# Petition — Revere Copper & Brass Inc. v. Overseas Private Investment Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1958%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1980 - **Citation:** 446 U.S. 983 ## Text Bupieme Court, U& | FILED 7 AFR 8 1980 79-1572 In THE Supreme Court of the Runited £ Ocroser Term, 1979 ~ ICHAEL RUDAK, JR., CLERK REvERE CoprpER AND Brass INCORPORATED, Petitioner, v. Overseas Private INVESTMENT CORPORATION, Respondent. ei ———— PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT a aateeeaen an ee a ee eee WuuiusM FE. Hecarty 80 Pine Street New York, New York 10005 (212) 825-0100 Counsel for Petitioner Of Counsel: CanitL Gorpon & REINDEL Micuaet P. Trerney GrorGE WaILAND Cuarues A, GruMAN and Ricrarp A. Maxroop, Q.C. April 8, 1980 TABLE OF CONTENTS PAGE Opinions Below ..... 1 Jurisdiction .... 2 Questions Presented ............. 2 eee POW nasa acieiihsinsiciiesis ct siecle 2 Statement of the Case ...... 3 Reasons for Granting the Writ ............ 19 RE TERE IEE US ISIE ol RUMP AO SURAT EATS (5 24 APPENDIX— Opinion of the Court of Appeals 0.00.0... eee la Opinion of the District Court 220000... 8a ON TI ii ac eclttia ae 12a Table of Contents of General Terms and Condi- tions of OPIC’s Insurance Policy .........0.0............. 18a Arbitration Award ............. sihik-oucshsicbiiteuheaiiec desu 26a Appendix to Award Setting Forth Provisions of OPIC’s Insurance Policy Relevant to Compensa- SOI icaiciinsids eatin ccididddack Rinne eeslias cpbaiitinlnteae 132a il TaBLE OF AUTHORITIES Cases: PAGE Amicizia Societa Navigazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805 (2d Cir. 1960) ...... 17,18 Bird v. St. Paul Fire & Marine Ins. Co., 224 N.Y. 47, BS TI Pi a ascitic cnssenbuabicgunoysinibocetion eins Zin Campbell v. Farmers Insurance Exch., 260 Cal.App. Sa: 406: GT Cal Rotr. 176 (1966) .2:....2o nn. 17,172 Continental Casualty Co. v. Beelar, 405 ¥.2d 377 (D.C. a cc pauiblavesnuenainoverhnabason 12 Filor, Bullard & Smyth v. Insurance Co. of North America, 605 F.2d 598 (2d Cir. 1978) .......................- 22, 23 First National Bank v. United States Fidelity & Guar- anty Co., 416 F.2d 52 (5th Cir. 1969) .......................... 23 German Alliance Ins. Co. v. Lewis, 233 U.S. 389 (1914) 22 Gulf States Tel. Co. v. Local 1692, International Brotherhood of Electrical Workers, 416 F.2d 198 I i at he eat ects ccecemedaboabaonnie 15n Hanes Corp. v. Millard, 531 F.2d 585 (D.C. Cir. Se ra a ee er he 13, 14 Hayes v. Home Life Ins. Co., 168 F.2d 152 (D.C. Cir. I illo h biases aaseachasies seetinnitiedennndly soatiaibavones dint 12 Hurd v. Dodge, 334 U.S. 24 (1948) -............ce-eeeeeeeeeees 13n, 14n Interinsurance Exch. Auto Club v. Vailes, 219 Cal.App. 2a 830, 38 Cal.Rptr. 533 (1963) -............--..2...-c.erccoseees 17 1/S Stavborg v. National Metal Converters, Inc., 500 i i er TI ssc he scinecceneicvacenanapacctse 21n lil PAGE Kissinger v. Reporters Committee for the Freedom of the Press, 48 U.S.L.W. 4223 (U.S. March 3, 1980) .... 21n London Assurance Corp. v. Thompson, 170 N.Y. 94, 62 I A ioc. dialled alters nit eoigapn iba neniasilijenssalenh 23 Pan American World Airways, Inc. v. Aetna Casualty ¢é Surety Co., 505 F.2d 989 (2d Cir. 1974) ....9n, 10n, 22, 23 Ore & Chemical Corp. v. Eagle Star Ins. Co., 489 F.2d 455 (2d Cir. 1978) ........ PREETI WO LITO SI PTE NS 2in Prima Pawmt Corp. v. Flood & Conklin Mfg. Co., 388 Re ET ED accoreitacttensannechaltoatisncnaigbconins duetiabn 13, 15,'19 Ross v. Royal Globe Ins. Co., 612 F.2d 379 (8th Cir. BOD incabises cece AEP SO AERO ey CORI D ORR PEN a MOH 23n Scherk vy. Alberto-Culver Co., 417 U.S. 506 (1974) 14, 18, 19 SEC v. National Securities, Inc., 393 U.S. 453 (1969) .... 21 Stevens v. Fidelity € Casualty Co., 58 Cal.2d 862, 377 gf BE | RRR EMR amon ee in tae ert oF ae 17 Stroehmann v. National Infe Ins. Co., 300 U.S. 435 © SESE T RIES SOPs ARS reat ee rN ee eT eee ORE 12 Union Employers Division of Printing Industry, Inc. v. Columbia Typographical Union No. 101, 353 F.Supp. 1348 (D.D.C. 1973), aff'd w/o opinion, 492 F.2d 669 BARE A.) SEG MAR SRG Sen Ur aoe ARN mI ESEORY ON 15n United Steelworkers of America v. American Mamufac- turing Co., 363 U.S. 564 (1960) oon. ee eeeeeec eens 16, 19 United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960) 0... 16, 16n, 18, 19 iv PAGE United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960) -.............. 15, 16, 19, 20 Washington-Baltimore Newspaper Guild, Local 35 v. Washington Post Co., 442 F.2d 1234 (D.C. Cir. fs EE IRE ee PETRI ENNIS ERROR TOE TELAT ESAT IN 15n Congressional Documents: S. 373, 96th Cong., Ist Sess. (1979) ................00ceeccccaee 20 H.R. 2699, 96th Cong., Ist Sess. (1979) 2.020022 20 Treaties, Statutes and Regulations: Convention on the Recognition and Enforcement of Foreign Arbitral Awards [1970], 21 U.S.T. 2517, SAG Ps I ia eddies ndsraiiec ka cineiietnceiccibucencopmansiparanedl 14 Federal Arbitration Act i ks Sc, Reine eenaaes meee: 2, 4, 11, 19 eS TO | Sea es oem maree cone pect SE apes ee RO oe 2 FAS TE ee, PTE wie scsctrcieeeeteae sciengtec sen eae 2,10, 11 De Aree I ne Scie cel picid cscs 2,10, 11 iy, ME TED pteindosiscecmseclitenncr adearokiechbeutcpeseccea 2, 14n PK SOE: CEO) at 14 Foreign Assistance Act of 1969 Se US Gi SBIGE. CIOTE) oven tiienictioian 4,17 22 U.S.C. §2199(d) (1976) owe 11 Labor-Management Relations Act, 1947 § 203(d), 29 U.S.C. §173(d) (1976) ...... 2, 11, 16, 16n, 19 $301, 29 US.C. $185 (1976)... 2, 11, 16n Internal Revenue Code § 482, 26 U.S.C. § 482 (1976) 2. 2, 8, °. 10 Vv PAGE Internal Revenue Service Regulations SO gh TRG Ft PAA aa LE a RNY 9, 10 2B USC. 6 IS0M1) (I9TB) icin eee ees 2 ee As RE CRIT evr nil laccan skseesciopdbaciesss 11 Be BI Ty MID ROTO ciaicg en es bide hd tatisss exp ertsabuadinteant 11 OR 7 ad ss EER OR PRP NSL SANNA Aer Ga 11 nn ees 11 35 Fed: Reg. 43 (Jan. 3,.1970) nn... cscccecceeec cscs keccebeeeee 6 Teats and Law Reviews: G. Gilmore & C. Black, The Law of Admiralty (1957).. 21n R. Pound, The Spirit of the Common Law (1921) ...... 22n Dunau, Three Problems in Labor Arbitration, 55 Va.L. BOOS ET CRUE oddone 15n ue ee ee ee ee ee IN THE Supreme Court of the Anited States Ocroser Term, 1979 Revere Copper AND Brass INCORPORATED, Petitioner, Overseas Private InvestMENT CoRPORATION, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT Petitioner Revere Copper and Brass Incorporated (“Revere”) respectfully prays that a writ of certiorari issue to review the judgment and opinion of the United States Court of Appeals for the District of Columbia Cir- cuit in Revere Copper and Brass Incorporated v. Overseas Private Investment Corporation, No. 79-1159 (D.C. Cir.). Opinions Below The opinion of the court of appeals (set forth beginning at page la of the Appendix to this Petition) is not yet re- ported. The opinion of the United States District Court for the District of Columbia (set forth beginning at page 8a of the Appendix) is not reported. Jurisdiction The judgment of the court of appeals was entered on Feb- ruary 26, 1980. This petition is filed within 90 days of that date. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1) (1976). Questions Presented 1. Does the Federal Arbitration Act require a United States district court to enforce an award which, in contra- vention of public policy, permits an insurer to sell an ambiguous insurance policy and then use the ambiguity as a defense against the insured? 2. Does the federal policy of the Labor-Management Relations Act, 1947, which favors arbitration of disputes between labor and management, extend to review under the Federal Arbitration Act of an award in a dispute be- tween insured and insurer so that it may be used to over- ride the rule of public policy which requires that an am- biguity in an insurance policy be construed in favor of the insured and against the insurer? Statutory Provisions Sections 1, 2, 9, 10, 11 and 13 of the Federal Arbitra- tion Act (the “Arbitration Act”), 9 U.S.C. §§1, 2, 9, 10, 11 and 13 (1976), §§ 203(d) and 301 of the Labor Manage- ment Relations Act, 1947 (the “Labor Act”), 29 U.S.C. §§ 173(d), 185 (1976), and § 482 of the Internal Revenue Code, 26 U.S.C. § 482 (1976) (to which reference was made in the insurance policy) are set forth beginning at page 12a of the Appendix. 3 . Statement of the Case Revere purchased insurance from respondent Overseas Private Investment Corporation (“OPIC”) covering the major por‘ion of Revere’s $100,000,000 investment in Ja- maica against the risk of expropriation. In this proceeding under the Arbitration Act, the district court sustained an award which determined that Revere had suffered a total loss by reason of expropriation by the Government of Ja- maica on June 30, 1974, when Revere’s insured equity in- vestment was $64,131,100, but which awarded Revere only $1,131,144 as compensation. The court of appeals affirmed. The award resolved an ambiguity in the insurance policy in favor of the insurer and thereby cost the in- sured $63,000,000. On its face, the award was contrary to public policy. In insurance, an ambiguous policy pro- vision must be construed in favor of the insured—a rule not of convenience or a technicality of legalists, but rather a rule based upon the sound public policy that insurers should not be permitted to sell on clear clauses of liability and defend on obscure negations of liability. The power of the courts is at. all times exercised subject to the re- strictions and limitations of the public policy of the United States. The district court and the court of appeals believed that their review under the Arbitration Act of this arbitration award made in an insurance dispute was governed by the federal policy expressed in the Labor Act favoring arbi- tration of labor disputes—a policy which recognizes that in the labor-management relationship arbitration is the substitute for industrial strife and that the collective bar- gaining agreement is a generalized code to be applied by the arbitrator to cover a myriad of cases which the drafts- men of the agreement cannot wholly anticipate. In con- 4 trast, the Arbitration Act, which exempts labor disputes from its coverage, 9 U.S.C. § 1 (1976), simply makes arbi- tration agreements enforceable like other contracts, but not more so; it places them on the same footing as other con- tracts. They aud the awards made pursuant to them are subject to considerations of public policy. The Arbitration Act does not require a district court to enforce as its judg- ment a commercial arbitration award which is contrary to public policy. The confusion by the courts below of two very different statutes and policies led them to sustain an award contrary to public policy. The substance of the decision below is that the Arbitra- tion Act does not permit the disturbance of any non-corrupt arbitration award. Unless corrected, it impairs the credi- bility of the political risk insurance program of the Govern- ment insurer under which approximately $9,000,000,000 of insurance is in force and which requires arbitration of disputes between insured and insurer. It weakens public confidence in the process expressly provided by the Arbitra- tion Act for vacating awards made in excess of the arbi- trators’ powers and negates the acceptability of arbitra- tion as a mechanism for the resolution of commercial dis- putes. It does a serious disservice to arbitration as an alternative to litigation in the overburdened courts. The insurance—OPIC, an agency of the United States Government, 22 U.S.C. § 2191 (1976), was created “[t]o mobilize and facilitate the participation of United States private capital and skills in the economic and social devel- opment of less developed friendly countries and areas . .” (tbid.) To induce such investment by American companies, OPIC provides insurance against the risk of expropriation and other political risks. It charges sub- stantial premiums and is self-sustaining. According to its 1978 Annual] Report, OPIC’s net income for the year was 5 $60,000,000 and its imsurance reserve was $283,000,000. OPIC is reinsured at Lloyd’s and that reinsurance appar- ently protects OPIC for the first $18,000,000 of Revere’s claim. In the latter 1960’s and early 1970’s, Revere constructed the sequence of integrated facilities necessary to produce primary aluminum. Revere built a 112,000-ton per year aluminum reduction plant in Alabama. Bauxite, largely lacking in this country, was available in Jamaica, W. I., but the Government of Jamaica, the owner of all bauxite on the island, conditioned the right to mine bauxite upon Revere’s construction in Jamaica of a plant to refine the bauxite into alumina, the intermediate feed stock for aluminum. At a cost of some $100,000,000 invested or loaned by Revere, Revere Jamaica Alumina, Ltd. ( “RJA”), Revere’s wholly-owned subsidiary, constructed a bauxite mining and alumina refining complex in Jamaica to supply alumina to the Alabama aluminum reduction plant. (“‘om- mercial production of alumina by the Jamaican plant be- gan in December 1972. Revere took such measures as were available to it to safeguard its investment in Jamaica avainst political risk. RJA entered into a 25-year investment agreement with the Government of Jamaica which contained basic assur- ances for the protection of RJA’s property and operations. Relying upon the inducement for private investment in countries such as Jamaica provided by OPIC’s political risk insurance, Revere purchased from OPIC, for an annual premium of approximately $600,000, insurance covering Revere’s equity investment in RJA against the risk of expropriation by the Government of J amaica, in- cluding the risk that the Government might repudiate its investment agreement with RJA. 6 OPIC was the only American source of political risk insurance. Its standard form insurance policy was a take- it-or-leave-it proposition for prospective insureds. The policy was issued in September 1970 by the Agency for International Development on behalf of OPIC, 35 Fed.Reg. 43 (Jan. 3, 1970). The table of contents of the 37 printed pages of the General Terms and Conditions is set forth beginning at page 18a of the Appendix. The provisions of the OPIC insurance policy relevant to the issues of com- pensation are set out in an appendix to the arbitration award (83a, 132a-134a). In the first half of 1974, the Government of Jamaica, led by Prime Minister Michael Manley who had come to power in 1972, took various actions which under OPIC’s policy constituted the insured peril of expropriatory action. Revere made claim upon OPIC. When OPIC did not honor Revere’s claim, Revere submitted the resulting dis- pute to arbitration in Washington, D. C., as Revere was required to do by OPIC’s form policy. The award—Revere filed its demand for arbitration with the American Arbitration Association on December 20, 1976. The award of the three arbitrators was filed on August 25, 1978. The award, which is in five parts, is*set forth beginning at page 26a of the Appendix. Two of the three arbitrators (G.W. Haight, Esq. and Carroll R. Wetzel, Esq.) held that as of June 30, 1974 the Government of Jamaica had repudiated its investment agreement with RJA, which had 20 years to run and upon which Revere had relied in investing in or loaning $100,000,000 to RJA (42a), and that the repudiation was expropriatory action insured against by OPIC (83a, 108a). The third arbitrator (Hon. Francis Bergan) dissented from this holding (109a); he said nothing concerning the ace eae ee a ae paaaet: aareh ee aN ater a ate a ac ol elle Tt a las te A Ate ID Ap A ly le es 7 different question of the amount of compensation due Revere under OPIC’s policy. The majority further held that the expropriatory action was of the kind that constituted a total loss entitling Revere under the policy to compensation in the full amount of its insured equity investment at the date of expropriation (86a) against assignment by Revere to OPIC of the stock certifi- cates evidencing Revere’s insured investment in RJA. The majority found that at June 30, 1974, the date of expropria- tion, the amount of Revere’s insured equity investment in RJA, determined in accordance with generally accepted accounting principles, which the policy established as the governing criteria for the computation of loss and compen- sation (134a), was $64,131,100 (102a). At the conclusion of the hearings, OPIC had submitted a letter to the arbitrators setting forth the adjustments it argued should be made in the amount of Revere’s insured investment. Two alternative examples were given of OPIC’s calculations of amounts of compensation due Revere at the date of expropriation. OPIC’s examples were $37,289,000 or $38,401,000. The arbitral majority awarded Revere only $1,131,144 as compensation for the total loss of its insured investment (108a). They made three adjustments totalling $62,999,856 in the $64,131,000 amount of Revere’s investment (87a- 102a). They relied upon a sentence in OPIC’s insurance policy which is ambiguous both intrinsically and because it contradicts the compensation provisions of the contract. They did so despite their admission that there was “force” to Revere’s contention that the sentence was “essentially meaningless” (85a, 86a). The relevant provisions of OPIC’s policy were made part of the award (88a, 132a-134a). The compensation provi- 8 sions of OPIC’s policy are §§ 15.01, 17.01, 18.01 and 18.03* (133a-134a) and “Net Investment” which is particularly defined in § 1.28 (132a) as “the amount of the Investment contributed for equity Securities [here $77,182,600 invested in cash by Revere for common stock of RJA] .. . adjusted for ... such equity Securities’ ratable share of net retained earnings and losses (including but aot limited to realized capital gains or losses .. .) of the Foreign Enterprise [RJA] .. .’—the amount which appeared on RJA’s bal- ance sheet as “stockholder’s equity” and which at June 30, 1974 was $64,131,000. Alternative compensation mea- surements such as market value or replacement value were excluded by OPIC’s balance sheet definition of Net Invest- ment, Section 18.01 provides that compensation for a total loss “shall be the Net Investment determined as of the Date of Expropriation .. .” (133a). The arbitral majority relied, however, on a sentence in § 2.09 of the contract reading: “The amount of the Net In- vestment ... shall be deemed to include the standards of accounting required by Section 482 of the Internal Revenue Code ... and by any regulations issued ... to amend [sic], interpret or implement said section . . .” (133a). There is no cross reference to this sentence in the definition of Net Investment quoted above or in the other compensation pro- * Section 18.03 provides that loss “shall be determined in ac- cordance with accounting and valuation principles generally ac- cepted in the United States of America and consistently applied” (134a). The reference to “valuation” is only pertinent to the loss of an Investment made in kind. Revere’s original Investment of $77,182,600 was made in cash. The first and second sentences of § 2.09 (132a) also require that the Investor’s books of account “covering the amount of the Net Investment” be maintained “in accordance with accounting principles generally accepted in the United States” and that the financial statements of the Foreign Enterprise be “prepared in accordance with accounting principles generally accepted in the United States”. ae 9 visions of OPIC’s policy. Section 482 (17a, 134a) gives the Secretary of the Treasury discretionary authority, which has been delegated to the Internal Revenue Service, to make adjustments in gross income, deductions, credits or allow- ances as between commonly controlled taxpayers so as to establish “true taxable income”, 26 C.F.R. § 1.482-1(b) (1). In addition to arguing that the sentence was essentially meaningless—{ 482 of the Code is discretionary, does not set forth standards of accounting and, of course, may not be amended by administrative regulation—Revere proffered two constructions of the sentence which were related to the tax adjustments which § 482 authorizes the Internal Rev- enue Service to make and which permitted a reconciliation, rather than created a conflict, with the compensation pro- visions of OPIC’s policy: ivet Investment is to be adjusted either (i) for the balance sheet effect of tax adjustments actually made by the Service under § 482 in the consolidated tax returns of Revere and its subsidiaries, or (ii) for the balance sheet effect of § 482 tax adjustments which the Ser- vice might reasonably be expected to make. The effect here - of the former construction upon Net Investment would have been zero, while the effect of the latter might have been a $1,785,000 reduction in Revere’s insured Net Investment. The arbitral majority, however, derived from the sen- tence in § 2.09 of OPIC’s insurance policy and the 27-page regulation under § 482, 26 C.F.R. § 1.482 (1978), an “arm’s length standard” (86a-87a)* and on the basis of that stan- dard made balance sheet adjustments in Net Investment which could not result from the tax adjustments permitted *If OPIC intended to provide for an “arm’s length standard” and the consequences to the insured which according to the arbi- tral majority resulted from that standard, it could, beginning with those three words, have said so. Pan American World Airways, Inc. v. Aetna Casuaity & Surety Co., 505 F.2d 989, 999-1004 (2d Cir. 1974). 10 by § 482. Disregarding the constructions of the ambiguity of OPIC’s policy which were favorable to Revere, the in- sured, the majority employed the construction most favor- able to OPIC, the insurer. By reason of expropriatory action occurring 19 months after RJA’s plant began commercial operation, Revere’s insured investment was totally lost. Yet Revere was award- ed compensation under OPIC’s insurance policy of less than 2% of Revere’s insured investment measured by gen- erally accepted accounting principles, less than 3% of the amounts of OPIC’s compensation examples and less than 50% of the $2.375 million in insurance premiums Revere had paid OPIC during the three years and nine months OPIC’s insurance had been in force. The public policy which determines the outcome of any dispute between insured and insurer when the insurance policy is ambiguous governs when an arbitration award is challenged in the district court as it does when an action on the insurance policy is brought in the district court. This is particularly so when the Government insurer was the sole practicable source of the insurance, when the insurer pro- vided the insurance as part of a Governmental effort to induce private American investment in less developed coun- tries as a complement to the Government’s own political policy and when the award is the product of an arbitration compelled by the Government insurer’s form insurance policy. The district court decision—Revere moved in the district court for an order, pursuant to §11 of the Arbitration Act (14a), correcting the amount of compensation by eliminat- ing the three adjustments which the arbitral majority had made in the amount of Revere’s insured investment or for an order, pursuant to § 10 of the Arbitration Act (13a-14a), vacating the award as to the amount of compensation. The AE aN ele ee ee eee Oe Sn ee 11 district court had jurisdiction pursuant to 28 U.S.C. §§1331(a), 1332, 1337 and 1349, 9 U.S.C. §§1, 10 and 11 and 22 U.S.C. § 2199(d). The district court (Richey, D. J.) dismissed the proceeding by denying Revere’s mo- tion in a memorandum order (8a-lla). Revere’s argument that, in addition to their disregard of public policy, the arbitral majority had exceeded their powers by rewriting OPIC’s policy—as an example, by reducing Revere’s insured investment by $46.3 million for an estimated “unrealized” loss although the policy defini- tion of Net Investment (quoted at p. 8, supra) permits adjustments only for “realized” gains or losses—was said by the district court, without mention of the subject of Revere’s argument, to “amount to no more than the con- tention that the arbitrator misconstrued the contract” (10a). Revere argued that an award which is contrary to public policy may not be enforced by a United States district court under the Arbitration Act. OPIC argued for a nar- row formulation, developed in review of awards made under collective bargaining agreements and reflecting the policy stated in § 203(d) of the Labor Act and the enforce- ment authority given the district courts in $301 of the Labor Act, that an award may only be disturbed if it “compels the violation of law or conduct contrary to ac- cepted public policy”. The district court ascribed (10a) to Revere that which was OPIC’s argument, accepted its correctness (lla) and then concluded that “the award of $1 million” would not have the “result” which supposedly Revere had argued was forbidden (ibid.). The district court suggested that there had been “no showing” that the OPiC insurance policy is ambiguous “other than a passing reference by the majority of the 12 arbitrators to the ‘force’ of an alternative interpretation” (lla). But the district court’s own paraphrase—an “alter- native interpretation”’—conceded the recognition by the arbitral majority of the ambiguity of OPIC’s policy. More particularly, what the district court characterized as an “alternative interpretation”, to which the arbitral majority had ascribed “force”, was in fact Revere’s argument that the sentence in the OPIC contract upon which the arbitral majority relied was “essentially meaningless” (85a-86a) and thus at the least ambiguous. The court of appeals decision—The per curiam decision of the court of appeals (Lumbard, 8.C.J., Tamm and Mikva, C.JJ.) affirmed the district court judgment (7a). 1. The court quoted (3a) the description in Continental Casualty Co. v. Beelar, 405 F.2d 377, 378 (1968), of the rule of contra proferentem as a “rule of construction”. It did not refer to its own statement in Hayes v. Home Life Ins. Co., 168 F.2d 152 (D.C. Cir. 1948) : “The rule that a real ambiguity in an insurance policy is to be construed against the company is not a rule of convenience or a mere technicality of legal- ists, It is based upon sound public policy. .. . If the companies were permitted to write clear clauses of liability at one point and obscure negations of liability at another, and to maintain successfully the prevalence of the latter over the former, the temptation to sell on one clause and defend on the other would be dan- gerous.” (168 F.2d at 154-55). Nor did it refer to this Court’s statement in Stroehmann v. National Life Ins, Co., 300 U.S. 435 (1937): “The rule is settled that in case of ambiguity that construction of the policy will be adopted which is most 13 favorable to the insured. The language employed is that of the company and it is consistent with both rea- son and justice that any fair dispute as to the meaning of its own words should be resolved against it.” (300 U.S. at 439). 2. The court stated (3a), as had the district court (11a), that there is a “strong federal policy in favor of voluntary commercial arbitration” (3a, 5a). For the existence of this policy, it quoted from the preamble to the Arbitration Act, which states only that its purpose is “[t]o make valid and enforceable written provisions or agreements for arbi- tration”, and a statement from Hanes Corp. v. Millard, 531 F.2d 585, 597 (D.C. Cir. 1976), which referred to a “strong federal policy” (3a). The Congressional purpose was, however, made clear by this Court in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) : “As the ‘saving clause’ in § 2 [of the Arbitration Act] indicates, the purpose of Congress in 1925 was to make arbitration agreements as enforceable as other con- tracts, but not more so.” (388 U.S. at 40: n.12, em- phasis supplied) Section 2 provides that an arbitration provision is “valid,: irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any con- tract.” Public policy is, of course, such a ground.* *“The power of the feaeral courts to enforce the terms of pri- vate agreements is at all times exercised subject to the restric- tions and limitations of the public policy of the United States as manifested in the Constitution, treaties, federal statutes and applicable legal precedents. Where the enforcement of private agreements would be violative of that public policy, it is the obligation of courts to refrain from such exertions of judicial 14 The court did not refer to this Court’s statement in Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974): “The ... Arbitration Act ..., reversing centuries of judicial hostility to arbitration agreements, was designed to allow parties to avoid ‘the costliness and delays of litigation,’ and to place arbitration agree- ments ‘upon the same footing as other contracts...” (417 U.S. at 510-11, emphasis supplied, citations and footnote omitted) This statement was quoted in Hanes Corp. (531 F.2d at 597), upon which the court of appeals relied. Both Scherk and Hanes involved international contracts providing for arbitration abroad. In both cases, the parties were ordered to proceed with the agreed-upon arbitration from which a foreign award would necessarily result. United States dis- trict courts are explicitly authorized to deny enforcement to a foreign award which is contrary to domestic public policy. Convention on the Recognition and Enforcement of Foreign Arbitral Awards [1970] 3 U.S.T. 2517, T.LA.S. No. 6997; Chapter 2 of the Arbitration Act, 9 U.S.C. § 201 et seq.; Scherk, 417 U.S. at 519 n.4. An explicit limitation upon a treaty undertaking is understandable, but no Con- gressman would have thought it necessary to make explicit in the original Arbitration Act the public policy limitation upon the authority of the district courts which is so plain in domestic law. In any case, under § 10 an award may be set aside “[w]here the arbitrators exceeded their powers” and arbitrators do not have the power, any more than judges, to make decisions contrary to public policy. power.” Hurd v. Dodge, 334 U.S. 24, 34-35 (1948) (footnotes omitted). : An award which is contrary to public policy may not be judi- cially enforced since the judgment of the district court entered under §13 of the Arbitration Act would itself be contrary to public policy. ‘Wigdiiicnadnce 15 3. The court of appeals recognized here (4a) “the rule that enforcement of arbitration awards is subject to public policy considerations.” The court, however, repeated (4a) the formulc:ion employed by the district court that only if an award “compels the vio’ations of law or conduct contrary to accepted public policy” may it be set aside.* The court disagreed (4a n.1) with Revere’s contontion that arbitration of commercial disputes under the Arbi- tration Act are not subject to the federal policy favor- ing the resolution of labor disputes by consensual arbi- tration. The court did not accept that under the Arbitration Act an arbitration agreement is as enforceable as other con- tracts, “but not more so”. Prima Paint, 388 U.S. at 404 n.12, The court did not take into account this Court’s state- ments in United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960), that in the labor con- text “arbitration is the substitute for industrial strife”, that “arbitration of labor disputes has quite different func- tions from arbitration under ordinary commercial agree- ments” and that the collective bargaining agreement is “more than a contract’, rather it is “a generalized code to cover a myriad of cases which the draftsmen cannot * This formulation by the district court in Union Employers Division of Printing Industry, Inc. v. Columbia Typographical Union No. 101, 353 F.Supp. 1348, 1349 (D.D.C. 1973), aff'd w/o opinion, 492 F.2d 669 (D.C.Cir.,1974), was the quotation of a dictum in Washington-Baltimore Newspaper Guild, Local 35 v. Washington Post Co., 442 F.2d 1234, 1239 (D.C.Cir. 1971), where an award under a collective bargaining agreement was challenged but not on any ground of public policy. This dictum was in turn derived from Gulf States Tel. Co. v. Local 1692, International Brotherhood of Electrical Workers, 416 F.2d 198, 201 (5th Cir. 1969), where the award required the reinstatement of a discharged employee and thus “conduct” on the part of the employer. The court there sustained the award, deriving its formulation from Dunau, Three Problems in Labor Arbitration, 55 Va.L.Rev. 427 (1969) (416 F.2d at 201 n.6). 16 wholly anticipate” (363 U.S. at 578). These attributes of labor arbitration are entirely at variance with commer- cial arbitration. This Court stated in United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 596 (1960), which was not referred to by the court of appeals, that there is a “federal policy in favor of settling labor dis- putes by arbitration ... [which] would be undermined if courts had the final say on the merits of the awards.” * This Court pointed out in United Steelworkers of America v. American Manufacturing Co., 363 U.S. 564, 566 (1960), also not referred to by the court of appeals, that this fed- eral policy is expressed in § 203(d) of the Labor Act.** Section 203(d) has no counterpart in the Arbitration Act. In commercial arbitration, the agreement to arbitrate and to accept the award as binding is no more sacrosanct than any other contract term. 4. The court cited (5a) the opinion of an intermediate appellate court of California in an arbitration under an uninsured motorist clause concerning the difference that court saw “between the enforcement of a void contract and * The court of appeals quoted the phrase in Enterprise Wheel concerning the “undermining” of the federal policy of settling labor disputes by arbitration, but did so without quotation marks or citation, other than to a student note, and with the substitution 6 — commercial arbitration” for “settling labor disputes” a-6a). ° ** Section 203(d) provides: “Final adjustment by a method agreed upon by the parties is declared to be the desirable method for settlement of griev- ance disputes arising over the application or interpretation of an existing collective bargaining agreement ....” Section 301 gives the district courts jurisdiction of suits for viola- tion of contracts between employers and labor organizations, and thus provides a mechanism for the enforcement of arbitration clauses in collective bargaining agreements and resulting awards which are outside the operation of the Arbitration Act. 17 the mere misunderstanding or misapplication of rules of law... .” Interinsurance Exch. Auto Club v. Vailes, 219 Cal.App.2d 830, 33 Cal.Rptr. 533, 538 (1963). In a later decision the same court held that “where the error ap- pears on the face of the award and causes substantial in- justice, the award may be vacated”, Campbell v. Farmers Insurance Exch., 260 Cal.App.2d 105, 67 Cal.Rptr. 175, 179 (1968), but the court of appeals said here that the later de- cision was “inapposite” since, so the court said, the award here is not erroneous on its face (5a n.2).* The court did not mention the statement of the highest court of California that in insurance disputes the rule of contra proferentem “does not serve as a mere tie-breaker; it rests upon funda- mental considerations of policy.” Stevens v. Fidelity & Casualty Co., 58 Cal.2d 862, 871, 377 P.2d 284, 290 (1962). 5. The court pointed (6a) to the fact that the Foreign Assistance Act of 1969, 22 U.S.C. §2197(i), sanctioned arbitration. But the Congressional grant to a Government agency of authority to arbitrate does not carry with it implicit Congressional approval of arbitration awards which are contrary to public policy. 6. The court also cited (6a) a dictum in Amicizia Societa Navigazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805 (2d Cir. 1960), that misapplication of the principle that ambiguous language is to be construed against the author “... ‘does not rise to the stature of a “manifest disregard” of law.’” But Amicizia involved a charter party, *If the court meant that examination of evidence before the arbitrators was necessary to Revere’s position, it was wrong. The award itself and the pertinent provisions of OPIC’s policy made part of the award suffice. If the court meant that in its view the award was correct on its face, a one sentence footnote, the thrust of which was to criticize Revere for citing the Campbell decision, was a singularly oblique way of saying so. 18 not an insurance policy, and the challenge to the award was that the arbitrators had improperly relied upon, rather than disregarded the principle. 7. The court spoke of the policy which it asserted as one which favors “voluntary” commercial arbitration (3a, 5a) as a “mutually agreeable” alternative to litigation (7a n.3). It did not “find credence in Revere’s claim that it was compelled to accept the arbitration provision in its con- tract with OPIC” (7a). Apparently the court’s disbelief was based upon the facts that, when OPIC denied its claim, Revere commenced the arbitration as OPIC’s policy re- quired and that Revere sought an order correcting or vacating the award in part. OPIC was the only source of expropriation insurance, and the 37 printed pages of its policy formed a single block. That fact alone may not have constituted “coercion”, Scherk, 417 U.S. at 519 n.14, but for Revere to proceed under the arbitration clause of the OPIC policy was neither “voluntary” nor “mutually ac- ceptable”. An invalid severable part of an award may, of course, be vacated and an award may be corrected; OPIC did not challenge the award as to liability. 8. Finally, the court, citing Enterprise Wheel (compare p. 15 n.*, supra), stated (7a) that a “cursory reading” of the award “indicates” that it “draws its essence” (363 U.S. at 597) from the OPIC insurance policy. Whether the court meant anything other than that the subject of the award was Revere’s investment, the actions of the Govern- ment of Jamaica and OPIC’s insurance against expropria- tory action and what consideration the court gave to the award are unclear. — Ct ht NOE SH le ett, 19 Reasons for Granting the Writ The court of appeals commingled the Labor Act and the Arbitration Act. It did so although labor disputes are expressly excluded from the coverage of the Arbitration Act by §1 and although there is no Congressional purpose favoring arbitration of commercial disputes in contrast to that expressly stated in § 203(d) of the Labor Act. The court of appeals asserted that the principles which govern review of awards in labor arbitration are, and should be, those governing review of awards in commercial disputes. Its assertion conflicts with the teaching of the Steelworkers trilogy and Prima Paint and Scherk that com- mercial arbitration and labor arbitration and the statutes governing them are very different. The court’s confusion of the two statutes and the different policies which they express—the neutral provision of an alternative to litiga- tion of commercial disputes, on the one hand, and the en- couragement of consensual arbitration for the resolution of labor disputes, on the other—resuited in the sustaining of an award which on its face violates fundamental public policy. The questions presented address the proper interpreta- tion of the Arbitration Act and of the Labor Act as well since the lower courts used a policy formulation derived from it to override the public policy applicable to insurance disputes. They are questions of public importance and of importance to the parties. For Revere, their importance is measured by $62,999,856. For OPIC, their importance is measured by the same amount and in terms of the credibility of its political risk insurance program, under which some $9,000,000,000 of insurance is in force, and the perceived fairness of the arbitration process upon which it has insisted in its stan- 20 dard form insurance policy. Resolution of these questions adversely to OPIC would in a larger sense be to its benefit. Beyond these measurements of importance is the signifi- cance of these questions to the possibility of utilizing arbi- tration as a means of lessening the burden upon the courts of the present flood of litigation. The adoption of arbitra- tion as the system for the resolution of, at the least, smaller disputes requires public and legislative confidence that arbi- trators will be responsive in some degree to some system of what might be called law. Arbitrators and arbitration do not enjoy the confidence enjoyed by the courts. The bills pending in Congress, S. 373, 96th Cong., 1st Sess. (1979) ; H.R. 2699, 96th Cong., Ist Sess. (1979), which provide for compulsory arbitration for the resolution of specified civil disputes include provisions for judicial trial de novo at the request of any party. In labor arbitration, the arbiter is selected by manage- ment and by the union to serve for a period of time. He is expected to decide the “myriad of cases which the drafts- men [of the collective bargaining agreement] cannot wholly anticipate.” Warrior é Gulf, 363 U.S. at 578. He will decide mary grievances, some for one side, some for the other. His continued tenure when the collective bargaining agreement is renewed will depend upon the perception which each side has of his even-handedness and, more important, the suc- | eess he has had in minimizing labor-management friction and work stoppages. Arbitration of commercial disputes is very different. The dispute is singular, not one of a series. There is no expecta- tion that loss of one arbitration may be counterbalanced, as in labor arbitration, by success in the next one. The arbi- trators are selected ad hoc. The parties do not ask for infal- libility, but they do expect that the dispute will be resolved with regard the terms of the agreement between them and 21 with some relation to the legal principles with which lay businessmen are familiar.* When the result radically dis- appoints these expectations, confidence in the process is destroyed. This is not to say that arbitrators may not err. It is rather that beyond the specialized industries, e.g., ship- ping,** and special contexts, e.g., international contracts, where the particular practices or necessities of the industry or context have made it customary, arbitration of civil dis- putes will not be accepted if arbitrators are viewed as en- tirely free to make arbitrary decisions from which no relief may be had. The courts—here the court of appeals and the district court, but they are far from being alone—have, we submit, succumbed to the “glib generalizations and unthinking ab- stractions” against which this Court warned in a different context in SEC v. National Securities, Inc., 393 U.S. 453, 465 (1969). There is a federal policy which favors labor arbitration, while the federal policy with respect to com- * The “ ‘objectively reasonable expectations’ of businessmen” de- termine the outcome of commercial insurance disputes in the courts. Ore & Chemical Corp. v. Eagle Star Ins. Co., 489 F.2d 455, 456 (2d Cir. 1973) ; Bird v. St. Paul Fire & Marine Ins. Co., 224 N.Y. 47, 51, 120 N.E. 86, 87 (1918) (Cardozo, J.). In commercial insurance, resolution of disputes concerning those expectations—the intent of the parties—depends upon “[a] com- mon-sense of appraisement of every day forms of speech and modes of thought... .” Bird, 224 N.Y. at 51, 120 N.E. at 87. This Court looks to the “usual meaning” of words. Kissinger v. Report- ers Committee for the Freedom of the Press, 48 U.S.L.W. 4223 (U.S. March 3, 1980) (Congressional intent). ** In a charter party “a single short (and often, to the un- initiate, obscure) expression may refer to a whole set of compli- cated practices perfectly familiar to those who deal regularly in such matters .... In such a field, it is not surprising that arbitration . . . has largely taken the place of litigation.” J/S Stavborg v. National Metal Converters, Inc., 500 F.2d 424, 427 (2d Cir. 1974) (quoting G. Gilmore & C. Black, The Law of Admiralty (1957)). 22 mercial arbitration is neutral. This was not a labor arbi- tration; it was a commercial arbitration, more particularly an insurance arbitration.* “[W]e have taken the law of insurance practically out of the category of contract ..”** Insurance is “essentially different from ordi- nary commercial transactions, and . . . according to the sense of the world from the earliest times—certainly the sense of the modern world—is of the greatest public con- cern.” German Alliance Ins. Co. v. Lewis, 233 U.S. 389, 414-15 (1914). In this area of important national interest and concern, the application of the rule of contra proferentem fulfills the critical regulatory function of making insurers re- sponsible if they produce and market ambiguous policies of insurance. If the rule can be disregarded, some other and less salutary means would have to be devised to regu- late and control the production and marketing of insurance policies.*** In the relationship between insured and insurer, as con- trasted with other contractual relationships, the rule of contra proferentem “defines the scope of coverage as much as if it were a clause in the... polic[y]. It is part of the understanding of the parties.” Pan American World Air- ways, Inc. v.-Aetna Casualty & Surety Co., 505 F.2d 989, 1003 (2d Cir. 1974); Filor, Bullard & Smyth v. Insurance * Disputes between insured and insurer are seldom the subject of arbitration. The language of OPIC’s policy requiring arbitra- tion is, however, subject to no regulatory control. ** R. Pound, The Spirit of the Common Law 29 (1921). *** In the insurance context the rule of contra proferentum per- forms the function performed in the products liability context by the legal doctrines which encourage manufacturer responsibility and provide consumer protection. 23 Co. of North America, 605 F.2d 598 (2d Cir. 1978).* The rule does not depend upon the insured’s lack of economic strength or sophistication, but rather upon the insured’s practical inability in the circumstances to negotiate the contract terms. The rule has been applied in favor of a New York Stock Exchange member firm, Filor, Bullard & Smyth, 605 F.2d at 602, 605, a major airline, Pan Ameri- can World Airways, 505 F.2d at 1002-03, a national bank, First National Bank v. United States Fidelity & Guaranty Co., 416 F.2d 52, 56 (Sth Cir. 1969), and one insurance company in dispute with another insurance company, Lon- don Assurance Corp. v. Thompson, 170 N.Y. 94, 62 N.E. 1066 (1902). For this Court to hear and determine the questions pre- sented by this Petition would not expose the courts to un- warranted attempts to obtain review of arbitration awards. The grounds of review permitted by the Arbitration Act are narrow and will remain so. The questions presented are questions of statutory interpretation. In doing justice for Revere, this Court would tell the . lower courts plainly that commercial arbitration is dif- ferent from labor arbitration and that the Arbitration Act does not require unthinking enforcement of every non- corrupt award. This Court will have strengthened confi- dence in the arbitration process without encouraging at- tacks upon particular results of arbitration. * See also Ross v. Royal Globe Ins. Co., 612 F.2d 379, 381 (8th Cir. 1980) (recognizing contra proferentem in insurance disputes as “a benchmark principle’). 24 CONCLUSION The writ prayed for should issue, Respectfully submitted, WruiumM FE. Heearry 80 Pine Street New York, New York 10005 (212) 825-0100 Counsel for Petitioner Of Counsel: CanitL Gorpon & REINDEL MricHaru P. Trerney GrorcE WAILAND Cuartes A, GruMAN and Ricuarp A. Manroop, Q.C. April 8, 1980 7 x 4 APPENDIX A Opinion of the Court of Appeals UNITED STATES COURT OF APPEALS For THE District or CoLtumsBia Crrovuir No. 79-1159 ReveERE Copper AND Brass INCORPORATED, Appellant, v. OversEas Private INVESTMENT CORPORATION, Appellee. Appeal from the United States District Court for the District of Columbia (Mise. No. 78-0296) Argued October 25, 1979 Decided February 26,1980 “™ Judgment entered this date Wiliam E. Hegarty for appellant. Michael B. Sheppard, with whom E. Donald Elliott was on the brief, for appellee. Before J. Epwarp Lumsarp,* U.S. Senior Circuit Judge for the Second Circuit, and Tamm and Mrxva, Circuit Judges. ns sO * Sitting by designation pursuant to 28 U.S.C. § 294(d) (1976). la 2a Opinion of the Court of Appeals Opinion Per Curiam. Per Curram: Appellant, Revere Copper and Brass In- corporated (Revere), seeks reversal of the district court’s denial of Revere’s motion to correct or vacate in part an arbitration award, The origin of the arbitration award in question is an insurance contract under which the ap- pellee, Overseas Private Investment Corporation (OPIC), an agency of the United States, insured Revere against losses incurred by expropriation of Revere’s investment in its wholly-owned subsidiary’s aluminum mining and refinery complex in Jamaica. Section 10.01 of the contract provides that any disputes thereon “shall be settled bv arbitration ... [and] ... [t]he award rendered by the arbitrator shall be final and binding upon the parties... .” Following a change in administration of the Jamaican government, Revere made claim upon OPIC for compen- sation, alleging that actions by the new government con- stituted an expropriation of Revere’s property. When OPIC denied the claim, Revere submitted the dispute to arbitration. The arbitrators determined that there was expropriatory action but awarded Revere $1,131,144, in- stead of the $64,131,000 that Revere had claimed. Revere then filed its motion in the district court, seek- ing to correct or vacate the portions of the arbitrators’ award in which the amount of the award was determined. Judge Charles R. Richey concluded that “Revere’s claims amount to no more than the contention that the arbitrators misconstrued the contract. .. . [which] ‘is not open to judi- cial review.’ Bernhardt v. Polygraphic Co. of America, Inc., 350 U.S. 198, 203 n.4 (1956).” Revere Copper & Brass, Inc, v. Overseas Private Investment Corp., No. 78-0296, Order at 2-3 (D.D.C. Dec. 8, 1978), reprinted in Joint Ap- cet aici Rian Ns Rae isinettt tii Sines Be Sha a 3a Opinion of the Court of Appeals pendix (J.A.) at 447a, 448a-49a. Judge Richey rejected Revere’s claim that the award must be set aside for public policy reasons because it violates the rule of contra pro- ferentem. Id. at 3, reprinted in J.A. at 449a. Contra proferentem is “the rule of construction that ambiguities in insurance contracts are resolved favorably to the in- sured.” Continental Casualty Co. v. Beelar, 132 U.S. App. D.C. 1, 2, 405 F.2d 377, 378 (1968). The rule developed in recognition that insurance policies are usually written by the insurer, and the insurer ought not be allowed to benefit from any ambiguities in the language which it chose. 13 J. APPLEMAN, Insurance Law & Practice § 7401 (rev. ed. 1976). After questioning whether any ambiguity in the Revere-OPIC insurance contract had been shown, Judge Richey declared that “[p]ublic policy is involved in this case, but not in the manner the petitioner [Revere] con- tends. There is a strong public policy behind judicial enforcement of binding arbitration clauses.” Order at 3, reprinted in J.A. at 449a. From this ruling Revere appeals. We affirm. ) Revere’s motion in the district court was made pursuant to sections 10 and 11 of the Federal Arbitration Act, 9 U.S.C. §§ 10-11 (1976). The Act was originally passed in 1925. Pub. L. No. 68-401, 43 Stat. 883. As stated in the Act’s preamble, Congress: intended it to be “An Act To make valid and enforceable written provisions or agree- ments for arbitration of disputes arising out of contracts, maritime transactions, or commerce among the States or Territories or with foreign nations.” Id. In the ensuing years, “[t]he federal courts have recognized a strong fed- eral policy in favor of voluntary commercial arbitration, as embodied in the [Act]....” Hanes Corp. v. Millard, 174 U.S. App. D.C. 253, 265, 531 F.2d 585, 597 (1976). The goal da Opinion of the Court of Appeals of Congress in passing the Act was to establish an alter- native to the complications of litigation. See Wilko v. Swan, 346 U.S. 427, 431 (1953) (citing House and Senate reports). As a result, judicial review of an arbitration award has been narrowly limited. Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805, 808 (2d Cir.), cert. denied, 363 U.S. 843 (1960). This court has acknowledged its restricted function in that capacity. See Washington-Baltimore Newspaper Guild, Local 35 v. Wash- ington Post Co., 143 U.S. App. D.C. 210, 215, 442 F.2d 1234, 1239 (1971). Seekimg to avoid the restrictions upon our review of the award in question, Revere points to the rule that enforce- ment of arbitration awards is subject to public policy con- siderations. Revere misperceives the nature of the public policy exception to the enforcement of arbitration awards. It is not available for every party who manages to find some generally accepted principle which is transgressed by the award. Rather, the award must be so misconceived that it “compels the violation of law or conduct contrary to ac- cepted public policy.” Union Employers Division of Print- ing Industry, Inc. v. Columbia Typographical Union No. 101, 353 F.Supp. 1348, 1349 (D.D.C. 1973), aff’d mem., 160 U.S. App. D.C. 403, 492 F.2d 669 (1974).1 A proper de- scription of the limits of the public policy exception is pro- 1 We do not agree with Revere’s contention that the formulation of the role of public policy in the judicial review of arbitration awards set forth in the Union Employers ease is limited to the labor context. A looser standard in other settings would upset the basie goal sought by Congress in enacting the Federal Arbitration Act. Allowing undue challenges to arbitration awards would defeat the finality and speedy dispute resolution expected of the arbitra- tion procedure. Cf. Washington-Baltimore Newspaper Guild, Local 35 v. Washington Post Co., 143 U.S. App. D.C. 210, 214, 442 F.2d 1234, 1238 (1971). oa Opinion of the Court of Appeals vided in Interinsurance Exchange of Automobile Club »v. Bailes, 219 Cal. App. 2d 830, 33 Cal. Rptr. 533, 538 (1963) : While, in one sense, all rules of adjective and substan- tive law set forth the “public policy” of the state, there is a vast difference between the enforcement of a void contract and the mere misunderstanding or misappli- cation of rules of law involved in the application to a particular dispute of a [valid] contract .... There being no question as to the validity of the insurance contract between Revere and OPIC, or the legitimacy of the parties’ bargained-for performances, the public policy exception is inapplicable here.? Revere argues that arbitration clauses are entitled to varying degrees of enforcement depending upon the sub- ject matter of the contract in question. The Federal Ar- bitration Act provides no basis for this view. Section 9 of the Act expressly provides for the confirmation of arbi- tration awards which arise out of the kind of binding arbitration clause which is present in Revere’s contract with OPIC. See 9 U.S.C. §9 (1976). If indeed there are particular considerations that lead parties to different types of contracts to favor or disfavor arbitration, that is for the parties to determine when they decide whether to include an arbitration clause in their contract. It has nothing to do with the judicial enforcement of arbitration clauses pursuant to the Federal Arbitration Act. The strong federal policy in favor of voluntary commercial arbitration would be undermined if the courts had the final say on the merits of the award. See Note, Judicial * Since the award here is not erroneous on its face, Revere’s cita- tion of Campbell v. Farmers Insurance Exchange, 260 Cal. App. 2d 105. 67 Cal. Rptr. 175 (1968), is inapposite. 6a Opinion of the Court of Appeals Review of Arbitration Awards on the Merits, 63 Harv. L. Rev. 681 (1950). If Congress wanted to exempt insurance contracts from the purview of the Federal Arbitration Act in the manner suggested by Revere, Congress could do so. In fact, the cases cited by Revere to demonstrate that arbitration of disputes between customer and broker is disfavored, Wilko v. Swan, 346 U.S. 427 (1953) and Ames v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 567 F.2d 1174 (2d Cir. 1977), stand for the proposition that Congress can abrogate an arbitration procedure previously contracted for. Congress has done no such thing in the — area. On the contrary, in the Foreign Assistance Act of 1969, Congress expressly sanctioned the use of arbitration in OPIC’s insurance and guaranty programs. See 22 U.S.C. §2197(i) (1976). As Judge Fuchsberg cogently stated in a case relied upon by Revere, “The notion that courts may. freely assume the role of arbiters of public policy is a very much exaggerated one. Most especially, they should avoid doing so in the face of a statutory scheme which bespeaks its own policy considerations ... .” Susquehanna Valley Central School Dist. v. Susquehanna Valley Teachers’ Ass’n, 37 N.Y.2d 614, 339 N.E.2d 132, 134 (1975) (concurring opinion). We see no reason for holding that the failure of arbi- trators to apply the rule of contra proferentem is suf- ficient cause for upsetting the award. In Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805 (2d Cir. 1960), the court was faced with a chal- lenge to “arbitrators’ reliance upon the principle that am- biguous language is to be construed against the autho-.” Id. at 808. The court resolved the issue in declaring that “the misapplication . . . of such rules of contract interpre- 7a Opinion of the Court of Appeals tation does not rise to the stature of a ‘manifest disregard’ of law.” Id. Our disposition makes it clear that we do not find credence in Revere’s claim that it was compelled to accept the arbitration provision in its contract with OPIC. This allegation appears to have surfaced after the arbitration award was announced.’ Revere is willing, on the other hand, to let stand the arbitrators’ majority decision in Revere’s favor that the Jamaican government expro- priated Revere’s property. Such an after-the-fact, pick- and-choose approach to an arbitration award is hardly con- sonant with the underlying concept of arbitration or with Revere’s claim that it was forced to agree to arbitration in the first place. As for Revere’s argument that the arbitrators “rewrote” the contract in excess of their authority, a cursory reading of the arbitration award indicates that it “draws its es- sence” from the Revere-OPIC contract. United Steelwork- ers of America v. Enterprise Wheel & Car Corp., 363 US. 593, 597 (1960). We are satisfied that the arbitration award should be sustained. The judgment of the district court, therefore, is Affirmed. ’ Revere was the party that requested arbitration of the dispute. Revere’s displeasure with the results is understandable, but the very purpose of the Federal Arbitration Act—to offer parties a mutually agreeable alternative to lengthy and costly litigation—would be defeated if this court upset the arbitrators’ decision. 8a APPENDIX B Opinion of the District Court UNITED STATES DISTRICT COURT For tHe District or COLUMBIA Filed Dee, 8, 1978, James F. Davey, Clerk Mise, No. 78-0296 Revere Copper AND Brass INCORPORATED, Petitioner, v. Oversgas Private INVESTMENT CORPORATION, Respondent. ORDER Presently before the Court is a motion by petitioner Revere Copper and Brass Incorporated [hereinafter re- ferred to as “Revere”] to correct, pursuant to 9 U.S.C. 11 (1976), and vacate, pursuant to 9 U.S.C. 10 (1976), por- tions of an award made in arbitration proceedings between Revere and respondent Overseas Private Investment Cor- poration [hereinafter referred to as “OPIC”] and cap- tioned In the Matter of: Revere Copper and Brass, Incor- porated, and Overseas Private Investment Corporation, Case No. 16 10 0137 76. Revere invested in Jamaica by establishing a wholly- owned subsidiary called Revere Jamaica Alumina, Ltd. [hereinafter referred to as “RJA”] which operated a bauxite and alumina processing complex. In 1970, Revere 9a Opinion of the District Court obtained expropriation insurance from OPIC to protect its investment in Jamaica from political risk. Section 10.01 of the insurance contract between Revere and OPIC pro- vided that all disputes between the parties were to be re- solved by arbitration and “[t]he award rendered by the arbitrator shall be final and binding upon the parties.” In August 1975, RJA shut down. Revere filed a claim with OPIC alleging that actions of the Jamaican Govern- ment—principally the imposition of a tax in June 1974— constituted expropriation within the meaning of the insur- ance contract. OPIC denied Revere’s claim and initiated arbitration under the auspices of the American Arbitration Association. Three neutral arbitrators were selected to decide whether OPIC was liable to Revere and, if so, the amount of the liability. One arbitrator felt that OPIC was not liable to Revere at all, while the majority of arbitrators found that Revere was entitled to receive compensation of $1,131,144. Revere is dissatisfied with the amount of the award, and has filed this action, arguing that the majority of the arbitrators exceeded their powers by: (1) making three adjustments which disregarded express terms of the insurance contract ; (2) writing into the contract a term it does not contain; (3) giving to that term a meaning which it does not have; and (4) choosing a construction of the contract most favorable to the insurer and least favorable to the insured. Accord- ing to the petitioner, these improper actions resulted in the writing down of the amount of Revere’s equity investment, the amount recoverable under the contract, from $64,131,000 to $1,131,144. The scope of review of an arbitrator’s decision is ex- tremely limited: 10a Opinion of the District Court It is well-settled in this Circuit that an arbitration award will not be vacated [E]ven though the arbitrator may have made, in the eyes of judges, errors of fact and law unless it “com- pels the violation of law or conduct contrary to ac- cepted public policy.” Union Employers Division, Etc. v. Columbia Typographical Union No. 101, 353 F. Supp. 1348, 1349 (D.D.C. 1973) (Richey, J.), aff'd, 492 F.2d 669 (D.C. Cir. 1974), quoting Washington-Baltimore Newspaper Guild, Local 35 v. Washington Post Co., 442 F.2d 1234, 1239 (D.C. Cir. 1971). Revere does not claim that the award is tainted by par- tiality, bias, corruption, or unfair proceedings, nor does Revere contend that the issues decided by the arbitrators were not within the scope of the submission. Instead, Revere’s claims amount to no more than the contention that the arbitrators misconstrued the contract. However, the courts cannot correct misconstructions: ‘Whether the arbi- trators misconstrued a contract is not open to judicial re- view.” Bernhardt v. Polygraphic Co. of America, Inc., 350 U.S. 198, 203 n.4 (1956). In order to avoid this rule, Revere has made a convoluted argument that it has satisfied the rule that the arbitrator’s award be set aside if it “compels the violation of law or conduct contrary to accepted public policy.” Union Em- ployers Division, Etc., supra. Revere’s argument that the arbitrators’ award violated public policy runs as follows: The arbitrators failed to apply the rule of contra proferen- tem, which requires that ambiguities in insurance contracts be resolved in favor of the insured; contra proferentem is lla Opinion of the District Court required by public policy; therefore, the arbitrators’ failure to apply that rule violates public policy. First, it is not at all clear that this rule of construction has been violated. There has been no showing that the contract was ambiguous other than a passing reference by the majority of arbitrators to the “force” of an alternative interpretation. Moreover, the rule in Union Employers Division requires that the arbitrators’ decision must “com- pel the violation of law or conduct contrary to accepted public policy.” (Emphasis added.) There has been no show- ing that the award of over $1 million would have any such result. Revere has failed to convince the Court that any error has occurred, and certainly the Court can find no error of the magnitude required by Union Employers Divt- ov0Nn, Public policy is involved in this case, but not in the man- ner the petitioner contends. There is a strong public policy behind judicial enforcement of binding arbitration clauses. Accordingly, it is, by the Court, this 8 day of C.R.R. Decem- ber, 1978, Orperep, that the petitioner’s motion be, and the same hereby is, denied. /s/ Cuarues R. RicHry Charles R. Richey United States District Judge 12a APPENDIX C Statutory Provisions Federal Arbitration Act, 9 U.S.C. §§ 1, 2, 9, 10, 11 and 13 (1976) § 1. “Maritime transactions” and “commerce” defined ; exceptions to operation of title “Maritime transactions”, as herein defined, means charter parties, bills of lading of water carriers, agreements relat- ing to wharfage, supplies furnished vessels or repairs to vessels, collisions, or any other matters in foreign commerce which, if the subject of controversy, would be embraced within admiralty jurisdiction; “commerce”, as herein de- fined, means commerce among the several States or with foreign nations, or in any Territory of the United States or in the District of Columbia, or between any such Terri- tory and another, or between any such Territory and any State or foreign nation, or between the District of Columbia and any State or Territory or foreign nation, but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. § 2. Validity, irrevocability, and enforcement of agreements to arbitrate A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 13a Statutory Provisions §9. Award of arbitrators; confirmation; jurisdiction; procedure If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and there- upon the court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title. If no court is specified in the agree- ment of the parties, then such application may be made to the United States court in and for the district within which such award was made. Notice of the application shall be served upon the adverse party, and thereupon the court shall have jurisdiction of such party as though he had ap- peared generally in the proceeding. If the adverse party is a resident of the district within which the award was made, such service shall be made upon the adverse party or his attorney as prescribed by law for service of notice of motion in an action in the same court. If the adverse party shall be a non-resident, then the notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court. § 10. Same; vacation; grounds; rehearing In either of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration— (a) Where the award was procured by corruption, fraud, or undue means. 14a Statutory Provisions (b) Where there was evident partiality or corruption in the arbitrators, or either of them. (c) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and mate- rial to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. (d) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. (e) Where an award is vacated and the time within which the agreement required the award to be made has not ex- pired the court may, in its discretion, direct a rehearing by the arbitrators. §11. Same; modification or correction; grounds; order In either of the following cases the United States court in and for the district wherein the award was made may make an order modifying or correcting the award upon the application of any party to the arbitration— (a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award. (b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted. (c) Where the award is imperfect in matter of form not affecting the merits of the controversy. The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties. grievance disputes arising over the application or inter- 15a Statutory Provisions § 13. Papers filed with order on motions; judgment; docket- ing; force and effect; enforcement The party moving for an order confirming, modifying, or correcting an award shall, at the time such order is filed with the clerk for the entry of judgment thereon, also file the following papers with the clerk: € (a) The agreement; the selection or appointment, if any, of an additional arbitrator or umpire; and each written extension of the time, if any, within which to make the award. (b) The award. (c) Each notice, affidavit, or other paper used upon an application to confirm, modify, or correct the award, and a copy of each order of the court upon such an application. The judgment shall be docketed as if it was rendered in an action. The judgment so entered shall have the same force and effect, in all respects, as, and be subject to all the provisions of law relating to, a judgment in an action; and it may be enforced as if it had been rendered in an action in the court in which it is entered. Labor Management Relations Act, 1947 29 U.S.C. §§ 173(d) and 185 (1976) § 173. Functions of Service (d) Use of conciliation and mediation services as last resort Final adjustment by a method agreed upon by the parties is declared to be the desirable method for settlement of ~_ 16a Statutory Provisions pretation of an existing collective-bargaining agreement. The Service is directed to make its conciliation and media- tion services available in the settlement of such grievance disputes only as a last resort and in exceptional cases. § 185. Suits by and against labor organizations (a) Venue, amount, and citizenship Suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce as defined in this chapter, or between any such labor organizations, may be brought in any dis- trict court of the United States having jurisdiction of the parties, without respect to the amount in controversy or without regard to the citizenship of the parties. (b) Responsibility for acts of agent; entity for purposes of suit; enforcement of money judgments Any labor organization which represents employees in an industry affecting commerce as defined in this chapter and any employer whose activities affect commerce as defined in this chapter shall be bound by the acts of its agents. Any such labor organization may sue or be sued as an entity and in behalf of the employees whom it represents in the courts of the United States. Any money judgment against a labor organization in a district court of the United States shall be enforceable only against the organization as an entity and against its assets, and shall not be enforceable against any individual member or his assets. (c) Jurisdiction For the purposes of actions and proceedings by or against labor organizations in the district courts of the United States, district courts shall be deemed to have juris- diction of a labor organization (1) in the district in which 17a Statutory Provisions such organization maintains its principal office, or (2) in any district in which its duly authorized officers or agents are engaged in representing or acting for employee mem- bers. (d) Service of process The service of summons, subpena, or other legal process of any court of the United States upon an officer or agent of a labor organization, in his capacity as such, shall con- stitute service upon the labor organization. (e) Determination of question of agency For the purposes of this section, in determining whether any person is acting as an “agent” of another person so as to make such other person responsible for his acts, the question of whether the specific acts performed were actu- ally authorized or subsequently ratified shall not be con- trolling. Internal Revenue Code, 26 U.S.C. § 482 (1976) § 482. Allocation of income and deductions among tax- payers In any case of two or more organizations, trades, or busi- nesses (whether or not incorporated, whether or not or- ganized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same in- terests, the Secretary may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such organizations, trades, or businesses, if he deter- mines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any of such organizations, trades, or businesses, 18a 19a OPIC Insurance Policy APPENDIX D OPIC Insurance Policy GENERAL TERMS AND CONDITIONS FESO CaN ee ConTENTS PAGE TITLE PART I—GENERAL 221 K GT 11-65 Articte 1—Governine Terms aNnp DerInitIoNns Revised (Combined) 1.01. Governing Terms and Definitions 1.02. Act 1.03. Actual Cash Value .... Agency for International Development 1.04. AID .... 1.04A. Combined Coverage B and C .............. 1.05. Contract of Guaranty 1.06. Contract Period ...... GENERAL TERMS AND CONDITIONS 1.07. Covered Property ........ (for Coverage A and Combined Coverages B and (©) pee ssa pe cagemeEte er which with 1.10. Date of Application .................... SprciaL TeRMs AND CONDITIONS 1.11. Date of Damage ........ ; 1.12. Date of Expropriation ................ : constitute a 1.13. Date of Investment ......... 1.14. Date of This Contract -.....000000000000.... 1.15. Expropriatory Action .......... 1.16. Fee for This Contract ............00.0000..00..... CONTRACT OF GUARANTY 1.17, Foreign Enterprise 1.18. Free and Clear : a 1.19. General Terms and Conditions ............ of the Foreign Assistance Act of 1961, as amended 1.20. Government of the Project Country .. For Investment Guaranties Under Section 221(b) 1.21. Guaranty Period ... 1.22. Investment ERE eb 1.23. Investment Earnings ee 1,24. Investor .... ve DBNININAIMAAAAAKEKHE HR RHO WDNDNODDNDDNSDY HH 1.25. 1.26. 1.27. 1.28. 1.29. 1.30. 1.31. 1.32. 1.33. 1.34. 1.35. 1.36. 1.37. ARTICLE 2.01. 2.02. 2.03. 2.04. 2.05. 2.06. 2.07. 2.08. 2.09. 2.10. 2.11. 2.12. 2.13. 2.14. 20a OPIC Insurance Policy TITLE PAGE Investor’s Share ................----c---secccsecceeessnsseeee 8 Local Currency ..........-----:-:-:--:-s-cscseseeessceeeneennees 8 Maximum Amount of Guaranty .................--- 8 Net Investment ..................-.-.--.--c-ccs-nsrecseeseoeenere 9 Other Compensation ..........-...-----+--+-+-s-esseese-eeee9 9 Project ....-.-..------c-seecscecnesecnseseseseoeosecsnepensenenenesnens 9 Project Country ..........-----------s-se-ceessesesesesnsnsenees 10 NO TORI oi icssccnenecntewsonensesecssosabonopetidetes 10 Reference Rate of Exchange .................-...-.--- 10 Return of Capital ................--.--.-0.....s0ssesssceseee 11 eens RRS RTT aes Bee ean CORN CCE OO 11 Special Terms and Conditions ...................-.--- 11 Standby Amount ..........-.2..—~.-.-ccnecenneosesreceeserese 12 9_InvestTor’s REPRESENTATIONS AND COVENANTS ee eee Soa eT On eee 12 Prior Arrangements .................---.-s:s-sssssseseee 12 | 1) 5 es ee 13 Other Avveneoments *.........-.............-..........-- 13 ARIINIII - oiiiespu asc sotassrscnrecmsoresonnnwepingntienenn 13 EMRE TRG S25 COREA See OR eee DEO 13 iia Ne lc ncadsammeyeionwoness 14 PMO COTO Sinan ns cons cnencpen erent 14 Books and Records of Investor and Foreign ia sesh os ccoit ec setenensnentesesncin 14 Accountant’s Certificates -................-..-..--.+-.-- 15 Investment and Project Execution ................ 15 Presents fae 222... se 16 Prosecuting Claims ........:....—..2...............- 16 Secnrity for Refunds or Adjustments ........ 16 21a OPIC Insurance Policy TITLE PAGE ARTICLE 3—MISREPRESENTATION AND BREACH OF CovENANT aE Lea EO LITLE 17 Ee eRe a ee 17 Ty. SUMUIIT T sacccciccscccscstbesi ees 19 3.04. Refunds of Compensation —..0.000.00..00002...-..- .19 3.05. Limit of Liability and Election of Remedies 20 ArtTICLE 4—F'unps AVAILABLE FOR PAYMENT OF GUARANTY ATE. © FFE REE I CRIES ooesccenne cg cnesttteersviniectectcercect 20 ArticLe 5—TERMINATION AND ELECTION BY INVESTOR A