United States Court of Appeals
For the First Circuit
No. 16-2189
MOUNTAIN VALLEY PROPERTY, INC.,
Plaintiff, Appellee,
v.
APPLIED RISK SERVICES, INC.; APPLIED UNDERWRITERS, INC.;
APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE CO., INC.,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. D. Brock Hornby, U.S. District Judge]
Before
Torruella, Thompson, and Barron,
Circuit Judges.
Melissa A. Murphy-Petros, with whom Christopher P. Flanagan
and Wilson Elser Moskowitz Edelman & Dicker LLP were on brief, for
appellants.
David W. Bertoni, with whom Michael E. Carey and Brann &
Isaacson were on brief, for appellee.
July 13, 2017
TORRUELLA, Circuit Judge. Defendants-Appellants Applied
Risk Services, Inc. ("ARS"), Applied Underwriters, Inc. ("AU"),
and Applied Underwriters Captive Risk Assurance Co., Inc.
("AUCRA") (collectively, "Applied"), challenge the district
court's order denying their motion to vacate an arbitrator's
decision. Because the arbitrator did not manifestly disregard the
law and did not exceed his powers, we affirm.
I. Background
Plaintiff-Appellee, Mountain Valley Property, Inc.
("MVP"), purchased from AU a comprehensive insurance package known
as SolutionOne® (the "Program") that integrated multiple lines of
insurance, including workers' compensation insurance and
employment practices liability insurance, while also offering
certain payroll and tax services and profit sharing.
As part of the Program, on December 23, 2010, MVP entered
into a three-year Reinsurance Participation Agreement ("RPA") with
AUCRA. The RPA contained a mandatory arbitration clause, as well
as a Nebraska choice-of-law clause.
On April 17, 2015, MVP filed a complaint in Franklin
County Maine Superior Court, asserting breach of contract and
various tort claims against Applied and seeking, inter alia, a
return of the amount it was improperly charged from AU. In the
complaint, MVP alleged that the Program, though marketed as a cost-
-2-
saving insurance alternative, was overpriced, with Applied
imposing on MVP unlawful fees both in premiums and in amounts
claimed to be due under the RPA. MVP also stated that AU, the
entity from which it purchased the Program, was not even authorized
to transact insurance in Maine. Applied removed the case to the
U.S. District Court for the District of Maine based on diversity
jurisdiction and filed a counterclaim, requesting that MVP pay
$13,556 in outstanding premiums. In addition, Applied argued that
claims by and against AUCRA, alone, had to be arbitrated in
accordance with the RPA between MVP and AUCRA. MVP contended that
the RPA's arbitration clause was unenforceable.
On February 25, 2016, over MVP's objection, the district
court referred the claims against AUCRA to arbitration, for a
determination of their arbitrability.
On April 12, 2016, the arbitrator decided that the case
was not arbitrable and had to be adjudicated in court. The
arbitrator, in a decision captioned "Final Award of Arbitrator,"
stated that whether this case should be arbitrated turned on the
applicability of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-
1015,1 and not on the intent of the contracting parties. If the
1 Section 1012(b) of the McCarran-Ferguson Act states: "No Act
of Congress shall be construed to invalidate, impair, or supersede
any law enacted by any State for the purpose of regulating the
-3-
McCarran-Ferguson Act applies, the arbitrator reasoned, then the
Nebraska Uniform Arbitration Act, Neb. Rev. Stat. §§ 25-2601 to
2622 (the "NUAA"),2 reverse-preempts the Federal Arbitration Act,
9 U.S.C. §§ 1-16 (the "FAA"). The arbitrator observed that the
NUAA bans arbitration of insurance-related cases such as this one,
regardless of the parties' intent to arbitrate. Thus, the
arbitrator continued, if the NUAA reverse-preempts the FAA, then
the present case would not be arbitrable.
To determine the applicability of the McCarran-Ferguson
Act, the arbitrator relied on American Bankers Insurance Co. of
Florida v. Inman, which stated:
Under the McCarran-Ferguson Act, a state law reverse
preempts federal law only if: (1) the federal statute
does not specifically relate to the business of
insurance; (2) the state law was enacted for the
purpose of regulating the business of insurance; and
(3) the federal statute operates to invalidate,
impair, or supersede the state law.
436 F.3d 490, 493 (5th Cir. 2006) (internal quotations and
citations omitted).
business of insurance . . . unless such Act specifically relates
to the business of insurance."
2 Section 25-2602.01(f)(4) of the NUAA provides that a provision
in a written contract to submit to arbitration any controversy
thereafter arising between the parties is valid and enforceable,
except when that written contract is "[an] agreement concerning or
relating to an insurance policy other than a contract between
insurance companies including a reinsurance contract."
-4-
The arbitrator found that: (1) the FAA does not
specifically relate to the business of insurance; (2) section
25-2602.01(f)(4) of the NUAA, which regulates the relationship
between an insurer and its insured by proscribing arbitration as
a means of resolving any dispute that may arise between them, "was
enacted for the purpose of regulating the business of insurance";
and (3) the FAA, if applied to enforce the arbitration clause,
would "invalidate, impair, or supersede" the NUAA by requiring the
parties to an insurance-related contract to arbitrate -- which is
exactly what the NUAA forbids. Consequently, the arbitrator
concluded that the McCarran-Ferguson Act applies and the FAA is
reverse-preempted by the NUAA, which, in turn, precludes this case
from being arbitrated as a matter of law.
The arbitrator also acknowledged Applied's argument that
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995),
and a handful of other precedents mandate that this dispute be
arbitrated. According to Applied, Mastrobuono held that the FAA
will trump any conflicting state law provisions unless the contract
specifically provides otherwise. Thus, Applied's argument
continued, because the RPA merely contained a general Nebraska
choice-of-law clause, but no express provision that any state law
would trump the FAA, this dispute should be arbitrated.
-5-
The arbitrator then explained why Mastrobuono did not
govern the issue before him. The arbitrator observed that in
Mastrobuono, the McCarran-Ferguson Act was not before the Court,
nor, indeed, was any other statute prohibiting arbitration. The
arbitrator explained that Mastrobuono principally concerned the
parties' intentions. The arbitrator then reasoned that the case
before him was not about the intent of the parties, but rather
about whether a particular dispute could be arbitrated as a matter
of law. The arbitrator concluded that because the dispute before
him could not be arbitrated as a matter of law due to the McCarran-
Ferguson Act and the NUAA, the intent of the parties did not
matter, and the dispute should be resolved in court.
Following the arbitrator's award, on June 17, 2016,
AUCRA filed a motion to vacate the arbitration award under the
FAA, and to transfer the entire case to the District of Nebraska
pursuant to 28 U.S.C. § 1404(a). On August 22, 2016, Judge Hornby
denied AUCRA's motion, and Applied filed a timely appeal from the
denial of the motion to vacate.3
3 The district court ruling denying the motion to transfer is not
on appeal.
-6-
II. Discussion4
We review the district court's order de novo, keeping in
mind that "[a] federal court's authority to defenestrate an
arbitration award is extremely limited." First State Ins. Co. v.
Nat'l Cas. Co., 781 F.3d 7, 11 (1st Cir. 2015).
A. Jurisdiction
In general, only final decisions or "interlocutory
orders, decrees and judgments [that] . . . have a final and
4 At oral argument, we raised, sua sponte, the issue of whether
diversity jurisdiction exists in this case. See Florio v. Olson,
129 F.3d 678, 680 (1st Cir. 1997) ("[A] reviewing court has an
obligation to inquire sua sponte into the subject matter
jurisdiction of its cases."). We did so because Applied's brief
in this appeal states "[t]he Complaint alleges compensatory
damages of $18,590 for base fees, $67,481 for improperly charged
composite rates, additional premiums, attorneys' fees and costs,
damage multipliers, penalties, sanctions, punitive damages and
interest." However, Under 28 U.S.C. § 1332(a)(1), district courts
have "original jurisdiction of all civil actions where the matter
in controversy exceeds the sum or value of $75,000, exclusive of
interest and costs, and is between citizens of different States."
(Emphasis added). Because, according to Applied's brief, the
amount alleged in the complaint was $86,071, which did not exceed
$75,000 by a great amount and included attorneys' fees and costs
and interest, it was not certain that the amount in controversy
did, in fact, "[exceed] the sum or value of $75,000, exclusive of
interest and costs." 28 U.S.C. § 1332(a)(1). Having reviewed the
complaint ourselves in greater detail, however, we are now
satisfied that the amount in controversy requirement is met. The
complaint specifies that the amount of $18,590 was for base fees,
and the amount of $67,481 was for improperly charged composite
rates. In any event, the first amended complaint seeks the return
of all fees and charges MVP paid to Applied, which MVP alleges by
that point totaled $281,126.
-7-
irreparable effect on the rights of the parties" are appealable.
Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 545 (1949).
However, the FAA provides other grounds for appeal. Inter alia,
§ 16(a)(1)(E) allows an appeal from "an order . . . modifying,
correcting, or vacating an award," and § 16(a)(3) provides that
"an appeal may be taken . . . from a final decision with respect
to an arbitration that is subject to this title." 9 U.S.C.
§§ 16(a)(1)(E), (a)(3). Whether the order denying the motion to
vacate the award of arbitration at issue here is appealable under
either § 16(a)(1)(E) or § 16(a)(3) is a question of first
impression in this circuit. MVP argues that we cannot hear this
case because neither § 16(a)(1)(E) nor § 16(a)(3) grant us
jurisdiction to hear an appeal from an order denying a motion to
vacate.
In addition, as discussed at oral argument, although not
raised by either party in the court below or in this Court, there
is a question as to whether an appeal from a lower court order,
such as the one presently appealed from, relating to only one of
the parties in a multi-party action requires a Rule 54(b) motion
to have been made in the lower court (Applied did not file a Rule
54(b) motion). Rule 54(b) provides, "when multiple parties are
involved, the court may direct entry of a final judgment as to one
or more, but fewer than all, claims or parties only if the court
-8-
expressly determines that there is no just reason for delay." Fed.
R. Civ. P. 54(b). Because the district court made no such
determination, it may be the case that the order denying the motion
to vacate the arbitration award cannot be appealed because it is
not a final judgment. On the other hand, the district court order
may be a "final decision with respect to an arbitration" within
the meaning of § 16(a)(3) of the FAA, and the FAA may here supersede
Rule 54(b) because it is the more specific statute.
We need not decide, however, these jurisdictional
questions; instead, we assume jurisdiction and dispose of the case
on the merits. "The rule is well established in this Circuit that
resolution of a complex jurisdictional issue may be avoided when
the merits can easily be resolved in favor of the party challenging
jurisdiction." Cozza v. Network Assocs., Inc., 362 F.3d 12, 15
(1st Cir. 2004) (citation omitted) (bypassing a "novel
jurisdictional issue" regarding timeliness of appeal pursuant to
the FAA because the case was susceptible to straightforward merits
disposition). Although this rule does not apply to issues
involving Article III subject matter jurisdiction after Steel Co.
v. Citizens for a Better Environment, 523 U.S. 83 (1998), it
remains in place for issues of statutory jurisdiction. See First
State Ins. Co., 781 F.3d at 10-11 & n.2 (sidestepping a threshold
issue of the timeliness of the appellant's petition to vacate the
-9-
arbitration award because "[the] case is easily resolved on the
merits"); Davignon v. Clemmey, 322 F.3d 1, 10-11 (1st Cir. 2003)
(holding that an appellate court remains free to bypass problematic
jurisdictional issues provided those issues do not implicate
Article III case or controversy requirement); Parella v. Ret. Bd.
of R.I. Emps.' Ret. Sys., 173 F.3d 46, 54 (1st Cir. 1999). Because
this case does not involve an Article III issue, we avoid its novel
jurisdictional questions and proceed directly to the merits.
B. Merits: Review of the Arbitrator's Decision
While § 10 of the FAA provides the grounds upon which an
arbitration award may be vacated, we previously stated that the
common law doctrine of manifest disregard of the law, which is not
included in § 10, allows courts "a very limited power to review
arbitration awards outside of section 10 [of the FAA]." Advest,
Inc. v. McCarthy, 914 F.2d 6, 8 (1st Cir. 1990) (citation omitted).
However, the Supreme Court, in Hall Street Associates, LLC v.
Mattel, Inc., 552 U.S. 576 (2008), cast doubt on the continued
existence of manifest disregard of the law as a ground for vacatur,
and this court stated just this year that the doctrine remains
"only as a judicial gloss." Ortiz-Espinosa v. BBVA Sec. of P.R.,
Inc., 852 F.3d 36, 46 (1st Cir. 2017). Even so, this court has
yet to decide whether manifest disregard of the law remains as a
ground for vacatur of arbitration awards, and no manifest disregard
-10-
of the law occurred in the present case. We can therefore assume
the validity of the doctrine and proceed to apply it.
[A] successful challenge to an arbitration award,
apart from section 10, depends upon the challenger's
ability to show that the award is (1) unfounded in
reason and fact; (2) based on reasoning so palpably
faulty that no judge, or group of judges, ever could
conceivably have made such a ruling; or (3) mistakenly
based on a crucial assumption that is concededly a
non-fact.
McCarthy v. Citigroup Glob. Mkts., Inc., 463 F.3d 87, 91 (1st Cir.
2006)(internal citations omitted).
No manifest disregard of the law occurred in this case.
Applied argues that the arbitrator failed to apply Mastrobuono,
which Applied believes should govern this dispute, and that, in
doing so, the arbitrator disregarded the intentions of the parties.
In fact, as discussed in greater detail above, the arbitrator
carefully distinguished the dispute before him from Mastrobuono,
principally on the grounds that Mastrobuono did not involve the
issue of whether a dispute could be arbitrated as a matter of law
-- whereas the dispute before him involved exactly that issue. To
resolve whether the dispute before him could be arbitrated as a
matter of law, the arbitrator carefully applied the framework of
American Bankers, and determined that, because the McCarran-
Ferguson Act applied, the NUAA reverse-preempted the FAA.
-11-
Therefore, the arbitrator reasoned, the dispute was not arbitrable
as a matter of law, and the parties' intentions did not govern.
We do not determine whether the arbitrator's decision
was correct, because courts are not in the business of "hear[ing]
claims of factual or legal error by an arbitrator or to consider
the merits of an award." Poland Spring Corp. v. United Food &
Commercial Workers Int'l Union, Local 1445, 314 F.3d 29, 33 (1st
Cir. 2002). However, the arbitrator's reasoning and conclusions
are at the very least colorable. Even if we were to assume, for
the sake of argument, that the arbitrator's legal conclusions were
incorrect, his award plainly was not "(1) unfounded in reason and
fact; (2) based on reasoning so palpably faulty that no judge, or
group of judges, ever could conceivably have made such a ruling."5
McCarthy, 463 F.3d at 91. Thus, no manifest disregard of the law
occurred.
Applied also argues that the arbitrator exceeded his
powers. See 9 U.S.C. § 10(a)(4). To start, it is difficult to
see how the arbitrator could exceed his powers by deciding
precisely the question the district court, at Applied's request,
authorized him to decide -- whether the dispute was arbitrable.
5 Applied has not argued that the arbitrator's award was
"mistakenly based on a crucial assumption that is concededly a
non-fact." McCarthy, 463 F.3d at 91.
-12-
In any event, Applied here merely reprises the arguments it made
in its attempt to show that the arbitrator manifestly disregarded
the law. We have already rejected those arguments, because the
arbitrator produced a well-reasoned award. The arbitrator
therefore did not exceed his powers.
III. Conclusion
Accordingly, we affirm the district court's denial of
Applied's motion to vacate the arbitration award.
Affirmed.
-13-