discussed the law of agency in its
post-hearing brief, citing general propositions of law, the Restatement,
caselaw from Tennessee, Oregon and other states as well as appealing to
"business fairness." (R. 23, Ex. 5, Post-Hr'g Br. at 13-22.)
On June 27, 2002, the panel issued its decision, which in relevant
part, denied Reinsurers' recission claim and granted Reinsurers' request
for damages related to ISI's payment of uncovered claims, unreported
claims, late reported claims, unreported premiums and lost investment
income in the amount of $4,816,769.00. The panel noted that its decision
"reflects the panel's evaluation of the relative responsibilities of the
parties for the problems resulting from the Reinsurance Agreements." (R.
18, Pet. to Confirm, Ex. D, Decision, ¶ 5.) The panel retained
jurisdiction "to resolve future disputes relating to the Reinsurance
Agreements." (Id. at ¶ 8.) Currently before the Court are Reinsurers'
petition to confirm the arbitration award and BCS' motion to vacate
portions of the award.
Because not all parties to this dispute are United States citizens, the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards
("Convention"), implemented at Chapter 2 of the Federal Arbitration Act
("FAA"), 9 U.S.C. § 201-208, applies to the instant dispute. See lain
v. Mere, 51 F.3d 686, 689 (7th Cir. 1995). Pursuant to the Convention's
implementing legislation, the reviewing court should confirm the
arbitration award unless one of the grounds for refusal or deferral of
recognition specified in Article V of the Convention is present.
9 U.S.C. § 207. In particular, Article V (1)(e) provides that an
award should not be confirmed if it has been set aside under the law of
the country where the award was made. Thus, the Convention allows for
vacation of the award under domestic law, in this case the FAA.*fn3 See
Yusuf Ahmed Alghamm & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15,
20-23 (2d Cir. 1997); Lander Co. v. MMP Invs., Inc., 107 F.3d 476, 478
(7th Cir. 1997).
Under section 10 of the FAA, the reviewing court may vacate an 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." 9 U.S.C. § 10(a)(4). Yet, the traditional
presumption is that a "mere ambiguity in the opinion accompanying an
award, which permits the inference that the arbitrator may have exceeded
his authority, is not a reason for refusing to enforce the award." Geneva
Secs., Inc. v. Johnson, 138 F.3d 688, 692 (7th Cir. 1998) (citing United
Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593, 598
(1960)). In short, this Court's scope of review of the panel's decision
is "grudgingly narrow." Eljer Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250,
1253 (7th Cir. 1994).
Throughout their briefs and when it appears to favor their argument,
both parties also cite sections of the Illinois International Commercial
Arbitration Act ("IICAA"). The IICAA, based on the United Nations
Commission on International Trade Law (UNCITRAL) Model Law on
International Commercial Arbitration, became effective in 1998. See 710
ILCS 30/1-1 et seq. It covers international commercial arbitrations like
the present one that are held in Illinois and subject to an
agreement between the United States and another country. 710 ILCS 30/1-5.
Even though federal law is not meant to exclusively govern arbitration, see
Volt Info. Scis., Inc. v. Bd. of Trs. of Stanford Univ., 489 U.S. 468,
477 (1989), the Illinois General Assembly altered or disregarded the
UNCITRAL Model Law to make it conform with federal arbitration law. See
Illinois Enacts International Commercial Arbitration Act, 10 World Arb.
& Mediation Rep. 4 (Jan. 1999). Thus, the IICAA is essentially a
BCS seeks to vacate paragraphs five and eight of the panel's decision
under § 10(a)(4) of the FAA. 9 U.S.C. § 10(a)(4). BCS argues that
paragraph five awarding over $4,000,000.00 in damages to Reinsurers should
be vacated because: (1) it is an indefinite award incapable of
enforcement; (2) the award was based on a damages opinion inadmissible
under Illinois law; and (3) the panel exceeded its authority by making a
"rough justice" compromise and not adhering to Illinois contract law.
Reinsurers in turn respond that: (1) the award is a definite one based on
the claims submitted to the panel; (2) under Illinois law the panel had
the power to admit any evidence; and (3) the panel did not make a
compromise decision, and BCS waived its right to argue for the
application of the "strict rule of law." 710 ILCS 30/25-5(c). BCS also
seeks to vacate paragraph eight, in which the panel retained jurisdiction
over future disputes relating to the Reinsurance Agreements.
First, BCS argues that the monetary award to Reinsurers in paragraph
five is indefinite because Reinsurers have ongoing contractual payment
obligations to BCS against which the award should be offset. As such, BCS
urges the Court to view the award in paragraph five as a credit against
the $2 million that Reinsurers allegedly owe BCS, and not as a lump sum
payable to Reinsurers. This Court, however, can only vacate an award on
the grounds of indefiniteness if it is not sufficiently clear and
specific enough to be enforced. IDS Life Ins. Co. v. Royal Alliance
Assocs., 266 F.3d 645, 650 (7th 2001). In other words, we must find that
the arbitrators "left unresolved a portion of the parties' dispute." Id.
BCS' claim of indefiniteness fails because the panel's decision
resolved the claims submitted to the panel. Reinsurers and BCS'
post-hearing briefs clearly set out the relief requested by each party.
Specifically relevant to the instant dispute, BCS requested that the panel
reiterate its denial of Reinsurers' recission claim and grant or deny
Reinsurers' damages claims based on ISI's maladministration; Reinsurers'
requested specific damages amounts for ISI's maladministration. The
panel's resulting decision addressed the concerns enumerated by the
parties, denying the recission claim and delineating the parameters of the
coverage under the Reinsurance Agreements, as well as awarding Reinsurers
over $4 million for ISI's maladministration. In short, the monetary award
clearly resolved the parties' dispute over ISI's maladministration, and
the remainder of the panel's decision made clear that the Reinsurance
Agreements remain in effect subject to the limitations in the decision.
Trusting that the parties will abide by the decision and their
contractual obligations to one another, we will not reinterpret the award
as a credit. The award is clear, final and definite on the issues
submitted to the panel, and vacation under the grounds of indefiniteness
would be beyond the scope of our review.
Second, BCS also argues that this Court should vacate the monetary
award in paragraph five because the panel exceeded its powers by basing
the award on evidence inadmissible under Illinois law. To support this
argument, BCS cites a portion of the arbitration provision: "The
arbitrators will not be obliged to follow judicial formalities or the
rules of evidence except to the extent required by the state law of the
site of arbitration." (R. 23, BCS Exs., Ex. 9 at 8.) BCS' contention that
this provision requires the arbitrators to apply Illinois evidence law
misinterprets the clause. The provision clearly states that the
arbitrators need not follow the rules of evidence unless the state law
governing arbitration requires that the arbitrators apply them. As
Reinsurers contend, BCS has not cited any Illinois law that requires
arbitrators in Illinois to follow the rules of evidence. In fact, the
IICAA, which BCS cites throughout its briefs, provides that arbitrators
may "determine the admissibility, relevance, materiality and weight of
any evidence." 710 ILCS 30/20-10. BCS essentially disagrees with the
panel's evidentiary decisions and thus is attempting to frame the issue as
a basis for vacation under § 10(a)(4). Evidentiary determinations are
within the discretion of the arbitrators, however, and "[a] question as
to the sufficiency of the evidence before the arbitrator simply does not
trigger the review powers of this court." Eljer, 14 F.3d at 1256
(rejecting party's argument that lost profits award should be vacated
because it was based on extrapolation).
Third, BCS argues that this Court should vacate paragraph five of the
award because the panel exceeded its authority by making a "rough
justice" compromise and not adhering to Illinois contract law. BCS bases
its argument on a provision of the IICAA that provides: "The arbitral
tribunal shall decide according to what is just and good ("ex aequo et
bono") or according to equity and good conscience (as "amiable
compositeur") rather than by the strict rule of law only if the pat-ties
have expressly authorized it to do so." 710 ILCS 30/25-5(c). BCS argues
that the panel made an equitable determination in paragraph five when the
Agreements did not specifically allow for one. Reinsurers, in turn, argue
that the panel made a decision in accordance with the law, custom and
practice of the reinsurance industry, and that BCS waived applicability of
the "strict rule of law" standard in the IICAA. 710 ILCS 30/25-5(e).
As a threshold matter, the Court is not convinced that the panel made
an equitable decision in paragraph five. BCS argues that the language of
the decision—"Petitioner's request for relief . . . is granted to
the extent of $4,816,769.00, which reflects the panel's evaluation of the
relative responsibilities of the parties for the problems resulting from
the Reinsurance Agreements" — evidences a "rough justice"
compromise. (R. 18, Pet. to Confirm, Ex. D, Decision.) This language,
however, does not persuade the Court that the panel ignored the rule of
law. in fact, the preface of the decision also states that the panel
based its decision on its review of the post-hearing briefs, which
included discussion of the law of agency, and the material and
information provided at the hearing. We will not over-scrutinize the
panel's language and leap to the conclusion that it exceeded its powers in
formulating the award. See Enterprise Wheel, 363 U.S. at 598.
Even if we agreed with BCS that the panel made an equitable decision in
paragraph five, we conclude that BCS waived application of the "strict
rule of law" standard. BCS now argues that the panel made a rough justice
determination and did not adhere to Illinois contract law as directed by
the Agreements. (See R. 22,
Mot. to Vacate at 11-12.) The Court's review
of the post-hearing briefs, however, evidences that neither party relied
solely on Illinois law in discussing ISI's agency. The parties cited the
Restatement (Second) of Agency and the caselaw of various states.
Furthermore, Reinsurers appealed to the industry custom, as permitted by
the arbitration provision, and BCS appealed to "business fairness." (R.
23, BCS Exs., Ex. 5 at 22.) If the parties intended to be bound solely by
Illinois law, they should have explicitly stated so in their briefs to
the panel. Indeed, given that BCS itself made an argument appealing to
"business fairness," its present appeal for a vacation under the "strict
rule of law" provision in 710 ILCS 30/25-5(c) seems rather disingenuous.
Thus, even if we view the panel's decision as an equitable one, we
conclude that by making arguments under the law of other states, the
general principles of the Restatement, industry custom and "business
fairness," the parties waived application of the IICAA's "strict rule of
law" standard, which BCS argues calls for the strict application of
Illinois law. See Malnove Inc. of Neb. v. Hearthside Baking Co., Inc.,
951 F. Supp. 151, 152 (N.D. Ill. 1997) (holding that party cannot try
case under Illinois law and then argue post-judgment that the law of
another state should apply); Yates v. Doctor's Assocs. Inc.,
549 N.E.2d 1010, 1015-16 (Ill. App. Ct. 1990) (holding that parties
mutually waived Connecticut choice of law provision when they based their
arguments on Illinois law).
Finally, we reject BCS' argument that paragraph eight, in which the
panel retained jurisdiction over future disputes, should be vacated. BCS,
in fact, sought this very relief in its post-hearing brief (See R. 23,
BCS Exs., Ex. 5 at 36.) Additionally, as argued by Reinsurers, the
doctrine of functus officio is not applicable because the retention
provision provides that the panel will retain jurisdiction over future
disputes, not disputes already decided. Therefore, BCS' arguments to
vacate paragraph eight fail.
For the reasons set forth herein, the Court grants Reinsurers' motion
to confirm the arbitration award, (R. 18-1), and denies BCS' motion to
vacate portions of the award, (R. 22-1). The Court, in its discretion,
denies Reinsurers' request for post-award, pre-judgment interest, but
orders post-judgment interest on the panel's award of $4,816,769.00 to
Reinsurers. The Clerk of the Court is instructed to enter judgment in
favor of Reinsurers and against BCS in accordance with Federal Rule of
Civil Procedure 58.