Opinion
2:22-cv-02022-JAM-JDP
04-05-2023
INDUS INSURANCE AGENCY, INC.; a California Corporation; and AVERWOOD INSURANCE SERVICES, INC., a California Corporation, Plaintiffs, v. NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio Corporation, ET AL., Defendants.
ORDER GRANTING DEFENDANTS' MOTION TO COMPEL ARBITRATION AND DISMISS
JOHN A. MENDEZ SENIOR UNITED STATES DISTRICT JUDGE
Before the Court is Defendants Nationwide Mutual Insurance Company, Nationwide Insurance Company of America, Nationwide Mutual Capital, LLC, and Nationwide Mutual Fire Insurance Company's (collectively, “Nationwide”) motion to compel arbitration and dismiss Plaintiff Averwood Insurance Services, Inc.'s claims without prejudice. See Mot. to Compel and Dismiss (“Mot.”), ECF No. 20. Defendants contend that the parties' contract expressly delegates all issues and claims to arbitration, which is binding on the Court. Plaintiffs Averwood Insurance Services, Inc. (“Averwood”) and Indus Insurance Agency, Inc. (“Indus”) oppose the motion. See Opp'n, ECF No. 31. Defendants replied. See Reply, ECF No. 33.
For the reasons set forth below, the Court GRANTS Defendants' motion.
This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled for February 14, 2023.
I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
On June 2, 2020, Defendants and Plaintiff Averwood entered into a contract whereby Plaintiff Averwood was permitted to seek insurance for its customers from Defendants. Mot. at 2; see Averwood Agency Agreement (“Averwood Contract”), Exhibit C to Declaration of Muhammad Younas Malik, ECF No. 3. Section 17 of the contract contained an express delegation of “any claim or dispute” between the parties to “mandatory binding arbitration under the American Arbitration Association (“AAA”) Commercial Arbitration Rules and Mediation Procedures” in Columbus, Ohio. Id. at 7. The parties expressly gave up their right to “have any claim or dispute between them decided by a court or jury” and agreed to delegate the enforceability of the contract and its arbitration clause to an arbitrator. Id. at 7-8. The contract also contained a provision that allows the parties to pursue a temporary restraining order or injunctive relief from a court before, during, or after an arbitration proceeding, including in aid of arbitration. Id. at 8. As for cancellation of the contract, the contract allowed Plaintiff Averwood to cancel at any time with written notice to Defendants; Defendants were allowed to cancel with written notice if Plaintiff Averwood (1) violated an applicable law or regulation; (2) had its insurance license revoked by a state regulator; or (3) violated a “material term of or attempted assignment” of the contract. Id. at 6.
On August 29, 2022, Defendants notified Plaintiff Averwood that it intended to cancel the contract. Mot. at 3. Several months later, Plaintiff Averwood jointly filed suit with Plaintiff Indus, which had entered into a similar contract with Defendants and had similarly been notified of Defendants' intent to cancel its contract. See Compl., Exhibit A to Notice of Removal, ECF No. 1. The Complaint asserts three causes of action stemming from the cancellation of Plaintiffs' contracts: (1) violation of the fair procedure doctrine; (2) violation of the unfair competition law under California Business and Professions Code § 17200; and (3) injunctive relief for violation of the fair procedure doctrine. Compl. ¶¶ 33-46. On November 8, 2022 Defendants removed the case to federal court, invoking the Court's diversity jurisdiction. See Notice of Removal. One week later, Plaintiffs filed for a temporary restraining order, which the Court denied due to undue delay and procedural deficiencies. See Ex Parte Application for Temporary Restraining Order and Order to Show Cause, ECF No. 3, Order, ECF No. 11. Several weeks later, Plaintiffs filed a motion to remand, arguing that Defendants had failed to establish the amount in controversy for diversity jurisdiction. See Mot. to Remand, ECF No. 15. Defendants opposed the motion. See Opp'n, ECF No. 24.
On December 12, 2022, Defendants filed the operative motion to compel arbitration and dismiss Plaintiff Averwood's claims without prejudice as well as a motion to stay Plaintiff Indus's claims. See Mot., Mot. to Stay, ECF No. 21. Defendants contend that all of Plaintiff Averwood's claims relate to the parties' contract and are thus subject to mandatory arbitration. Mot. at 3. Plaintiffs opposed the motion. See Opp'n. Defendants replied. See Reply.
On January 24, 2023, the Court held a hearing on Plaintiffs' motion to remand and denied Plaintiffs' motion, finding that Defendants had sufficiently established diversity of citizenship and the amount in controversy for diversity jurisdiction. Mot. Hearing, ECF No. 37. The Court therefore does not need to consider Plaintiffs' argument against subject matter jurisdiction outlined in their opposing brief to the instant motion.
II. OPINION
A. Legal Standard
The Federal Arbitration Act (FAA) governs arbitration agreements. 9 U.S.C. § 2. The FAA allows parties to obtain an order directing arbitration according to the terms of the agreement. 9 U.S.C. § 4. To decide on a motion to compel arbitration, a court must determine: (1) whether a valid agreement to arbitrate exists; and (2) if a valid agreement exists, whether the arbitration provision covers the dispute at issue. Boardman v. Pacific Seafood Group, 822 F.3d 1011, 1017 (9th Cir. 2016). If a party seeking arbitration establishes these two elements, a court must compel arbitration; the court's role is “strictly limited to determining arbitrability and enforcing agreements to arbitrate, leaving the merits of the claim and any defenses to the arbitrator.” Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 478 (9th Cir. 1991).
In determining the existence of an agreement to arbitrate, the district court looks to “general state-law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration.” Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996). Under the FAA, an arbitration agreement contained in a commercial contract is presumed to be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration. Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). The Supreme Court has stated that “parties can agree to arbitrate gateway questions of arbitrability, such as whether parties have agreed to arbitrate or whether the agreement covers a particular controversy,” so long as the parties do so clearly and unmistakably. Rent-A-Ctr., West, Inc. v. Jackson, 561 U.S. 63, 68-69 (2010), Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524, 530 (2019). If the arbitration agreement contains such a delegation provision, a court must compel arbitration with respect to issues of arbitrability except to the extent there is a challenge as to whether the delegation agreement itself is valid. Id. The Ninth Circuit has found that the incorporation of the AAA Rules into an agreement constitutes “clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015).
The party seeking to avoid arbitration under the FAA bears the burden of proving that the claims at issue are not suitable for arbitration. Scott v. Loomis Armored US, LLC, No. 2:21-CV-00896-JAM-AC, 2021 WL 6136181, at *1-2 (E.D. Cal. Dec. 29, 2021). A party seeking to challenge the enforceability of a delegation clause must show that the delegation is not clear and unmistakable or that the contract itself is not valid. Wainwright v. Melaleuca, Inc., No. 2:19-CV-02330-JAM-DB, 2020 WL 417546, at *1 (E.D. Cal. Jan. 27, 2020). If a court “determines that an arbitration clause is enforceable, it has the discretion to either stay the case pending arbitration, or to dismiss the case if all of the alleged claims are subject to arbitration.” Hoekman v. Tamko Bldg. Prod., Inc., No. 2:14-cv-01581-TLN-KJN, 2015 WL 9591471, at *1 (E.D. Cal. Aug. 26, 2015).
B. Analysis
Defendants contend that the Court must compel arbitration of Plaintiff Averwood's claims because the parties' contract (1) expressly states that the enforceability of the contract, including the arbitration clause, would be resolved through arbitration; and (2) incorporates the AAA arbitration rules, which shows that the parties clearly and unmistakably agreed to arbitrate arbitrability. Mot. at 4-5. Defendants further claim that the contract's arbitration provision is (1) valid and enforceable and (2) covers Plaintiff Averwood's claims. Id. at 6-9.
Plaintiffs do not contest the validity and enforceability of the arbitration and delegation provisions. Instead, Plaintiffs claim these provisions are not applicable to this dispute because the contract contains a “carve out” provision that prevents the Court from ordering arbitration of all of Plaintiff Averwood's claims, particularly its third claim for injunctive relief, because the parties expressly contracted for equitable relief to be pursuable outside of arbitration. Opp'n at 3-4. Plaintiff Averwood contends that if the Court orders arbitration, it must exclude Plaintiff Averwood's third cause of action because of the “carve out” provision. Id. at 4. The Court disagrees.
The Court finds that (1) the parties expressly delegated arbitrability to an arbitrator and incorporated the AAA Rules into their contract; and (2) Plaintiffs have conceded to the validity and enforceability of the contract's arbitration and delegation provisions. The contract's terms and the AAA rules “clearly and unmistakably delegate threshold questions of arbitrability to the arbitrator,” which implicates all of Plaintiff Averwood's claims as they relate to the termination of the contract. Schein, 139 S.Ct. at 530. Plaintiff Averwood has failed to meet its burden of showing that the delegation is not clear and unmistakable or that the contract itself is not valid. Wainwright, No. 2:19-CV-02330-JAM-DB at *1. Thus, the Court directs the parties to proceed to arbitration so an arbitrator can determine the arbitrability of Plaintiff Averwood's three claims. Accordingly, the Court dismisses these claims without prejudice.
III. SANCTIONS
This Court issued its Order re Filing Requirements (“Filing Order”) on November 9, 2022. ECF No. 2-2. The Filing Order limits reply memoranda to five pages. Filing Order at 1. The Filing Order also states that an attorney who exceeds the page limit must pay monetary sanctions of $50 per page. Id. Defendants exceeded the Court's five-page limit on reply memoranda by six pages. See Reply. The Court therefore ORDERS Defendants' counsel to pay $300.00 to the Clerk for the Eastern District of California no later than seven days from the date of this Order.
IV. ORDER
For the reasons set forth above, the Court GRANTS Defendants' motion. The Court ORDERS the parties to proceed to arbitration, pursuant to the terms of the parties' contract. The parties are directed to file a joint status report with the Court within ten days of the conclusion of arbitration. Plaintiff Averwood's claims are DISMISSED WITHOUT PREJUDICE
IT IS SO ORDERED.