San Diego Gas & Elec. Co. v. Mitsubishi Heavy Indus., Ltd., CASE NO. 13-CV-1726-BEN (KSC)
| Decision Date | 14 March 2014 |
| Docket Number | CASE NO. 13-CV-1726-BEN (KSC) |
| Court | U.S. District Court — Southern District of California |
| Parties | SAN DIEGO GAS & ELECTRIC COMPANY, a California corporation, Plaintiff, v. MITSUBISHI HEAVY INDUSTRIES, LTD, a Japanese corporation; MITSUBISHI NUCLEAR ENERGY SYSTEMS, INC., a Delaware corporation; MITSUBISHI HEAVY INDUSTRIES AMERICA, INC a Delaware corporation; and DOES 1 through 25, inclusive, Defendants. |
Before this Court is a Motion to Stay Proceedings Pending Arbitration brought by Defendants Mitsubishi Heavy Industries, Ltd. (MHI), Mitsubishi Nuclear Energy Systems, Inc. (MNES), and Mitsubishi Heavy Industries America, Inc. (MHIA). (Docket No. 9). For the reasons stated below, the Motion to Stay is GRANTED.
The San Onofre Nuclear Generating Station ("SONGS") is located near San Clemente, California. The majority owner is Southern California Edison (Edison). The City of Riverside (Riverside) and Plaintiff San Diego Gas & Electric Company (SDG&E) are minority co-owners.
On or about September 28, 2004, MHIA and a subsidiary of Edison, Edison Material Supply LLC (EMS), entered into a Purchase Order whereby MHIA was to design, fabricate, and deliver four replacement steam generators (RSGs) for SONGS. MHIA allegedly assigned its contract rights to MNES in 2007, and MHI is alleged to have provided a parent guaranty. (Compl. ¶¶ 26, 31). SDG&E alleges EMS is a company created by Edison to engage in procurement of products "for the benefit of Edison and the Co-Owners of SONGS." (Id. ¶ 7). It alleges that the Second Amended San Onofre Operating Agreement states that Edison is the "Operating Agent" for the other owners of SONGS, and that Edison has responsibilities for operation and maintenance. (Id. ¶ 10). SDG&E states that it "is informed and believes . . . that EMS entered into the Purchase Order as the agent of Edison and the SONGS Co-Owners." (Id. ¶ 24). It further notes that the Purchase Order defines Edison as Southern California Edison Company, acting either for itself or as an operating agent for any co-owner participating in the project. (Id. ¶ 24). It states that there was no contract between SDG&E and EMS "except for EMS's duties as SDG&E's agent for the purpose of entering into the Purchase Order." (Id. ¶ 25). The Complaint repeatedly refers to promises and statements made "to EMS, as SDG&E's agent." . SDG&E claims to have been a disclosed principal with direct rights against Defendants. (E.g., id. ¶ 55). It also argues that, in the alternative, SDG&E was a third-party beneficiary of the Purchase Order, because SDG&E's agent, Edison was named as a third-party beneficiary. (Id. ¶ 63).
The Purchase Order incorporates by reference a set of General Terms and Conditions which includes a "Dispute Resolution" provision. "Dispute" is broadly defined to include "any dispute, controversy or claim between or among Supplier and EMS or Edison arising from or relating to the Purchase Order or the performance of the Work." (Croutch Decl., Ex. B § 1.22). The provision provides for an informal procedure for resolving disputes, and mandates binding arbitration if the parties cannot reach an informal resolution. (Id.) The informal procedure includes giving writtennotice, providing a written response, and meeting to exchange information and attempt to resolve the dispute. (Id. § 1.22.1). The provision also states that:
If the Dispute has not been resolved through negotiation within ninety (90) days after the date of the notice of Dispute received pursuant to Section 1.22.1, the Dispute shall be finally settled and resolved by arbitration in accordance with the ICC Rules, subject to such modifications of the ICC Rules as are set forth in this Section 1.22.2.
(Id. § 1.22.2.1). The Terms and Conditions state that: "The procedures specified in this Section 1.22 shall be the sole, exclusive procedures for the resolution of Disputes . . . ." (Id. § 1.22.5).
A disagreement has now arisen with regard to the RSGs which were provided pursuant to the Purchase Order. Edison and EMS initiated dispute resolution proceedings under the Purchase Order and the Terms and Conditions (collectively, "the Contract") by providing a written notice of dispute. The written notice specifically invoked the Contract and stated that notice was provided "individually and in its capacity as Operating Agent of [SONGS]" (Croutch Decl., Ex. C, at 1). Edison and EMS requested arbitration on October 16, 2013. (Notice of Filing of Request for Arbitration). SDG&E has not sent a written notice of dispute or demanded arbitration.
SDG&E filed suit in San Diego Superior Court on July 18, 2013, asserting ten causes of action related to the provision of RSGs under the Contract, including recission, breach of contract, three fraud claims, negligence, negligent interference with prospective economic advantage, express indemnity based on the Contract, equitable indemnity, and declaration relief for indemnity. (Compl.) Defendants removed the action on July 24, 2013. Defendants now ask this Court to stay proceedings pending arbitration pursuant to the Contract. This Court held a hearing on March 10, 2014.
The parties agree that the contract at issue is subject to the Federal Arbitration Act (FAA). The FAA states that agreements to arbitrate are "valid, irrevocable and enforceable." 9 U.S.C. § 2. Section 3 provides that where an issue involved in a suit or proceeding is referable to arbitration under an agreement in writing, the district court"shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . ." 9 U.S.C. § 3. The language is mandatory, and district courts are required to order arbitration on issues as to which an arbitration agreement has been signed. Kilgore v. KeyBank, N.A., 718 F.3d 1052, 1058 (9th Cir. 2013) (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985)). The role of the district court is "limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F. 3d 1126, 1130 (9th Cir. 2000).
Arbitration is a matter of contract, and a party "cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Tracer Research Corp. v. Nat'l Envtl. Servs. Co, 42 F.3d 1292, 1294 (9th Cir. 1994) (citation omitted). A court must therefore determine whether there is an agreement to arbitrate before ordering arbitration. Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1048 (9th Cir. 1996). State law applies to determine which contracts are binding and enforceable under the FAA, if that law governs the validity, revocability, and enforceability of contracts generally. Arthur Anderson LLP v. Carlisle, 556 U.S. 624, 630-31 (2009). Where a written arbitration provision is made enforceable against a third party under state contract law, the FAA's terms are fulfilled. Id. at 631.
As the claims for relief are state law claims, a federal court exercising diversity jurisdiction applies the law of the state in which it sits. Dees v. Billy, 357 Fed. App'x 813, 815 (9th Cir. 2009). In the absence of a controlling California Supreme Court decision, federal courts look to intermediate appellate court decisions. Fourth Investment LP v. United States, 720 F.3d 1058, 1069 (9th Cir. 2013).
California state law states that one must generally be a party to an agreement to be bound by it or invoke it. DMS Servs., LLC v. Super. Ct., 205 Cal. App. 4th 1346, 1352 (2d. Dist. 2012). However, there are limited exceptions to the rule which allow nonsignatories to be compelled to arbitrate a dispute within the scope of the agreement,including agency, estoppel, and third party beneficiary theories. Id. at 1353. These exceptions are generally based on the existence of a relationship between the nonsignatory and the signatory, such as principal and agent, where a "sufficient identity of interest exists between them." Id. (internal quotation omitted).
SDG&E opposes Defendants' efforts to stay the case. It alleges that it is not a signatory to the agreement and raises concerns about the arbitration procedures. A. SDG&E is Bound to the Arbitration Clause by Equitable Estoppel
SDG&E contends that it should not be forced to arbitrate its dispute because it is not a signatory to the contract, and is not bound by the arbitration provision. It is undisputed that SDG&E did not sign the contract. However, Defendants assert that SDG&E is nonetheless bound by the arbitration provision. Defendants emphasize that Plaintiff's claims are based upon the contract, and argue that SDG&E is bound by the Terms and Conditions based on its own allegations. (Mot. at 4-5, 7).
California law recognizes that equitable estoppel can apply to permit a signatory to an arbitration agreement to compel a nonsignatory to arbitrate claims which are dependent upon, or inextricably intertwined with, the obligations imposed by an agreement. JSM Tuscany, LLC v. Super. Ct., 193 Cal. App. 4th 1222, 1240-41 (2d Dist. 2011). When a plaintiff brings a claim which "relies on contract terms" against a defendant, the plaintiff can be equitably estopped from repudiating the arbitration clause contained in that agreement. Id. at 1239. When a plaintiff sues on a contract on the basis that, even though the plaintiff is not a party, they are entitled to recover for its breach, "the plaintiff should be equitably estopped from repudiating the contract's arbitration clause." Id. (citations omitted).
Similarly, California law allows a nonsignatory to be compelled to arbitration where: (1) the nonsignatory is a third-party beneficiary of the contract containing the arbitration agreement; and (2) a "preexisting" relationship existed...
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