Queen's Med. Ctr., Non-Profit Corp. v. Travelers Cas. & Sur. Co. of Am., Corp.

THE QUEEN'S MEDICAL CENTER,A Hawaii Non-Profit Corporation, et al., Petitioner, v. TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA,a Connecticut corporation, Respondent.

CIV. NO. 17-00361 JMS-RLP

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAII

April 9, 2018

ORDER (1) GRANTING PETITION TO COMPEL ARBITRATION UNDER THE FEDERAL ARBITRATION ACT, ECF NO. 1; AND (2) GRANTING MOTION TO STRIKE JURY DEMAND, ECF NO. 48

I. INTRODUCTION

On February 10, 2017, Petitioner The Queen's Medical Center ("Queens") and its insurance carrier, Travelers Casualty and Surety Company of America ("Travelers"), entered into a hand-written one-page agreement to arbitrate an insurance coverage dispute before a panel of three arbitrators. Travelers has refused to move forward with the arbitration, claiming that the arbitrator selected by Queens has a disqualifying conflict. Now before the court is Queens' Petition to Compel Arbitration Under the Federal Arbitration Act ("Petition to Compel"), ECF No. 1, and Queen's Motion to Strike Jury Demand, ECF No. 48. For the reasons discussed below, the court GRANTS the Petition to Compel and the Motion to Strike Jury Demand.

II. BACKGROUND

A. Factual Background

The history of the litigation underlying this coverage dispute is long and complex. Because the parties are aware of this history, as well as the coverage dispute, the court sets forth only those facts necessary to provide general background and context to this Order.

In early 2012, Pacific Radiation Oncology, LLC, along with physicians affiliated with Pacific Radiation Oncology (collectively, "PRO") brought the underlying suit against Queens in state court (later removed to federal court) making various claims relating to Queens' radiation oncology department. See Civ. No. 12-00064 LEK-KSC, ECF No. 1. In 2014, Queens filed a counterclaim against PRO. Id., ECF No. 175. Travelers defended Queens under a reservation of rights. Pl.'s Ex. B, ECF No. 1-4.

On February 7, 2017, Magistrate Judge Kevin S.C. Chang directed Travelers to send a representative with full settlement authority to a February 10, 2017 settlement conference. Civ. No. 12-00064, ECF No. 878. Travelers complied, and sent John Godbout, Travelers' Managing Director and Counsel. Godbout Decl. ¶ 5, ECF No. 21-1.

On February 10, 2017, Queens and Travelers agreed on a process to handle their coverage dispute.¹ Travelers agreed to contribute $1,000,000 as a portion of the overall settlement package between Queens and PRO, and Queens reserved "its right to pursue its claims as a policyholder against Travelers." Pl.'s Ex. A, ECF No. 1-3. In order to resolve that coverage dispute, Queens and Travelers agreed to "(1) discuss/mediate the disputed issues regarding Queens' rights under the policy for 45 days and, if no agreement can be reached, (2) arbitrate their disputes in Hawaii on an expedited basis before a panel of three arbitrators with a decision deadline of May 31, 2017." Id.²

After mediation failed, the parties agreed each would select one arbitrator, and those two arbitrators would then select the third. Queens selected Alan Van Etten and Travelers selected Michael Tanoue. After Van Etten provided his required disclosures, Travelers objected on three grounds: 1) in the underlyinglitigation, Van Etten acted as counsel for PRO in obtaining insurance coverage in connection with Queen's counterclaim against PRO;³ 2) Van Etten previously represented clients adverse to Travelers in coverage matters; and 3) Van Etten has used Queens' health services. See ECF Nos. 1-11; 16-1; 21-3. As a result, the arbitration has stalled — Queens has named Van Etten to serve as an arbitrator, but Travelers refuses to proceed with Van Etten.

B. Procedural Background

Queens filed its Petition to Compel Arbitration on July 25, 2017. ECF No. 1. Travelers filed an Opposition to the Motion to Compel on September 11, 2017, ECF No. 21, and Queens filed its Reply on October 10, 2017, ECF No. 31.⁴ After further settlement discussions failed, a hearing was held on April 9, 2018.

III. STANDARD OF REVIEW

"With limited exceptions, the Federal Arbitration Act (FAA) governs the enforceability of arbitration agreements in contracts involving interstatecommerce." Kramer v. Toyota Motor Corp., 705 F.3d 1122, 1126 (9th Cir. 2013). The Act's interstate commerce language is read broadly, to extend to the full reach of Congress' power under the Commerce Clause. Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 273-77 (1995). Thus, if the interstate commerce requirement is met, the FAA applies to the arbitration agreement. Belnap v. Iasis Healthcare, 844 F.3d 1272, 1279 (10th Cir. 2017).

Written arbitration agreements under the FAA "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; see also Kramer, 705 F.3d at 1126 ("With limited exceptions, the [FAA] governs the enforceability of arbitration agreements in contracts involving interstate commerce."). When an agreement falls within the FAA, a "strong default presumption is that the FAA, not state law, supplies the rules for arbitration." Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1269 (9th Cir. 2002), opinion amended on other grounds, 289 F.3d 615 (9th Cir. 2002) (citing Wolsey, Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1213 (9th Cir. 1998)) (other citation omitted). "To overcome that presumption, parties to an arbitration agreement must evidence a 'clear intent' to incorporate state law rules for arbitration." Fid. Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 1311 (9th Cir. 2004); Johnson v. Gruma Corp., 614 F.3d 1062, 1066 (9th Cir. 2010).

Under the FAA, "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

In determining whether to compel arbitration, a district court may not review the merits of the dispute; rather, "the court must determine (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue." Lowden v. T-Mobile USA, Inc., 512 F.3d 1213, 1217 (9th Cir. 2008) (quotation marks and citation omitted). "If the answer is yes to both questions, the court must enforce the agreement." Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004) (citing Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000)); see also Momot v. Mastro, 652 F.3d 982, 986 (9th Cir. 2011) ("Because arbitration is fundamentally a matter of contract, the central or primary purpose of the FAA is to ensure that private agreements to arbitrate are enforced according to their terms.") (quotation marks and citations omitted).

To determine whether a valid agreement to arbitrate exists, a district court must apply "ordinary state-law principles that govern the formation of contracts." Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1283 (9thCir. 2017) (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). "[A]greements to arbitrate [may] be invalidated by generally applicable [state-law] contract defenses" to enforceability such as "fraud, duress, or unconscionability." AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011); see Lowden, 512 F.3d at 1217 ("[Determining] whether . . . a valid agreement to arbitrate exists . . . requires [a court] to consider what is unconscionable and unenforceable under . . . state law."). Under Hawaii law, "[t]he party seeking to compel arbitration carries the initial burden of establishing that an arbitration agreement exists," and if met, the burden then "shifts to the opposing party to present evidence on its defenses to the arbitration agreement." Siopes v. Kaiser Found. Health Plan, Inc., 130 Haw. 437, 446, 312 P.3d 869, 878 (2013).

IV. DISCUSSION

There is no question that the parties entered into a written arbitration agreement. As part of that overall agreement, Travelers agreed to contribute $1,000,000 towards the Queens/PRO settlement (which it did), and both parties agreed, if mediation failed, to "arbitrate their dispute in Hawaii on an expedited basis before a panel of three arbitrators with a decision deadline of May 31, 2017." Pl.'s Ex. A, ECF No. 1-3.

Travelers now argues, however, that the Motion to Compel should be denied because: 1) the FAA does not apply to the agreement; 2) the agreementdoes not set forth key elements of an arbitration, such as rules to govern the arbitration or to determine the scope of discovery, the issuance of subpoenas, and the selection of arbitrators; and 3) Alan Van Etten, Queen's chosen arbitrator, has a disqualifying conflict, and Travelers never agreed to a non-neutral arbitrator.⁵

A. The FAA Applies to the Agreement

Travelers' suggestion that the FAA doesn't apply to the agreement is specious. Queens, a Hawaii corporation, purchased insurance from Travelers, a Connecticut corporation that sells insurance nationwide. Answer ¶ 3, ECF No. 19. As a result, the policy and agreement evidence a commercial transaction that involves interstate commerce. See 9 U.S.C. § 2; Allied-Bruce, 513 U.S. at 282; Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003). And because the agreement is governed by the FAA, "the FAA, not state law, supplies the rules for arbitration." Sovak, 280 F.3d at 1269. This is true regardless of whether the parties specifically agreed to submit to arbitrate under the FAA — the agreement is in interstate commerce, and thus the FAA applies. Kong v. Allied Prof'l Ins. Co., 750 F.3d 1295, 1303 (11th Cir. 2014) (stating that "if a contract involves interstate commerce, a court must resolve arbitration disputes according to the FAA").

B. The Agreement is Valid and Enforceable

Under the FAA,...