                                                                                                                           Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-31-2003

Phila Reinsurance v. Empl Ins Wausau
Precedential or Non-Precedential: Non-Precedential

Docket 02-1943




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                                                                     NOT PRECEDENTIAL

             UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


                                          NO. 02-1943


                              PHILADELPHIA REINSURANCE
                            CORPORATION

                                                v.

                           EMPLOYERS INSURANCE OF WAUSAU,
                         A MUTUAL COMPANY,
                                                  Appellant


                          On Appeal from the United States District Court
                              for the Eastern District of Pennsylvania
                                   (D.C. Civil No. 01-cv-05452)
                           District Judge: Hon. Clarence C. Newcomer


                                     Argued March 12, 2003

                Before: SLOVITER, NYGAARD, and ALARCÓN*, Circuit Judges

                                     (Filed: March 31, 2003)


Keith Dotseth, Esq. (Argued)
Larson King, LLP
2800 MN World Trade Center
30 East Seventh Street
St. Paul, MN 55102

Attorney for Appellant

*
       Hon. Arthur L. Alarcón, Senior Judge, United States Court of Appeals for the Ninth
       Circuit, sitting by designation.
William M. Popalisky, Esq. (Argued)
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038


Steven Maniloff, Esq.
Montgomery, McCracken, Walker
 & Rhoads, LLP
123 South Broad Street
Philadelphia, PA 19109

Attorneys for Appellee


                                      OPINION OF THE COURT

ALARCÓN, Circuit Judge.

        Employers Insurance of Wausau, A Mutual Company (“Wausau”), appeals from the

district court’s order granting Philadelphia Reinsurance Corporation’s (“Philadelphia Re”),

petition to compel consolidated arbitration. We affirm. Wausau’s representation before

the district court that it had an “informal agreement” with Philadelphia Re to consolidate

the arbitrations establishes the existence of an agreement to consolidate between the

parties pursuant to the doctrine of judicial admissions.

                                                      I

        Between 1966 and 1985, Philadelphia Re and Wausau entered into ten separate

reinsurance contracts [hereinafter collectively “disputed contracts”]. Each of the disputed

contracts contains an arbitration clause that provides for the manner in which an arbitrator

should be selected. All ten contracts are silent on the issue of consolidation of arbitration.

                                                     2
        Before the present dispute arose, Wausau and Philadelphia Re’s disagreement over

Wausau’s obligations to Philadelphia Re under the reinsurance contracts resulted in two

separate arbitration proceedings. In each of these disputes, the parties agreed to

consolidate the disputed contracts into one arbitration proceeding. Although there was a

conflict between the parties regarding Philadelphia Re’s appointment of its arbitrator for

the second arbitration, the consolidated proceedings went forward. Philadelphia Re

prevailed in both.

        The most recent conflict between the parties arose from the fact that Philadelphia

Re entered into five additional commutation agreements with its reinsureds and alleged that

Wausau refused to pay its share of the payments required by those agreements.

Philadelphia Re advised Wausau on June 16, 2000 of its intent to demand arbitration in

these disputes. On July 18, 2000, Philadelphia Re notified Wausau that it planned to

appoint Ronald Jacks, who had presided over the second arbitration, as its party-appointed

arbitrator for the third arbitration. Wausau contended that Mr. Jacks could not remain fair

and impartial in the third arbitration and on April 4, 2001, petitioned the district court to

disqualify him. In its reply brief in support of its petition to disqualify Mr. Jacks, Wausau

included the following footnote [hereinafter “the footnote”]:

        Philly Re’s brief likewise opens by pointing out that one of the nine contracts
        between Wausau and Philly Re does not include a clause providing that the
        arbitrators “shall not have a personal or financial interest in the result of the
        arbitration.” Philly Re never explains the significance of this point and, given
        the parties’ informal agreement to arbitrate the parties’ rights under all of the
        retrocessional agreements simultaneously, there appears to be none. If
        Philly Re believes the parties should allow Mr. Jacks to serve as an arbitrator

                                                      3
        in a proceeding limited to the parties’ respective rights under the Second
        Excess Agreement . . . Philly Re should say so. Of course, such an approach
        logically would entail different arbitrators presiding over eight other
        arbitrations for each of the other retrocessional agreements.

Appendix to Brief of Appellant at 474-75 n. 2 (citations omitted) (emphasis added).

        On March 5, 2002, the district court entered an order granting Philadelphia Re’s

petition to compel consolidated arbitration. 1 The court held that “the interests of justice

and judicial economy are best served by enforcing the agreement to consolidate

arbitration.”

                                                      II

        The district court had jurisdiction over this action under 28 U.S.C. § 1332. This

court has jurisdiction under 9 U.S.C. § 16(a)(3).2 A district court’s determination regarding

the construction of a contract and the “legal effect an agreement will have on an event the

parties did not foresee” is reviewed de novo. Ram Constr. Co. v. Am. States Ins. Co., 749

F.2d 1049, 1053 (3d Cir. 1984). This court “may affirm a judgment on any ground apparent

from the record, even if the district court did not reach it.” Kabakjian v. United States, 267

F.3d 208, 213 (3d Cir. 2001).

        Wausau asserts that in order for the district court to compel arbitration, the parties

must have expressly agreed to consolidate the separate arbitrations. “[P]assage of the



   1
    In the same March 5, 2002 order, the district court denied Wausau’s petition for a
neutral umpire.
   2
      The pertinent portions of 9 U.S.C. § 16(a)(3) provide that “An appeal may be taken from
. . . a final decision with respect to an arbitration subject to this title.”

                                                      4
    [Federal Arbitration] Act was motivated, first and foremost, by a congressional desire to

    enforce agreements into which parties had entered.” Dean Witter Reynolds, Inc. v. Byrd,

    470 U.S. 213, 220 (1985).3 A district court must therefore abide by the terms of the

    parties’ agreement, even if it produces inefficient results. Id. See also Champ v. Siegel

    Trading Co., 55 F.3d 269, 274-75 (7th Cir. 1995) (agreeing with “[t]he Second, Fifth, Sixth,

    Eighth, Ninth and Eleventh Circuits [which] have held that absent an express provision in the

    parties' arbitration agreement” district courts are barred from requiring parties to

    consolidate arbitration “even where consolidation would promote the expeditious

    resolution of related claims”).

            Wausau contends that Philadelphia Re did not adduce any evidence of an explicit

    agreement to consolidate the disputes between the parties. Philadelphia Re maintains that

    the judicial admission contained in the footnote quoted above, standing alone, conclusively

    establishes that the parties entered into an agreement to consolidate. “‘[J]udicial

    admissions' [] are admissions in pleadings, stipulations, etc. [] which do not have to be

    proven in the same litigation.” Giannone v. U. S. Steel Corp., 238 F.2d 544, 547 (3d Cir.

    1956). “It has been held that judicial admissions are binding for the purpose of the case in

    which the admissions are made including appeals, and that an admission of counsel during

    the course of trial is binding on his client.” Glick v. White Motor Co., 458 F.2d 1287,

    1291 (3d Cir. 1972) (citations omitted). See also ALA, Inc. v. CCAIR, Inc., 29 F.3d 855,




       3
1       The Federal Arbitration Act is codified at 9 U.S.C. §§ 2-16.

                                                         5
862 (3d Cir. 1994) (stating that “judicial admissions are good evidence that an agreement

ha[s] been made”). When a party has admitted to a fact, the opposing party may “dispense

with proof of facts for which witnesses would otherwise be called” as to that issue, and

“any fact, bearing upon the issues involved, admitted by counsel, may be the ground of the

court's procedure equally as if established by the clearest proof.” Oscanyan v. Arms Co.,

103 U.S. 261, 263 (1880). Wausau’s statement that the parties had an “informal agreement

to arbitrate the parties’ rights under all of the retrocessional agreements simultaneously” is

a judicial admission. Therefore, Philadelphia Re was not required to produce any evidence

of a consolidation agreement.

        “[T]o be binding, judicial admissions must be unequivocal.” Glick, 458 F.2d at

1291. An unequivocal statement is one that is clear, unambiguous and expresses only one

meaning. Webster’s Third New International Dictionary 2494 (4th ed. 1976). Wausau

argues that, when the footnote is read in its entirety, it demonstrates that any intention of

the parties to agree to a consolidated arbitration “remained contingent on the parties’

positions with regard to other issues, such as the method of selecting arbitrators.” We

disagree. The footnote does not reflect that there was a condition precedent to the

existence of the “informal agreement.” Wausau’s statement in the footnote that the parties

had an “informal agreement to arbitrate the parties’ rights under all of the retrocessional

agreements simultaneously” is an unambiguous and clear admission that an agreement

between the parties existed.

        A district court may order the consolidation of separate arbitrations when the parties

                                                      6
have an explicit agreement to do so. See Volt Info. Scis, Inc. v. Bd. of Trustees of Stanford

Univ., 489 U.S. 468, 476 (1989) (emphasizing that the “the federal policy [of the Federal

Arbitration Act] is simply to ensure the enforceability, according to their terms, of private

agreements to arbitrate”). If the initial arbitration agreement between the two parties does

not include a clause requiring the parties to consolidate arbitration, the parties may

subsequently modify the original contract to incorporate such an agreement. Cf., Asplundh

Tree Expert Co. v. Bates, 71 F.3d 592, 596 (6th Cir. 1995) (holding that a subsequent letter

agreement that specifically referenced the arbitration agreement was a modification of the

original agreement); Compania Espanola de Petroleos v. Nereus Shipping, 527 F.2d 966,

973 (2d Cir. 1975), overruled on other grounds by United Kingdom of Great Britain and

Northern Ireland v. Boeing Co., 998 F.2d 68, 71 (2nd Cir. 1993) (holding that an additional

signatory to a contractual addendum could be bound by an arbitration clause contained in

the original contract); American Home Assur. Co. v. American Fidelity & Cas. Co., 356

F.2d 690, 691-92 (2d Cir. 1966) (holding that a subsequent letter constituted a

modification of the original contract which put any dispute “within the reach of the

arbitration agreement”). See also Connecticut Gen. Life Ins. Co. v. Sun Life Assur. Co. of

Can., 210 F.3d 771, 774 (7th Cir. 2000) (holding that “in deciding whether [a] contract . . .

authorize[s] [consolidation of arbitration] the court may resort to the usual methods of

contract interpretation, just as courts do in interpreting other provisions in an arbitration

clause”).

        The remaining issue is whether the fact that the agreement between Wausau and

                                                      7
Philadelphia Re was “informal” is sufficient to bind the parties to a consolidation of

arbitration. Parties that have an informal agreement with each other have entered into an

informal contract. Accord H. B. Zachry Co. v. O'Brien, 378 F.2d 423, 426 (10th Cir.

1967) (explaining that an informal agreement is enforceable as an informal contract, even

if the parties intended to later commit the agreement to writing). Parties may create an

“informal contract” orally, through a course of business, or “by the simple act of handing a

job applicant a shovel and providing a workplace.” Hishon v. King & Spalding, 467 U.S. 69,

74 (1984). The existence of an informal contract between two parties gives rise to each

party’s expectation of performance and right of enforcement. Cf., id. (stating that an

informal contract is a contractual relationship of employment that “triggers the provision

of Title VII governing ‘terms, conditions, or privileges of employment’”) (quoting 42

U.S.C. § 2000e-2); Newspaper Readers Serv. v. Canonsburg Pottery Co., 146 F.2d 963, 965

(3d Cir. 1945) (stating that if “[t]he mutual assent which is required by law for the

formation of an informal contract is [] present” the informal contract is enforceable).

Therefore, the informal agreement between Wausau and Philadelphia Re is an enforceable

contract to consolidate arbitration.

                                                Conclusion

        Even though the parties did not agree to consolidate arbitration in any of the original

ten arbitration clauses in the disputed contracts, their subsequent “informal agreement” to

litigate the actions simultaneously served as a modification. The“informal agreement”

between Wausau and Philadelphia Re was therefore an “explicit” agreement to consolidate

                                                     8
and was enforceable by the district court. The district court did not err in ruling that the

parties agreed to consolidate their disputes.4




TO THE CLERK:

                Please file the foregoing opinion.




                                   /s/ Arthur L. Alarcon
                                     Circuit Judge




   4
     We agree with Wausau that a district court cannot compel consolidation of arbitration
absent an explicit agreement between the parties. We expressly disavow the district court’s
alternative holding that“the interests of justice and judicial economy are best served” by
consolidating the arbitrations.
