Galilea, LLC v. Agcs Marine Ins. Co.
| Decision Date | 04 April 2016 |
| Docket Number | CV 15-84-BLG-SPW |
| Parties | GALILEA, LLC, Plaintiff, v. AGCS MARINE INSURANCE COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, and TORUS INSURANCE COMPANY, Defendants. |
| Court | U.S. District Court — District of Montana |
This is a continuation of the Court's Opinion and Order issued February 24, 2016. At the Court's request, Plaintiff Galilea, LLC, and Defendants AGCS Marine Insurance Company, Liberty Mutual Insurance Company, and Torus Insurance Company (collectively "Insurers") supplied supplemental briefing. For the reasons discussed below, the Court only refers Counts I and II to arbitration and certifies its decisions for interlocutory review under 28 U.S.C. § 1292(b).
For the complete background, please see the Court's prior Opinion and Order (Doc. 37). The Court will only restate facts here to put this Order in context. Chris and Taunia Kittler formed Galilea, LLC for the sole purpose of owning their sailing yacht Galilea. The Kittlers are not attorneys or otherwise sophisticated purchasers of insurance. The Insurers issued Galilea, LLC an insurance policy that contained the following arbitration and choice-of-law provision:
After the Insurers denied its claim, Galilea, LLC filed this action. In its Complaint, Galilea, LLC asserts the following causes of action against the Insurers:
(Doc. 1.) The Court applied federal maritime law and determined that the policy's arbitration clause is enforceable. (Doc. 37 at 14.) The Court requested supplemental briefing on the arbitration clause's scope, and if some claims fall outside of the scope, whether litigation should be stayed pending the arbitration. (Id. at 14-15.)
The Insurers argue that this Court should not consider the scope of the arbitration clause. Instead, the Insurers contend that the arbitrators should decide the issue. The Insurers point to the arbitration clause's statement that "any and all disputes arising under this policy shall be resolved exclusively by binding arbitration...to be conducted pursuant to the Rules of the American Arbitration Association." (Doc. 7-6 at 14.) Since the clause incorporates the Rules of the American Arbitration Association ("AAA"), the Insurers posit this Court should apply Rule R-7 of the AAA Commercial Arbitration Rules,1 which provides:
(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any objection with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.
(Doc. 43 at 2.)2 Galilea, LLC argues that the arbitration clause does not contain an unmistakable delegation and that this Court should decide arbitrability. The Court agrees with Galilea, LLC and finds that the arbitration clause does not contain clear and unmistakable evidence of delegation.
Questions regarding the enforceability and scope of an arbitration clause are typically "to be decided by the court, not the arbitrator." AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986). However, parties can agree to arbitrate "gateway questions of arbitrability, such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010) (internal quotations omitted). Delegation of these gateway issues must be supported by "clear and unmistakable evidence." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (quoting AT & T Techs., 475 U.S. at 649). The presumption is against delegation, and any doubt or ambiguities are resolved in favor of judicial determination. Id. at 944-45.
The Ninth Circuit addressed whether the incorporation of the AAA rules adequately delegated the determination of arbitrability in Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015). Similar to the instant case, the arbitration clause inBrennan provided that any dispute arising from the contract "shall be settled by binding arbitration in accordance with the Rules of the American Arbitration Association." Id. at 1128. In contrast to the instant case, the contract was between two sophisticated parties - a bank and an experienced attorney and businessman that the bank hired as its Executive Vice President. Id. at 1127-28, 1131.
The Ninth Circuit held "that incorporation of the AAA rules constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability." Id. at 1130. By referencing the AAA rules, the parties intended to be bound by the AAA rule that gives the arbitrator power to rule on his or her own jurisdiction. Id. However, the Ninth Circuit limited its holding to the facts presented before it, which involved "an arbitration agreement between sophisticated parties." Id. at 1131 (internal quotation omitted). It expressly reserved the question of "the effect if any of incorporating AAA arbitration rules into consumer contracts or into contracts of any nature between unsophisticated parties." Id. ().
Facing a situation similar to the instant case, the Northern District of California addressed the unanswered question from Brennan and ruled that incorporating the AAA rules into a contract with an unsophisticated party did not provide "clear and unmistakable evidence of delegation." Meadows v. Dickey's Barbecue Restaurants Inc., ___ F. Supp. 3d ___, 2015 WL 7015396, at *6 (N.D.Cal. Nov. 12, 2015). In Meadows, the court noted that a sophisticated party could reasonably be expected to understand that the incorporation of the AAA rules in a contract means that an arbitrator would determine the arbitrability. Id. However, an inexperienced individual untrained in the law would be much less likely to reach the same conclusion. Id. Accordingly, the court did not extend Brennan's holding to cases involving an unsophisticated party. Id. at *7. Since one of the parties was not "sophisticated," incorporation of the AAA rules did not constitute "clear and unmistakable evidence" of delegation, and the court determined arbitrability. Id.
The Court finds Meadows persuasive and finds that the incorporation of the AAA rules into the insurance policy is not clear and unmistakable evidence of delegation. Despite the Insurers' assertion, Galilea, LLC is not a sophisticated party for these purposes. Galilea, LLC was established for the sole purpose of owning the Galilea. Chris and Taunia Kittler were the only members of Galilea, LLC. Neither of them were attorneys or insurance professionals, and they did not consult with an attorney or an insurance broker before purchasing the policy from the Insurers. (Doc. 23-1 at 2-3; Doc. 23-2 at 2-3.) The Insurers point to the Kittlers' sailing experience. However, a party that is sophisticated for sailing purposes is not necessarily sophisticated for contract and arbitration law purposes.
Given this lack of experience, the Kittlers would likely not understand that a reference to the AAA rules would delegate the determination of arbitrability to the arbitrator. While the Court finds that the arbitration clause is enforceable (see Doc. 37), the Court also finds that the statement that the arbitration would "be conducted pursuant to the Rules of the American Arbitration Association" is not clear and unmistakable evidence of delegation when one party is "unsophisticated." An individual not well-versed in arbitration law is unlikely to be aware that the AAA rules provide for the arbitrator to determine his own jurisdiction. As any doubts are resolved against delegation, this Court will determine which claims come within the scope of the arbitration clause.
As mentioned above, the policy provides that "any and all disputes arising under this policy shall be resolved exclusively by binding arbitration." (Doc. 7-6 at 14.) The Insurers point to the terms "any and all" to argue that all of Galilea, LLC's claims fall under the scope of the arbitration clause. Alternatively, the Insurers argue that this Court should enforce the arbitration clause found in the application for insurance. Galilea, LLC argues that the Ninth Circuit defines the term "arising under" narrowly and that only its first two claims are referable to arbitration. The Court agrees with Galilea, LLC.
In the Ninth Circuit, the exact language used in an arbitration clause is crucial. For example, if the clause uses the phrase "arising in connection with," it is broadly interpreted to reach "every dispute between the parties having a significant relationship to the contract and all disputes having their origin or genesis in the...
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