Three T Nursery et al v. Rural Community Insurance Agency, Inc et al

Filing 38

ORDER setting Scheduling Conference for 7/27/2012 03:00 PM in Judge's Chambers before Magistrate Judge Susan K Lee. Signed by Magistrate Judge Susan K Lee on 7/12/12. (GRE, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT WINCHESTER

THREE T NURSERY, et al.,
Plaintiffs,

v.

RURAL COMMUNITY INSURANCE
AGENCY, INC., et al.,
Defendants.

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4:11-cv-29
Lee

ORDER

The Court previously ordered the parties to brief any threshold issues in this case [Doc. 33].
In response to the Court’s order, the parties submitted briefs [Docs. 35, 36 & 37] in which Defendant
Rural Community Insurance Agency, Inc. essentially argued for a deferential review of the
arbitration award issued in the case pursuant to the Federal Arbitration Act (“FAA”) and Plaintiffs
argued for de novo judicial review. The Court construes these briefs as seeking a determination on
the standard of review the Court will apply in the case.
At bottom, the parties’ dispute as to the appropriate standard of review by this Court turns
on the interpretation of crop insurance policy provisions that address the appeal of an insurance
claim determination made by the Federal Crop Insurance Corporation (“FCIC”) or a private
insurance company issuing crop insurance policies pursuant to a reinsurance agreement with the

FCIC. The policy provisions applicable to this case state, in relevant part, as follows:
20.

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 20(d), the disagreement may be
resolved through mediation in accordance with section 20(g).
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 (AAA), except as
provided in sections 20(c) and (f). . .
(2) Unless the dispute is resolved through mediation,
the arbitrator must provide to you and us a written
statement describing the issues in dispute, the factual
findings, the determinations and the amount and basis
for any award and breakdown by claim for any award.
. . . Failure of the arbitrator to provide such written
statement will result in the nullification of all
determinations of the arbitrator. . . .

(b) Regardless of whether mediation is elected:
(1) The initiation of arbitration proceedings must occur
within one year of the date we denied your claim or rendered
the determination with which you disagree, whichever is
later;
(2) If you fail to initiate arbitration in accordance with
section 20(b)(1) and complete the process, you will not be
able to resolve the dispute through judicial review;
(3) If arbitration has been initiated in accordance with section
20(b)(1) and completed, and judicial review is sought, suit
must be filed not later than one year after the date the
arbitration decision was rendered . . .
(c) Any decision rendered in arbitration is binding on you and us
unless judicial review is sought in accordance with section 20(b)(3).
Notwithstanding any provision in the rules of the AAA, you and we
have the right to judicial review of any decision rendered in
arbitration.
2

[Doc. 31-1 at PageID#: 162-63]. Defendant takes the position that the term “judicial review” in
section 20(c) means a narrow review pursuant to the FAA, while Plaintiffs take the position that,
because the arbitration is binding unless judicial review is sought and the policy contains no specific
language about the scope of review, judicial review is de novo.
As a preliminary matter, the FAA applies to arbitration awards in crop insurance cases. See
Great Am. Ins. Co. v. Moye, 733 F. Supp. 2d 1298, 1302 (M.D. Fla. 2010) (noting the FAA applies
to contracts affecting interstate commerce and citing cases finding the FAA applies to crop insurance
contracts), Svancara v. Rain and Hail, LLC, No. 8:09CV144, 2009 WL 2982906, at *3 (D. Neb.
Sept. 11, 2009) (“I conclude that a crop insurance policy, reinsured by a federal agency, ‘involves
interstate commerce’”), In re 2000 Sugar Beet Crop Ins. Litig., 228 F. Supp. 2d 992, 997 (D. Minn.
2002) (“[T]he FAA and other federal laws are applicable” to crop insurance policies), Nobles v.
Rural Cmty. Ins. Servs., 122 F. Supp. 2d 1290, 1299-1300 (M.D. Ala. 2000).
The FAA provides the parties may apply to the court for a confirmation of the award within
one year of the award (9 U.S.C. § 9), the award may be vacated for various grounds (9 U.S.C. § 10),
and a court may modify or correct an arbitration award (9 U.S.C. § 11). Although the FAA itself
does not explicitly address the court’s standard of review when faced with a lawsuit essentially
appealing an arbitration award, the United States Court of Appeals for the Sixth Circuit has indicated
that the FAA “‘expresses a presumption that arbitration awards will be confirmed . . . . When courts
are called on to review an arbitrator’s decision, the review is very narrow; it is one of the narrowest
standards of judicial review in all of American jurisprudence.’” Uhi v. Komatsu Forklift Co., Ltd.,
512 F.3d 294, 305 (6th Cir. 2008) (quoting Nationwide Mut. Ins. Co. v. Home Ins. Co., 429 F.3d
640, 643 (6th Cir. 2005)). “Courts should be hesitant to [disturb arbitration awards] . . . in order to

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protect the finality of arbitration decisions.” Int’l Bhd. of Teamsters, Local 519 v. United Parcel
Serv., Inc., 335 F.3d 497, 503 (6th Cir. 2003) (citations and internal quotations omitted).
Perhaps as a result of the evolution of crop insurance policy provisions concerning
arbitration, there are few courts that have had an opportunity to address the meaning of the relatively
new “judicial review” language contained in the crop insurance policy provisions at issue in this
matter. Courts that have addressed what “judicial review” means, however, have generally found
in favor of a deferential standard of review pursuant to the FAA. In the most applicable case located
on this issue, Moye, the plaintiff insurance company and defendant farmer completed arbitration
after the insurance company denied the farmer’s claim.1 Moye, 733 F. Supp. 2d at 1300. The
arbitrator awarded the farmer indemnity in the amount of $117,670.67. Id. Following the arbitration
decision, the insurance company filed suit in district court and argued the term “judicial review”
abrogated the arbitration decision. Id. at 1302. The court rejected this argument, noting that the
language of the applicable provision in the policy was clear that arbitration was binding. Id. at 1303.
The court further noted that under the policy, the insurance company was allowed to seek judicial
review of the arbitration award, but “[b]ecause the FAA is applicable to this dispute, the Plaintiff
is not entitled to a de novo review of the arbitration award, and must seek relief under the FAA,
subject to the limited judicial review that the FAA prescribes.” Id. As such, the Moye court
declined to reconsider the merits of the case and indicated it would not entertain challenges to the

1

Although the Moye court did not quote language from the policy in the opinion, the Moye
complaint indicates it involved a policy issued for the 2009 crop year. In this case, the insurance
policy was issued for the 2007 crop year. The relevant language in ¶ 20 of the Common Crop
Insurance Policy set forth in 7 C.F.R. § 457.8 appears to have remained the same from 2005 to
present. Therefore, the Moye court must have been addressing the same “judicial review” language
as is at issue in this case.
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arbitrator’s factual determinations or overturn the arbitrator’s decision unless the award was subject
to nullification due to conflict with the policy terms or vacation on the narrow set of grounds set
forth in 9 U.S.C. § 10. Id. at 1303-07. The Moye court confirmed the arbitration award pursuant
to the FAA’s presumption favoring confirmation and the absence of any grounds for vacating the
award. Id. at 1308.
Other courts have also found or suggested that arbitration awards in crop insurance cases are
binding pursuant to the policy terms, and that judicial review is available only to the narrow extent
permitted in the FAA. See Harrell & Owens Farm v. Fed. Crop Ins. Corp., No. 4:09-CV-217-FL,
2011 WL 1100265, at *4 (E.D.N.C. Mar. 23, 2011) (noting generally in the context of a request to
vacate an arbitration award pursuant to 9 U.S.C. § 10 that judicial review of such awards was
“substantially circumscribed” because full review would negate the purpose of arbitration; the court
further noted the policy terms contemplated enforcement of the binding arbitration); Svancara v.
Rain & Hail, LLC, No. 8:09CV144, 2009 WL 1652220, at *2-3 (D. Neb. June 11, 2009) (defendant
insurance company moved to dismiss plaintiffs’ complaint, arguing that policies provide for binding
arbitration subject only to judicial review under the FAA; the court concluded the language of the
policy provided for binding arbitration subject to judicial review); Svancara, 2009 WL 2982906,
at *3 (noting plaintiffs’ claim for judicial review would proceed pursuant to the FAA, but
specifically declining to further address the court’s scope of review of the arbitration awards2).
After reviewing the applicable case law, the Court concludes the “judicial review” allowed

2

Review of subsequent records in the Svancara case on PACER appear to indicate the court
was proceeding pursuant to 9 U.S.C. § 10 and had addressed a dispute between the parties about
what extent of discovery would be permitted in the case under that narrow review. The case settled
before the court could specifically address its scope of review.
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under the applicable crop insurance policy provides for review of the arbitration decision only to the
extent permitted by the FAA.3 While there is not much guidance from other courts on this issue, the
Court finds the Moye decision compelling because it involved an insurance company that sought
precisely what Plaintiffs seek here--de novo review of an unfavorable arbitration award--and the
Moye court concluded the policy term “judicial review” meant review subject to the FAA’s
deferential standard rather than de novo review. Therefore, even though a private insurance
company has attempted to argue for de novo review when it suits the company to do so, the
argument did not succeed, and nor should it succeed when the roles are reversed. Moreover, as the
FAA applies to crop insurance policies, FAA principles should reasonably guide the Court’s review
of an appeal of the arbitration decision, and interpretation of the FAA principles does not provide
for a broad review of an arbitration decision. Finally, the one year time limit for judicial review
found in the policy mirrors the time limit in 9 U.S.C. § 9 for applying for confirmation of the award.4
Although the Court has determined its review will be narrow pursuant to the FAA, the Court
is cognizant of the fact that deferential review of the arbitration decision may still implicate some
amount of necessary discovery before the parties can submit the issue for the Court’s ruling. As
such, the Court ORDERS the parties to appear for a scheduling conference on Friday, July 27,

3

The Court notes Plaintiffs have made no specific request for vacation of the award pursuant
to 9 U.S.C. § 10 in their Complaint [Doc. 1]. Similarly, it does not appear Defendant has made any
specific request for confirmation of the arbitration award.
4

Even if the Court found the term “judicial review” to be ambiguous, the term cannot be
construed against Defendant, as Defendant did not draft the policy terms. See Diversified Energy,
Inc. v. Tenn. Valley Auth., 223 F.3d 328, 339 (6th Cir. 2000) (“It is well-settled that courts are to
construe ambiguities against the drafter of a contract. . .”); see also A.W.G. Farms, Inc. v. Fed. Crop
Ins. Corp., 757 F.2d 720, 726 (8th Cir. 1985) (noting that the terms of crop insurance policies are
“under the exclusive control of the FCIC”).
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2012 at 3:00 p.m. [EASTERN] to discuss and schedule all necessary deadlines in the case. Upon
any request (sent to all counsel and chambers email at [e-mail]),
participation by telephone in the conference will be allowed.
SO ORDERED.
ENTER:
s/fâátÇ ^A _xx
SUSAN K. LEE
UNITED STATES MAGISTRATE JUDGE

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