Nat'l Home Ins. Co. v. Bridges

142 F.Supp.3d 425

National Home Insurance Company, a Risk Retention Group, Petitioner,

v.Ruth Bridges; Bonnie Jean Hardin; Kimberly Golen; and Jeffrey K. Bridges, Respondents.

MISC. ACTION NO. 6:15–00112–MGL

United States District Court, D. South Carolina, Greenville Division.

Signed October 30, 2015

William Richard Warnock, Jr., Womble Carlyle Sandridge and Rice, Charleston, SC, for Petitioner.

Wendell L. Hawkins, Greer, SC, for Respondent.

MEMORANDUM OPINION AND ORDER GRANTING PETITIONER'S MOTION TO COMPEL ARBITRATION AND DENYING PETITIONER'S MOTION TO STAY THE STATE COURT ACTION

MARY GEIGER LEWIS, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

This case was filed pursuant to 9 U.S.C. § 4 and 28 U.S.C. § 2283. The Court has jurisdiction pursuant to 28 U.S.C. § 1332. Pending before the Court is Petitioner National Home Insurance Company's Amended Motion to Compel Arbitration and Amended Motion to Stay the State Court Action. At issue, under the facts of this case, is (1) whether the Federal Arbitration Act, 9 U.S.C. §§ 1 –16, grants the Court the authority to compel Respondents to arbitrate their claims against Petitioner, and (2) whether 28 U.S.C. § 2283 provides the Court the power to enjoin Respondents from prosecuting their claims against Petitioner in state court while their claims are arbitrated. Having carefully considered the motions, the response, the reply, the record, and the applicable law, it is the judgment of the Court that Petitioner's motion to compel arbitration will be granted, but Petitioner's motion to stay the state court action will be denied.

II. FACTUAL AND PROCEDURAL HISTORY

Home Buyers Warranty Corporation (HBW) administers a nationwide new home warranty program (HBW Program) from its offices in Colorado. ECF No. 7 at 2. Petitioner is a Colorado corporation created and operating under the Federal Liability Risk Retention Act, 15 U.S.C. §§ 3901 –3906, and is the warranty insurer for South Carolina home builders who enroll homes in the HBW Program. ECF No. 7 at 2. The builder's contractual liability under an HBW Warranty is insured by Petitioner pursuant to the Risk Retention Act. Id.

In 2004, RMC, Inc. (Builder) constructed and sold Respondent Ruth Bridges the house at issue in the underlying lawsuit located at 926 E. Emerald Springs Drive, Spartanburg, South Carolina (Home). Id. at 4. Concurrently, on April 13, 2004, Respondent Bridges applied to obtain a Home Buyers Warranty policy with Petitioner concerning the Home. Id. ; ECF No. 10 at 1. Builder and Respondent Bridges signed the application, which Builder then sent from South Carolina to HBW's district office in Tucker, Georgia. ECF No. 7 at 4; ECF No. 10 at 1. Subsequently, HBW accepted the Home for enrollment in the HBW Program and mailed Respondent Bridges a Certificate of Warranty Coverage and a non-sample copy of the Operative HBW Warranty Booklet. ECF No. 7 at 5. The effective date of the policy was April 13, 2004. ECF No. 10 at 1. On September 5, 2008, Respondent Bridges conveyed her interest in the Home to her three children, Respondents Bonnie Jean Hardin, Kimberly Golden, and Jeffrey K. Bridges, while reserving a Life Estate Interest in the same. ECF No. 7–8 at 7.

The HBW Warranty at issue contains a one-year warranty against the occurrence of workmanship defects, a two-year warranty against the occurrence of system defects, and a ten-year warranty against the occurrence of structural defects. ECF No. 7 at 2; ECF No. 10 at 1. The HBW Warranty requires the builder or warranty insurer "to repair, replace, or pay the homeowner the reasonable cost of repair of any covered Structural Defect." ECF No. 7 at 3 (internal quotation marks omitted). The Colorado offices of HBW and Petitioner adjust claims arising under the HBW Warranty. Id.

The HBW Warranty mandates that any claim, dispute, or controversy between the homeowner and Petitioner shall be submitted to arbitration. Id. To be more specific, the HBW Warranty contains an arbitration agreement clause stating that "[t]he parties expressly agree that this arbitration provision involves and concerns interstate commerce and [is] governed by the provisions of the Federal Arbitration Act ... to the exclusion of any different or inconsistent state or local law, ordinance or judicial rule." Id. at 3–4 (internal quotation marks omitted). Further, the application stipulates that Respondent Bridges consents to the binding arbitration provision contained in the HBW Warranty. Id. at 4.

Under the terms of the HBW Warranty and prior to its expiration, Respondent Bridges contacted Petitioner to file a claim due to an alleged structural defect in the Home. ECF No. 10 at 1–2. Petitioner denied payment on the claim, and on February 18, 2015, Respondents filed an action against Petitioner in the Spartanburg County Court of Common Pleas. Id. at 2; ECF No. 7 at 5; see Ruth Bridges v. Nat'l Home Ins. Co., C.A. No.2015–CP–42–701 (S.C.Ct.Com.Pl. 7th Jud. Cir. Feb. 18, 2015). In the Complaint, Respondents pled causes of action against Petitioner for bad faith refusal to pay a claim, conspiracy, and a violation of the South Carolina Unfair Trade Practices Act. ECF No. 10 at 2; ECF No. 7 at 5. Petitioner filed an Answer pleading in part that Respondents' claims are subject to arbitration, ECF No. 7 at 5, and subsequently filed its Amended Motion to Compel Arbitration and Amended Motion to Stay the State Court Action with this Court. Respondents filed a Response in Opposition to the Motions, and Petitioner then filed a Reply. On September 29, 2015, the Court ordered Petitioner to respond to several interrogatories regarding the Court's power to order arbitration and stay the pending state court litigation, ECF No. 13, and Petitioner answered the interrogatories on October 1, 2015. ECF No. 15. The issues are thus ripe for decision by this Court.

III. STANDARD OF REVIEW

The Federal Arbitration Act (FAA) provides a federal district court with the authority to enforce an arbitration agreement by compelling parties to arbitrate their dispute. 9 U.S.C. § 4 ("A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28 ... for an order directing that such arbitration proceed in the manner provided for in such agreement."). States are vested with the same authority. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Section 2 of the FAA applies to any "contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract," and it provides that the written agreements to arbitrate contained in such contracts "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The United States Supreme Court has also noted a strong federal policy favoring arbitration. See Moses H. Cone, 460 U.S. at 24–25, 103 S.Ct. 927.

The Fourth Circuit Court of Appeals recognized the FAA's strong federal policy favoring arbitration agreements in Adkins v. Labor Ready, Inc., 303 F.3d 496 (4th Cir.2002), where the court stated, "A district court ... has no choice but to grant a motion to compel arbitration where a valid arbitration agreement exists and the issues in a case fall within its purview." Id. at 500 (citing United States v. Bankers Ins. Co., 245 F.3d 315, 319 (4th Cir.2001) ). The court further stated:

In the Fourth Circuit, a litigant can compel arbitration under the FAA if he can demonstrate "(1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision [that] purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and (4) the failure, neglect or refusal of the defendant to arbitrate the dispute."

Id. at 500–01 (quoting Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir.1991) ). Because "arbitration constitutes a more efficient dispute resolution process than litigation ... ‘due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration.’ " Id. at 500 (quoting Volt Info. Sciences, Inc. v. Bd. of Tr. of Leland Stanford Junior Univ., 489 U.S. 468, 475–76, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) ) (citing Hightower v. GMRI, Inc., 272 F.3d 239, 241 (4th Cir.2001) ).

For this Court to hear the dispute and rule on Petitioner's motion, the Court must have subject matter jurisdiction under 28 U.S.C. § 1332. Importantly, the FAA alone does not supply jurisdiction to the Court, because although it is a federal law, "it does not create any independent federal-question jurisdiction under 28 U.S.C. § 1331." Moses H. Cone, 460 U.S. at 25 n. 32, 103 S.Ct. 927. Rather, the Supreme Court has held that "there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order [compelling arbitration] can issue." Id. (citing Commercial Metals Co. v. Balfour, Guthrie, & Co., 577 F.2d 264, 268–69 (5th Cir.1978) ). A federal district court has subject matter jurisdiction through diversity of citizenship when the action is between citizens of different states and the amount in controversy is greater than $75,000. 28 U.S.C. § 1332(a).

IV. CONTENTIONS OF THE PARTIES

Petitioner moves for an order compelling arbitration and an order staying the state court action. ECF No. 7 at 1. As to Petitioner's motion to compel arbitration, Petitioner first asserts that this Court has diversity jurisdiction over the matter pursuant to 28 U.S.C. § 1332 and alleges that the amount in controversy requirement is met. Id. at 5–8. Petitioner next claims that the underlying contract involves or affects interstate...