Aviation Alliance Insurance Risk Retention Group, Inc. v. Polaris Enterprise Group, Inc. et al

Filing 15

ORDER granting in part and denying in part #7 Motion to Compel. It is GRANTED as to Counts II, III, IV, V, and XI. Aviation Alliance's failure to initiate arbitration within ninety (90) days from today's date will result in the dismissal of its arbitrable claims with prejudice. IT IS FURTHER ORDERED that resolution of the remaining, nonarbitrable claims (Counts I, VI, VII, and VIII is STAYED pending arbitration of the arbitrable issues. IT IS FURTHER ORDERED that Polaris' request for costs, fees, and expenses is GRANTED as to half of those incurred in bringing the present motion. Polaris shall file documentation of its request within seven (7) days of today's date. Signed by Judge Donald W. Molloy on 6/27/2017. (NOS)

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

'JUN 27 2017
Clerk, U.S Courts

Di~trict Of Montana

Missoula Division

CV 17-35-M-DWM

AVIATION ALLIANCE
INSURANCE RISK RETENTION
GROUP, INC.,

ORDER

Plaintiff,
vs.
POLARIS ENTERPRISE GROUP,
INC., CAMERON CREBS, and RICK
CREBS,
Defendants.

Plaintiff Aviation Alliance Insurance Retention Group, Inc. ("Aviation
Alliance") is a risk retention group 1 based out of Missoula, Montana. In 2009,
Aviation Alliance contracted with Defendants Polaris Enterprise Group, Cameron
Crebs, and Rick Crebs (collectively "Polaris") under a Master Service Agreement,
(Doc. 9-1 (Dec. 1, 2009)), whereby Polaris provided administrative, underwriting,

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A risk retention group "consists of independent companies that assemble
to create and fund a licensed captive insurance company and is able to write
common commercial liability insurance, including completed products, for its
members, purchase or provide excess insurance, manage general underwriting and
applications, determine rates, collect premiums, and adjust or settle claims."
(Compl., Doc. 1 at ii 8.)
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and support services for the operation, management, and administration of
Aviation Alliance. Under that Agreement, Polaris was the Broker of Record for
all shareholders and policy holders of Aviation Alliance, the program manager of
all Aviation Alliance's insurance operations, and the manager and administrator of
Aviation Alliance.
In March 201 7, Aviation Alliance sued, alleging nine causes of action
against Polaris for its actions relating to and following the termination of the
parties' relationship in October 2016. Aviation Alliance claims Polaris used its
confidential and trade secret information to make misrepresentations to
shareholders and, after the termination of the parties' relationship, failed to return
that information and improperly used it to sell Aviation Alliance policy holders
insurance policies provided by other carriers. According to Aviation Alliance,
Polaris has "unlawfully replaced at least 49 [of its] policies with insurance issued
by other companies with a resulting loss of [sic] in excess of$758,000.00 of
premium." (Compl., Doc. 1 at~ 19.)
Polaris, which has not yet filed an answer, seeks to compel arbitration
pursuant to an arbitration clause in the 2009 Master Service Agreement. (Doc. 7.)
Section 7 of that Agreement states in relevant part:
Arbitration. Except as otherwise provided herein, no civil action with
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respect to any dispute, claim, or controversy arising out of or relating to
this Agreement may be commenced until the matter has been submitted
to the Judicial Arbitration and Mediation Service ("JAMS") for nonbinding arbitration under the JAMS' then-effective commercial
arbitration rules. The parties covenant that they will participate in nonbinding arbitration in good faith and that they will share equally in its
costs .... Either party may seek equitable relief prior to the non-binding
arbitration to preserve the status quo pending the completion of that
process. Except for such an action to obtain equitable relief, neither
party may commence a civil action with respect to the matters submitted
to non-binding arbitration until after the arbitrator makes his
determination. During the pendency of such arbitration, any applicable
statute of limitations for claims related to this agreement will be tolled.
The provisions of this Clause may be enforced by any Court of
competent jurisdiction, and the party seeking enforcement shall be
entitled to an award of all costs, fees, and expenses, including attorneys'
fees, to be paid by the party against whom enforcement is ordered.
(Doc. 9-1 at 10.) The question here is whether this clause died with the
Agreement or whether the arbitration clause, like a zombie, continues to come to
life ever after the death of the Agreement. Polaris' motion is granted in part and
denied in part.
SUMMARY CONCLUSION

The 2009 Master Service Agreement, which terminated in October 2016,
included a broad arbitration provision, requiring arbitration of"any dispute, claim
or controversy arising out of or relating to th[e] Agreement." (Doc. 9-1at10.)
Aviation Alliance-the drafter of the Agreement and arbitration clause-argues
the arbitration provision died with the contract. Polaris insists it survived. Both
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parties are partially correct. To the extent Aviation Alliance's claims arise under
the 2009 Agreement, they remain subject to the zombie arbitration provision
postexpiration. Litton Fin. Printing Div., a Div. ofLitton Bus. Sys., Inc. v. Nat'!

Labor Relations Bd. (Litton), 501 U.S. 190, 205 (1991).
ANALYSIS

Federal law governs the question of arbitrability because the Master Service
Agreement is covered by the Federal Arbitration Act ("FAA") and the parties did
not "clearly and unmistakably designate[] that nonfederal arbitrability law
applies." Brennan v. Opus Bank, 796 F.3d 1125, 1129 (9th Cir. 2015) (emphasis
omitted) (citing Mitsubishi Motors Corp. v. Soler Chrylser-Plymouth, Inc., 4 73
U.S. 614, 626 (1985)). The FAA applies to any contract, like the present one,
"evidencing a transaction involving commerce." 9 U.S.C. § 2. This provision
reflects both a "liberal federal policy favoring arbitration," AT&T Mobility LLC v.

Concepcion, 563 U.S. 333, 339 (2011) (quoting Moses H Cone Memorial Hosp.
v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)), and the "fundamental principle
that arbitration is a matter of contract," id. (quoting Rent-A-Center, West, Inc. v.

Jackson, 561 U.S. 63, 67 (2010)).
There are two "gateway" issues in deciding whether to compel arbitration:
"(1) whether there is an agreement to arbitrate between the parties; and (2)
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whether the agreement covers the dispute." Brennan, 796 F.3d at 1130 (citing

Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). Both issues are
implicated here. Although the 2009 Master Service Agreement undisputedly
contains the arbitration provision indicated above, Aviation Alliance insists it does
not apply here because: (1) the Agreement terminated in October 2016 and there is
no survival provision, (2) the conduct alleged occurred after the termination of the
Agreement, and (3) the claims raised do not arise out the Agreement.

I.

Termination
Aviation Alliance first argues that the arbitration provision does not apply

because the 2009 Master Service Agreement terminated in October 2016. (See
Termination Letter, Doc. 14-1.) In the absence of an express negation or clear
implication that the parties intended the arbitration clause to terminate
automatically with the contract, there is a "presumption in favor of postexpiration
arbitration ... of matters and disputes arising out of the relation governed by
contract." Litton, 501 U.S. at 204. The 2009 Master Service Agreement does not
address termination of the arbitration provision, but generally provides in Section
5 "Term and Termination" that "this Agreement shall be extended a minimum of
an additional five ( 5) years" and that the parties were to notify each other of such
an extension 180 days prior to the end of the initial five-year period. (Doc. 9-1 at
5

7.) Nothing in the Agreement, nor in the arbitration clause itself, shows that the
parties intended to eliminate the duty to arbitrate as of the date of the Agreement's
termination.
Aviation Alliance argues that the absence of a "survival" clause in the 2009
Agreement-which was included in the proposed but not executed March 29,
2016 Service Agreement-rebuts the Litton presumption because it indicates that
the parties did not intend for the arbitration clause to survive contract termination
under the 2009 Agreement. (See 2016 Agreement, Section 13, Doc. 9-2 at 12
("Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements and covenants set forth in paragraph 6 (Books and Records), 7
(Non-solicitation), 10 (Arbitration) and 12 (General Provisions) shall survive the
termination for any reason of this agreement.").) Aviation Alliance insists the
parties' silence shows they intended to terminate the arbitration clause. See
Garland Coal & Min. Co. v. United Mine Workers ofAm., 778 F.2d 1297, 1301-02

(8th Cir. 1985); 0 'Connor Co., Inc. v. Carpenters Local Union No 1408 of the
Untied Broth. Of Carpenters & Joiners ofAm., AFL-CIO, 702 F.2d 824, 825 (9th

Cir. 1983). That argument is backwards in light of Litton, especially given the
expansive nature of the arbitration clause at issue here. 501 U.S. at 204
(explaining that an "extensive obligation to arbitrate" under a contract would not
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be consistent "with an interpretation that would eliminate all duty to arbitrate as of
the date of [the contract's] expiration"). The duty to arbitrate under the 2009
Master Service Agreement did not terminate with the Agreement. See id. at 208
("We presume as a matter of contract interpretation that the parties did not intend a
pivotal dispute resolution provision to terminate for all purposes upon the
expiration of the agreement."). The zombie clause is therefore alive, but alive for
what?

II.

Scope
That question raises an issue about the scope of arbitrable claims. "[A]ny

doubts concerning the scope of arbitrable issues should be resolved in favor of
arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay or a like defense to arbitrability."
Moses H Cone, 460 U.S. at 24-25. Although "the phrase 'arising under' in an

arbitration agreement is interpreted narrowly," "when parties intend to include a
broad arbitration provision, they provide for arbitration 'arising out of or relating
to' the agreement." Cape Flattery Ltd. v. Titan Maritime, LLC, 647 F.3d 914,
921, 922 (9th Cir. 2011) (quoting Mediterranean Enters., Inc. v. Ssangyong Corp.,
709 F.2d 1458, 1464 (9th Cir. 1983)); see also Tracer Research Corp. v. Nat'!
Envir. Servs. Co., 42 F.3d 1292, 1295 (9th Cir. 1994) (explaining that the absence
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or presence of"or relating to" language "is significant"). Here, the language of
the arbitration provision is broad as it includes both claims "arising out of' and
those "relating to" the Agreement. (Doc. 9-1 at 10.)
Polaris insists that because of that broad contractual language, arbitration is
required for all claims. (See Reply, Doc. 13 at 5.) However, while the termination
of the 2009 Agreement in October 2016 did not terminate the duty to arbitrate, it
limited the scope of postexpiration arbitration. As explained in Litton, the
presumption in favor of postexpiration enforcement of arbitration agreements
is limited to disputes arising under the contract. A postexpiration
grievance can be said to arise under the contract only where it involves
facts and occurrences that arose before expiration, where an action taken
after expiration infringes a right that accrued or vested under the
agreement, or where, under normal principles of contract interpretation,
the disputed contractual right survives expiration of the remainder ofthe
agreement.
501 U.S. at 205-06. As explained by the Court, "an expired contract has by its
own terms released all its parties from their respective contractual obligations,
except obligations already fixed under the contract but as yet unsatisfied." Id. at
206. As discussed above, the arbitration provision at issue here is broadly drafted.
But, as a consequence of the limitation of the postexpiration presumption under
Litton, it must be narrowly construed. Id. at 204 (explaining postexpiration
enforcement of arbitration provision "limited by the vital qualification that
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arbitration was of matters and disputes arising out of the relation governed by
contract"). Arbitration is therefore only compelled for those issues "arising under"
the 2009 Agreement.
In determining whether a particular claim falls within the scope of the
parties' arbitration agreement, courts focus on the factual allegations in the
complaint rather than the legal causes of action asserted. See Mitsubishi, 473 U.S.
at 622 n.9, 624 n.13. Aviation Alliance brings nine separate common law and
statutory claims for relief against Polaris based on the same central factual
allegations, but the zombie clause itself does not have nine lives. The claims are:
Polaris used Aviation Alliance's confidential information to make
misrepresentations to shareholders, failed to return that information, and used it to
sell Aviation Alliance policy holders insurance policies provided by other carriers.
Pursuant to Litton, the dispute is arbitrable if it: (1) involves facts or occurrences
that pre-date termination, (2) infringes on rights vested or accrued under the
agreement, or (3) survives under normal contract principles. 501 U.S. at 206. The
parties did not assess arbitrability in the context of the independent causes of
action. Doing so here, arbitration is required for Counts II, III, IV, V, and XI.
A.

Tortious Interference (Count I)

Aviation Alliance first alleges that Polaris "intentionally and willfully
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interfered with" existing insurance contracts and the "reasonable expectation of
future renewals by soliciting and attempting to solicit [Aviation Alliance]'s policy
holders and shareholders to terminate their policies or not renew and purchase
insurance policies through [Polaris] from insurance companies other than
[Aviation Alliance]." (Doc. 1 at~ 23.) This allegation is based on interference
with third party contracts, not the 2009 Agreement between Aviation Alliance and
Polaris. Count I alleges activity that occurred after contract termination in
October 2016, (see Doc. 11 at 3), and raises issue that "are predominantly
unrelated to the central conflict over the interpretation and performance of the
Agreement." Mediterranean Enters., Inc., 708 F.2d at 1464; see also Genesco,
Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 856 (2d Cir. 1987). The alleged

interference could have been "accomplished even ifthe Agreement did not exist."
Mediterranean Enters., Inc., 708 F.2d at 1464. Count I is therefore not subject to

arbitration.
B.

Trade Secrets (Counts II, 111) & Conversion (Count IV)

In Counts II and III, Aviation Alliance alleges that Polaris misappropriated
its trade secrets and confidential information in violation of Federal and state law.
(Doc. 1 at~~ 28-43.) Although Polaris' authorized use of that data was governed
by the 2009 Agreement, (see Section 8, Doc. 9-1 ), Aviation Alliance argues that
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Polaris' continuing use "would constitute an independent wrong from any breach
ofthe[ir] ... agreement[]." Tracer Research Corp., 42 F.3d at 1295. However,
misappropriation requires a showing that the information was "acquired by
improper means" or that there was a "duty to maintain the secrecy" of the
information. 18 U.S.C. § 1839(5). Here, both the propriety of acquisition and the
duties related to that information arise from the 2009 Agreement. (See Section
8.2: Permissible Use of Confidential Information, Doc. 9-1at11.) Although
Aviation Alliance's claims are based on statutory causes of action for
misappropriation that occurred primarily after contract termination, they require
interpretation or application of the Agreement.
Similarly, Aviation Alliance alleges in Count IV that Polaris has "refused to
return ... confidential information and trade secrets and retained and exercised
control over [Aviation Alliance]'s property for [its] own use in competition with
[Aviation Alliance]." (Doc. 1 at~ 47.) Once again, Polaris' possession and use of
the information was governed by the 2009 Agreement and a claim for conversion
requires a showing of"unauthorized dominion." See Eatinger v. Johnson, 887
P .2d 231, 234 (Mont. 1984) ("[A] claim for conversion must satisfy the following
elements: ownership of property, a right of possession, unauthorized dominion
over that property by another, and damages that result.").
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Keeping in mind that "any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration," Moses H Cone, 460 U.S. at 24-25,
Counts II, III, and IV are subject to arbitration.
C.

Breach of Fiduciary Duty and Duty of Loyalty (Count V)

Aviation Alliance alleges that
In its position as former manager, operator, administrator, and broker of
record of [Aviation Alliance]' s insurance business, ... Polaris ... owed
[Aviation Alliance] a fiduciary duty and a duty of loyalty to keep
confidential and trade secrets of [Aviation Alliance] confidential, to not
use such information for anything other than procuring insurance
policies issued by [Aviation Alliance], to not solicit or procure insurance
business from [Aviation Alliance]' s policy holders, shareholders, or
customers or to compete against [Aviation Alliance], and to not place or
issue insurance policies for [Aviation Alliance]'s policy holders,
shareholders, or customers with insurance carriers other than [Aviation
Alliance].
(Doc.

1at~52.)

Because these duties were created by the 2009 Agreement and

have no independent basis, they fall within the scope of the arbitration clause.

Mediterranean Enters. Inc., 708 F.2d at 1464. Aviation Alliance's conclusory
argument to the contrary is not persuasive. (Doc. 11 at 7.) Count Vis subject to
arbitration.
D.

Unfair Competition (Count VI) & Defamation (Count VII)

Aviation Alliance alleges that Polaris "in soliciting and replacing [Aviation
Alliance] policies used, in commerce, false or misleading descriptions of fact or
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false or misleading representations of fact which misrepresented the nature of
qualities of [Aviation Alliance]' s goods, services or commercial activities
constituting unfair competition" and defamation. (Doc. 1 at~~ 58, 61.) Much like
Aviation Alliance's claims for tortious interference, these causes of actions do not
concern rights that vested or accrued under the 2009 Agreement or conduct that
occurred during the Agreement. Because they do not "arise under" the
Agreement, Counts VI and VII are not subject to arbitration.
E.

Unjust Enrichment (Count VIII)

Aviation Alliance alleges that by retaining and continuing to use its
confidential information following the termination of the parties' relationship,
Polaris was unjustly enriched. (Doc. 1 at~ 64.) Inherent in a claim for unjust
enrichment is the absence of an express contract between the parties. Estate of
Pruyn v. Axmen Propane, Inc., 223 P.3d 845, 857 (Mont. 2009) ("Unjust
enrichment is an obligation created by law in absence of an agreement between the
parties."). Because Aviation Alliance's allegations involve conduct that postdates the Agreement's termination and equitable relief distinct from that provided
for by the Agreement, Count VIII is not subject to arbitration.
F.

Punitive Damages (Count IX)

Absent specific contractual language limiting an arbitrator's power based on
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state law, punitive damages may be subject to arbitration under federal law.

Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 64 (1995). To
succeed on a claim for punitive damages a plaintiff must show "actual fraud or
actual malice." Mont. Code Ann.§ 27-1-221(1). Here, Aviation Alliance pleads
only a claim for actual malice. (See Doc. 1 at~ 67.) "A defendant is guilty of
actual malice if the defendant has knowledge of facts or intentionally disregards
facts that create a high probability of injury to the plaintiff and: (a) deliberately
proceeds to act in conscious or intentional disregard of the high probability of
injury to the plaintiff; or (b) deliberately proceeds to act with indifference to the
high probability of injury to the plaintiff."§ 27-1-221(2). A finding of actual
malice related to arbitrable conduct is not foreclosed by the pleadings.
Accordingly, Aviation Alliance's Count IX is subject to arbitration to the extent
that the conduct upon which the punitive damages is based arose under the
Agreement. See Moses H Cone, 460 U.S. at 24-25 (requiring doubts be resolved
in favor of arbitration).
III.

Stay

The decision to stay the balance of the proceedings pending arbitration is
largely within a district court's discretion to control its docket. Moses H Cone,
460 U.S. at 20 n.23; Mediterranean Enters., Inc., 708 F.2d at 1465. However,
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[i]f any suit or proceeding be brought in any of the courts of the United
States upon any issue referable to arbitration under an agreement in
writing for such arbitration, the court in which such suit is pending,
upon being satisfied that the issue involved in such suit or proceeding
is referable to arbitration under such an agreement, shall on application
of one of the parties stay the trial of the action until such arbitration has
been had in accordance with the terms of the agreement, providing the
applicant for the stay is not in default in proceeding with such
arbitration.
9 U.S.C. § 3. Accordingly, resolution of Aviation Alliance's non-arbitrable claims
(Counts I, VI, VII, and VIII) is stayed pending arbitration of the arbitrable issues.
IV.

Attorneys Fees

Polaris seeks to recover fees pursuant to the arbitration provision, which
provides that "the party seeking enforcement shall be entitled to an award of all
costs, fees, and expenses, including attorneys' fees, to be paid by the party against
whom enforcement is ordered." (Section 7, Doc. 9-1 at 10.) While such recovery
is complicated by the fact that the 2009 Agreement has expired, the arbitral fee
provision remains enforceable consistent with the general federal policy in favor
of arbitration. See Ajida Techs., Inc. v. Roos Instruments, Inc., 104 Cal. Rptr. 2d
686, 699 (Cal. App. 2001). To the extent it prevailed, Polaris is entitled to costs
and fees associated with bringing the present motion. Of the nine claims brought,
arbitration is required for five (including punitive damages, which are limited to
arbitrable conduct), or approximately half of the claims brought by Aviation
15

Alliance. Accordingly, Polaris shall recover half of its costs, fees, and expenses
associated with the present motion.
CONCLUSION

IT IS ORDERED that Polaris' motion to compel arbitration (Doc. 7) is
GRANTED in PART and DENIED in PART. It is GRANTED as to Counts II, III,
IV, V, and XI. Aviation Alliance's failure to initiate arbitration within ninety (90)
days from today's date will result in the dismissal of its arbitrable claims with
prejudice.
IT IS FURTHER ORDERED that resolution of the remaining, nonarbitrable
claims (Counts I, VI, VII, and VIII) is STAYED pending arbitration of the
arbitrable issues. See 9 U.S.C. § 3.
IT IS FURTHER ORDERED that Polaris' request for costs, fees, and
expenses is GRANTED as to half of those incurred in bringing the present motion.
Polaris shall file documentation of its request within seven (7) days of today's
date.

v of June, 2017.
DATED this g;j_ day

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