United States District Court, S.D. New York
November 10, 2004.
GERLING GLOBAL REINSURANCE CORPORATION, U.S. BRANCH Plaintiff,
SOMPO JAPAN INSURANCE COMPANY, as a successor of YASUDA FIRE & MARINE INSURANCE CO. LTD. Defendant.
The opinion of the court was delivered by: SIDNEY STEIN, District Judge
OPINION & ORDER
Plaintiff Gerling Global Reinsurance Corporation, U.S. Branch,
seeks a declaratory judgment that Sompo Japan Insurance Company
is obligated to post a letter of credit in the amount of $7.5
million. Defendant Sompo has now moved to dismiss the complaint
on two grounds: lack of subject matter jurisdiction pursuant to
Fed.R. Civ. P. 12(b)(1) and failure to state a claim pursuant to
Fed.R. Civ. P. 12(b)(6). Gerling has cross moved pursuant to New
York Insurance Law § 1213(c) to require Sompo to post a bond in
the amount of $7.5 million. As explained below, this Court grants
Sompo's motion to dismiss for lack of subject matter jurisdiction
because the suit solely concerns the effect of a prior judicial
decision and not the underlying arbitral award.
The Complaint and the documents annexed to it allege the
following facts: Gerling is the U.S. branch of a German
reinsurance company. (Compl. ¶ 2). Sompo is a Japanese
corporation whose predecessor, Yasuda Fire & Marine Insurance Co.
Ltd., issued reinsurance to Gerling in what is known as a
retrocessionnaire agreement. See In re Gerling Global Reins.
Corp. v. Yasuda Fire & Marine Ins. Co., 1999 U.S. Dist. Lexis
11480, n. 2 (S.D.N.Y. 1999). A retrocessionnaire agreement exists between two reinsurance
companies. Through such an agreement, one reinsurance company
agrees to indemnify a second reinsurance company for potential
losses under reinsurance policies issued by that second
A dispute arose over Yasuda's obligations to Gerling under that
retrocessionnaire agreement and in 1998 the parties submitted
that dispute to a New York arbitration panel. (Unanimous
Decision-Final Award ("Award"), Compl. Ex. B). In a three-page
"Unanimous Decision-Final Award," the panel ordered Yasuda to pay
a sum of money to Gerling and to post letters of credit for
amounts that Gerling was to calculate based on its own exposure
to its own outstanding but unpaid claims. (Id.). The panel also
ruled that Gerling bore the burden of showing that any liability
it claimed Yasuda had to secure in its letter of credit was
"reasonable." (Id. at ¶ 4).
Gerling then filed a petition to confirm the arbitral award in
the Southern District of New York, but Yasuda moved to remand the
award on the grounds that it was vague and ambiguous. In July of
1999, Judge Loretta Preska confirmed the award, writing that
Gerling had met its burden of showing the "reasonableness" of its
claimed liability by supporting its calculations with a schedule
Schedule F of its Annual Statement prepared with the aid of
Deloitte & Touche. Gerling also submitted a declaration of
Lawrence M. Lutzak, Gerling's assistant vice president of claims,
explaining the calculation method used to arrive at the figures
shown in the schedule. In re Gerling Global Reins. Corp., 1999
U.S. Dist. LEXIS 11480 at *15-17.
Approximately five years later in March of 2004 Gerling
wrote to Sompo, Yasuda's successor, and requested that Sompo post
new letters of credit based upon Gerling's newly calculated
liability. (Letter of Edward K. Lenci of March 19, 2004, Compl.
Ex. E). Gerling attached its new Schedule F as "information
substantiating these amounts" and referred to Judge Preska's decision. (Id.). Sompo promptly responded and declined
to issue the new letters of credit, contesting not only its
obligation to do so, but also the amount of Gerling's actual
liability and the notion that Judge Preska had crafted a running
protocol for determining the amount of Sompo's future
obligations. (Letter of Neal R. Novak of March 24, 2004, Compl.
Ex. F). Sompo also contested the notion that Judge Preska had
held that the Schedule F figures alone would suffice to show
"reasonableness" in the future. (Id. at 2).
Rebuffed, Gerling filed this suit seeking a declaration that
"in accordance with [the] Court's decision in Gerling Global v.
Yasuda, 1999 U.S. Dist. Lexis 11480, at *15-17, Sompo is
required forthwith to post a letter of credit in favor of Gerling
in the amount of $7,532,088." (Compl. ¶ 17). Gerling also seeks a
declaration that "in accordance with [the] Court's decision in
Gerling Global v. Yasuda, 1999 U.S. Dist. Lexis 11480, at
*15-17, Sompo is required in coming years to post a letter of
credit in favor of Gerling in an amount equal to" the excess
liability "as set forth in the Schedule Fs of subsequent annual
statements of Gerling." (Compl. ¶ 20).
As noted above, Sompo then moved to dismiss the complaint on
the grounds that this Court lacked subject matter jurisdiction
and that Gerling had failed to state a claim. In response,
Gerling cross moved to require Sompo to post a bond in the amount
of $7.5 million. The Court now turns to the merits of those
motions, first addressing the issue of subject matter
Gerling must show by a preponderance of the evidence that
subject matter jurisdiction exists. APWU, AFL-CIO v. Potter,
343 F.3d 619 (2d Cir. 2003). It seeks relief pursuant to the
Declaratory Judgment Act, 28 U.S.C. § 2201. It is "settled law"
that the Act does not contain a grant of subject matter
jurisdiction to federal courts but rather requires that an
independent ground for jurisdiction exists before a court may consider
whether to grant declaratory relief. Concerned Citizens of
Cohocton Valley, Inc. v. New York State Dep't of Env. Cons.,
127 F.3d 201, 206 (2d Cir. 1997).
Gerling contends that the required grant of jurisdiction is
found in section 203 of the enabling legislation of the
Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (the "Convention"), 9 U.S.C. § 203. (Compl. ¶ 4).*fn1
Section 203 provides federal subject matter jurisdiction for an
"action or proceeding falling under the Convention. . . ."
Section 202 provides that foreign arbitral awards fall under the
Convention. 9 U.S.C. § 202. Gerling urges that the arbitral award
here is "foreign" within the meaning of section 202 because it is
an award "involving parties . . . having their principal place of
business outside the enforcing jurisdiction." See Bergesen v.
Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983).
Sompo does not challenge the foreign classification of the
award for purposes of 9 U.S.C. § 202. Instead, Sompo contends
that Gerling's complaint has nothing to do with the award. The
complaint, Sompo asserts, entirely concerns the preclusive effect
of Judge Preska's determination in In re Gerling Global Reins.
Corp. v. Yasuda Fire & Marine Ins. Co., 1999 U.S. Dist. Lexis
11480 (S.D.N.Y. 1999). Sompo claims that since Gerling asks this
Court to construe the preclusive effect of a prior judicial
decision instead of to compel arbitration or confirm a foreign
arbitral award, as the Convention authorizes jurisdiction
cannot rest on 9 U.S.C. §§ 201-203. In Int'l Shipping Co., S.A. v. Hydra Offshore, 875 F.2d 388,
n. 5 (2d Cir. 1989), cert. denied, 493 U.S. 1003 (1989), the
United States Court of Appeals for the Second Circuit wrote that
the district court had "appropriately rejected" the appellant's
claim of jurisdiction pursuant to the Convention because "the
party invoking [the Convention's] provisions did not seek either
to compel arbitration or to enforce an arbitral award." Cf.
Borden, Inc. v. Meiji Milk Prod. Co., Ltd., 919 F.2d 822, 826
(2d Cir. 1990).
Consistent with the principle that the Convention conveys
federal jurisdiction only to compel arbitration or confirm an
arbitral award, the court in Hartford Accident & Indem. Co. v.
Equitas Reins. Ltd., 200 F.Supp.2d 102 (D. Conn. 2002) held that
it lacked subject matter jurisdiction over a declaratory judgment
claim when the petition to compel arbitration failed to state a
necessary element, thus leaving no basis for jurisdiction under
the Convention. Conversely, in cases where a federal court has
exercised jurisdiction over a claim for declaratory relief, the
party invoking jurisdiction pursuant to the Convention had
petitioned to compel arbitration or confirm the award. Nat'l
Union Fire Ins. Co. v. Belco Petroleum Corp., 88 F.3d 129 (2d
Cir. 1996); Dworkin-Cossell Interair Courier Serv., Inc. v.
Avraham, 728 F.Supp. 156 (S.D.N.Y. 1989); Builders Federal
(Hong Kong) Ltd. v. Turner Const., 655 F.Supp. 1400 (S.D.N.Y.
There is one very narrow exception to the jurisdictional limit
described above, but the exception concerns only the issuance of
provisional remedies to ensure that an arbitration panel can
afford meaningful relief. Venconsul N.V. v. TIM Int'l N.V.,
2003 WL 21804833 (S.D.N.Y. 2003); China Nat'l Metal Prod.
Import/Export Co. v. Apex Digital, Inc., 155 F.Supp.2d 1174
(C.D. Cal. 2001). For example, in Venconsul the court held that
it had subject matter jurisdiction pursuant to the Convention
over a motion for a preliminary injunction; in that case,
however, jurisdiction existed because an arbitration proceeding was
already pending and exercising jurisdiction over the motion for a
preliminary injunction would help "preserve the possibility of
recoveries upon [arbitral] awards." Id. at *3.
With the above precedent in mind, this Court concludes that it
lacks subject matter jurisdiction over this dispute. Gerling does
not request that this Court confirm the underlying arbitral
award. Nor does Gerling seek to compel arbitration over the
disputed amount it claims Sompo must post in letters of credit.
Instead, Gerling's complaint requests only declaratory relief.
Crucially, Gerling does not request that this Court declare the
effect of the arbitral award, but rather that this Court declare
the preclusive effect of the decision confirming the underlying
arbitral award an action that lacks a jurisdictional predicate
pursuant to the Convention, which, as noted above, is the only
jurisdictional basis that Gerling proffers. Gerling specifically
requests its relief "in accordance with" Judge Preska's decision.
(Compl. ¶¶ 17, 20). Moreover, the substance of Gerling's claim
compels the conclusion that it seeks to enforce a prior judicial
decision and not an arbitral award. Gerling seeks a declaration
that the production of Schedule F suffices to carry the burden of
"reasonableness." However, the arbitral award was completely
silent on whether the production of Schedule F established the
reasonableness of Gerling's claimed excess liability. (Award,
Compl. Ex. B). It was only Judge Preska's decision that arguably
stood for the proposition Gerling asks this Court to declare. The
fact that Gerling cites to specific portions of Judge Preska's
order in its two requests for relief underscores the point that
it is Judge Preska's decision, and not the arbitral award, that
is at issue here. (Compl. ¶¶ 17, 20). Gerling's complaint is, in
form and substance, entirely based upon a judicial decision and
is not based on the foreign arbitral award necessary to create
federal subject matter jurisdiction. Additionally, Gerling seeks to apply the prior decision to a
different set of facts and figures than was at issue in the
arbitration proceeding that resulted in the award. Simply put,
the matter at hand Sompo's obligation to post new letters of
credit for a certain sum based upon new Schedule F figures
unsupported by the Lutzak Declaration has not been arbitrated
at all. Nor did Judge Preska in her decision address whether
Schedule F by itself would carry the burden of reasonableness.
This is a new dispute, based upon different facts that would
require a new arbitration award to create federal jurisdiction
under 9 U.S.C. § 203.
In sum, the Convention does not provide federal jurisdiction
for an action seeking a declaration of the preclusive effect of a
prior decision confirming an arbitral award. Because that is
precisely what Gerling seeks here, and because Gerling has
asserted in its complaint that the Convention is the sole
jurisdictional basis for this action, Sompo's motion to dismiss
the complaint for lack of subject matter jurisdiction is granted.
For the reasons set forth above, Sompo's motion to dismiss the
complaint is granted on the ground that the Court lacks subject
matter jurisdiction over the dispute. Gerling's cross motion to
compel Sompo to post security is dismissed as moot.