36 F.4th 766
8th Cir.2022Background
- SUNZ (Florida insurer) and Benchmark (Kansas insurer) entered agreements with affiliate SIS to issue and administer large-deductible workers’ compensation policies; SIS collected collateral and Benchmark issued the policies.
- Payday and Century (Florida insureds) signed Program Agreements with SIS that (1) incorporate arbitration for disputes "arising out of or relating" to the Program Agreement and (2) state the insurance policy controls if there is a conflict with the Program Agreement.
- Benchmark filed an interpleader after alleging SUNZ commingled collateral; Benchmark deposited funds into the court registry and was discharged, leaving competing claims by Payday, Century, and SUNZ.
- Payday and Century filed crossclaims against SUNZ alleging breach of contract, improper collateral increases, and mismanagement; SUNZ moved to dismiss for lack of subject-matter jurisdiction (nondiverse parties) or, alternatively, to compel arbitration under the Program Agreement.
- The district court exercised supplemental jurisdiction over the state-law crossclaims and denied SUNZ’s motion to compel arbitration; the Eighth Circuit reversed the denial and remanded, holding supplemental jurisdiction was proper and arbitration must be compelled.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court has subject-matter jurisdiction over nonfederal crossclaims in interpleader | Payday: crossclaims derive from same nucleus of operative fact as interpleader, so supplemental jurisdiction is proper | SUNZ: no diversity between parties; district court lacks subject-matter jurisdiction over state-law crossclaims | Court: supplemental jurisdiction proper because crossclaims arise from same case or controversy; district court did not err in exercising it |
| Whether crossclaims must be sent to arbitration under the Program Agreement | Payday: Program Agreement was superseded by the Policy (so arbitration clause inapplicable) | SUNZ: arbitration clause covers disputes over the Program Agreement and any challenge to contract validity (not to the arbitration clause) must go to arbitrator | Court: denial of motion to compel arbitration was error; arbitrability and contract-validity challenges (not aimed at the arbitration clause itself) belong to arbitrator; compel arbitration and remand |
Key Cases Cited
- United Mine Workers v. Gibbs, 383 U.S. 715 (Sup. Ct. 1966) (federal and state claims form a single case or controversy if they derive from a common nucleus of operative fact)
- Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365 (Sup. Ct. 1978) (context matters when exercising ancillary or supplemental jurisdiction over nonfederal claims)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (Sup. Ct. 2006) (challenges to the contract as a whole go to the arbitrator unless the arbitration clause itself is attacked)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (Sup. Ct. 1967) (separable-arbitrability principle: arbitrator decides contract-wide validity issues absent a direct attack on arbitration clause)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (Sup. Ct. 2019) (courts cannot refuse to enforce arbitration provisions even if underlying claims appear frivolous)
- Donelson v. Ameriprise Fin. Servs., Inc., 999 F.3d 1080 (8th Cir. 2021) (standard and scope of appellate review of denial to compel arbitration)
- Ark. Blue Cross & Blue Shield v. Little Rock Cardiology Clinic, P.A., 551 F.3d 812 (8th Cir. 2009) (burden on party asserting federal jurisdiction; review of supplemental jurisdiction de novo)
- M.A. Mortenson Co. v. Saunders Concrete Co., 676 F.3d 1153 (8th Cir. 2012) (motion to compel arbitration is granted when a valid arbitration clause encompasses the dispute)