitute | Court: Applying AAA rules contravened an express forum-selection clause (ICC); vacatur proper |
| Whether vacatur had to be partial (only PoolRe recovery) or could be total | Capstone/PoolRe: If only PoolRe-related aspects were invalid, the remainder of the award should be confirmed | OSI: PoolRe’s participation tainted the entire process; the fee award was a lump sum not easily divisible | Court: District court did not err in vacating the entire award rather than partially confirming it |
| Whether the court erred in denying Capstone/PoolRe’s motion to compel Phase II arbitration | Capstone/PoolRe: Phase II raising Article V claims should be compelled regardless of Phase I vacatur | OSI: Phase II relief depended on enforcement of the now-vacated Phase I award | Court: Denial of the motion to compel was proper because vacatur of Phase I precluded Phase II relief |
Key Cases Cited
- Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., 713 F.3d 797 (5th Cir. 2013) (standard of appellate review for vacatur/confirmation of arbitration awards)
- Delta Queen Steamboat Co. v. Dist. 2 Marine Eng’rs Beneficial Ass’n, 889 F.2d 599 (5th Cir. 1989) (arbitrator acts beyond contractual mandate when contrary to express provisions)
- Brook v. Peak Int’l, Ltd., 294 F.3d 668 (5th Cir. 2002) (agreed method of arbitrator appointment must be followed under 9 U.S.C. § 5)
- Bulko v. Morgan Stanley DW Inc., 450 F.3d 622 (5th Cir. 2006) (trivial departures from selection method may not warrant vacatur)
- Galey v. World Mktg. Alliance, 510 F.3d 529 (5th Cir. 2007) (clauses specifying arbitration rules/forum considered forum-selection clauses)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (arbitration is a matter of contract; parties determine what disputes they submit)
- BP Exploration Libya Ltd. v. ExxonMobil Libya Ltd., 689 F.3d 481 (5th Cir. 2012) (distinguishing lapses in arbitrator naming from forum unavailability under § 5)