American Reliable Ins. Co. v. Stillwell

• Decision Date: 18 March 2002
• Docket Number: Civil Action No. 5:01-CV-59.
• Citation: 212 F.Supp.2d 621
• Parties: AMERICAN RELIABLE INSURANCE COMPANY, American Bankers Insurance Company of Florida and Campbell Insurance Services, Inc., Plaintiffs/Petitioners, v. Robert STILLWELL and Helen Still-well, Defendants/Respondents.
• Court: U.S. District Court — Northern District of West Virginia

212 F.Supp.2d 621

AMERICAN RELIABLE INSURANCE COMPANY, American Bankers Insurance Company of Florida and Campbell Insurance Services, Inc., Plaintiffs/Petitioners, v. Robert STILLWELL and Helen Still-well, Defendants/Respondents.

Civil Action No. 5:01-CV-59.

United States District Court, N.D. West Virginia.

March 18, 2002.

Order Denying Reconsideration July 15, 2002.

COPYRIGHT MATERIAL OMITTED

Markham R. Leventhal, Stephan I. Voudris, Jorden Burt LLP, Miami, FL, John Preston Bailey, Bailey, Riley, Buch & Harman, L.C. Wheeling, WV, for American Bankers Insurance Co. of Florida.

Kevin S. Burger, Margolis Edelstein, Pittsburgh, PA, for American Reliable Insurance Company, Campbell Unsurance Services.

Thomas C. Schultz, Don A. Yannerella, Wheeling, WV, for Robert Stillwell, Helen Stillwell.

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS, DENYING PLAINTIFFS' MOTION TO COMPEL ARBITRATION, DENYING DEFENDANTS' MOTION FOR ATTORNEYS' FEES AND EXPENSES OF LITIGATION, DENYING PLAINTIFFS' MOTION FOR RULE 11 SANCTIONS, DENYING DEFENDANTS' MOTION TO STRIKE AND GRANTING PLAINTIFFS' MOTION FOR LEAVE TO FILE SURREPLY

STAMP, District Judge.

I. Introduction

Pending before this Court is the motion to dismiss of defendants/respondents, Robert and Helen Stillwell. Also, pending before this Court is the joint motion to compel arbitration of plaintiffs/petitioners, American Reliable Insurance Company ("American Reliable"), American Bankers Insurance Company of Florida ("American Bankers"), and Campbell Insurance Services, Inc. ("Campbell") (collectively "plaintiffs"), as well as several other motions.¹ This Court has now reviewed the motions and memoranda in support thereof and in opposition thereto. For the reasons set in this opinion, this Court finds that defendants' motion to dismiss should be granted, plaintiffs' motion to compel arbitration of defendants' claims should be denied defendants' motion to strike should be denied, defendants' motion for attorneys' fees and expenses of litigation should be denied, Campbell's motion for leave to file surreply should be granted, and American Reliable's motion for Rule 11 sanctions should be denied.

II. Facts

The defendants purchased an American Reliable mobile home owners policy on or about February 9, 1999, which contained an arbitration clause.² On April 9, 1999, the defendants sustained a casualty loss to their property. Defendants claim that the loss was covered by the American Reliable insurance policy, but American Reliable claims that the loss was not covered by the policy. Nevertheless, American Reliable settled the plaintiffs' property damage claim for $9,200.00. The defendants then filed a lawsuit in the Circuit Court of Ohio County, West Virginia on February 29, 2000 claiming that American Reliable and certain purported agents breached the insurance policy agreement, engaged in a series of unfair claims settlement practices, acted in bad faith in settling the defendants' claim, used an unlicensed insurance adjuster, and violated West Virginia insurance law. American Reliable and Campbell filed an answer offering 14 affirmative defenses, none of which referred to their desire to arbitrate the claims in accordance with the arbitration clause. The defendants Stillwell subsequently filed a motion for leave to amend their complaint, which was granted on April 2, 2001. The amended complaint added class action allegations and added American Bankers as a defendant. American Reliable and Campbell filed an answer to the amended complaint, which contained 23 affirmative defenses. The 21st affirmative defense did mention the existence of the arbitration clause.

The plaintiffs participated in the state court proceedings for 14 months prior to filing their joint motion to compel arbitration and to stay judicial proceedings on May 1, 2001.³ The plaintiffs, along with a co-defendant not named in the action before this Court, filed a joint motion to compel arbitration and to stay judicial proceedings in the state court pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1, et seq.⁴ On May 18, 2001, the plaintiffs filed a complaint and petition to compel arbitration in this Court.⁵ On June 11 2001, the state court entered an order denying plaintiffs' motion to compel arbitration and stay judicial proceedings based upon the fact that the state court found the insurance contract to be a contract of adhesion and that there was no evidence that the parties to the contract knowingly bargained for an arbitration clause. On June 13, 2001, after the state court entered its order denying the motion to compel arbitration, a summons was issued and returned executed to this Court as to the defendants. On June 22, 2001, the plaintiffs filed a joint motion to compel arbitration and memorandum in support in this Court. In their memorandum in support of their motion to compel arbitration, the plaintiffs state:

On June 11, 2001, the state court issued an erroneous ruling which failed to follow Federal law under the FAA and which denied the motion to compel arbitration on the ground that the arbitration clause had not been separately "bargained for." ... The state court's decision denying arbitration is directly contrary to binding United States Supreme Court authority under the FAA, which firmly holds that a court may not discriminate against an arbitration clause by enforcing all other provisions of a contract but not its arbitration clause. Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 277, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995). Accordingly, the Petitioners hereby move this Court to enforce Federal law under the FAA and to enter an Order compelling the parties' dispute to arbitration.

Mem. in Supp. of Mot. to Compel Arbitration at 4. On June 29, 2001, the defendants filed a motion to dismiss and memorandum in support based upon (1) the Rooker-Feldman doctrine; (2) the Younger abstention doctrine; (3) the "wise judicial administration" doctrine; (4) res judicata and/or collateral estoppel; (5) lack of jurisdiction over the subject matter of this action; (6) that the relief sought by the plaintiffs cannot be granted because arbitration cannot be compelled against the policyholders; and (7) the Full Faith and Credit Act, 28 U.S.C. § 1738.

III. Discussion

A. Subject Matter Jurisdiction

The defendants make several arguments in their motion to dismiss, two of which focus on their contention that this Court lacks subject matter jurisdiction over this action. "The FAA does not create independent federal question jurisdiction under 28 U.S.C. § 1331. A federal district court has jurisdiction over a petition filed under the FAA only when the plaintiffs establish an independent basis of jurisdiction, such as diversity of citizenship." CIGNA Healthcare of St. Louis, Inc. v. Kaiser, 181 F.Supp.2d 914, 919 (N.D.Ill.2002) (citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). Although defendants argue that this Court does not have jurisdiction over this matter pursuant to 28 U.S.C. § 1332, this Court finds that complete diversity does exist and the amount in controversy exceeds $75,000.00.

Defendants also contend that this Court lacks subject matter jurisdiction under the Rooker-Feldman doctrine. The Rooker-Feldman doctrine provides that "`a United States District Court has no authority to review final judgments of a state court in judicial proceedings.'" Brown & Root, Inc. v. Breckenridge, 211 F.3d 194, 198 (4th Cir.2000) (quoting District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983)). The Rooker-Feldman doctrine also bars consideration of any claim that is "inextricably intertwined" with the state court decision. See id. This means that a federal district court cannot consider a claim that, although not actually decided by the state court, requires the federal court to determine that the state court wrongly decided the issues before it. See id. (citing Plyler v. Moore, 129 F.3d 728, 731 (4th Cir.1997)). The Rooker-Feldman doctrine also applies to interlocutory orders issued by state courts. See id. at 199. The basic principle of the doctrine is that "`[a] party losing in state court is barred from seeking what in substance would be appellate review of the state judgment in a United States district court, based on the losing party's claim that the state judgment itself violates the loser's federal rights.'" Id. at 198 (quoting Johnson v. De Grandy, 512 U.S. 997, 1005-06, 114 S.Ct. 2647, 129 L.Ed.2d 775 (1994)).

The defendants argue that the plaintiffs' federal complaint is an impermissible collateral attack on a state court decision. The plaintiffs argue in response that this case is a separate parallel petition under the FAA, which has been expressly approved by federal courts and is not the type of federal appeal of a state court action to which the Rooker-Feldman doctrine applies. Plaintiffs contend that because they filed their federal court petition before the state court ruled on the merits of their motion to compel arbitration, the federal petition cannot be characterized as an appeal, and therefore, the Rooker-Feldman doctrine does not apply.

The plaintiffs rely on the case of Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126 (2d Cir.1997), to stand for the proposition that the Rooker-Feldman doctrine is inapplicable in a case where the federal court petition to compel arbitration was filed prior to the state court denying a motion to compel arbitration. However, the facts in Distajo differ greatly from the facts of the case at hand.

In Distajo, several franchisees brought suit in the state courts in Illinois, Pennsylvania, Massachusetts and North Carolina against Doctor's Associates, Inc. ("DAI") alleging fraud, various breaches of the franchise agreement, and seeking a declaration that the arbitration clause in the franchise agreement was...