Joel S. ARIO, Insurance Commissioner of the Commonwealth of Pennsylvania, in his official capacity as the statutory liquidator of Legion Insurance Company (in liquidation); Pepper Hamilton, LLP, Appellant (09-1921) v. The UNDERWRITING MEMBERS OF SYNDICATE 53 AT LLOYDS FOR the 1998 YEAR OF ACCOUNT, Cross-Appellants (09-2991); Joel S. Ario, Insurance Commissioner of the Commonwealth of Pennsylvania, in his official capacity as the statutory liquidator of Villanova Insurance Company (in liquidation); Pepper Hamilton, LLP, Appellant (09-1922) v. The Underwriting Members of Syndicate 53 at Lloyds for the 1998 Year of Account, Cross-Appellants (09-2992)
Nos. 09-1921, 09-2989, 09-2991
United States Court of Appeals, Third Circuit
August 18, 2010
As Amended Dec. 7, 2010
618 F.3d 277
Before AMBRO, SMITH, and ALDISERT, Circuit Judges.
Argued March 10, 2010.
Further, the District Court found that the “earlier letters” that Fox had referenced in his October 7 correspondence did not reference the Fox Letter or guarantee direct payment to all subcontractors, but only did so as to the mitigation subcontractors retained after Clark fell behind schedule. JA 72 n.16. This reading is not clearly erroneous. At bottom, the District Court read the Fox Letter as merely “seek[ing] to establish a process by which payment could be made,” rather than “ob-ligat[ing][A & M] as a guarantor of the agreement between Clark and [State Steel].” JA 73. Since this is precisely the manner in which A & M conducted itself, the court found no misrepresentation in the Fox Letter.
Under all of these circumstances, we conclude that the record evidence supported the District Court‘s interpretation of the Fox Letter as an administrative proposal to streamline payments, and nothing more. The District Court did not clearly err in finding that State Steel had failed to prove a material misrepresentation by clear and convincing evidence. Consequently, it did not err in rendering judgment under
IV.
For these reasons, we will affirm the judgment of the District Court in all respects.
Nancy J. Gellman, Esquire (Argued), Conrad O‘Brien PC, Philadelphia, PA, for Appellant Pepper Hamilton LLP.
Joseph M. Donley, Esquire, Thorp, Reed & Armstrong, Philadelphia, PA, David M. Raim, Esquire (Argued), Washington, DC, for Appellees/Cross-Appellants of Syndicate 53.
OPINION OF THE COURT
AMBRO, Circuit Judge.
We confront here the interplay between the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“), adopted June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3, and the Federal Arbitration Act (“FAA“),
I. Factual and Procedural History
A. The reinsurance treaties
Two Pennsylvania insurers, Legion Insurance Company and Villanova Insurance Company (collectively, the “primary insurers“), entered into reinsurance treaties1 with the Underwriting Members of Syndicate 53 at Lloyd‘s for the 1998 Year of Account (the “reinsurers“).2 The primary insurers are now in liquidation, and they are represented in these actions by their statutory liquidator, Joel S. Ario, the Insurance Commissioner for the Commonwealth of Pennsylvania.3
ARBITRATION
As a condition precedent to any right of action hereunder, any dispute or difference between the [primary insurers] and the Reinsurers relating to the interpretation or performance of this Agreement, including its formation or validity, or any transaction under this Agreement, whether arising before or after termination, shall be submitted to binding arbitration, with the exception of matters requiring resolution by way of injunctive relief.
Upon written request of any party, each party shall choose an arbitrator and the two chosen shall select a third arbitrator. If either party refuses or neglects to appoint an arbitrator within thirty (30) days after receipt of the written request for arbitration, the requesting party may appoint a second arbitrator. If the two arbitrators fail to agree on the selection of a third arbitrator within thirty (30) days of their appointment, each of them shall name three individuals, of whom the other shall decline two, and the selection of the third arbitrator from those remaining named individuals shall be named by the Federal District Court for the Eastern District of Pennsylvania. All arbitrators shall be disinterested in the outcome of the arbitration. Each party shall submit its case to the arbitrators within thirty (30) days of the appointment of the third arbitrator.
The parties hereby waive all objections to the method of selection of the third arbitrator, it being the intention of both sides that the third arbitrator be chosen from those submitted by the parties. The arbitrators shall have the power to determine all procedural rules for the holding of the arbitration[,] including but not limited to inspection of documents, examination of witnesses[,] and any other matter relating to the conduct of the arbitration. The arbitrators shall interpret this Agreement as an honorable engagement and not as merely a legal obligation, they are relieved of all judicial formalities and may abstain from following the strict rules of law. The arbitrators may award interest and costs, but in no event shall punitive or exemplary damages be awarded. Each party shall bear the expense of its own arbitrator and shall share equally with the other party the expense of the third arbitrator and of the arbitration.
Arbitration hereunder shall take place in Philadelphia, Pennsylvania unless both parties otherwise agree. Except as hereinabove provided, the arbitration shall be in accordance with the rules and procedures established by the Uniform Arbitration Act as enacted in Pennsylvania.
J.A. 141, 156, 173, 187. The second relevant provision is the service-of-suit provision, reproduced in part below:
SERVICE OF SUIT CLAUSE (USA)—NMA 1998
It is agreed that in the event of the failure of Reinsurers hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Reinsured, will submit to the jurisdiction of a Court of competent jurisdiction within the United States. Nothing in this Clause constitutes or should be understood to constitute a waiver of Reinsurers’ rights to commence an action in any Court of competent jurisdiction in the United States, to remove an
action to a United States District Court, or to seek a transfer of a case to another Court as permitted by the laws of the United States or of any State in the United States.
J.A. 142, 156, 173, 188.
B. The coverage dispute and arbitration
Years after the reinsurance treaties were signed, a dispute arose between the primary insurers and the reinsurers. The reinsurers asserted that the primary insurers were not underwriting the business as described in the initial placement materials (i.e., the pool risks were not what the reinsurers expected them to be based on the primary insurers’ prior representations). The reinsurers alleged that the primary insurers underwrote their business in a manner that, while increasing premium volume for the primary insurers, also exposed the reinsurers to increased risk. A September 2005 audit by the reinsurers purportedly exposed these problems.
The reinsurers argued that they had suffered substantial losses as a result of the primary insurers’ misconduct, and they refused to pay the claims of the primary insurers. The primary insurers responded by demanding arbitration on September 18, 2006, in the hope of recovering their share of losses under the reinsurance treaties (i.e., what the primary insurers believed was owed to them by the reinsurers under the treaties).
The parties agreed that the dispute was arbitrable, and they proceeded to arbitration. The primary insurers asked the arbitration panel to award it the full amount due under the reinsurance treaties, plus interest. The reinsurers argued that the treaties should be rescinded (and thus, their obligations to pay the primary insurers extinguished) based on eight separate legal theories.4 The primary insurers denied the contentions. Broad discovery was conducted, resulting in document production, depositions, and expert reports; the parties submitted briefs; and a nine-day evidentiary hearing was held in which both parties made opening and closing statements, and thoroughly examined and cross-examined 11 witnesses.
The testimony of one witness in particular, Ian Crane, though only a small part of the arbitration proceedings, factors prominently in our case. Crane was an employee of the managing agent for the reinsurers, and he participated in the underwriting of the treaties at issue here. He testified to the circumstances under which he received the placement materials from the primary insurers and the effect of those materials on underwriting. However, he did not specifically recall the precise communications between the primary insurer and the reinsurers, and he did not recall his exact knowledge and thoughts at the time of the reinsurance underwriting. Instead, he based his testimony on documents (including three documents that are not part of or cited in the reinsurance treaties, but are communications between the primary insurers and the reinsurers and their agents)5 that he saw years ago during the placement process.
Following the discovery, briefing, and evidentiary hearing, the arbitration panel issued an award rescinding three of the four treaties. On the rescinded treaties, the reinsurers were relieved of any obligation to pay losses owing; on the remaining treaty, the reinsurers were ordered to pay losses owing. This award was a so-called unreasoned award, as the panel neither provided the rationale for its decision nor gave any indication of the evidence on which its decision was based.
C. Post-arbitration litigation
The primary insurers have been in liquidation proceedings in the Commonwealth Court of Pennsylvania since mid-2003. Following the arbitration award, on August 6, 2008, Ario (as liquidator on behalf of the primary insurers) filed a motion to confirm in part, and to vacate in part, the award as part of the liquidation proceedings. Shortly thereafter, the reinsurers removed the case to the District Court for the Eastern District of Pennsylvania pursuant to the removal provision in
On September 29, 2009, Ario filed a motion to remand the case to state court, which the reinsurers opposed. Ario‘s motion was premised on the argument that the parties had selected the Pennsylvania Uniform Arbitration Act (“PUAA“),
Having failed in his attempt to remand the case, Ario continued to pursue his motion to vacate the award (in opposition to the reinsurers’ motion to confirm the award). He argued that the parties had opted out of FAA vacatur standards in favor of the standards set forth by the PUAA. Applying his interpretation of the PUAA vacatur standards, he urged that the award be vacated based on perceived weaknesses in Mr. Crane‘s testimony and other documentary evidence. The District Court denied Ario‘s motion to vacate the award and granted the reinsurers’ motion. It concluded that review was governed by the FAA, not the PUAA. Applying the FAA and confirming the award, it rejected Ario‘s contention that there was “no evidence” to support the award.
Following the District Court‘s rulings, the reinsurers moved for sanctions pursuant to
These consolidated cross-appeals followed.
II. Jurisdiction and Standards of Review
As we explain below, the District Court had jurisdiction under
We exercise plenary review over the denial of a motion to remand to the extent that the underlying basis is a legal question, as it is here. Werwinski v. Ford Motor Co., 286 F.3d 661, 665 (3d Cir. 2002). In reviewing a district court‘s order confirming an arbitration award, we assess its factual findings for clear error and its legal conclusions de novo. China Minmetals Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274, 278 (3d Cir. 2003).
We review a district court‘s decision to grant or deny Rule 11 sanctions for abuse of discretion. Simmerman v. Corino, 27 F.3d 58, 61 (3d Cir. 1994). This means “we evaluate the court‘s factual determinations, legal conclusions, and choice of an ‘appropriate sanction’ with substantial deference, considering not whether we would make the same precise determinations, but only whether those determinations are contrary to reason or without a reasonable basis in law and fact.” Id. at 62. An example of abuse of discretion occurs when a district court “base[s] its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.” Id. (citation omitted) (internal quotation marks omitted).
III. Analysis
A. Removal to federal court was proper under 9 U.S.C. § 205
While Ario agrees that the award is subject to the Convention, he argues that
1. Parties cannot “opt out” of the FAA and the Convention‘s implementing legislation
Ario argues that the language in the reinsurance treaties referencing the PUAA supplanted the FAA in its entirety. But though the FAA allows parties to choose state-law arbitration standards, they cannot “opt out” of the FAA. Accordingly, the parties here could not have “opted out” of the FAA, notwithstanding language that refers to the PUAA in the reinsurance treaties.
The FAA is divided into three chapters, two of which are implicated here. Chapter 1 (the “domestic FAA“),
The domestic FAA “simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.” Volt, 489 U.S. at 478 (citations omitted). It “does not ... prevent[] the enforcement of agreements to arbitrate under different rules than those set forth in the [domestic FAA] itself.” Id. at 479. Thus, when “parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA.” Id.
We have interpreted the FAA and Volt to mean that “parties [may] contract to arbitrate pursuant to arbitration rules or procedures borrowed from state law, [and] the federal policy is satisfied so long as their agreement is enforced.” Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 292 (3d Cir. 2001) (citing Volt, 489 U.S. at 478), abrogated in part on other grounds by Hall St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 583 n. 5 (2008).
This is not because the agreements “cease being subject to the FAA,” but is instead because “the FAA permits parties to ‘specify by contract the rules under which ... arbitration will be conducted.‘” Id. (quoting Volt, 489 U.S. at 479). Thus, enforcement of an agreement to use state rules and procedures in lieu of the federal default rules is “not because the parties have chosen to be governed by state rather than federal law,” but “because federal law requires that the court enforce the terms of the agreement.” Id. (emphasis in original). But while parties may opt out of the FAA‘s default rules, they cannot “opt out” of FAA coverage in its entirety because it is the FAA itself that authorizes parties to choose different rules in the first place.
2. The parties did not clearly and unambiguously agree to waive the right of removal
Though the parties may not opt out of (and are governed by) the FAA, it is still possible to waive specifically the right of removal under
Suter involved a service-of-suit provision in which a party had agreed to “submit to the jurisdiction of any Court of competent jurisdiction within the United States.” Id. at 153. We held that provision to be ambiguous with respect to the question of a
We are aware of only one decision from our sister circuit courts that has found a clear and unambiguous waiver of the right to remove pursuant to
Ario contends that there is similar “clear and unambiguous” language in the reinsurance treaties’ arbitration provisions expressing the parties’ agreement to waive the right of removal. He argues that because the parties agreed that “the arbitration shall be in accordance with the rules and procedures established by the [PUAA],” this waived the reinsurers’ (and Ario‘s) right to remove to federal court under
We disagree that this was sufficiently clear and unambiguous to effect a waiver. Not only do the arbitration provisions not make any mention of removal, the lone provision in the reinsurance treaties to refer to removal, the service-of-suit provision, explicitly states that “[n]othing in [it] constitutes or should be understood to constitute a waiver of Reinsurers’ rights ... to remove an action to a United States District Court.” Nor is there any language akin to “exclusive jurisdiction” that is fundamentally incompatible with the preservation of the right to remove. Far from expressing a clear and unambiguous waiver of the right to remove, the reinsurance treaties expressly preserve it.
To the extent that Ario argues that this language disavows removal only with respect to anything else in the service-of-suit provision (and not the entire agreement), we disagree. It would be self-defeating, to say the least, for the reinsurers to preserve expressly in one provision what Ario argues they waived implicitly in another. We do not read the agreement to reach that illogical result. We conclude that the parties did not agree to waive their
B. The FAA provides the applicable vacatur standards
The parties disagree as to the applicable vacatur standards. Ario argues that the PUAA applies, while the reinsurers argue that the FAA applies. We agree with the reinsurers.
Though this award falls under the Convention, which ordinarily provides extremely limited grounds for vacatur, the FAA provides the applicable (and slightly broader) vacatur standards for this award. We conduct our analysis in two steps: first, we explain why the FAA vacatur standards presumptively apply to Convention awards rendered and enforced in the United States; and second, we determine that the reinsurance treaties do not show the parties’ clear intent to substitute the PUAA vacatur standards for those of the FAA.
1. In the absence of clear intent to the contrary, the FAA‘s vacatur standards apply to a Convention award rendered and enforced in the United States
“Under the Convention, a district court‘s role is limited—it must confirm the award unless one of the grounds for refusal specified in the Convention applies to the underlying award.” Admart AG v. Stephen & Mary Birch Found., 457 F.3d 302, 307 (3d Cir. 2006); see also
In Yusuf, the Court of Appeals for the Second Circuit concluded that there are “very different regimes for the review of arbitral awards (1) in the [country] in which, or under the law of which, the award was made, and (2) in other [countries] where recognition and enforcement are sought.” Yusuf, 126 F.3d at 23. After conducting a thorough analysis of both regimes, it concluded that the FAA‘s vacatur standards applied to the Convention award it was reviewing because the arbitration award was made in the United States. Id.
We previously adopted the second portion of Yusuf in Admart AG, “holding that, in an action to confirm an award rendered in, or under the law of, a foreign jurisdiction, the grounds for relief enumerated in Article V of the Convention are the only grounds available for setting aside an arbitral award.” Admart AG, 457 F.3d at 308 (quoting Yusuf, 126 F.3d at 20). We therefore looked only to the limited Article V grounds when reviewing a “foreign” Convention award. But unlike Admart AG, in this case the Convention award was rendered in the United States. Therefore, we must decide whether to adopt the first portion of the Yusuf decision and its articulation of the available grounds for vacating a Convention award rendered in the United States.
The Yusuf Court held that, “under Article V(1)(e) [of the Convention], the courts of the United States are authorized
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separate from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. V, adopted June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3; see also Admart AG, 457 F.3d at 307-08.
This reasoning is also consistent with
2. There was no clear intent to apply the PUAA vacatur standards
As discussed above, the domestic FAA allows parties to agree to apply state law enforcement mechanisms in lieu of the FAA default rules. Of course, “[t]he FAA is not the only way into court for parties wanting review of arbitration awards,” and parties “may contemplate enforcement under state statutory or common law.” Hall St. Assocs., 552 U.S. at 590.11 “[T]he FAA standards control ‘in the absence of contractual intent to the contrary.‘” Roadway, 257 F.3d at 296 (quoting Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59 (1995)).
In applying the “clear intent” standard, we look to the reinsurance treaties to determine what the parties actually agreed to use as the vacatur standards. Again, of particular importance are the arbitration provisions and the service-of-suit provision. We conclude that while there is a plausible argument that the parties may have agreed to apply PUAA standards, it falls short of the “clear intent” we demand.
Ario relies on language in the reinsurance treaties that resembles language we suggested (in the Roadway dictum noted above) might satisfy the “clear intent” standard: “the arbitration shall be in accordance with the rules and procedures established by the [PUAA].” J.A. 141, 156, 173, 187. Standing alone, this might suggest that the parties agreed to use the PUAA vacatur standards. However, this is not the only sentence in the arbitration provisions of, nor does it contradict other sentences in, the reinsurance treaties relating to the enforcement of any resulting award.
For example, the reinsurance treaties contain a service-of-suit provision. As we recently observed, “service-of-suit [provisions] ... complement arbitration clauses by establishing a judicial forum in which a party may enforce arbitration.” Century Indem. Co. v. Certain Underwriters at Lloyd‘s, London, 584 F.3d 513, 554 (3d Cir. 2009). The reinsurers contend that the service-of-suit provision here is “the only provision to address judicial enforcement of the parties’ rights.” (Reinsurers’ Br. at 26 (emphasis in original).) While we may not agree that it is the only such provision, it does specifically refer to enforcement of the arbitration award in state and federal courts. See J.A. 142, 156, 173, 188 (“[I]n the event of the failure of Reinsurers hereon to pay any amount claimed to be due hereunder, the Reinsurer ... will submit to the jurisdiction of a Court of competent jurisdiction within the United States.“). This provision does not contain any reference to the operative law, but it does address enforcement of any arbitration award by “establishing a judicial forum” for enforcement. Of importance is
By contrast, the arbitration provisions on which Ario relies strongly imply that they are concerned with only the conduct of the arbitration itself, not judicial enforcement of a resulting award. The five paragraphs of arbitration provisions go into great detail as to the scope of the arbitrators’ power, the selection of the arbitrators, the procedural rules for conducting the arbitration, an “honorable engagement” section casting aside judicial formalities, limits to the types of damages, and the site of arbitration. Reading the last paragraph of the arbitration provisions in this context leads us in the majority to conclude that they address solely the “rules and procedures” applicable to the conduct of the arbitration, not its enforcement (i.e., the applicable vacatur standards).14
As previously stated, we err on the side of concluding that parties do not intend to opt out of the FAA scheme. In
C. The award is confirmable under the FAA vacatur standards
Ario argues that, even if the FAA vacatur standards apply, the arbitration panel had no ground on which to base its interpretation of the reinsurance treaties and “exceeded [its] powers.” Because Mr. Crane did not personally recall the negotiations that led to the underwriting, Ario argues, the arbitration award must be vacated because it is “irrational.” Applying the FAA‘s vacatur standards, we disagree and affirm the District Court‘s judgment confirming the award.
1. The FAA vacatur standards
Vacatur under the FAA is governed by
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—
(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
The sole basis Ario asserts for vacation of the award is “irrationality,” and he makes no contention of any corruption, fraud, partiality, or misconduct (the first three grounds). The “irrationality” standard comes from the fourth ground, the “exceeded their powers” provision. See Mut. Fire, Marine & Inland Ins. Co. v. Norad Reins. Co., 868 F.2d 52, 56 (3d Cir. 1989) (noting that the “court‘s function in confirming or vacating a commercial [arbitration] award is severely limited” and interpreting what is now
So deferential is the “irrationality” standard under the FAA that we “may not overrule an arbitrator simply because [we] disagree.... [T]here must be absolutely no support at all in the record justifying the arbitrator‘s determinations for a court to deny enforcement of an
2. Vacatur is not warranted
Ario contends that the award must be vacated because Mr. Crane‘s testimony and the reinsurers’ other “immaterial” documentary evidence15 qualify only as “non-evidence.” (Appellant‘s Br. at 59.) Notably, he does not argue that there was an actual lack of testimony or evidence, but claims that “it was as if [the reinsurers] had no witness at all to support (their) defense[s]” in response to each of the eight theories they offer (and Ario must disprove) to justify the arbitration award. (Id.)
In essence, Ario‘s arguments express discontent with the weighing of evidence by the arbitration panel. Their premise is that the evidence uncovered during discovery (including documents, deposition transcripts, and expert reports), the testimony and argument presented to the arbitrators during a nine-day evidentiary hearing, and the substantial briefing submitted by both parties, were not sufficient to justify the award. Yet Ario has not demonstrated why that voluminous record before the arbitration panel could not rationally lead to the arbitration award on any of the eight theories advanced by the reinsurers; instead, he focuses solely on whether the evidence should have been given any weight at all.
As a reviewing court, we do not act to “correct factual or legal errors made by an arbitrator,” and we will uphold an award even if the arbitrator engaged in “improvident, even silly, factfinding,” Major League Umpires Ass‘n v. Am. League of Prof‘l Baseball Clubs, 357 F.3d 272, 279-80 (3d Cir. 2004) (citation omitted) (internal quotation marks omitted) (applying
D. Rule 11 sanctions were not warranted
We conclude with the parties’ cross-appeals regarding Rule 11 sanctions entered against Pepper Hamilton, Ario‘s counsel. As stated above, the District Court imposed sanctions against the firm for its motion to remand, but declined to impose sanctions for its motion to vacate. Because sanctions were not warranted for the filing of either motion, we reverse the award of sanctions for contesting jurisdiction in the motion to remand, and we affirm the denial of sanctions for the motion to vacate the award.16
The District Court granted the motion for Rule 11 sanctions based on Ario‘s motion to remand, in which he argued that because the Volt and Roadway decisions allow parties to choose the applicable law (and thus opt out of portions of the FAA), by choosing the PUAA the parties had opted out of
While the District Court may have distinguished Volt and Roadway or considered them not on point, that does not make an argument premised on those cases sanctionable under Rule 11. Nothing in those cases expressly forecloses Ario‘s argument, and though ultimately unpersuasive, it was not “patently unmeritorious or frivolous.” With Volt and Roadway as the only two pole stars for its decision (and in the absence of directly contrary authority), there was equally no basis in existing law for the Court to conclude that parties could not opt out of
The District Court did not award Rule 11 sanctions based on the motion to vacate the award. While we ultimately disagree with Ario‘s assertion that the PUAA applies here because the language in the reinsurance treaties did not state a clear intent to do so, his argument was not “patently unmeritorious or frivolous.” As discussed above, under the FAA parties can indeed opt to apply state vacatur standards instead of federal standards. Likewise, although Ario faced a difficult burden to demonstrate that the award was “completely irrational” under the FAA vacatur standards, the failure to do so does not detract from his non-frivolous argument that the award should be vacated under the PUAA. Viewing the District Court‘s determinations “with substantial deference” (as we must), Simmerman, 27 F.3d at 62, it did not abuse its discretion. Accordingly, we affirm its decision not to award sanctions for the motion to vacate.
*
We affirm the District Court‘s denial of the motion to remand, its denial of the motion to vacate, and its denial of the motion for sanctions for the filing of the motion to vacate the award. We reverse its grant of the motion for sanctions for the filing of the motion to remand.
ALDISERT, Circuit Judge, dissenting in part.
I am pleased to join Judge Ambro‘s majority opinion for the Court in most respects, but I would hold that the parties’ reinsurance treaties evince a clear intent to adopt the vacatur standards of the Pennsylvania Uniform Arbitration Act. Accordingly, I respectfully dissent from Part III(B) of the Court‘s opinion.
I.
What divides the panel is a disagreement over which body of law governs judicial review of the disputed arbitration award—whether it be the Federal Arbitration Act (“FAA“),
The determination of applicable law turns on whether the arbitration provisions of the parties’ reinsurance treaties evince a “clear intent” to impose the vacatur standards of the PUAA over the presumptively applicable standards of the FAA. See Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287 (3d Cir. 2001). As we explained in Roadway, this “clear intent”
[T]he rule we announce will preserve and facilitate the ability of parties to contract around the default federal standards. Sophisticated parties (i.e., those who employ experienced lawyers to draft their contracts) will soon learn that a generic choice-of-law clause is not enough. Assuming that both parties genuinely wish to be governed by standards other than the FAA‘s, requiring something more will impose minuscule transaction costs. It is not particularly difficult, for example, to provide that “any controversy shall be settled by arbitration in accordance with the terms of the Pennsylvania Uniform Arbitration Act.”
Id. at 297 (emphases in original). As a general matter, applying the “clear intent” standard so strictly as to functionally preclude parties from contracting for non-FAA standards is contrary to Roadway‘s attempt to fashion a rule protecting parties’ right to determine the substantive law governing arbitration of their disputes and judicial enforcement vel non of any arbitral award. As the Supreme Court explained,
[a]rbitration under the Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit. Just as they may limit by contract the issues which they will arbitrate so too may they specify by contract the rules under which that arbitration will be conducted. Where, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA.
Volt Info. Scis., Inc. v. Bd. of Trs. of the Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989) (citation omitted).
On my reading, the language of the treaties “suggested that the parties intended to be bound by standards borrowed from state law,” Roadway, 257 F.3d at 297 n. 5, with sufficiently “clear intent.” The treaties mandate, in relevant part:
[A]ny dispute or difference between the Reinsured and the Reinsurers relating to the interpretation or performance of this Agreement ... or any transaction under this Agreement ... shall be submitted to binding arbitration ... in accordance with the rules and procedures established by the [PUAA].
(J.A. 141) (emphasis added.) The language of the arbitration provision is specific and unambiguous, and it evinces an intent by the parties to “abide by state rules of arbitration.” Volt, 489 U.S. at 479. The PUAA contains rules of judicial vacatur. See
I also cannot agree with the majority‘s conclusion that the service-of-suit clause can be read to abrogate the arbitration clause‘s wholesale adoption, by plain lan-
II.
In my view, the plain language of the arbitration provision demonstrates a sufficiently clear intent to impose all the rules and procedures of the PUAA, including the vacatur rules,
Notes
The structure of the PUAA reflects this dichotomy between the arbitration and the resulting award. Sections 7305-12 of the PUAA address the “rules and procedures” for the conduct of arbitration, including: the selection of arbitrators; the quorum of arbitrators; the conduct of the arbitration proceeding; the representation of parties by attorneys in the arbitration proceeding; the presentation of witnesses, subpoenas, oaths, and depositions in the arbitration proceeding; the form of the award of the arbitrators; the power of arbitrators to change their award; and the fees and expenses of the arbitration proceeding. Each of these sections is concerned with the nuts-and-bolts of the arbitration, not ex post enforcement of the resulting award.
By contrast, as made plain by the PUAA, “a court ... review[s] an arbitration award,”
We presume the parties knew what they were doing when they chose the word “arbitration” and not “award,” and we conclude that, by speaking only to “the arbitration,” the parties here did not clearly intend to apply PUAA vacatur standards to the resulting award. Simply put, vacatur is not arbitration.
We also disagree strongly that we are allowing a service-of-suit provision to override what our colleague believes to be the “wholesale adoption ... of the PUAA.” In Century Indemnity, we did indeed state that “service-of-suit clauses do not negate accompanying arbitration clauses.” 584 F.3d at 554. However, this was not in the context of selecting vacatur standards—it dealt with whether the dispute was arbitrable at all. See id. (“Century also argues that the ... service-of-suit clause indicates that disputes between the parties should be resolved exclusively in the courts.“). Here, we have not negated an agreement to arbitrate; quite the contrary, we actually enforce the arbitration award. We hold only that the parties here did not clearly intend to apply PUAA vacatur standards to the resulting award.