TEXAS GREEN STAR HOLDINGS LLC LLC v. CERTAIN UNDERWRITERS AT LLOYD LONDON CSXNWFQP0000165 00 W2D806200101 LLC (2024)

MEMORANDUM OPINION AND ORDER GRANTING MOTION TO ARBITRATE

Pending before the Court is a motion to compel arbitration from Certain Underwriters at Lloyd's London Subscribing to Policy No. W2D806200101, Certain Underwriters at Lloyd's London Subscribing to Policy No. CSXNWFQP0000165-00, Landmark American Insurance Company, and McLarens, Inc. (collectively the “moving defendants”). (Doc. 13). The plaintiffs resist arbitration. The two defendants who are insurance brokers and the individual defendant (an employee of a broker) want to stay in federal court and file motions to dismiss. After reviewing the motion, responses, reply, and applicable law, the Court GRANTS IN PART the moving defendants’ Motion to Compel Arbitration, compels the claims as against the moving defendants to arbitration, and stays the claims as to the moving defendants. The Court denies the request to compel arbitration or stay the remainder of the case. (Doc. 13).

I. Background

Plaintiffs are a start-up that bought a green house property in Sanger, Texas in 2020. Plaintiffs hired insurance brokers and agents Anchora Insurance Services, LLC (Anchora), Risk Placement Services, Inc. (RPS), and broker employee Ryan Pike to help procure insurance. Those defendants arranged three layers of coverage at $5 million each with the defendant insurers.

Winter Storm URI (aka “SNOWVID” or “Snowmageddon”) hit Texas in February 2021. It allegedly caused over $9 million in damage to the property. The plaintiffs filed a claim, and the insurers sent McLarens, Inc. (McLarens) to adjust the claim. McLarens requested information the plaintiffs believed to be irrelevant, and the plaintiffs sued after they concluded the insurers were creating reasons to deny coverage and delay payment despite the plaintiffs’ efforts to provide sufficient information to adjust the claim. Claims include for breach of contract, negligence, negligent misrepresentation, Texas Insurance Code chapter 541 violations, Texas Deceptive Trade Practice Act violations, and breach of fiduciary duty.

II. Legal Standard

In the Fifth Circuit, “[c]ourts perform a two-step inquiry to determine whether parties should be compelled to arbitrate a dispute.”¹ “The first is contract formation—whether the parties entered into any arbitration agreement at all.”² “The second involves contract interpretation to determine whether this claim is covered by the arbitration agreement.”³

III. Analysis

The moving defendants have filed a motion to compel arbitration. The three insurance policies provide:

If there is any dispute or disagreement as to the interpretation of the terms and conditions of this policy or the development, adjustment, and/or payment of any claim, they shall be submitted to the decision of a Joint Arbitrator that the Insured and Company shall appoint jointly.4

The plaintiffs acknowledge these clauses require arbitration with the moving defendants but that they waived the right to compel arbitration by substantially invoking the litigation process. And the plaintiffs contend McLarens (the adjuster) is not a party and cannot arbitrate. The two insurance brokers and employee contend they are nonsignatories, cannot be compelled to arbitrate, and should stay in active litigation so they can move to dismiss. The Court must assess the two groups separately.

A. Insurers and Adjuster

The parties do not dispute that there are valid arbitration clauses and the claims against the insurers and McLarens fit within their scope. The disagreement is over whether the insurers and McLarens waived the right to arbitrate by substantially invoking the litigation process. The Court concludes they did not.

The Supreme Court instructs that we are to resolve doubts regarding waiver in favor of arbitration.⁵ The Fifth Circuit has added that “[w]aiver of arbitration is not a favored finding and there is a presumption against it.”⁶ And the Supreme Court has instructed that this presumption in favor of arbitration “applies with special force in the field of international commerce.”⁷

Here's the conduct of the moving defendants the plaintiffs claim substantially invoked the litigation process for two years in state court:

asserting affirmative defenses, filing special exceptions, seeking a transfer and sever, filing for a protective order, seeking attorney's fees and costs, seeking to dismiss their agent, McLarens, Inc., participating in numerous hearings, appearing at depositions, responding to discovery, obtaining documents in discovery, filing a Plea in Abatement, filing a Writ of Mandamus with the Court of Appeals and with the Texas Supreme Court, filing a Motion for Leave to respond to a Broker's Motion to Transfer, agreeing to two separate scheduling orders which set trial and other deadlines, and signing agreed orders denying their requested relief after hearing.8

The crux of the state court dispute was the insurers arguing for an abatement of the state court suit until plaintiffs sat for an examination under oath.

Applying the law to these facts, there was no waiver. The litigation conduct the plaintiffs complain of was asserting their right to not litigate this dispute or to transfer it elsewhere. That conduct was not consistent with getting a court to reach the merits but was calculated to avoiding a court reaching the merits. Given that the Fifth Circuit has held that participating in discovery, moving for summary judgment, and filing a witness list isn't waiver,⁹ the Court must conclude there was no waiver here.

The remaining question is whether compelling arbitration should apply to the claims against McLarens, the adjuster. The plaintiffs say McLarens is a nonsignatory whose claims should be remanded to state court.¹⁰ The Court concludes the claims against McLarens should go to arbitration, as it has requested. “[I]n certain limited instances, pursuant to an equitable estoppel doctrine, a nonsignatory-to-an-arbitration-agreement-defendant can nevertheless compel arbitration against a signatory-plaintiff.”¹¹ The Fifth Circuit affirmatively echoed the Eleventh Circuit formulation:

Existing case law demonstrates that equitable estoppel allows a nonsignatory to compel arbitration in two different circumstances. First, equitable estoppel applies when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims arise out of and relate directly to the written agreement, and arbitration is appropriate. Second, application of equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.12

Whether or not the first prong of equitable estoppel applies, the second one surely does: the plaintiffs sued McLarens over interdependent and concerted misconduct with the insurers. As a result, the Court grants the motion to compel arbitration of claims against the insurers and McLarens.

B. Brokers and Employee

By contrast, the plaintiffs and remaining defendants do not contend the claims against the remaining defendants should go to arbitration. The moving defendants argue (1) the claims against the brokers and employees should go to arbitration because they are intertwined, and (2) if the Court doesn't send those claims to arbitration, the Court must stay them. The moving defendants only cited authority is a quote from the Fifth Circuit that: “Under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute, but not to the arbitration agreement.”¹³ But that case involved two parties to an arbitration agreement.¹⁴ What the moving defendants haven't shown is authority for a defendant/signatory to an arbitration agreement compelling a nonsignatory co-defendant to join the arbitration. Because the moving defendants have no authority to compel claims against the nonsignatory brokers and employee, the Court declines this aspect of their motion.

Anchora, RPS, and Pike argue they should stay here and get to file a motion to dismiss. The plaintiffs argue those claims should get remanded to state court. As mentioned above, the plaintiffs have discussed wanting a remand, but they haven't moved for it. They should file a motion promptly if they believe the case should now be remanded.

The final question is whether to stay the claims against Anchora, RPS, and Pike here. Those parties say no, as they want to move to dismiss. The moving defendants say yes, citing 9 U.S.C. § 3, which provides that “the court ․ shall on application by one of the parties stay the trial of the action until such arbitration has been had[.]” The problem for the moving defendants is that they aren't live parties to this action in light of the Court compelling arbitration of the claims against them. Because they have offered no applicable authority for their request to stay claims they are not litigating, the Court declines to stay this proceeding at the behest of the only parties no longer actively litigating this suit.

IV. Conclusion

Accordingly, the Court GRANTS IN PART the moving defendants’ Motion to Compel Arbitration, compels the claims as against the moving defendants to arbitration, and stays the claims as to the moving defendants. The plaintiffs or moving defendants should file for entry of judgment on any forthcoming arbitration award. The Court denies the request to compel arbitration or stay the remainder of the case.

IT IS SO ORDERED this 21st day of May, 2024.

FOOTNOTES

1.   Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 214 (5th Cir. 2003).

2.   Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201 (5th Cir. 2016).

3.   Id.

4.   Doc. 13 at 11.

5.   Associated Builders v. Ratcliff Constr. Co., 823 F.2d 904, 905 (5th Cir. 1987).

6.   Lawrence v. Comprehensive Bus. Servs. Co., 833 F.2d 1159, 1164 (5th Cir. 1987)

7.   Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985).

8.   Doc. 17 at 12.

9.   Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 897–98 (5th Cir. 2005).

10.   The remand request against McLarens, Anchora, RPS, and Pike is a request but not a motion. The Court rules on motions, not requests on the final page of a response.

11.   Grigson v. Creative Artists Agency, LLC, 210 F.3d 524, 526 (5th Cir. 2000).

12.   Id. at 527 (quoting McBro Planning & Dev. Co. v. Triangle Elec. Constr. Co., 741 F.2d 342 (11th Cir. 1984)) (emphasis in original).

13.   Sedco, Inc. v. Petroleos Mexicanos Mexican Nat. Oil Co. (Pemex), 767 F.2d 1140, 1148 (5th Cir. 1985) (cleaned up).

14.   Id. at 1144 (“Clause 21 of the charter party between Sedco and Permargo provides that they would submit ‘any dispute or difference between the parties’ to arbitration in New York under the rules of the International Chamber of Commerce.”).

BRANTLEY STARR, UNITED STATES DISTRICT JUDGE