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James River Insurance Co. v. Atlantic Building Systems, LLC

United States District Court, D. Colorado

May 9, 2017



          Nina Y. Wang Magistrate Judge

         This matter is before the court on Defendant Atlantic Building Systems, LLC's (“Defendant” or “Armstrong Steel”) Motion to Dismiss or in the Alternative Motion to Stay (the “Motion to Dismiss”) [#10, filed September 1, 2016], [1] which was referred to this Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1), the Order Referring Case dated August 15, 2016 [#6], and the Memorandum dated October 4, 2016 [#14]. Because Defendant seeks to dismiss the action in favor of arbitration and only alternatively, seeks to compel arbitration and stay the matter, [2] this court treats it as a dispositive motion. See Vernon v. Qwest Commc'ns Int'l, Inc., 925 F.Supp.2d 1185, 1189 (D. Colo. 2013) (reviewing a motion to compel as dispositive, despite the magistrate judge's conclusion otherwise, given the uncertainty as to whether such motions are dispositive). But see Adetomiwa v. Coll., No. 15-CV-01413-PAB-NYW, 2015 WL 9500787, at *1 (D. Colo. Dec. 31, 2015) (citing PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10 (1st Cir. 2010) (holding that a motion to compel arbitration is non-dispositive because a district court retains jurisdiction to review the arbitration award); Virgin Islands Water & Power Auth. v. Gen. Elec. Int'l Inc., 561 F. App'x 131, 133 (3d Cir. 2014) (unpublished) (“A ruling on a motion to compel arbitration does not dispose of the case, or any claim or defense found therein.”).

         Nevertheless, the same legal standards apply to this instant Motion to Dismiss as would apply to a motion to compel arbitration. Having reviewed the Parties' briefing and the applicable case law, this court finds that oral argument would not materially assist in the Recommendation. Accordingly, for the reasons stated below, this court respectfully RECOMMENDS that Defendant's Motion to Dismiss be GRANTED.


         This case arises from an insurance coverage dispute between Plaintiff James River Insurance Company (“Plaintiff” or “James River”) and Armstrong Steel. James River issued professional liability policies to Defendant beginning September 22, 2011. [#1 at ¶ 8]. James River then issued renewal number 00050092-4, effective September 22 2015 to May 1, 2016. [#28 at ¶ 8]. James River separately issued renewal number 00050092-5, effective May 1, 2016 to May 1, 2017. [Id.]. In procuring policy numbers 00050092-4 and 00040092-5, Armstrong Steel submitted applications for insurance, signed by its CEO Ethan Chumley, representing that no claims had ever been made against it and further representing that it was not aware of any act, error, omission or circumstance which would possibly result in a claim being made against it. [Id. at ¶¶ 9-10]. James River contends that contrary to that representation, Armstrong Steel knew of several lawsuits, but failed to disclose them. [Id.]. Specifically, James River asserts that Defendant was aware of, and actively participated in, a lawsuit and arbitration proceeding arising from legal actions taken by Lake Norman Tennis Center, LLC (“Lake Norman proceedings”). [Id.]. Armstrong Steel has made a claim for coverage under the James River policies for the Lake Norman proceedings. [Id. at ¶ 14].

         On September 1, 2016, Armstrong Steel moved to dismiss the action in favor of arbitration. [#10]. Defendant contends that there are arbitration clauses in the two policies at issue that require the Parties to submit to arbitration to resolve this policy coverage dispute. [Id.]. Plaintiff disagrees, arguing that the endorsements to the policies contemplate litigation in court, not arbitration. [#13 at 6-7]. James River further contends that even if the arbitration clause is binding on the Parties, it does not require arbitration, but rather is permissive. [Id. at 7]. In Reply, Defendant argues that the arbitration clause is mandatory and the Service of Suit endorsements apply only “in the event of the failure of the Company to pay any amount claimed to be due hereunder.” [#16 at 5-6]. This court now turns to the interpretation of the relevant policy language.


         The Federal Arbitration Act (“FAA”), 9 U.S.C. § 4, does not create an independent basis for federal subject matter jurisdiction. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26 n.32 (1983); P&P Industries, Inc. v. Sutter Corp., 179 F.3d 861, 866 (10th Cir. 1999). Therefore, this court first preliminarily considers whether there is subject matter jurisdiction for this action. In the Complaint, Plaintiff contends that it is an Ohio corporation and has a principal place of business in Virginia. [#1 at ¶ 1]. It further contends that Armstrong Steel is a limited liability company whose members are not citizens or residents of Ohio or Virginia and has a principal place of business in Colorado. [Id. at ¶ 2]. In the pending Motion to Dismiss, Defendant does not dispute the allegations about its citizenship, nor does it move to dismiss for lack of diversity jurisdiction. [#10]. This court takes judicial notice that in other matters before this court, Armstrong Steel has identified itself as a Delaware corporation with its principal place of business in Colorado. See [General Steel Domestic Sales, LLC v. Chumley, No. 14-cv-01932-REB-CBS, ECF No. 1 at ¶ 6, 57 at ¶ 6]. Thus, this court is satisfied of its jurisdiction pursuant to diversity of citizenship under 28 U.S.C. § 1332(a)(1).[3]

         The law is well established that “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (citation omitted). Accordingly, this court will apply the long-settled two-step inquiry for whether to enforce an arbitration clause: (1) did the Parties enter an agreement to arbitrate; and (2) if so, does the dispute at issue fall within the scope of the arbitration agreement. See, e.g., National American Insurance Co. v. SCOR Reinsurance Co., 362 F.3d 1288, 1290 (10th Cir. 2004); Williams v. Imhoff, 203 F.3d 758, 764 (10th Cir. 2000).

         “Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.” Riley Manufactoring Co., Inc. v. Anchor Glass Container Corp., 157 F.3d 775, 779 (10th Cir. 1998). Where the parties dispute whether an arbitration agreement exists, the party moving to compel arbitration bears a burden similar to what a movant for summary judgment faces. Hancock v. Am. Tel. & Tel. Co., Inc., 701 F.3d 1248, 1261 (10th Cir. 2012). If the moving party carries this burden, the burden shifts to the non-moving party to show a genuine issue of material of fact about the formation of the agreement to arbitrate. Id.

         In addition, Section 3 of the FAA provides for a stay of this action pending the ultimate outcome of arbitration:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. ยง ...

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