Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estado

In the

United States Court of Appeals

For the Seventh Circuit

____________________

Nos. 13-1364 & 13-2331

PINE TOP RECEIVABLES OF ILLINOIS, LLC,

Plaintiff-Appellant,

v.

BANCO DE SEGUROS DEL ESTADO,

Defendant-Appellee.

____________________

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 12 C 6357 — Marvin E. Aspen, Judge.

____________________

ARGUED OCTOBER 30, 2013 — DECIDED NOVEMBER 7, 2014

____________________

Before EASTERBROOK and WILLIAMS, Circuit Judges. 1

PER CURIAM. Pine Top Receivables (“Pine Top”) brought

this action against Banco de Seguros del Estado, an entity

wholly owned by Uruguay. Pine Top claimed that Banco

1 After the oral argument, circumstances arose that led Circuit Judge

Ripple to recuse himself. He did not thereafter participate in the consid-

eration or decision of these appeals, which are being resolved by a quor-

um of the panel. See 28 U.S.C. §46(d).

2 Nos. 13-1364 & 13-2331

owes $2,352,464.08 under reinsurance contracts. Pine Top’s

complaint sought to compel arbitration but alternately pro-

posed that the court enter judgment for breach of contract.

Banco answered the complaint, and Pine Top moved to

strike the answer for failure to post security under Illinois

insurance law. The district court denied the motion, and Pine

Top took an immediate appeal in reliance on the collateral

order doctrine, which applies to orders about the posting of

security. See Cohen v. Beneficial Industrial Loan Corp., 337 U.S.

541 (1949); Habitat Education Center v. United States Forest Ser-

vice, 607 F.3d 453, 455 (7th Cir. 2010).

The district court later denied Pine Top’s motion to com-

pel arbitration, and Pine Top took a second interlocutory ap-

peal on the authority of 9 U.S.C. §16. We discuss later some

jurisdictional questions related to that appeal. For now it is

enough to say that we affirm both of the district court’s deci-

sions.

I. BACKGROUND

A.

According to the allegations of the complaint, from 1977

to 1984 Banco entered into contracts under which it rein-

sured Pine Top Insurance Company (“Pine Top Insurance”).

The complaint in this suit alleges that Banco still owes more

than $2 million to the primary insurer.

Pine Top Insurance became insolvent and, in 1986, was

placed into liquidation under the supervision of an Illinois

court. After completing an accounting, its Liquidator sent a

demand letter to Banco on July 31, 2008, seeking the claimed

overdue balances on various reinsurance contracts. The Liq-

uidator then sold Pine Top Insurance’s accounts receivable to

Nos. 13-1364 & 13-2331 3

Pine Top, which was established for the purpose of acquiring

those rights. As the debt’s new owner, Pine Top sought to

collect. Banco disputed the amounts claimed, and Pine Top

filed the present action.

B.

In moving to strike Banco’s answer, Pine Top contended

that, under the Unauthorized Insurers Process Act as adopt-

ed in Illinois, 215 ILCS 5/123, Banco must post pre-answer

security in the full amount of the disputed debt. Banco op-

posed the motion, contending among other things that the

Foreign Sovereign Immunities Act (“FSIA”) bars any re-

quirement of prejudgment security. Pine Top acknowledges

that Banco’s status as an entity wholly owned by Uruguay

brings it within the FSIA.

The district court denied the motion to strike. It conclud-

ed that the FSIA’s prohibition on attaching a foreign state’s

property prevents application of the Illinois security re-

quirement. The court concluded that the security would be

an “attachment” within the meaning of the FSIA. It relied

principally on Stephens v. National Distillers & Chemical Corp.,

69 F.3d 1226 (2d Cir. 1995), which held that a similar security

requirement under New York law is equivalent to an at-

tachment. The district court also held that Banco had not

waived its FSIA immunity.

The district court later determined that Pine Top has no

right to arbitrate under the terms of the reinsurance treaties,

because the assignment executed by the Liquidator gave

Pine Top only limited rights to the collections of certain

debts, not all rights and duties under the treaties.

4 Nos. 13-1364 & 13-2331

II. DISCUSSION

Two orders of the district court are before us. The first

order, in appeal No. 13-1364, denied Pine Top’s motion to

strike Banco’s responsive pleading for failure to comply with

the security requirement of 215 ILCS 5/123(5). The second,

the subject of appeal No. 13-2331, denied Pine Top’s motion

to compel arbitration and dismissed those counts of the

complaint that demanded arbitration. We address these mat-

ters in turn.

A. Motion to Strike, Appeal No. 13-1364

Under 215 ILCS 5/123(5), before an insurer that is not

specifically authorized to do business in Illinois may file any

responsive pleading in a suit against it, it must first deposit

with the clerk of the court security sufficient to satisfy any

final judgment in the action. Although this is phrased as a

pleading rule, the parties treat it as substantive and we do

likewise without deciding whether the parties’ assumption is

correct. (If it is procedural, federal rules would control, see

Walker v. Armco Steel Corp., 446 U.S. 740 (1980), and federal

law does not require out-of-state insurers to post security.)

Banco does not contend that it is “authorized” for the

purpose of §5/123(5), but it does contend, and the district

court held, that the FSIA blocks enforcement of Illinois’s re-

quirement. Pine Top raises several arguments in reply: (1)

that the prejudgment security is not an attachment within

the meaning of the FSIA; (2) that, if the security would oth-

erwise be an attachment and be prohibited by the FSIA, Ban-

co waived its immunity; and (3) that the McCarran-Ferguson

Act, 15 U.S.C. §§ 1011–15, prevents application of the FSIA.

We address these contentions in turn.

Nos. 13-1364 & 13-2331 5

1. “Attachments” Prohibited by the FSIA

One section of the FSIA provides:

Subject to existing international agreements to which the United

States is a party at the time of enactment of this Act the property

in the United States of a foreign state shall be immune from attach-

ment arrest and execution except as provided in sections 1610 and

1611 of this chapter.

28 U.S.C. §1609 (emphasis added). The parties dispute

whether the security requirement in the Illinois Code is an

“attachment” within the meaning of §1609. In Pine Top’s

view, the term refers to a historical procedure to obtain ju-

risdiction over a foreign sovereign; Banco contends that it is

not so restricted and covers all security requirements de-

signed to ensure that a judgment can be enforced.

No case from this circuit addresses whether prejudgment

security is an “attachment” for FSIA purposes. 2 We therefore

must begin with the text of the statute. Argentina v. NML

Capital, Ltd., 134 S. Ct. 2250, 2256 (2014) (“[A]ny sort of im-

munity defense made by a foreign sovereign must stand on

the Act’s text. Or it must fall.”); see also Senne v. Village of Pal-

atine, 695 F.3d 597, 601 (7th Cir. 2012) (en banc). The FSIA

does not define the term “attachment arrest and execution”,

nor does §1609 make any other reference that would clarify

whether it covers only jurisdictional attachments or attach-

2 We noted in International Insurance Co. v. Caja Nacional Ahorro y Se-

guro, 293 F.3d 392, 397 n.12, 399 n.13 (7th Cir. 2002), that the attachment

provision “has been interpreted to include pre-judgment security,” citing

Stephens. We “express[ed] no opinion on whether attachment arrest and

pre-judgment security are identical for purposes of the FSIA,” however,

because the issue was not raised by the parties, and because, in any

event, we concluded that the defendant had waived any immunity.

6 Nos. 13-1364 & 13-2331

ments to secure judgments. However, the following section

provides important guidance about the term’s likely

breadth. 3 Section 1610 defines exceptions to the general rule

of immunity set forth in §1609; it explains when property,

which otherwise would be immunized under §1609, is not

immune from attachment under the Act:

(d) The property of a foreign state, as defined in section 1603(a)

of this chapter, used for a commercial activity in the United

States, shall not be immune from attachment prior to the entry of

judgment in any action brought in a court of the United States or

of a State, or prior to the elapse of the period of time provided in

subsection (c) of this section, if—

(1) the foreign state has explicitly waived its immunity from

attachment prior to judgment, notwithstanding any with-

drawal of the waiver the foreign state may purport to effect

except in accordance with the terms of the waiver, and

(2) the purpose of the attachment is to secure satisfaction of a

judgment that has been or may ultimately be entered against

the foreign state, and not to obtain jurisdiction.

28 U.S.C. §1610 (emphasis added). Section 1610(d) shows

that several conditions must be met before prejudgment at-

tachment of a foreign sovereign’s property is allowable: (1)

the property must be used for a commercial purpose; (2)

there must be an explicit waiver; and (3) the purpose of the

attachment must be to secure satisfaction of a judgment ra-

ther than to obtain jurisdiction. If we accepted Pine Top’s

reading—that §1609 deals exclusively with jurisdictional at-

3 See Dolan v. United States Postal Service, 546 U.S. 481, 486 (2006)

(“Interpretation of a word or phrase depends upon reading the whole

statutory text, considering the purpose and context of the statute[ ] … .”);

United States v. Webber, 536 F.3d 584, 593 (7th Cir. 2008) (noting that con-

text and structure can illuminate statutory meaning and collecting cases).

Nos. 13-1364 & 13-2331 7

tachments—§1610(d) would accomplish nothing; it would

allow waiver of immunity only for a class of property to

which no immunity attached by virtue of the prior section.

That is, unless §1609 includes attachments “the purpose of

[which] is to secure satisfaction of a judgment,” §1610(d) is

superfluous.

Pine Top points us to various references in the legislative

history that it believes support the opposite view, but none

directly concerns the text of §1609. Furthermore, in light of

the meaning manifest in the structure and context of the

statute, resort to these indirect references in the history is

neither necessary nor useful.

Our conclusion is supported by the only other circuit to

consider a similar issue. In S&S Machinery Co. v. Masinexpor-

timport, 706 F.2d 411, 418 (2d Cir. 1983), the district court had

issued two orders affecting the domestic property of a for-

eign defendant: a direct order of attachment and an injunc-

tion against negotiation of letters of credit. When the de-

fendant objected that the orders violated the FSIA, the dis-

trict court dissolved both orders, and the Second Circuit af-

firmed. It concluded that dissolution of the injunction in ad-

dition to the attachment was necessary because the “FSIA

would become meaningless if courts could eviscerate its pro-

tections merely by denominating their restraints as injunc-

tions against the negotiation or use of property rather than

as attachments of that property.” Id. at 418. S&S Machinery

held that prejudgment “attachment,” properly understood,

included “any other means to effect the same result.” Ibid.

In Stephens the Second Circuit considered whether a pre-

judgment attachment requirement set by a New York insur-

ance statute was barred by the FSIA. As in the case before us,

8 Nos. 13-1364 & 13-2331

the trustee for an insolvent domestic insurance company

sought reimbursement from foreign reinsurers. The applica-

ble New York statute requiring pre-answer security was ma-

terially identical to the Illinois statute at issue in the present

case.

With S&S Machinery as a backdrop, the court in Stephens

had no difficulty in concluding that the security requirement

was barred by the FSIA:

The pre-judgment security requirement before us would force

foreign sovereign [reinsurers] to place some of their assets in the

hands of the United States courts for an indefinite period. Dur-

ing that time, the [reinsurers] would have no access to those as-

sets. All this is precisely the same result that would obtain if the

foreign sovereign’s assets were formally attached. There is, there-

fore, no significant distinction between New York’s security re-

quirement and an attachment of the property.

69 F.3d at 1229.

We agree with the Second Circuit that the statutory term

“attachment” has a broader meaning than that urged by Pine

Top. In addition to our independent statutory analysis, we

acknowledge, as the Second Circuit did, that not unlike

many federal statutes incorporating different state proce-

dures, a single unified term or group of terms stands as a

placeholder for a generic understanding rather than a refer-

ence to a particular state-law procedural vehicle or historical

practice. For that reason, Stephens’s holding that the matter of

whether a procedural requirement is barred by FSIA immun-

ity should turn on that requirement’s effect—rather than its

procedural particulars—is one that makes sense of the statu-

tory language. Accordingly, we conclude that the prejudg-

ment security requirement of 215 ILCS 5/123(5) is an “at-

tachment” under the FSIA.

Nos. 13-1364 & 13-2331 9

2. Waiver of Immunity

Pine Top next argues that any immunity available to Ban-

co under the FSIA has been waived under §1610(d). Pine Top

predicates its assertion of a waiver on (1) Banco’s agreement

to a reserves clause in the reinsurance contracts and (2) its

decision to transact reinsurance business in the state of Illi-

nois, which imposes the security requirement.

First, we examine the language of the reinsurance con-

tracts. The clauses cited by Pine Top required Banco, during

the term of its agreement, to “deposit with” Pine Top Insur-

ance “the amount of reserves in respect of [Banco’s] share of

… unearned premiums [and] outstanding losses and loss

expenses,” and to do so quarterly and within a month of a

request. These clauses set up a structure designed to ensure

that the secondary insurer maintains sufficient cash reserves

to meet its ongoing obligations. Such an arrangement is dis-

tinctly different, conceptually and practically, from a waiver

of protection from a judicial order of prejudgment security.

The reserves arrangement ensures the smooth operation of

the contract during its term; the statutory security provision

requires a party to surrender its assets to a court potentially

long after the contract ends. The contracts’ language sup-

ports this distinction. It provides that the reserves are calcu-

lated routinely during the term of the contract; this does not

even hint at consent to post security long after the contract’s

end to satisfy a potential judgment. Pine Top has not re-

quested the placement of reserves pursuant to the contract,

but rather a judicial order of security. The reserves clauses,

therefore, do not waive the protection afforded by the FSIA.

That Banco transacted business with an entity located

within Illinois likewise does not amount to consent to the

10 Nos. 13-1364 & 13-2331

state’s scheme. Banco may have been unaware of the security

requirement, or it may well have agreed to transact business

believing that the FSIA would protect it.

Moreover, any “waiver” that we could discern either

from the transacting of business with an entity in Illinois or

from reserves clauses that do not speak to orders of pre-

answer security in judicial proceedings would not be “ex-

plicit,” and therefore would not come within the statute’s ex-

emption. See 28 U.S.C. §1610(d)(1); S&S Machinery, 706 F.2d

at 416 (“[A] waiver of immunity from prejudgment attach-

ment must be explicit in the common sense meaning of the

term: the asserted waiver must demonstrate unambiguously

the foreign state’s intention to waive its immunity from pre-

judgment attachment in this country.”).

Finally, Pine Top’s reliance on Banco de Seguros del Estado

v. Mutual Marine Office, Inc., 344 F.3d 255 (2d Cir. 2003), is

unavailing. Mutual Marine reviewed an order by an arbitra-

tor that Banco post security during arbitration proceedings.

Banco challenged the order under the FSIA. The Second Cir-

cuit found an explicit waiver of immunity from attachment

in contract language authorizing the arbitrator to abstain

from following strict rules of law and to proceed without ju-

dicial formalities. Further, the contract at issue in Mutual Ma-

rine required Banco to obtain a letter of credit from a finan-

cial institution in order to secure its obligations. The court

read these two provisions as demonstrating a “clear and un-

ambiguous intent to waive all claims of immunity in all legal

proceedings.” Id. at 261. Mutual Marine is also not analogous

to our situation because the Second Circuit was employing a

different standard of review: it could not overturn the arbi-

Nos. 13-1364 & 13-2331 11

trator’s security requirement if there was any justification for

the arbitrator’s decision. See id. at 260.

Accordingly, we conclude that there has been no explicit

waiver by Banco of the protections afforded by the FSIA.

3. FSIA and McCarran-Ferguson

Having determined that the prejudgment security under

215 ILCS 5/123(5) would be an attachment within the mean-

ing of the FSIA, we turn to Pine Top’s contention that the

McCarran-Ferguson Act prevents application of the FSIA.

The McCarran-Ferguson Act provides, in relevant part,

No Act of Congress shall be construed to invalidate, impair, or

supersede any law enacted by any State for the purpose of regu-

lating the business of insurance, or which imposes a fee or tax

upon such business, unless such Act specifically relates to the

business of insurance … .

15 U.S.C. §1012(b). Pine Top supposes that, if the FSIA is in-

applicable (because it does not “specifically relate” to insur-

ance), then the state security requirement must be enforced.

That’s not so clear. Maybe knocking out the FSIA for the in-

surance industry would return us to the older regime of

common-law sovereign immunity discussed in NML Capital.

Maybe other considerations would block the enforcement of

the state statute. See Grupo Mexicano de Desarrollo, S.A. v. Al-

liance Bond Fund, Inc., 527 U.S. 308 (1999). But we need not

decide, because Pine Top has forfeited any argument resting

on the McCarran-Ferguson Act.

In the district court, Pine Top filed its complaint demand-

ing arbitration, or, in the alternative, relief in the amount of

the claimed debt. Banco answered; Pine Top moved to strike

Banco’s pleading because it had not posted pre-answer secu-

rity; Banco responded to the motion by claiming that the se-

12 Nos. 13-1364 & 13-2331

curity requirement is barred by the FSIA. Pine Top’s reply

conceded the general applicability of the FSIA, raising only

its contentions, explored above, that the FSIA’s provisions

prohibit only prejudgment “attachment” of the property of a

foreign sovereign or its instrumentality. Specifically, Pine

Top argued that the court needed to decide “two primary

questions: first, whether the relief sought is, in fact, an ‘at-

tachment’ of a sovereign’s property, and second, whether the

exception of section 1610(d) [concerning waiver of immuni-

ty] applies.” In the context of an argument that “[t]he pur-

poses” of the Illinois statute “distinguish it from ordinary

pre-judgment attachment rules,” Pine Top referenced the Il-

linois statute as a “proper exercise of the state’s authority to

regulate access to the business of insurance, authority which

has been enshrined in federal law since at least 1945.” This

sentence is followed by a citation to the “purposes” section

of the McCarran-Ferguson Act, 15 U.S.C. §1011, without

mention of §1012(b).

The district court agreed with Banco regarding the ap-

plicability of the FSIA. Pine Top then moved under Fed. R.

Civ. P. 59(e) to amend or correct the district court’s order. Its

motion contended that Stephens “incorporates a serious mis-

understanding of the purpose and structure of the FSIA”

and that the court should have rejected its reasoning. On re-

ply in support of this motion, Pine Top still did not invoke

§1012(b). Instead, it contended that Banco and the district

court had erred in discussing a portion of Stephens that ex-

amined the McCarran-Ferguson Act for the light it shed on

the meaning of attachment. The gravamen of Pine Top’s ar-

gument was that Stephens had misinterpreted the FSIA, and

its discussion of McCarran-Ferguson was a side note.

Nos. 13-1364 & 13-2331 13

We therefore conclude that Pine Top forfeited this issue

in the district court. The meaning of the FSIA was the issue

raised and debated by the parties throughout the district

court proceedings, and we see no direct argument that the

McCarran-Ferguson Act makes the FSIA inapplicable to the

insurance business.

When Banco contended in this court that Pine Top’s

McCarran-Ferguson argument had not been preserved in the

district court, Pine Top responded by acknowledging that

“there is no actual citation to McCarran Ferguson in [Pine

Top’s] briefs … to the district court.” It asserted, however,

that its briefs were “replete with references to the regulatory

policy of the state of Illinois and the threat to that policy if

the FSIA were interpreted to interfere with it.” It also

claimed that its scattered references to state authority to reg-

ulate insurance and to the year 1945 (the year of McCarran-

Ferguson’s enactment) make no sense outside of reliance on

§1012(b). In Pine Top’s view, in the district court, its “funda-

mental argument was that, because of McCarran Ferguson,

the term ‘attachment’ should be interpreted in a way that did

not conflict with governing state insurance law.”

We are not persuaded by this argument. The district

court was not required to intuit the significance of the year

1945 and to interpret isolated references to that year as refer-

ring to state authority to regulate insurance. Nor was it re-

quired to understand a generic mention of the McCarran-

Ferguson Act as an implicit request to hold a federal statute

inapplicable by virtue of §1012(b). See United States v. Holm,

326 F.3d 872, 877 (7th Cir. 2003) (noting that “[i]t is not the

obligation of [a] court to research and construct the legal ar-

guments open to parties, especially when they are represent-

14 Nos. 13-1364 & 13-2331

ed by counsel,” and that “perfunctory and undeveloped ar-

guments, and arguments that are unsupported by pertinent

authority, are waived” (internal quotation marks omitted)).

Furthermore, Pine Top’s only substantial references to

McCarran-Ferguson in the district court occur in a reply

brief in support of a 59(e) motion—not in the original motion

to strike or even the opening brief in support of 59(e)—and

such arguments are routinely deemed forfeited. See Sig-

sworth v. City of Aurora, 487 F.3d 506, 512 (7th Cir. 2007) (“[I]t

is well-settled that a Rule 59(e) motion is not properly uti-

lized to advance arguments or theories that could and

should have been made before the district court rendered a

judgment … .” (internal quotation marks omitted)).

Because Pine Top has not preserved its argument that the

FSIA does not apply to the insurance business, we do not

address whether that argument would succeed on the mer-

its.

B. Arbitration Under the Panama Convention

1. Appellate Jurisdiction

The district court’s order declining to refer the dispute to

arbitration is appealable only if it falls within a specific ex-

ception to the final judgment rule. See Wingerter v. Chester

Quarry Co., 185 F.3d 657, 661 (7th Cir. 1998). The only candi-

date for such an exception is 9 U.S.C. §16(a), which authoriz-

es immediate appeal from various orders relating to arbitra-

tion:

Nos. 13-1364 & 13-2331 15

An appeal may be taken from—

(1) an order—

(A) refusing a stay of any action under section 3 of this

title,

(B) denying a petition under section 4 of this title to or-

der arbitration to proceed,

(C) denying an application under section 206 of this ti-

tle to compel arbitration,

(D) confirming or denying confirmation of an award or

partial award, or

(E) modifying, correcting, or vacating an award;

(2) an interlocutory order granting, continuing, or modifying

an injunction against an arbitration that is subject to this ti-

tle; or

(3) a final decision with respect to an arbitration that is sub-

ject to this title.

In their initial briefs to this court, both parties recited that

Pine Top had sought to compel arbitration under §4 of the

Federal Arbitration Act, 9 U.S.C. §4. They further submitted

that we had jurisdiction over this appeal under 9 U.S.C.

§16(a)(1)(B) or (C). Sections 4 and 16 appear in the Federal

Arbitration Act (“FAA”) proper—which is to say, chapter 1

of title 9 of the United States Code. However, this is a suit

involving a domestic corporation and an entity wholly

owned by Uruguay. Both the United States and Uruguay are

signatories of the Inter-American Convention on Interna-

tional Commercial Arbitration (the “Panama Convention”),

and it is this Convention, implemented by chapter 3 of the

Federal Arbitration Act, that controls. See Johnson Controls,

Inc. v. Edman Controls, Inc., 712 F.3d 1021, 1024–25 (7th Cir.

2013) (noting the spheres of applicability of chapters 1, 2,

and 3 of the FAA). Because the parties’ reliance on chapter 1

16 Nos. 13-1364 & 13-2331

of the FAA gave us pause, we requested supplemental brief-

ing.

Both parties then shifted their focus to chapter 3. Arguing

in support of appellate jurisdiction, Pine Top submits that, in

a proceeding under chapter 3, we still ought to follow chap-

ter 1 provisions (including 9 U.S.C. §16) to the extent that

they are not inconsistent with chapter 3. Pine Top maintains

that this suit is effectively a proceeding under §4, which al-

lows §16(a)(1)(B) to supply appellate jurisdiction. Banco

counters that without a statutory authorization specific to

chapter 3 we must dismiss the interlocutory appeal.

We begin with a detailed look at the statute, and specifi-

cally at the interplay among the three chapters of the FAA.

Chapter 1, the original FAA, enacted in 1925, applies directly

to domestic arbitrations and those not otherwise covered by

a legal instrument, Johnson Controls, 712 F.3d at 1024, but its

provisions apply by incorporation to other arbitrations as

well. Chapter 1 provides, in §4, that a party aggrieved by

another’s failure to arbitrate a dispute under a written

agreement

may petition any United States district court which, save for

such agreement, would have jurisdiction under Title 28, in a civil

action or in admiralty of the subject matter of a suit arising out of

the controversy between the parties, for an order directing that

such arbitration proceed in the manner provided for in such

agreement. … The hearing and proceedings, under such agree-

ment, shall be within the district in which the petition for an or-

der directing such arbitration is filed.

9 U.S.C. §4. Section 4 also specifies procedures for a district

court considering such a petition.

Nos. 13-1364 & 13-2331 17

Each other chapter of the FAA implements an interna-

tional convention to which the United States is a party.

Chapter 2 implements the Convention on the Recognition

and Enforcement of Foreign Arbitral Awards, known as the

New York Convention, for which there are nearly 150 con-

tracting states. Commercial arbitration agreements between

citizens of contracting states fall under the Convention, as do

agreements between citizens of the United States, when they

involve property, performance or enforcement abroad or

“some other reasonable relation with one or more foreign

states.” 9 U.S.C. §202. Chapter 3 implements the Panama

Convention, which has 19 state parties. The Panama Conven-

tion incorporates the same rules of scope as the New York

Convention, see §302 (incorporating §202), except that it also

provides that when the requirements for both Conventions

are satisfied, if the majority of parties to the agreement are

citizens of Panama Convention state parties, that Conven-

tion, rather than the New York Convention, controls. 9

U.S.C. §305. Thus, the present case is governed by the Pana-

ma Convention.

The three chapters track each other in significant re-

spects—not only because they contain many parallel provi-

sions but also because chapters 2 and 3 contain incorpora-

tion provisions. Chapters 2 and 3 contain separate authoriza-

tion for a party to petition a district court having jurisdiction

over the controversy to order the parties to arbitrate. Those

provisions—sections 206 and 303—speak in more general

terms than §4, and they include little procedural detail. Both

chapter 2 and chapter 3 also include a provision calling for

the application of chapter 1 “to actions and proceedings

brought under this chapter to the extent” that they do not

conflict. 9 U.S.C. §§ 208, 307. A party seeking to compel arbi-

18 Nos. 13-1364 & 13-2331

tration generally proceeds formally under §4, §206, or §303,

depending on which chapter applies; however, because of

the residual application of chapter 1 procedures found prin-

cipally in §4, the proceedings do not necessarily look mark-

edly different.

There are, however, two significant differences between

the New York and Panama Conventions that are potentially

significant in our jurisdictional analysis. The first is that, in

1988, after the New York Convention had been implemented

but before the implementing legislation for the Panama

Convention, Congress amended chapter 1 to add §16. Sec-

tion 16 is the only section of the FAA defining appropriate

appellate jurisdiction in federal court proceedings related to

the FAA, and it replaced a system previously used by courts

of appeals but ultimately rejected by the Supreme Court. See

generally Gulfstream Aerospace Corp. v. Mayacamas Corp., 485

U.S. 271, 279–88 (1988). New §16 added language permitting

interlocutory appeals for motions or applications seeking to

compel arbitration under the only two chapters then existing

in the FAA—chapters 1 and 2. Specifically, it provides that a

party whose petition under §4 to compel arbitration is de-

nied may seek immediate appeal of that order.

When Congress added chapter 3 to implement the Pan-

ama Convention two years later, it did not amend §16. Ac-

cordingly, there is no direct reference in §16 to any chapter 3

proceedings. The problem posed by a lack of specific refer-

ence to the Panama Convention proceedings in §16 is one

that has escaped the attention of our sister circuits. It has al-

so, in large measure, escaped mention by commentators, alt-

hough the little commentary that exists supports the view

that §16 applies. See John P. Bowman, The Panama Convention

Nos. 13-1364 & 13-2331 19

and Its Implementation Under the Federal Arbitration Act, 11

Am. Rev. Int’l Arb. 1, 95 (2000). 4

If this case were governed by chapter 1 or 2, to which §16

refers, we clearly would have jurisdiction. Because it is not,

we must consider whether the incorporation provisions in

chapter 3 make §16 applicable. There are two: 9 U.S.C. §302,

which incorporates much of the New York Convention, and

9 U.S.C. §307, which provides for residual application of

chapter 1 in its entirety “to actions and proceedings brought

under this chapter to the extent chapter 1 is not in conflict”

with chapter 3 or the Panama Convention itself.

The first of these alternatives, §302, is not helpful in our

present inquiry. The only portion of §16 that authorizes in-

terlocutory appeals under the New York Convention is

§16(a)(1)(C), which allows appeals from applications to

compel under 9 U.S.C. §206. But the Panama Convention in-

corporates only specific provisions of the New York Conven-

tion, and §206 is not among them.

We therefore turn to the remaining possibility: that the

provision relating to the residual application of chapter 1,

found in §307, provides this court with authority. After care-

4 “When adopting Chapter 3 of the federal act in 1990, Congress did

not amend Section 16 to make specific reference to Section 303(a), the

new chapter’s counterpart to Sections 4 and 206. Section 16’s silence with

regard to Section 303(a) should not, however, be interpreted as relegat-

ing orders issued under Chapter 3 to a different appellate regime or, spe-

cifically, as allowing appeal of interlocutory orders compelling arbitra-

tion under Section 303(a). By providing for application of Chapter 1 to

actions and proceedings brought under Chapter 3, Section 307 makes

Section 16 applicable to interlocutory orders compelling arbitration un-

der Section 303(a) and the Panama Convention.”

20 Nos. 13-1364 & 13-2331

ful study, we believe that this residual clause confers appel-

late jurisdiction over an order denying arbitration. Because

chapter 3 provides essentially no guidance to the district

court with respect to the conduct of enforcement proceed-

ings, a district court must turn to §4 for vital procedures, and

§307 permits this borrowing. The application of §16 follows,

because §16(a)(1)(B) is linked to §4.

Banco suggests that, while such a result might be plausi-

ble where a case could have been brought directly under §4

and satisfies all of §4’s requirements, it is implausible where

a conflict exists between §303 and a part of §4. Specifically,

Banco invites the court’s attention to the terms of several of

the reinsurance contracts, which provide that arbitration is

to take place in Phoenix. It notes that §4 permits a district

court to order that arbitration proceed only within the judi-

cial district in which the petition is filed. Because a district

court considering this case under §4 could not order relief

consistent with the agreement, Banco argues that we must

disregard §4, and with it §16(a)(1)(B).

We do not believe that the statute should be construed

this way. The portion of §4 limiting the place of arbitration

conflicts with §303, which allows the court to order arbitra-

tion in whatever place the agreement provides. But the other

procedural specifications in §4 are consistent with §303, so

§307 incorporates them. Just as importantly, nothing outside

of §4 tells a district court what procedures to employ in con-

sidering a §303 motion. Section 4 provides the procedures a

federal court uses to determine the arbitrability of any dis-

pute under any chapter of the FAA, with only a few excep-

tions.

Nos. 13-1364 & 13-2331 21

Moreover, we previously have considered circumstances

in which only part of §4 could apply to a case before us, and

we had no difficulty in making that application and excising

the inconsistent provision. In Jain v. de Méré, 51 F.3d 686 (7th

Cir. 1995), we held that when a sole provision in §4 conflict-

ed with those under the New York Convention, courts could

still use those non-conflicting portions of §4. Jain involved an

agreement to arbitrate that did not specify a location, and

the petitioner sought, by way of the incorporation provision

in §208, to apply the rule of §4 that a district court may order

arbitration “within the district” in which the court sits. De

Méré, the respondent, attempted to block the court from ap-

plying §4. He argued that §4 could not apply because its

own limitations were not satisfied. We rejected his argument.

The upshot was a recognition that the incorporation provi-

sion in chapter 2 allowed us—indeed, required us—to excise

those individual portions of §4 that cause conflict while still

applying those portions that did not.

We see no material distinction in a case under the Pana-

ma Convention. The authority conveyed by §303 to order

arbitration at any location consistent with the agreement

overrides only a single portion of §4. The rest of §4 is con-

sistent with the Panama Convention and applies to chapter 3

through the residual clause of §307. The text of §16(a)(1)(B)

does the remaining work. 5

5 Although the context is not relevant in the present case, we note

that the Supreme Court has rejected at least one overly restrictive read-

ing of §16. See Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 627–29 (2009).

22 Nos. 13-1364 & 13-2331

2. Merits

Pine Top seeks to enforce the arbitration clauses in the re-

insurance policies between Pine Top Insurance and Banco.

The district court held that the Purchase Agreement (by

which Pine Top acquired its rights from the Liquidator) did

not transfer a right to demand arbitration.

Pine Top’s contentions fit into four categories: (1) that the

applicable language of the Purchase Agreement indeed

transfers the right to demand arbitration; (2) that, to the ex-

tent the Purchase Agreement is silent, the Uniform Commer-

cial Code fills the gap and transfers the right; (3) that parol

evidence suggests that the Liquidator and Pine Top meant to

transfer the right, and that such evidence was accorded in-

sufficient weight by the district court; and (4) that, because

Banco raises defenses to liability based on the policies’ terms,

it is equitably estopped from resisting application of all por-

tions of the policies. We address these contentions in turn.

a. Language of the Agreement

Pine Top’s first argument is that the Purchase Agreement

transfers the right to demand arbitration. It relies on the fol-

lowing provisions:

The agreement defines the purchased “Debts” as:

The net balances due … or which may become due … from the

… Debtors to the Assignor pursuant to the terms of the Policies;

… including all rights securing payment of such balances, such

as funds in the hands of brokers, letters of credit or collateral

pledged with respect to such Debts.

Further, under Clause 2.1

In consideration of [payment] by the Assignee to the Assignor,

… the Assignor shall … assign to the Assignee all of its rights, ti-

Nos. 13-1364 & 13-2331 23

tle, benefit and interest in the Debts absolutely and with full title

….

Finally, and most importantly in Pine Top’s view, under

Clause 5.2,

As of the Effective Date of this Agreement and by virtue of this

Assignment Agreement, Assignor authorizes Assignee to de-

mand, sue for, compromise and recover all amounts as now are,

or may hereafter become, due and payable for or on account of

the Debts. Assignor grants to Assignee full authority to do all

things necessary or useful to enforce the Debts and Assignor’s

rights thereunder pursuant to this Assignment Agreement. It is

specifically understood and agreed, however, that Assignee’s

rights under this paragraph are discretionary and Assignee may

exercise or decline to exercise such powers at Assignee’s sole op-

tion. Nothing in this Agreement shall create any obligation on

the part of Assignee to any person other than the Assignor.

Pine Top relies principally on the language in Clause 5.2 that

it acquired “full authority to do all things necessary or useful

to enforce the Debts and Assignor’s rights thereunder pur-

suant to this Assignment Agreement.” As the district court

noted, this provision could be read to encompass the arbitra-

tion clauses. However, when Clause 5.2 is read in conjunc-

tion with the preceding section, that interpretation becomes

implausible. Under Clause 5.1, Pine Top acquired the right to

obtain information “relating to the Debts or any Policies

from which such Debts might have arisen, to the same extent

and under the same conditions as the Assignor could have

done so in an exercise of its contractual rights.” This shows

that the drafters of the Purchase Agreement knew how to

communicate a full and complete transfer of rights, but, with

respect to the debts, authorized a more limited transfer.

The district court’s analysis of the terms is sound. The

contract specifically vests full title in the debts and authoriz-

24 Nos. 13-1364 & 13-2331

es Pine Top to “demand, sue for, compromise and recover all

amounts” of those debts. The “necessary or useful” language

follows this specific assignment of rights and authorizes ac-

tions related to the four specifically conferred rights (de-

mand, sue, compromise, recover), but does not incorporate

new or additional rights that are themselves “creature[s] of

contract,” Dunmire v. Schneider, 481 F.3d 465, 467 (7th Cir.

2007). Not only is “demand arbitration” not specifically in-

cluded in the transferred rights, it is of an entirely different

character. Ownership of a debt may imply the right to recov-

er the debt absent some legal impediment, but it does not

imply the right to use a means not otherwise established as a

right under the law. The policies themselves are not trans-

ferred under the Purchase Agreement. Clause 2.4.1 says ex-

actly that: “The assignment … shall not … be construed to be

a novation or assignment of the Policies.”

Finally, as the district court noted, the policies’ right to

demand arbitration is reciprocal, and the Purchase Agree-

ment states that Pine Top does not accept any responsibility

to anyone other than the Liquidator. (“Nothing in this

Agreement shall create any obligation on the part of Assign-

ee to any person other than the Assignor.”) The Liquidator

did not give Pine Top an obligation to submit to arbitration at

Banco’s request. It is not clear how the Liquidator could

transfer a one-way right to demand arbitration without im-

posing any reciprocal obligation on Pine Top. (Banco has not

argued that an assignment of the debt, without Pine Top’s

consent to arbitration at Banco’s behest, is invalid.)

b. UCC as Gap-Filler

Pine Top next contends that UCC terms fill any necessary

gaps and establish that a transfer of rights in the debt in-

Nos. 13-1364 & 13-2331 25

cludes a right to arbitration. The application of the UCC

provision is a matter of controversy between the parties, but

one that we need not resolve. Even if the UCC does apply,

Pine Top’s arguments are unpersuasive. The provisions of

the UCC on which Pine Top relies cover contractual lan-

guage assigning “the contract” or “all my rights under the

contract.” 810 ILCS 5/2–210(5). If an assignment includes

such language, the UCC tells us that the transfer is subject to

“all terms of the agreement.” 810 ILCS 5/9–404(a). If the as-

signment at issue in this case had employed such language

in transferring rights in the debt to Pine Top, resort to the

UCC would be unnecessary; the agreement itself would

have transferred the right to demand arbitration. But that’s

not what the assignment says.

c. Parol Evidence of Intent

Pine Top further submits that the only sensible reading of

the Purchase Agreement is that it acquired the arbitration

authority because the Liquidator was charged with obtain-

ing as much for the assets as possible and had authority to

sell any asset, including the right to demand arbitration. In

support of its argument, Pine Top cites affidavits submitted

in the district court from the Liquidator’s staff verifying that

the Liquidator tried to maximize the price by selling all

available assets.

The district court saw no reason to consider the affida-

vits, given that it had concluded that the contract was un-

ambiguous. Neither the affidavits nor anything else Pine Top

proposed to offer concerns discussions during negotiations

or the meaning of any concrete language in the documents.

The district court found, and we concur, that it is unhelpful

26 Nos. 13-1364 & 13-2331

because it moved the issue no further than the allegations of

the complaint themselves.

Pine Top is right to say that Illinois does not forbid all pa-

rol evidence when offered to resolve a dispute that involves

persons other than the contracting parties. See Quality Light-

ing Inc. v. Benjamin, 227 Ill. App. 3d 880, 886–87 (1992). How-

ever, this permissive approach does not alter the ordinary

rule that parol evidence is useless unless it illuminates the

meaning of a contract’s language. This evidence doesn’t.

d. Estoppel

Pine Top’s final argument is that Banco is estopped from

denying that Pine Top received a right to arbitrate. Accord-

ing to Pine Top, Banco itself presented defenses that depend

on the language of the reinsurance treaties; this means that

Banco must concede that all of this contractual language

governs the parties’ relations. Pine Top relies on Hughes Ma-

sonry Co. v. Greater Clark County School Building Corp., 659

F.2d 836, 838–39 (7th Cir. 1981). This argument merits little

attention. Hughes involved a set of contracts for school con-

struction through which a county designated J.A. as architect

and project manager and Hughes as mason; each entity exe-

cuted contracts separately with Clark, but Hughes’s contract

specified duties that J.A. would perform as project manager

of the entire construction project. Hughes later sued J.A. for

claims in tort, but the court stated that, in truth, they were

claims sounding in contract, for the failure of J.A. to perform

as designated under the agreements. When J.A. attempted to

arbitrate as provided in the Hughes-Clark contract, Hughes

defended by claiming that J.A. had no right to enforce the

arbitration clause. We were not persuaded; we determined

that Hughes had commenced an action for breach of terms

Nos. 13-1364 & 13-2331 27

of a contract by J.A., and that it would be inequitable to re-

fuse J.A. the procedural remedies provided in that same

document.

The situation before us is entirely different. Pine Top had

absolutely no relationship to the underlying contracts other

than an after-acquired right to collect certain debts. The va-

lidity and amount of those debts cannot be determined other

than by looking to the terms of the agreement; this com-

pelled Banco to refer to the contract. Unlike Hughes, there is

no set of reciprocal obligations to enforce. The reinsurance

contracts are simply the backdrop by which the amount of

debt is established. They do not otherwise govern the cur-

rent parties’ rights.

Conclusion

The district court did not err in allowing Banco to file re-

sponsive pleadings, because the Illinois statute requiring

pre-answer security cannot be applied to Banco consistent

with the FSIA. Banco did not waive its immunity in the

manner allowed by that statute, and Pine Top forfeited its

current contentions that the McCarran-Ferguson Act allows

a state rule to govern. On the arbitration question, we first

hold that denials of motions to compel arbitration under the

Panama Convention are immediately appealable under 9

U.S.C. §16(a)(1)(B). On the merits, the contract language, rea-

sonably read, does not transfer the right to demand arbitra-

tion. The orders of the district court are affirmed.