Opinion
34436/2015
10-25-2016
State Farm Fire and Casualty Company A/S/O MICHAEL C. BERRY AND SARAH URIARTE BERRY, Plaintiff, v. Watts Water Technologies, Inc. AND WATTS REGULATOR CO., Defendant
The following papers numbered 1- 26 were considered in connection with defendants, Watts Water Technologies, Inc. and Watts Regulator Co.'s (hereafter Watts ), motion for an Order dismissing plaintiff's Complaint, or in the alternative to stay proceedings and compel arbitration: PAPERS NUMBERED Notice of Motion/Affirmation of John F. Rooney, Esq./ Affidavit of 1 - 12 Kimberly A, Riordan/Exhibits A-I Affirmation of Dennis D. Murphy, Esq. in Opposition/Affidavit of Tim 13 - 19 McKernan/Exhibits A-E Reply Affirmation of John F. Rooney, Esq./Exhibits 20 - 26 Background
Defendant asserts that Watts Water Technologies Inc. is a holding company and did not design, manufacture or market the product at issue in this motion, while Watts Regulator Co. is the operating arm and wholly owned subsidiary of Watts Water Technologies, Inc.
This is a subrogation action commenced on October 6, 2015 by State Farm to recover the $9418.83 it allegedly paid its insured, the Berrys, for property and other related damages allegedly sustained at the Berry's residence on October 9, 2012. Plaintiff alleges that the Berry's home and personal property were damaged by water when a pressure regulator valve failed due to a defect in the fitting allegedly manufactured by Watts.
State Farm and Watts are members of Arbitration Forums, Inc. (hereafter "AFI") and signatories to a Property Subrogation Arbitration Agreement (hereafter "AFI Arbitration Agreement"). Watts has been a member of the AFI Property Subrogation Forum since April 26, 2005 and State Farm has been a member since 1971. Article First of the AFI Arbitration Agreement signed by Watts in 2005 states "[s]ignatory companies must forego litigation and submit any personal, commercial, or self-insured property subrogation claims to Arbitration Forums, Inc. (hereinafter referred to as AF)" Exhibit B to moving papers. Article Fifth of the AFI Arbitration Agreement entitled AF's Function and Authority signed by Watts in 2005 states, inter alia, that "AF, representing the signatory companies, is authorized to: (a) make appropriate Rules and Regulations for the presentation and determination of controversies under this Agreement." Id. According to the AFI's Rules effective October 1, 2012, compulsory arbitration is applicable to property subrogation claims seeking recovery up to $100,000. Exhibit D to moving papers.
This same language is in Article First of the AFI Arbitration Agreement that was amended and effective as of January 1, 2015. Article First of the AFI Arbitration Agreement signed by State Farm in 2003 also mandates arbitration of these types of claims.
This same language is in Article Fifth of the AFI Arbitration Agreement that was amended and effective as of January 1, 2015. This same language is also found in Article Third of the AFI Arbitration Agreement signed by State Farm in 2003.
On November 4, 2014, AFI advised its members via an E-Bulletin that the AFI Arbitration Agreement would be amended effective January 1, 2015, as follows: "While the use of the Property Program to resolve disputes involving product liability claims arising from an alleged defective product will no longer be compulsory as of January 1, 2015, cases filed prior to January 1, 2015 will remain in arbitration's jurisdiction and will be processed to hearing. Parties may still consent to use the Property Program to resolve product liability claims on a per-case basis on and after January 1, 2015." Exhibit H to moving papers. The AFI Arbitration Agreement was amended by AFI, effective January 1, 2015 to incorporate a new provision stating "[n]o company shall be required, without its written consent, to arbitrate any claim or suit if:..(i) it is a product liability claim arising from an alleged defective product." Exhibit G to moving papers.
Watts' Arguments
The gravamen of Watts' argument is that State Farm's filing of this action on October 6, 2015 was improper inasmuch as on October 9, 2012 when State Farm's claim accrued, both Watts and State Farm were members of AFI and signatories to the AFI Arbitration Agreement that mandated arbitration of all product liability claims arising from an alleged defective product with claimed damages of less than $100,000. It is Watts' position that the January 1, 2015 amendment excluding product liability claims from mandatory arbitration does not apply to those claims that accrued prior to that date.
Watts asserts that commencing on or about January 1, 2015 State Farm began breaching the AFI Arbitration Agreement by circumventing AFI and directly filing suits in various courts across the country, where the claims at issue had occurred at a time when both Watts and State Farm were signatories to the AFI Arbitration Agreement. Watts claims that State Farm has actually conceded Watts' position that such claims belong in arbitration and notes that there are many proceedings where State Farm agreed to voluntarily dismiss its claims and submit the matters to binding arbitration in response to Watts' motions to compel arbitration. Further, Watts claims that State Farm has not contested the decisions rendered by those Courts which have concurred with Watts' position that the original Arbitration Agreement controls any and all claims that arose and accrued prior to the January 1, 2015 amendment. Watts also points to an Order Compelling Arbitration of Plaintiff's Claims dated November 15, 2015, emanating from the General Sessions Court of Shelby County Tennessee, pursuant to which State Farm and Watts consented to the Court holding that the mandatory Arbitration Agreement between State Farm and Watts in effect at the time that claim arose and accrued (the date of loss in that case, January 20, 2013) governs the claim. Exhibit I to moving papers.
Defendant Watts asserts that the language of the AFI Arbitration Agreement is clear and that Article First defines the intent of the parties when they became signatories. Defendant notes that pursuant to Article First any claim for property damage was subject to compulsory arbitration. Defendant notes that the definition of a "claim" as defined in the Merriam-Webster dictions is "a demand for something due or believed to be due." See, www.merriam-webster.com/dictionary/claim. Defendant submits that under the Berry's insurance policy, State Farm was obligated to pay for their property loss that occurred on October 9, 2012, and that upon incurring this obligation State Farm had the right to demand from Watts, the party allegedly at fault, payment for monies State Farm was obligated to pay. Defendant concludes that State Farm had a claim that accrued on October 9, 2012 ( prior to the amendment of the Arbitration Agreement), therefore making that claim subject to compulsory arbitration.
Additionally, Watts cites to cases such as Litton Financial Printing Division, A Division of Litton Business Systems, Inc. v. National Labor Relations Board, 501 U.S. 190 (1991) and Primex International Corp. v. Wal-Mart Stores, Inc., 89 NY2d 594 (1997) for the proposition that "[r]ights which have accrued or vested under [an] agreement will, as a general rule, survive termination of the agreement." Litton Financial Printing Division, A Division of Litton Business Systems, Inc. , 501 U.S. at 207. Watts claims the incident giving rise to the Berry's claim occurred on October 9, 2012, when both State Farm and Watts were parties to the mandatory AFI Arbitration Agreement, and there is no indication that the parties intended to forfeit rights that had already accrued and vested under the AFI Arbitration Agreement. Therefore, Watts asserts that the January 1, 2015 amendment of the Agreement cannot be retroactively applied to the rights and obligations of Watts and State Farm that arose prior to the amendment.
Watts also argues that to interpret the amended 2015 Arbitration Agreement as effecting a retroactive termination of vested rights to arbitrate under the prior agreement would render it illusory because only State Farm would benefit from such an interpretation, inasmuch as only State Farm is permitted to submit these product liability claims to arbitration; Watts cannot submit these claims to arbitration because they do not have standing inasmuch as they are not the party who has incurred damages.
Watts also contends that the language set forth in the November 4, 2014 E-Bulletin, stating that "...cases filed prior to January 1, 2015 will remain in arbitration's jurisdiction and will be processed to hearing..." supports Watts' position that the Amended Agreement would only impact claims arising after January 1, 2015. State Farm's Opposition
State Farm opposes Watts' motion to compel arbitration or dismiss the complaint, claiming that the amended Arbitration Agreement, excludes on its face, any products liability claim filed after the effective date of the amendment (January 1, 2015) from compulsory arbitration. It is State Farm's position that after January 1, 2015 the filing of product liability cases in arbitration is now voluntary, and requires consent of both parties. Plaintiff State Farm notes that nowhere in the AFI Arbitration Agreement is there a reference that the date of loss on which a cause of action arises is the relevant factor in determining whether the new exclusion applies.
State Farm contends that the November 4, 2014 E-Bulletin that Watts claims supports its position, actually supports State Farm's position, noting that the bulletin mentions nothing about a date of loss requirement. State Farm also asserts that the Arbitration Forums' Reference Guide to Arbitration Forums' Agreements and Rules, Effective 1/1/2015 ("2015 Reference Guide") further supports its position that the date of loss is not relevant to the application of the amended Agreement. Chapter 3 of the 2015 Reference Guide titled Article First Compulsory Provisions discusses the issue regarding whether the accident date determines jurisdiction of Article First. Chapter 3 states "[t]he date of the loss is not controlling. What controls is the status of the claim on the signatory effective date. If it is a pending claim that meets the provisions of Article First, it is subject to compulsory arbitration, regardless of the accident date. The key word is pending. Pending is synonymous from the viewpoint of arbitration with active claims." Exhibit C to Opposition. The 2015 Reference Guide goes on to further explain that closed claims, abandoned claims, as well as claims on which litigation has been instituted are not considered pending, and are not subject to compulsory arbitration. Id.
In support of its opposition to the motion State Farm also submits the affidavit of Tom McKernan, the Manager of Quality, Training & Arbitration Rules at AFI. Mr. McKernan claims that the November 4, 2014 E-Bulletin that states "...cases filed prior to January 1, 2015 will remain in arbitration's jurisdiction and will be processed to hearing..." is referring to arbitration disputes filed with AFI. He claims that any products liability dispute that was not filed with AFI prior to January 1, 2015 is not subject to compulsory arbitration.
State Farm also cites to two decisions, one involving plaintiff and defendant herein, that support its interpretation of the effect of the January 1, 2015 amendment to the agreement. These Courts found the filing date, not the date of loss is determinative of whether compulsory arbitration applies to a claim. Gregg Hand v. Watts Water Technologies, Inc, Civil Action File No. 15-SV-006 (Georgia State Court 2015); State Farm Fire and Casualty Company v. Watts Regulator Company, 2016 IL App (2d) 160275-U, Docket No. 2-16-0275 (App. Ct. of Ill., 2nd Dist. 2016).
The Court notes that this Order (dated August 1, 2016) was withdrawn and replaced with an Opinion dated September 29, 2016 [State Farm Fire and Casualty Company v. Watts Regulator Company, 2016 IL App (2d) 160275 (App. Ct. of Ill., 2nd Dist. 2016)] wherein the Illinois Appellate Court made the same findings as it did in the original Order. --------
With regard to those claims in other jurisdictions that State Farm has voluntarily agreed to discontinue and to submit to arbitration in response to Watts' motions to compel arbitration, plaintiff asserts that its consent to submit those claims to arbitration does not automatically mean that plaintiff consents to arbitrate this particular dispute, as the decision whether or not to arbitrate is on a case by case basis, requiring consent of both parties. Watts' Reply
In reply Watts claims that the Court should not give any preclusive effect to the two decisions relied upon by State Farm since they are not final, as Watts has filed motions for reconsideration or notices of appeal in both cases.
Watts also states that Courts have rendered final opinions confirming Watts' position that the original Agreement governs any and all claims which arose and accrued prior to the January 1, 2015 amendment, and that State Farm did not appeal these decisions. Therefore, Watts claims that State Farm is collaterally estopped from contesting the instant motion.
Watts asserts that plaintiff's reliance on the 2015 Reference Guide is improper as it is extrinsic evidence and should not be considered when interpreting the Arbitration Agreement. Moreover, Watts asserts that State Farm has misconstrued the meaning of the 2015 Reference Guide. Watts propounds that while the 2015 Reference Guide states that date of loss is not controlling, it also states that pending claims means active claims, and that the Berry claim became a pending claim on October 9, 2012, the date the loss occurred, and was therefore pending prior to January 1, 2015, the date of the amendment. Watts further claims that if the Court should consider an AFI Reference Guide, it should consider the Reference Guide effective on October 9, 2012, the date of the loss, not the 2015 Reference Guide. Chapter 3 of the 2012 Reference Guide titled Article First Compulsory Provisions discusses the issue of the applicability of the Agreement to pending claims, or when arbitration becomes compulsory. Exhibit L to Reply papers. Chapter 3 states "..it is the status of the claim at the time the member becomes a signatory. If a member becomes signatory to an Agreement today, any claim falling under the Agreement that is currently in litigation may remain in litigation...; any claim that has not been filed in litigation must be filed in arbitration." Id.
Watts also contends that AFI is not a party to the Agreement; the Agreement is between signatories, State Farm and Watts, who agreed when signing to arbitrate all claims that accrued under the Agreement. Decision
Under New York law, the Courts recognize and enforce a commitment by the parties to arbitrate when they "clearly and unmistakably [so] provide." Smith Barney Shearson Inc. v. Sacharow, 91 NY2d 39, 46 (1997). "In construing a contract, the document must be read as a whole to determine the parties' purpose and intent, giving a practical interpretation to the language employed so that the parties' reasonable expectations are realized." Snug Harbor Square Venture v. Never Home Laundry, Inc., 252 AD2d 520, 521 (2nd Dept. 1998). "When the terms of a contract are clear and unambiguous, the intent of the parties must be found within the four corners of the contract, giving practical interpretation to the language employed and the parties' reasonable expectations (citations omitted)." Franklin Apartment Associates, Inc. v. Westbrook Tenants Corp., 43 AD3d 860, 861 (2nd Dept. 2007). "Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms (citations omitted). " Greenfield v. Philles Records, Inc., 98 NY2d 562, 569 (2002). Any ambiguities in an agreement can be resolved by consulting extrinsic evidence. Chen v. Yan, 109 AD3d 727 (1st Dept. 2013).
Based on the foregoing the Court finds that the amended AFI Arbitration Agreement excludes on its face, any products liability claim filed after the effective date of the amendment (January 1, 2015) from compulsory arbitration. Therefore, the instant action that was filed on October 6, 2015 is excluded from compulsory arbitration.
The Court finds that there is no basis for Watts' arguments that the January 1, 2015 amendment excluding product liability claims from mandatory arbitration is inapplicable to those claims that accrued prior to that date, and that it is the date of loss, that is determinative of whether compulsory arbitration applies to a claim. Equally unavailing is Watts' argument that the January 1, 2015 amendment to the AFI Agreement cannot be retroactively applied to the rights and obligations of Watts and State Farm that arose prior to the amendment. At issue here, is the interpretation of an amendment made by AFI to AFI's Property Subrogration Arbitration Agreement (the AFI Arbitration Agreement). Both plaintiff and defendant are members of AFI and both were signatories to AFI's Arbitration Agreement prior to AFI's amendment of the AFI Arbitration Agreement. The AFI Arbitration Agreement was amended by AFI, effective January 1, 2015 to incorporate a new provision stating "[n]o company shall be required, without its written consent, to arbitrate any claim or suit if:..(i) it is a product liability claim arising from an alleged defective product." The members of AFI were advised by an E-Bulletin from AFI on November 4, 2014 that the AFI Arbitration Agreement would be amended effective January 1, 2015. This bulletin specifically set forth that "While the use of the Property Program to resolve disputes involving product liability claims arising from an alleged defective product will no longer be compulsory as of January 1, 2015, cases filed prior to January 1, 2015 will remain in arbitration's jurisdiction and will be processed to hearing. Parties may still consent to use the Property Program to resolve product liability claims on a per-case basis on and after January 1, 2015."Based on the foregoing, the Court finds that the amendment is not ambiguous. However, even if found to be ambiguous, any ambiguity would be resolved by looking to the 2014 E-Bulletin issued by AFI for the purpose of advising its members of the amendment that would become effective January 1, 2015. It is clear that the filing date, not the date of occurrence, controls whether a product liability claim is subject to compulsory arbitration with AFI. As stated, cases filed prior to January 1, 2015 will remain subject to compulsory arbitration, but as of January 1, 2015 arbitration of these cases is no longer compulsory. Clearly, those claims filed on or after January 1, 2015 are excluded from compulsory arbitration. Nowhere in the AFI Arbitration Agreement is there a reference that the date upon which a cause of action arises is the relevant factor in determining whether the new exclusion applies. As noted by Justice Jorgensen in State Farm Fire and Casualty Company v. Watts Regulator Company, 2016 IL App(2d) 160275 (dated September 29, 2016), "[h]ad Arbitration Forums intended that the date a claim arose would determine when arbitration is compulsory, the agreement would explicitly say so. It does not." Id.
Significantly, Watts as a signatory to the AFI Agreement agreed to be bound by AFI's rules, and AFI has promulgated the amendment at issue. Article Fifth of the AFI Arbitration Agreement entitled AF's Function and Authority states clearly and unambiguously, inter alia, that "AF, representing the signatory companies, is authorized to: (a) make appropriate Rules and Regulations for the presentation and determination of controversies under this Agreement." It is also important to note that it was AFI, not State Farm, that amended the Arbitration Agreement.
Additionally, Watts' reliance on Litton Financial Printing Division, A Division of Litton Business Systems, Inc. v. National Labor Relations Board, 501 U.S. 190 (1991) and Primex International Corp. v. Wal-Mart Stores, Inc., 89 NY2d 594 (1997) is misplaced. As set forth by the Appellate Court of Illinois in State Farm Fire and Casualty Company v. Watts Regulator Company, 2016 IL App(2d) 160275 "...the cases upon which Watts relies [are] distinguishable because they involve contracts that contain arbitration clauses. Here, in contrast, the issue is the interpretation of an amendment to an existing arbitration agreement." Id.
While not determinative, the Court also notes that neither the 2015 Reference Guide (effective the same date the amendment at issue became effective), nor the 2012 Reference Guide, (in effect at the time the loss in this matter occurred), in speaking to the issue of which claims are subject to mandatory arbitration at the time a member becomes a signatory, state that the date of loss is determinative as to whether a claims is subject to compulsory arbitration. In fact, the 2015 Reference Guide clearly states that "the date of loss is not controlling."
Accordingly, defendants' motion is denied in its entirety.
A Compliance Conference is scheduled on November 17, 2016 at 9:15 a.m.
To the extent any relief requested in Motion Sequence 1 was not addressed by the Court it is hereby denied.
This decision shall constitute the order of the Court. ENTER Dated: White Plains, NY
HON. LINDA CHRISTOPHER, J.S.C. October 25, 2016 John F. Rooney, Esq. Melick & Porter, LLP 76 Center Street Waterbury, CT 06702 Dennis D. Murphy The Stuttman Law Group, P.C. 44 South Broadway, Suite 402 White Plains, NY 10601