Scottish Re Life Corp. v. Transamerica Occidental Life Insurance

GEER, Judge,

concurring in the result.

Transamerica Occidental Life Insurance Company (“Transamer-ica”) has appealed an order awarding provisional relief pending the parties’ arbitration. See N.C. Gen. Stat. § l-569.8(a) (2005) (“Before an arbitrator is appointed and is authorized and able to act, the court, upon motion of a party to an arbitration proceeding and for good cause shown, may enter an order for provisional remedies to protect the effectiveness of the arbitration proceeding to the same extent and under the same conditions as if the controversy were the subject of a civil action.”). I note that a “provisional remedy” is:

A temporary remedy awarded before judgment and pending the action’s disposition, such as a temporary restraining order, a pre *299 liminary injunction, a prejudgment receivership, or an attachment. Such a remedy is intended to maintain the status quo by protecting a person’s safety or preserving property.

Black’s Law Dictionary 1320 (8th ed. 2004).

The order granting a provisional remedy in this case, like any preliminary injunction, is an interlocutory order and, generally, such orders are not entitled to immediate review. After reviewing the parties’ arguments and the pertinent case law, I can perceive no basis for treating this appeal any differently than any other appeal from a preliminary injunction. This appeal is simply about a temporary loss of control over money. Because I believe Transamerica has failed to establish a basis for this Court’s asserting jurisdiction over this appeal, I would dismiss the appeal. Consequently, I must respectfully concur in the result only.

Our state constitution provides that “[t]he Court of Appeals shall have such appellate jurisdiction as the General Assembly may prescribe.” N.C. Const, art. IV, § 12(2). Thus, in the absence of a statutory right to appeal to this Court, we have no jurisdiction. See In re Halifax Paper Co., 259 N.C. 589, 592 , 131 S.E.2d 441, 444 (1963) (“There is no inherent or inalienable right of appeal from an inferior court to a superior court or from a superior court to the [appellate courts].”).

Because the arbitration agreement in this case is governed by the Federal Arbitration Act (“FAA”), it is necessary to consider whether North Carolina’s law regarding appeals is preempted by the FAA. I have found no case law specifically addressing whether an interlocutory appeal would be permitted under the FAA from a decision granting a preliminary injunction, or any other provisional remedy, pending an arbitration.

The FAA allows an appeal from “a final decision with respect to an arbitration that is subject to this title.” 9 U.S.C. § 16 (a)(3) (2007). In Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 89 , 148 L. Ed. 2d 373, 382 , 121 S. Ct. 513, 521 (2000), the Supreme Court held that an order compelling arbitration and dismissing all other claims before the district court was “final” within the meaning of 9 U.S.C. § 16 (a)(3) and, therefore, immediately appealable. This decision could be read as permitting an appeal from an order granting provisional remedies pending arbitration. On the other hand, federal courts entering injunctions pending arbitration, similar to the order entered in this case, have not relied upon 9 U.S.C. § 16 (a)(3) for jurisdiction, but *300 rather have cited 28 U.S.C. § 1292 (a)(1) (2007), which provides that federal courts of appeal have jurisdiction over appeals from interlocutory orders granting, continuing, modifying, refusing, or dissolving injunctions and from orders refusing to dissolve or modify injunctions. See, e.g., Ortho Pharm. Corp. v. Amgen, Inc., 887 F.2d 460 , 463 n.2 (3d Cir. 1989); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bradley, 766 F.2d 1048, 1050 (4th Cir. 1985).

I do not believe, however, that there is any.need to resolve the question of the appealability of the order under the FAA, because I would hold that the FAA does not preempt state law governing appeals relating to arbitrations. This view is consistent with the holdings of other jurisdictions.

The Maryland Court of Appeals has addressed this specific issue in the leading case of Wells v. Chevy Chase Bank, F.S.B., 363 Md. 232 , 768 A.2d 620 (2001). The Court first noted: “Most state courts ... hold that their own procedural rules govern appeals, unless those rules undermine the goals and principles of the FAA, and then those courts find that their procedural rules do not impermissibly undermine the objectives of the FAA.” Id. at 246 , 768 S.E.2d at 627. After reviewing the case law from other jurisdictions, the court held that Maryland’s “general appeals statute does not focus on, or discriminate against, arbitration. Accordingly, we hold that the Maryland procedural rule, recognizing an order compelling arbitration to be a final and appealable judgment, is not preempted by the FAA.” Id. at 250, 768 A.2d at 629 .

In Toler’s Cove Homeowners Ass’n v. Trident Constr. Co., 355 S.C. 605 , 586 S.E.2d 581 (2003), the South Carolina Supreme Court similarly concluded that state procedural rules on the appealability of arbitration orders were not preempted by the FAA. The court pointed out that “the FAA contains no express preemptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration”; further “[t]here is no federal policy favoring arbitration under a certain set of procedural rules and the federal policy is simply to ensure the enforceability of private agreements to arbitrate.” Id. at 611 , 586 S.E.2d at 584 (citing Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 477 , 103 L. Ed. 2d 488, 499 , 109 S. Ct. 1248, 1255 (1989)). South Carolina has construed its arbitration code to preclude immediate appeal from any orders not specified in the appeal provisions of that code, including orders compelling arbitration. The South Carolina Supreme Court observed that, by following this appellate rule, “the arbitration agree *301 ment is being enforced by the court’s order compelling arbitration which coincides with the FAA’s policy in favor of arbitration of disputes.” Id. Accordingly, the court held that South Carolina’s procedural rule on appealability of arbitration orders controlled rather than the FAA rule. Id.

I would follow the reasoning in Wells and Toler’s Gove. North Carolina’s statutes applicable to civil appeals generally do not single out or discriminate against arbitration cases. Further, I do not believe that deferring any appeal of the order at issue in this case until the conclusion of the arbitration proceedings would be inconsistent with the policy of promoting arbitration or would “undercut the enforceability of arbitration agreements.” Southland Corp. v. Keating, 465 U.S. 1, 16 , 79 L. Ed. 2d 1, 15 , 104 S. Ct. 852, 861 (1984) (holding that “[i]n creating [in the FAA] a substantive rule applicable in state as well as federal courts, Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements”).

N.C. Gen. Stat. § 7A-27 (2005) provides an appeal of right to this Court from a “final judgment of a superior court,” N.C. Gen. Stat. § 7A-27(b), and from any interlocutory order that:

(1) Affects a substantial right, or

(2) In effect determines the action and prevents a judgment from which appeal might be taken, or

(3) Discontinues the action, or

(4) Grants or refuses a new trial....

N.C. Gen. Stat. § 7A-27(d). N.C. Gen. Stat. § l-277(a) (2005) similarly provides for appeal from “every judicial order” that “affects a substantial right claimed in any action or proceeding; or which in effect determines the action, and prevents a judgment from which an appeal might be taken; or discontinues the action, or grants or refuses a new trial.”

Transamerica first contends that the order below falls under § 7A-27(d)(2) as one that “[i]n effect determines the action and prevents a judgment from which appeal might be taken ....’’ Transamerica’s argument rests on a flawed premise: that the North Carolina court proceedings were terminated with the order compelling arbitration and that review of the provisional remedies order will not be available at a later date. According to Transamerica, because the arbitration agreement is govémed by the FAA, any action *302 to confirm, modify, or vacate the ultimate arbitration award would be “an independent action” filed in federal court, and the issues raised by the order currently on appeal could not be asserted.

Transamerica cites 9 U.S.C. §§ 9-11 (2007) as support for its argument that any further review would be in federal court. The United States Supreme Court has, however, confirmed that these statutes are merely “venue provisions,” applicable if an action is filed in federal court. Cortez Byrd Chips Inc. v. Bill Harbert Constr. Co., 529 U.S. 193, 195 , 146 L. Ed. 2d 171, 176 , 120 S. Ct. 1331, 1334 (2000).

The provisions do not vest exclusive jurisdiction in the federal courts over arbitration awards entered under the FAA. As the Supreme Court has also stressed, “[w]hile the Federal Arbitration Act creates federal substantive law requiring the parties to honor arbitration agreements, it does not create any independent federal question jurisdiction under 28 USC § 1331 ... or otherwise.” Southland Corp., 465 U.S. at 15 n.9, 79 L. Ed. 2d at 15 n.9, 104 S. Ct. at 861 n.9. Thus, prior to seeking confirmation, modification, or vacation of any arbitration award in federal court, Transamerica would be required to establish a basis for federal jurisdiction, such as diversity. See Warren Bros. Co. v. Cmty. Bldg. Corp. of Atlanta, Inc., 386 F. Supp. 656, 658-59 (M.D.N.C. 1974) (“The Federal Arbitration Act does not provide an independent basis for federal jurisdiction since it does not confer federal question jurisdiction upon federal courts. Therefore, before a federal court can apply the Act, it must already have jurisdiction over the subject matter through another source such as diversity of citizenship or federal question.” (internal citations omitted)). Thus, necessarily, “[t]he Federal Arbitration Act clearly vests concurrent subject matter jurisdiction in both the state and federal courts.” Nat'l Home Ins. Co. v. Shangri-La Dev. Co., 857 S.W.2d 460, 464 (Mo. Ct. App.), cert. dismissed, 510 U.S. 1032 , 126 L. Ed. 2d 639 , 114 S. Ct. 653 (1993). 4

In short, the parties can, following the arbitration, proceed in state court with subsequent review in this Court. Indeed, the North *303 Carolina appellate courts have specifically held that even after a motion to compel arbitration has been granted, “the judicial doors [remain] ajar” for further proceedings following arbitration. Henderson v. Herman, 104 N.C. App. 482, 485 , 409 S.E.2d 739, 741 (1991), disc. review denied, 330 N.C. 851 , 413 S.E.2d 551 (1992). This Court has held that even though the arbitration act “requires that certain disputes be removed from direct judicial supervision, the court that compels arbitration does not lose jurisdiction.” Id. at 486, 409 S.E.2d at 741 . Instead, our arbitration act

create [s] a process whereby the existence of an agreement to arbitrate requires a court to compel arbitration on one party’s motion and then requires the court to step back and take a “hands-off’ attitude during the arbitration proceeding. The trial court then reenters the dispute arena to confirm, modify, deny or vacate the arbiter’s award. At no time does the trial court lose jurisdiction.

Id. See also Adams v. Nelsen, 313 N.C. 442 , 446 n.3, 329 S.E.2d 322 , 324 n.3 (1985) (holding that agreement to arbitrate does not cut off a party’s access to the courts and that the court that compels arbitration does not lose jurisdiction).

Thus, the trial court in this case maintains jurisdiction over the proceedings even after the arbitration has been concluded. Trans-america’s assertion that “[t]here is nothing left to litigate in the Superior Court” is contrary to North Carolina law. Further, Trans-america has cited nothing that would preclude it — if it chose to do so — from also raising the issue of the preliminary injunction upon review of any order addressing the arbitration award, just as any preliminary injunction could be reviewed upon entry of a final judgment. 5

I would, therefore; hold that Transamerica has failed to establish that it would be unable to obtain review of the preliminary injunction following conclusion of the arbitration proceedings. Transamerica may still, however, be entitled to an immediate appeal if Transamerica demonstrates that the order deprives it of a substan *304 tial right that will be lost without appeal prior to a final judgment on the arbitration award. Clark v. Craven Reg’l Med. Auth., 326 N.C. 15, 23 , 387 S.E.2d 168, 173 (1990) (requiring such showing in connection with appeal from preliminary injunction). “Whether a substantial right will be prejudiced by delaying appeal must be determined on a case by case basis.” Collins v. Talley, 135 N.C. App. 758, 760 , 522 S.E.2d 794, 796 (1999). Transamerica bears the burden of establishing the existence of a substantial right. CB&I Constructors, Inc. v. Town of Wake Forest, 157 N.C. App. 545, 549 , 579 S.E.2d 502, 504 (2003).

The majority opinion points to the amount of money — $30 million — that the order requires to be deposited in a trust. Similarly, Transamerica argues that a substantial right is affected because they cannot use or control this money so long as the order remains in effect. I note that Scottish Re Life Corporation (“Scottish Re”) was required to post a $250,000.00 bond to protect Transamerica from any damages resulting from the provisional relief. Transamerica has made no argument that this bond is inadequate.

Further, Transamerica never moved for a stay of the order in the trial court or in this Court, even though the parties all knew that it would take a substantial amount of time to name the arbitrators. This omission runs counter to any contention that Transamerica is so harmed by the order that it affects a substantial right if not reviewed immediately. Significantly, Transamerica may well obtain relief from the arbitrators before any ruling by this Court since, upon the designation of the arbitrators, Transamerica will be free to ask those arbitrators that the order be discontinued.

Finally, if Transamerica obtains an arbitration award that is “substantially favorable” to it, the company will then be entitled to seek recovery on the bond and to recover damages that would not have occurred but for the preliminary injunction. See Indus. Innovators, Inc. v. Myrick-White, Inc., 99 N.C. App. 42, 51 , 392 S.E.2d 425, 431 , disc. review denied, 327 N.C. 483 , 397 S.E.2d 219 (1990). 6 Transamerica has made no attempt to explain why that relief is insufficient to protect its interests.

*305 Under similar circumstances, this Court has consistently held that the appellant made an insufficient showing of a substantial right. Thus, in Rivenbark v. Southmark Corp., 77 N.C. App. 225, 227 , 334 S.E.2d 451, 452 (1985), disc. review denied, 315 N.C. 391 , 338 S.E.2d 880 (1986), this Court declined to review an order allowing the defendants to collect rent from a disputed piece of property pending the litigation and ordering the plaintiff to pay the sums already collected into court. In Little v. Stogner, 140 N.C. App. 380, 383 , 536 S.E.2d 334, 336 (2000), disc. review denied, 353 N.C. 377 , 547 S.E.2d 813 (2001), the defendant challenged the trial court’s preliminary injunction barring it from foreclosing on a piece of property. The Court pointed out that the defendant’s power to foreclose had merely been delayed until the resolution of the litigation, and the defendant’s right was adequately protected by the trial court’s requirement that the plaintiffs post a significant bond. Id.

Similarly, in Dixon v. Dixon, 62 N.C. App. 744, 745 , 303 S.E.2d 606, 607 (1983), the defendant appealed from a preliminary injunction requiring the return of certain property and precluding the parties from transferring any other personal property. In holding that the defendant was not entitled to an immediate appeal, the Court noted that the injunction was intended to maintain the status quo and that the defendant had not shown that recourse on the bond posted by the plaintiff as security for the injunction was inadequate. Id. See also Stancil v. Stancil, 94 N.C. App. 760, 763-64 , 381 S.E.2d 720, 722-23 (1989) (declining to review interlocutory order requiring posting of $150,000.00 bond when “[t]he obvious purpose of the pretrial order was to preserve the status quo in a hotly contested action between two brothers, each of whom accuses the other of converting corporate assets,” and when, if the appealing brother ultimately prevailed, bond would be cancelled).

Finally, in Shuping v. NCNB Nat’l Bank of N.C., 93 N.C. App. 338 , 377 S.E.2d 802 (1989), the defendant sought to appeal from an injunction barring the bank from disposing of or encumbering shares in a corporation until a final hearing could be had on the complaint. Although the bank argued that a substantial right was affected because it was improperly restrained from disposing of the stock, the Court noted that this argument “begs rather than addresses the appealability question.” Id. at 340 , 377 S.E.2d at 803 . The Court observed that the bank’s arguments went to the merits of the appeal rather than establishing that a “right which the law regards as substantial will be lost if the order remains in effect until the trial court *306 determines whether the appellant is legally bound to sell the stock to plaintiff, as he alleges.” Id. See also Barnes v. St. Rose Church of Christ, 160 N.C. App. 590, 592 , 586 S.E.2d 548, 550 (2003) (holding that defendants could not appeal from a preliminary injunction appointing a receiver for the church when defendants failed to show that this order would result in any harm to defendants).

The same is true here. In attempting to distinguish the foregoing cases, Transamerica argues the merits of its contentions regarding the propriety of the trial court’s order — i.e., whether it maintains the status quo. Transamerica does not focus on the appealability issue or explain how it will be prejudiced — given the $250,000,00 bond — if required to wait to appeal until after the arbitration is complete. Accordingly, under North Carolina law, I see no basis for concluding that Transamerica has met its burden of demonstrating the existence of a substantial right that will be lost in the absence of immediate review.

In sum, I would hold that North Carolina law regarding the right to appeal is controlling in this case. Further, since I believe that Transamerica has failed to demonstrate an entitlement to an immediate appeal from the order below, I would dismiss the appeal as interlocutory.

. Indeed, most federal courts have held that if a defendant fails to remove a motion to compel arbitration to federal court, any removal motion filed following a subsequent state court motion to confirm or vacate the arbitration award is untimely. 14C Charles A. Wright, Arthur R. Miller and Edward H. Cooper, Federal Practice & Procedure § 3732, at 347-48 (2007). See also Williams v. Beyer, 455 F. Supp. 482, 484-85 (D.N.H. 1978) (holding that when plaintiff filed a petition for arbitration in state court, resulting in order compelling arbitration, defendant’s petition for removal to federal court was untimely filed when filed following plaintiff’s motion for confirmation of arbitration award).

. Transamerica cites Advest, Inc. v. McCarthy, 914 F.2d 6 (1st Cir. 1990) as support for its contention that it could not obtain review of the injunction at the completion of this case. Advest, however, merely stands for the unremarkable principle that courts have “a very limited power to review arbitration awards.” Id. at 8 . Nothing in Advest, which solely concerned a challenge to the arbitrator’s actual award, addresses the'ability of a court td review a judicial determination entered prior to the arbitration proceedings.

. In Industrial Innovators, the plaintiff obtained an order referring the dispute to arbitration, and a preliminary injunction barring the defendants from disclosing certain information to competitors, conditioned on the posting of a bond. Id. at 43-44 , 392 S.E.2d at 427 . The arbitration award was favorable to the defendants, a superior court judge entered an order confirming that award, and the defendants filed a motion for damages for wrongful injunction, seeking recovery under the plaintiff’s bond. Another superior court judge entered an order, from which the plaintiff appealed, awarding the defendants the amount of the plaintiff’s bond. Id. at 47-48 , 392 S.E.2d at 429-30 .