Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_06-cv-01493/USCOURTS-caed-1_06-cv-01493-4/pdf.json

Parties Involved:
Jasviro Mundi
Plaintiff
Union Security Life Insurance Co.
Defendant

Document Text:

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

1

IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

JASVIRO MUNDI, as successor )

in interest to Harnam Singh )

Mundi, )

)

)

)

Plaintiff, )

)

vs. )

)

)

UNION SECURITY LIFE )

INSURANCE COMPANY, et al., )

)

)

Defendant. )

)

)

No. CV-F-06-1493 OWW/TAG 

MEMORANDUM DECISION GRANTING

DEFENDANT'S MOTION TO STAY

PROCEEDINGS PENDING APPEAL

TO THE NINTH CIRCUIT [Doc.

38]

By Order filed on May 30, 2007, Defendant Union Security

Life Insurance Company's motion to compel arbitration was denied

(Doc. 30). USLIC filed a notice of appeal with the Ninth Circuit

on June 22, 2007.

USLIC now moves to stay proceedings in this action pending

resolution of the appeal.

Although 9 U.S.C. § 16(a)(1)(B) provides that denial of a

motion to compel arbitration is immediately appealable, the

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 1 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

2

appeal does not divest the district court of jurisdiction to

proceed with the merits of the case. See Britton v. Co-op

Banking Group, 916 F.2d 1405, 1412 (9 Cir.1991): th

The system created by the Federal Arbitration

Act allows the district court to evaluate the

merits of the movant’s claim, and if, for

instance, the court finds that the motion

presents a substantial question, to stay the

proceedings pending an appeal from its

refusal to compel arbitration.

Factors regulating the issuance of a stay pending appeal are

(1) whether the stay applicant has made a strong showing that he

is likely to succeed on the merits; (2) whether the applicant

will be irreparably injured absent a stay; (3) whether issuance

of the stay will substantially injure the other parties

interested in the proceedings; and (4) where the public interest

lies. Hilton v. Braunskill, 481 U.S. 770, 776 (1987).

USLIC argues that the appeal raises substantial questions

regarding the application of equitable estoppel and whether Union

waived the right to compel arbitration under equitable estoppel.

Plaintiff, as successor in interest to Harnam Singh Mundi,

filed a Complaint for Breach of Contract and Breach of the

Implied Covenant of Good Faith and Fair Dealing based on Union’s

refusal to pay on the insurance policy issued to Harnam in

connection with an equity line of credit issued by Wells Fargo

Bank to Harnam and his partner. Section 25 of the EquityLine

Agreement between Mundi and Wells Fargo provided:

SECTION 25: ARBITRATION

RESOLVING DISPUTES - ARBITRATION

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 2 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

3

... [I]f the Bank and I are not able to

resolve our differences informally, I agree

that any dispute between me and the Bank,

regardless of when it arises or arose, will

be settled using the following procedures.

I UNDERSTAND AND AGREE THAT THE BANK AND I

ARE WAIVING THE RIGHT TO JURY TRIAL BEFORE A

JUDGE IN A PUBLIC COURT ....

DISPUTES

A dispute is any unresolved disagreement

between the Bank and me that relates in any

way to accounts, loans, services or

agreements subject to this Arbitration

provision. It includes any claims or

controversy of any kind, which arise out of

or are in any way related to these accounts,

loans, services or agreements. It includes

claims based on broken promises or contracts,

tort (injury caused by negligent or

intentional conduct), breach of fiduciary

duty or other wrongful actions. It also

includes statutory, common law and equitable

claim. [sic] A dispute also includes any

disagreement about the meaning of this

Arbitration Section and whether a

disagreement is a ‘dispute’ subject to

binding arbitration as provided for in this

Arbitration Section. No dispute may be

joined in an arbitration with a dispute of

any other person or arbitrated on a class

action basis. Furthermore, I agree that any

arbitration I have with the Bank shall not be

considered with any other arbitration and

shall not be arbitrated on behalf of others

with the consent of both me and the Bank.

[Emphasis added].

USLIC argued that the arbitration provisions of the

EquityLine Agreement should be enforced under principles of

equitable estoppel. As explained in MS Dealer Service Corp. v.

Franklin, 177 F.3d 942, 947 (11 Cir.1999): th

[E]quitable estoppel applies when the

signatory to a written agreement containing

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 3 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

4

an arbitration clause ‘must rely on the terms

of the written agreement in asserting [its]

claims against the nonsignatory ... When each

of a signatory’s claims against a

nonsignatory ‘makes reference to’ or

‘presumes the existence of’ the written

agreement, the signatory’s claims ‘arise[]

out of and relate[] directly to the [written

agreement,’ and arbitration is appropriate.

Neither party argued the exclusivity provisions that “no dispute

with any other person” may be joined in an arbitration. There

can be no argument that USLIC is not an “other person” not a

party to the integrated credit agreements with Wells Fargo. 

Plaintiff has not consented to arbitration. On the merits, USLIC

cannot be an intended beneficiary of the arbitration clause with

Wells Fargo which expressly excludes a third party (“any other

person”). In the motion to compel arbitration USLIC argued that

the arbitration provisions should be enforced under these

principles because the substantive allegations of the Complaint

rely on the existence of the letter of credit and because the

alleged failure to pay the line of credit debt is the basis for

the claim of liability. In rejecting USLIC’s position, the

Court, after extensive review of relevant case law and the

arguments of the parties, held:

This is a close question. Although USLIC’s

contention that Plaintiff’s claims depend on

the EquityLine Agreement because the

insurance was purchased to secure repayment

of the line of credit and the amount of the

outstanding [debt] must be determined by

reference to the line of credit, Plaintiff’s

claims do not otherwise involve any of the

terms and conditions of the EquityLine or any

breach of those terms. In addition, the

arbitration provision in the EquityLine

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 4 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

5

Agreement specifically excludes arbitration

of claims of third parties. USLIC’s

contention that it was an agent of Wells

Fargo in issuing the insurance policy is

unsupported by evidence. USLIC did not offer

any evidence that it is a designated agent

for Wells Fargo. In any event, Plaintiff’s

claims against USLIC relate to a dispute

between Plaintiff and USLIC over performance

of the terms of the insurance policy, not to

a dispute between Plaintiff, Wells Fargo, and

USLIC. Wells Fargo has no dog in this hunt. 

USLIC has not demonstrated that degree of

relatedness or intertwining that allows a

non-signatory to compel arbitration against a

signatory of an agreement containing an

arbitration provision.

(Doc. 30 at 23-24). 

USLIC argues the issue of equitable estoppel presents a

substantial ground for appeal for two reasons. First, USLIC

notes that the Court commented that application of the doctrine

was a “close question.” Because the Ninth Circuit’s review of

the issue will be de novo, it is entirely possible that the Ninth

Circuit may rule differently. Second, USLIC contends, the Ninth

Circuit has not fully set forth the basis for a non-signatory to

compel arbitration against a signatory under equitable estoppel,

thereby presenting a substantial question for appeal. 

As an alternate ground for denying USLIC’s motion to compel

arbitration, the following ruling was made:

Plaintiff further argues that California

consumer protection law defeats USLIC’s

position in another respect. Plaintiff cites

Davis v. Blue Cross of Northern California,

25 Cal.3d 418, 430-431 (1979):

These statutes reflect the

Legislature’s recognition that an

important component of any

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 5 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

6

insurance arbitration procedure is

the requirement that insureds be

given timely and meaningful notice

of the procedure so that they can

realistically resort to arbitration

if they decide to do so ....

The trial court in the instant case

found that Blue Cross knew that in

many instances its insureds would

not be aware of the arbitration

clause and that, despite this

knowledge, Blue Cross deliberately

decided not to inform its insureds

of the arbitration procedure. In

this context, the practical effect

of the insurer’s practice was to

transform its arbitration clause

into a unilateral provision,

establishing a procedure to which

the insurer could require its

insureds to resort when Blue Cross

deemed it advisable, but one that

would not generally provide a

speedy, economic or readily

accessible remedy for the bulk of

Blue Cross’ uninformed insureds.

We think the trial court was fully

justified in finding that Blue

Cross had breached its duty of good

faith and fair dealing in adopting

such a course of conduct. Blue

Cross clearly was not giving its

insureds’ interests ‘as much

consideration ... as ... its own’

in failing to advise them of their

rights to demand arbitration of any

disagreement with the insurer. 

Having rejected plaintiffs’ claims

without so much as calling to their

attention their potential remedy of

arbitration and having thereby

compelled plaintiffs to resort to

litigation, Blue Cross is now

hardly in a position to reverse

itself and to invoke the

arbitration process which it left

to repose in plaintiffs’ dark

ignorance.

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 6 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

7

In her declaration submitted in opposition to

this motion to compel arbitration, Plaintiff

avers in pertinent part:

3. Following my husband’s death, I

made a claim on the insurance

policy with [USLIC] following their

procedures.

...

5. [USLIC] did not bring up the

issue of arbitration with me in any

way until after this lawsuit was

filed.

Because USLIC failed to advise Plaintiff of

its position that arbitration was mandatory

at the time USLIC denied Plaintiff’s claim,

USLIC, pursuant to Davis, waived any claim to

arbitration.

USLIC replies that this case is factually

distinguishable from Davis. In Davis, the

arbitration provision was contained in the

Blue Cross policy and Blue Cross clearly had

knowledge of its existence. Here, USLIC

contends, the arbitration provision was not

contained in the insurance policy, but in the

EquityLine Agreement. This is nonsensical. 

If USLIC seeks to rely on an arbitration

agreement, it has a duty to know about it and

to advise its insured. 

Secondly, USLIC distinguishes Davis because

Plaintiff did not seek to appeal the denial

of her claim prior to filing this action. In

Davis, the trial court found that, even after

learning that its insureds did not agree with

the determinations as to benefits available

under the policy, Blue Cross failed to bring

the arbitration procedure to its insureds’

attention; instead Blue Cross simply

reiterated its rejection of the insureds’

claims. See Davis, supra, 25 Cal.3d at 426. 

Here, USLIC contends, Plaintiff did not

challenge its denial of her claim for

benefits prior to filing this action. When

this action was filed, USLIC asserts it

timely raised the arbitration provision in

the EquityLine Agreement. 

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 7 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

8

USLIC’s attempts to distinguish Davis are not

persuasive. Because USLIC intended to rely

on an arbitration provision in a contract

separate from the insurance policy, USLIC

should have brought that intention to

Plaintiff’s attention before Plaintiff filed

this action.

(Doc. 30 at 30-32).

USLIC argues that the ruling based on Davis presents a

substantial question on appeal for a number of reasons.

First, USLIC argues, Davis was decided under California law

and cannot apply to determine whether it waived arbitration, an

issue determined by federal law, citing Sovak v. Chugai

Pharmaceutical Co., 280 F.3d 1266, 1270, amended on other

grounds, 289 F.3d 615 (9 Cir.), cert. denied, 537 U.S. 825 th

(2002). 

Second, USLIC asserts, even if Davis applies, USLIC’s

actions do not fall under the conduct constituting waiver in

Davis. USLIC cites Wolschlager v. Fidelity Nat’l Title Ins. Co.,

111 Cal.App.4th 784 (2003). 

Third, USLIC contends, there are no reported decisions

applying Davis where a party is seeking to compel arbitration

under equitable estoppel:

Compelling arbitration on this ground is

markedly different from compelling

arbitration of contractual grounds, because a

party is not seeking to compel arbitration

based on anything it has done, but rather

based on conduct by the party signatory, who

has relied upon one part of a contract while

at the same time trying to avoid another part

of the contract, that is, the arbitration

provision.

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 8 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

9

Fourth, USLIC contends that it had no knowledge of the

arbitration provision in the EquityLine Agreement at the time it

denied the insurance claim. Citing Ninth Circuit authority that

waiver of an arbitration provision presupposes knowledge of an

existing right to compel arbitration, United Computer Sys., Inc.

v. AT&T Corp., 298 F.3d 756, 765 (9 Cir.2002), USLIC contends th

there was no reason for it to have been aware of the arbitration

provision. USLIC further argues that the Court’s ruling, “If

USLIC seeks to rely on an arbitration agreement, it has a duty to

know about it and to advise its insured”, is unsupported by any

reported authority in the context of equitable estoppel. USLIC

contends:

[I]f such a duty were created, then all

insurers providing benefits in connection

with a loan would have a duty to review all

loan documents (to which they are not

parties) to determine if any contractual

provisions, including arbitration, were

contained therein and potentially applicable

to insurance coverage.

This is no unreasonable burden for a party who seeks to

benefit from the advantages of mandatory arbitration, called for

by a collateral contract to which is not a party, which expressly

excludes any other person from arbitrating under the agreement.

Finally, USLIC argues that, for waiver to apply, there must

be prejudice resulting from the waiving party’s inconsistent

acts, United Computer Sys., Inc., supra, 298 F.3d at 765. USLIC

contends:

Plaintiff presented no argument or evidence

as to how they [sic] may have been prejudiced

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 9 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

USLIC also cites a number of unreported district court 1

decisions in the Ninth Circuit which conclude that a party

appealing the denial of a motion to compel arbitration will likely

suffer irreparable harm if a stay pending appeal is not granted.

10

by not being advised of the arbitration

provision at the time of denial; and the

Court did not make a finding that the

Plaintiff was prejudiced. USLIC promptly

asserted arbitration as an affirmative

defense in this action, and promptly moved to

compel arbitration. None of the Plaintiff’s

rights have been impaired; and the Plaintiff

is free to seek arbitration of the claims in

this dispute. Accordingly, the Ninth Circuit

should determine if prejudice has been

established in this proceeding.

USLIC did not raise any of these grounds in its reply brief

to the motion to compel. USLIC is essentially arguing that

substantial questions for appeal exist that were not presented to

this Court. These contentions may not be considered. With

regard to the application of equitable estoppel, USLIC merely

refers to de novo review and that the Ninth Circuit has not fully

articulated a test for the application of equitable estoppel in

the arbitration context. With regard to waiver, USLIC contends

it will raise grounds on appeal not previously presented to this

court, which must be considered frivolous. 

With regard to the factor of irreparable injury to USLIC if

the stay pending appeal is not granted, USLIC argues that it will

be forced to incur expenses of preparing for trial, expenses that

can be avoided if it prevails on appeal. USLIC cites Int’l 1

Ass’n of Machinists & Aerospace Workers v. Aloha Airlines, 776

F.2d 812, 815 (9 Cir.1985): th

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 10 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

11

[D]enying the parties arbitration deprives

them of an inexpensive and expeditious means

of resolving disputes ... If a litigant ‘must

undergo the expense and delay of a trial

before being able to appeal, the advantages

of arbitration - speed and economy - are lost

forever.’ 

USLIC also cites C.B.S. Employees Federal Credit Union v.

Donaldson, 716 F.Supp. 307, 310 (W.D.Tenn.1989):

Though the Court notes that monetary expenses

incurred in litigation are normally not

considered irreparable, this is a unique

situation.

The main purpose for defendants’ appeal is to

avoid the expense of litigation. If

defendants are forced to incur the expense of

litigation before their appeal is heard, the

appeal will be moot, and their right to

appeal would be meaningless. Therefore, this

Court finds the time and expense of

litigation to constitute irreparable harm in

this instance.

As to the prejudice to the Plaintiff factor, USLIC contends

that Plaintiff will suffer no comparable harm if the stay is

granted:

The only conceivable harm would be delay

during the appeal; however, this does not

justify not granting a stay, because it does

not compare to the unjustifiable waste of

time and money that would result from

proceeding with this litigation before the

Ninth Circuit decides whether this dispute is

even subject to judicial resolution.

USLIC further argues that a stay will be in the public

interest because “this Court no doubt will have to devote

considerable time addressing motions and supervising discovery -

time that could otherwise be devoted to the many other matters

pending on this Court’s docket.” See C.B.S. Employees Federal

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 11 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

12

Credit Union, supra, 716 F.Supp. at 310:

Though public policy generally favors prompt

resolution of disputes, it also favors an

efficient allocation of judicial resources. 

It does not make sense for this Court to

expend its time and energy preparing this

case for trial and possibly trying it only to

learn at a later date from the court of

appeals that it was not the proper forum to

hear the case.

Plaintiff does not specifically respond to the factors of

relative prejudice to the parties and the public interest. 

Plaintiff does assert:

Plaintiff’s counsel is mindful of

professional courtesy regarding various

discovery issues in the context of the

present dispute over arbitration, but, even

under arbitration, some discovery would

occur. It is time to proceed with the

underlying case.

Under these circumstances, Plaintiff requests

that this Court exercise its discretion by

denying the application for stay pending

appeal, so the parties may get on with

discovery on this case.

USLIC replies that Plaintiff’s request that the stay be

denied in order to conduct discovery because “some” discovery is

allowed in arbitration proceedings begs the question of the

extent of discovery that might be allowed should the Ninth

Circuit reverse the denial of the motion to compel arbitration:

This creates a larger, complex problem:

whether the court should try to guess at the

limitations that would be available if this

matter were compelled to arbitration or

whether the court should allow broad

discovery. Simply put, the court should not

be placed in this position, and the parties

should not be required to endure the expense

of discovery that ultimately would not be

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 12 of 13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

13

allowed in arbitration.

On balance, Plaintiff has not identified information or

subjects for which there is a present need for discovery. The

appeal is underway and there is no reason to expect it will not

be diligently prosecuted. The governing factors weigh in favor

of staying this action pending resolution of USLIC’s appeal of

the denial of the motion to compel arbitration. 

For the reasons stated above, USLIC’s motion to stay

proceedings pending the appeal to the Ninth Circuit is GRANTED.

Defendants shall submit a form of judgment within five (5)

days following service by the clerk of this memorandum decision.

IT IS SO ORDERED.

Dated: August 15, 2007 /s/ Oliver W. Wanger 

668554 UNITED STATES DISTRICT JUDGE

Case 1:06-cv-01493-OWW -GSA Document 50 Filed 08/17/07 Page 13 of 13