American Trucking and Transport Insurance Company v. Nelson et al

Filing 91

ORDER denying 71 Motion to Stay. IT IS FURTHER ORDERED that pursuant to the Court's Order dated September 26, 2017 59 , the parties have thirty (30) days from the date of this Order, or until August 27, 2018, to file their opposition to Defendant Westchester's Motion Pursuant to Fed. R. Civ. P 12(B)(6) to Dismiss Plaintiffs Claims Against Westchester 51 . Westchester may file a reply briefpursuant to the Local Rules. Signed by Judge Dana L. Christensen on 7/27/2018. (ASG)

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

AMERICAN TRUCKING AND
TRANSPORTATION INSURANCE
COMPANY, a Risk Retention Group,

FILED
JUL 2 7 2018
Clerk, U.S District Court
District Of Montana
Missoula

CV 16-160-M-DLC

Plaintiff,

ORDER

vs.
RALPH NELSON, ROBERT
GORMAN, SR., BOBBY J.
GORMAN, DAN DOOLEY, and
WESTCHESTER
SURPLUS LINES INSURANCE
COMPANY,
Defendants.
Before the Court is Westchester Surplus Lines Insurance Company's
("Westchester") Motion to Stay Proceedings Pending Appeal of Decision on
Motion to Compel Arbitration.

(Doc. 71.)

Plaintiff American Trucking and

Transportation Insurance Company ("ATTIC") and Defendant Dan Dooley oppose
the motion.

(Docs. 84, 85.)

For the reasons explained below, the Court denies

the motion.

BACKGROUND
On December 29, 2016, ATTIC filed its Original Complaint against various

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officers and directors of Tango Transport and Gorman Group.

Since that time,

Defendants Ralph Nelson, Robert Gorman, and Bobby Gorman settled pursuant to
a stipulated judgment (Docs. 22, 23), a Motion to Dismiss was filed by Defendant
Dooley and judgment was issued on that motion (Docs. 4, 33), and Defendants
Darrell Forman and Liz Cannon were dismissed because they reached a settlement
with ATTIC (Docs. 25, 26).

Following the stipulated judgment and dismissals,

on July 26, 2017, ATTIC filed an Amended Complaint adding Westchester to this
action (Doc. 32.).
On September 8, 201 7, Westchester moved to compel arbitration of
ATTIC's claims against Westchester.
XI of the Amended Complaint.

Westchester also moved to dismiss Count

The Court subsequently vacated the Preliminary

Pretrial Conference in order to resolve the pending arbitration issue.

The parties

then stipulated to stay any briefing on the Motion to Dismiss Count XI until
disposition on the Motion to Compel Arbitration.

Thereafter, the Court denied

the Motion to Compel Arbitration because it found that Westchester had lost the
right to enforce the mandatory arbitration clause because Westchester had not
defended the insureds nor commenced a declaratory action against the Insureds.
(Doc. 64.)

On May 15, 2018, Westchester appealed the Court's ruling on the

Motion to Compel Arbitration to the Ninth Circuit pursuant to 9 U.S.C. § 16.

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(Doc. 66.)
Now, Westchester moves the Court to stay proceedings pending the outcome
of its appeal.

Due to the unique nature of the motions filed to date, the extensions

of time given, and the amendments to pleadings, this case is still in its early stages
and no Preliminary Pretrial Conference has occurred.
set.

Hence, trial has not been

Essentially, this case has been in a holding pattern for over a year and a half.

LEGAL STANDARD
"District courts within the Ninth Circuit, unlike those in the majority of other
circuits, are not required to automatically stay proceedings upon the appeal of an
order denying a motion to compel arbitration."

Murphy v. DirecTV, Inc., 2008

WL 8608808, *1 (C.D. Cal. 2008) (citing Britton v. Co-op Banking Group, 916
F.2d 1405, 1411 (9th Cir. 1990)).

The Ninth Circuit has explained that an

automatic stay in this context "would allow a defendant to stall at trial simply by
bringing a frivolous motion to compel arbitration."

Britton, 916 F.2d at 1412.

Instead, the decision whether to issue a stay remains squarely within the district
court's discretion.

Murphy at * 1.

The moving party bears the burden of persuading the court that the
circumstances of the case justify a stay.

Cesca Therapeutics, Inc. v. SynGen Inc.,

2017 WL 1174062, *2 (E.D. Cal. 2017).

The district court must consider four

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factors in evaluating whether to issue a stay:
( 1) whether the stay applicant has made a strong showing that he is likely to
succeed on the merits; (2) whether the applicant will be irreparably injured
absent a stay; (3) whether issuance of the stay will substantially injure the
other parties interested in the proceeding; and (4) where the public interest
lies.
Leiva-Perez v. Holder, 640 F.3d 962, 964 (9th Cir. 2011) (citing Nken v. Holder,

556 U.S. 418 (2009); Hilton v. Braunskill, 481 U.S. 770, 776 (1987)).

The party

moving for a stay must make a "threshold showing" as to each of these four
prongs.

Leiva-Perez, 640 F.3d at 965.

critical.

Further, the first two factors are the most

Nken, 556 U.S. at 434.

Moreover, a "stay will not issue simply because the necessary conditions are
satisfied.

Rather, sound equitable discretion will deny the stay when a decided

balance of convenience weighs against it."

Philip Morris USA v. Scott, 561 U.S.

1301, 1305 (2010) (internal quotations and citation omitted).
DISCUSSION
I.

Likelihood of Success on the Merits, or Substantial Legal Question
According to Leiva-Perez, "[t]here are many ways to articulate the minimum

quantum of likely success necessary to justify a stay-be it a 'reasonable
probability' or 'fair prospect,' ... 'a substantial case on the merits,' or that 'serious
legal questions are raised."'

640 F.3d at 967-68 (citations omitted).

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The Ninth

Circuit concluded that "these formulations are essentially interchangeable, and that
none of them demand a showing that success is more likely than not."

Id. at 968.

In the instant case, Westchester contends that it is likely to succeed on the
merits and its appeal presents a serious legal question.

a.

Substantial Legal Question

Westchester argues that it presents a substantial legal question on appeal
because the question of whether an insurer can enforce a valid arbitration provision
in a policy when the insurer did not defend the insured has not previously been
considered by the Montana Supreme Court or the Ninth Circuit.

(Doc. 72 at 15.)

ATTIC counters that this is not an accurate statement of the issue because the real
question is whether an insurer has waived its right to rely upon the terms of an
insurance policy to enforce an arbitration clause and to retroactively assert that
coverage does not exist, after the insurer has breached its duty to defend.
84 at 18.)

(Doc.

ATTIC contends that Montana law is settled on this issue, as explained

by the Court in its earlier order.

(Doc. 64).

Westchester argues that the arbitration provision is not a coverage "defense"
under the policy, and that Tidyman 's Mgmt. Servs. v. Davis, 330 P.3d 1139 (Mont.
2014) ("Tidyman 's I"), which the Court relied on to support its ruling, does not
extend to jurisdictional provisions such as an arbitration provision.

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Westchester

disagrees with the Court's ruling that by failing to defend the action it lost its right
to rely upon the arbitration provision in the policy, and further argues that the
Court's holding conflicts with the liberal federal policy favoring arbitration.
(Doc. 72 at 17 (citing Mortensen v. Bresnan Commc 'ns, LLC, 722 F.3d 1151, 1157
(9th Cir. 2013) (citing Kilgore v. KeyBank, Nat. Ass 'n, 718 F.3d 1052, 1057 (9th
Cir. 2013)).)

Further, Westchester contends that another court within the Ninth

Circuit recently declined to conclude that a breach of the duty to defend, which
otherwise would estop an insurer from denying coverage, is relevant to
enforceability of an arbitration clause.

(Doc. 72 at 16 (citing Norton Cmty.

Apartments LP v. United National Ins. Co., 2007 WL 9229737, *5 (C.D. Cal.

2007).)
The Court does not agree that this is a matter of first impression and stands
by its prior order (Doc. 64).
Tidyman 's I controls.

The issue on appeal is one of state law, and

Further, the consequences of breaching the duty to defend

are also clear and longstanding under Montana law.
in the Court's Order.

(See Doc. 64 at 10-18.)

This was addressed at length

Westchester's reliance on Norton,

which is a case interpreting California insurance law, is not controlling here.
Consequently, no serious legal question warrants a stay.
in favor of denying a stay.

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Thus, this factor weighs

b.

Likelihood of Success on the Merits

As to the likelihood of success on the merits, Westchester's argument
centers mainly on the contention that the Court erred in its interpretation of
Montana law.

Again, the Court stands by its previous order.

Because this

question of law is settled, Westchester is unable to make a strong showing that it is
likely to succeed on this merits.

Further, to the extent Westchester argues that the

arbitration clause is a jurisdictional provision and not a "contract defense,"
Westchester did not properly raise this issue in its briefing on the Motion to
Compel Arbitration and has waived its right to appeal on that issue.

There is no

excusable reason or exceptional circumstance under Ninth Circuit law that would
justify allowing Westchester to raise this new argument on appeal.
States v. Carlson, 900 F.2d 1346, 1349 (9th Cir. 1990).

See United

Thus, this factor weighs

in favor of denying a stay.
II.

Irreparable Harm
Next, Westchester claims that it will suffer irreparable harm if this Court

denies a stay and the Ninth Circuit compels arbitration because it will waste
substantial time and resources devoted to litigating this dispute during the
pendency of the appeal.

Westchester argues that if this action proceeds in district

court, it would be entitled to challenge the reasonableness of the settlements made

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by the Defendants which would require significant discovery.

Thus, Westchester

asserts this monetary expense, while usually not considered irreparable harm, is
unique here because should arbitration occur, the cost of litigating this case would
decrease.
ATTIC and Defendant Dooley counter that the monetary expense argument
offered by Westchester carries no weight because money and time spent in
litigation is generally not irreparable harm.

Further, Westchester has already filed

a Motion to Dismiss and has briefed its response to ATTIC's Motion for Summary
Judgment in this case.

(See Docs. 51, 87.)

ATTIC also argues that because this

case is still in its nascent stages, there is a much lower risk of harm to Westchester
pending the appeal.

Defendant Dooley adds to that argument, asserting that any

briefing that would occur in this case would be duplicative of the briefing expected
to occur in any potential arbitration.

Thus, the burden of time and expense

outlined by Westchester is mitigated by the reality that Westchester's proposed
arbitration process would result in similar time and expense.
Westchester makes three additional arguments in its reply brief.

First, it

claims that if the arbitration provision is upheld by the Ninth Circuit, the provision
calls for arbitration in Louisiana or New York.

(Doc. 86 at 3-4.)

Thus,

Montana law is not implicated in arbitration, and the briefing in arbitration would

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not be identical to the briefing and litigation in this Court.

Moreover, Louisiana

law is much different than Montana law regarding the duty to defend and insurers
are not ordinarily estopped to deny coverage.

Consequently, Westchester could

argue all coverage defenses and it is possible coverage would not apply under the
Westchester policy.
Second, Westchester argues that it would pursue discovery in arbitration into
issues and facts which ATTIC contends is foreclosed here.

(Doc. 86 at 5-6.) If

allowed to arbitrate, Westchester would seek to discover when the claim was first
made based upon when the dispute between ATTIC and Gorman Group began.
Westchester claims that it is possible the claims were "first made" prior to the
when the Westchester policy applies-October 1, 2015 to October 1, 2016-and if
so, then the Westchester Policy would not be in play.
Third, Westchester contends that it would not need to embark on a discovery
expedition into the reasonableness of the Stipulated Judgments in arbitration until
after an arbitration panel ( 1) concluded that the claims were made during the
Westchester Policy period, and (2) that none of Westchester's coverage defenses
applied.

Hence, Westchester claims it would be irreparably harmed by discovery

in this court that would not be pursued in arbitration.

(See Doc. 86 at 7-10.)

"[I]fthe petitioner has not made a certain threshold showing regarding

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irreparable harm ... then a stay may not issue, regardless of the petitioner's proof
regarding the other stay factors."
U.S. at 432-34).

Leiva-Perez, 640 F.3d at 965 (citing Nken, 556

The threshold showing requires the petitioner "to demonstrate

the irreparable harm is probable."

Id. at 968.

generally constitute irreparable harm.

The expense of litigation does not

Renegotiation Bd. v. Bannercraft Clothing

Co., Inc., 415 U.S. 1, 94 (1974) ("Mere litigation expense, even substantial and

unrecoupable cost, does not constitute irreparable injury.").
The Court appreciates the purpose of arbitration, which is to provide an
"inexpensive and expeditious means of resolving the dispute."

Int 'l Ass 'n of

Machinists & Aerospace Workers, AFL-CIO v. Aloha Airlines, Inc., 776 F.2d 812,

815 (9th Cir. 1985).

Consistent with the Court's prior order and the foregoing

Section I, the Court finds that irreparable harm is not probable.

Although it is

possible the Ninth Circuit could compel arbitration, the Court is not persuaded by
Westchester's arguments.

The Court already found that Westchester lost its right

to compel arbitration by failing to provide a defense under a reservation of rights.
Further, this case is still in its infancy and a trial date has not been set.

There is

still a pending motion to dismiss, and discovery is not likely to be extensive.
Pursuing discovery related to the reasonableness of the stipulated judgment will
not substantially prejudice Westchester and will promote efficiency because,

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contrary to Westchester's assertion, if its appeal is successful, the parties would
still be able to use portions of that discovery in arbitration.
Ultimately, although Westchester contends that the substantial time and
resources devoted to litigating this dispute in district court suffices as irreparable
harm, there must be more than merely a monetary and time factor to constitute
irreparable harm.

The Britton Court gave district courts clear discretionary

authority to evaluate each motion to stay based on individual circumstances.
Britton, 916 F.2d at 1412.

Here, the Court does not find that the cost of

continuing litigation in district court is so substantial that a stay is warranted.

It is

merely possible, and not probable, that the Ninth Circuit would compel arbitration
in this case.

III.

Therefore, this factor weighs in favor of denying the stay.

Substantially Injure Other Parties

The third factor asks whether issuance of the stay will substantially injure
the other parties interested in the proceeding.

Westchester contends that the only

harm ATTIC will suffer if a stay is granted is a delay in obtaining relief.
at 25.)

(Doc. 72

However, Westchester argues that harm is outweighed by the unjustifiable

waste of time and money that would result from Westchester having to litigate this
case pending the appeal.

ATTIC and Defendant Dooley counter that they will be

injured if a stay is granted because any passage of time will make discovery more

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costly and challenging, will likely hamper witness memories, and evidence may be
lost.
ATTIC and Defendant Dooley's arguments here are minimally compelling.
The Court understands that it is important to the parties that this case be resolved in
an efficient and timely manner.

Application of this factor cuts both ways.

Westchester is marginally harmed ifthe Court does not stay the case, and ATTIC
and Defendant Dooley are similarly harmed ifthe Court grants the stay.

Thus,

this factor is neutral.
IV.

Public Interest

Finally, Westchester argues that public policy weighs against proceeding
with this case because litigating the claims here would be wasteful should the
Ninth Circuit decide this case is arbitrable, because of the possibility of duplicate
discovery, and related proceedings and determinations concerning similar issues
against Defendant Dooley in the Bankruptcy adversary proceeding.

(Doc. 72 at

18-19.) ATTIC contends that public interest weighs in favor of denying the stay
because it will frustrate the public's interest in the speedy determination of civil
matters.

ATTIC claims that the parties would sit idle during the pendency of the

appeal instead of pursuing discovery.

(Doc. 84 at 25-26.)

Defendant Dooley

contends that this is not a substantial factor because the government is not a party

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to this case and thus non-parties will not be impacted.
Both parties raise important public policy considerations.

However, the

Court does not find the fourth stay factor to be controlling in this matter.

This

factor weighs neither in favor of, nor against, granting the stay.
CONCLUSION

Having found that the two most critical of the four factors weigh against
granting the stay, and that none of the factors weigh heavily in favor of granting
the stay, the Court will deny Westchester's Motion to Stay Proceedings Pending
Appeal.
IT IS ORDERED that Westchester's Motion to Stay Proceedings Pending
Appeal (Doc. 71) is DENIED.
IT IS FURTHER ORDERED that pursuant to the Court's Order dated
September 26, 2017 (Doc. 59), the parties have thirty (30) days from the date of
this Order, or until August 27, 2018, to file their opposition to Defendant
Westchester's Motion Pursuant to Fed. R. Civ. P 12(B)(6) to Dismiss Plaintiffs
Claims Against Westchester (Doc. 51).

Westchester may file a reply brief

pursuant to the Local Rules.

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.

DATED this

Zx~day of July, 2018

(.~

Dana L. Christensen, Chief Judge
United States District Court

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