Opinion
Opinion No. 26022.
Heard April 20, 2005.
Filed August 15, 2005.
Appeal from Fairfield County, Kenneth G. Goode, Circuit Court Judge.
REVERSED.
Charles E. Carpenter, Jr. and S. Elizabeth Brosnan, both of Richardson, Plowden, Carpenter Robinson, of Columbia; D. Clay Robinson, of Robinson, McFadden Moore, of Columbia; Mark E. Wilson, of Kerns, Pitrof, Frost Pearlman, of Chicago, for Appellants.
C. Mitchell Brown and Kevin A. Hall, both of Nelson, Mullins, Riley Scarborough, of Columbia; Gray T. Culbreath and Eric Fosmire, both of Collins Lacy, of Columbia; J. Edward Bradley, of Moore, Taylor Thomas, of West Columbia; Michael L. McCluggage, R. John Street, and Michael A. Kaeding, all of Wildman, Harrold, Allen Dixon, of Chicago, for Respondents.
[EDITORS' NOTE: THIS OPINION WAS WITHDRAWN. FOR SUBSTITUTED OPINION, SEE 367 S.C. 540, 627 S.E.2d 687.]
This case involves a dispute over how the American Arbitration Association (AAA) administered the selection of an arbitrator.
FACTUAL/PROCEDURAL BACKGROUND
BCS Life Insurance Company and BCS Insurance Company (Appellants) brought a lawsuit in an Illinois state court against Strategic Resources, Gerald D. Peterson, Continental Assurance Company, Continental Casualty Company, and CNA Group Life Insurance Company (Respondents) after a business deal went awry. The Illinois court compelled the parties to arbitrate pursuant to the parties' prior written agreement.
The agreement provided that any dispute would be submitted to a panel of three arbitrators, two to be selected by the parties (party arbitrators) and a third (neutral arbitrator) to be selected by the party arbitrators. The party arbitrators were selected but were unable to agree on who would serve as the neutral arbitrator. Appellants then declared that the party arbitrators had reached an impasse and sought assistance from the AAA to make the selection.
The trial court found that Appellants unilaterally made this request in an attempt to obtain an unfair advantage by having the neutral arbitrator selected from a favorable list of arbitrators.
Once Respondents became aware that Appellants sought the AAA's assistance, a disagreement ensued as to which set of AAA rules was applicable. Appellants argued that the AAA's Supplementary Rules for the Resolution of Intra-Industry United States Reinsurance and Insurance Disputes (Supplementary Rules) applied. But Respondents contended that the AAA's Commercial Rules applied. After receiving Respondents' objections, the AAA issued a list of proposed arbitrators according to the Supplementary Rules and required the parties to "strike and rank" those candidates listed by July 18, 2003.
We assume that the parties wanted the most favorable list of arbitrators. The Supplementary Rules, which generally apply to disputes involving insurance claims and coverage, would yield a list of arbitrators who are not lawyers, and who have significant experience as officers of life or health insurance companies. On the other hand, the Commercial Rules would yield a list of arbitrators who are lawyers, and who are experienced in complex contract disputes.
Respondents continued to object to the list provided by the AAA, and the parties were unable to compromise. On July 17, 2003, one day before the "strike and rank" deadline, Respondents initiated these proceedings.
The trial court found that the Appellants had engaged in a variety of wrongful conduct, including, but not limited to, manipulating the AAA, violating the rules of the AAA, improperly communicating with the AAA, and making inconsistent statements to the trial court at hearings and in documents filed with the court. As a result, the trial court enjoined the AAA from following the Supplementary Rules and directed the AAA to devise a list of arbitrators according to the Commercial Rules. Appellants appealed. This case was certified from the court of appeals pursuant to Rule 204(b), SCACR.
The following issue has been presented for review:
I. Did the trial court err in enjoining the AAA?
Standard of Review
An order granting or denying an injunction is reviewed for abuse of discretion. County of Richland v. Simpkins, 348 S.C. 664, 668, 560 S.E.2d 902, 904 (Ct.App. 2002). An abuse of discretion occurs when the trial court's decision is unsupported by the evidence or controlled by an error of law. Id.
An action seeking an injunction is in equity. Doe v. South Carolina Med. Malpractice Liability Joint Underwriting Ass'n, 347 S.C. 642, 645, 557 S.E.2d 670, 672 (2001). Therefore, an appellate court can find facts in accordance with its own view of the preponderance of the evidence. Id.
I. Injunction
Appellants argue that the trial court erred in enjoining the AAA. We agree.
The trial court erred in granting the injunction for two reasons. First, the AAA is immune from this action under the doctrine of arbitral immunity. Second, the injunction was improper because Respondents had an adequate remedy at law.
A. Doctrine of Arbitral Immunity
"Individuals cannot be expected to [serve as arbitrators] if they can be caught up in the struggle between the litigants and saddled with the burdens of defending a lawsuit." Corey v. New York Stock Exch., 691 F.2d 1205, 1211 (6th Cir. 1982). Arbitral immunity insures that an arbitrator benefits from the independence necessary to protect him from bias or intimidation arising out of the exercise of judicial functions. Butz v. Economou, 438 U.S. 478, 508-511 (1978). As with judicial and quasi-judicial immunity, arbitral immunity is essential to protect the decision maker from undue influence. Statz v. Schwab, 175 Cal. Rptr. 3d 116, 125; see also Brandon v. Medpartners, 203 F.R.D. 677, 688 (S.D. Fla. 2001) (holding that "[j]ust as it would interfere unduly with the legal system to permit suits against empanelled jurors, a suit against a chosen arbitration panel threatens to scuttle the efficacy of arbitration").
Many courts have extended arbitral immunity to organizations that sponsor or administer arbitrations, such as the AAA. Am. Arbitration Ass'n v. Superior Court, 10 Cal. Rptr. 2d 899, 900 (Ct.App. 1992) (citing Baar v. Tigerman, 211 Cal. Rptr. 426, 430-431 (Ct.App. 1983), which held a grant of immunity to an individual arbitrator is illusory unless the same immunity shields the sponsoring association); New England Cleaning v. Am. Arbitration Ass'n, 199 F.3d 542, 545 (Mass. 1999) (holding that arbitration associations also benefit from arbitral immunity insofar as the tasks they perform are integrally related to the arbitration); Cort v. Am. Arbitration Ass'n, 795 F. Supp. 970, 971 (N.D. Cal. 1992) (holding arbitral immunity extends to arbitration associations).
In addition, federal law provides that "arbitral immunity protects all acts within the scope of the arbitral process." Olson v. Nat'l Ass'n of Security Dealers, 85 F.3d 381, 383 (8th Cir. 1996). However, arbitral immunity is not absolute immunity because it arises from the doctrine of judicial immunity, which is a limited immunity. Cort, 795 F. Supp. at 971.
The United States Supreme Court has held that judicial immunity does not apply when (1) the judge is engaged in nonjudicial actions, and (2) when the judge's actions are conducted in the absence of any jurisdiction. Mireles v. Waco, 502 U.S. 9, 11-12 (1991). Other courts have limited arbitral immunity to acts arising out of the scope of the arbitrator's function delegated by the parties through an initial agreement to arbitrate. Tamari v. Conrad, 552 F.2d 778, 780 (7th Cir. 1977); E.C. Ernst, Inc. v. Manhattan Constr. Co. of Texas, 551 F.2d 1026, 1032-33 (5th Cir. 1977); Lundgren v. Freeman, 307 F.2d 104, 117-118 (9th Cir. 1962); Cahn v. Int'l Ladies' Garment Union, 331 F.2d 113 (3d Cir. 1962).
The question before us is whether the AAA's decision to select a list of potential arbitrators from the Supplementary Rules falls within the scope of the arbitral process and not within one of the exceptions of judicial immunity.
Given the persuasive authority from federal courts and other jurisdictions, we find it necessary that arbitrators be afforded limited immunity from lawsuits related to decisions arbitrators make during the course of arbitration. In this case, the AAA's decision to select a list of potential arbitrators from the Supplementary Rules was within the scope of the arbitral process. Therefore, the AAA is immune from suit under these circumstances.
In addition, neither of the Mireles exceptions applies. First, the AAA's decision to select a list of potential neutral arbitrators was a quasi-judicial action. Second, the parties do not dispute that their arbitration agreement gave the AAA the authority or jurisdiction to administer the selection of the neutral arbitrator upon an impasse.
Respondents cite two cases in support of their argument that the trial court did not err in enjoining the AAA. However, we find these cases distinguishable from the present case.
In the first case, the Fifth Circuit held:
the arbitrator has a duty, express or implied, to make reasonably expeditious decisions. Where his action, or inaction, can fairly be characterized as delay or failure to decide rather than timely decision making (good or bad), he loses his claim to immunity because he loses his resemblance to a judge.
E.C. Ernst, Inc. v. Manhattan Constr. Co. of Texas, 551 F.2d 1026, 1033 (5th Cir. 1977). In Ernst, the plaintiff hired a contractor to build and renovate a hospital. Before construction began, plaintiff and contractor agreed that the architect who designed the renovations would arbitrate any dispute that would arise during construction. A dispute arose, and after more than a year, the architect had failed to respond to either party's attempts to arbitrate the matter. The court held that this delay was outside the scope of the arbitral process, and therefore the architect was not immune from the plaintiff's lawsuit. Id. at 1033-1034.
In a second case relied on by Respondents, the California Court of Appeals held that arbitral immunity is limited to those acts within an arbitration association's quasi-judicial role. Baar v. Tigerman, 211 Cal. Rptr. 426, 428 (Ct.App. 1983). In Baar, a party in arbitration brought an action against the arbitrator for taking too long to resolve a dispute. As in Ernst, the court held that the arbitrator's failure to decide the dispute in an expeditious manner was outside the scope of his quasi-judicial capacity, and therefore the doctrine of arbitral immunity did not apply. Id. at 431.
The California Court of Appeals later disagreed with the holding in Baar. See Statz v. Schwab, 175 Cal. Rptr. 116, 125 (Ct.App. 2004) (foreseeing that such suits would cause arbitrators to make decisions based upon their fear of suits rather than on the merits).
We find that the present case is distinguishable from Ernst and Baar. Here, there is no allegation that the AAA caused any delay in arbitration. In addition, as stated earlier, AAA's decision to use the Supplementary Rules instead of the Commercial Rules was within the AAA's quasi-judicial capacity. Further, the relief sought in Ernst and Baar was in law (money damages) not for the equitable relief of an injunction which requires a showing of extraordinary circumstances.
Finally, sound public policy provides that an arbitrator not be forced to defend a claim and, in turn, be forced to step out of an impartial administrative role to assume an adversarial position. The AAA's decision to provide a list of potential arbitrators based on the Supplementary Rules falls within the scope of the arbitral process, and therefore the AAA is immune from lawsuits concerning this decision. Therefore, we hold that the trial court erred in enjoining the AAA.
B. Adequate Remedy at Law
Appellants argue, in the alternative, that the trial court erred in granting injunctive relief because Respondents had an adequate remedy at law. We agree.
The power of the court to grant an injunction is in equity. Doe v. South Carolina Med. Malpractice Liab. Joint Underwriting Ass'n, 347 S.C. 642, 645, 557 S.E.2d 670, 671 (2001). The court will reserve its equitable powers for situations when there is no adequate remedy at law. Santee Cooper Resort, Inc. v. South Carolina Pub. Serv. Comm'n, 298 S.C. 179, 185, 379 S.E.2d 119, 123 (1989). The party seeking an injunction has the burden of demonstrating facts and circumstances warranting an injunction. Calcutt v. Calcutt, 282 S.C. 565, 572, 320 S.E.2d 55, 59 (Ct. App. 1984).
An injunction is appropriate when the party seeking the injunction (1) would suffer irreparable harm if the injunction is not granted; (2) will likely succeed in the litigation; and (3) has no adequate remedy at law. Scratch Golf Co. v. Dunes West Residential Golf Properties, Inc., 361 S.C. 117, 121, 603 S.E.2d 905, 908 (2004).
Injunctions are "drastic" remedies and should be "cautiously applied." LeFurgy v. Long Cove Club Owners Ass'n, Inc., 313 S.C. 555, 558, 443 S.E.2d 577, 578 (Ct.App. 1994). In deciding whether to grant an injunction, the court must "balance the benefit of an injunction to the plaintiff against the inconvenience and damage to the defendant, and grant an injunction or award damage [which seems] most consistent with justice and equity under the circumstances of the case." Forest Land Co. v. Black, 216 S.C. 255, 266-267, 57 S.E.2d 420, 426 (1950).
In the present case, the trial court ruled that Respondents "should not be required to wait until the arbitration has concluded before challenging the proceedings," because it would be "wasteful" to arbitrate "pursuant to inapplicable rules and with an improperly selected neutral arbitrator."
Respondents, however, were not entitled to an injunction because an adequate remedy at law existed. Rather than seek an injunction, Respondents had the right to appeal. The right to appeal protects Respondents' rights and gives them an opportunity to repair any prejudice caused by the alleged improper selection of the neutral arbitrator. Accordingly, we hold that the trial court erred in granting the injunction.
See 9 U.S.C. §§ 10, 11, and 12 (sections of the Federal Arbitration Act, which provide that a party in arbitration has the right to appeal at the conclusion of arbitration).
CONCLUSION
We reverse the lower court and hold that, based on the doctrine of arbitral immunity, the AAA is immune from the injunction. We further hold that an injunction was an improper remedy because Respondents had the right to appeal the result reached in arbitration. Therefore, the trial court's ruling is
REVERSED.
WALLER, BURNETT, JJ., and Acting Justice J. Cordell Maddox, Jr., concur. PLEICONES, J. concurs in result only.