Consolidation of Arbitrations is a Procedural Matter Presumptively For the Arbitrator to Decide in Accordance With the Parties’ Agreement
Since arbitration is a process of dispute resolution in accordance with a private agreement, the question of consolidation of arbitral proceedings ought to be determined in the same manner as other procedural issues. In short, no agreement to permit consolidation, no consolidation. The potential benefits of consolidation, in terms of efficiency and convenience, ought ultimately to be irrelevant to the adjudication of whether consolidation is permitted. (Besides, the notion of such “consolidation” always implies the expectation of greater efficiency.) Furthermore, consolidation is not a threshold “arbitrability” issue; rather, it concerns only where and before whom an agreed arbitration will be conducted. Thus, consolidation is a procedural issue that is presumptively for an arbitrator, not a court, to decide.
In Employers’ Ins. Co. of Wausau v. The Hartford, 2:18-cv-07240, 2018 U.S. Dist. LEXIS 205345 (C.D. Cal. Dec. 3, 2018), the court considered cross-petitions to compel arbitration where the parties had vastly different notions of the “arbitration” that each sought to compel. Hartford (and three of its affiliates -- First State, Twin Cities Fire, and New England Reinsurance) and Wausau were counter-parties to 19 reinsurance treaties arising out of eight reinsurance programs. The Hartford parties had reinsurance claims against Wausau under each of the treaties, and it was not disputed that those claims were subject to arbitration “pursuant to the valid arbitration clauses in each of the reinsurance contracts.” Id. at *9-*10.
There were thus disparate parties to many contracts, each with its own provisions for arbitration, venue, and other relevant aspects of dispute resolution. Id. at *4. (For example, the arbitration clauses in Wausau’s agreements with Hartford were not identical to the arbitration clauses in Wausau’s agreements with First State or New England Reinsurance. Id. at *12.) And all 19 reinsurance contracts were silent with regard to consolidation of arbitral proceedings. Id. at *8.
The matter that was directly before the Federal Court in the Central District of California concerned the terms of two reinsurance contracts comprising reinsurance Treaty 2718. In that context, Wausau sought an order compelling the parties to appoint a third arbitrator -- an “umpire” -- to a three-arbitrator panel that would arbitrate Hartford’s claim(s) under Treaty 2718 in accordance with that treaty’s arbitration clause. Hartford, on the other hand, sought a broad consolidation of arbitral proceedings, and thus requested an order to compel Wausau to appoint an umpire for a three-member panel that would “decide whether a consolidated proceeding is appropriate.” Hartford’s goal was that that single panel would eventually arbitrate all disputes between Hartford (and its affiliates) and Wausau under all of the 19 reinsurance treaties in question.
Thus, Hartford (and its affiliates) sought to consolidate the arbitrations of all of their reinsurance claims under the disparate agreements before a single arbitration panel in one place. Wausau’s counter-proposal was to create arbitral proceedings in three venues -- one with Hartford and Twin City, a second with First State, and a third with New England Reinsurance, in accordance with the venue provisions of the various agreements -- which would in effect have established a program of three arbitrations to resolve all of the claims. The parties evidently could not reach agreement on an ad hoc consolidation scheme in any form. Hartford therefore proposed to select an arbitration panel that would decide whether and how the various arbitration matters should be consolidated. See, id. at *4, *6. Wausau opposed that.
First, the court determined -- in accordance with Ninth Circuit precedent and consistent with similar holdings in the First, Third, and Seventh Circuits -- that the issue of whether to consolidate arbitrations was a procedural matter for the arbitrator, rather than the court, to decide. Id. at *9. It was not an arbitrability question at all.
The court then had to address Hartford’s refusal to proceed with the selection of an umpire in accordance with the terms of the arbitration clause in Treaty 2718 -- that is, there was no arbitral panel to which the court could immediately refer the consolidation issue. Id. at *9-*10. Wausau requested that the court enforce the terms of the arbitration clause in Treaty 2718, which was the only one before this court, and the court recognized that it had the power to compel the parties to proceed to arbitration in accordance with the terms of their agreement, 9 U.S.C § 4.
The court declined to grant Hartford’s request to in effect “fashion a new procedure in contravention of the terms of the [extant] agreements.” Id at *12. Hence, the court denied Hartford’s application to order Wausau to select its party-appointed arbitrator and to proceed with umpire selection in order to form a single arbitration panel to adjudicate all of the outstanding claims by Hartford and its affiliates under 19 insurance treaties. Id. *13.
Rather, the court looked to the arbitration agreement in Treaty 2718 and granted Wausau’s petition to compel the completion of the appointment of the arbitral panel that would operate under that agreement. And the court noted that that panel could consider requests to consolidate. Id. at *13-*14.
In all, the case did not seem difficult to decide, as the court was fundamentally called upon to reaffirm the primacy of arbitration agreements under the FAA.
Ultimately, in the absence of an agreement regarding the mode of arbitration of similar disputes under related or similar agreements, the potential efficiencies and conveniences of consolidation were beyond the consideration of the court in connection with applications to compel arbitration, and their weight in the eventual consideration by the proper adjudicator -- i.e., the arbitrator -- is likely indeterminate.
Parties may agree -- expressly or by incorporation by reference of pertinent arbitration rules of an administering entity -- to procedures for determining questions of consolidation of arbitral proceedings. Many administrative entities provide such procedures, see, e.g., ICC Arbitration Rules 6, 9, 10; Hong Kong International Arbitration Centre Administered Arbitration Rules arts. 27-30, which generally govern the arbitrator’s decision-making concerning party (and occasionally non-party) applications for consolidation.
A word to the wise, therefore. It pays to consider the overall transactional relationship with one’s counterparties before entering into a contract. Parties are perfectly capable of fashioning arbitral consolidation procedures as part of a more efficient scheme of dispute resolution if they anticipate the possibility of a multiplicity of claims and issues arising under different agreements among the same counter-parties.