Mundi v. Union Security Life ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JASVIRO MUNDI, as successor in 
interest to Harnam Singh Mundi,
No. 07-16171
Plaintiff-Appellee,
v.  D.C. No.
CV 06-1493 OWW
UNION SECURITY LIFE INSURANCE
OPINION
CO.,
Defendant-Appellant.

Appeal from the United States District Court
for the Eastern District of California
Oliver W. Wanger, District Judge, Presiding
Argued and Submitted
December 9, 2008—San Francisco, California
Filed February 11, 2009
Before: A. Wallace Tashima, William A. Fletcher, and
Marsha S. Berzon, Circuit Judges.
Opinion by Judge Tashima
1673
1676 MUNDI v. UNION SECURITY LIFE
COUNSEL
Shane Reich, Fresno, California, for the plaintiff-appellee.
Kevin A. Rogers, Wells Marble & Hurst, Ridgeland, Missis-
sippi, for the defendant-appellant.
OPINION
TASHIMA, Circuit Judge:
Union Security Life Insurance Company (“USLIC”)
appeals a decision of the district court denying its motion to
compel arbitration in its dispute with Jasviro Mundi, the
widow of Decedent Harnam S. Mundi. USLIC issued a life
insurance policy to cover a loan taken out by Decedent. The
life insurance policy did not contain an arbitration agreement;
however, the loan agreement, to which USLIC was not a
party, did contain an arbitration provision. The question,
therefore, is whether USLIC may enforce the arbitration
agreement, even though it is a nonsignatory to the agreement.
We have jurisdiction pursuant to 9 U.S.C. § 16, and we affirm
the district court’s denial of USLIC’s motion to compel arbi-
tration.
I.
In May 2004, Decedent and Gurdip S. Gill obtained a home
equity line of credit from Wells Fargo Bank, memorialized in
a document called the EquityLine Agreement. Section 25 of
the EquityLine Agreement required that “any dispute between
MUNDI v. UNION SECURITY LIFE 1677
me and the Bank, regardless of when it arises or arose, will
be settled using the following procedures.” The arbitration
provision provided as follows:
A dispute is any unresolved disagreement between
the Bank and me that relates in any way to accounts,
loans, services or agreements subject to this Arbitra-
tion provision. It includes any claims or controversy
of any kind, which arise out of or are in any way
related to these accounts, loans, services or agree-
ments. It includes claims based on broken promises
or contracts, tort (injury caused by negligent or
intentional conduct), breach of fiduciary duty or
other wrongful actions. It also includes statutory,
common law and equitable claim [sic]. A dispute
also includes any disagreement about the meaning of
this Arbitration Section and whether a disagreement
is a “dispute” subject to binding arbitration as pro-
vided for in this Arbitration Section. No dispute may
be joined in an arbitration with a dispute of any other
person or arbitrated on a class action basis. Further-
more, I agree that any arbitration I have with the
Bank shall not be considered with any other arbitra-
tion and shall not be arbitrated on behalf of others
without the consent of both me and the Bank.
In conjunction with the line of credit, Decedent purchased
credit insurance in the amount of $50,000 to cover the amount
of the loan. The charges for the insurance were added to the
amount of the loan each month. Wells Fargo was the creditor
beneficiary of the insurance — the insurance certificate pro-
vided that claim payments would be made to the creditor ben-
eficiary “to pay off or reduce your debt.” The certificate
contained two questions in a medical application section, and
it stated that the life insurance would not be paid if death
resulted from a pre-existing condition. The certificate further
provided that the insurance would stop on the date the loan
stopped, or on the date that the borrower was in default.
1678 MUNDI v. UNION SECURITY LIFE
Following Decedent’s death, Mundi filed a claim with
USLIC, asking the insurer to pay the $50,000 amount that was
outstanding on the line of credit. USLIC denied the claim,
stating that Decedent had answered “no” to the medical ques-
tions on the insurance application, even though he did have
treatment for at least one of the pre-existing conditions listed
on the application. USLIC explained that it would not have
issued coverage if it had been aware of Decedent’s complete
medical history and therefore denied coverage. Decedent’s
death was not the result of any of these preexisting conditions.
Mundi filed a complaint in state court, alleging that she had
been damaged by USLIC’s refusal to pay the $50,000 to
Wells Fargo and that USLIC acted in bad faith by unreason-
ably denying the claim. She sought to recover the costs that
she had incurred and sought punitive damages.
USLIC removed the action to federal court and filed a
motion to compel arbitration. The district court reasoned that,
even though the insurance was purchased in order to repay the
loan, Mundi’s claims did not in any other way involve the
terms of the EquityLine Agreement. The court further rea-
soned that the arbitration provision excluded the arbitration of
claims of third parties and that USLIC was not an agent of
Wells Fargo. The court accordingly denied the motion to
compel arbitration. USLIC timely appealed.
II.
The question we must answer is whether USLIC, a non-
signatory to the arbitration agreement contained in the Equity-
Line Agreement, can require Mundi to arbitrate her claims
against USLIC.1 There is no question that the insurance certif-
icate did not contain an arbitration provision. USLIC argues,
however, that Mundi’s claims are subject to the arbitration
1
The denial of a motion to compel arbitration is reviewed de novo. Cox
v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008).
MUNDI v. UNION SECURITY LIFE 1679
agreement because they arise from and relate to the Equity-
Line Agreement, and that equitable estoppel should be
applied to compel arbitration.
[1] In determining whether parties have agreed to arbitrate
a dispute, we apply “general state-law principles of contract
interpretation, while giving due regard to the federal policy in
favor of arbitration by resolving ambiguities as to the scope
of arbitration in favor of arbitration.” Wagner v. Stratton Oak-
mont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996); see also First
Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)
(“When deciding whether the parties agreed to arbitrate a cer-
tain matter . . . , courts generally . . . should apply ordinary
state-law principles that govern the formation of contracts.”).
The presumption in favor of arbitration, however, does not
apply “if contractual language is plain that arbitration of a
particular controversy is not within the scope of the arbitra-
tion provision.” In re Tobacco Cases I, JCCP 4041, 21 Cal.
Rptr. 3d 875, 887 (Ct. App. 2004); see also AT&T Techs., Inc.
v. Commc’ns Workers, 475 U.S. 643, 648 (1986)
(“ ‘[A]rbitration is a matter of contract and a party cannot be
required to submit to arbitration any dispute which he has not
agreed so to submit.’ ” (quoting United Steelworkers v. War-
rior & Gulf Navigation Co., 363 U.S. 574, 582 (1960))); Vic-
toria v. Superior Court, 710 P.2d 833, 834 (Cal. 1985) (en
banc) (stating that “ ‘the policy favoring arbitration cannot
displace the necessity for a voluntary agreement to arbitrate’ ”
(quoting Wheeler v. St. Joseph Hosp., 133 Cal. Rptr. 775, 783
(Ct. App. 1976))); Crowley Mar. Corp. v. Boston Old Colony
Ins. Co., 70 Cal. Rptr. 3d 605, 611 (Ct. App. 2008) (“The
public policy favoring arbitration does not apply to disputes
the parties have not agreed to arbitrate.”). “In addition,
‘[h]owever broad may be the terms of a contract, it extends
only to those things concerning which it appears that the par-
ties intended to contract.’ ” Victoria, 710 P.2d at 834 (quoting
Cal. Civ. Code § 1648) (alterations in original).
[2] The arbitration provision here defines a dispute as a dis-
agreement between Wells Fargo and the borrower that “re-
1680 MUNDI v. UNION SECURITY LIFE
lates in any way to accounts, loans, services or agreements
subject to this Arbitration provision.” Mundi’s dispute with
USLIC is not a disagreement between Wells Fargo and Dece-
dent. Although there may be an attenuated relation between
the EquityLine Agreement and the dispute between USLIC
and Mundi, given that the insurance was taken out by
Mundi’s husband to pay off amounts owed under the Equity-
Line Agreement in the event of his death, this relation is irrel-
evant. The arbitration agreement is premised on a
disagreement between Wells Fargo and the borrower. In the
absence of such a disagreement, the arbitration provision does
not apply. Thus, any disagreement between the borrower and
a third party, such as USLIC, is simply not within the scope
of the arbitration agreement, even if it is related in some atten-
uated way to “accounts, loans, services or agreements” sub-
ject to the arbitration provision. Moreover, there is no
indication in the arbitration provision that the parties intended
to arbitrate or agreed to arbitrate a claim based on the insur-
ance certificate. The face of the contract accordingly indicates
that this dispute “is not within the scope of the arbitration pro-
vision.” In re Tobacco Cases, 21 Cal. Rptr. 3d at 887.
We turn therefore to USLIC’s argument that arbitration
should be compelled on the basis of equitable estoppel. Gen-
eral contract and agency principles apply in determining the
enforcement of an arbitration agreement by or against non-
signatories. Comer v. Micor, Inc., 436 F.3d 1098, 1101 (9th
Cir. 2006). “Among these principles are ‘1) incorporation by
reference; 2) assumption; 3) agency; 4) veil-piercing/alter
ego; and 5) estoppel.’ ” Id. (quoting Thomson-CSF, S.A. v.
Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995)).2
2
A nonsignatory also can seek to enforce an arbitration agreement as a
third party beneficiary. Comer, 436 F.3d at 1101. USLIC, however, does
not rely on third party beneficiary principles. Nor can it, because there is
no evidence in the EquityLine Agreement that the signatories to the agree-
ment intended to benefit third parties. Id. at 1102.
 MUNDI v. UNION SECURITY LIFE 1681
[3] “Equitable estoppel ‘precludes a party from claiming
the benefits of a contract while simultaneously attempting to
avoid the burdens that contract imposes.’ ” Id. (quoting Wash.
Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 267 (5th Cir.
2004)). We have examined two types of equitable estoppel in
the arbitration context. In the first, a nonsignatory may be
held to an arbitration clause “where the nonsignatory ‘know-
ingly exploits the agreement containing the arbitration clause
despite having never signed the agreement.’ ” Id. (quoting E.I.
DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin
Intermediates, 269 F.3d 187, 199 (3d Cir. 2001)). Under the
second, a signatory may be required to arbitrate a claim
brought by a nonsignatory “because of the close relationship
between the entities involved, as well as the relationship of
the alleged wrongs to the non-signatory’s obligations and
duties in the contract and the fact that the claims were inter-
twined with the underlying contractual obligations.” DuPont,
269 F.3d at 201.
[4] Neither line of cases addresses the precise situation we
face. Although DuPont addressed the issue of a nonsignatory
seeking to enforce an arbitration agreement against a signa-
tory, in that case, it was a nonsignatory who brought claims
against the signatory, rather than the signatory bringing
claims against a nonsignatory. Comer itself addressed whether
a signatory to an arbitration agreement could enforce the
agreement against a nonsignatory. And, in light of the general
principle that only those who have agreed to arbitrate are
obliged to do so, we see no basis for extending the concept
of equitable estoppel of third parties in an arbitration context
beyond the very narrow confines delineated in these two lines
of cases.
The Second Circuit addressed a situation similar to ours in
Sokol Holdings, Inc. v. BMB Munai, Inc., 542 F.3d 354 (2d
Cir. 2008), where the defendants, who were nonsignatories to
an arbitration agreement, sought to compel a signatory to arbi-
trate its claims against the defendants on estoppel grounds.
1682 MUNDI v. UNION SECURITY LIFE
The court examined cases in which a nonsignatory was
allowed to compel a signatory to arbitrate based on estoppel
and reasoned that it was “essential in all of these cases that the
subject matter of the dispute was intertwined with the contract
providing for arbitration.” Id. at 361. In addition to the
requirement that the factual issues be intertwined, the court
required “a relationship among the parties of a nature that jus-
tifies a conclusion that the party which agreed to arbitrate
with another entity should be estopped from denying an obli-
gation to arbitrate a similar dispute with the adversary which
is not a party to the arbitration agreement.” Id. at 359. Finding
neither requirement met, the court affirmed the denial of the
motion to stay pending arbitration. Id. at 359-62.
The Fourth Circuit also has addressed the situation of a
nonsignatory seeking to compel a signatory to arbitrate its
claims against the nonsignatory. In American Bankers Insur-
ance Group, Inc. v. Long, 453 F.3d 623 (4th Cir. 2006), the
Longs, signatories to a contract that contained an arbitration
clause and that incorporated by reference a promissory note
purchased by the Longs, sued American Bankers Insurance
Group (“ABIG”), a nonsignatory to the agreement containing
the arbitration clause. The Fourth Circuit reversed the district
court’s denial of ABIG’s motion to compel arbitration, rea-
soning that all of the Longs’ claims depended on the terms of
the note. Id. at 630. Because the note was appended to and
incorporated by reference into the contract that contained the
arbitration agreement, the court held that “it would be inequi-
table to allow the Longs to seek recovery on their individual
claims and at the same time deny that ABIG was a party to
the [contract]’s arbitration clause.” Id. at 630.
By contrast, in Brantley v. Republic Mortgage Insurance
Co., 424 F.3d 392 (4th Cir. 2005), the Fourth Circuit affirmed
the denial of the defendant nonsignatory’s motion to compel
the plaintiffs to arbitrate their claims against the defendant.
The plaintiffs entered into an arbitration agreement with their
mortgage lender, but their mortgage insurance contract, which
MUNDI v. UNION SECURITY LIFE 1683
was a separate transaction from the mortgage, did not contain
an arbitration agreement. The Fourth Circuit held that equita-
ble estoppel did not apply to compel the plaintiffs to arbitrate
their Fair Credit Reporting Act claim against the mortgage
insurance company because the claim did not arise out of or
relate to the contract that contained the arbitration agreement.
Id. at 396. Rather, the plaintiffs’ claim was “wholly separate
from any action or remedy for breach of the underlying mort-
gage contract that is governed by the arbitration agreement.”
Id. The court further reasoned that there were no allegations
of collusion or misconduct by the mortgage lender to require
equitable estoppel, and that the defendant was not a third
party beneficiary of the arbitration agreement because the
contract did not mention the defendant or the mortgage insur-
ance transaction. Id. at 396-97.
[5] Mundi’s claim that USLIC breached the insurance pol-
icy is not “intertwined with the contract providing for arbitra-
tion” — the EquityLine Agreement. Sokol, 542 F.3d at 361;
see also Chastain v. Union Sec. Life Ins. Co., 502 F. Supp. 2d
1072, 1079-81 (C.D. Cal. 2007) (denying the insurer’s motion
to compel arbitration under equitable estoppel, reasoning that
the plaintiff’s claims regarding his insurance policies were not
intertwined with the credit card agreements that the policies
covered). Nor does her claim “ ‘arise[ ] out of’ ” or “ ‘relate[ ]
directly to’ ” the EquityLine Agreement. Brantley, 424 F.3d
at 396 (quoting MS Dealer Serv. Corp. v. Franklin, 177 F.3d
942, 947 (11th Cir. 1999)) (alterations in original). The reso-
lution of her claim does not require the examination of any
provisions of the EquityLine Agreement. The EquityLine
Agreement does not mention the insurance certificate, let
alone incorporate it by reference, as in American Bankers. As
in Brantley, Mundi’s claim is based solely on USLIC’s
actions, and there are no allegations of collusion or of miscon-
duct by Wells Fargo, the signatory to the arbitration agree-
ment. Given these circumstances, USLIC may not compel
Mundi to arbitrate her claims against it. The order of the dis-
trict court denying USLIC’s motion to compel arbitration is
1684 MUNDI v. UNION SECURITY LIFE
AFFIRMED.3
3
Because we affirm the district court’s denial of USLIC’s motion to
compel arbitration, we need not address USLIC’s challenge to the district
court’s finding that USLIC waived its right to seek arbitration.