Catalina Holdings (Bermuda) Ltd. v. Muriel

CATALINA HOLDINGS (BERMUDA) LIMITED, Petitioner, v. ROBERT H. MURIEL, Director of Insurance of the State of Illinois,as Liquidator of Legion Indemnity Company, Respondent.

Case No. 18-cv-05642

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

April 6, 2020

Judge Martha M. Pacold

MEMORANDUM OPINION AND ORDER

Petitioner Catalina Holdings (Bermuda) Ltd. ("Catalina") moves for confirmation of an arbitration award. Respondent Robert H. Muriel, Acting Director of Insurance of the State of Illinois ("the Director"),¹ in his capacity as the statutory and court affirmed Liquidator of Legion Indemnity Company, moves to vacate or modify the award. For the following reasons, the court grants Catalina's petition for confirmation of the award and denies the Director's motion to vacate or modify the award.

Background²

Legion Indemnity Company entered into a series of reinsurance treaties with Alea Group Limited, under which Legion ceded claims to Alea. (Dkt. 25-2 at 3-4.)³ Legion was placed into receivership by Illinois court order in 2003, and the Director was appointed as liquidator. (Dkt. 40-2 at 2.) In 2013, Catalina (a Bermudacompany with its principal place of business in the United Kingdom) bought Alea and assumed responsibility for the relevant treaties. In 2014, the Director sent Catalina a commutation offer reflecting a balance owed of roughly $1 million. (Dkt. 25-2 at 4.) Catalina declined to pay.

The Director demanded arbitration against Catalina and other reinsurers of claims under various reinsurance "Programs" governed by "Reinsurance Treaties." (Dkt. 25-1 at 1-2, 4 ("Under the Arbitration Clause of the Reinsurance Treaties, the parties agreed to submit any disputes relating to the agreements to binding arbitration.").) In the demand for arbitration, the Director asked the panel to award all amounts owed to the Director under the Reinsurance Treaties, "attorneys' fees, arbitration costs and interest," and "such further relief as the Panel deems just." (Dkt. 25-1 at 4.)

The arbitration at issue here involved six treaties for which Catalina (not other reinsurers) had assumed responsibility.⁴ For reasons explained below, for purposes of this decision, the court considers the arbitration clause in four of the six treaties. The court refers to the four treaties collectively as the "Treaties" or the "Aon Treaties."

In its position statement, filed before the arbitration hearing, Catalina asked the Panel to, among other things, declare the amount of premium owed to Catalina, award "costs and fees associated with this arbitration," and award "any other reliefthe Panel deems to be just and proper." (Dkt. 25-2 at 10.) The hearing was held in Chicago before a panel of three arbitrators from June 12-14, 2018.

After the hearing, on June 21, 2018, the panel issued an "Initial Final Award," which found in Catalina's favor with respect to the Director's claims, awarded Catalina $76,602.63 in unpaid premiums, and granted Catalina "an adverse award of fees and costs incurred in these proceedings." (Dkt. 40-2 at 2-4.) The panel directed Catalina to submit copies of its invoices and provided the Director with the opportunity to respond. After receiving submissions from both parties, on July 31, 2018, the panel issued its "Final Award," which incorporated the "Initial Final Award" and granted Catalina an additional $437,501.04 in "costs," which consisted of attorneys' fees and expenses. (Dkt. 40-4 at 1-2.)

Catalina filed a petition to confirm the award. The Director filed a motion to dismiss, which was denied on March 22, 2019. See Catalina Holdings (Bermuda) Ltd. v. Hammer, 378 F. Supp. 3d 687, 689 (N.D. Ill. 2019) (Shah, J.). Subsequently, the Director brought this motion to vacate or modify the Final Award, challenging the panel's award of attorneys' fees. (Dkt. 40.)

Discussion

I. Catalina's Motion to Confirm the Award

and the Director's Motion to Vacate or Modify the Award

Catalina moves to confirm the award, relying on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517, and the Federal Arbitration Act (FAA). The Director moves to vacate or modify the award under the FAA.

Catalina seeks confirmation under both 9 U.S.C. § 9 (part of the original FAA) and 9 U.S.C. § 207 (part of the chapter of the FAA that implements the Convention). The court discusses both the original FAA and the Convention below, but ultimately the parties agree that the same standards apply under either analysis.

Section 9 is part of Chapter 1 of the FAA, 9 U.S.C. §§ 1-16. "Chapter 1 codifies the original Federal Arbitration Act of 1925, 43 Stat. 883; it applies to all domestic awards and to all other awards not otherwise covered by another legal instrument." Johnson Controls, Inc. v. Edman Controls, Inc., 712 F.3d 1021, 1024 (7th Cir. 2013). Under Section 9, the court "must" confirm the award "unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title." 9 U.S.C. § 9.

The Director moves to vacate the award under Section 10(a)(4), 9 U.S.C. § 10(a)(4), or to modify the award under Section 11(b), 9 U.S.C. § 11(b). Section10(a)(4) allows a court to vacate the award "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." Under Section 10(a), a court "may vacate an arbitration award only in narrowly defined cases, one of which exists when an arbitrator's award exceeds his authority" under § 10(a)(4). Am. Postal Workers Union, AFL-CIO, Milwaukee Local v. Runyon, 185 F.3d 832, 835 (7th Cir. 1999) (emphasis added); see also Affymax, Inc. v. Ortho-McNeil-Janssen Pharm., Inc., 660 F.3d 281, 284 (7th Cir. 2011) ("Disregard of the law is not on the statutory list."). Section 11(b) allows a court to modify or correct the award "[w]here the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted." The Seventh Circuit has interpreted Sections 10(a)(4) and 11(b) (and Article V(1)(c) of the Convention, as noted below), to allow "a defense that part of the award was based on a matter that had not been submitted to the arbitrator." Lander Co. v. MMP Invs., Inc., 107 F.3d 476, 481 (7th Cir. 1997).

Section 207 is part of Chapter 2 of the FAA. "Chapter 2 implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, commonly called the New York Convention. See 9 U.S.C. § 201." Johnson Controls, 712 F.3d at 1024; see also Certain Underwriters at Lloyd's, London v. Argonaut Ins. Co., 444 F. Supp. 2d 909, 913 (N.D. Ill. 2006) (discussing Chapter 1 and Chapter 2). Under Section 207, "the court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention." 9 U.S.C. § 207. Article V of the Convention specifies grounds for refusal of recognition or enforcement of the award. 21 U.S.T. 2517, 1970 WL 104417, at *2. See, e.g., id., Article V(1)(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 . . . ."), Article V(1)(e) ("The award . . . 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.").

The Seventh Circuit has noted that it is "not clear whether a party may bring an action under Chapter 1 to vacate an award issued by an arbitrator in a U.S. jurisdiction, but governed by the Convention." Johnson Controls, 712 F.3d at 1025. However, as noted above, the Seventh Circuit has explained that, when comparing §§ 10(a)(4) and 11(b) with Article V(1)(c), "[t]he wording is slightly different but there is no reason to think the meaning different"; "both the Federal Arbitration Act and the Convention" allow "a defense that part of the award was based on a matter that had not been submitted to the arbitrator." Lander, 107 F.3d at 481. Thus, the choice of whether to proceed under FAA Chapter 1, on the one hand, or the Convention and FAA Chapter 2, on the other, does not make a difference in this case. See Johnson Controls, 712 F.3d at 1025. Catalina agrees that there is no need to decide the issue. (Dkt. 41 at 4 n.5.) The court declines to reach it.

The Director moves to vacate the award under Section 10(a)(4) or to modify the award under Section 11(b).⁵ The court addresses these provisions in turn.

A. The Panel Did Not Exceed Its Contractual Authority

First, the Director cites Section 10(a)(4) and argues that the panel exceeded its authority by awarding attorneys' fees on a noncontractual basis.

Section 10(a)(4), in relevant part, allows a court to vacate the award "where the arbitrators exceeded their powers." "An agreement to arbitrate is an agreement to move resolution of the parties' disputes out of the judicial system." Hyatt Franchising, L.L.C. v. Shen Zhen New World I, LLC, 876 F.3d 900, 902 (7th Cir. 2017). "Arbitration implements contracts," Affymax, Inc. v. Ortho-McNeil-Janssen Pharm., Inc., 660 F.3d 281, 284 (7th Cir. 2011), and "the question for decision by a federal court asked to set aside an arbitration award . . . is not whether the arbitrator or arbitrators erred in interpreting the contract; it is not whether they clearly erred in interpreting the contract; it is not whether they grossly erred in interpreting the contract; it is whether they interpreted the contract," id. at 286 (citation and internal quotation marks omitted). "A reviewing court will enforce the arbitrator's award so long as it draws its essence from the contract, even if the court believes that the arbitrator misconstrued its provisions." United Food & Commercial Workers, Local 1546 v. Illinois Am. Water Co., 569 F.3d 750,...