Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-00595/USCOURTS-azd-2_06-cv-00595-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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The request for oral argument is denied. The parties have thoroughly discussed the

law and evidence. Oral argument will not aid the Court’s decisional process. 

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Emad Jasem, 

Plaintiff, 

vs.

State Farm Fire and Casualty Company,

an Illinois corporation, 

Defendant. 

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No. CV-06-595-PHX-DGC

ORDER

This action arose out of an insurance coverage dispute between Plaintiff Emad Jasem

and Defendant State Farm Fire and Casualty Company. Defendant has filed a motion to

confirm an appraisal award and to dismiss Plaintiff’s breach of contract claim regarding the

amount of his building loss. Dkt. #27. Plaintiff has filed a response to the motion and

Defendant has filed a reply. Dkt. ##32-33. As explained below, the Court will grant the

motion.1

I. Background.

Plaintiff owns an apartment building located in Phoenix, Arizona. Dkt. #1, Ex. A

¶¶ 4-5. The building was insured under a homeowners insurance policy issued by Defendant.

Id. ¶ 8. The policy coverage limits are $140,000 for damage to the building and $105,000

for damage to personal property. Id. ¶ 9. The policy contains a provision that permits either

party to demand that the amount of loss be set by appraisal if the parties cannot agree on the

Case 2:06-cv-00595-DGC Document 34 Filed 04/18/07 Page 1 of 7
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amount of loss. Dkt. #14, Ex. A. The appraisal provision states, in pertinent part:

If you and we fail to agree on the amount of loss, either one can demand that

the amount of loss be set by appraisal. If either makes a written demand for

appraisal, each shall select a competent, disinterested appraiser. Each shall

notify the other of the appraiser’s identity within 20 days of receipt of the

written demand. The two appraisers shall then select a competent, impartial

umpire. . . . The appraisers shall set the amount of the loss. If the appraisers

fail to agree within a reasonable time, they shall submit their differences to the

umpire. Written agreement signed by any two of these three shall set the

amount of the loss.

Id. § 1, ¶ 4.

A fire occurred at the apartment building on January 18, 2004. Plaintiff subsequently

filed a claim for payment under the policy. Defendant paid Plaintiff $87,721.84 for loss to

the building. 

Plaintiff commenced this action by filing a complaint against Defendant in state

court on January 11, 2006. The complaint asserts breach of contract claims for Defendant’s

alleged failure to pay Plaintiff for the loss to his personal property and for paying Plaintiff

only $87,721.84 for the loss to the building (counts one and two). The complaint also

includes bad faith tort claims (counts three and four) and a request for punitive damages.

Defendant removed the case to this Court. Dkt. #1, Ex. A.

On March 7, 2006, Defendant sent Plaintiff a letter invoking the appraisal provision

of the insurance policy. Dkt. #28, Ex. A. Defendant demanded that the amount of Plaintiff’s

building loss be set by appraisal. Id. Defendant notified Plaintiff that it had selected Paul

Watkins to serve as its appraiser. Id. Defendant requested Plaintiff to designate his appraiser

so that an umpire could be selected and the appraisal could proceed. Id.

The parties filed a joint motion to stay the action on April 7, 2006. Dkt. #8. The

parties sought to stay the action until the amount of Plaintiff’s building loss was set by

appraisal pursuant to the terms of the insurance policy. Id. The parties asserted that the

Court had authority to stay the action under the Federal Arbitration Act (“FAA”), 9 U.S.C.

§§ 1-16. Id. The Court denied the stay request, but extended the dates set forth in the

Court’s order setting a case management conference to allow time for the parties to complete

the appraisal process. Dkt. #9.

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Defendant filed a motion to compel appraisal on May 12, 2006. Dkt. #13. Defendant

asserted that Plaintiff had failed to designate an appraiser. Id. Defendant requested that the

Court compel an appraisal pursuant to the FAA. Id.

A case management conference was held on July 26, 2006. Dkt. #23. Counsel for

Plaintiff stated at the conference that she did not oppose the motion to compel appraisal. The

Court accordingly granted the motion. Dkt. #21 ¶ 2. The Court ordered Plaintiff to designate

an appraiser by August 10, 2006, and ordered the parties to complete the appraisal process

by October 25, 2006. Id.

The Court held a conference call with the parties on August 21, 2006. Dkt. #24. The

parties informed the Court that Plaintiff had not designated an appraiser. Id. The Court gave

Plaintiff five days to designate an appraiser and warned him that the case may be dismissed

for lack of prosecution if he failed to do so. Id.

Plaintiff subsequently appointed Arthur Gaudette to serve as his appraiser. On

October 6, 2006, Messrs. Gaudette and Watkins selected Alan Goldman to act as umpire

during the appraisal process. Dkt. #28, Ex. D. Following a conference call with the parties

on October 25, 2006, the Court issued an order extending the deadline for completing the

appraisal process to December 6, 2006. Dkt. #25 ¶ 1.

On December 4, 2006, Messrs. Goldman and Watkins signed an appraisal award

setting the amount of Plaintiff’s building loss at $97,950.54. Dkt. #28, Ex. F. Defendant

subsequently sent plaintiff a check in the amount of $10,228.70, which constituted the

difference between the appraisal award of $97,950.54 and the $87,721.84 Defendant

previously had paid Plaintiff for his building loss. Id. Ex. H.

II. Analysis.

Defendant argues that the Court should confirm the appraisal award pursuant to

section 9 of the FAA because there are no grounds upon which the Court may disturb the

award. Dkt. #27 at 11-12 (citing 9 U.S.C. § 9). “Section 9 of the FAA “states that a district

court ‘must grant [a confirmation] order unless the award is vacated, modified, or corrected

as prescribed in sections 10 and 11 [of the FAA].” G.C. & K.B. Invs., Inc. v. Wilson, 326

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F.3d 1096, 1105 (9th Cir. 2003) (quoting 9 U.S.C. § 9; emphasis in original). Section 10

provides that a court may vacate an arbitration award (1) where the award was procured by

corruption, fraud, or undue means, (2) where there was evident impartiality or corruption in

the arbitrators, (3) where the arbitrators were guilty of misbehavior by which the rights of a

party had been prejudiced, or (4) where the arbitrators exceeded their powers. 9 U.S.C. §

10(a)(1)-(4); see Coutee v. Barington Capital Group, L.P., 336 F.3d 1128, 1132 n.4 (9th Cir.

2003). Section 11 allows an arbitration award to be modified or corrected where there has

been a “mistake within the four corners of the award itself[.]” Wilson, 326 F.3d at 1106

(citing 9 U.S.C. § 11(a)-(c)).

Plaintiff makes several arguments as to why the Court should not confirm the

appraisal award in this case. None has merit.

Plaintiff argues that his breach of contract claims have “preempted” the appraisal

process set forth in the insurance policy because he filed this action “over his concern with

the fairness of the policy provisions.” Dkt. #32 at 3. Plaintiff cites no legal authority in

support of this argument. Moreover, Plaintiff’s breach of contract claims do not challenge

the fairness of any policy provision. Rather, the claims assert that Defendant has refused to

pay Plaintiff the full amount of his losses covered under the policy. Dkt. #1, Ex. A. ¶¶ 14-15;

see Dkt. #8 at 1. The policy explicitly provides that disputed loss amounts are to be “set by

appraisal.” Dkt. #14, Ex. A § 1, ¶ 4. Plaintiff previously has acknowledged the

enforceability of this provision. See Dkt. #8 at 1-2; Dkt. #23, 7/26/06 Hr’g Tr. Plaintiff’s

breach of contract claims have not preempted the policy’s appraisal provision.

Plaintiff contends that the Court lacks authority to confirm the appraisal award

because such an award may not be confirmed without the consent of the parties, and Plaintiff

did not knowingly submit to the appraisal process as a “binding” process that would result

in a “final” award. Dkt. #32 at 3. Several years after the passage of the FAA, the Supreme

Court held that where a court has authority under the statute to stay an action and compel

arbitration, “the court also has authority to confirm the [arbitration] award[.]” Marine

Transit Corp. v. Dreyfus, 284 U.S. 263, 275-76 (1932). The Supreme Court confirmed this

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See also Smart v. Sunshine Potato Flakes, L.L.C., 307 F.3d 684, 685-86 (8th Cir.

2002) (“The district court initially had diversity jurisdiction over this action. After it entered

a stay pending arbitration under 9 U.S.C. § 3, the court had the further power to confirm any

ensuing arbitration award.”) (citing Cortez Byrd Chips); Smiga v. Dean Witter Reynolds, Inc.,

766 F.2d 698, 705 (2d Cir. 1985) (“[A] court which orders arbitration retains jurisdiction to

determine any subsequent application involving the same agreement to arbitrate, including

a motion to confirm the arbitration award.”).

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holding in Cortez Byrd Chips, Inc. v. Bill Harbert Construction. Co., 529 U.S. 193 (2000),

stating that a “court with the power to stay the action under [the FAA] has the further power

to confirm any ensuing arbitration award.” Id. at 202 (citing Marine Transit).2

Plaintiff affirmatively asserted in the joint motion to stay that the Court was

authorized to stay the action under the FAA. Dkt. #8 at 2. Plaintiff did not oppose

Defendant’s motion to compel appraisal, which asserted that the Court had authority

to compel an appraisal under the FAA. “To suggest now that the Court cannot confirm the

award under [the FAA] mirrors the reasoning considered and rejected in Cortez Byrd Chips.”

B-S Steel of Kan., Inc. v. Tex. Indus., Inc., No. 01-2410-JAR, 2004 WL 946894, at *5 (D.

Kan. Apr. 28, 2004).

Plaintiff further contends that Defendant and the Court have misconstrued the terms

“appraisal” and “arbitration.” Dkt. #32 at 3. Plaintiff asserts that there has been “confusion

as to the [C]ourt’s order for Plaintiff to retain an appraiser and whether that independent

appraiser was to participate in the appraisal arbitration process as outlined by the policy.”

Id. at 4. Plaintiff states that on clarification, the Court “did not order that the policy provision

had to be followed.” Id.

The Court agrees with Defendant that these assertions cannot be reconciled with the

Court’s order of October 25, 2006. Dkt. #25. That order explicitly stated that “[t]he

appraisers designated by the parties and the umpires selected by the parties shall complete

the appraisal process set forth in Section 1, Paragraph 4 of the insurance policy[.]” Id. ¶ 1

(emphasis added).

Finally, Plaintiff argues that the appraisal process was fundamentally unfair. Dkt. #3

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at 4. Plaintiff asserts that there was no rational basis for the award amount and that his

appraiser, Mr. Gaudette, did not participate in the appraisal process. Id. at 4-5. As explained

in Defendant’s reply brief, Defendant and the appraisal umpire, Mr. Goldman, repeatedly

invited and encouraged the participation of Plaintiff and Mr. Gaudette in the appraisal

process. Dkt. #33 at 4-5. Plaintiff, for whatever reason, simply chose not to participate fully.

This is consistent with Plaintiff’s lack of action throughout this litigation. See Dkt. ##11, 18,

21 ¶ 1, 24.

Plaintiff has not shown that the appraisers or the umpire violated the FAA. See 9

U.S.C. §§ 10-11. Nor has Plaintiff established any of the “judicially-developed grounds for

vacating an award; that the award was irrational or involved a manifest disregard of the law.”

Coutee, 336 F.3d at 1132. The Court accordingly will grant Defendant’s motion to confirm

the December 4, 2006 appraisal award of $97,950.54. Dkt. #28, Ex. F. Because Defendant

already has satisfied this award, see id. Ex. H, the Court will dismiss Plaintiff’s breach of

contract claim alleging that Defendant has failed to pay Plaintiff for the covered loss to his

apartment building (count two). See Dkt. #1, Ex. A ¶ 15.

Confirmation of the appraisal award does not resolve Plaintiff’s breach of contract

claim regarding loss to personal property (count one) or his bad faith tort claims (counts three

and four). The deadlines set forth in the Court’s July 27, 2006 case management order

remain in effect with respect to these claims. See Dkt. #21. 

IT IS ORDERED:

1. Defendant State Farm Fire and Casualty Company’s motion to confirm

appraisal award (Dkt. #27) is granted.

2. The December 4, 2006 appraisal award of $97,950.54 (Dkt. #28, Ex. F) is

confirmed.

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3. Count two of the complaint is dismissed.

DATED this 17th day of April, 2007.

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