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Mountain Valley Property, Inc. v. Applied Risk Services, Inc.

United States District Court, D. Maine

February 25, 2016

MOUNTAIN VALLEY PROPERTY, INC., Plaintiff
v.
APPLIED RISK SERVICES, INC., et al., Defendants

ORDER AFFIRMING RECOMMENDED DECISION OF THE MAGISTRATE JUDGE

D. Brock Hornby United States District Judge

On December 22, 2015, the United States Magistrate Judge filed with the court, with copies to counsel, his Recommended Decision on the defendants’ motion to dismiss this case and send the dispute to arbitration. The plaintiff filed an objection to the Recommended Decision on January 8, 2016, raising two issues, and I held oral argument on February 23, 2016.

The central disputed issue is whether the underlying conflict between two of the parties must go to arbitration and, in that respect, whether this court or the arbitrator should first decide whether the conflict is arbitrable. Because the contract has a Nebraska law clause, and because Nebraska has a statute and Supreme Court decision making arbitration clauses in insurance contracts invalid, [1] the plaintiff argues that I should first determine whether the mandatory clause in the contract is valid.[2] On that topic, I agree with the Magistrate Judge that the following language in the arbitration clause is key:

All disputes between the parties relating in any way to (1) the execution and delivery, construction or enforceability of this Agreement, (2) the management or operations of the Company, or (3) any other breach or claimed breach of this Agreement or the transactions contemplated herein shall be . . . finally determined exclusively by binding arbitration . . . .

Pl.’s First Am. Compl., Ex. B at ¶ 13(B) (ECF No. 31-2). I also agree with the Magistrate Judge that “[b]y including the ‘enforceability’ of the agreement within the scope of arbitration, the parties clearly and unmistakably agreed to arbitrate the issue of arbitrability.” Recommended Decision at 8 (ECF No. 44). In a decision directly on point, the United States Court of Appeals for the Sixth Circuit reached the same conclusion. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Co., 590 F. App’x 482 (6th Cir. 2014). I find its reasoning persuasive.[3]

The plaintiff cites a number of cases that refer to the “validity” of an arbitration clause as a question for the court, not the arbitrator. The cases generally make that assertion, however, in the context of section 2 of the Federal Arbitration Act (“FAA”), which states that a written arbitration provision “shall 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.A. § 2 (2009 & Supp. 2015) (emphasis added). I agree with the Sixth Circuit’s holding in Milan Express that the asserted invalidity of an arbitration clause under Nebraska insurance law does not fit under “such grounds as exist at law or in equity for the revocation of any contract.” 590 F. App’x at 485-86 (quoting 9 U.S.C.A. § 2).[4] Instead, “the proper framework for deciding when disputes are arbitrable under [Supreme Court] precedents . . . [is that] a court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute.Granite Rock Co. v. Int’l Bhd. Of Teamsters, 561 U.S. 287, 297 (2010).

Likewise:

“The FAA reflects the fundamental principle that arbitration is a matter of contract.” Therefore, the first principle that underscores all of the Supreme Court’s arbitration decisions is that “[a]rbitration is strictly a matter of consent, and thus is a way to resolve those disputes-but only those disputes- that the parties have agreed to submit to arbitration.”

Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 375-76 (1st Cir. 2011) (citation omitted) (quoting Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67, 77 (2010)). Here, given the contractual language I quoted earlier, there can be no dispute that the parties agreed to submit their dispute, including the enforceability of any portion of the contract, to the arbitrator.[5]

The second issue is whether the Magistrate Judge properly held arbitrable the plaintiff’s dispute with two parties who did not sign the contract containing the arbitration clause in question. The parties agree that in the defendants’ reply memorandum on their motion to dismiss and at oral argument before the Magistrate Judge, the defendants said they were seeking a declaration of arbitrability only as to the dispute between the plaintiff and the defendant Applied Underwriters Captive Risk Assurance Co., Inc., (“AUCRA”)-the entity that did sign the contract whose arbitration clause is in dispute. As for the other two defendants (who were not signatories), they were seeking only a stay of this lawsuit pending the outcome of the arbitration between the plaintiff and AUCRA. I will therefore modify the Magistrate Judge’s Recommended Decision to reflect the defendants’ stay request.

Accordingly, I conclude that the dispute between the plaintiff and the defendant AUCRA should be referred to arbitration. Dismissal is not appropriate, but I Order that a stay be entered of this lawsuit against AUCRA to permit the plaintiff’s dispute with AUCRA to proceed to arbitration. I also Order a stay of the lawsuit as against the other two defendants, for reasons of judicial economy, pending the outcome of the arbitration between the ...


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