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Allianz Global Risk U.S. Insurance Co. v. General Electric Co.

March 1, 2010

ALLIANZ GLOBAL RISK U.S. INSURANCE COMPANY, AS SUBROGEE OF THE LOS ANGELES DEPARTMENT OF WATER & POWER, PLAINTIFF,
v.
GENERAL ELECTRIC COMPANY, DEFENDANT.



The opinion of the court was delivered by: Dean D. Pregerson United States District Judge

Order Granting Motion to Compel Arbitration [Motion filed on January 15, 2010]

Presently before the Court is Plaintiff Allianz Global Risk U.S. Insurance Company ("Allianz")'s Motion to Compel Arbitration ("Motion"). For the reasons set forth below, the Court GRANTS the Motion.

I. Background

The overarching issue before the Court is whether Allianz, the insurer of a Los Angeles Department of Water and Power ("LADWP") project involving construction of an industrial power production facility, can compel General Electric Company ("GE"), the manufacturer and supplier of a steam turbine generator ("Turbine") installed in the course of the construction project, to submit to binding arbitration. According to Allianz, the Turbine GE provided was defective and ultimately malfunctioned. As a result, Allianz alleges, it was forced to pay, on behalf of LADWP, the cost of major repairs. Allianz now seeks to recover those costs -approximately $3.8 million -- from GE.

LADWP and GE agreed to arbitrate all disputes arising out of the contract for sale of the Turbine. Allianz, however, was not a party to the GE-LADWP agreement. Another wrinkle complicates matters further; Allianz did not reimburse LADWP directly for the cost of repairs to the Turbine. A third party, LA Power Joint Venture ("LA Power") -- an insured, along with LADWP, under the operative Allianz builder's risk policy -- carried out the repairs, and Allianz then made payments directly to LA Power. GE did not agree to arbitrate any dispute with LA Power.

The other relevant, undisputed facts are as follows.

LADWP and GE entered into a contract for sale of the Turbine in February 2001. The contract contained an arbitration clause providing that either party could submit any dispute arising out of the agreement for binding and final resolution by arbitration. LADWP contracted with LA Power to install the Turbine at LADWP's Valley Generation Station. LA Power is a joint venture between LADWP and Kiewit Industrial, Inc., an independent contractor.

LA Power installed the Turbine at the Valley Generation Station in Spring 2003. According to Allianz, problems with the Turbine came to light in September 2003, and by December 2003, it had to be shut down and examined. Upon examination, Allianz contends, workers discovered foreign objects inside the Turbine that were damaging the blades and other components.

LADWP then filed a claim with Allianz.*fn1 Allianz paid $3,877,354 to reimburse LA Power for the cost of repairing the Turbine. Allianz maintains that GE delivered the Turbine to LADWP with the foreign objects inside, in violation of the parties' contractual agreement.

Allianz filed an arbitration claim against GE on March 5, 2008. A panel of arbitrators from the American Arbitration Association (the arbitral body specified in the GE-LADWP contract) held a preliminary hearing and set a briefing schedule. GE filed a motion to dismiss, contending that Allianz's claims were not arbitrable and denying liability on the merits. The panel then stayed the action pending court-resolution of the arbitrability issue. Allianz filed a motion to compel arbitration in Los Angeles County Superior Court on November 16, 2009. On December 9, 2009, GE removed the case to this Court.*fn2 Allianz filed its Motion to Compel Arbitration on January 15, 2010. (Dkt. No. 24.)

II. Legal Standard

The Federal Arbitration Act ("FAA") provides that arbitration agreements in contracts "involving commerce" are "valid, irrevocable, and enforceable," 9 U.S.C. § 2, and declares "'a national policy favoring arbitration' of claims that parties contract to settle in that manner," Preston v. Ferrer, 552 U.S. 346, ----, 128 S.Ct. 978, 983 (2008) (quoting Southland Corp. v. Keating, 465 U.S. 1, 10 (1984)). Section 4 of the FAA provides that petitions to compel arbitration may be brought in "any United States district court which, save for such agreement, would have jurisdiction under Title 28... [over] the subject matter of a suit arising out of the controversy between the parties." 9 U.S.C. § 4. "The 'body of federal substantive law' generated by elaboration of FAA § 2 is equally binding on state and federal courts." Vaden v. Discover Bank, 129 S.Ct. 1262, 1271 (2009).

"In determining whether parties have agreed to arbitrate a dispute, [courts in this circuit] apply 'general state-law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration by resolving ambiguities as to the scope of arbitration in favor of arbitration.'" Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1044 (9th Cir. 2009) (quoting Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996)). "The presumption in favor of arbitration, however, does not apply 'if contractual language is plain that arbitration of a particular controversy is not ...


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