Case: 09-30177 Document: 00511056253 Page: 1 Date Filed: 03/18/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 18, 2010
No. 09-30177 Charles R. Fulbruge III
Clerk
ANTHONY TODD
Plaintiff-Appellee
v.
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
LIMITED
Defendant-Appellant
Appeal from the United States District Court
for the Eastern District of Louisiana
Before GARWOOD, WIENER, BENAVIDES, Circuit Judges.
FORTUNATO P. BENAVIDES, Circuit Judge:
Appellant Steamship Mutual Underwriting Association (Bermuda)
Limited (“Steamship”) appeals from the district court’s denial of its motion to
compel Appellee Anthony Todd to arbitrate his claims against Steamship. The
district court premised its denial exclusively on our previous decision in
Zimmerman v. International Companies & Consulting, Inc., 107 F.3d 344 (5th
Cir. 1997). We conclude that the Supreme Court’s recent opinion in Arthur
Andersen LLP v. Carlisle, released after Steamship filed this appeal, has
effectively overruled Zimmerman. 129 S. Ct. 1896 (2009). As a result, we
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reverse the district court’s dismissal of Steamship’s motion and remand this case
for further proceedings to determine whether Todd can be compelled to arbitrate.
I.
Early in 2000, Todd was injured while serving as a chef onboard the M/V
AMERICAN QUEEN, a replica steamboat owned and operated by the Delta
Queen Steamboat Company (“Delta Queen”). When the injury occurred, the ship
was cruising along the Mississippi River in the state of Louisiana. In 2001,
Delta Queen filed for bankruptcy protection, but Todd won approval from the
bankruptcy court to proceed with a suit against Delta Queen. Eventually, Todd
won a judgment against Delta Queen in Louisiana state court in 2007, but Delta
Queen has yet to satisfy this judgment.1
At the time of Todd’s injury, Steamship insured Delta Queen against
liability for injuries to its employees. In 2008, Todd filed suit in Louisiana state
court against Steamship, attempting to collect on his judgment against Delta
Queen. Todd’s suit is authorized by Louisiana’s “direct action” statute, which
allows injured individuals to proceed directly against insurers when an insured
tortfeasor is insolvent. See La. Rev. Stat. Ann. § 22:1269 (2009).2 Todd raised
four causes of action against Steamship, asserting that (i) Steamship is liable to
1
Delta Queen appealed, but the Louisiana Fourth Circuit Court of
Appeal largely affirmed the judgment in favor of Todd. However, it remanded
the case to the civil district court for recalculation of the sum due Todd for wages
lost due to his injury. See Todd v. Delta Queen Steamboat Co., 15 So. 3d 107,
113-14 (La. App. 4th Cir. 2008), aff’d on reh’g, 15 So.3d 107 (La. App. 4th Cir.
2009).
2
Section 22:1269 arguably creates two distinct rights of action, but
Todd has not specified under which he is proceeding against Steamship. First,
section 22:1269(A) authorizes an injured individual to proceed against an insurer
after he or she has obtained an executory judgment against an insolvent insured.
Second, section 22:1269(B) allows an injured individual to proceed directly
against an insolvent tortfeasor’s insurer, even without a prior judgment against
the insured tortfeasor.
2
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Todd for his injuries onboard the M/V AMERICAN QUEEN, less any deductible,
(ii) Steamship failed to negotiate with Todd in good faith, (iii) Steamship failed
to make reasonable efforts to settle with Todd, and (iv) Steamship’s
“members”—i.e., other entities insured by Steamship—should be declared jointly
and severally liable to Todd.
In response, Steamship removed this suit to federal district court. It then
asked the district court to stay the proceedings and to compel Todd to arbitrate
his claims pursuant to the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (the “New York Convention”), June 10, 1958, 21 U.S.T.
2517, 330 U.N.T.S. 38. Steamship argued that since all of Todd’s causes of
action derive from Delta Queen’s policy with Steamship, he should be bound by
the clause in the policy requiring Delta Queen to arbitrate certain disputes with
Steamship.3 However, the district court ruled that it would not compel
arbitration, as it found that our decision in Zimmerman foreclosed referring this
case to arbitration. Indeed, the court found Zimmerman to be so dispositive that
it decided not to write an opinion explaining its decision, as it concluded that
writing anything at all would be merely “wasting trees.” Steamship has now
appealed the district court’s denial of its motion to stay this case and compel
arbitration.
II.
3
The clause provides that:
If any difference or dispute shall arise between a Member and the
Club concerning . . . the insurance afforded by the Club under these
Rules, or any amount due from the Club to the Member, such
difference or dispute shall in the first instance be referred to and
adjudicated by the Directors. . . . If the Member does not accept the
decision of the Directors the difference or dispute shall be referred
to the arbitration of two arbitrators, one to be appointed by each of
the parties, in London . . . .
3
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We have appellate jurisdiction over this case under 9 U.S.C. §§ 16(a)(1)(A)
and 16(a)(1)(C), which allow us to hear interlocutory appeals from orders
“refusing a stay of any action under” the Federal Arbitration Act (“FAA”) and
orders “denying an application under [the New York Convention] to compel
arbitration.” See Carlisle, 129 S. Ct. at 1900 (“[A]ny litigant who asks for a stay
under [the FAA] is entitled to an immediate appeal from denial of that
motion—regardless of whether the litigant is in fact eligible for a stay.”). When
we exercise this jurisdiction, we review denials of motions to compel arbitration
de novo. Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir.
2002).
Before we begin our analysis, we provide some brief background to help
orient the reader with respect to the relationship between the New York
Convention and the primary domestic source of federal arbitration law, the FAA,
9 U.S.C. §§ 1-16 (2006). In this case, Steamship must seek relief at least in part
under the New York Convention, as Steamship seeks to compel Todd to arbitrate
outside the United States.4 However, the FAA has some application to this case.
The Convention’s implementing legislation incorporates the entire FAA, at least
to the extent that the FAA does not conflict with the Convention. See 9 U.S.C.
§ 208; Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, 20 (2d
Cir. 1997) (explaining that “the FAA and the Convention have ‘overlapping
coverage’ to the extent that they do not conflict” (quoting Bergesen v. Joseph
Muller Corp., 710 F.2d 928, 934 (2d Cir.1983)). For example, the Convention
4
Under the FAA, district courts may only refer cases to arbitration
within their own district. See 9 U.S.C. § 4 (“The hearing and proceedings, under
such agreement, shall be within the district in which the petition for an order
directing such arbitration is filed.”). However, the New York Convention’s
implementing legislation “authorizes district courts to order parties to proceed
with a Convention arbitration even outside the United States.” Sedco, Inc. v.
Petroleos Mexicanos Mexican Nat’l Oil Co., 767 F.2d 1140, 1146 (5th Cir. 1985).
4
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and its implementing legislation do not explicitly authorize staying litigation
pending arbitration, and thus parties whose arbitration agreements fall under
the Convention have had to seek authority for stays under 9 U.S.C. § 3, a
provision of the domestic FAA. See, e.g., DiMercurio v. Sphere Drake Ins., PLC,
202 F.3d 71, 77-78 (1st Cir. 2000); Energy Transp., Ltd. v. M.V. San Sebastian,
348 F. Supp. 2d 186, 201 (S.D.N.Y. 2004).
With this prologue complete, we now turn to the issues raised by this case.
As explained above, the district court found that our decision in Zimmerman
foreclosed ruling in favor of Steamship, and consequently it denied Steamship’s
motion to compel arbitration without authoring an opinion. However, after the
district court denied Steamship’s motion, the Supreme Court released its opinion
in Carlisle. We conclude that Carlisle effectively overrules Zimmerman, at least
insofar as Zimmerman would apply in this case to prevent Steamship from
compelling Todd to arbitrate his claims. Additionally, we find that Carlisle also
effectively overrules our earlier decision in In re Talbott Big Foot, Inc., which is
factually indistinguishable from Zimmerman. 887 F.2d 611 (5th Cir. 1989). As
a result, since we have not benefitted from a full airing below of the issues
presented by this case, we remand Todd’s action to the district court for a
determination of whether Todd can be compelled to arbitrate now that
Zimmerman has been displaced. Nevertheless, we write to provide guidance for
the district court on remand and to explain why we conclude that Carlisle
invalidates Zimmerman and Big Foot.
A.
In Zimmerman and Big Foot, injured seamen filed claims against their
employers’ foreign insurers under Louisiana’s direct action statute.
Zimmerman, 107 F.3d at 345; Big Foot, 887 F.2d at 612. As explained above, the
direct action statute allows injured individuals to proceed directly against
tortfeasors’ insurers in certain circumstances. See La. Rev. Stat. Ann. § 22:1269.
5
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In response to the direct actions, the insurers sought to stay the seamen’s suits
until the insurers had exercised their contractual right to arbitrate with the
seamen’s employers. Zimmerman, 107 F.3d at 345; Big Foot, 887 F.2d at 612.
In both cases, we engaged in an analysis that largely focused on the FAA,5 and
we found that a stay was inappropriate.6
The facts before us in this case are somewhat different. Unlike
Zimmerman and Big Foot, a foreign insurer is not merely seeking to stay a direct
action plaintiff’s lawsuit until the conclusion of arbitration with its insured.
Instead, Steamship is seeking to compel a direct action plaintiff to arbitrate.
Another distinction is that unlike the direct action plaintiffs in Big Foot and
Zimmerman, Todd has already won a judgment against Steamship’s insured and
is suing Steamship to collect on it. Despite these differences, however, if
Zimmerman and Big Foot were still valid, their reasoning would sweep broadly
5
The only reference to the Convention in either case is in a brief
footnote in Big Foot. We noted that “[t]he convention on the recognition and
enforcement of foreign arbitral awards may have some application [to this case],
but that convention simply adopts the provisions of the Federal Arbitration Act.”
887 F.2d at 614 n.3. As both Zimmerman and Big Foot involved foreign
insurers, it is probable that the Convention did have some application in both
cases. See Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898, 903 (5th
Cir. 2005) (explaining that “[t]he Convention applies to international arbitration
clauses when,” among other factors, “‘a party to the agreement is not an
American citizen’” (quoting Francisco v. Stolt Achievement MT, 293 F.3d 270,
272-73 (5th Cir. 2002)). However, we likely did not focus on the Convention in
either case because the foreign insurers were not seeking to compel arbitration
with the direct action plaintiffs, but rather to stay their lawsuits until the
insurer had completed arbitration with its insured. As explained above, there
is no explicit provision authorizing stays in the Convention or its implementing
legislation; consequently, parties have had to turn to 9 U.S.C. § 3, a provision of
the domestic FAA, for such relief.
6
In Big Foot, we left open the question of whether the insurer was
entitled to a discretionary stay, as opposed to a mandatory stay pursuant to § 3
of the FAA. 887 F.2d at 614.
6
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enough to rule out arbitration under the facts of this case. Specifically, in
Zimmerman, we determined that staying an injured worker’s direct action would
be inappropriate because:
The FAA does not require arbitration unless the parties to a dispute
have agreed to refer it to arbitration. Likewise, the mandatory stay
provision of the FAA does not apply to those who are not
contractually bound by the arbitration agreement. Thus, the FAA,
the source of the federal policy favoring arbitration, has no
application to require direct action plaintiffs to arbitrate or to stay
their lawsuits during arbitration.
107 F.3d at 346 (citations omitted).7 If Zimmerman were correct that the federal
policy favoring arbitration has no application to direct action plaintiffs, then
Steamship could not compel Todd to arbitrate.
In Carlisle, however, the Supreme Court rejected the reasoning in
Zimmerman and Big Foot, concluding instead that nonsignatories to arbitration
agreements (such as direct action plaintiffs) may sometimes be compelled to
arbitrate. It clarified that while the FAA “creates substantive federal law
regarding the enforceability of arbitration agreements, . . . background principles
of state contract law” control the interpretation of the scope of such agreements,
“including the question of who is bound by them.” 129 S. Ct. at 1901-02. The
Supreme Court then explained that “‘traditional principles’ of state law allow a
contract to be enforced by or against nonparties to the contract through
‘assumption, piercing the corporate veil, alter ego, incorporation by reference,
third-party beneficiary theories, waiver and estoppel.’” Id. at 1902 (quoting 21
R. Lord, Williston on Contracts § 57:19 (4th ed. 2001)). As such, Carlisle
overrules our determination in Zimmerman and Big Foot that direct action
7
Similarly, in Big Foot, we held that the direct action plaintiffs’
actions should not be stayed because the plaintiffs were “not parties” to their
employer’s insurance policy. 887 F.2d at 614.
7
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plaintiffs need never arbitrate under federal law because they are not parties to
the insurance policies creating an obligation to arbitrate.8
That said, one might question whether Zimmerman, Big Foot, and Carlisle
are relevant at all in this case, since they all primarily focus on the FAA and not
the New York Convention. It is true that the Convention and the FAA differ in
certain important respects.9 However, in both FAA and Convention cases, courts
have largely relied on the same common law contract and agency principles to
determine whether nonsignatories must arbitrate,10 and not law derived from
8
Since we decided Zimmerman, a number of Fifth Circuit panels have
recognized that nonsignatories may be bound to arbitrate in certain
circumstances. See, e.g., Bridas S.A.P.I.C. v. Turkmenistan, 345 F.3d 347, 355-
56 (5th Cir. 2003) (listing principles of contract and agency law that may bind
nonsignatories to arbitrate); Fleetwood, 280 F.3d at 1076 (same). However, “[a]s
a general rule, one panel may not overrule the decision of a prior panel, right or
wrong, in the absence of an intervening contrary or superseding decision by this
court sitting en banc or by the United States Supreme Court.” Billiot v. Puckett,
135 F.3d 311, 316 (5th Cir. 1998). While none of our previous panel decisions
could have overruled Zimmerman and Big Foot, the Supreme Court’s decision
in Carlisle has.
9
For example, in the years since we decided Zimmerman and Big
Foot, we have held that the McCarran-Ferguson Act allows state regulation of
insurance to “reverse preempt” the FAA. See Am. Bankers Ins. Co. of Fla. v.
Inman, 436 F.3d 490, 492 (5th Cir. 2006). However, even more recently, we have
held that state insurance law cannot reverse preempt the New York Convention
and its implementing legislation. See Safety Nat’l Cas. Corp. v. Certain
Underwriters at Lloyd’s, London, 587 F.3d 714, 717 (5th Cir. 2009) (en banc).
10
Compare Century Indem. Co. v. Certain Underwriters at Lloyd’s,
London, 584 F.3d 513, 520 n.5, 534-35 & n.18 (3d Cir. 2009) (in Convention case,
referring to contract law principles to determine whether nonsignatory must
arbitrate), and Sarhank Group v. Oracle Corp., 404 F.3d 657, 659, 662 (2d Cir.
2005) (same), and Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen
GMBH, 206 F.3d 411, 417 (4th Cir. 2000) (same), with Carlisle, 129 S. Ct. at
1899, 1902 (in domestic FAA case, referring to contract law principles to
determine whether nonsignatory must arbitrate), and Fleetwood, 280 F.3d at
1073-74 (same).
8
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statute or treaty.11 Consequently, Carlisle and other cases discussing whether
nonsignatories can be compelled to arbitrate under the FAA are relevant for this
case governed by the New York Convention.
B.
In Zimmerman, in addition to holding that the FAA does not apply to
nonsignatories, we also stated that direct action plaintiffs cannot be forced to
arbitrate as third party beneficiaries of insurance contracts because “the direct
action statute grants a personal injury claimant a right of direct action against
the tortfeasor’s insurer on the policy regardless of any provision in the policy
forbidding an immediate direct action.” 107 F.3d at 346. In this case, Steamship
has asserted that Todd must arbitrate his claims because, among other reasons,
he is purportedly a third party beneficiary of Delta Queen’s insurance policy. We
conclude that on remand, the district court is not bound by our statement in
Zimmerman that direct action plaintiffs cannot be required to arbitrate as third
party beneficiaries, as this conclusion was necessarily contingent on our now
discredited view that federal arbitration law has no application to
nonsignatories.
11
The Convention does have some bearing on whether nonsignatories
can be compelled to arbitrate, as it only applies when “an agreement in writing”
provides a basis for arbitration. See New York Convention art. II, §§ 1-2.
However, we have previously held that an arbitration clause in a contract
provides an “agreement in writing” that satisfies the Convention, even when the
party being forced to arbitrate has not signed the contract. See Sphere Drake
Ins. PLC v. Marine Towing, Inc., 16 F.3d 666, 669-70 (5th Cir. 1994). Similarly,
other courts have held that as long as there is some “agreement in writing,” the
Convention may require a nonsignatory to arbitrate. See Int’l Paper, 206 F.3d
at 418 n.7; Interested Underwriters at Lloyd’s v. M/T San Sebastian, 508 F.
Supp. 2d 1243, 1250-51 (N.D. Ga. 2007). In this respect, the Convention is
much like the FAA; in Carlisle, the Supreme Court held that “[i]f a written
arbitration provision is made enforceable against . . . a third party under state
contract law, the [FAA’s] terms are fulfilled.” 129 S.Ct. at 1902.
9
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In Zimmerman, when we stated that direct action plaintiffs could not be
compelled to arbitrate as third party beneficiaries, we justified this conclusion
by finding that Louisiana law allows them to proceed without submitting to
arbitration. 107 F.3d at 346 (explaining that “the direct action statute grants
a personal injury claimant a right of direct action . . . regardless of any provision
in the policy forbidding an immediate direct action”). However, if we had found
the FAA applicable in Zimmerman, we would have had to engage in a deeper
analysis: Although state contract law principles control whether nonsignatories
can be bound to arbitrate, see Carlisle, 129 S. Ct. at 1901-02, state law usually
cannot invalidate an otherwise enforceable agreement simply because it is an
agreement to arbitrate.12 Consequently, we would have had to address whether
Louisiana’s direct action statute can permissibly render nonarbitrable a claim
that could possibly be arbitrable otherwise under state contract law principles.13
Of course, at the time, we did not need to engage in this analysis, as we had
12
The Supreme Court has explained that
An agreement to arbitrate is valid, irrevocable, and enforceable, as
a matter of federal law, save upon such grounds as exist at law or
in equity for the revocation of any contract. Thus state law, whether
of legislative or judicial origin, is applicable if that law arose to
govern issues concerning the validity, revocability, and
enforceability of contracts generally. [However, a] state-law
principle that takes its meaning precisely from the fact that a
contract to arbitrate is at issue does not comport with [the FAA].
Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987) (citations and internal quotation
marks omitted). Like the FAA, the Convention also creates “a body of federal
substantive law of arbitrability,” displacing inconsistent state law. Int’l Paper,
206 F.3d at 417 n.4 (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24 (1983)).
13
Since Louisiana’s direct action statute is arguably a state law
regulating insurance, the McCarran-Ferguson Act may allow it to trump federal
law in cases governed solely by the domestic FAA and not the New York
Convention. See Safety Nat’l, 587 F.3d at 720 n.21; Inman, 436 F.3d at 492.
10
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found the FAA wholly inapplicable to nonsignatories, a position that has now
been repudiated by the Supreme Court in Carlisle. Id. at 1902. As such,
Carlisle has called into question our statement in Zimmerman that direct action
plaintiffs cannot be required to arbitrate as third party beneficiaries of insurance
contracts. Therefore, the district court is not bound by it on remand. At this
stage, however, we take no position on whether Louisiana’s direct action statute
would run afoul of the New York Convention in this case. We leave this to be
determined on remand.
C.
Since the district court, prior to Carlisle, properly held that Zimmerman
controlled the outcome of this case, many of the issues raised by this case were
not fully fleshed out in the proceedings below. Therefore, we now remand this
case to the district court and suggest several issues, among others, that should
likely be considered below.
First, we note that the record does not include a complete copy of
Steamship’s 1999/2000 Rules, which contain the arbitration clause that
Steamship asserts binds Todd. Access to a complete copy on remand would be
helpful, since if the terms of an agreement clearly address whether a
nonsignatory can be bound to arbitrate, then courts need not inquire whether
nonsignatories can be bound under third party beneficiary theory or other
doctrines. See Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 382 (5th Cir.
2008). Certainly, Todd should have the opportunity to review the full Rules and
bring to the district court’s attention any provisions suggesting that the
arbitration clause does not apply to nonsignatories like Todd.
Second, during this appeal, the parties have not addressed what law
should apply to determine whether Todd must arbitrate as a nonsignatory. In
Carlisle, the Supreme Court made clear that state law controls whether an
arbitration clause can apply to nonsignatories. 129 S. Ct. at 1902. In particular,
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on remand, the parties should address the effect of the clause in the Delta Queen
policy selecting English law to govern “contractual or other substantive or
procedural rights and obligations.”
Third, the parties have not extensively addressed in their briefing on
appeal whether all of Todd’s causes of action fall within the scope of the
arbitration clause in the Delta Queen’s policy with Steamship. See Graves v. BP
Am., Inc., 568 F.3d 221, 222-23 (5th Cir. 2009) (per curiam) (explaining that
motion to compel arbitration presents the question of whether “the dispute in
question falls within the scope of the arbitration agreement”). Specifically, the
district court may wish to consider whether the existence of Todd’s judgment
against Delta Queen has any bearing on whether he must arbitrate with
Steamship to collect on this judgment. In conclusion, we stress that the issues
raised above are nonexhaustive; we only suggest that these issues should be
considered within the framework of a full analysis of whether Todd can be bound
to arbitrate.
III.
Consequently, we REVERSE the district court’s denial of Steamship’s
motion to compel arbitration and REMAND this case to the district court for
further proceedings consistent with this opinion.
12