State Farm Gen. Ins. Co. v. Watts Regulator Co.

• Decision Date: 09 August 2019
• Docket Number: H045158
• Court: California Court of Appeals Court of Appeals
• Parties: STATE FARM GENERAL INSURANCE COMPANY, Plaintiff and Respondent, v. WATTS REGULATOR CO., Defendant and Appellant.

STATE FARM GENERAL INSURANCE COMPANY, Plaintiff and Respondent, v. WATTS REGULATOR CO., Defendant and Appellant.

H045158

COURT OF APPEAL OF THE STATE OF CALIFORNIA SIXTH APPELLATE DISTRICT

August 9, 2019

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Santa Cruz County Super. Ct. No. 16CV02224)

Arbitration Forums, Inc. (AF) provides arbitration services to its members. Both plaintiff State Farm General Insurance Company and defendant Watts Regulator Co. are members of AF and signatories to its Property Subrogation Arbitration Agreement (the Agreement). After plaintiff, as subrogee of its insured, filed a product liability complaint, defendant brought a motion to compel arbitration. The trial court denied the motion. On appeal, defendant contends: AF's amendment to the Agreement does not affect claims accruing prior to 2015; and judicial estoppel prevents plaintiff from refusing to arbitrate the claim in the present case. We affirm the order.

I. Factual and Procedural Background

In August 2013, the Agreement required that members "forego litigation and submit any personal, commercial, or self-insured property subrogation claims to" AF. The Agreement contained eight exclusions from the requirement for compulsory arbitration. When the parties became signatories to the Agreement, none of these exclusions applied to the present case.

The Agreement also authorized AF to "make appropriate rules and regulations for the presentation and determination of controversies under this Agreement." The AF rules in effect in 2013 set forth the scope of its own jurisdiction. For example, AF limited its jurisdiction to losses occurring in the United States, Puerto Rico, and the United States Virgin Islands. Jurisdiction was also limited to property damage claims less than $100,000.

Participation in AF is voluntary and members can withdraw from the Agreement at any time. The withdrawal becomes effective 60 days after receipt of written notice "except as to cases then pending before arbitration panels. The effective date of withdrawal as to such pending cases shall be upon final compliance with the finding of the arbitration panels on those cases."

In December 2013, plaintiff notified defendant that the residence of its insureds had sustained water damage allegedly due to the failure of a defective water supply line in August 2013. Plaintiff made payments of $38,901 to its insureds for the damaged property.

In November 2014, AF notified its members by e-bulletin that the Agreement would be amended. It stated: " 'No company shall be required, without its written consent, to arbitrate any claim or suit if: (i) it is a product liability claim arising from an alleged defective product.' " (Italics omitted.) Members were also notified that "[w]hile the use of the Property Program to resolve disputes involving product liability claimsarising from an alleged defective product will no longer be compulsory as of January 1, 2015, cases filed prior to January 1, 2015, will remain in arbitration's jurisdiction and will be processed to hearing."

On August 24, 2016, plaintiff filed its complaint against defendant in which it alleged a cause of action for product liability. The claim was not submitted to AF for arbitration before the lawsuit was filed. In October 2016, defendant filed its answer denying the allegations and asserting, among other things, that the complaint was subject to mandatory arbitration and barred by the estoppel doctrine.

In March 2017, defendant filed a motion to compel arbitration and stay proceedings. Defendant argued that arbitration was compulsory under the Agreement and judicial estoppel prevented plaintiff from refusing to arbitrate its claim. Following the trial court's denial of the motion, defendant filed a timely appeal.

II. Discussion

Defendant contends that the claim is subject to mandatory arbitration, because it accrued in August 2013 when both parties were signatories to the Agreement.

"A petition to compel arbitration is simply a suit in equity seeking specific performance of a contract. [Citation.] . . . [¶] When conflicting extrinsic evidence was not offered below, we apply a de novo, or independent, standard of review on appeal from a trial court's determination of whether an arbitration agreement applies to a particular controversy. [Citations.]" (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890.) Here, the parties did not introduce conflicting evidence, and thus our review of the trial court's order is de novo.

Under both federal and California law, arbitration, "as a matter of contract between the parties, is a way to resolve only those disputes that the parties have agreed to submit to arbitration. [Citation.]" (Brinkley v. Monterey Financial Services, Inc. (2015)242 Cal.App.4th 314, 349.) Thus, we look to the language of the Agreement to determine the parties' intent. (Civ. Code, § 1639.) In examining this language, "[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, § 1641.)

Here, the Agreement provides that "[s]ignatory companies must forego litigation and submit any personal, commercial, or self-insured property subrogation claims to" AF. However, the Agreement contains several exceptions, thus establishing that the parties in the instant case never agreed to arbitrate every subrogation claim. The Agreement also authorized AF to "make appropriate rules and regulations . . . ."

At issue is whether AF's amendment to the Agreement and its rules establish that the duty to arbitrate is triggered by the filing date of a claim or its accrual date. The Agreement provides that a company is bound to arbitrate qualifying disputes when it becomes a signatory to the Agreement, even though all of its causes of action would have accrued before it was a signatory. Moreover, a new signatory is not required to arbitrate a qualifying dispute in which a "lawsuit was instituted prior to, and is pending, at the time the Agreement is signed." The filing date also applies to a company that seeks to withdraw from the Agreement. Withdrawal becomes effective 60 days after written notice to AF, "except as to cases then pending before arbitration panels." In addition, nothing in the Agreement or the rules conditions arbitration on the accrual of a cause of action. Thus, the Agreement and the rules indicate that it is the filing date, not the accrual date, that is critical in determining whether a claim must be submitted to arbitration with AF.

Here, the Agreement was amended to exclude product liability cases filed after January 1, 2015 and AF notified companies that only "cases filed prior to January 1, 2015, [would] remain in arbitration's jurisdiction . . . ." Since plaintiff filed its lawsuit in August 2016, it was not required to submit its claim to arbitration.

Defendant argues that the amendment of the Agreement did not apply retroactively and thus it did not govern claims that accrued prior to the change. Relying on Nolde Brothers, Inc. v. Bakery & Confectionery Workers Union (1977) 430 U.S. 243 (Nolde Brothers) and Litton Financial Printing Div. v. NLRB (1991) 501 U.S. 190, 205-206 (Litton), defendant also argues that the United States Supreme Court "imposes a heavy presumption favoring arbitration for disputes that accrue prior to the expiration of the arbitration agreement." Defendant further argues that since the Agreement is susceptible to different interpretations, the presumption of arbitrability applies.

State Farm General Ins. Co. v. Watts Regulator Co. (2017) 17 Cal.App.5th 1093 (State Farm) is instructive. In State Farm, the parties and the issues were identical to those in the case before us. The plaintiff had filed a complaint in March 2015 and alleged, among other things, a cause of action for product liability against the defendant for a loss that occurred in November 2012. (Id. at p. 1097.) The defendant brought a motion to compel arbitration of the Agreement. The defendant argued that it " 'never consented or agreed' to the 'retroactive' application of the January 1, 2015 amendment to previously accrued claims." (Id. at p. 1100.) The State Farm court rejected this retroactivity argument, reasoning that the "notion of retroactivity presupposes that, before January 1, 2015, the date of accrual determined whether a product liability claim was subject to compulsory arbitration. Nothing in the AF arbitration agreement or the AF rules so states, and the withdrawal provision is inconsistent with an interpretation that the accrual date of a claim determines which arbitration agreement applies." (Ibid.)¹

The defendant in State Farm also argued that "AF's decision not to offer compulsory arbitration of product liability claims after January 1, 2015, 'meant that theoriginal Arbitration Agreement would expire or be terminated as of that date.' " (State Farm, supra, 17 Cal.App.5th at p. 1101.) Relying on Nolde Brothers, supra, 430 U.S. 243 and Litton, supra, 501 U.S. 190, the defendant contended that the plaintiff " 'would still be required to arbitrate claims that arose and accrued' while the original agreement was in effect." (State Farm, at p. 1101.) The State Farm court distinguished these cases on the ground that the case before it did "not have its source in a contract between the parties. It [did] not involve a collective bargaining agreement, or any other kind of agreement that ha[d] been negotiated between the parties to it and that provide[d] for arbitration of disputes over obligations created by the expired contract. This [was] a subrogation claim arising from a loss suffered by plaintif...