Indus Ins. Agency, Inc. v. Nationwide Mutual Ins. Co. ( 2023 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 INDUS INSURANCE AGENCY, INC.; No. 2:22-cv-02022-JAM-JDP a California Corporation; and 12 AVERWOOD INSURANCE SERVICES, INC., a California 13 Corporation, ORDER GRANTING DEFENDANTS’ MOTION TO COMPEL ARBITRATION AND 14 Plaintiffs, DISMISS 15 v. 16 NATIONWIDE MUTUAL INSURANCE COMPANY, an Ohio Corporation, 17 ET AL., 18 Defendants. 19 20 Before the Court is Defendants Nationwide Mutual Insurance 21 Company, Nationwide Insurance Company of America, Nationwide 22 Mutual Capital, LLC, and Nationwide Mutual Fire Insurance 23 Company’s (collectively, “Nationwide”) motion to compel 24 arbitration and dismiss Plaintiff Averwood Insurance Services, 25 Inc.’s claims without prejudice. See Mot. to Compel and Dismiss 26 (“Mot.”), ECF No. 20. Defendants contend that the parties’ 27 contract expressly delegates all issues and claims to 28 arbitration, which is binding on the Court. Plaintiffs Averwood 1 Insurance Services, Inc. (“Averwood”) and Indus Insurance Agency, 2 Inc. (“Indus”) oppose the motion. See Opp’n, ECF No. 31. 3 Defendants replied. See Reply, ECF No. 33. 4 For the reasons set forth below, the Court GRANTS 5 Defendants’ motion.1 6 7 I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND 8 On June 2, 2020, Defendants and Plaintiff Averwood entered 9 into a contract whereby Plaintiff Averwood was permitted to seek 10 insurance for its customers from Defendants. Mot. at 2; see 11 Averwood Agency Agreement (“Averwood Contract”), Exhibit C to 12 Declaration of Muhammad Younas Malik, ECF No. 3. Section 17 of 13 the contract contained an express delegation of “any claim or 14 dispute” between the parties to “mandatory binding arbitration 15 under the American Arbitration Association (“AAA”) Commercial 16 Arbitration Rules and Mediation Procedures” in Columbus, Ohio. 17 Id. at 7. The parties expressly gave up their right to “have any 18 claim or dispute between them decided by a court or jury” and 19 agreed to delegate the enforceability of the contract and its 20 arbitration clause to an arbitrator. Id. at 7-8. The contract 21 also contained a provision that allows the parties to pursue a 22 temporary restraining order or injunctive relief from a court 23 before, during, or after an arbitration proceeding, including in 24 aid of arbitration. Id. at 8. As for cancellation of the 25 contract, the contract allowed Plaintiff Averwood to cancel at 26 27 1 This motion was determined to be suitable for decision without oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled 28 for February 14, 2023. 1 any time with written notice to Defendants; Defendants were 2 allowed to cancel with written notice if Plaintiff Averwood 3 (1) violated an applicable law or regulation; (2) had its 4 insurance license revoked by a state regulator; or (3) violated a 5 “material term of or attempted assignment” of the contract. Id. 6 at 6. 7 On August 29, 2022, Defendants notified Plaintiff Averwood 8 that it intended to cancel the contract. Mot. at 3. Several 9 months later, Plaintiff Averwood jointly filed suit with 10 Plaintiff Indus, which had entered into a similar contract with 11 Defendants and had similarly been notified of Defendants’ intent 12 to cancel its contract. See Compl., Exhibit A to Notice of 13 Removal, ECF No. 1. The Complaint asserts three causes of action 14 stemming from the cancellation of Plaintiffs’ contracts: 15 (1) violation of the fair procedure doctrine; (2) violation of 16 the unfair competition law under California Business and 17 Professions Code § 17200; and (3) injunctive relief for violation 18 of the fair procedure doctrine. Compl. ¶¶ 33-46. On November 8, 19 2022 Defendants removed the case to federal court, invoking the 20 Court’s diversity jurisdiction. See Notice of Removal. One week 21 later, Plaintiffs filed for a temporary restraining order, which 22 the Court denied due to undue delay and procedural deficiencies. 23 See Ex Parte Application for Temporary Restraining Order and 24 Order to Show Cause, ECF No. 3, Order, ECF No. 11. Several weeks 25 later, Plaintiffs filed a motion to remand, arguing that 26 Defendants had failed to establish the amount in controversy for 27 diversity jurisdiction. See Mot. to Remand, ECF No. 15. 28 Defendants opposed the motion. See Opp’n, ECF No. 24. 1 On December 12, 2022, Defendants filed the operative motion 2 to compel arbitration and dismiss Plaintiff Averwood’s claims 3 without prejudice as well as a motion to stay Plaintiff Indus’s 4 claims. See Mot., Mot. to Stay, ECF No. 21. Defendants contend 5 that all of Plaintiff Averwood’s claims relate to the parties’ 6 contract and are thus subject to mandatory arbitration. Mot. at 7 3. Plaintiffs opposed the motion. See Opp’n. Defendants 8 replied. See Reply. 9 On January 24, 2023, the Court held a hearing on Plaintiffs’ 10 motion to remand and denied Plaintiffs’ motion, finding that 11 Defendants had sufficiently established diversity of citizenship 12 and the amount in controversy for diversity jurisdiction. Mot. 13 Hearing, ECF No. 37. The Court therefore does not need to 14 consider Plaintiffs’ argument against subject matter jurisdiction 15 outlined in their opposing brief to the instant motion. 16 17 II. OPINION 18 A. Legal Standard 19 The Federal Arbitration Act (FAA) governs arbitration 20 agreements. 9 U.S.C. § 2. The FAA allows parties to obtain an 21 order directing arbitration according to the terms of the 22 agreement. 9 U.S.C. § 4. To decide on a motion to compel 23 arbitration, a court must determine: (1) whether a valid 24 agreement to arbitrate exists; and (2) if a valid agreement 25 exists, whether the arbitration provision covers the dispute at 26 issue. Boardman v. Pacific Seafood Group, 822 F.3d 1011, 1017 27 (9th Cir. 2016). If a party seeking arbitration establishes 28 these two elements, a court must compel arbitration; the court’s 1 role is “strictly limited to determining arbitrability and 2 enforcing agreements to arbitrate, leaving the merits of the 3 claim and any defenses to the arbitrator.” Chiron Corp. v. Ortho 4 Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000); 5 Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 478 6 (9th Cir. 1991). 7 In determining the existence of an agreement to arbitrate, 8 the district court looks to “general state-law principles of 9 contract interpretation, while giving due regard to the federal 10 policy in favor of arbitration.” Wagner v. Stratton Oakmont, 11 Inc., 83 F.3d 1046, 1049 (9th Cir. 1996). Under the FAA, an 12 arbitration agreement contained in a commercial contract is 13 presumed to be “valid, irrevocable, and enforceable, save upon 14 such grounds as exist at law or in equity for the revocation of 15 any contract.” 9 U.S.C. § 2. Any doubts concerning the scope of 16 arbitrable issues should be resolved in favor of arbitration. 17 Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 18 24–25 (1983). The Supreme Court has stated that “parties can 19 agree to arbitrate gateway questions of arbitrability, such as 20 whether parties have agreed to arbitrate or whether the agreement 21 covers a particular controversy,” so long as the parties do so 22 clearly and unmistakably. Rent-A-Ctr., West, Inc. v. Jackson, 23 561 U.S. 63, 68–69 (2010), Henry Schein, Inc. v. Archer & White 24 Sales, Inc., 139 S. Ct. 524, 530 (2019). If the arbitration 25 agreement contains such a delegation provision, a court must 26 compel arbitration with respect to issues of arbitrability except 27 to the extent there is a challenge as to whether the delegation 28 agreement itself is valid. Id. The Ninth Circuit has found that 1 the incorporation of the AAA Rules into an agreement constitutes 2 “clear and unmistakable evidence that the parties agreed to 3 arbitrate arbitrability.” Brennan v. Opus Bank, 796 F.3d 1125, 4 1130 (9th Cir. 2015). 5 The party seeking to avoid arbitration under the FAA bears 6 the burden of proving that the claims at issue are not suitable 7 for arbitration. Scott v. Loomis Armored US, LLC, No. 2:21-CV- 8 00896-JAM-AC, 2021 WL 6136181, at *1–2 (E.D. Cal. Dec. 29, 2021). 9 A party seeking to challenge the enforceability of a delegation 10 clause must show that the delegation is not clear and 11 unmistakable or that the contract itself is not valid. 12 Wainwright v. Melaleuca, Inc., No. 2:19-CV-02330-JAM-DB, 2020 WL 13 417546, at *1 (E.D. Cal. Jan. 27, 2020). If a court “determines 14 that an arbitration clause is enforceable, it has the discretion 15 to either stay the case pending arbitration, or to dismiss the 16 case if all of the alleged claims are subject to arbitration.” 17 Hoekman v. Tamko Bldg. Prod., Inc., No. 2:14-cv-01581-TLN-KJN, 18 2015 WL 9591471, at *1 (E.D. Cal. Aug. 26, 2015). 19 B. Analysis 20 Defendants contend that the Court must compel arbitration of 21 Plaintiff Averwood’s claims because the parties’ contract 22 (1) expressly states that the enforceability of the contract, 23 including the arbitration clause, would be resolved through 24 arbitration; and (2) incorporates the AAA arbitration rules, 25 which shows that the parties clearly and unmistakably agreed to 26 arbitrate arbitrability. Mot. at 4-5. Defendants further claim 27 that the contract’s arbitration provision is (1) valid and 28 enforceable and (2) covers Plaintiff Averwood’s claims. Id. at 1 6-9. 2 Plaintiffs do not contest the validity and enforceability of 3 the arbitration and delegation provisions. Instead, Plaintiffs 4 claim these provisions are not applicable to this dispute because 5 the contract contains a “carve out” provision that prevents the 6 Court from ordering arbitration of all of Plaintiff Averwood’s 7 claims, particularly its third claim for injunctive relief, 8 because the parties expressly contracted for equitable relief to 9 be pursuable outside of arbitration. Opp’n at 3-4. Plaintiff 10 Averwood contends that if the Court orders arbitration, it must 11 exclude Plaintiff Averwood’s third cause of action because of the 12 “carve out” provision. Id. at 4. The Court disagrees. 13 The Court finds that (1) the parties expressly delegated 14 arbitrability to an arbitrator and incorporated the AAA Rules 15 into their contract; and (2) Plaintiffs have conceded to the 16 validity and enforceability of the contract’s arbitration and 17 delegation provisions. The contract’s terms and the AAA rules 18 “clearly and unmistakably delegate threshold questions of 19 arbitrability to the arbitrator,” which implicates all of 20 Plaintiff Averwood’s claims as they relate to the termination of 21 the contract. Schein, 139 S. Ct. at 530. Plaintiff Averwood has 22 failed to meet its burden of showing that the delegation is not 23 clear and unmistakable or that the contract itself is not valid. 24 Wainwright, No. 2:19-CV-02330-JAM-DB at *1. Thus, the Court 25 directs the parties to proceed to arbitration so an arbitrator 26 can determine the arbitrability of Plaintiff Averwood’s three 27 claims. Accordingly, the Court dismisses these claims without 28 prejudice. een ee enn meen III III INE IIE III I IEEE 1 Til. SANCTIONS 2 This Court issued its Order re Filing Requirements (“Filing 3 Order”) on November 9, 2022. ECF No. 2-2. The Filing Order 4 limits reply memoranda to five pages. Filing Order at 1. The 5 Filing Order also states that an attorney who exceeds the page 6 limit must pay monetary sanctions of $50 per page. Id. 7 Defendants exceeded the Court’s five-page limit on reply 8 memoranda by six pages. See Reply. The Court therefore ORDERS 9 Defendants’ counsel to pay $300.00 to the Clerk for the Eastern 10 District of California no later than seven days from the date of 11 this Order. 12 13 Iv. ORDER 14 For the reasons set forth above, the Court GRANTS 15 Defendants’ motion. The Court ORDERS the parties to proceed to 16 | arbitration, pursuant to the terms of the parties’ contract. The 17 parties are directed to file a joint status report with the Court 18 within ten days of the conclusion of arbitration. Plaintiff 19 | Averwood’s claims are DISMISSED WITHOUT PREJUDICE 20 IT IS SO ORDERED. 21 Dated: April 5, 2023 22 : cp, JOHN A. MENDEZ 24 SENIOR UNITED*STATES DISTRICT JUDGE 25 26 27 28