410 F.Supp.3d 882
N.D. Ill.2019Background:
- Nandorf, Inc. (Unique Thrift Store) bought workers’ compensation coverage and executed a Reinsurance Participation Agreement (RPA) with Applied Underwriters Captive Risk Assurance Co. (AUCRA).
- The RPA (Oct. 2010–Oct. 2013) contains a broad arbitration clause requiring AAA arbitration in Tortola, British Virgin Islands, and a Nebraska choice-of-law clause.
- AUCRA demanded arbitration (AAA) in May 2015, naming a former officer; Nandorf refused and filed suit in Illinois (July 2018) seeking to enjoin arbitration and declare the arbitration clause invalid.
- AUCRA moved to compel arbitration or transfer venue; the court converted the motion to a Rule 12(b)(3) motion to dismiss because §4 of the FAA limits a §4 order to the district where the petition is filed and the RPA designates arbitration outside this district.
- The court found the RPA both (1) contains broad language directing all disputes (including enforceability) to arbitration and (2) incorporates AAA Rules—together constituting clear and unmistakable delegation of arbitrability to the arbitrator.
- The court rejected Nandorf’s reverse-preemption (Nebraska anti-arbitration statute + McCarran-Ferguson) and collateral estoppel arguments, dismissed the case without prejudice for improper venue, and denied AUCRA’s transfer request as moot.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Court authority to compel arbitration given forum-selection (BVI) | Court cannot compel arbitration here because RPA mandates arbitration in Tortola, BVI, so §4 relief is unavailable | AUCRA sought §4 relief or transfer | Court converted to Rule 12(b)(3) and dismissed for improper venue (no §4 power to compel abroad) |
| Who decides arbitrability (court vs arbitrator) | Nandorf: arbitrability/delegation clause invalid; courts should decide | AUCRA: RPA clearly delegates arbitrability to arbitrator (broad clause + AAA Rules) | Court held parties clearly and unmistakably delegated arbitrability to arbitrator; arbitrator decides threshold issues |
| Effect of Nebraska choice-of-law and McCarran-Ferguson (reverse-preemption) | Nebraska Uniform Arbitration Act prohibits arbitration of insurance-related contracts; federal law should defer under McCarran-Ferguson, so delegation invalid | AUCRA: choice-of-law should not be read to displace arbitration clause or AAA Rules; Mastrobuono and Preston counsel harmonizing clauses and enforcing delegation | Court rejected reverse-preemption: choice-of-law does not override delegation to arbitrator; Mastrobuono limits reading choice clause to displace arbitration |
| Collateral estoppel from prior adverse rulings (Citizens decisions) | Nandorf: AUCRA already lost on delegation; collateral estoppel bars relitigation | AUCRA: prior decisions are mixed across jurisdictions; inconsistent judgments preclude estoppel | Court held collateral estoppel does not apply because outcomes across courts are inconsistent |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (recognizing FAA’s enforcement of arbitration agreements)
- Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63 (party may delegate arbitrability by clear and unmistakable evidence)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (party request to enforce delegation where clear and unmistakable delegation exists)
- Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (choice-of-law clauses should not be read to displace arbitration rules)
- Preston v. Ferrer, 552 U.S. 346 (incorporation of arbitration rules can assign gateway issues to arbitrators)
- Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lauer, 49 F.3d 323 (§4 orders can only be issued by the district court in the forum specified)
- Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801 (district court cannot compel arbitration outside its district)
- S. Jersey Sanitation Co., Inc. v. Applied Underwriters Captive Risk Assurance Co., Inc., 840 F.3d 138 (Third Circuit enforced RPA delegation clause)
- Citizens of Humanity, LLC v. Applied Underwriters Captive Risk Assurance Co., Inc., 909 N.W.2d 614 (Nebraska Supreme Court declined to enforce arbitration under RPA)