The opinion of the court was delivered by: DENISE COTE
DENISE COTE, District Judge:
Despite the obligation under an insurance syndicate's governing agreement to arbitrate disputes, certain members of the syndicate have for three years fiercely resisted arbitration and now, having lost before the arbitration panel, seek to avoid enforcement of the arbitration award through removal of long pending state court litigation to federal court. In brief, on October 25, 1994, plaintiff Pan Atlantic Group, Inc. ("PAG") and the other Respondents removed two cases to this Court. The first action was commenced by PAG against Republic Insurance Company ("Republic") in September 1991 in the Supreme Court of the State of New York (the "PAG Action"). The second action, a special proceeding in aid of arbitration, was commenced by Republic in March of 1993, also in the Supreme Court of the State of New York (the "Special Proceeding"). Both the PAG Action and the Special Proceeding were assigned to the Honorable Herman Cahn. On July 28, 1993, Justice Cahn in the PAG Action granted Republic's motion to compel arbitration and, in a fifty-five page opinion issued on June 10, 1994 in the Special Proceeding, required all the Pan Atlantic Respondents to participate in the arbitration.
The arbitration panel to which Justice Cahn referred the disputes between Republic and PAG and its affiliates issued two awards, both in Republic's favor, on October 20, 1994. On October 21, 1994, Republic moved, in the Special Proceeding, to confirm these awards. Then, as noted above, on October 25, 1994, Pan Atlantic removed the PAG Action and the Special Proceeding to this Court.
Republic now moves to remand these cases. For the reasons given below, Republic's motion is granted, and these actions are remanded to the Supreme Court of the State of New York.
The litigation at issue here concerns the Pan Atlantic Group Reinsurance Syndicate (the "Syndicate"), which was formed and managed by PAG and three of its affiliates, Pan Atlantic Underwriters Ltd. ("PAUL"), Pan Atlantic Reinsurance Company, Ltd. ("PARCO"), and Pan Atlantic Insurance Company, Ltd. ("PAICO"). Other affiliates of PAG who are parties to this lawsuit are also members of the Syndicate.
Republic has been a part of the Syndicate since January 1, 1973, pursuant to a Memorandum of Agreement.
This agreement contains an arbitration clause and a choice of law clause selecting New York Law as the governing law. From 1975 until approximately 1985, Republic, which is licensed in the United States, acted as a contract-issuing company in whose name the Syndicate conducted its United States business.
Much litigation between Republic and Pan Atlantic has arisen over the business conducted by the Syndicate. Three suits were filed in the United States District Court for the Southern District of New York (two filed by Republic, in November of 1991 and February of 1992, and one filed by Pan Atlantic, in September of 1991) (collectively, the "Southern District Actions"), one in the commercial court in England (commenced on January 17, 1992 by PAUL against Republic
), two in the Supreme Court for the State of New York (the PAG Action and the Special Proceeding), and one in the District Court of Texas (filed by Republic in April of 1992, hereafter "the Texas Action"). Republic also initiated an arbitration before the American Arbitration Association between Republic and Pan Atlantic (the "AAA Arbitration") in September of 1991, arguably addressing all of the issues in dispute except perhaps those in the Texas Action.
The three Southern District Actions involve several different claims. The action filed on November 8, 1991 (91 Civ. 7580), was brought by PARCO against Republic for breach of a Trust Agreement. Republic counterclaimed, inter alia, that PARCO itself had breached the Trust Agreement and other related agreements. Republic moved to compel arbitration, and by Opinion and Order dated May 20, 1992, the Honorable Robert P. Patterson, to whom the case was then assigned, granted Republic's motion to compel arbitration of the dispute. The action was reassigned to this Court on September 13, 1994.
The diversity action filed on December 11, 1991 (91 Civ. 8362), was brought by Republic against Atlantica Insurance Company, Ltd., a Swedish insurance company that participated in the Syndicate, for declaratory relief and specific performance of Atlantica's obligations under a reinsurance agreement. Atlantica brought a third party complaint against PAG and PARCO, which in turn brought third party crossclaims against Republic. By stipulation and order filed on December 1, 1992, the Honorable Charles S. Haight referred PAG's and PARCO's crossclaims to arbitration.
The diversity action filed on February 14, 1992 (92 Civ. 1119), was brought by Republic against PAICO and PAUL, seeking a declaration of rights under a reinsurance agreement and an order compelling arbitration. By Order dated June 11, 1992, the Honorable Thomas P. Griesa stayed the action pending the resolution of the arbitration.
All of the matters referred to arbitration in the Southern District actions were submitted to the AAA Arbitration panel discussed below.
C. The PAG Action and the AAA Arbitration
In the PAG Action, filed in September of 1991, PAG brought suit against Republic in the Supreme Court of the State of New York alleging tortious interference. On September 16, 1991, Republic moved to compel arbitration of PAG's claims pursuant to the Memorandum of Agreement.
While the motion was pending, Republic initiated the AAA Arbitration on September 24, 1991. On June 22, 1992, after selection of the AAA panel and while the motion to compel arbitration was pending, the Honorable Herman Cahn referred certain motions pending in the PAG Action to the AAA panel. On September 22, 1992, the AAA panel directed "Pan Atlantic" to place $ 5.9 million into an escrow account pending the outcome of the AAA arbitration. PAG advised the AAA panel that it did not have the funds available and could not fund the escrow as ordered. Republic argued that the escrow should be funded by all of the Pan Atlantic parties, not merely by PAG.
Justice Cahn granted Republic's motion to compel arbitration on July 28, 1993, and denied PAG's motion to reargue on January 13, 1994. PAG appealed the July 28 and January 13 orders to the Appellate Division on February 28, 1994. The appeal of the July 28 Order was dismissed as untimely; the appeal of the January 13 Order has been stayed by Pan Atlantic's removal of the PAG Action to this Court.
D. The Special Proceeding
For several months after the September 22, 1992 escrow order, all proceedings between Republic and Pan Atlantic ceased pending settlement discussions. These discussions were obviously unsuccessful, and Republic initiated the Special Proceeding in the Supreme Court of the State of New York by filing, on March 5, 1993, a "Petition to Confirm Arbitration Award and for Provisional Relief," in which it sought, among other things, to enforce the escrow portion of the AAA panel's order against PAG and its nine subsidiaries and affiliates who were named as respondents. The Special Proceeding was also assigned to Justice Cahn. Pan Atlantic answered the petition on June 22, 1993, alleging, inter alia, lack of personal jurisdiction and improper service of process.
In July 1993, Pan Atlantic filed a motion to transfer the Special Proceeding to the Supreme Court's civil trial calendar and requested a jury trial. Pan Atlantic argued that a full trial on the merits was necessary in order to determine whether each of the Respondents was a proper party to the AAA Arbitration. In October 1993, Republic filed a motion in the Special Proceeding to compel all ten Respondents to arbitrate the claims asserted in the AAA Arbitration, and to strike Pan Atlantic's defenses of lack of personal jurisdiction and improper service of process. In response to this motion, on December 9, 1993, Pan Atlantic conceded that PAG, PAUL, PAICO, and PARCO were proper parties to the AAA Arbitration, and cross-moved to stay arbitration against PAI, U.S. Capital, PAIL, Goldstreet, AROS Inc. and AROS Ltd. On June 10, 1994, Justice Cahn, in a fifty-five page opinion, addressed all of the open issues in the case, with one exception.
At Republic's request, the court reserved decision on the affirmance of the AAA panel's escrow award against Pan Atlantic pending the supplemental results of an independent auditor's examination of the Pan Atlantic Syndicate books and records.
In his opinion, Justice Cahn denied Pan Atlantic's motion to transfer the Special Proceeding to the "civil trial calendar," finding that
the only relief which respondents can properly seek here is an evidentiary hearing. . .. However, . . . respondents have failed to raise a triable issue of fact as to whether [PAI, U.S. Capital, PAIL, Goldstreet, AROS Inc. and AROS Ltd.] are proper parties to the AAA arbitration.
(Cahn Opinion at 20.) Justice Cahn held that all Respondents were properly served via a letter to an individual who was "an officer or director of each of the Respondents and personally controls each of the entities." (Cahn Opinion at 20.) Justice Cahn found that PAI, U.S. Capital, PAIL, Goldstreet, AROS Inc. and AROS Ltd. (the "Moving Respondents") waived their right to object to the arbitration by failing to apply for a stay within 20 days of service of the original arbitration demand in September of 1991, and further that these respondents
participated in the AAA Arbitration and their conduct between September of 1991 and 1992 constitutes yet another waiver of their right to object to their inclusion in that proceeding.
Notwithstanding the waivers, all of the Moving Respondents are parties to an agreement to arbitrate by virtue of the 1977 Addendum to the Memorandum of Agreement, a written agreement which contains a broad and explicit arbitration clause. Furthermore, even accepting respondents' argument that the 1977 Addendum only applies to those Pan Atlantic entities that actually performed underwriting management services on behalf of the PAG Syndicate, respondents PAI, AROS [Inc.], and AROS Ltd. are proper parties to the AAA Arbitration as the alter egos of [PAG] and respondents PAIL and Goldstreet are bound to arbitrate by separate agreements with Republic executed on January 1, 1991 and January 1, 1993, respectively.
(Cahn Opinion at 53 (emphasis supplied).)
Pan Atlantic appealed the June 10 order to the Appellate Division on July 13, 1994. This appeal was consolidated with the appeals of the July 28, 1993 and January 13, 1994 orders and is currently stayed by Pan Atlantic's removal of the Special Proceeding to this Court.
E. Pan Atlantic's Appeals to the New York Appellate Division
On February 28, 1994, Pan Atlantic appealed two of Justice Cahn's orders in the PAG Action, dated July 28, 1993, and January 13, 1994.
On June 2, 1994, the Appellate Division, First Department, dismissed as untimely PAG's appeal of the July 28, 1993 order. On July 28, 1994, the Appellate Division stayed the order of January 13, 1994, pending appeal.
On July 13, 1994, Pan Atlantic appealed Justice Cahn's order in the Special Proceeding dated June 10, 1994.
On August 25, 1994, the Appellate Division stayed enforcement of the June 10, 1994 order, and consolidated its appeal with that of the January 13, 1994 order, on condition that Pan Atlantic perfect its appeals for the First Department's November term. Oral argument was scheduled for November 3, 1994, but did not occur because of the October 25, 1994 removal to this Court.
In April 1992, Republic commenced an action in Texas (the "Texas Action") against PAG's parent company, PAI, in which it sought, inter alia, to enforce a guarantee agreement executed by PAI. This agreement did not contain an arbitration clause. PAI asserted counterclaims and five other Pan Atlantic companies intervened in the Texas action, asserting ton claims against Republic and other third-party defendants. Republic nonsuited its original claims and the parties were realigned, with the Pan Atlantic companies appearing as plaintiffs and Republic appearing as the defendant. Republic raised arbitrability as a defense and moved to compel arbitration of all of the Texas claims.
On May 14, 1992, the Honorable Hugh Snodgrass granted Republic's motion. Subsequently, the Honorable Joe B. Brown granted Pan Atlantic's motion for rehearing. On rehearing, the Honorable Candace Tyson denied Republic's motion to compel arbitration of the Texas claims by order dated June 17, 1994, on the ground that Republic had waived its right to arbitrate by bringing suit in Texas. Judge Tyson held that,
As a result of Republic's waiver of its right to arbitrate, if any, none of the Plaintiffs in this lawsuit may be compelled to arbitration with Republic, except for the Pending Arbitration Claims set forth in paragraph 1.