California Cancer Associates For Research and Excellence, Inc. v. Philadelphia Indemnity Insurance Company, et al.

Filing 17

ORDER Re Motion To Dismiss (Doc. 7 ), signed by District Judge Lawrence J. O'Neill on 4/17/2015. Philadelphias motion to dismiss all the claims against it for lack of subject matter jurisdiction is GRANTED. Plaintiff has requested leave to amend but has not sufficiently justified amendment. Plaintiff is ordered to show cause in writing within ten (10) days why amendment should be permitted. Plaintiff is also ordered to show cause in writing within ten (10) days why the claims against PCHC should not likewise be dismissed without leave to amend for lack of subject matter jurisdiction. (Fahrney, E)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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CANCER CENTER ASSOCIATES FOR
RESEARCH AND EXCELLENCE, INC.,

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1:15-CV-00084 LJO MJS
ORDER RE MOTION TO DISMISS
(Doc. 7)

Plaintiff,
v.

10 PHILADELPHIA INSURANCE COMPANIES,
PHILADELPHIA INDEMNITY INSURANCE
11 COMPANY,
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Defendants.

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Cancer Center Associates for Research and Excellence (“cCare” or “Plaintiff”) brings this

15 lawsuit against Philadelphia Indemnity Insurance Company (“Philadelphia”) and Philadelphia
16 Consolidated Holding Corporation (“PCHC”), erroneously sued as Philadelphia Insurance Company
17 (“PIC”), for breach of contract, declaratory judgment, and tortious breach of the covenant of good faith
18 and fair dealing, all claims arising out of a coverage dispute regarding Private Company Protection Plus
19 policy number PHSD831802 issued by Philadelphia to cCare for the policy period of April 1, 2013 to
20 April 1, 2014 (“the Policy”). Complaint (“Compl.”), Doc. 1. On March 5, 2015, Defendants filed a
21 motion to dismiss, arguing, among other things, that: (1) Plaintiff’s entire complaint should be dismissed
22 pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction because the Policy contains a
23 mandatory arbitration provision; and (2) Plaintiff’s complaint should be dismissed as against PCHC
24 pursuant to Fed. R. Civ. P. 12(b)(6) because PCHC is not a party to the Policy. Doc. 7.
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I. FACTUAL BACKGROUND

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A former employee and shareholder of cCare filed a lawsuit against cCare, alleging various

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employment related claims. Compl. at ¶ 31. cCare tendered the lawsuit to Defendants. Id. Upon

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receiving notice of the underlying claim, Philadelphia issued a reservation of rights that included notice

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to cCare that the Policy only provides coverage for “reasonable and necessary” legal fees and costs,

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which includes only reasonable and necessary hourly rates for defense counsel retained by the Insured.

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See id. at ¶¶ 31, 38. Philadelphia refused to pay the hourly rate charged by cCare’s chosen counsel

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($457/hour), agreeing to pay only “PIIC’s panel rates of $185/hr for partner[s].” Id. at ¶ 38.
On April 24, 2014, cCare filed an action against Defendants, Case No. 1:14-cv-00789 WBS

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10 GSA, alleging breach of contract, declaratory judgment regarding coverage under the Policy, and bad
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11 faith. See Request for Judicial Notice (“RJN”), Exh. A. Defendants moved to dismiss the entire action,

12 arguing that each of cCare’s claims is subject to a mandatory arbitration provision in the Policy, which
13 provides:
Any dispute relating to this Policy or the alleged breach, termination or
invalidation thereof, which cannot be resolved through negotiation
between any Insured and the Underwriter, shall be submitted to binding
arbitration. The rules of the American Arbitration Association shall apply
except with respect to the selection of the arbitration panel. The panel
shall consist of one arbitrator selected by such Insured, one arbitrator
selected by the Underwriter and a third independent arbitrator selected by
the first two arbitrators.

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See Declaration of Brian D. Harrison in Support of Motion to Dismiss (“Harrison Decl.”), Exh. A, Doc.

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Documents from the casefile of the prior litigation in this Court are indisputably subject to judicial for their existence and

22 content, not the truth of the matters asserted therein. See U.S. ex rel Robinson Rancheria Citizens Council v. Borneo, Inc.,
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971 F.2d 244, 248 (9th Cir. 1992) (federal courts may “take notice of proceedings in other courts, both within and without the
federal judicial system, if those proceedings have a direct relation to the matters at issue”); San Luis & Delta–Mendota Water
Auth. v. Salazar, 686 F. Supp. 2d 1026, 1031 (E.D. Cal.2009) (taking judicial notice of public records published by
administrative bodies). While the court may take judicial notice of these types of documents, those documents are judicially
noticeable “only for the purpose of determining what statements are contained therein, not to prove the truth of the contents
or any party's assertion of what the contents mean.” United States v. S. Cal. Edison Co., 300 F. Supp. 2d 964, 975 (E.D.
Cal.2004).

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8-1, (“Policy”) at POL 0043.2 cCare did not oppose Defendants’ motion to dismiss. Instead, cCare

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agreed that the claims were subject to arbitration, and stipulated to dismiss the action without prejudice

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and resolve the claims in arbitration, as provided by the Policy. RJN, Exh. B. The parties’ stipulation

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stated, in relevant part:
cCare and Defendants have agreed to submit the issues set forth in the
complaint to binding arbitration pursuant to the terms of Part 6, Section
XIV.B. of Policy No.PHSD831802 issued to cCare, effective April 1,
2013 to April 1, 2014 (the “Policy”), except for the following:

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A. In lieu of administration by the American Arbitration Association
(“AAA”), the parties agree that the arbitration will be administered by an
individual or entity mutually agreed to by the parties.

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B. PCHC reserves the right to contend that it is not a proper party to the
issues in dispute in this matter but agrees to submit this dispute to
arbitration and agrees that it will not make any motion or request to be
removed from the case until after cCare has been given the opportunity to
conduct discovery on whether PCHC is an “Underwriter” of the Policy as
defined by the Policy.

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THEREFORE, and based upon the foregoing, the parties hereto stipulate
and agree as follows:

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That the disputes in this action will be submitted to arbitration pursuant to
the terms of Part 6, Section XIV.B. of the Policy, consistent with the
agreements in the paragraphs above; and That this action will be
dismissed, without prejudice.

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17 Id. On July 9, 2014, pursuant to this stipulation, Senior Judge William B. Shubb dismissed the action
18 without prejudice and ordered the action submitted to arbitration. See id.
Both parties consented to arbitrate before the AAA. See Compl. at ¶¶ 53-55. On or about October

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20 10, 2014, cCare advised the AAA of the arbitrator it had selected. Id. at ¶ 54. On or about November 14,
21 2014, Philadelphia advised the AAA that it objected to the arbitrator selected by cCare and requested
22 that the AAA indicate cCare’s chosen arbitrator would not be allowed to serve. Id. at ¶ 55. On or about
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The Court considers the Policy pursuant to the “incorporation by reference” doctrine, which applies to documents on which

24 “the plaintiff's claim depends ..., the defendant attaches [] to its motion to dismiss, and the parties do not dispute the
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authenticity of ..., even though the plaintiff does not explicitly allege the contents of that document in the complaint.” Knievel
v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005).

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December 13, 2014, the AAA informed the parties that cCare’s chosen arbitrator “will be removed,”

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because, absent “agreement for the party appointed neutrals to be non-neutral, the arbitrators must meet

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the standards of [AAA Commcercial Arbitration] Rule R-18 with respect to impartiality and

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independence” Id. at ¶ 57.
cCare initiated this lawsuit on January 16, 2015, alleging, among other things, that Philadelphia’s

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refusal to allow arbitration to occur in a manner consistent with the arbitration agreement constitutes

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waiver of the right to arbitrate. Id. at ¶ 59.
II. DISCUSSION

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A.

Motion to Dismiss Arbitrable Claims Pursuant to Fed. R. Civ. P. 12(b)(1).

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1.

Legal Standard.

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Philadelphia moves to dismiss the Complaint against Philadelphia for lack of subject matter

12 jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Although section four of the Federal Arbitration Act
13 (“FAA”) provides for the filing of a motion to “compel” arbitration, courts have held that a Rule
14 12(b)(1) motion to dismiss for lack of subject matter jurisdiction “is a procedurally sufficient mechanism
15 to enforce [an] [a]rbitration [p]rovision.” Filimex, L.L.C. v. Novoa Investments, L.L.C., No. CV 05–
16 3792–PHX–SMM, 2006 WL 2091661, at *2 (D. Ariz. July 17, 2006); see also GT Sec., Inc. v. Klastech
17 GmbH, No. C-13-03090 JCS, 2014 WL 2928013, at *17-18 (N.D. Cal. June 27, 2014).
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Once subject matter jurisdiction is challenged, the burden of proof is placed on the party

19 asserting that jurisdiction exists. “When a defendant brings a motion to dismiss for lack of subject matter
20 jurisdiction pursuant to Rule 12(b)(1), the plaintiff has the burden of establishing subject matter
21 jurisdiction.” Friends of the River v. U.S. Army Corps of Engineers, 870 F. Supp. 2d 966, 972 (E.D. Cal.
22 2012) (citing Rattlesnake Coal. v. U.S. E.P.A., 509 F.3d 1095, 1102, n. 1 (9th Cir. 2007) (“Once
23 challenged, the party asserting subject matter jurisdiction has the burden of proving its existence.”)).
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A challenge pursuant to Rule 12(b)(1) may be facial or factual. White v. Lee, 227 F.3d 1214,

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1212 (9th Cir. 2000). In a facial attack, the jurisdictional challenge is confined to the allegations pled in

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the complaint. See Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004). The challenger asserts that

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the allegations in the complaint are insufficient “on their face” to invoke federal jurisdiction. Safe Air for

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Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). To resolve this challenge, the court assumes

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that the allegations in the complaint are true and draws all reasonable inferences in favor of the party

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opposing dismissal. Wolfe, 392 F.3d at 362. “By contrast, in a factual attack, the challenger disputes the

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[very] truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.” Safe

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Air, 373 F.3d at 1039. In resolving this type of challenge, the court “need not presume the truthfulness of

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the plaintiff's allegations.” Id. (citation omitted). Instead, the court “may review evidence beyond the

10 complaint without converting the motion to dismiss into a motion for summary judgment.” Id (citations
11 omitted). Once the moving party has made a factual challenge by offering affidavits or other evidence to
12 dispute the allegations in the complaint, the party opposing the motion must “present affidavits or any
13 other evidence necessary to satisfy its burden of establishing that the court, in fact, possesses subject
14 matter jurisdiction.” St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir.1989).
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Here, despite offering numerous documents for consideration, Philadelphia does not actually

16 attack the substance of Plaintiff’s factual allegations related to jurisdiction. Accordingly, the motion will
17 be treated as a facial one and the only extra-record documents the Court will consider are those subject
18 to the incorporation by reference doctrine or judicial notice. See supra notes 1-2; infra note 3.
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The FAA establishes a national policy of judicial enforcement of privately made agreements to

20 arbitrate. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). Specifically, FAA § 2
21 provides that:
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A written provision in any maritime transaction or a contract evidencing a
transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction, or the refusal to
perform the whole or any part thereof, or an agreement in writing to
submit to arbitration an existing controversy arising out of such a contract,
transaction, or refusal, shall be valid, irrevocable, and enforceable, save

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upon such grounds as exist at law or in equity for the revocation of any
contract.

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9 U.S.C. § 2.
FAA § 4 provides that arbitration of a dispute may be compelled if (1) there is a written
agreement to arbitrate, (2) the dispute falls within the scope of the arbitration agreement, and (3) a party
to the arbitration agreement refuses to arbitrate. 9 U.S.C. § 4. The FAA “mandates that district courts
shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been
signed.” Dean Witter, 470 U.S. at 218. Here, it is undisputed that the Policy is a contract involving
interstate commerce and contains an agreement to arbitrate. See Krivitsky v. Am. Bankers Ins. Co. of
Fla., 2014 WL 2452957, at *2 (C.D. Cal. Mar. 20, 2014) (reviewing cases and concluding that the FFA
applies to insurance contracts).
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Analysis.

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a.

Second Cause of Action for Declaratory Relief Regarding Waiver.

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Plaintiff’s second cause of action seeks a declaration that Defendants have waived the right to
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arbitrate by refusing to comply with a prior order of this Court regarding submission of the dispute to
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arbitration and by refusing to allow arbitration to proceed in a manner consistent with the arbitration
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agreement. Compl. at ¶ 59. Philadelphia moves to dismiss this claim on the ground that it raises claims
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that are not subject to this Court’s jurisdiction. Doc. 7 at 7. Central to this dispute is the arbitration
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clause itself, which provides:
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Any dispute relating to this Policy or the alleged breach, termination or
invalidation thereof, which cannot be resolved through negotiation
between any Insured and the Underwriter, shall be submitted to binding
arbitration. The rules of the American Arbitration Association shall apply
except with respect to the selection of the arbitration panel. The panel
shall consist of one arbitrator selected by such Insured, one arbitrator
selected by the Underwriter and a third independent arbitrator selected by
the first two arbitrators.

24 Policy at POL 0043 (emphasis added). Philadelphia concedes that this language precludes application of
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the AAA’s Commercial Arbitration Rules and Arbitration Procedures (“AAACA Rules”) regarding the

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number and method of arbitrator selection, such as AAA Rule 12, which provides:
If the parties have not appointed an arbitrator and have not provided any
other method of appointment, the arbitrator shall be appointed in the
following manner:

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(a) The AAA shall send simultaneously to each party to the dispute an
identical list of 10 (unless the AAA decides that a different number is
appropriate) names of persons chosen from the National Roster. The
parties are encouraged to agree to an arbitrator from the submitted list and
to advise the AAA of their agreement.

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(b) If the parties are unable to agree upon an arbitrator, each party to the
dispute shall have 14 calendar days from the transmittal date in which to
strike names objected to, number the remaining names in order of
preference, and return the list to the AAA. The parties are not required to
exchange selection lists. If a party does not return the list within the time
specified, all persons named therein shall be deemed acceptable to that
party. From among the persons who have been approved on both lists, and
in accordance with the designated order of mutual preference, the AAA
shall invite the acceptance of an arbitrator to serve. If the parties fail to
agree on any of the persons named, or if acceptable arbitrators are unable
to act, or if for any other reason the appointment cannot be made from the
submitted lists, the AAA shall have the power to make the appointment
from among other members of the National Roster without the submission
of additional lists.

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(c) Unless the parties agree otherwise, when there are two or more
claimants or two or more respondents, the AAA may appoint all the
arbitrators.

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Harrison Decl., Ex. I.3 However, Philadelphia maintains that AAACA Rules 8 (Interpretation and
Application of Rules), 13 (Direct Appointment by a Party), 17 (Disclosure), and 18 (Disqualification of
Arbitrator), do apply, because those rules pertain to issues other than the selection (or choosing) of
arbitrators. Doc. 7 at 7. Specifically, Philadelphia points to AAACA Rule 18(a), which requires that any

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The Court may take judicial notice of the AAA’s Commercial Arbitration Rules, as the content of those Rules can be
considered a “fact that is not subject to reasonable dispute because it ... can be accurately and readily determined from
sources whose accuracy cannot reasonably be questioned.” See Fed. R. Evid. 201; see also Chavarria v. Ralphs Grocer Co.,
812 F.Supp.2d 1079, 1087 n. 8 (C.D. Cal. 2011) (taking judicial notice of the AAA Rules); Wilson v. United Health Group,
Inc., 2012 WL 6088318, at *4 n. 4 (E.D. Cal. Dec. 6, 2012) (same); Collins v. Diamond Pet Food Processors of California,
LLC, No. 2:13-CV-00113-MCE, 2013 WL 1791926, at *6 (E.D. Cal. Apr. 26, 2013).

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arbitrator shall be impartial and independent and that any arbitrator may be disqualified and removed for

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partiality or lack of independence. See id. at 17. Also, AAACA Rule 17 sets forth the requirements of

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disclosure for any person appointed to be an arbitrator to ensure impartiality and independence. See id.

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Further, AAACA Rule 13(b) provides that where the parties have agreed to each name an arbitrator,

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such arbitrators must meet the standards of Rule 18 with respect to impartiality and independence unless

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the parties have specifically agreed pursuant to Rule 18(b) that the party-appointed arbitrators are to be

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non-neutral and need not meet those standards. See id. 16.
As a threshold matter, Philadelphia argues that this Court does not have jurisdiction to adjudicate

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Plaintiff’s declaratory relief claim because the parties expressly delegated to the AAA and/or the

10 arbitration panel the authority to make decisions pertaining to the interpretation of the AAACA Rules.
11 See Doc. 7 at 8. In support of this position, Philadelphia cites several cases that stand for the proposition
12 that the validity of an arbitration clause is a matter for the arbitrator to determine where the agreement so
13 provides. See, e.g., Monex Deposit Co. v. Gilliam, 616 F. Supp. 2d 1023, 1025 (C.D. Cal. 2009)
14 (arbitration agreement provided for disputes over interpretation or validity of the agreement to be
15 submitted to the arbitrator). Madrigal v. New Cingular Wireless Servs., Inc., No. 09-CV-00033-OWW16 SMS, 2009 WL 2513478, at *4 (E.D. Cal. Aug. 17, 2009), for example, considered an arbitration
17 agreement that incorporated the AAACA Rules, including AAACA Rule 7, which provides that “[t]he
18 arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with
19 respect to the existence, scope or validity of the arbitration agreement.” Id. at *5 (collecting numerous
20 cases). This incorporation by reference was deemed a clear and unmistakable expression of the parties’
21 intent to have the arbitrator decide disputes over the scope of the arbitration agreement, requiring the
22 court to grant a motion to compel arbitration of a claim concerning scope of that agreement. Id. at *6.
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AAACA Rule 8 provides related authority to the arbitrator and/or the AAA to interpret its own

24 rules:
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The arbitrator shall interpret and apply these rules insofar as they relate to
the arbitrator’s powers and duties. When there is more than one arbitrator
and a difference arises among them concerning the meaning or application
of these rules, it shall be decided by a majority vote. If that is not possible,
either an arbitrator or a party may refer the question to the AAA for final
decision. All other rules shall be interpreted and applied by the AAA.

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Here, the Policy incorporates the AAA rules, “except with respect to the selection of the arbitration
panel.” Neither Rule 7 nor Rule 8 concerns selection of the arbitration panel, so are incorporated by
reference into the Policy. As was the case in Madrigal, incorporation of the AAACA Rules, including
AAACA Rules 7 and 8, evidences a clear an unmistakable intent to refer to arbitration disputes over the
interpretation of the scope of the arbitration agreement and interpretation of the AAACA Rules
themselves. However, Plaintiff’s second cause of action alleges that Defendants have waived and/or are
estopped from arguing that Plaintiff’s claims are subject to arbitration. This is a threshold argument
adjudication of which does not require interpretation of the scope of the arbitration agreement or
interpretation of the AAA CA Rules. Therefore, this Court has jurisdiction to adjudicate this claim.4

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Under certain circumstances, waiver may be a threshold issue suitable for adjudication by the
Court. See Lewis v. Fletcher Jones Motor Cars, Inc., 205 Cal. App. 4th 436, 443-44 (2012), as modified
(Apr. 25, 2012) (“[F]ederal and California courts may refuse to enforce an arbitration agreement ‘upon
such grounds as exist at law or in equity for the revocation of any contract,’ including waiver.”); Cox v.
Ocean View Hotel Corp., 533 F.3d 1114, 1120 (9th Cir. 2008) (confirming that it is for the Court to

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Relatedly, Defendants argue that Plaintiff’s waiver claim presents “[p]rocedural disputes over the application of the AAA

20 rules ... [which] are not proper questions for adjudication by the Court.” Doc. 16 at 5. Defendants maintain that Howsam v.
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Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), supports this argument. In Howsam, the Supreme Court indicated that “in
the absence of an agreement to the contrary... issues of procedural arbitrability, i.e., whether prerequisites [in the arbitration
clause] such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been
met, are for the arbitrators to decide.” Id. at 85. In Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1121 (9th Cir. 2008)
however, the Ninth Circuit interpreted Howsom narrowly, to apply only to certain types of “gateway issues” including
“whether an arbitration clause in concededly binding contract applies to a particular type of controversy” and “procedural
questions which grow out of the dispute and bear on its final disposition.” These are to be distinguished from “whether the
parties are bound by a given arbitration clause,” a question for a court to decide. Id. Here, the issues raised by Plaintiff at
least arguably fall within the latter category, as Plaintiff argues Defendants have waived their right to invoke the arbitration
clause itself by raising objections to the arbitrators.

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decide a party’s challenge to enforcement of an arbitration clause on the grounds that the opposing party

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breached the agreement to arbitrate and therefore had no right to enforce the clause or, alternatively,

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waived the right to arbitrate). Under California law, a court should consider the following factors when

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determining whether the right to arbitrate has been waived:

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(1) whether the party’s actions are inconsistent with the right to arbitrate;
(2) whether the litigation machinery has been substantially invoked and
the parties were well into preparation of a lawsuit before the party notified
the opposing party of an intent to arbitrate; (3) whether a party either
requested arbitration enforcement close to the trial date or delayed for a
long period before seeking a stay; (4) whether a defendant seeking
arbitration filed a counterclaim without asking for a stay of the
proceedings; (5) whether important intervening steps [e.g., taking
advantage of judicial discovery procedures not available in arbitration]
had taken place; and (6) whether the delay affected, misled, or prejudiced
the opposing party.

11 Cox, 533 F.3d at 1124 (citing St. Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal. 4th 1187, 1196 (2003)).
12 “Based on the public policy favoring arbitration, claims of waiver receive ‘close judicial scrutiny’ and
13 the ‘party seeking to establish a waiver bears a heavy burden.’” Lewis, 205 Cal. App. 4th at 444 (citing
14 St Agnes, 31 Cal. 4th at 1195).
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Plaintiff contends that Defendants’ undertook at least two actions inconsistent with the right to

16 arbitrate: (1) arguing the AAA rules apply to the selection of the arbitrators; and (2) causing the AAA to
17 purport to remove the arbitrator selected by cCare. Doc. 15 at 5. Plaintiff’s theory of waiver is far18 fetched in light of cases cited by Plaintiff. For example, in Lewis, waiver was found where the
19 defendant: (a) sought multiple merits rulings from the district court; and (b) delayed moving to compel
20 arbitration for more than four months, causing substantial prejudice to plaintiff, including forcing
21 Plaintiff to defend against motions seeking merits rulings and causing plaintiff to spend over six months
22 and over $40,000 in attorney fees, costs and expenses litigating the merits in court. Lewis, 205 Cal. App.
23 4th at 445-454. Nothing of the sort is alleged in this case.
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Plaintiff cites Brunzell Const. Co., of Nev. v. Harrah's Club, 253 Cal. App. 2d 764, 779 (1967),

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in support of its position that waiver exists in this case. But, Plaintiff’s theory of its case stretches

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Brunzell beyond credulity. Brunzell concerned a dispute over a construction contract containing an

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arbitration agreement that provided a “demand for arbitration shall be made within a reasonable time

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after the dispute has arisen. In no case, however shall a demand be made later than the time of final

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payment, except as otherwise expressly stipulated in the contract.” Id. at 777. Both parties actively

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pursued litigation and took no steps toward arbitration for more than two years. Id. at 778-79. This was

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deemed a waiver of the right to arbitrate. In so holding, the 1967 decision in Brunzell quoted an even

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older decision, Local 659 v. Color Corp. of Am, 47 Cal. 2d 189, 195 (1956), for the proposition that

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waiver can be evidenced by “a failure by a party to proceed to arbitrate in the manner and at the time

10 provided in the arbitration provision.” In Local 659, there was evidence that one party refused to
11 arbitrate the dispute and repudiated the arbitration provision and that the opposing party accepted that
12 repudiation, amounting to a mutual rescission of the arbitration agreement. Id. at 198. Plaintiff hangs its
13 hat on Local 659’s use of the words “in the manner,” presumably because Plaintiff views Defendants’
14 objections to its choice of arbitrator as going to the “manner” of arbitration, but provides no authority
15 that actually applies this language to find waiver under similar circumstances. Even assuming the truth
16 of Plaintiff’s allegations, Plaintiff has not alleged a fact pattern that could plausibly support a finding of
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Accordingly, Philadelphia’s motion to dismiss Plaintiff’s claim that the right to arbitrate has been

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19 waived is GRANTED. Plaintiff generally requests leave to amend, but has not presented any argument
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Plaintiff’s citation to Americo Life, Inc., v. Robert L. Myer, 440 S.W.3d 18 (Tex. 2014), is not persuasive. At best, that case

21 tangentially supports Plaintiff’s interpretation of the arbitration agreement. It does not, in any material way, support a finding
that Plaintiffs have alleged sufficiently that Defendants waived the right to arbitrate under California law. Somewhat more

22 relevant is Brook v. Peak Int’l, 294 F. 3d 668, 670-71 (5th Cir. 2002). Plaintiffs argue that Brook stands for the proposition
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that the AAA has a tendency to disregard arbitration agreements in inappropriate ways. Doc. 15 at 14-15. Plaintiffs argue that
“[b]y taking advantage of AAA’s problem of noncompliance with arbitration agreements, Defendants make it clear that they
never intended to comply with the Court order or with the [terms in the arbitration clause] of the Policy.” Id. Even assuming
Plaintiff’s interpretation of Brook correct, this still does not materially support a finding that Plaintiffs have alleged
sufficiently that Defendants waived the right to arbitrate under the factors identified in Cox. (The Court notes that Brook does
discuss waiver, but in a context that is not at all helpful to Plaintiff’s case, finding that a party waived the right to object to
the AAA’s “unwarranted” departure from an agreed upon selection process by failing to object. 294 F. 3d at 673-74.)

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suggesting how it could modify its factual allegations upon amendment. Plaintiff is therefore

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ORDERED to show cause in writing within ten (10) days of entry of this order why, in light of the

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reasoning above, this claim should not be dismissed without leave to amend.
b.

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Remaining Claims Against Philadelphia.

Plaintiff’s remaining claims against Philadelphia for breach of contract, declaratory relief as to

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insurance coverage, and breach of the covenant of good faith and fair dealing are the same as those

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claims which Plaintiff stipulated in the prior litigation are subject to arbitration. These three original

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claims are indisputably subject to arbitration under the Policy, provided the right to arbitration has not

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been waived. Accordingly, Philadelphia’s motion to dismiss is GRANTED as to Plaintiff’s claims

10 against Philadelphia for breach of contract, declaratory relief as to insurance coverage, and breach of the
11 covenant of good faith and fair dealing. Whether leave to amend will be granted will turn on Plaintiff’s
12 response to the order to show cause issued above.
13 B.

Motion to Dismiss Claims Against PCHC.

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The Complaint alleges that PCHC is either an alter ego of or is directly liable for the actions of

15 Philadelphia because Philadelphia “is another fictitious business name of PCHC.” Compl. at ¶¶ 2-4.
16 Defendants’ motion to dismiss argues any claims against PCHC must be dismissed for failure to state a
17 claim because PCHC is not a party to the contract and therefore cannot be liable either directly or under
18 an alter ego theory. Doc. 7 at 11. Defendants’ reply highlights the more pertinent point that the parties
19 previously stipulated that the claims against PCHC are subject to arbitration and requests enforcement of
20 that stipulation. Doc. 16 at 6. The stipulation approved by Judge Shubb unambiguously submits the
21 claims against PCHC to arbitration, with some reservations of rights to PCHC:
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cCare and Defendants have agreed to submit the issues set forth in the
complaint to binding arbitration pursuant to the terms of Part 6, Section
XIV.B. of Policy No.PHSD831802 issued to cCare, effective April 1,
2013 to April 1, 2014 (the “Policy”), except for the following:
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B. PCHC reserves the right to contend that it is not a proper party to the
issues in dispute in this matter but agrees to submit this dispute to
arbitration and agrees that it will not make any motion or request to be
removed from the case until after cCare has been given the opportunity to
conduct discovery on whether PCHC is an “Underwriter” of the Policy as
defined by the Policy.

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A written stipulation to submit to binding arbitration is independently enforceable. Porreco v. Red Top
RV Ctr., 216 Cal. App. 3d 113, 130 (1989), reh'g denied and opinion modified (Dec. 21, 1989). Plaintiff
makes no argument that the stipulation is invalid or otherwise unenforceable. Nor does Plaintiff attempt
to withdraw its consent thereto. Rather, Plaintiff references the stipulation in its complaint and seeks its
enforcement. Plaintiff, essentially, appears to have pleaded its way into arbitration of its claims against
PCHC.
Moreover, pursuant to the FAA, “traditional state law contract principles allow nonparties to an
arbitration agreement to enforce its terms through assumption, piercing the corporate veil, alter ego,
incorporation by reference, third-party beneficiary theories, waiver and estoppel.” Arthur Andersen LLP
v. Carlisle, 556 U.S. 624, 631 (2009) (internal quotations omitted). If Plaintiff’s allegations about alter
ego and direct liability as to PCHC are true, which this Court must assume for purposes of a facial Fed.
R. Civ. P. 12(b)(1) motion to dismiss for lack of subject matter jurisdiction (or a Fed. R. Civ. P. 12(b)(6)
motion to dismiss), PCHC stands in the shoes of Philadelphia such that any and all claims against PCHC
are as subject to arbitration as those against Philadelphia.
Because the very stipulation Plaintiff seeks to enforce in the Complaint calls upon the parties to
arbitrate any claims against PCHC in the first instance, Plaintiff’s own complaint appears to destroy this
Court’s subject matter jurisdiction over Plaintiff’s claims against PCHC. However, because this issue
was not clearly raised by the motion to dismiss, Plaintiff will be afforded one opportunity to directly
address this issue. Therefore, Plaintiff is ORDERED to show cause in writing within ten (10) days of
issuance of this order why, in light of the other conclusions in this order, the claims against PCHC
should not be dismissed for lack of subject matter jurisdiction.

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III. CONCLUSION AND ORDER

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For the reasons set forth above:
1. Philadelphia’s motion to dismiss all the claims against it for lack of subject matter

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jurisdiction is GRANTED. Plaintiff has requested leave to amend but has not sufficiently

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justified amendment. Plaintiff is ordered to show cause in writing within ten (10) days

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why amendment should be permitted.

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2. Plaintiff is also ordered to show cause in writing within ten (10) days why the claims

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against PCHC should not likewise be dismissed without leave to amend for lack of

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subject matter jurisdiction

10 SO ORDERED
Dated: April 17, 2015
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/s/ Lawrence J. O’Neill
United States District Judge

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