New Castle County v. US Fire Ins. Co.

• Decision Date: 27 December 1989
• Docket Number: Civ. A. No. 85-436-JLL.
• Citation: 728 F. Supp. 318
• Parties: NEW CASTLE COUNTY, Plaintiff, v. U.S. FIRE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Delaware

728 F. Supp. 318

NEW CASTLE COUNTY, Plaintiff, v. U.S. FIRE INSURANCE COMPANY, Defendant.

Civ. A. No. 85-436-JLL.

United States District Court, D. Delaware.

December 27, 1989.

George H. Seitz III of Prickett, Jones, Elliott, Kristol and Schnee, Wilmington, Del., and Joseph A. Tydings and Catherine Serafin Sponseller of Anderson, Kill, Olick & Oshinsky, Washington, D.C., of counsel, for plaintiff.

William J. Cattie III of Heckler & Cattie, Wilmington, Del., and Laurence M. McHeffey of McElroy, Deutsch & Mulvaney, Morristown, N.J., for defendant.

MEMORANDUM OPINION

LATCHUM, Senior District Judge.

This dispute between New Castle County ("NCC") and U.S. Fire Insurance Company ("U.S. Fire") is the latest spawn of the Tybouts Corner landfill. Three actions ("the underlying lawsuits") have been filed against NCC concerning pollution leaching from the Army Creek and Tybouts Corner landfills. NCC sought a declaratory judgment against twelve insurance companies for coverage against these claims.¹ U.S. Fire settled with NCC on May 30, 1989, six days prior to trial. See Docket Item ("D.I.") 527, at Exhibit 1, ¶ 7.² Neither NCC nor U.S. Fire have disclosed the terms of the settlement, except to the extent discussed below.

The current dispute involves NCC's claim that U.S. Fire is responsible for $184,949.13 in legal expenses incurred defending the underlying lawsuits. See D.I. 327 at 1. Relying on the settlement agreement, U.S. Fire denied all responsibility for these legal costs. See D.I. 527 at Exhibits B, D, and F. NCC filed a Demand for Arbitration with the American Arbitration Association ("AAA") on October 20, 1989, seeking to be awarded the defense costs plus interest. U.S. Fire was subsequently granted a ten-day extension, from November 6 to November 16, 1989, to return the list of arbitrators and Compensation Stipulation forms to the AAA. See D.I. 537 at Exhibit E. On November 16, U.S. Fire returned the forms to AAA, see D.I. 537 at 7, and filed the "Motion in Equity to Enforce Settlement Agreement and Permanently Enjoin The Arbitration Proceeding" in the instant matter.

DISCUSSION

Initially, NCC contends that this Court is without jurisdiction to consider U.S. Fire's motion. See D.I. 537 at 8. This contention, based on the arbitration clause in the settlement agreement, is incorrect.³ A court has the inherent authority to enforce agreements settling litigation before it. See Bowater North America Corp. v. Murray Machinery, Inc., 773 F.2d 71, 76-77 (6th Cir.1985) (citing cases); Rosso v. Foodsales, Inc., 500 F.Supp. 274, 276 (E.D. Pa.1980) (citing cases); Read v. Baker, 438 F.Supp. 732, 735 (D.Del.1977); see also Pugh v. Super Fresh Food Markets, Inc., 640 F.Supp. 1306, 1307 (E.D.Pa.1986); Morris v. Gaspero, 522 F.Supp. 121, 125 (E.D. Pa.1981); cf. Pennwalt Corp. v. Plough, Inc., 676 F.2d 77, 80 (3rd Cir.1982) ("settlement agreements are specifically enforceable and broadly interpreted"). Both parties assert that the purpose of the settlement agreement was to resolve all claims between them in the Tybouts Corner and Army Creek litigation. See, e.g., D.I. 527 at 1; D.I. 537 at iii. Additionally, by entering into a settlement agreement, the parties implicitly consent to the Court's assertion of its jurisdiction to compel compliance with that agreement. See Cooper-Jarrett, Inc. v. Central Transport, Inc., 726 F.2d 93, 96 (3d Cir.1984). Indeed, assertion of jurisdiction to enforce a settlement agreement furthers the federal policy of promoting amicable adjustment of disputes and avoiding costly and time-consuming litigation in federal court. See Pennwalt Corp., 676 F.2d at 80-81; Pugh, 640 F.Supp. at 1307; AMF, Inc. v. Brunswick Corp., 621 F.Supp. 456, 462 (E.D.N.Y.1985); Morris, 522 F.Supp. at 125; Rosso, 500 F.Supp. at 276. This Court, therefore, has the authority to enforce the settlement agreement.

Further, the arbitration clause in the settlement agreement does not affect this Court's jurisdiction. See Forms, Inc. v. American Standard, Inc., 550 F.Supp. 556, 557 (E.D.Pa.1982), aff'd, 725 F.2d 667 (3rd Cir.1983); John Ashe Associates, Inc. v. Envirogenics Co., 425 F.Supp. 238, 241 n. 3 (E.D.Pa.1977). The arbitration clause does, however, limit the scope of review. See Benado v. Buckeye Union Insurance Co., 666 F.Supp. 79, 79 (W.D.Pa.1987); U.S. Fidelity & Guaranty Co. v. Ferraro, 452 F.Supp. 586, 587 (S.D.Ohio 1978); John Ashe Associates, Inc., 425 F.Supp. at 241 n. 3.

Having determined that this action is properly before the Court, the question of the source of substantive law arises. Federal law governs the construction of any transaction involving commerce that includes an arbitration clause. The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-15 (1982 & West Supp.1989) states that "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, irrevocable, and enforceable." Id. at § 2. State as well as federal courts are required to apply the FAA to any contract involving commerce that includes an arbitration clause. See Southland Corp. v. Keating, 465 U.S. 1 at 15-16 & n. 7, 104 S.Ct. 852, 860-61 & n. 7, 79 L.Ed.2d 1 (1982); Moses H. Cone Hospital v. Mercury Construction Co., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1981) (holding that the FAA "creates a body of substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act") (emphasis added); id. at 25 n. 7, 103 S.Ct. at 942 n. 7. ("enforcement of the Act is left in large part to the state courts"); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627, 105 S.Ct. 3346, 3354, 87 L.Ed.2d 444 (1983) ("the Act declares a national policy applicable equally in state as well as federal courts"); see also Towers, Perrin, Forster & Crosby, Inc. v. Brown, 732 F.2d 345, 347-48 (3rd Cir.1984) (noting that it was an error of law for a state court to fail to apply the FAA).⁴ Settlement agreements are contracts. See Pennwalt Corp., 676 F.2d at 79; see also AMF, Inc. v. Brunswick Corp., 621 F.Supp. 456 (E.D.N.Y.1985) (Weinstein, C.J.) (applying the FAA to a settlement agreement that resolved litigation where jurisdiction was based on diversity).

The settlement agreement between U.S. Fire and NCC "involves commerce." The FAA defines commerce as "commerce among the several states...." 9 U.S.C. § 1 (1982). NCC and U.S. Fire are citizens of different states, and the settlement agreement relates to, at minimum, $184,949.13. This dispute, therefore, is governed by the FAA. As the Fourth Circuit held when applying the FAA to a settlement agreement, "the Act is a statement of Congressional intent in upholding private parties' arrangements for dispute resolution. Thus, the policies of the Act should be effectuated whenever possible, and the federal courts should `rigorously enforce agreements to arbitrate.'" Peoples Security Life Insurance Co. v. Monumental Life Insurance Co., 867 F.2d 809, 813 (4th Cir.1989) (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985)); cf. Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 401 & n. 7, 87 S.Ct. 1801, 1804 & n. 7, 18 L.Ed.2d 1270 (1967) (holding that the FAA applies to diversity cases and noting "that a contract for the purchase of a single can of paint may evidence a transaction in interstate commerce...."); see also Southland Corp. v. Keating, 465 U.S. 1, 11-13, 104 S.Ct. 852, 858-60, 79 L.Ed.2d 1 (reaffirming the vitality of Prima Paint).⁵

When confronted with an arbitration clause, it is the duty of the court to determine the arbitrability of the dispute. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985); Sharon Steel Corp. v. Jewell Coal & Coke Co., 735 F.2d 775, 777-78 (3rd Cir.1984); Roodveldt v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 585 F.Supp. 770, 780 (E.D.Pa.1984). This determination is informed by the strong federal policy favoring arbitration. See Moses H. Cone Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1982); Sharon Steel Corp., 735 F.2d at 777; Roodveldt, 585 F.Supp. at 781 (a district court is "bound to act consistently with the federal policy, often reiterated by the Supreme Court, favoring the arbitral process"); see also Mitsubishi Motors Corp., 473 U.S. at 626, 105 S.Ct. at 3353 ("as with any other contract, the parties' intentions control, but these intentions are generously construed as to issues of arbitrability").

The Supreme Court has held that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Hospital, 460 U.S. at 24-25, 103 S.Ct. at 941-42. Similarly, the Third Circuit requires only that the claim of arbitrability be "plausible" before enforcing an arbitration clause. Sharon Steel Corp., 735 F.2d at 778. In accordance with these dictates, district courts should resolve all doubts in favor of arbitration. See Sacco v. Prudential-Bache Securities, Inc., 703 F.Supp. 362, 364 (E.D. Pa.1988); Ryan v. Liss, Tenner & Goldberg Securities Corp., 683 F.Supp. 480, 483 (D.N.J.1988); Cardona Tirado v. Shearson Lehman American Express, Inc., 634 F.Supp. 158, 159 (D.P.R.1986); John Ashe Associates, Inc., 425 F.Supp. at 243.

The arbitration clause at issue has two operative sections. The first requires the parties to attempt to resolve "any dispute ... concerning the meaning of operation of this Agreement" through negotiation. See supra note 3. U.S. Fire does not claim that NCC failed to fulfill its obligation under this section. The second section states that "if any such dispute ... cannot be resolved through negotiations, the county and U.S. Fire agree to submit such dispute for binding arbitration...." Id. Therefore, if the current dispute arguably or plausibly concerns the...