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OLD REPUBLIC INS. CO. v. MEADOWS INDEM. CO.

October 17, 1994

OLD REPUBLIC INSURANCE COMPANY, Plaintiff,
v.
MEADOWS INDEMNITY COMPANY LIMITED, Defendant.



The opinion of the court was delivered by: MARVIN E. ASPEN

 MARVIN E. ASPEN, District Judge:

 Plaintiff Old Republic Insurance Company brings this action seeking disqualification of an allegedly partial arbitrator. Presently before the court is defendant Meadows Indemnity Company's motion to dismiss for lack of subject matter jurisdiction pursuant Fed. R. Civ. P. 12(b)(1). For the reasons set forth below, Meadow's motion to dismiss is granted.

 I. Background

 Defendant Meadows Indemnity Company and Plaintiff Old Republic Insurance Company are insurance companies which participated in a reinsurance pool agreement from 1979 to 1984. Under the agreement, Meadows issued reinsurance contracts to Old Republic, among others. All of these contracts provided that disputes arising out of the contracts would be resolved by tripartite arbitration, consisting of one arbitrator appointed by Meadows, one arbitrator appointed by Old Republic, and one umpire selected by the two party-selected arbitrators. The arbitration clause also specified that the arbitrators would be disinterested active or retired officers of insurance or reinsurance companies, and that any arbitration would take place in Chicago.

 A dispute between Meadows and Old Republic subsequently arose regarding the reinsurance contracts. Meadows filed an action in the United States District Court for the Eastern District of New York naming, among others, Old Republic as a defendant. On March 15, 1990, Old Republic joined in a motion to stay the action pending arbitration pursuant to 9 U.S.C. § 3. The District Court granted the motion, staying the action and directing Meadows and several defendants, including Old Republic, to submit to arbitration according to the arbitration clauses of the reinsurance contracts. Meadows initially nominated Joseph Murphy to be an arbitrator, but subsequently replaced Murphy with James P. White. Old Republic objected to the selection of White, claiming that White was not a "disinterested" arbitrator. Specifically, Old Republic noted that White and Old Republic were opponents in two lawsuits in 1984. Meadows, however, refused to withdraw White as an arbitrator. Old Republic then brought this suit, seeking a judicial determination that White is not a "disinterested" arbitrator, and accordingly disqualify him.

 II. Discussion

 Meadows filed the present motion to dismiss under Fed. R. Civ. P. 12(b)(1), asserting that this court lacks subject matter jurisdiction over the controversy. We initially observe that Meadows' motion is more properly grounded in Rule 12(b)(6) than Rule 12(b)(1). In Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983), the Supreme Court stated:

 
The Arbitration Act is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal question jurisdiction.. . . There must be diversity of citizenship or some other independent basis for federal jurisdiction . . . .

 Id. at 26 n.32 (emphasis added). As it is undisputed that diversity of citizenship exists and the amount in controversy exceeds $ 50,000, this court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(2). Accordingly, Meadows' motion to dismiss this action, seeking pre-arbitration review of the impartiality of an arbitrator, is more appropriately considered under Rule 12(b)(6), failure to state a claim upon which relief can be granted.

 For our purposes, however, the above distinction is largely irrelevant. As a general rule, our involvement in any dispute arising under the Federal Arbitration Act, 9 U.S.C. § 1 et seq., "is severely limited, since, if it were otherwise, the ostensible purpose for resort to arbitration, which is the avoidance of litigation, would be frustrated." Jardine Matheson & Co. v. Saita Shipping, Ltd., 712 F. Supp. 423, 426 (S.D.N.Y. 1989) (internal quotations and citations omitted). Indeed, the Act limits a court's involvement to the following situations: compelling arbitration (§ 4), appointing an arbitrator where the parties' agreement does not provide for a method, or where a party "fails to avail himself of such a method, or if for any other reason there shall be a lapse in the naming of an arbitrator . . ." (§ 5), confirming an arbitration award (§ 9), and vacating an arbitration award (§ 10). Notwithstanding these narrow parameters, Old Republic argues that this court should oversee the pre- arbitration process to ensure the impartiality of the arbitration. Old Republic's argument, in a nutshell, is that because of White's "long, acrimonious and litigious history" with Old Republic, White may be biased against Old Republic in the present arbitration.

 In Marc Rich & Co. v. Transmarine Seaways Corp., 443 F. Supp. 386 (S.D.N.Y. 1978), a case similar to this, a contractual dispute was submitted to arbitration. The defendant appointed an arbitrator who had previously been plaintiff's adversary in an unrelated dispute. Plaintiff objected to the appointment and demanded that the arbitrator be disqualified, arguing that the separate dispute created at least the appearance of bias toward the defendant. The defendant refused to substitute another arbitrator, and, prior to any arbitration hearing, the plaintiff brought suit to compel the replacement of the defendant's arbitrator.

 The court initially noted that a prime objective of any arbitration is "to permit a just and expeditious result with a minimum of judicial interference." Id. at 387. The court continued:

 
This objective can best be achieved by requiring an arbitrator . . . to declare any possible disqualification, and then to leave it to his or her sound judgment to determine whether to withdraw. The arbitrator must of course be aware that such a decision would be subject to judicial review after that such a decision would be subject to judicial review after the award had been made. Any other rule might spawn endless applications and infinite delay. For example, should we deny this motion and ultimately find [the arbitrator] disqualified, there ...

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