ORDER ON OBJECTIONS TO THE ORDER OF THE MAGISTRATE JUDGE
On October 3, 2013, pursuant to an order of reference, Magistrate Judge Edward G. Bryant granted the Plaintiff, Milan Express Co., Inc.’s (“Milan”), motion to stop arbitration (D.E. 5) and denied Defendant, Applied Underwriters Captive Risk Assurance Company, Ine.’s (“AUCRA”), motions to compel arbitration (D.E. 16) and to transfer venue (D.E. 17). (See Order, D.E. 42.) The magistrate judge found that although the contract governing this action contains an arbitration provision, the agreement to arbitrate is invalid under controlling state law. Based on this finding, it was ordered that Plaintiffs action be adjudicated in federal court instead of in the nonjudicial forum of arbitration. Additionally, the magistrate judge concluded that in the interest of justice and for the convenience of the parties and witnesses, venue should remain in this District and not be transferred to federal court in Nebraska. AUCRA filed several objections to the magistrate judge’s order, and the Plaintiff has responded.
STANDARD OF REVIEW
Although the parties have not raised the issue, the Court must initially determine whether the matters ruled upon by the magistrate judge are nondispositive such that its review of the magistrate judge’s order is governed by 28 U.S.C. § 636(b)(1)(A) and Rule 72(a) of the Federal Rules of Civil Procedure, or dispositive such that review is under 28 U.S.C. § 636(b)(1)(B) and Rule 72(b).
Pursuant to 28 U.S.C. § 636(b)(1)(A), a magistrate judge is not authorized to “determin[e]” matters that are “dispositive of a claim or defense of a party.” Vogel v. U.S. Office Prods. Co.,
Under similar reasoning, the Court finds that Plaintiffs Motion to Stop Arbitration also presents a dispositive matter. Just as a motion to compel arbitration seeks injunctive relief in that it asks the court to command proceedings in a different forum, a motion seeking to stop arbitration does so by asking the court to interfere with proceedings in a different forum. Indeed, the Sixth Circuit has previously, albeit in a different context, characterized as injunctive the type of relief Plaintiff seeks in its motion, stating that a request for the court to invoke its equity powers to halt proceedings in another forum involves “the classic form of injunction.” Buffler v. Elec. Computer Programming Inst., Inc.,
As to whether Defendant’s motion to transfer venue presents a dispositive matter, there is no controlling Sixth Circuit precedent, and the district courts in this Circuit are without consensus. Compare Dial Corp. v. News Corp., No. 12-15613,
Accordingly, the Court construes the magistrate judge’s order as a report and recommendation and reviews the Defendant’s objections to the magistrate judge’s rulings de novo. See United States v. First Nat’l Bank of Atlanta,
BACKGROUND
The following is a summary of the facts underlying this cause as well as the arguments of the parties. It incorporates in part the corresponding portion of the magistrate judge’s order.
Plaintiff is a corporation organized and existing under the laws of Tennessee and maintains its principal place of business in Milan, Gibson County, Tennessee. (Compl. ¶ 1, D.E. 1.) AUCRA is a corporation organized and existing under the laws of the British Virgin Islands and maintains its principal place of business in Omaha, Nebraska. (Id. ¶ 2.) Tracy Light is a Tennessee resident and an insurance agent who at the pertinent times was employed by Brown and Brown (formerly Security Services, Inc.). (Id. ¶ 3.) Brown and Brown is an insurance intermediary organization or insurance broker that provides a variety of insurance and reinsurance products and services to businesses. (Id. ¶ 4.)
Plaintiff states that on or about September 25, 2008, as its existing workers’ compensation insurance coverage was coming to the end of its term, Light met with Plaintiff and provided proposals for insurance. (Id. ¶ 12.) Plaintiff chose the Workers Compensation Profit Sharing Plan, also known as EquityComp® (hereinafter “EquityComp”), offered by Applied Underwriters, Inc. (“AUI”).
Following Milan’s choice of Equity-Comp, it entered into a three-year “Reinsurance Participation Agreement” (“RPA”) with AUCRA, effective October 1, 2008. (Id. ¶ 22; RPA, Ex. 4 to Compl., D.E. 1-4.) Under the RPA, Plaintiff would capitalize, and AUCRA would maintain, a segregated cell account through which Plaintiff would share in the benefit of good loss experience at the risk of bearing the cost of unfavorable loss experience. (Report of Examination of CIC, Ex. 6 to Def.’s Resp. in Opp’n to Mot. to Stop Arbitration, D.E. 15-6 at 10-12.) This was complementary to a standing agreement between AUCRA and the Issuing Insurers, titled Quota Share Reinsurance Agreement (hereinafter “Reinsurance Treaty”), obligating AU-CRA to cover a portion (or layer) of loss incurred under EquityComp-participating insureds’ workers’ compensation policies in
Pursuant to these two agreements and the terms of Plaintiffs workers’ compensation policies, EquityComp functioned as follows.
The RPA contained an arbitration clause that stated the parties would “resolve any disputes arising under [the agreement] without resort to litigation.” (RPA ¶ 13(A), D.E. 1-4.) The clause contemplated a two-step process in which the parties would first attempt to amicably settle “by good faith discussion” among the parties all disputes “relating in any way to (1) the execution and delivery, construction or enforceability of [the agreement], (2) the management or operations of [AUCRA], or (3) any other breach or claimed breach of [the agreement] or the transactions contemplated [therein].” {Id. ¶ 13(B).) Then, “failing such amicable settlement,” the dis-putéis) would be determined by binding arbitration “in the British Virgin Islands under the provisions of the American Arbitration Association.” {Id. ¶ 13(A)-(B).) Elsewhere in the arbitration clause, however, it was provided that arbitration proceedings may take place either “in Tortola, British Virgin Islands or at some other location agreed to by the parties.” {Id. ¶ 13(1) (emphasis added).) The arbitration requirement would apply fully to “[a]ll disputes arising with respect to any provision of [the agreement]” and would “survive the termination of [the agreement] and be deemed to be an obligation of the parties which is independent of, and without regard to, the validity of [the agreement].” {Id. ¶ 13(B) & (K).) The RPA also contained choice-of-law and forum-selection clauses. The choice-of-law provision provided that the agreement “shall be exclusively governed by and construed in accordance with the laws of Nebraska.” (RPA ¶ 16, D.E. 1-4.) The RPA’s forum-selection clause required that “any matter concerning [the agreement] that is not subject to the dispute resolution provisions of [the arbitration clause] be resolved exclusively by the courts of Nebraska without reference to its conflict of laws.” {Id.)
The dispute precipitating this suit arose in early 2011 when Milan significantly reduced its workforce but was nonetheless billed for EquityComp premiums that were, according to Plaintiff, higher than ever before. (Compl. ¶¶ 103-08, D.E. 1.) After Plaintiff failed to pay its premium in May 2011, it received notice that its workers’ compensation policies and the RPA were being terminated for nonpayment. {Id. ¶¶ 110-11.) For approximately the next year, the parties attempted but failed to reach a settlement over the amount owed by the insured in unpaid premiums and early-cancellation penalties. {Id. ¶¶ 113-21.) On May 29, 2012, AUCRA filed a formal demand for arbitration with the American Arbitration Association. (Compl. ¶ 118, D.E. 1; Letter, Ex. 18 to Def.’s Resp. in Opp’n to Mot. to Stop Arbitration, D.E. 15-18.) On that same day, counsel for Plaintiff requested that Defendant hold or delay its demand “until the parties can try to settle this dispute amicably by ‘good faith discussion’ which is contemplated by the Reinsurance Participation Agreement.” (Email, Ex. 19 to Def.’s Resp. in Opp’n to Mot. to Stop Arbitration, D.E. 15-19.) On May 31, 2012, AUCRA responded by letter, setting out its attempts to resolve the dispute and offering that Defendant “would look favorably upon a request to extend the date for Milan Express’ response to the Demand if there is a bona fide intent to resolve this matter.” (Letter, Ex. 17 to Def.’s Resp. in Opp’n to Mot. to Stop Arbitration, D.E. 15-17.) Plaintiff admitted its bona fide intent and agreed to participate in pre-arbitration mediation and, in exchange, Defendant agreed to stay the arbitration proceedings for forty-five days. (Email, Ex. 20 to Def.’s Resp. in Opp’n to Mot. to Stop Arbitration, D.E. 15-20.) On July 26,
To date, Plaintiff states it has paid $8,065,099 under the RPA. (Compl. ¶ 122, D.E. 1.) AUI claims somewhere between $3,366,904.20 and $4,909,200.61 is outstanding and due it under the RPA and has made demand for payment, but Plaintiff has refused. (Id. ¶ 123). The insured complains that the RPA is intentionally vague and confusing, and that despite representations by AUI and its agents to the contrary, no investment income applied to the cell. Based on these facts, Milan filed a complaint in this Court on February 25, 2013, seeking declaratory relief and reformation of the RPA, along with claims of fraudulent misrepresentation, negligent misrepresentation, and breach of contract; and seeking punitive damages.
Relying on the arbitration clause in the RPA, Defendant filed its motion to compel arbitration on April 26, 2013, requesting that this action be dismissed and referred to arbitration. (D.E. 16.) Alternatively, the Defendants moved under 28 U.S.C. § 1404(a) to transfer venue of the action to the United States District Court for the District of Nebraska, the forum the parties contractually selected in the RPA. (D.E. 17.) Milan, on the other hand, has moved to stop any pending arbitration in this matter, arguing that the arbitration clause is unenforceable under Nebraska law. (D.E. 5.)
ANALYSIS
A. Defendant’s Motion to Compel Arbitration
In deciding whether to compel arbitration of the parties’ dispute, Magistrate Judge Bryant analyzed the enforceability of the RPA’s arbitration clause under Nebraska law, which the parties agreed controls. Defendant objects to this portion of the order, contending that the magistrate judge applied an incorrect legal standard. (D.E. 46 at 11.) Defendant cites to HRL Land or Sea Yachts v. Travel Supreme, Inc., No. 1:07-cv-945,
Contrary to the contention of the Defendant, (see D.E. 46 at 12), the
(“Where the assertion by the claimant is that the parties excluded from court determination not merely the decision of the merits of the grievance but also the question of arbitrability, vesting power to make both decisions in the arbitrator, the claimant must bear the burden of a clear demonstration of that purpose.” (emphasis added)). There is no indication in the RPA that the parties explicitly agreed to submit to the arbitrator the very issue of arbitrability. Cf. Graphic Arts Int’l Union, Local 199B v. Dayton Press, Inc.,
On the question of arbitrability, the magistrate judge found the RPA’s arbitration clause unenforceable under § 25-2602.01(f)(4) of the Nebraska Revised Statutes. Section 25-2602.01 provides, in pertinent part, that “[a] provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid [and] enforceable,” Neb. Rev.Stat. § 25-2602.01(b), except when that written contract is “an agreement concerning or relating to an insurance policy other than a contract between insurance companies including a reinsurance contract,” Neb.Rev.Stat. § 25-2602.01(0(4).
AUCRA objects to the fact that the magistrate judge focused solely on whether the RPA fell into the narrow exception for reinsurance contracts without first analyzing whether the statute was even applicable to the RPA. According to Defendant, it need not rely on § 25-2602.01’s exception for reinsurance contracts because the RPA does not “concern or relate to a policy of insurance” and therefore is outside the scope of subsection (f)(4). It contends that the statute is aimed only at prohibiting arbitration provisions in traditional insurance contracts between an insurance company and its insured. In support, Defendant relies on Kremer v. Rural Community Insurance Co.,
Furthermore, to interpret the statute as Defendant suggests would be to render the exception for reinsurance contracts meaningless. If the general prohibition was intended to apply only to traditional insurance contracts between an insurance company and its .insured, there would have been no need for the drafters to include an exemption for contracts of reinsurance since the general rule would not have applied to those contracts in the first place. As Defendant itself posits, “reinsurance contracts are not insurance contracts,” (D.E. 46 at 15 (quotation omitted)). And, in Nebraska and elsewhere, it is a well-settled rule of statutory construction that a statute should not be given an interpretation that would render any of its sections superfluous, redundant, or meaningless. Sch. Dist. of Omaha v. Gass,
Section 25-2602.01(0(4), by its very terms, applies not just to traditional insurance policies, but to any agreement “concerning or relating to an insurance policy.” When interpreting a statute, a court should give statutory language its “plain and ordinary meaning.” White v. Kohout,
AUCRA also objects to the magistrate judge’s finding that the RPA is not a reinsurance contract under the exception to § 25-2602.01(0(4). According to Defendant, the magistrate judge’s “misunderstanding of how [EquityComp] works is the foundation for [his] erroneous conclusion that the RPA is not a reinsurance transaction.” (D.E. 46 at 19.) It also contends that the magistrate judge erred in failing to consider certain evidence that it submitted on this issue and/or in failing
Before concluding his analysis, the magistrate judge addressed the Defendant’s position that the doctrines of waiver and estoppel prevented Milan from contesting the validity of the arbitration clause. Defendant argued that by attempting to resolve the parties’ dispute informally and requesting mediation, Plaintiff had already performed under the first step of the RPA’s arbitration clause. However, the magistrate judge concluded there had been no waiver because “[a]t no point did Defendant makes its participation in the mediation or informal settlement negotiations contingent upon Plaintiff agreeing to waive arguments or defenses.” (Order, D.E. 42 at 11.) Defendant objects to this conclusion, insisting once again that the magistrate judge employed an incorrect legal standard in reaching it. According to Defendant, the magistrate judge improperly placed the burden on AUCRA to “make its participation in the mediation or informal settlement negotiations contingent upon [Milan] agreeing to waive arguments or defenses,” (D.E. 46 at 26 (alteration in original)(internal quotation marks omittedXquoting Order, D.E. 42 at 11)).
The magistrate judge did not cite to any legal standard in conducting his analysis of waiver and estoppel, but the parties apparently agree that Nebraska law should apply. In Nebraska,
[w]aiver has been defined as a voluntary and intentional relinquishment or abandonment of a known existing legal right, advantage, benefit, claim, or privilege, which except for such waiver the party would have enjoyed; the voluntary abandonment or surrender, by a capable person, of a right known by him to exist, with the intent that such right shall be surrendered and such person forever deprived of its benefits; or such conduct as warrants an inference of the relinquishment of such right; or the intentional doing of an act inconsistent with claiming it.
Five Points Bank v. Scoular-Bishop Grain Co.,
Likewise, the doctrine of equitable estoppel does not bar Plaintiffs challenge. Although, as Defendant points out, the magistrate judge did not set forth the relevant legal standard before concluding Plaintiffs conduct did not warrant the imposition of equitable estoppel, his conclusion is nonetheless well supported by Nebraska law. Equitable estoppel is appropriate where there is, as to the party estopped,
(1) conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) the intention, or at least the expectation, that such conduct shall be acted upon by, or influence, the other party or other persons; and (3) knowledge, actual or constructive, of the real facts; as to the other party, (4) lack of knowledge and of the means of knowledge of the truth as to the facts in question; (5) reliance, in good faith, upon the conduct or statements of the party to be estopped; and (6) action or inaction based thereon of such a character as to change the position or status of the party claiming the estoppel, to his injury, detriment, or prejudice.
Chappelear v. Grange & Farmers Ins. Co.,
Finally, in its independent assessment of this matter, the Court has determined that even if Defendant’s motion to compel were otherwise well taken, it would be subject to denial because this Court does not have the authority to grant the precise relief sought. Although Defendant’s motion did not so state, the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., provides the mechanism for enforcing the RPA’s purported arbitration requirement since the RPA is “a contract evidencing a transaction involving commerce.” 9 U.S.C. § 2. Section Four of the Act provides, “A party ... may petition any United States district court which, save for [an arbitration agreement between the parties] would have jurisdiction under Title 28 ... for an order directing that such arbitration proceed in the manner provided for in such agreement.” Id. § 4. However, where a court “directfs] the parties to proceed to arbitration,” the proceedings “shall be within the district in which the petition for
This geographic-nexus requirement is fatal to Defendant’s motion. Although the motion itself does not specify where the arbitration Defendant seeks to compel would occur, Defendant makes clear in later briefing that it “would take place in Chicago, the same place where the parties conducted their pre-arbitration mediation.” (D.E. 51-1 at 2.) This Court, sitting in the Western District of Tennessee, is without jurisdiction, pursuant to § 4 of the FAA, to order the parties to arbitrate in Chicago, Illinois. For this reason, as well as those set forth above, the motion to compel arbitration is DENIED.
B. Plaintiffs Motion to Stop Arbitration
The vast majority of Defendant’s objections, treated above, to the denial of its motion to compel arbitration are likewise objections to the grant of Plaintiffs motion to stop arbitration, as these motions share the common question of arbitrability. The Court need not revisit these objections, and Defendant has not lodged any additional objections specific to the magistrate judge’s handling of the motion to stop arbitration.
As an aside, the Court acknowledges the existence of some authority holding that a court is without jurisdiction to stay arbitration proceedings outside its district. These decisions have reached such result by applying the geographic-nexus requirement of § 4 of the FAA to motions to compel arbitration and to motions to stay arbitration alike. See, e.g., S. Concrete Prods., Inc. v. ARCO Design/Build, Inc., No. 1:11cv194,
Although the Sixth Circuit has not directly spoken on the issue, it has on at least one occasion applied one of the general venue provisions in 28 U.S.C. § 1319 in an action to enjoin arbitration pending
Furthermore, as the Sixth Circuit recently reiterated, “the Judiciary Act of 1789 vested district courts with jurisdiction over ‘all suits of a civil nature at common law or in equity,’ and Rule 65 of the Federal Rules of Civil Procedure provided a mechanism through which district courts could exercise the equitable power to issue injunctions,” and these “general provisions” govern requests for injunctive relief unless a more specific provision applies to the matter. Findlay Truck Line, Inc. v. Cent. States, Se. & Sw. Areas Pension Fund,
Having found the parties’ arbitration agreement unenforceable under governing law, the Court GRANTS the Plaintiffs motion to stop arbitration of this dispute, whether in Chicago, Illinois, or in any other location.
C. Defendant’s Motion to Transfer Venue
After concluding that this action should remain in federal court, Magistrate Judge Bryant considered Defendant’s motion to transfer the case to the United States District Court for the District of Nebraska. The basis of Defendant’s motion was ¶ 16 of the RPA, which stated that “any matter concerning this Agreement that is not subject to the dispute resolution provisions [of the arbitration clause] be resolved exclusively by the courts of Nebraska,” (RPA ¶ 16, D.E. 1-4). Under 28 U.S.C. § 1404(a), a district court may, “[f]or the convenience of parties and witnesses, in the interest of justice, ... transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.”
In denying § 1404(a) transfer, the magistrate judge considered the following factors: “(1) [whether] the action could have initially been filed in the transferee forum; (2) [whether] the transfer
“Section 1404(a) is intended to place discretion in the district court to adjudicate motions for transfer according to an ‘individualized, case-by-ease consideration of
[T]his case arises out of an insurance policy obtained by a Tennessee company in Tennessee through a Tennessee agent that resulted in premiums paid for in Tennessee. The alleged fraudulent and negligent misrepresentations were made in Tennessee. The contract that was allegedly breached was formed in Tennessee. The majority of the witnesses are located in Tennessee.... Nebraska ... has very little relation to this case.
(Order, D.E. 42 at 17.) Given these facts, with heaviest weight placed upon the convenience of the witnesses, transferring this case to Nebraska, despite it being the contractually specified forum and the state whose law will govern, would not serve the interest of justice. See Returns Distrib. Specialists, LLC v. Playtex Prods., Inc., No. 02-1195-T,
In so finding, the Court rejects the Defendant’s argument, (D.E. 46 at 30), that the public-interest concern of “maintaining systemic integrity” tips the balance in favor of a transfer. Assuming arguendo that “adhering to settled principles of freedom of contract and the enforceability of forum selection clauses” is even a matter of systemic integrity, as Defendant would
CONCLUSION
For the reasons articulated herein and upon de novo review, the Court hereby ADOPTS the ultimate decisions of the magistrate judge that Defendant’s motion to compel arbitration be DENIED; Plaintiffs motion to stop arbitration be GRANTED; and Defendant’s motion to transfer venue to the District of Nebraska be DENIED.
Notes
. AUCRA argues that Plaintiff, in its complaint, and the magistrate judge, in his order, improperly conflate AUCRA and AUI, failing to appreciate that the two are separate entities. AUCRA represents that, contrary to the magistrate judge's understanding, it [AUCRA] is an “indirect subsidiary” of AUI. (D.E. 46 at 5.) As well, the EquityComp proposal, which AUCRA has presented to the Court, describes AUCRA as a "subsidiary of [AUI].” (See Equi-tyComp Workers' Compensation Program Proposal & Rate Quotation, Ex. 1 to Def.'s Resp. in Opp'n to Pl.’s Mot. to Stop Arbitration, D.E. 15-1 at 3.) The Court agrees that Plaintiff and the magistrate judge alike improperly failed to distinguish AUCRA from AUI. As such, where possible, the Court attempts herein to identify which of these two entities is intended by each of the various generic references to "Applied Underwriters” or "Defendant” in the complaint and/or in the magistrate judge’s order.
. Defendant contends that the magistrate judge’s factual recitation reflects a "misunderstanding of how the [EquityComp] program worked” and that the magistrate judge simply "accepted Milan's characterization of the facts ... verbatim [without] considering] or explaining] the inapplicability of the plain language of the [EquityComp proposal] and RPA as well as the evidence submitted by AUCRA.” (D.E. 46 at 17, 1.9.) Although the Court does not find that the magistrate judge fundamentally misunderstood EquityComp, some aspects of the magistrate judge's factual findings, while consistent with allegations in the complaint, do not account for conflicting evidence presented by AUCRA on the point. To that extent, and upon de novo review, the Court REJECTS in part the magistrate judge's factual findings as to the basic details of Equi-tyComp: