Zimmerman Ag and Cattle v. Agro National et al

Filing 23

ORDER granting 15 Petitioner's Motion for Summary Judgment and Confirming Arbitrator's Award. Signed by Judge Richard F. Cebull on 11/7/2011. (EMA)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION

ZIMMERMAN AG AND CATTLE
COMPANY, LLC,

)
CV 11-29-BLG-RFC
)
)
Petitioner,
)
ORDER GRANTING
) ZIMMERMAN’S MOTION FOR
)
SUMMARY JUDGMENT
vs.
)
)
AGRO NATIONAL, LLC, and
)
STONINGTON INSURANCE COMPANY, )
)
Respondents.
)
----------------------------------------------------------)

I.

INTRODUCTION
Petitioner Zimmerman Ag and Cattle Co., LLC, filed this action in

Montana’s Tenth Judicial District Court, Petroleum County, to confirm an
arbitration award in its favor. Respondents Agro National, LLC, and Stonington
Insurance Co. subsequently removed to this Court. At the preliminary pretrial
conference, the parties agreed that this case would be resolved on a motion for
summary judgment. The sole issue raised by Zimmerman’s motion is whether the

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arbitrator exceeded his powers by denying Respondents’ Motion to Dismiss.
II.

FACTUAL BACKGROUND
Zimmerman Ag and Cattle Co., LLC is a wheat farming and ranching

corporation located near Winnett, in Petroleum County, Montana. Agro National,
Inc. is an authorized agent and underwriter of Stonington Insurance Company,
which issued crop insurance to Zimmerman for the 2008 crop year. The crop
insurance policy is a Revenue Assurance Policy reinsured by the Federal Crop
Insurance Corporation under authority of § 508(h) of the Federal Crop Insurance
Act, 7 U.S.C. § 1508(h).
The wet Spring of 2008 resulted in a partial loss for Zimmerman’s wheat
crop, so it sought indemnification under its crop insurance policy due to “adverse
weather conditions.” On November 20, 2008, Agro wrote Zimmerman claiming it
had not provided an insurance cause of loss for 355.3 irrigated acres between July
27, 2008 and harvest and therefore indemnity would be processed on the July 27,
2008 appraisal of 23 bushels per acre rather than the 16.1 bushels per acre that was
actually harvested.
On December 9, 2008, Zimmerman wrote Agro thanking them for paying
the undisputed amount of the claim, but asking for an “immediate arbitration
hearing or mediation to settle this matter.” Over the next year, the parties
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exchanged letters addressing whether mediation was required before arbitration,
whether mediation would be an appropriate vehicle for resolving the dispute, who
should initiate the arbitration proceedings, choice of arbitrator, and whether
Zimmerman could provide or had provided evidence its crop had suffered an
insured cause of loss. Agro was never satisfied that Zimmerman had suffered an
insurable loss beyond what it had already paid, so Zimmerman filed for arbitration
with American Arbitration Association (“AAA”) on March 8, 2010.
Arbitration was held on August 3, 2010. The arbitrator first heard argument
on a motion to dismiss filed by Respondents and then heard testimony on the
merits of Zimmerman’s claim. On August 30, 2010, the arbitrator issued his
decision, denying Respondent’s motion to dismiss and concluding that
Respondents’s breached the crop insurance policy. Zimmerman was awarded
$21,078.60, plus interest.
III.

ANALYSIS
Summary judgment “should be rendered if the pleadings, the discovery and

disclosure materials on file, and any affidavits show that there is no genuine issue
as to any material fact and that the movant is entitled to judgment as a matter of
law.” Fed.R.Civ.P. 56(c)(2). In this case, the material facts are not in dispute and
the court is presented with a pure question of law–whether the arbitrator erred in
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denying Respondents’ motion to dismiss.
Since broad judicial review of arbitration awards would undermine the
speed and informality of arbitration, Judicial review of arbitration awards is highly
deferential. Collins v. D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir. 2007);
Johnson v. Wells Fargo Home Mortg., Inc., 635 F.3d 401, 141 (9th Cir. 2011).
The limited grounds for vacatur are specified in section 10 the Federal Arbitration
Act (“FAA”), 9 U.S.C. § 10. Here, Respondents cite § 10(a)(4), providing for the
vacation of an arbitration award “where the arbitrators exceeded their powers ...”
Judicial decisions have interpreted § 10(a)(4) as allowing district courts to vacate
an arbitration award where the arbitrator “demonstrated a manifest disregard for
law.” Johnson, 635 F.3d at 414.
In order to prove an arbitrator demonstrated a manifest disregard for the
law, there must be more than a “mere error in the law or failure on the part of the
arbitrators to understand and apply the law.” Collins, 505 F.3d at 879, quoting
San Martine Compania De Navegacion, S.A. v. Saguenay Terminals Ltd., 293 F.2d
796, 801 (9th Cir.1961). An erroneous interpretation of the law is not enough,
Respondents must show the arbitrator understood and correctly stated the law, but
disregarded it. Id. Finally, the law allegedly ignored by the arbitrator must be
well-defined, explicit, and clearly applicable. Id., citing Carter v. Health Net of
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California, Inc., 374 F.3d 830, 838 (9th Cir. 2004).
Here, the arbitrator concluded that Zimmerman’s December 8, 2009 letter
seeking “immediate arbitration” constituted “[t]he initiation of arbitration
proceedings” that the USDA crop insurance regulations mandate within one year
of the date the claim is denied. The arbitrator also reviewed correspondence
between the parties following the December 8, 2009 letter and concluded that
Zimmerman was “actively trying to set up an arbitration and
[Respondent] certainly knew that.” The arbitrator concluded “it would be
extremely technical and highly prejudicial to [Zimmerman] to rule, under these
facts, that the substance of his claim cannot be presented to an arbitrator.”
Respondents argue that in concluding Zimmerman had “initiated
arbitration” via the December 9, 2008 letter, the arbitrator ignored AAA
Commercial Arbitration Rule R-4:
R-4. Initiation under an Arbitration Provision in a Contract
(a) Arbitration under an arbitration provision in a contract shall be
initiated in the following manner:
(i) The initiating party (the “claimant”) shall, within the time period,
if any, specified in the contract(s), give to the other party (the
“respondent”) written notice of its intention to arbitrate (the
“demand”), which demand shall contain a statement setting forth the
nature of the dispute, the names and addresses of all other parties, the
amount involved, if any, the remedy sought, and the hearing locale
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requested.
(ii) The claimant shall file at any office of the AAA two copies of the
demand and two copies of the arbitration provisions of the contract,
together with the appropriate filing fee as provided in the schedule
included with these rules.
(iii) The AAA shall confirm notice of such filing to the parties.

According to Respondents, Rule R-4 provides that the initiation of the arbitration
agreement is the time when the arbitration was filed with the AAA, not just when
the claimant notifies the respondent of its intention to arbitrate.
Although Respondents’ interpretation of Rule R-4 is reasonable, it is not
clear from the record that the arbitrator recognized this rule and then ignored it.
See Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1290 (9th Cir.
2009). Not only is there no mention of Rule R-4 in the arbitrator’s decision, doc.
18-1, but Respondents did not cite Rule R-4 in their motion to dismiss. Doc. 4-1.
Viewed from the perspective most favorable to Respondents, the most that can be
said is that the arbitrator applied the wrong law. In light of the highly deferential
standard with which federal district courts are required to review arbitration
awards, a mere error in law is insufficient.
///

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IV.

ORDER
Accordingly, IT IS HEREBY ORDERED that Zimmerman’s Motion for

Summary Judgment (doc. 15) is GRANTED: the arbitrator’s award (doc. 4-1) is
confirmed.
The Clerk of Court shall notify the parties of the entry of this Order, enter
judgment in favor of Zimmerman and against Respondents, and close this case.
Dated this 7th day of November, 2011.
/s/ Richard F. Cebull_________
Richard F. Cebull
United States District Judge

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