Scottish Re Life Corp. v. Transamerica Occidental Life Insurance

647 S.E.2d 102, 184 N.C. App. 292, 2007 N.C. App. LEXIS 1473

• Court: Court of Appeals of North Carolina
• Decided: July 3, 2007
• Docket: COA06-1278
• Status: Published

Opinions

ELMORE, Judge.

Scottish Re Life Corporation (appellee) entered into reinsurance contracts with Annuity and Life Reassurance Ltd. (ALR). The contracts required ALR to maintain significant assets in a trust for appellee’s benefit. In 2005, Transamerica Occidental Life Insurance Company (appellant) assumed all of ALR’s obligations to appellee by executing a novation agreement. As part of the novation agreement, appellee agreed to release its interest in the trust to appellant. After the release of the funds, appellee discovered that appellant was not licensed or accredited by the State of New York. As this affected appellee’s financial status and ability to do business in New York, appellee demanded that appellant provide some form of security that would allow appellee to qualify for reserve credit. Appellant responded that it had not agreed to assume certain liabilities and that in agreeing to the novation agreement it had relied upon representations appellee made regarding billing, which it had subsequently determined were false. Appellant therefore stated that it was entitled to rescind the novation agreement.

Although appellant offered to arbitrate in the event that the parties were unable to come to a satisfactory resolution through less formal means, appellee did not initially institute arbitration proceedings. Instead, appellee filed a motion to compel arbitration on 8 February 2006. It subsequently amended its motion on 15 February 2006, and on 23 February 2006, appellee filed a motion for provisional and/or injunctive relief. The trial court heard both motions on 16 March 2006. The trial court, with the agreement of both parties, issued an order directing arbitration. The trial court then issued an order for provisional remedies, entered 31 May 2006. The order required appellant to either repudiate its claim of rescission or return the assets it had received as part of the novation agreement to a qualifying trust for appellee’s benefit. Limits were placed on the withdrawal of those funds, and appellee was required to post a bond of $250,000.00. Moreover, the trial court explicitly stated that its order of provisional relief was “without prejudice to any or all additional provisional remedies, if any, that [the trial court] or the arbitration panel. . . determines is appropriate, and [was] further without prejudice to the authority of that arbitration panel ... to modify, supplement or vacate the provisional relief ordered....” It is from this order that appellant appeals.¹

As a preliminary matter, we note that appellee argues strenuously for the dismissal of this case. As this Court has stated, “A preliminary injunction is an interlocutory order. .. . An appeal of an interlocutory order will not lie to an appellate court unless the order deprives the appellant of a substantial right which would be jeopardized absent a review prior to a final determination on the merits.” Barnes v. St. Rose Church of Christ, 160 N.C. App. 590, 591, 586 S.E.2d 548, 549-50 (2003) (quotations and citations omitted). Accordingly, to properly hear this appeal, we must find that the relief the trial court granted appellee jeopardizes appellant’s substantial rights. “A two-part test has emerged to decide if an immediate appeal of an interlocutory order is warranted: the right itself must be substantial and the deprivation of that substantial right must potentially work injury ... if not corrected before appeal from final judgment.” Id. at 591-92, 586 S.E.2d at 550 (citations and quotations omitted). Given the large amount of money at issue in this case,- the fact that the trial court impinged appellant’s right to the use and control of those assets, and the unavoidable and lengthy delays, acknowledged by both parties, preceding actual arbitration of the matter, we hold that appellee must be granted its appeal to preserve a substantial right. We therefore address this appeal on its merits while confining our decision to do so to the facts of this particular case.

Appellant first contends that the trial court erred in failing to hold that this dispute is governed by federal and not state law. Appellant argues that because the contracts between the parties affect interstate commerce and contain mandatory arbitration clauses, the dispute is governed by the Federal Arbitration Act (FAA) and not the Revised Uniform Arbitration Act (RUAA). While appellant is correct in its assertion that the FAA applies, it is incorrect in its assumption that the RUAA is therefore entirely preempted. Accordingly, this contention is without merit.

The United States Supreme Court has held that “[t]he FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration.” Volt Info. Scis, v. Bd. of Trs., 489 U.S. 468, 477, 103 L. Ed. 2d 488, 499 (1989) (citation omitted).² Because state law is preempted only “to the extent that it actually conflicts with federal law,” we must therefore determine whether application of the RUAA “would undermine the goals and policies of the FAA.” Id. at 477-78, 103 L. Ed. 2d at 499.

“The [FAA] was designed to overrule the judiciary’s longstanding refusal to enforce agreements to arbitrate, and place such agreements upon the same footing as other contracts.” Id. at 474, 103 L. Ed. 2d at 497. The trial court’s application of the provisional remedies of the RUAA do not undermine this purpose. To the contrary, the RUAA itself is the successor statute of a legislative attempt “to insure the enforceability of agreements to arbitrate in the face of oftentimes hostile state law.” See National Conference of Commissioners on Uniform State Law, Uniform Arbitration Act (2000), prefatory note, available at http://www.law.upenn.edu/bll/ulc/uarba/arbitratl213.htm (last visited 10 May 2007). Likewise, the clause under which the trial court granted appellee provisional relief “allows courts to grant provisional remedies in certain circumstances to protect the integrity of the arbitration process.” Id. (emphasis added). Moreover, by its own terms the trial court’s order is subject to modification, supplementation, or vacation by the arbitrator. Appellant’s contention that the FAA preempts the RUAA in this case is incorrect.

Appellant next argues that the trial court erred by ruling on the merits of the arbitrable dispute. Appellant contends that although appellee’s motion for provisional relief was “cast in terms of preserving the status quo pending arbitration,” in reality it “sought nothing of the kind.” Instead, appellant argues, the motion sought specific performance of a contractual provision. Appellant further accuses appellee of inviting the trial court to “wade into the substantive dispute,” and the trial court of “readily accepting] the invitation.” This argument is unpersuasive. By its plain terms, the trial court’s order does not address the merits of the underlying dispute. It instead explicitly states that it is temporary in nature, that it is modifiable at the arbitrators’ discretion, and that it “is without prejudice to and has no bearing on, the parties’ respective positions before the arbitration panel as to provisional relief or the merits.”

Appellant also argues that the trial court erred by granting provisional relief because appellee established none of the required elements for such relief. Throughout its argument, appellant relies extensively and exclusively on federal law.³ However, as we have noted, the RUAA applies in this case. That statute states:

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.

N.C. Gen. Stat. § l-569.8(a) (2005). Accordingly, so long as appellee showed “good cause,” the trial court could order provisional remedies to the same degree possible in a state court action.

In this case, there was good cause shown. At oral arguments, both parties acknowledged the difficulties in finding and convening an appropriate arbitration panel for these types of disputes. Given these difficulties and the danger of the dissipation of the assets at stake, there was good cause for the trial court to grant provisional relief.

Moreover, the remedy granted would have been available to the trial court were this controversy “the subject of a civil action.” As this Court has recently stated,

[I]n order to justify continuing [an injunction] until the final hearing, ordinarily it must be made to appear (1) that there is probable cause the plaintiff will be able to establish the asserted right, and (2) that there is a reasonable apprehension of irreparable loss unless the temporary order of injunction remains in force, or that in the opinion of the court such injunctive relief appears to be reasonably necessary to protect the plaintiffs rights until the controversy can be determined.

Harris v. Pinewood Dev. Corp., 176 N.C. App. 704, 710, 627 S.E.2d 639, 643-44 (2006) (quoting Edmonds v. Hall, 236 N.C. 153, 156, 72 S.E.2d 221, 223 (1952)). Here, were the underlying controversy before the trial court, it is clear that if appellant’s claim of rescission were granted the trial court would likewise order restitution. See Mashburn v. First Investors Corp., 111 N.C. App. 398, 402, 432 S.E.2d 869, 871 (1993) (quoting Brannock v. Fletcher, 271 N.C. 65, 74, 155 S.E.2d 532, 542 (1967) for the proposition that “[rescission is not merely a termination of contractual obligation^, but rather an] abrogation or undoing of it from the beginning.”) Appellee would therefore have been entitled to the reestablishment of a trust for its benefit were rescission granted. Moreover, had the trial court not granted its relief, there was a “reasonable apprehension of irreparable loss.” If the assets were not held in trust pending resolution of the dispute, there was a danger that rescission would be granted but that the assets would be unavailable for restitution. Accordingly, the trial court appropriately granted the provisional relief as empowered under N.C. Gen. Stat. § l-569.8(a) (2005).

Furthermore, even if we were persuaded by appellant’s demand that this Court apply solely federal law, the outcome would not change. As the Fourth Circuit has stated,

[Wjhere a dispute is subject to mandatory arbitration under the Federal Arbitration Act, a district court has the discretion to grant a preliminary injunction to preserve the status quo pending the arbitration of the parties’ dispute if the enjoined conduct would render that process a “hollow formality.” The arbitration process would be a hollow formality where “the arbitral award when rendered could not return the parties substantially to the status quo ante.”

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bradley, 756 F.2d 1048, 1053-54 (4th Cir. 1985) (quoting Lever Brothers Co. v. International Chemical Workers Union, Local 217, 554 F.2d 115, 123 (4th Cir. 1976)). Here, for the arbitrators’ decision to have any weight, it was necessary that the assets at issue be preserved. The relief granted by the trial court ensured that the arbitration panel would be able to act effectively and with all available remedies.

The order of the trial court is therefore affirmed.

Affirmed.

Judge WYNN concurs by separate opinion. Judge GEER concurs in result only by separate opinion.

1 . Both parties accuse the other of arguing the merits of the underlying dispute to the trial court and to this Court. Both parties then proceed to do exactly that. For the purposes of this appeal, the underlying dispute is only marginally relevant. We therefore decline to delve deeper into the facts. Instead, we will focus on the trial court’s order for provisional remedies, from which this appeal was taken.

2 . We note appellant’s contention that Volt has been limited to its facts. Nevertheless, the basic preemption principles enunciated by the United States Supreme Court in Volt remain instructive. Moreover, the “goals and policies of the FAA” remain consistent regardless of whether they are considered in the context of a choice of law provision, as in Volt, or in the broader context of the availability of provisional remedies, as in the current case. Although we note that the Volt decision dealt specifically with an arbitration provision in which the parties agreed to be bound by state principles, we nevertheless find its reasoning on the preemption issue controlling.

3 . Indeed, in over seven pages of text, appellant cites to only one North Carolina case, Redlee/Scs, Inc. v. Pieper, 153 N.C. App. 421,426, 571 S.E.2d 8,13 (2002), and that only as an example of an employee’s improper solicitation claim.