Pge v. Lmic ( 2017 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PORTLAND GENERAL ELECTRIC No. 16-35628
COMPANY,
Plaintiff-Appellee, D.C. No.
3:16-cv-00495-HZ
v.
OPINION
LIBERTY MUTUAL INSURANCE
COMPANY; ZURICH AMERICAN
INSURANCE COMPANY,
Defendants-Appellants.
Appeal from the United States District Court
for the District of Oregon
Marco A. Hernandez, District Judge, Presiding
Argued and Submitted May 8, 2017
Portland, Oregon
Filed July 10, 2017
Before: Jay S. Bybee and Andrew D. Hurwitz, Circuit
Judges, and Jed S. Rakoff,* Senior District Judge.
Opinion by Judge Rakoff
*
The Honorable Jed S. Rakoff, Senior United States District Judge
for the Southern District of New York, sitting by designation.
2 PGE V. LMIC
SUMMARY**
Arbitration
The panel vacated the district court’s judgment entering
a preliminary injunction prohibiting sureties from pursuing
claims against Portland General Electric Company (“PGE”)
in arbitration and denying a mandatory stay of the judicial
proceedings under § 3 of the Federal Arbitration Act, and
remanded for further proceedings; and dismissed for lack of
appellate jurisdiction the sureties’ appeal from the order
denying their motion for a discretionary stay.
The appeal involves the interplay of three related
contracts: a Construction Contract entered by PGE and
several contracting companies to build an Oregon power
plant; a performance Bond in which appellants/sureties
Liberty Mutual Insurance Company and Zurich American
Insurance Company issued a bond to PGE as required by the
Construction Contract; and a Guaranty of performance issued
to PGE by its parent company, Abengoa S.A. The Guaranty
provided that the parties submit any disputes to binding
arbitration to be conducted by the International Chamber of
Commerce (“ICC”) under its procedural rules and Oregon
substantive law.
PGE filed this diversity action against the sureties,
alleging breach of the Bond and bad faith; and PGE sought a
preliminary injunction prohibiting the sureties from
arbitrating their claims against PGE.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
PGE V. LMIC 3
The panel held that the incorporation of the ICC Rules
into an arbitration agreement constituted clear and
unmistakable evidence of a delegation of gateway issues of
arbitrability to the arbitrator.
The panel rejected PGE’s contention that the ICC Rules
did not govern the present dispute because the Bond lacked
an arbitration clause. The panel held that the following were
questions of the scope of the arbitration agreement in the
Guaranty, and delegated to the arbitrators: whether Abengoa
properly joined the sureties to the arbitration pursuant to the
Guaranty and the ICC Rules; whether the sureties’ claim
against PGE met the Guaranty’s test of “aris[ing] out of or in
connection with an agreement with a subcontractor or [the]
Guaranty,” and whether PGE had therefore agreed to arbitrate
its disputes against the sureties. The panel concluded that the
district court erred in enjoining the sureties from participating
in the ICC arbitration, and preventing the arbitral tribunal
from addressing the scope of the arbitration.
COUNSEL
Eric D. Miller (argued), Perkins Coie LLP, Seattle,
Washington; David Bledsoe, Perkins Coie LLP, Portland,
Oregon; for Plaintiff-Appellee.
John Spencer Stewart (argued), Mario R. Nicholas, Thomas
Ardell Larkin, and Jan D. Sokol, Stewart Sokol & Larkin
LLC, Portland, Oregon, for Defendant-Appellants.
Nathan D. O’Malley (argued) and Sara H. Kornblatt, Gibbs
Giden Locher Turner Senet & Wittbrodt LLP, Los Angeles,
California, for Amicus Curiae Abengoa.
4 PGE V. LMIC
OPINION
RAKOFF, Senior District Judge:
If two parties enter a contract that both requires
arbitration of their disputes and allows impleader of a third
party, must a party that did not initiate the impleader arbitrate
a dispute that arises out of the same transaction at issue in the
arbitration with the impleaded third party? We hold, on the
facts of this case, that this question is really a question about
the scope of the arbitration clause for the arbitrator to decide.
Since, instead, the district court undertook to decide that
question, we vacate and remand.
BACKGROUND
This appeal concerns the interplay of three related
contracts. In the first (the “Construction Contract”), entered
into in June 2013, appellee Portland General Electric
Company (“PGE”) hired several related contracting
companies (collectively, the “Contractor”) to build an Oregon
power plant. The Construction Contract allows PGE to
terminate the agreement upon the Contractor’s default. A
“Disputes” provision requires the parties to attempt to
mediate any disputes, but if mediation fails, “each Party shall
have the right to take whatever legal actions that they may
choose.” A “Choice of Law; Jurisdiction” provision states
that the agreement is governed by Oregon substantive law
and that the parties “consent to the exclusive jurisdiction of
any U.S. federal court with jurisdiction over Oregon.” The
PGE V. LMIC 5
contract passingly mentions arbitration twice, but does not
require it.1
The Construction Contract requires the Contractor to
obtain a performance bond. Appellants Liberty Mutual
Insurance Company and Zurich American Insurance
Company (collectively, the “Sureties”) issued the required
bond (the “Bond”) to PGE. The Bond incorporates the
Construction Contract by reference and states that “[a]ny
proceeding, legal or equitable, under this Bond may be
instituted in any court of competent jurisdiction in the
location in which the work or part of the work is located, and
in any court(s) to which the Parties to the Construction
Contract have agreed will have jurisdiction over disputes
thereunder.” The Bond is silent as to arbitration.
The Construction Contract also requires the Contractor to
obtain a guaranty of performance from a parent company,
Abengoa S.A. (“Abengoa”). Abengoa issued a guaranty to
PGE (the “Guaranty”), in which both parties consented to
submit any disputes “in connection with this Guaranty” to
binding arbitration. Of particular relevance here, the
Guaranty specifies that the arbitration is to be conducted by
the International Chamber of Commerce (“ICC”) under its
procedural rules and Oregon substantive law, and that “[o]nce
the arbitration proceeding is commenced hereunder, either
1
A “Responsibilities of Contractor” provision gives PGE the right to
audit the Contractor; PGE must “treat such audit data as confidential, but
shall not be precluded from using such audit data in any legal proceedings
(including without limitation mediation or arbitration) arising under this
Agreement.” A “Costs and Attorney Fees” provision states: “In any
litigation arising out of this Agreement, including arbitration and any case
or proceeding under the Bankruptcy Code or any successor statute, the
prevailing Party shall be entitled to recover [reasonable expenses].”
6 PGE V. LMIC
Party may implead any other person or entity (with such
person or entity’s consent) in, and/or raise any claim against,
any other person or entity provided such claim arises out of
or in connection with an agreement with a Subcontractor or
this Guaranty.”
On December 18, 2015, PGE declared the Contractor in
default and terminated the Construction Contract. Abengoa
filed a Request for Arbitration with the ICC on December 31,
2015, naming PGE as “respondent” and the Contractor as an
“impleaded” party. Abengoa contended that the Contractor
had not defaulted, that PGE’s termination of the Construction
Contract was wrongful, and that Abengoa owed PGE nothing
under the Guaranty. The Contractor sought similar relief.
On March 2, 2016, Abengoa filed a Request for Joinder
in the arbitration, seeking to include the Sureties, who, under
the Bond, would be liable to PGE if the Contractor had
defaulted. Abengoa invoked both the impleader provision in
the Guaranty and Article 7 of the ICC Rules.2 Abengoa also
sought a declaration that the Sureties owed PGE nothing
under the Bond. The Sureties consented to the arbitration and
2
Article 7, titled “Joinder of Additional Parties,” states in relevant
part:
A party wishing to join an additional party to the
arbitration shall submit its request for arbitration
against the additional party (the “Request for Joinder”)
to the Secretariat. . . . Any such joinder shall be subject
to the provisions of Articles 6(3)–6(7) [governing the
interpretation of arbitration agreements] and 9
[governing claims arising out of more than one
contract].
ICC Rules, Article 7(1).
PGE V. LMIC 7
sought similar relief. On March 9, 2016, the Sureties sent
PGE a letter denying liability under the Bond.
Two weeks later, on March 23, 2016, PGE filed this
diversity action in the District of Oregon against the Sureties,
alleging breach of the Bond and bad faith. PGE sought a
preliminary injunction prohibiting the Sureties from
arbitrating their claims against PGE, claiming that Abengoa
had improperly impleaded the Sureties. PGE also filed a
Jurisdictional Objection before the ICC, arguing that “the
entire arbitration is an improper and collusive effort
orchestrated by Abengoa and its subsidiaries to drag into
international arbitration claims that [PGE, the Sureties, and
the Contractor] have agreed to litigate before the Oregon
courts.”
In the district court, the Sureties opposed the motion to
enjoin arbitration, arguing, inter alia, that “[b]y virtue of
PGE’s selection of the ICC Rules, it has expressly agreed that
the arbitrator shall decide questions of arbitrability,” and that
it is up to the ICC tribunal to decide whether Abengoa validly
joined the Sureties and for what purposes. The Sureties then
moved to stay the litigation pending the resolution of the ICC
arbitration, invoking both the mandatory stay provision of the
Federal Arbitration Act (“FAA”), 9 U.S.C. § 3, and the
court’s inherent authority to manage its docket.
The district court refused to stay the litigation and granted
the preliminary injunction, finding that “the parties never
agreed to arbitrate this dispute.” The Sureties timely
appealed. This Court granted a stay of the district court
proceedings pending appeal.
8 PGE V. LMIC
DISCUSSION
PGE does not dispute the validity of the arbitration clause
in the Guaranty, but rather only its scope—PGE claims that
the impleader provision and its acceptance of the ICC
procedural rules do not extend to the resolution of its dispute
with the impleaded Sureties. We review de novo the district
court’s conclusion that it, rather than an arbitrator, should
decide arbitrability. Momot v. Mastro, 652 F.3d 982, 986
(9th Cir. 2011).
Generally, “the [FAA] establishes that, as a matter of
federal law, any doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration.” Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24–25 (1983). Certain issues, however, are presumptively
reserved for the court. Howsam v. Dean Witter Reynolds,
Inc., 537 U.S. 79, 83 (2002). These include “gateway”
questions of arbitrability, such as “whether the parties have a
valid arbitration agreement or are bound by a given
arbitration clause, and whether an arbitration clause in a
concededly binding contract applies to a given controversy.”
Momot, 652 F.3d at 987.
However, parties may delegate the adjudication of
gateway issues to the arbitrator if they “clearly and
unmistakably” agree to do so. Howsam, 537 U.S. at 83–84
(citation omitted). We have found such delegation when the
parties have incorporated by reference the rules of the
American Arbitration Association (“AAA”), which state in
relevant part that the “arbitrator shall have the power to rule
on his or her own jurisdiction, including any objections with
respect to the . . . validity of the arbitration agreement.”
Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015)
PGE V. LMIC 9
(alteration in original). Although we have not opined on
whether the incorporation of the rules of the ICC into an
arbitration agreement also constitutes clear and unmistakable
evidence of a delegation of gateway issues to the arbitrator,
two of our sister circuits have held that the answer is yes. See
Shaw Grp. Inc. v. Triplefine Int’l Corp., 322 F.3d 115, 118
(2d Cir. 2003); Apollo Comput., Inc. v. Berg, 886 F.2d 469,
473–74 (1st Cir. 1989).
Because of the similarity between the ICC Rules and
those of the AAA, we now join those circuits. In relevant
part, the ICC Rules provide:
[I]f any party raises one or more pleas
concerning the existence, validity or scope of
the arbitration agreement or concerning
whether all of the claims made in the
arbitration may be determined together in a
single arbitration, the arbitration shall proceed
and any question of jurisdiction or of whether
the claims may be determined together in that
arbitration shall be decided directly by the
arbitral tribunal . . . .
ICC Rules, Article 6(3). This language makes clear that the
arbitrators are vested with the authority to determine
questions of arbitrability.
PGE nonetheless contends that the ICC Rules do not
govern the present dispute because the Bond lacks an
arbitration clause. Because PGE and the Sureties never
expressly agreed between themselves to delegate issues of
arbitrability to the tribunal, PGE argues, a court must decide
10 PGE V. LMIC
whether its dispute with the Sureties is subject to ICC
arbitration.
We disagree. Whether Abengoa properly joined the
Sureties to the arbitration pursuant to the Guaranty and the
ICC Rules, whether the Sureties’ claim against PGE meets
the Guaranty’s test of “aris[ing] out of or in connection with
an agreement with a Subcontractor or [the] Guaranty,”3 and
3
A few circuits have held, or adopted variants of the rule, that “this
delegation applies only to claims that are at least arguably covered by the
agreement [to arbitrate].” Turi v. Main St. Adoption Servs., LLP, 633 F.3d
496, 507, 511 (6th Cir. 2011); see Douglas v. Regions Bank, 757 F.3d 460,
464 (5th Cir. 2014); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371
(Fed. Cir. 2006). But this approach is not universally followed. See
Belnap v. Iasis Healthcare, 844 F.3d 1272, 1292 (10th Cir. 2017); see also
id. at 1290 (determining that “a majority of our sister circuits” reject any
variant of the “arguably covered” approach). Moreover, one of our own
opinions can be read to have rejected it, although it might have been in
dicta by which we would not be bound. See Oracle Am., Inc. v. Myriad
Grp. A.G., 724 F.3d 1069, 1076 (9th Cir. 2013).
We need not take a side in this circuit split, or determine if we already
have, because the Sureties’ claim against PGE is, at least, “arguably
covered” by the Construction Contract’s arbitrability clause. See Agere
Sys., Inc. v. Samsung Elecs. Co., 560 F.3d 337, 340 (5th Cir. 2009)
(declining to take a side for the same reason). The liability of both the
Sureties and Abengoa to PGE turns on the same issue: whether the
Contractor defaulted under the Construction Contract. In addition, the
Sureties and Abengoa have signed an indemnification agreement between
themselves. Cf. Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1046
(9th Cir. 2009) (noting that nonsignatory to arbitration agreement may
compel signatory to arbitrate if the dispute is “intertwined with the
contract providing for arbitration” and there is a sufficiently close
“relationship among the parties” (quoting Sokol Holdings, Inc. v. BMB
Munai, Inc., 542 F.3d 354, 359–61 (2d Cir. 2008))). It is at least arguable
that the Sureties’ claim against PGE “arises out of or in connection with
an agreement with a Subcontractor or [the] Guaranty,” and regardless of
PGE V. LMIC 11
whether PGE has therefore agreed to arbitrate its dispute
against the Sureties, are questions of the scope of the
arbitration agreement in the Guaranty, delegated to the
arbitrators.
The district court thus erred in enjoining the Sureties from
participating in the ICC arbitration and denying at least a
temporary stay of the litigation under the FAA, preventing the
arbitral tribunal from addressing the scope of the arbitration.
If the tribunal concludes that the arbitration agreement in the
Guaranty extends to PGE’s dispute with the Sureties, the
litigation should be stayed under the FAA pending the
outcome of the arbitration or dismissed. On the other hand,
if the tribunal concludes that PGE is not required under the
Guaranty to arbitrate its dispute with the Sureties, the district
court can then consider whether the litigation should proceed
or whether a discretionary stay is appropriate pending the
outcome of the arbitration. See Moses H. Cone, 460 U.S. at20 n.23.
CONCLUSION
For the foregoing reasons, the judgment of the district
court entering a preliminary injunction prohibiting the
Sureties from pursuing claims against PGE in arbitration and
denying a mandatory stay of the judicial proceedings under
§ 3 of the FAA is VACATED and the matter is
REMANDED for further proceedings consistent with this
opinion. The Sureties’ appeal from the order denying their
motion for a discretionary stay is DISMISSED for lack of
which side of the circuit split the Ninth Circuit falls, it is therefore up to
the ICC to decide whether the Sureties’ claim falls within the scope of the
arbitration clause in the first instance.
12 PGE V. LMIC
appellate jurisdiction. See Reid v. Doe Run Res. Corp.,
701 F.3d 840, 844–45 (8th Cir. 2012); Invista S.A.R.L. v.
Rhodia, S.A., 625 F.3d 75, 87–88 (3d Cir. 2010). Each party
shall bear its own costs on appeal.