587 N.E.2d 966 | Ohio Ct. App. | 1990
Plaintiff-appellant, George Fabe, Superintendent of Insurance for the state of Ohio and Liquidator of Columbus Insurance Company, appeals a judgment of the Franklin County Common Pleas Court and raises the following assignment of error:
"The trial court erred in granting the defendants' motion to stay proceedings and to compel the Superintendent of Insurance, acting as statutory *228 liquidator of an insolvent insurer, to submit his asset collection suit to binding arbitration."
The present action, which plaintiff has brought against defendants, First General Insurance Company ("FGIC") and Employers Reinsurance Company ("ERC") is but one adversary proceeding in the liquidation proceedings of Columbus Insurance Company ("CIC"). On January 25, 1985, the trial court issued an order finding CIC to be insolvent and, pursuant to R.C.
Accordingly, plaintiff brought this proceeding (Adversary Proceeding No. 11) against defendants FGIC and ERC alleging that, pursuant to a reinsurance agreement among all three parties, FGIC and ERC owed plaintiff, as liquidator of CIC, approximately $489,000. Plaintiff contends that this sum was paid by FGIC to ERC when the money was actually due CIC.
All interested parties agree that the reinsurance agreement included in Article XVIII, as amended effective January 1, 1981, contained an arbitration provision which provided:
"* * * [A]ny dispute arising out of this Agreement shall be submitted to the decision of a board of arbitration * * *.
"* * *
"* * * The majority decision of the board shall be final and binding upon all parties to the proceeding."
It is this clause which is the subject of dispute in this adversary proceeding. Defendants filed a motion in the trial court to stay the proceedings until the dispute could be arbitrated. Plaintiff objected contending that he was not subject to the arbitration provision and that, further, the trial court had exclusive jurisdiction over any and all disputes arising in the course of the liquidation proceedings.
In granting defendants' motion, the court held that compelling arbitration did not violate any statute relating to liquidation proceedings. Furthermore, the court reasoned that an experienced arbitration panel could settle the dispute quickly (as required by the agreement) and that the arbitration procedure should be encouraged. It is from this decision which plaintiff appeals.
Prior to addressing plaintiff's assignment of error, we will discuss defendants' pending motion to dismiss for lack of a final appealable order. Defendants contend that an order by a trial court which stays the proceedings and directs the parties to binding arbitration pursuant to their written agreement *229
is not a "final appealable order" as defined by R.C.
"An order which affects a substantial right in an action which in effect determines the action and prevents a judgment, an order that affects a substantial right made in a special proceeding * * * is a final order that may be reviewed, affirmed, modified, or reversed, with or without retrial."
To support their positions, defendants primarily rely uponBd. of Edn. v. Paxton (1979),
"An order of a trial court which stays all proceedings before it pursuant to R.C.
The court reasoned that part of the policy of enforcing arbitration agreements is to promote speed and efficiency within the court system. By allowing the immediate appeal of arbitration orders which do not determine the action, this purpose would be defeated and actually place more strain on the system.
In Paxton, the court recognized this court's decision inSystems Constr., Inc. v. Worthington Forest, Ltd. (1975),
There are two reasons why the order appealed from herein is a final appealable order. First, the case sub judice involves a slightly different factual scenario than Paxton, supra. While it is an appeal from an order staying the proceedings pending binding arbitration, the order occurred in a liquidation proceeding pursuant to R.C. Chapter 3903. In Morris v.Investment Life Ins. Co. (1966),
Defendants attempt to argue that this order is not the result of a "special proceeding" because arbitration proceedings are not special proceedings. However, defendants fail to recognize that it is the nature of the statutorily authorized liquidation proceedings which make these proceedings "special." *230
Having determined that the order was made in a "special proceeding" (a liquidation proceeding), we turn to a determination of whether it is one which affects a "substantial right" of plaintiff. "Substantial right" is defined as a legal right which is enforced and protected by law. See North v. Smith
(1906),
The second reason why the order staying the proceedings and ordering arbitration is appealable is that it required that the entire case and all issues be submitted to arbitration. While "Adversary Proceeding No. 11" has been filed as a separate part of the entire liquidation proceeding under the same case number, it is a separate adversary proceeding and constitutes and involves a claim entirely separate from any other matter connected with the liquidation proceeding. The procedure utilized by the liquidator herein not only is unnecessary but creates manifest confusion and, at best, is questionable.
The more appropriate procedure would have been for the liquidator to have filed Adversary Proceeding No. 11 as a separate case in the trial court. There is nothing in R.C. Chapter 3903 suggesting the procedure utilized by the liquidator. R.C.
Therefore, it is appropriate to treat Adversary Proceeding No. 11 as a totally separate action and, pursuant to our holding in Systems Constr., Inc., *231 supra, such an arbitration order is a final appealable order. As we held
"The order herein, however, does not merely stay proceedings but in effect grants specific performance of the agreement to submit to arbitration and orders that the matter be submitted to arbitration and, thus, is essentially `an order summarily directing the parties to proceed with the arbitration' pursuant to R.C.
"* * * In other words, there can hereafter be no effective judgment rendered in this action by the trial court predicated upon the pleadings, so the order compelling arbitration does in effect determine the action and prevent a judgment."
Even though the order does not specifically state the action is terminated, that is the effect of the order enforcing the contractual provision for binding arbitration since such order determines the proceedings and prevents any further judgment therein. A proceeding to confirm (R.C.
Therefore, under either analysis pursuant to R.C.
Turning to plaintiff's sole assignment of error, plaintiff contends that the trial court erred in compelling plaintiff to submit the dispute to binding arbitration. Plaintiff contends that, by submitting this dispute to arbitration, the trial court will somehow lose control over the liquidation proceeding. This, plaintiff contends, cannot be permitted as the trial court has exclusive jurisdiction.
R.C.
To support his position, plaintiff relies primarily uponKnickerbocker Agency v. Holz (1958),
The New York court concluded that the provisions of New York law governing liquidation of insolvent insurance companies were comprehensive in nature and to the exclusion of all others. Furthermore, the New York court concluded that, as there was no express statutory authorization, the legislature did not intend to place disputes arising out of the liquidation proceeding into the hands of arbitrators.
In reaching these conclusions, the New York court reasoned that the need for title, custody, and control of the insurer's assets in the hands of the liquidator under the exclusive supervision of the court, outweighed any benefits attributable to arbitration. There was a fear expressed by the New York court that allowing arbitration would somehow result in a loss of control over the liquidation proceedings.
Initially we note that Knickerbocker was decided in 1958, and since that time some courts which had not done so previously recognized the need for and desirability of arbitration. However, in Ohio as early as 1835 the Ohio Supreme Court recognized the benefits of arbitration. See Ormsby's Adm'rs. v.Bakewell and Johnson (1835),
"It is the policy of the law to favor and encourage arbitration, and every reasonable intendment will be indulged to give effect to such proceedings and to favor the regularity and integrity of the arbitrator's acts."
Similarly, there have been statutory provisions for arbitration for well over one hundred years and the present statute, R.C. Chapter 2711, was enacted in 1931. Furthermore, any doubts should be resolved in favor of arbitration. SeeGibbons-Grable Co. v. Gilbane Bldg. Co. (1986),
R.C. Chapter 2711 governs arbitration provisions, and R.C.
Plaintiff's reliance upon Knickerbocker, supra, and the New York court's reasoning is flawed in two respects. Plaintiff contends that he has exclusive control over the insolvent insurer's assets and that, by referring a dispute regarding those assets to arbitration, his control and authority are somehow divested. While plaintiff's statement regarding his control and authority is correct, his conclusion does not follow. Until the dispute regarding ownership of the funds is resolved, those funds are not part of the assets over which plaintiff has control. Rather, his "control" is only that chose in action (claim) against defendants. Only if it be determined that the money is properly payable to CIC does that money become part of the estate which plaintiff will distribute along with the other assets accordingly.
The Knickerbocker court gave little weight to the express provision in the statutes which permits the liquidator to bring actions against persons owing money to the insolvent insurer in other jurisdictions. The New York court's reasoning regarding the need for its exclusive jurisdiction is basically ipse dixit without a logical foundation.
Ohio law also recognizes the liquidator's authority to bring actions in other jurisdictions to collect debts owing to the insurer. See R.C.
Plaintiff also contends that binding arbitration would not only deprive the court of exclusive jurisdiction but also would deprive plaintiff of a trial on the merits of his claim. Plaintiff contends that the trial court might be forced to accept an arbitration determination without question.
Although the arbitration decision is binding in the absence of fraud or another statutorily recognized ground, plaintiff's contention is essentially an inaccurate statement of the law governing arbitration. Plaintiff will not *234
merely turn over the claim to a panel of arbitrators. Rather, he should remain an active participant in the arbitration proceedings. Furthermore, R.C.
Therefore, contrary to plaintiff's contention, no one is forced to "accept" the arbitration award regardless of the circumstances. Furthermore, the propriety of an arbitration agreement by a fiduciary has long been recognized in Ohio. SeeChilds v. Updyke (1859),
Accordingly, we conclude that plaintiff's contentions are not well founded. While it is true that plaintiff, as liquidator, is vested with title and control of the insolvent insurer's assets, until the dispute among CIC, FGIC, and ERC is resolved, that money is not part of those assets. Furthermore, plaintiff has not demonstrated how he will be harmed if this dispute is referred to arbitration. Plaintiff still retains control of the assets and their accompanying distribution to creditors. Finally, we find nothing in either R.C. Chapter 2711 or Chapter 3903 which compels a different conclusion.
Although R.C.
The above reasoning and conclusion are supported by way of comparison to pertinent bankruptcy decisions. The bankruptcy court's jurisdiction is somewhat similar to that of the common pleas court's jurisdiction over liquidation proceedings. In bankruptcy proceedings, the issue has arisen whether arbitration clauses in pre-petition contracts (those in existence prior to the filing of the bankruptcy petition), are to be enforced despite the filing of the bankruptcy petition. Some courts have held such provisions to be mandatory even after the petition has been filed. See In re Morgan (C.A.9, 1983),
The court in In re Mor-Ben Ins. Markets Corp. (C.A.9, 1987),
"Absent a Congressional mandate to preclude arbitration in the bankruptcy context, or a compelling situation seriously affecting the rights of creditors in a bankruptcy, a valid clause in an * * * agreement to arbitrate a dispute must be enforced."
Another line of bankruptcy decisions has held that the decision of whether to compel arbitration is purely discretionary with the bankruptcy court. The court in In reLudwig Honold Mfg. Co. (Bankr.E.D.Penn.1982),
A common link can be found among all of the bankruptcy decisions addressing this issue. An arbitration provision in a pre-petition agreement will not be enforced if the issues to be arbitrated involve specific bankruptcy issues that would seriously affect the rights of the creditors. However, where the matter which is sought to be arbitrated does not affect the rights and priorities of creditors, nor is there any other competing bankruptcy policy, arbitration is favored, if not required. Furthermore, there has been no court to hold that enforcement of such arbitration provisions is flatly prohibited in bankruptcy proceedings. Even the courts who hold the decision to be within the sound discretion of the bankruptcy court do not go as far as to say that arbitration provisions should never be enforced. Therefore, as the relevant bankruptcy decisions have held, the jurisdiction of the bankruptcy court does not preclude enforcing an arbitration provision in a pre-petition contract. We see no reason for a different conclusion with respect to the analogous liquidation proceedings herein. *236
The dispute which defendants seek to have resolved by arbitration in this case will not affect the priority of claims of creditors of CIC. Rather, plaintiff, as liquidator, brought in an action against defendants to recover money allegedly owed to CIC. While it is true that the resolution of the dispute will have an impact on the amount of money plaintiff has to pay the creditors of CIC, arbitration of that dispute will not adversely affect any party to the liquidation proceeding.
We conclude that R.C.
For the foregoing reasons, defendants' pending motion to dismiss is overruled, plaintiff's assignment of error is overruled, and the judgment of the Franklin County Court of Common Pleas is affirmed.
Judgment affirmed.
STRAUSBAUGH and CACIOPPO, JJ., concur.
MARY CACIOPPO, J., of the Ninth Appellate District, sitting by assignment.