Lloyd's v. Edcouch Elsa Independent School District

Background

Edcouch Elsa Independent School District sought insurance coverage from the petitioners, who are insurers, for damage to its properties caused by Hurricane Hanna in July 2020. The insurance policy required disputes to be arbitrated. It established a three-person panel: each side could appoint an arbitrator, and those arbitrators were to select an umpire by agreement. If they could not agree, either arbitrator could ask a judge of a New York court to select the umpire.

The School District appointed Carl H. Ginsberg, and the Insurers appointed Stephen M. Rogers. Beginning in August 2023, the two arbitrators unsuccessfully exchanged proposals for an umpire. The Insurers filed this petition under Section 5 of the Federal Arbitration Act, which authorizes a court to appoint an arbitrator or umpire when the agreed selection process has stalled.

Motion to dismiss

The School District moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which concerns the court's subject-matter jurisdiction. It argued that the Eleventh Amendment gave it immunity from suit as an arm of the State of Texas.

The court applied two tests used by the Second Circuit to determine whether a government entity is an arm of the state. Under both tests, it concluded that the School District was not entitled to Eleventh Amendment immunity. Among other reasons, the petition sought only appointment of an umpire, not a money judgment or an order requiring the School District to pay umpire fees. The court also found that the School District could raise local funds, had a board elected by local voters, served a local educational function, and had not shown that Texas would be responsible for satisfying a judgment against it.

The court therefore denied the School District's motion to dismiss under Rule 12(b)(1). It did not decide the Insurers' separate arguments that the School District had waived immunity or that the proceeding was not a suit because those arguments were unnecessary to the decision.

Authority to appoint an umpire

The School District argued that the phrase “a judge of a New York court” referred only to New York state-court judges. Judge Engelmayer rejected that interpretation, holding that the phrase could include federal courts located in New York, including the Southern District of New York.

The School District also argued that the petition should be denied because the arbitration agreement said that a party-appointed arbitrator could request the appointment. The court rejected that argument. It held that Section 5 of the Federal Arbitration Act allows either party to apply for appointment when there has been a lapse or deadlock in the selection process. The court found that the arbitrators' undisputed impasse established that condition.

Selection of the umpire

The parties proposed seven candidates. The Insurers proposed Michael H. Dolinger, Henry B. Pitman, and Kathleen A. Roberts, all former magistrate judges of the Southern District of New York. The School District proposed Deborah G. Hankinson, Mark D. Davidson, Joseph T. Halbach, and Paul J. Van Osselaer.

The court found all seven candidates qualified but concluded that the Insurers' New York-based candidates were better suited because the arbitration agreement identified New York as the arbitration seat and stated that New York law would govern the insurance. The court also considered travel costs, experience, qualifications, and hourly rates. It selected Michael H. Dolinger, citing his extensive experience as a magistrate judge and his lower hourly rate compared with the Insurers' other candidates.

Disposition

The court denied the motion to dismiss and granted the petition. It designated and appointed Michael H. Dolinger as umpire and directed the Clerk of Court to terminate the motion and close the case.