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United States District Court, S.D. New York

January 7, 2004.


The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge


Raytheon Company ("Raytheon") brings this action against National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union") seeking a stay of arbitration*fn1 and a declaration under the Federal Arbitration Act ("FAA")*fn2 that the dispute between the parties is not subject to arbitration.*fn3 Page 2 National Union cross moves under section 4 of the FAA to compel arbitration of the underlying dispute.*fn4 National Union also seeks to enjoin Raytheon from the prosecution of parallel litigation in Massachusetts.*fn5 Raytheon, in turn, asks this Court to "defer ruling on National Union's motion" pending disposition of Raytheon's motion to stay arbitration now pending in the Massachusetts action or, in the alternative, either (1) stay arbitration pending disposition of the entire Massachusetts action or (2) deny National Union's motion to compel arbitration because National Union has waived its right to demand Page 3 arbitration.*fn6


  A. The Parties

  Raytheon is a Delaware corporation with its principal place of business in Massachusetts. National Union is a Pennsylvania corporation with its principal place of business in New York.*fn7

  B. The Insurance Policies

  National Union provided an insurance program (the "Program") to Raytheon from April 1, 1994 through June 1, 2002.*fn8 A Payment Agreement between Raytheon and National Union v/as added to the Program on June 1, 1998.*fn9 The Payment Agreement states that it is part of a "Program" that "comprises a uniquely negotiated set of agreements'7 between Raytheon and National Union.*fn10 Under the Payment Agreement, Raytheon consented to "pay Page 4 [National Union] all [of Raytheon's] Payment Obligation*fn11 and to perform all [its] obligations according to this Agreement and Schedule*fn12 for all entities covered by the Policies."*fn13 "Policies" is defined as "any or all of the insurance policies described by their policy numbers in the Schedule, and their endorsements, modifications, replacements and renewals."*fn14 One of the policies listed on the Schedule is National Union Policy Number RMGL 319-7097 (the "Master Policy"), which is discussed in greater detail below.*fn15

  Notably, the Payment Agreement provides that unresolved disputes "must be settled by Arbitration."*fn16 The dispute resolution provision states:

  If a dispute that you [Raytheon] and we [National Union] cannot settle by mutual agreement arises about this agreement or any transaction related to it, that dispute must be submitted to 3 arbitrators. We may submit to such arbitration any Page 5 dispute not resolved within 30 days after it arises.


You must notify us in writing as soon as you have submitted a dispute to arbitration. We must notify you in writing as soon as we have submitted a dispute to arbitration.
This Section will apply whether that dispute arises before or after termination of this Agreement . . .
The arbitration must take place in New York, New York unless you and we agree otherwise. The arbitration must be governed by the United States Arbitration Act, Title 9 U.S.C. § 1, et seq. Judgment upon the award rendered by the arbitrators may be entered by a court having jurisdiction thereof.*fn17
Additionally, the Payment Agreement provides that "[t]he arbitrators . . . will have exclusive jurisdiction over the entire matter in dispute, including any question as to its arbitrability."*fn18

  C. The Dispute

  Pursuant to a stock purchase agreement of 2000, Raytheon sold various engineering and construction subsidiaries to Morrison Knudsen Corporation, now known as Washington Group International, Inc.*fn19 These former Raytheon subsidiaries were Page 6 covered under insurance policies issued by National Union.*fn20 The primary policy under which these former Raytheon subsidiaries were covered is the Master Policy, which was executed in April 1994.*fn21 The Master policy provided commercial general liability ("CGL") coverage, among other coverages, insuring the former Raytheon subsidiaries, as well as Raytheon itself, in the amount of $5 million.*fn22 The Master Policy also provided that "`in the Page 7 event' National Union paid any damages under the Policy, [Raytheon and its subsidiaries] would reimburse the full amount of such payment up to the $5 million per occurrence retained amount for CGL Claims."*fn23

  On May 14, 2001, the WGI Companies filed a petition for bankruptcy in Nevada.*fn24 Until that date Raytheon and its former subsidiaries defended the insurance claims, managed the defense of those claims, assessed the risk of exposure to liability and damages, and negotiated and paid all settlements of significant insurance claims.*fn25 After the WGI Companies filed for bankruptcy, both Raytheon and the WGI Companies stopped paying the insurance claims.*fn26

  Raytheon alleges that during and after the bankruptcy proceedings, National Union "claimed that Raytheon was the guarantor of the obligations of the WGI Companies under the self-insured retention*fn27 endorsements of the National Union Page 8 policies."*fn28 Raytheon further contends that to the extent that "National Union unilaterally has paid or settled claims after WGI emerged from bankruptcy, National Union did so voluntarily and without Raytheon's necessary consent, in violation of applicable Massachusetts law."*fn29


  On October 31, 2003, National Union served a demand for arbitration, pursuant to the arbitration clause in the Payment Agreement.*fn30 Under the Payment Agreement, Raytheon was required to select the first arbitrator within thirty days following receipt of the Demand for Arbitration.*fn31 In the Demand for Arbitration, National Union invoked sections 7502(a)(i)*fn32 and Page 9 7503(c)*fn33 of New York's C.P.L.R., providing that unless Raytheon applied to stay the arbitration in a court in New York within twenty days after service of the Demand for Arbitration, Raytheon would be precluded from objecting on the grounds that there was no valid agreement to arbitrate this dispute.*fn34 Raytheon did not appoint an arbitrator.

  Instead, on. November 18, 2003, Raytheon filed a complaint in the United States District Court for the District of Massachusetts "asserting substantially the same issues and disputes as those asserted by National Union in the Demand [for Page 10 Arbitration]."*fn35 Two days later, in compliance with the requirement of New York law, Raytheon then filed a complaint in the Southern District of New York seeking to stay the arbitration. On December 8, 2003, Raytheon moved in the Massachusetts district court to enjoin National Union from pursuing the Demand for Arbitration. On consent, National Union's time to respond to this motion was extended to January 6, 2004.*fn36 Then, on December 15, 2003, National Union asked this Court to compel arbitration and to enjoin the Massachusetts action. The motion was fully briefed and heard on December 30, 2003,*fn37


  A. The First-Filed Rule

  As a principle of sound judicial administration, the "first filed" rule states that "where an action is brought in one federal district court: and a later action embracing the same issue is brought in another federal court, the first court: has jurisdiction to enjoin the prosecution of the second action, Page 11 [absent] special circumstances which justify giving priority to the second action."*fn38 Special circumstances are present, for example: (1) where the first suit was filed as a result of forum shopping; (2) when the first suit constitutes an improper anticipatory filing; or when a party is prepared to pursue a lawsuit, but first attempts a settlement and her adversary takes advantage of the situation by filing suit. Additionally, where the two actions were filed within a short span of time, the court may afford a diminished degree of deference to the forum of the first filing.*fn39 Even if none of the exceptions to the first-filed rule apply, a court may nonetheless depart from the general rule if the balance of convenience favors proceeding in the second forum.*fn40 The first-filed rule should not be applied mechanically. As noted in Everest Capital Ltd, v. Everest Funds Mgmt., LLC, "[a]mple discretion is left to the lower courts in Page 12 administering multifaceted litigation; courts are not to apply rules rigidly or mechanically."*fn41

  1. This Court Will Decide Whether the First-Filed Rule Applies

  As an initial matter, Raytheon argues that "the court in Massachusetts should be allowed to determine the applicability of the first-filed rule."*fn42 For support, Raytheon relies on MSK Ins., Ltd, v. Employers Reinsurance Corp., where the court stated, "This District has laid down a bright-line rule for situations such as this: The court before which the first-filed action was brought determines which forum will hear the case."*fn43 Such a rule is intended to avoid confusion and conflict among the various federal courts.*fn44

  Raytheon's reliance on MSK is misplaced. First, unlike the actions brought in MSK, this case involves the question of Page 13 whether this dispute, allegedly arising under the Payment Agreement, is subject to arbitration.*fn45 Thus, the question is not which court will resolve the underlying dispute, but which court will determine whether the arbitrators should make the threshold inquiry as to arbitrability. Second, the MSK case represents the paradigmatic first-filed dispute — that in which one party files first in one district and her adversary files in a different district. But here Raytheon filed the complaints in both districts>. Third, while the rule articulated in MSK is generally followed, where circumstances have warranted deviation, courts in this district have departed from the rule.*fn46

  There is no reason to defer to the Massachusetts court in this action. Judicial efficiency mandates that the matter be Page 14 decided at the earliest possible time. Raytheon filed in both courts, demonstrating its concern over whether the Massachusetts court has the power to grant the requested relief. In so doing, Raytheon essentially mooted the concept of deferring to plaintiff's choice of forum as it is the plaintiff in both actions. Finally, given this Court's conclusion that the arbitrators will decide the threshold issue of arbitrability,*fn47 it is unlikely that either the Massachusetts court or this Court will address the issues raised in the underlying dispute. 2. Application of the First-Filed Rule Raytheon argues that "the court in the district where an action is first-filed has priority to consider arbitrability, even if the second-filed action is pending in the district where arbitration would take place."*fn48 In other words, Raytheon argues Page 15 that this Court should defer to the Massachusetts court under the first-filed rule, despite the fact that because the arbitration is to be held in New York, the Massachusetts court may lack authority to decide the issues.

  Contrary to Raytheon's contentions, several circumstances justify departure from the first-filed rule.*fn49 First, because the Massachusetts action was filed only two days before the New York action, the filing dates lack significance and may be disregarded. Second, while the authority to decide issues regarding arbitration is certain in New York, it may be lacking in Massachusetts.*fn50 It would be a waste of judicial Page 16 resources to send the parties back to Massachusetts to litigate the question of judicial authority. Moreover, it would undoubtedly delay a final disposition in this matter. Third, as National Union argues, it could not have filed first because it was required to serve a demand for arbitration prior to commencing litigation, and had to wait twenty days following the demand before moving to compel arbitration.*fn51 It would Page 17 contravene the policies embodied in the FAA*fn52 to penalize the party seeking to compel arbitration in accordance with the terms of an arbitration agreement. The first-filed rule is a technical rule relating to the conservation and efficient allocation of judicial resources. There is no basis for this Court to mechanically apply the rule in direct contravention of the overriding policy favoring the speedy resolution of disputes regarding arbitrability.

  B. Arbitrability of the Dispute

  Pursuant to the FAA, the role of courts evaluating arbitration agreements is "`limited to determining two issues: i) whether a valid agreement or obligation to arbitrate exists, and 11) whether one party to the agreement has failed, neglected or refused to arbitrate."*fn53 "In addressing these issues, courts are mindful that arbitration is a matter of contract, and that parties cannot be compelled to arbitrate issues that they have not specifically agreed to submit to arbitration."*fn54 Although Page 18 the question of arbitrability is "determined by state law . . . under the FAA, certain presumptions inform the analysis. Specifically, the federal policy in favor of arbitration requires that `any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.'"*fn55

  "An important exception applies, however, when the doubt concerns who should decide arbitrability."*fn56 As a general rule, "[t]he question whether the parties have submitted a particular dispute to arbitration, i.e., the `question of arbitrability.' is `an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.'"*fn57 "[T] he parties themselves may provide that the arbitrator, not the court, shall determine whether an issue is arbitrable."*fn58 Page 19

  The question squarely presented here is whether Raytheon and National Union agreed that the arbitrators should decide whether disputes arising under the Master Policy are arbitrable. Because National Union is seeking to have the arbitrators decide arbitrability, rather than the court, it must demonstrate the parties intent by "`clear and unmistakable evidence' from the arbitration agreement, as construed by the relevant state law."*fn59 The Second Circuit has cited the following principles of New York contract law to guide courts in determining whether an arbitration provision "clearly and unmistakably" demonstrates that arbitrators rather than the courts are to resolve questions of arbitrability:

(1) "[i]n interpreting a contract, the intent of the parties governs;" (2) "[a] contract should be construed so as to give full meaning and effect to all of its provisions;" (3) words and phrases in a contract should be "given their plain meaning;" and (4) ambiguous language should be construed against the interest of the drafting party.*fn60
1. Deciding Arbitrability Under the Payment Agreement
  The Payment Agreement plainly reveals the parties' intent to submit all disputes "aris[ing] about this agreement or any transaction relat[ing] to it" to arbitration.*fn61 This is Page 20 indisputably a broad arbitration clause. In addition, the arbitration clause expressly delegates the issue of arbitrability to the arbitrators, specifically stating that "[t]he arbitrators . . . will have exclusive jurisdiction over the entire matter in dispute, including any question as to its arbitrability."*fn62

  The broad arbitration clause is limited only by the requirement that the dispute arise out of the Payment Agreement or any related transaction.*fn63 Raytheon argues that the instant dispute concerning claims under the Master Policy does not fall within the arbitration clause, as it relates to coverage under insurance policies issued by National Union, rather than Raytheon's payment obligations under the Payment Agreement;.*fn64 National Union, however, points out that "this dispute is a reimbursement dispute, [which] is at the heart of what the Payment Agreement is all about."*fn65 This is a classic question of the arbitrability of the issues raised in the Demand for Arbitration. Here, that question must be resolved by the arbitrators.

  Raytheon does not dispute the plain meaning of the arbitration agreement, but contends that because the Master Page 21 Policy, which was executed four years before the Payment Agreement, did not itself contain an arbitration clause, disputes relating to the Master Policy are not covered under the arbitration provision.*fn66 National Union counters that "an arbitration clause can be adopted after the fact" and "in 1998 [Raytheon and National Union] agreed to arbitrate all disputes under [the Master Policy]."*fn67

  Raytheon's argument fails for several reasons. First, the Payment Agreement does not contain any temporally qualifying language, indicating that the parties intended for all disputes relating to the Payment Agreement, even those relating to policies incorporated in but predating the Payment Agreement, to fall within the arbitration provision.*fn68 This interpretation is Page 22 particularly appropriate because a broad arbitration clause presumes that all disputes are arbitrable. Second, the fact that the Payment Agreement postdates the Master Policy cannot invalidate the parties' unambiguous agreement to arbitrate disputes relating to the constellation of policies incorporated into the Payment Agreement by the attached Schedule. The Payment Agreement specifically covers certain policies, which are defined as "any or all insurance policies described by their policy numbers in the Schedule, and their endorsements, modifications, replacements and renewals."*fn69 The Master Policy is listed on the attached Schedule. Raytheon argues that the parties agreed that the Payment Agreement would not be applied retroactively."*fn70 But this contention is belied by the plain language of the Payment Agreement and the attached Schedule. Accordingly, the intent of Page 23 the parties to include the Master Policy under the terms of the Payment Agreement is clear solely on a review of the Payment Agreement and the attached Schedule.

  While there may be merit to Raytheon's assertions that the parties agreed that the Payment Agreement would not be applied retroactively, this is a dispute for the arbitrators to resolve. In the absence of ambiguity in the Payment Agreement and the Schedule, Raytheon cannot introduce extrinsic evidence to this Court contradicting the language of the contract requiring that the issue of arbitrability be decided by the arbitrators.*fn71 However, it may be appropriate for the arbitrators to consider extrinsic evidence when deciding the question of arbitrability. Raytheon argues, for example, that Erik Eckilson, the Relationship Manager for Raytheon in connection with the insurance agreements between Raytheon and National Union, testified that the parties had always agreed that the Payment Agreement would not be applied retroactively.*fn72 Raytheon also Page 24 claims that an earlier "black-lined" version of the Payment Agreement expressly reveals that the Master Policy would not be incorporated into the Payment Agreement.*fn73 The arbitrators will undoubtedly resolve this dispute when addressing the question of arbitrability.

  2. 93A Claims

  Raytheon asserts that requiring it to arbitrate would deny it "meaningful relief" for National Union's violations of Massachusetts Law.*fn74 Specifically, Raytheon argues that:

National Union's voluntary, unilateral settlement of third party claims without Raytheon's consent; its failure to inform Raytheon of facts material to its alleged exposure; and its extortionate tactics in threatening to draw and then wrongfully drawing upon Raytheon's letter of credit . . . constitute unfair insurance practices and justify an award of multiplied damages under [Mass. Gen. Laws ch. 93A § 11 (2003)].*fn75
  Because the parties conferred authority on the arbitrators to assess the arbitrability of the dispute, this argument warrants only brief discussion. Even if the Payment Agreement does not permit the arbitrators to award multiplied damages,*fn76 the Payment Page 25 Agreement appears to reflect the agreement of the parties. Indeed, the Payment Agreement specifies that (1) the laws of New York, not Massachusetts, govern disputes arising from the agreement, and (2) the parties agreed to waive exemplary or punitive damages as to these disputes. The arbitrators must decide whether this limitation was agreed to by the parties and must also decide whether the agreement to arbitrate, with this limitation, is void based on considerations of public policy.

  3. Waiver of Arbitration Rights

  Finally, Raytheon argues that "National Union has waived any right to arbitrate the issues in dispute."*fn77 Specifically, Raytheon contends that National Union waived its arbitration rights by failing to demand arbitration for two years following Raytheon's alleged default under the Master Policy*fn78 and by participating in "protracted litigation of substantive issues central to the merits of the underlying dispute."*fn79 "[O]rdinarily a defense of waiver brought in opposition to a motion to compel arbitration . . . is a matter to be decided by the arbitrator."*fn80 However, the district court may reach the Page 26 question of waiver where the party seeking arbitration "had previously participated in court proceedings to litigate the same dispute."*fn81 Although Raytheon argues that National Union participated in litigation of matters "central to the merits" of the present dispute, the prior litigation did not involve the same parties, nor were these prior actions brought pursuant to the Payment Agreement.*fn82 Because it does not appear that National Union previously participated in court proceedings to litigate the issues raised here by Raytheon, the question of whether National Union waived its right to arbitrate must be decided by the arbitrators.


  For the foregoing reasons, National Union's motion to compel arbitration is granted. National Union's motion to enjoin Raytheon from the prosecution of parallel litigation in Massachusetts is denied. Accordingly, Raytheon's request that this Court: (1) "defer ruling on National Union's motion" pending disposition of Raytheon's motion in the Massachusetts action; (2) stay arbitration pending disposition of the Page 27 Massachusetts action; and (3) deny National Union's motion to compel because National Union has waived its right to demand arbitration, is denied. The parties are directed to proceed to arbitration on the terms specified in the Payment Agreement.

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