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Randazzo Enterprises, Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc.

United States District Court, N.D. California, San Jose Division

December 11, 2014

RANDAZZO ENTERPRISES, INC., a California corporation, Plaintiff,
v.
APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC., Defendant.

ORDER GRANTING DEFENDANT'S MOTION TO COMPEL ARBITRATION; DENYING MOTION TO DISMISS [RE: DKT. NO. 9]

EDWARD J. DAVILA, District Judge.

Presently before the court is Defendant Applied Underwriters Captive Risk Assurance Company, Inc.'s ("Defendant") Motion to Compel Arbitration, or alternatively, Motion to Dismiss Plaintiff Randazzo Enterprises, Inc.'s ("Plaintiff") Complaint. The court found this matter suitable for decision without oral argument pursuant to Civil Local Rule 7-1(b) and previously vacated the hearing. Having reviewed the parties' briefing the court GRANTS Defendant's Motion to Compel Arbitration and DENIES Defendant's Motion to Dismiss.

I. BACKGROUND

Plaintiff is a construction company in Northern California that specializes in general engineering and demolition services. Compl. at ¶ 14. In 2011, Plaintiff entered into a "Reinsurance Participation Agreement" ("RPA") with Defendant, a workers' compensation policy carrier. Id. at ¶¶ 17, 20. Plaintiff alleges that the dispute between the parties arose when, in November 2011, an employee of Plaintiff's suffered a work-related injury that would be covered by the RPA. Id. at ¶ 32. After this incident, Defendant began increasing the premium in violation of the RPA. Id. at ¶ 33. Due to the increase in premium, Plaintiff refused to pay for two months. Id. at ¶ 34. Plaintiff claimed that Defendant overbilled Plaintiff and owed it a credit; Defendant agreed that an overbilling was made, but disputed the amount of the credit. Id. at ¶¶ 34-35. After the policy was renewed, Plaintiff, over objections, continued to pay the increased premiums. Id. at ¶ 35. Plaintiff requested the formula Defendant used to calculate the premium, but Defendant did not provide it. Id. at ¶ 39. Plaintiff alleges that in 2013, it renewed the policy with Defendant. Id. at ¶ 42. At the beginning of the policy period, Defendant tripled the monthly premium without justification. Id. Plaintiff refused to pay the increased premium and cancelled the policy. Id.

In May 2014, pursuant to the arbitration agreement in the RPA, Defendant filed a Demand for Arbitration with the American Arbitration Association demanding additional premium payments of $430, 451.01. Compl. at ¶ 45; see Dkt. No. 1, Exh. 2, Demand for Arbitration. In the same month, Plaintiff filed the instant action alleging: (1) declaratory relief and stay of arbitration; (2) declaratory relief and rescission; (3) misrepresentation and rescission; (4) declaratory relief and reformation of the agreement; and (5) breach of contract. See Compl. In July 2014, Defendant filed the instant Motion to Compel Arbitration or, in the alternative, Motion to Dismiss. See Dkt. No. 9. Plaintiff filed an opposition brief, and Defendant filed a reply brief. See Dkt. Nos. 16, 17.

II. LEGAL STANDARD

A. Motion to Compel Arbitration

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., espouses a general policy favoring arbitration agreements and establishes that a written arbitration agreement is "valid, irrevocable, and enforceable." 9 U.S.C. § 2. Upon the request of either party to the agreement, a court may compel arbitration "in accordance with the terms of the agreement." Id. at § 4. However, when considering a party's request, the court is limited to determining (1) whether a valid arbitration agreement exists, and if so (2) whether the arbitration agreement encompasses the dispute at issue. 9 U.S.C. §§ 2-4; Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008). If these conditions are satisfied, the court is without discretion to deny the motion and must compel arbitration. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) ("By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration.").

In making each of these determinations, the court must apply ordinary state law principles governing the formation and construction of contracts. See First Options of Chic., Inc. Cv. Kansan, 514 U.S. 938, 944 (1995). To determine the validity of the agreement, the court must look to "the same grounds as exist in law or in equity for the revocation of any contract, " such as fraud, duress or unconscionability. 9 U.S.C. § 2; Rent-A-Center, W., Inc. Cv. Jackson, 561 U.S. 63, 68 (2010). Similarly, in interpreting the scope of an arbitration provision, the court is mindful that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." AT&T Tech., Inc. v. Commc'n Workers of Am., 475 U.S. 643, 648 (1986) (internal citations omitted). However, any doubts as to arbitrability must be resolved in favor of coverage and "[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Id. at 650.

B. Motion to Dismiss

Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim in the complaint with sufficient specificity to "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). A complaint which falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). Dismissal under Rule 12(b)(6) is "proper only where there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In considering whether the complaint is sufficient to state a claim, the court must accept as true all of the factual allegations contained in the complaint. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While a complaint need not contain detailed factual allegations, it "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570).

III. DISCUSSION

Defendant argues that this action does not belong in court, but instead must be arbitrated pursuant to the RPA's arbitration agreement. Mot. at 1. To determine whether arbitration should be compelled, the court will evaluate the validity of the arbitration agreement and its scope.

A. Validity of the Arbitration Agreement

The RPA expresses the parties' agreement ...


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