Wartsila N. Am., Inc. v. Int'l Ctr. for Dispute Resolution, Civil Action H-18-1531

• Decision Date: 14 August 2018
• Docket Number: Civil Action H-18-1531
• Citation: 387 F.Supp.3d 715
• Parties: WARTSILA NORTH AMERICA, INC. and Wartsila Finland Oy, Plaintiffs, v. INTERNATIONAL CENTRE FOR DISPUTE RESOLUTION and The Hartford Steam Boiler Inspection and Insurance Company, Defendants.
• Court: U.S. District Court — Southern District of Texas

387 F.Supp.3d 715

WARTSILA NORTH AMERICA, INC. and Wartsila Finland Oy, Plaintiffs,

v.INTERNATIONAL CENTRE FOR DISPUTE RESOLUTION and The Hartford Steam Boiler Inspection and Insurance Company, Defendants.

Civil Action H-18-1531

United States District Court, S.D. Texas, Houston Division.

Signed August 14, 2018

Entered August 15, 2018

Brian Kelly Trachtenberg, Adam David Pogach, Pogach & Trachtenberg PLLC, Houston, TX, for Plaintiffs.

Leslee Nicole Haas, Johnson Trent & Taylor, LLP, Houston, TX, Richard Rogge Dunn, Rogge Dunn Group PC, Brian Patrick Shaw, Jr., Clouse Dunn LLP, Dallas, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

Gray H. Miller, United States District Judge

Pending before this court are (1) a motion to dismiss filed by defendant International Centre for Dispute Resolution, a division of the American Arbitration Association, Inc. ("ICDR") (Dkt. 23); and (2) a motion to dismiss filed by defendant Hartford Steam Boiler Inspection and Insurance Company ("Hartford") (Dkt. 24). Having considered the motions, responses, replies, and the applicable law, the court is of the opinion that both motions (Dkts. 23, 24) should be GRANTED.

I. BACKGROUND

The plaintiffs in this case, Wärtsilä North America, Inc. ("Wartsila NA") and Wärtsilä Finland Oy ("Wartsila Finland") (collectively, "Wartsila"), seek a declaration that the parties do not have an agreement to arbitrate with the ICDR or American Arbitration Association ("AAA") and an injunction prohibiting the defendants from proceedings with a currently-pending ICDR arbitration. Dkt. 19. Wartsila NA is in the business of servicing power plant engines in North America. Id. According to Wartsila, the city of Raton, New Mexico, was at some point a member of the Arkansas River Power Authority ("ARPA"). Id. Wartsila NA entered into a contract with ARPA on or about May 6, 2002, to supply ARPA with a reciprocating engine to be used at a power plant in Raton (the "Equipment Supply Contract"). Id. On or about October 1, 2004, Wartsila and ARPA entered into another agreement for Wartsila to provide spare parts and maintenance for the power plant in Raton (the "Maintenance Agreement"). Id. In 2008, Raton and ARPA had a dispute relating to Raton's payment of its share of costs for ARPA's projects. Id. Seemingly as a result of a settlement of that dispute, Raton ceased its membership in ARPA in 2009. Id. Raton also purchased the engine in the power plant that Wartsila had sold to ARPA. Id. It purchased the engine "as-is" under an asset purchase agreement (the "Asset Purchase Agreement"). Id.

Approximately two years later, Raton Public Service ("RPS"), which is Raton's publicly-run electric company, requested a cost estimate from Watsila NA for the performance of inspection and maintenance services on the engine. Id. Wartsila NA provided a proposal on or about March 7, 2012. Id. Wartsila NA claims that Raton accepted the proposal (the "Inspection Contract"), which included accepting Wartsila's 2011 Terms and Conditions, including a term requiring that disputes be arbitrated before the International Court of Arbitration of the International Chamber of Commerce (the "ICC") and take place in Paris, France. Id. Wartsila claims that it completed its work under the Inspection Contract on September 10, 2012. Id. On or around October 2012, the engine and facility housing the engine suffered damage.¹ Id.

On January 31, 2014, Hartford, which is an insurer and subrogee for Raton and RPS, along with Raton and RPS, initiated an arbitration with the AAA/ICDR² against Wartsila NA and Wartsila Finland. Id. ; Dkt. 19-2, Ex. 6 (statement of claim). This statement of claim asserted breach of contract, breach of express and implied warranties, negligence and gross negligence, failure to warn, products liability, fraud or fraudulent inducement, breach of the duties of good faith and fair dealing, duties of care, trust, full disclosure and/or loyalty, and/or fiduciary duties, quantum meruit, unjust enrichment, promissory estoppel, and negligent misrepresentation. Dkt. 19; Dkt. 19-2, Ex. 6. In support of the ICDR's jurisdiction, the claimants identified a dispute resolution clause from the Maintenance Agreement between ARPA and Wartsila NA. Dkt. 19.

Wartsila claims that the terms of the Maintenance Agreement are inconsequential since Raton is not a party to the agreement and the only parties that can enforce that agreement are the named parties. Id. It asserts that the Maintenance Agreement specifically states that neither party can assign any of its rights under the contract without the written consent of the other party, and ARPA never asked Wartsila to consent to an assignment of the agreement to Raton. Id. Additionally, Wartsila points out that the agreement does not include Wartsila Finland, so even if an assignment to Raton were valid, the agreement does not bind Wartsila Finland. Id.

Wartsila notes in its complaint that the arbitration claimants allege that two additional contracts—the Equipment Supply Contract between ARPA and Wartsila NA and the Inspection Contract between Raton and Wartsila NA—authorize the arbitration. Id. Wartsila contends that neither of these contracts confers jurisdiction on the ICDR or AAA as (1) neither Raton nor Wartsila Finland is a party to or contemplated assignee of the Equipment Supply Contract; (2) Wartsila NA did not consent to an assignment of the Equipment Supply Contract to Raton, which is required under the contract; (3) the Inspection Contract's dispute resolution provision does not support ICDR or AAA jurisdiction; and (4) the Inspection Contract does not include Wartsila Finland. Id.

In February 2018, Wartsila sent a series of letters to the ICDR addressing these jurisdictional issues. Id. On March 8, 2018, ICDR responded that it would proceed with the administration of the arbitration and that any further arguments about jurisdiction should be made to the tribunal, once appointed. Id. According to Wartsila, in a letter dated March 12, 2018, the ICDR advised that it relied on the dispute resolution clause found on page 12 of the Maintenance Agreement. Id. The ICDR requested that the parties select three arbitrators from a list of fifteen by May 14, 2018. Id.

Wartsila filed its complaint and request for injunctive relief against both the ICDR and Hartford in this court on May 11, 2018. Dkt. 1. The defendants filed motions to dismiss the complaint. Dkts. 8, 14. On June 15, 2018, before the court ruled on the motions to dismiss or held a hearing on the request for injunctive relief, Wartsila filed its first amended complaint. Dkt. 19. In the amended complaint, Wartsila requests a declaratory judgment and injunction and asserts claims for tortious interference with contract against all parties and breach of contract against Hartford. Dkt. 19. Hartford and ICDR both filed amended motions to dismiss. Dkts. 23, 24. The ICDR seeks dismissal under the doctrine of arbitral immunity. Dkt. 23. Hartford seeks dismissal under Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), 12(b)(3), 12(b)(6), and 12(b)(7). Dkt. 24. These motions are now ripe for disposition. The court will address the ICDR's motion first and then turn to Hartford's motion.

II. ICDR

The ICDR contends that the doctrine of arbitral immunity bars all of Wartsila's claims against it and that the ICDR is not a proper party to any dispute between Wartsila and Hartford relating to the enforceability of the arbitration provisions. Dkt. 23. Wartsila contends that immunity does not bar its claims against the ICDR because there is no specific agreement between the parties to be bound by the ICDR and because there was a clear absence of jurisdiction when the arbitration was initiated. Dkt. 28.

"As with judicial and quasi-judicial immunity, arbitral immunity is essential to protect decision-makers from undue influence and protect the decision-making process from reprisals by dissatisfied litigants....In proper circumstances, organizations that sponsor arbitrations, as well as arbitrators themselves, enjoy this immunity from civil liability." New England Cleaning Servs., Inc. v. Am. Arbitration Ass'n , 199 F.3d 542, 545 (1st Cir. 1999). "The arbitrator's ‘quasi-judicial’ immunity arises from his resemblance to a judge. The scope of his immunity should be no broader than this resemblance." E.C. Ernst, Inc. v. Manhattan Constr. Co. of Tex. , 551 F.2d 1026, 1033 (5th Cir. 1977). The arbitrator "should be immune from liability only to the extent that his [or her] action is functionally judge-like." Id. "The organizations that sponsor arbitrations are entitled to immunity from civil liability as well with regard to the tasks that they perform that are integrally related to the arbitration." Jason v. Am. Arbitration Ass'n, Inc. , 62 F. App'x 557, 2003 WL 1202934, at *1 (5th Cir. Mar. 7, 2003) (unpublished) (citing New England Cleaning Servs. , 199 F.3d at 545, and Hawkins v. Nat'l Ass'n of Sec. Dealers, Inc. , 149 F.3d 330, 332 (5th Cir. 1998), abrogated on other grounds by Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning , ––– U.S. ––––, 136 S.Ct. 1562, 194 L.Ed.2d 671 (2016) ).

Wartsila notes in its response to the ICDR's motion to dismiss that while the ICDR "demanded that Hartford and Wärtsilä press forward with the selection of 3 arbitrators from a supplied list of 15 potential arbitrators so the ICDR [could] appoint an arbitration panel" after Wartsila "point[ed] out the clear absence of AAA/ICDR jurisdiction on the face of Hartford's Statement of Claim and accompanying documents," the ICDR later stayed the administration of the arbitration pending this court's resolution of Wartsila's claims. Dkt. 28. The ICDR argues that the intake manager for AAA/ICDR should not be tasked with making a determination regarding whether there is an enforceable arbitration agreement between the parties, which would be equivalent to having the court's clerk issue of ruling on the jurisdiction of the court. Dkt. 23.

The...