James Dickey, Inc. et al v. Alterra America Insurance Company et al

Filing 65

ORDER DENYING PLAINTIFFS MOTION TO VACATE APPRAISAL 58 by Judge Otis D. Wright, II. (lc). Modified on 7/14/2017. (lc).

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O 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 JAMES DICKEY, INC., 12 13 14 v. Case No. 5:15-cv-00963-ODW (DTB) Plaintiff, ALTERRA AMERICA INSURANCE COMPANY; and DOES 1 through 20, inclusive, 15 ORDER DENYING PLAINTIFF’S MOTION TO VACATE APPRAISAL [58] Defendants. 16 I. 17 INTRODUCTION 18 Before the Court is Plaintiff James Dickey, Inc.’s motion to vacate a November 19 18, 2016 appraisal award in the amount of $27,237.28. (ECF No. 58.) For the 20 following reasons, the Court DENIES Plaintiff’s motion.1 II. 21 FACTUAL BACKGROUND 22 Two years into this case, the parties are well aware of the facts. Plaintiff 23 purchased an inland marine insurance policy from Defendant Alterra Insurance 24 Company with an effective date of October 1, 2013. (First Am. Compl. (“FAC”) ¶ 8, 25 ECF No. 30.) On April 4, 2014, certain Snap-On brand tools covered under the policy 26 were stolen. (FAC ¶¶ 9, 11.) The parties were subsequently unable to agree on the 27 28 1 After considering the papers submitted by the parties, the Court deemed this matter appropriate for decision without oral argument. Fed. R. Civ. P. 78(b); C.D. Cal. L.R. 7-15. 1 value of the stolen tools, and thus Defendant moved to compel an appraisal under the 2 policy. (See Mot., ECF No. 32; Policy 12, ECF No. 16-5.) The Court granted 3 Defendant’s motion after Plaintiff failed to timely oppose it. (Order 2, ECF No. 35.) 4 The appraisal provision in the relevant policy calls for each party to nominate 5 an appraiser and then for the appraisers to agree on an “impartial umpire.” (Policy 6 12.) At that point, the two appraisers each render their appraisal. (Id.) If the 7 appraisers’ proposed awards do not match, the umpire steps in. (Id.) When the 8 umpire and one of the parties’ appraisers agree on an award in writing, the award 9 becomes final. (Id.) 10 Plaintiff nominated Eugene Twarowski as its appraiser and Defendant 11 nominated David Smith. (Smith Decl. ¶¶ 2–3, ECF No. 62-12; McCarthy Decl. ¶ 2, 12 ECF No. 62-13.) Sometime in mid-July, the parties’ appraisers agreed that Bo 13 McCarthy would serve as umpire. (Smith Decl. ¶ 5.) On September 12, 2016, 14 McCarthy provided the parties with a disclosure statement indicating that he had 15 worked with Twarowski on an appraisal approximately five years prior; Twarowski 16 had served as the public adjuster2 and he (McCarthy) had served as “[a]ppraiser for 17 the [i]nsurance company.” (McCarthy Decl. ¶¶ 3–5; Twarowski Decl., Ex. B, ECF 18 No. 58-1.) 19 On October 20, 2016, the appraisers formally recognized that McCarthy’s 20 services would be necessary after they conferred and could not reach an agreement on 21 the value of the tools. (Smith Decl. ¶ 9.) On November 7, 2016, the appraisers held a 22 conference call with McCarthy during which McCarthy proposed that they set up an 23 in-person meeting to review the record and further discuss the contested issues. 24 (Smith Decl. ¶ 10.) Later that night, Twarowski sent an email to Smith and McCarthy 25 suggesting dates for the meeting and making them aware that he might bring a 26 witness. (Twarowoski Decl., Ex. D.) In response, McCarthy sent an email to both 27 28 2 McCarthy actually wrote that Twarowski was the “Owner’s Appraiser” but later noted that this was incorrect—Twarowski was the public adjuster. (McCarthy Decl. ¶ 5.) 2 1 parties’ appraisers indicating that he would expect them to “put on witnesses or bring 2 any documents that strengthen [their] position” to the meeting. (Id.) 3 On November 14, 2016, Defendant’s attorney wrote a letter to Twarowski, 4 Smith, McCarthy, and Plaintiff’s attorney requesting that Plaintiff identify any witness 5 it intended to bring to the meeting and provide a “detailed explanation” of what topics 6 the witness intended to discuss. (Twarowski Decl., Ex. F.) On November 15, 2016, 7 Twarowski wrote an email to Smith, McCarthy, and Defendant’s attorney indicating 8 that he would not be bringing any witness to the meeting. (Twarowski Email, ECF 9 No. 62-5 (“I am not calling any witness to testify at the panel meeting.”).) 10 On November 17, 2016, the appraisers and McCarthy met to discuss the 11 competing appraisals. (McCarthy Decl. ¶ 7.) Both sides presented their positions: 12 Defendant’s appraiser argued that depreciation should be applied to the tools and 13 Plaintiff’s appraiser argued that depreciation should not be applied to the tools. (Id.) 14 McCarthy agreed with Defendant’s appraiser that some measure of depreciation 15 should be applied to the tools. (Id. ¶ 8.) At that point, Plaintiff’s appraiser requested 16 the meeting be “adjourned so that he could have more time to gather additional 17 evidence” about “how Snap On prices had risen year over year.” (Twarowski Decl. 18 ¶ 11.) McCarthy denied Twarowski’s request for what amounted to a continuance, 19 informing Twarowski that the meeting would not be adjourned and that the appraisal 20 would be completed “that day.” (McCarthy Decl. ¶ 9.) Taking into account the tools’ 21 allegedly excellent condition, McCarthy determined that they should be depreciated at 22 a rate of two percent per year, for a total of 14 percent depreciation. (Id. ¶ 8.) 23 Accordingly, he reduced the total value of the tools by 14 percent for a final award of 24 $27,237.28. (Award, ECF No. 62-8.) 25 On November 18, 2016, McCarthy and Smith signed an “Appraisal of 26 Insurance Claim Award Form” finalizing the $27,237.28 award. 27 provided Defendant with a copy of the finalized award on November 28, 2016, via 28 3 (Id.) Plaintiff 1 email. (Id.) Defendant satisfied the award in full on December 7, 2016. (Hellenkamp 2 Decl. ¶ 16, ECF No. 62-14.) On June 2, 2017, Plaintiff filed a motion to vacate the appraisal award. (Mot., 3 4 ECF No. 58.) Plaintiff asserts that McCarthy failed to disclose his previous 5 relationship with the law firm Morris, Polich, and Purdy LLP (“MPP”) that represents 6 Defendant in this matter. (Id. at 4.) Plaintiff asserts that this relationship biased 7 McCarthy, causing him to disallow the presentation of its witness and to deny its 8 request for a continuance. (Mot. 5–6; Reply 3, ECF No. 63.) To support this claim, 9 Plaintiff submits a declaration from Twarowski indicating that, “During discussions of 10 the panel on November 17, 2016, umpire Bo McCarthy acknowledged in my presence 11 that he had in the past done work for the Morris Polich firm . . . . Bo McCarthy had 12 not previously disclosed his relationship with the Morris Polich firm.” 13 Twarowski Decl. ¶ 10.) (See 14 The “work” Twarowski references is a 2010 appraisal between “Dr. and Mrs. 15 Kramer” and Allstate Insurance Company (“the Kramer appraisal”). (Henry Decl. ¶ 2, 16 ECF No. 58-2.) In that appraisal, McCarthy served as Allstate’s appraiser, Stephen 17 Huchting—who at that time worked for MPP—served as counsel for Allstate, and 18 Twarowski served as the public adjuster.3 (Id. ¶ 3; McCarthy Decl. ¶ 5.) As noted 19 above, McCarthy disclosed the fact that he worked on this case with Twarowski; 20 however, he did not disclose MPP’s involvement in the case. III. 21 22 A. DISCUSSION Whether California Law or the Federal Arbitration Act Governs 23 As an initial matter, the parties dispute whether California law or the Federal 24 Arbitration Act (“FAA”) governs this motion. Plaintiff asserts that California law 25 governs, while Defendant asserts that the FAA governs. (Opp’n 9, ECF No. 62; 26 Reply 2.) Defendant is correct that the FAA governs this motion. 27 28 3 Huchting left MPP at the end of 2015, well before the appraisal process got underway. (Hellenkamp Decl. ¶ 19.) 4 1 Generally, the FAA governs where the relevant arbitration clause arises in a 2 contract involving interstate commerce. 9 U.S.C. §§ 1, 2; Mortensen v. Bresnan 3 Commc’ns, LLC, 722 F.3d 1151, 1157 (9th Cir. 2013). Insurance policies, like the 4 one at issue here, involve interstate commerce. Sir Taj Hotel, LLC v. Essex Ins. Co., 5 No. LACV1307519JAKPJWX, 2016 WL 6645793, at *3 (C.D. Cal. Feb. 3, 2016) 6 (collecting cases). Therefore, the only remaining question is whether the policy’s 7 appraisal clause constitutes an arbitration clause as defined by the FAA. 8 Thirty years ago, in Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579, 1582 (9th 9 Cir. 1987), the Ninth Circuit addressed the issue whether appraisals should be 10 considered arbitrations and thus be subject to the FAA. There, the court indicated that 11 the correct procedure for making such a determination is to examine the relevant state 12 law, which in that case was (and in this case is) California law, to determine whether 13 appraisals are the functional equivalent of arbitrations. See A-1 A-Lectrician, Inc. v. 14 Commonwealth Reit, 943 F. Supp. 2d 1073, 1078 (D. Haw. 2013) (citing Wasyl, 813 15 F.2d at 1582). 16 functional equivalent of arbitration. 813 F.2d at 1582. The court’s reasoning was 17 surprisingly simple: the definition of an arbitration “agreement” under California 18 Code of Civil Procedure section 1280 expressly includes “appraisals and similar 19 proceedings.” Id. Having concluded that appraisals and arbitrations are functionally 20 equivalent under California law, the court applied the FAA to analyze the appraisal at 21 issue. Id. The court concluded that under California law, appraisal is the 22 Wasyl remains good law in this circuit. A-1 A-Lectrician, 943 F. Supp. 2d at 23 1079 n.2; Portland Gen. Elec. Co. v. U.S. Bank Trust Nat. Ass’n as Tr. for Trust No. 24 1, 218 F.3d 1085, 1089 (9th Cir. 2000) (applying Wasyl). Further, at least one court in 25 this district recently applied the FAA to adjudicate a motion to vacate appraisal. See 26 Sir Taj, 2016 WL 6645793, at *5. As such, the Court applies the FAA. 27 /// 28 /// 5 1 B. Whether the Motion is Timely 2 Defendant argues that Plaintiff’s motion is untimely under § 12 of the FAA, 9 3 U.S.C. § 12. Section 12 provides, in relevant part, that “[n]otice of a motion to vacate, 4 modify, or correct an award must be served upon the adverse party or his attorney 5 within three months after the award is filed or delivered.” In this case, the award was 6 delivered by email on November 28, 2016. Therefore, any motion to vacate the award 7 was due on or before February 28, 2017. Plaintiff submitted the instant motion on 8 June 2, 2016, more than three months after the statutory deadline. As such, Plaintiff’s 9 motion is untimely and must be denied unless one or more tolling principle applies. 10 The Ninth Circuit recently held that tolling principles apply to § 12 of the FAA. 11 Move, Inc. v. Citigroup Glob. Markets, Inc., 840 F.3d 1152, 1156 (9th Cir. 2016). 12 However, tolling is not warranted here. First, Plaintiff has not presented any evidence 13 suggesting that he was prevented by inequitable circumstances from filing before the 14 statutory deadline. 15 unequivocally indicates in his declaration that he discovered McCarthy’s 16 nondisclosure at the parties’ November 17, 2016 meeting, months before the statutory 17 deadline. (Twarowski Decl. ¶ 11.) In sum, the Court finds that tolling principles do 18 not apply to this case and that Plaintiff, a represented and sophisticated party, should 19 not be allowed to avoid the statutory deadline imposed by § 12 of the FAA. 20 Accordingly, Plaintiff’s motion is time barred.4 21 4 22 23 24 25 26 27 28 Second, Plaintiff’s appraiser, Twarowski, clearly and The result would be the same under California law. In California, motions to vacate an appraisal must be filed within “100 days after the date of service of a signed copy of the award upon the petitioning party.” See Cal. Code Civ. Pro. §§ 1280, 1288; see also Louise Gardens of Encino Homeowners’ Ass’n, Inc. v. Truck Ins. Exch., Inc., 82 Cal. App. 4th 648, 661 (2000) (affirming the trial court’s decision denying a motion to vacate appraisal filed after the § 1288 deadline). Applying California’s 100-day rule, Plaintiff’s motion was due on March 8, 2017, still some three months before Plaintiff’s June 2, 2017 filing. It is also worth noting that McCarthy would not have been required to disclose his prior dealings with MPP under California law. Disclosure is required only where the award in the previous case was “rendered within five years prior to the date of the proposed nomination or appointment [of the appraiser/arbitrator].” See Cal. Civ. Pro. § 1281.9. The Kramer appraisal concluded on June 13, 2011, when “the award was rendered,” and McCarthy was not nominated or appointed in this matter until at least July 2016, over five years later. (Henry Decl. ¶ 4; Smith Decl. ¶ 5.) 6 1 2 C. Plaintiff’s Motion Fails to Allege a Ground For Vacatur Under 9 U.S.C. § 10(a) 3 Beyond denying Plaintiff’s motion as untimely, the Court would alternatively 4 deny Plaintiff’s motion because it does not sufficiently allege a ground for vacatur 5 under 9 U.S.C. § 10(a). Section 10 provides four grounds for vacatur: (1) where the 6 award was procured by corruption, fraud, or undue means; (2) where there was 7 evident partiality or corruption in the arbitrators, or either of them; (3) where the 8 arbitrators were guilty of misconduct in refusing to postpone the hearing, upon 9 sufficient cause shown, or in refusing to hear evidence pertinent and material to the 10 controversy; or of any other misbehavior by which the rights of any party have been 11 prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly 12 executed them that a mutual, final, and definite award upon the subject matter 13 submitted was not made. Of the four grounds, only grounds two and three appear to 14 be implicated here. 15 To establish “evident partiality,” the party moving to vacate must put forth 16 “specific facts” showing that the appraiser “failed to disclose to the parties 17 information that creates a reasonable impression of bias” or, in the alternative, that the 18 appraiser was actually biased against it. Lagstein v. Certain Underwriters at Lloyd’s, 19 London, 607 F.3d 634, 645–46 (9th Cir. 2010); see also Carlini Enters., Inc. v. Paul 20 Yaffe Design, Inc., No. 813CV01671ODWRNBX, 2016 WL 4374940, at *3 (C.D. 21 Cal. Aug. 12, 2016). 22 Plaintiff alleges facts going to both theories of “evident partiality.” The Court 23 first examines Plaintiff’s claim as one involving non-disclosure. As both parties more 24 or less acknowledge, McCarthy failed to adequately disclose his previous work with 25 MPP before the panel’s November 17, 2016 meeting. Courts have recognized that an 26 appraiser/arbitrator’s previous work for one of the parties “may” provide the 27 “impression of bias” required to vacate an award. Nonetheless, courts have generally 28 vacated awards based on “an impression of bias” only where the previous work was 7 1 substantial, ongoing, and for one of the parties. In other words, not the circumstances 2 present here, where the previous work involved a single appraisal five years ago for 3 the party’s law firm. See, e.g, Commonwealth Coatings Corp. v. Cont’l Cas. Co., 393 4 U.S. 145, 146, 149 (1968) (determining that the “evident partiality standard” was 5 satisfied where a neutral arbitrator in a dispute between a contractor and subcontractor 6 failed to disclose that he had past dealings with the contractor over a period of four or 7 five years); Schmitz v. Zilveti, 20 F.3d 1043, 1044, 1049 (9th Cir. 1994) (vacating an 8 award based on “evident partiality” where the arbitrator’s law firm had represented the 9 parent company of a party “in at least nineteen cases during a period of 35 years[,] the 10 most recent representation end[ing] approximately 21 months before [the] arbitration 11 was submitted”). The Court finds that the connection alleged is too distant, too 12 attenuated, and too insubstantial to create the necessary “impression of bias.” New 13 Regency Prods., Inc. v. Nippon Herald Films, Inc., 501 F.3d 1101, 1110 (9th Cir. 14 2007) (“courts have rejected claims of evident partiality based on long past, 15 attenuated, or insubstantial connections between a party and an arbitrator”). 16 Plaintiff also alleges that McCarthy showed actual bias in his decisions to 17 disallow the testimony of its witness and to deny its requested continuance.5 To 18 begin, the evidence is clear that Plaintiff voluntarily withdrew its witness on 19 November 15, 2016, in advance of the panel’s meeting. (Twarowski Email, ECF No. 20 62-5.) Plaintiff has not pointed to any evidence suggesting that McCarthy kept the 21 witness from testifying, or did so with an improper motive. See U.S. Life Ins. Co. v. 22 Superior Nat. Ins. Co., 591 F.3d 1167, 1175 (9th Cir. 2010) (noting that 23 appraisers/arbitrators have “wide discretion” to “exclude evidence, how and when 24 they see fit”); United Paperworkers Int’l Union, AFL–CIO v. Misco, Inc., 484 U.S. 25 29, 40 (1987) (explaining that an appraiser/arbitrator’s refusal to hear evidence must 26 27 28 5 Due to the nature of the alleged bias, the Court need not separately analyze the other possible ground for vacatur, 9 U.S.C. § 10(a)(3). 8 1 be the result of “bad faith or be so gross as to amount to affirmative misconduct” to 2 warrant vacatur). 3 Plaintiff next alleges that McCarthy showed actual bias when he denied 4 Plaintiff a continuance. At the time of the November 17, 2016 meeting, the parties 5 had already been litigating this case, based almost entirely on the value of the stolen 6 tools, for well over a year. As such, Plaintiff had ample time before the meeting to 7 gather any and all information relating to the tools’ value. Furthermore, Twarowski’s 8 declaration makes clear that he knew ahead of time that depreciation would be 9 discussed at the meeting. (Twarowski Decl. ¶ 6 (“The appraisal panel had a 10 telephonic conference wherein the umpire requested that the appraisers meet with the 11 umpire ‘in person’ to discuss the issues relative to depreciation.” (emphasis added)). 12 In light of these facts, the Court finds that McCarthy’s decision to deny the 13 continuance was reasonable and does not amount to bias. See Fordjour v. Washington 14 Mut. Bank, No. C 07-1446 MMC(PR), 2010 WL 2529093, at *5 (N.D. Cal. June 18, 15 2010) (“The expeditious resolution of disputes requires that arbitrators be provided 16 with broad discretion and great deference in their determinations of procedural 17 adjournment requests.” (citing Bisoff v. King, 154 F. Supp. 2d 630, 637 (S.D.N.Y. 18 2001))); see also id. (“if there exists a reasonable basis for the arbitrator’s considered 19 decision not to grant a postponement, no misconduct will be found” (citing El– 20 Dorado School Dist. # 15 v. Cont’l Cas. Co., 247 F.3d 843, 848 (8th Cir. 2001))). 21 Therefore, the Court finds that Plaintiff’s motion must alternatively be denied because 22 it fails to adequately allege a ground for vacatur under 9 U.S.C. § 10(a). 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 9 IV. 1 2 CONCLUSION In light of the foregoing, the Court DENIES Plaintiff’s motion. (ECF No. 58.) 3 4 IT IS SO ORDERED. 5 July 14, 2017 6 7 8 ____________________________________ OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10

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