Yahoo! INC., v. American International Specialty Lines Insurance Company et al

Filing 46

ORDER STAYING CASE by Judge Paul S. Grewal granting-in-part 21 , 40 and 43 (psglc2, COURT STAFF) (Filed on 3/31/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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United States District Court
For the Northern District of California

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SAN JOSE DIVISION

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YAHOO! INC.,

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Petitioner,
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v.
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AMERICAN INTERNATIONAL SPECIALTY )
LINES INSURANCE COMPANY, et al.,
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Respondents.
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)

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Case No.: 5:13-cv-05846-PSG
ORDER STAYING CASE
(Re: Docket Nos. 21, 40 and 43)

Two years ago, the parties in this case struck a deal to stay a New York state court case
challenging an interim arbitration award until thirty days after a final award issued. The final

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arbitration award issued late last year. Less than one week after the final award issued, but before
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the deadline for lifting the stay in the state court case had passed, Yahoo! filed a petition in this

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California federal court to confirm the final arbitration award. While Colorado River and its

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Ninth Circuit progeny are pertinent to this court’s evaluation of jurisdiction, the predicate question

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is whether Yahoo! should be bound by a stipulation in the New York case into which it freely

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entered. 1

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See R.R. St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d 966, 978-79 (9th Cir. 2011)
To decide whether a particular case presents the exceptional circumstances that warrant
a Colorado River stay or dismissal, the district court must carefully consider “both the
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Case No.: 5:13-cv-05846-PSG
ORDER STAYING CASE

As explained below, under both the plain language of the stipulation and Colorado River,

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the appropriate course is to stay this case in deference to the case in New York.

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I. BACKGROUND 2

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This case concerns Yahoo!’s claim for reimbursement of defense fees from four class

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action cases filed against it in 2005 and 2006 involving its Sponsored Search Pay-Per-Click

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(“PPC”) advertising program. The class actions were based on the same causes of action, were

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United States District Court
For the Northern District of California

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brought by the same plaintiff classes and involved the same contracts to provide PPC advertising
services. 3 They were filed in several jurisdictions across the country but were subsequently
consolidated in the United States District Court for the Central District of California. 4 On April 17,

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2009, Yahoo initiated arbitration in New York City against American International Specialty Lines

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Insurance Company (“AISLIC”), National Union Fire Insurance Co. (“NUFIC”), Illinois Union

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Insurance Company and Columbia Casualty Company seeking insurance coverage for the defense

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obligation to exercise jurisdiction and the combination of factors counseling against that
exercise.” Colorado River Water Conservation Dist. v. U. S., 424 U.S. 800, 818 (1976).
Drawing from Colorado River, Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp.,
460 U.S. 1 (1983) and subsequent Ninth Circuit cases, we have recognized eight factors for
assessing the appropriateness of a Colorado River stay or dismissal: (1) which court first
assumed jurisdiction over any property at stake; (2) the inconvenience of the federal forum;
(3) the desire to avoid piecemeal litigation; (4) the order in which the forums obtained
jurisdiction; (5) whether federal law or state law provides the rule of decision on the merits;
(6) whether the state court proceedings can adequately protect the rights of the federal
litigants; (7) the desire to avoid forum shopping; and (8) whether the state court
proceedings will resolve all issues before the federal court. Holder v. Holder, 305 F.3d
854, 870 (9th Cir. 2002) (footnotes omitted).
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Respondents request the court take judicial notice of the stipulation and docket of the New York
state case. The court may take judicial notice of a “fact that is not subject to reasonable dispute
because it is generally known” or “can be accurately and readily determined from sources whose
accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). Yahoo! has not objected to the
request for judicial notice. The authenticity of the court documents is not in dispute and may be
verified by resort to the public record. Respondents’ request for judicial notice is GRANTED.
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See Docket No. 1-2, Ex. B at 6 (alleging that “Yahoo! overcharged pay-per-click (“PPC”)
advertisers by collecting revenues generated by improper or fraudulent” clicks and “permitted class
members’ PPC advertisements to be placed on low-quality and hannful websites, including
spyware infected websites, typosquatting websites, and parking and bulk registration” websites).
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See id.
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Case No.: 5:13-cv-05846-PSG
ORDER STAYING CASE

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and settlement of the consolidated case. 5 On January 13, 2010, Yahoo and the four insurance

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companies entered into an arbitration agreement designating a panel of arbitrators. 6 The agreement

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provided arbitration “shall be conducted at a site to be determined in New York, New York.” 7

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“The Panel issued an Interim Award on November 3, 2011.” 8 On February 2, 2012, in

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order to preserve their right to vacate the interim award, AISLIC and NUFIC filed a petition in
New York state court. On February 7, 2012, Respondents, Yahoo! and the remaining insurers

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entered a stipulation, granted by the New York state court, providing that the New York state case
be “be stayed until thirty (30) days after the Panel issues a Final Award, by which time” the

United States District Court
For the Northern District of California

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Respondents in this case “shall advise the undersigned parties in writing whether they intend to

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withdraw, modify, amend, or supplement” their original motion. 9

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On December 13, 2013, the panel issued its final award, which ordered AISLIC to pay
$4,271,762.04 to Yahoo. 10 Five days later, on December 18, 2013, Yahoo filed a petition in this
court to confirm the final award. 11 On January 9, 2014, less than thirty days after the final award,

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AISLIC and NUFIC gave notice of their intent to amend their original motion. On January 23,

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2014, Respondents filed an amended petition to vacate the arbitration award in the New York

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state proceeding.

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See id. at 3 (“Yahoo! initiated this arbitration by filing with JAMS a ‘Demand for Arbitration
Before JAMS’ dated April 17, 2009 and serving that demand upon Respondents.”).
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See id. (The “parties entered into an ‘Arbitration Agreement’ dated January 13, 2010, designating
the members of the arbitral panel and setting forth various agreed-upon procedures and protocols to
govern the conduct of the arbitration.”).

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See Docket No. 1-1, Ex. A at ¶ 13 (“The Arbitration shall be conducted at a site to be determined
in New York, New York.”).

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Docket No. No. 1-2, Ex. B at 4.

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Docket No. 21-4, Ex. A at 4.

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See Docket No. 1-2, Ex. B at 4 (“The Panel now issues this Final Award, which orders that
AISLIC pay Yahoo! the amount of $4,271,762.04 as reimbursement for Yahoo!'s defense cost
expenditures.”).
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See Docket No. 1.
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Case No.: 5:13-cv-05846-PSG
ORDER STAYING CASE

II. DISCUSSION

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Respondents urge that the language of the stipulation requires this case be stayed or

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dismissed. According to Respondents, all parties, along with the New York state court, understood

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that the court would later permit the case to proceed once the final award issued. The stipulation

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provided that in light of future proceedings in the arbitration, the state court action would be

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stayed. 12 The stipulation further provided that “this action be stayed until thirty (30) days after the

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United States District Court
For the Northern District of California

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Panel issues a Final Award, by which time Petitioners shall advise the undersigned parties in
writing whether they intend to withdraw, modify, amend, or supplement” their original motion. 13
The petition to vacate could proceed following the issuance of the final award. 14
The court agrees with Respondents that, in this posture, the California case should not

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proceed. In the New York case, the parties reached an agreement granting Respondents the option

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to “withdraw, modify, amend, or supplement” their original motion once the final award issued

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from the panel. 15 The parties thus linked the dispute over the initial award to a dispute over the

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final award. One door that did not remain open was for Yahoo! to initiate another proceeding in
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another court. Perhaps the agreement could have been more artfully drafted to make explicit the

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See Docket No. 21-4, Ex. A at 4
WHEREAS, on November 23,2011, Petitioners moved before the Panel to clarify and
modify the lnterim Award; the Panel has not yet ruled on the motion or issued a Final
Award; and the parties are all in agreement that this action be stayed and remain under seal
until the Panel has ruled on the motion to clarify and modify the Interim Award and issued
a Final Award;
IT IS HEREBY STIPULATED AND AGREED, by and between the undersigned
attorneys of record for all the parties to the above-entitled action, that this action be stayed
until thirty (30) days after the Panel issues a Final Award, by which time Petitioners shall
advise the undersigned parties in writing whether they intend to withdraw, modify, amend,
or supplement their original motion based on the February 1, 2012 Petition brought by
Order to Show Cause.
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Id.
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The substance of Respondents’ petition to vacate the arbitration award has in fact remained
constant. Respondents continue to allege the panel (1) misapplied California law and (2) denied
their right to present affirmative defenses and counterclaims.
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Id.
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Case No.: 5:13-cv-05846-PSG
ORDER STAYING CASE

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dispute under all circumstances would remain in the New York state court. But by staying, and not

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withdrawing, the initial petition and giving all options in proceeding exclusively to Respondents,

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the only fair read of that agreement compels this court to respect the sovereignty of the New York

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state court. 16

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Even if reference to Colorado River was necessary, the court would arrive at the same
conclusion. These facts fall squarely within the limited purview of the Colorado River line of

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cases. The petition filed in this court comes two years after a petition filed in the New York state
court over the disputed arbitration award. The parties concede the New York state case remains

United States District Court
For the Northern District of California

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live and is subject to active, duplicative motion practice. This court remains wary of the tension

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any issued order may generate and is eager to avoid conflicting court decisions. 17 “Here, there is

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no question that the state court has authority to address the rights and remedies at issue” and the

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parties “concede that the state court can adequately resolve the parties’ claims.” 18 Even if the state

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is California, state “law provides the rules of decision” for the parties’ claims in this case. 19

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Finally, the Ninth Circuit has “affirmed a Colorado River stay or dismissal when it was readily
apparent that the federal plaintiff was engaged in forum shopping.” 20 On balance, a stay is favored.

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Although Yahoo! has suggested Respondents withdrew their petition in New York, in fact the
petition remained pending pursuant to a stay. Compare Docket No. 21-4, Ex. A at 4 (“this action
be stayed until thirty (30) days after the Panel issues a Final Award, by which time Petitioners shall
advise the undersigned parties in writing whether they intend to withdraw, modify, amend, or
supplement their original motion”), with Docket No. 25 at 1 (“their previously withdrawn petition
filed in New York state court”).
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Piecemeal litigation is a reality in this case no matter what – duplicative petitions have already
been filed in both cases. See Am. Int’l Underwriters (Philippines), Inc. v. Cont’l Ins. Co., 843 F.2d
1253, 1258 (9th Cir. 1988) (“Piecemeal litigation occurs when different tribunals consider the same
issue, thereby duplicating efforts and possibly reaching different results.”).

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R.R. St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d at 981.

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Id. at 980.

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Id. at 981.
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Case No.: 5:13-cv-05846-PSG
ORDER STAYING CASE

This case shall be stayed subject to complete resolution of the New York action. 21 The

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parties shall lodge one page status reports with the court every ninety days to keep this court

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appraised of the New York state proceeding. With that action resolved, the court will lift the stay

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and address any live disputes between the parties. 22

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IT IS SO ORDERED.
Dated: March 31, 2014

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_________________________________
PAUL S. GREWAL
United States Magistrate Judge

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United States District Court
For the Northern District of California

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To “the extent that the state court may, for some unexpected reason, provide an inadequate
forum for resolution of the issues between the parties, the Court stays this action rather than
dismissing it.” Dunn v. Noe, Case No. 3:07-cv-3559-JCS, 2007 WL 3343127, at *10
(N.D. Cal. Nov. 7, 2007) (citing Attwood v. Mendocino Coast Dist. Hosp., 886 F.2d 241, 244
(9th Cir. 1989) (holding that by “using a stay, a district court invoking Colorado River will not
need to make premature and speculative legal findings about the preclusive effect of various
possible state judgments in choosing between a stay and a dismissal.”)).
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The parties’ pending motions to vacate and confirm the arbitration award are DENIED without
prejudice to being re-filed once the stay in this case is lifted. See Docket Nos. 40 and 43.
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Case No.: 5:13-cv-05846-PSG
ORDER STAYING CASE