Dobrovolny et al v. Rain and Hail, LLC

Filing 21

MEMORANDUM AND ORDER- Defendant's motion to dismiss, Filing No. 7 , is denied as moot. Defendant's motion to dismiss, Filing No. 15 , is granted with respect to the motion to compel arbitration and denied in all other respects at thi s time. The defendant is free to reassert this motion to dismiss following the arbitration process, if applicable. This case is hereby stayed pending arbitration in this case. The parties shall seek to immediately arbitrate this case pursuant to the arbitration agreement entered into by them. The parties are instructed to provide the court with a status update every 60 days until this case is determined by the arbitrator. The parties shall notify the court immediately if the case is settled and/or when the arbitration process is completed. Ordered by Judge Joseph F. Bataillon. (MKR)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
STANLEY D. DOBROVOLNY, THOMAS J.
KRYSL, TERRANCE N. KLINGER, JERRY
PREWITT, MIKE POSPICHAL, DARRIN J.
PAXTON, DALE PAXTON, ROBERT J.
KAUP, CURTIS L. CARR, ROD R.
MCCUMBER,

8:14CV116

MEMORANDUM AND ORDER
Plaintiffs,
vs.
RAIN AND HAIL, LLC,
Defendant.

This matter is before the court on defendant’s motion to dismiss, Filing No. 7,1
and motion to dismiss amended complaint, Filing No. 15.

In its second motion to

dismiss, defendant moves this court to dismiss the amended complaint, or in the
alternative, to compel arbitration and stay the proceedings. In their amended complaint,
plaintiffs allege four separate causes of action:

(1) violations of the Consumer

Protection Act; (2) violations of the Unfair Insurance Trade Practices Act; (3) legal
rescission; and, alternatively, (4) equitable rescission. Amended Complaint, Filing No.
13. Each of these claims is based on the same alleged misrepresentation concerning
“the measurement of precipitation in the grid.” Id., at ¶34 (Consumer Protection claim);
id. at ¶¶ 40, 41 and 45 (deceptive practices); id. at ¶ 47 (legal rescission); and id. at
¶ 54 (equitable rescission).
Plaintiffs initially filed this suit in Holt County, Nebraska, alleging defendant
fraudulently misrepresented the terms of a federally reinsured Rainfall Index policy. The

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This motion is rendered moot by the filing of the second motion to dismiss.

Rainfall Index policy provides indemnity to policyholders if the amounts of precipitation
for insured acreages deviate from certain expected, historical levels.

There is

significant dispute as to how such coverage is based, for example, a grade experience
factor or weather stations in the general area. Defendant then removed the case to
federal court and filed these motions.
Each of the named plaintiffs applied for and received a rain and hail policy.
Plaintiffs received up to six documents explaining their coverage, including four from the
federal government. There is language in the documents that limits recovery under
certain circumstances. See, e.g., Filing No. 13-7 p. 39, Standards Handbook, which
states: “It is possible for me to have low crop production or receive low precipitation
amounts on the acreage I insure and still not receive an indemnity payment under this
plan.” The court will first address the motion to compel arbitration.
The defendant, in the alternative, moves the court to compel plaintiffs’ claims to
binding arbitration pursuant to 9 U.S.C. § 1 et seq. The Rainfall Index policies contain
an arbitration provision which states:
15. Mediation, Arbitration, Appeal, Reconsideration, and Administrative
and Judicial Review.
(a) If you and we fail to agree on any determination made by us except
those specified in section 15(d), the disagreement may be resolved
through mediation in accordance with section 15(g).
(1) If resolution cannot be reached through mediation, or
you and we do not agree to mediation, the disagreement
must be resolved through arbitration in accordance with the
rules of the American Arbitration Association, except as
provided in sections 15(c) and (f), and unless rules are
established by FCIC for this purpose. . . .

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(3) All disputes involving determinations made by us, except
those specified in section 15(d), are subject to mediation or
arbitration. . . .
(c) Any decision rendered in arbitration is binding on you and us unless
judicial review is sought in accordance with section 15(b)(3).
Notwithstanding any provision in the rules of the American Arbitration
Association, you and we have the right to judicial review of any decision
rendered in arbitration.
Filing No. 16, Trent-Vilim Aff., Atts. 1-10, at pp. 18-19, respectively. Further, plaintiffs
have filed a demand in arbitration with the American Arbitration Association, alleging:
Respondent failed to pay proper indemnity payments to Claimants
under the Pasture, Rangeland, Forage Rainfall Index Policy for lack of
rainfall compared to the historical average in insured grids for 2013 index
intervals: Jan/Fen, Mar/Apr, and Nov/Dec, totaling $461,975.23 plus
interest. Claimants are parties to the policy, which includes a provision
(§ 15) requiring arbitration under the rules of the American Arbitration
Association; accordingly, Claimants demand arbitration.”
Filing No. 8, Trent-Vilim Aff., Att. 11).
Congress enacted the Federal Arbitration Act, 9 U.S.C. §§ 1-16. There is a
national policy favoring arbitration. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
440, 443-44 (2006). A party can challenge the arbitration agreement in one of two
ways, either the validity of the agreement to arbitrate, or the illegality of the contract as a
whole. Id. at 444.
The court finds that arbitration is required in this case. First, plaintiffs already
filed an arbitration proceeding based on the same facts as presented in this case, thus
acknowledging the validity of the arbitration agreement. Second, if a case has even
some issues of arbitrability, which this one does, the United States Supreme Court has
stated: “parties can agree to arbitrate ‘gateway’ questions of ‘arbitrability,’ such as
whether the parties have agreed to arbitrate or whether their agreement covers a

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particular controversy.” Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 69 (2010);
see also American Arbitration Association Commercial Arbitration Rule 7 (same); Green
v. SuperShuttle Intern., Inc., 653 F.3d 766 (8th Cir. 2011) (“In this case, the UFAs
specifically incorporated the Rules of the [AAA]. Those rules provide that an arbitrator
has the power to determine his or her own jurisdiction over a controversy between the
parties. By incorporating the AAA Rules, the parties agreed to allow the arbitrator to
determine the threshold questions of arbitrability.”). Third, the plaintiffs acknowledge
the arbitration clause and state they will not oppose a stay of these proceedings if this
court compels arbitration. Filing No. 19, at 15-16.2 Fourth, the issues set forth in the
amended complaint and as argued by the parties all relate to coverage issues under the
contract. For all these reasons, the court will compel the parties to arbitrate this case,
and the court declines to address the motion to dismiss at this time.
Because the court is directing this case to arbitration, the court will stay the case
pending its outcome as required by the Federal Arbitration Act, Section 3, 9 U.S.C. § 3.
THEREFORE, IT IS ORDERED:
1. Defendant’s motion to dismiss, Filing No. 7, is denied as moot.
2. Defendant’s motion to dismiss, Filing No. 15, is granted with respect to the
motion to compel arbitration and denied in all other respects at this time. The defendant
is free to reassert this motion to dismiss following the arbitration process, if applicable.
3. This case is hereby stayed pending arbitration in this case. The parties shall
seek to immediately arbitrate this case pursuant to the arbitration agreement entered
into by them.

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The court notes for the record, however, that plaintiffs do not wish to arbitrate this case.
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4. The parties are instructed to provide the court with a status update every 60
days until this case is determined by the arbitrator.
5. The parties shall notify the court immediately if the case is settled and/or
when the arbitration process is completed.
Dated this 26th day of August, 2014.
BY THE COURT:
s/ Joseph F. Bataillon
United States District Judge

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