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Cancer Center Associates for Research and Excellence, Inc. v. Philadelphia Insurance Companies

United States District Court, E.D. California

April 17, 2015



LAWRENCE J. O'NEILL, District Judge.

Cancer Center Associates for Research and Excellence ("cCare" or "Plaintiff") brings this lawsuit against Philadelphia Indemnity Insurance Company ("Philadelphia") and Philadelphia Consolidated Holding Corporation ("PCHC"), erroneously sued as Philadelphia Insurance Company ("PIC"), for breach of contract, declaratory judgment, and tortious breach of the covenant of good faith and fair dealing, all claims arising out of a coverage dispute regarding Private Company Protection Plus policy number PHSD831802 issued by Philadelphia to cCare for the policy period of April 1, 2013 to April 1, 2014 ("the Policy"). Complaint ("Compl."), Doc. 1. On March 5, 2015, Defendants filed a motion to dismiss, arguing, among other things, that: (1) Plaintiff's entire complaint should be dismissed pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction because the Policy contains a mandatory arbitration provision; and (2) Plaintiff's complaint should be dismissed as against PCHC pursuant to Fed.R.Civ.P. 12(b)(6) because PCHC is not a party to the Policy. Doc. 7.


A former employee and shareholder of cCare filed a lawsuit against cCare, alleging various employment related claims. Compl. at ¶ 31. cCare tendered the lawsuit to Defendants. Id. Upon receiving notice of the underlying claim, Philadelphia issued a reservation of rights that included notice to cCare that the Policy only provides coverage for "reasonable and necessary" legal fees and costs, which includes only reasonable and necessary hourly rates for defense counsel retained by the Insured. See id. at ¶¶ 31, 38. Philadelphia refused to pay the hourly rate charged by cCare's chosen counsel ($457/hour), agreeing to pay only "PIIC's panel rates of $185/hr for partner[s]." Id. at ¶ 38.

On April 24, 2014, cCare filed an action against Defendants, Case No. 1:14-cv-00789 WBS GSA, alleging breach of contract, declaratory judgment regarding coverage under the Policy, and bad faith. See Request for Judicial Notice ("RJN"), Exh. A.[1] Defendants moved to dismiss the entire action, arguing that each of cCare's claims is subject to a mandatory arbitration provision in the Policy, which provides:

Any dispute relating to this Policy or the alleged breach, termination or invalidation thereof, which cannot be resolved through negotiation between any Insured and the Underwriter, shall be submitted to binding arbitration. The rules of the American Arbitration Association shall apply except with respect to the selection of the arbitration panel. The panel shall consist of one arbitrator selected by such Insured, one arbitrator selected by the Underwriter and a third independent arbitrator selected by the first two arbitrators.

See Declaration of Brian D. Harrison in Support of Motion to Dismiss ("Harrison Decl."), Exh. A, Doc. 8-1, ("Policy") at POL 0043.[2] cCare did not oppose Defendants' motion to dismiss. Instead, cCare agreed that the claims were subject to arbitration, and stipulated to dismiss the action without prejudice and resolve the claims in arbitration, as provided by the Policy. RJN, Exh. B. The parties' stipulation stated, in relevant part:

cCare and Defendants have agreed to submit the issues set forth in the complaint to binding arbitration pursuant to the terms of Part 6, Section XIV.B. of Policy No.PHSD831802 issued to cCare, effective April 1, 2013 to April 1, 2014 (the "Policy"), except for the following:
A. In lieu of administration by the American Arbitration Association ("AAA"), the parties agree that the arbitration will be administered by an individual or entity mutually agreed to by the parties.
B. PCHC reserves the right to contend that it is not a proper party to the issues in dispute in this matter but agrees to submit this dispute to arbitration and agrees that it will not make any motion or request to be removed from the case until after cCare has been given the opportunity to conduct discovery on whether PCHC is an "Underwriter" of the Policy as defined by the Policy.
THEREFORE, and based upon the foregoing, the parties hereto stipulate and agree as follows:
That the disputes in this action will be submitted to arbitration pursuant to the terms of Part 6, Section XIV.B. of the Policy, consistent with the agreements in the paragraphs above; and That this action will be dismissed, without prejudice.

Id. On July 9, 2014, pursuant to this stipulation, Senior Judge William B. Shubb dismissed the action without prejudice and ordered the action submitted to arbitration. See id.

Both parties consented to arbitrate before the AAA. See Compl. at ¶¶ 53-55. On or about October 10, 2014, cCare advised the AAA of the arbitrator it had selected. Id. at ¶ 54. On or about November 14, 2014, Philadelphia advised the AAA that it objected to the arbitrator selected by cCare and requested that the AAA indicate cCare's chosen arbitrator would not be allowed to serve. Id. at ¶ 55. On or about December 13, 2014, the AAA informed the parties that cCare's chosen arbitrator "will be removed, " because, absent "agreement for the party appointed neutrals to be non-neutral, the arbitrators must meet the standards of [AAA Commcercial Arbitration] Rule R-18 with respect to impartiality and independence" Id. at ¶ 57.

cCare initiated this lawsuit on January 16, 2015, alleging, among other things, that Philadelphia's refusal to allow arbitration to occur in a manner consistent with the arbitration agreement constitutes waiver of the right to arbitrate. Id. at ¶ 59.


A. Motion to Dismiss Arbitrable Claims Pursuant to ...

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