Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00233/USCOURTS-caed-1_05-cv-00233-0/pdf.json

Parties Involved:
Hartford Casualty Insurance Company
Plaintiff
S&W Farms
Defendant
Dorothy Wyatt
Defendant

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

THE HARTFORD CASUALTY

INSURANCE COMPANY,

Plaintiff,

v.

S&W FARMS, et al.

Defendants.

1:05-cv-00232 OWW LJO

1:05-cv-00233 OWW LJO

1:05-cv-00234 OWW LJO

MEMORANDUM DECISION AND ORDER

RE: DEFENDANTS’ MOTIONS TO

COMPEL ARBITRATION AND

PLAINTIFF’S MOTIONS FOR

SUMMARY ADJUDICATION. 

THE HARTFORD CASUALTY

INSURANCE COMPANY,

Plaintiff,

v.

VALLEY PEARL MARKETING, LLC,

et al.

Defendants.

THE HARTFORD CASUALTY

INSURANCE COMPANY,

Plaintiff,

v.

CHRISTIE HENDRICKS, et al.

Defendants.

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1 All three suits raise the same legal issues and Defendants

are represented by the same attorney. (Wyatt is represented by a

different attorney for all three suits.) The documents filed in

each case parallel each other. For example, S&W Farms, Christie

Hendricks, and Valley Pearl Marketing each filed a Motion to

Compel Arbitration in March 2005. Save for the names of the

parties, these three motions are nearly verbatim replicas of each

other.

2

I. INTRODUCTION

This Memorandum Decision and Order addresses pending motions

in three cases filed by The Hartford Casualty Insurance Company

(“Plaintiff”) against, respectively, S&W Farms, Christie

Hendricks, and Valley Pearl Marketing, LLC (“Defendants,” unless

otherwise referred to individually). Defendants are all in the

business of growing apples in the State of California. Plaintiff

also names Dorothy Wyatt (“Wyatt”), an arbitrator, as a defendant

in each of these suits.1 For convenience and clarity, all

citations to the record shall refer to filings in Hartford v. S&W

Farms, Case No. 1:05-cv-00233, unless otherwise specified.

Currently before the district court for decision are:

1. Wyatt’s Motions to Dismiss in all three cases,

a. Hartford v. Valley Pearl Marketing, LLC

(1:05-cv-00232), Doc. 8, filed Mar. 18, 2005,

b. Hartford v. S&W Farms (1:05-cv-00233), Doc.

8, filed Mar. 18, 2005, and

c. Hartford v. Christie Hendricks (1:05-cv00234), Doc. 8, filed Mar. 18, 2005;

2. Defendants’ Motions to Compel Arbitration in all

three cases,

a. Valley Pearl, Doc. 12, filed Mar. 28, 2005,

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2 A timetable summary of this case’s detailed background is

provided at Part IV.C.1, infra.

3

b. S&W Farms, Doc. 12, filed Mar. 28, 2005, and

c. Hendricks, Doc. 12, filed Mar. 29, 2005; and

3. Plaintiff’s Cross-Motions for Summary Adjudication

in all three cases,

a. Valley Pearl, Doc. 17, filed Apr. 25, 2005,

b. S&W Farms, Doc. 15, filed Apr. 22, 2005, and

c. Hendricks, Doc. 16, filed Apr. 22, 2005.

II. BACKGROUND2

These motions concern the scope and effect of an arbitration

clause contained within Federal Crop Insurance Corporation

(“FCIC”) crop insurance policies issued by Plaintiff to each

apple grower Defendant. The terms of FCIC policies, whether

issued by FCIC directly or through private companies such as

Hartford, are mandated by FCIC regulations.

In this case, the FCIC policies were issued by Plaintiff to

Defendants in 2002 for the 2003 growing season. In June 2003,

FCIC amended its regulations to alter the disputed arbitration

clause and the procedure by which non-arbitrable disputes are

resolved. The parties disagree as to the operative effect of the

June 2003 amendments. Accordingly, some background on the FCIC

and the development of the disputed policy terms is provided.

A. Federal Crop Insurance Policies.

In 1938, Congress enacted the Federal Crop Insurance Act

(“FCIA”), now codified at 7 U.S.C. §§ 1501-08. To carry out its

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3 Although the record does reveal the contract change date

of the policies at issue in this case, this appears to be

irrelevant as discussed infra.

4

purposes, the FCIA called for the creation of the Federal Crop

Insurance Corporation (“FCIC”) as an agency of the U.S.

Department of Agriculture. 7 U.S.C. § 1503. FCIC was given

authority to offer crop insurance or to reinsure crop insurance

policies offered by private insurance companies. 7 U.S.C. 

§ 1508.

This litigation concerns the insurance policy language

specified by FCIC at 7 C.F.R. § 457.8, known as the Common Crop

Insurance Basic Provisions (“Basic Provisions”). The Basic

Provisions constitute a continuous insurance policy, renewing

itself yearly unless explicitly terminated by the insured grower,

the insurer, or by operation of certain provisions within the

policy. 7 C.F.R. § 457.8(2)(a). Changes to the policy may be

made “from year to year,” but the insured grower must be able to

review any changes to the upcoming year’s policy provisions no

later than a certain designated date known as the “contract

change date.” 7 C.F.R. § 457.8(4)(a)-(b); see also § 457.8(1)

(defining “contract change date”).3 Any change promulgated after

the contract change date cannot be implemented until the

following year’s contract change date. See, e.g., 68 Fed. Reg.

37720 (noting that if a specifically indicated regulation did not

take effect immediately, it would not be available for review

before an upcoming contract change date and therefore could not

be implemented until the following year).

Critical to the present dispute is exclusionary language in

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the Basic Provisions specifying that crop losses caused by

“[f]ailure to follow recognized good farming practices” are not

compensable. 7 C.F.R. § 457.8(12)(b); see also Doc. 1, Ex. C at

§ 12(b). As discussed in more detail below, Hartford denied

certain insurance claims by Defendants on the ground that they

had failed to follow good farming practices. Defendants

challenge Hartford’s good farming practices determination and

assert that their claims were wrongfully denied. The parties

disagree as to whether an arbitrator may resolve Defendants’

challenge to this basis for denial of their claims.

B. Changes To The Basic Provisions In June 2003.

The Basic Provisions of Defendants’ FCIC policies contain a

dispute resolution provision:

If you and we fail to agree on any factual

determination, the disagreement will be resolved in

accordance with the rules of the American Arbitration

Association. Failure to agree with any factual

determination made by FCIC must be resolved through the

FCIC appeal provisions published at 7 CFR part 11.

Doc. 1, Ex. C § 20(a) (emphasis added), filed Feb. 17, 2005. 

(For purposes of clarity, this passage is referred to as the “Old

Dispute Resolution Provision.” The first sentence of the

provision will be known as the “Old Arbitration Clause,” and the

second sentence as the “Old FCIC Referral Clause.”) The Old

Dispute Resolution Provision first became a part of the Basic

Provisions in December 1997. See 62 Fed. Reg. 65161.

In September 2002, FCIC proposed various amendments to the

Basic Provisions. 68 Fed. Reg. 37699. In particular, FCIC

suggested that the Old Dispute Resolution Provision be replaced

with a more detailed dispute resolution procedure. As originally

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proposed, it provided in pertinent part:

(a) If you and we fail to agree on any factual

determination made by us [i.e., the private insurance

company], the disagreement will be resolved in

accordance with the rules of the American Arbitration

Association.

***

(d) If you do not agree with any determination made by

us or FCIC regarding whether you have used a good

farming practice, you may request reconsideration of

this determination in accordance with the review

process established for this purpose and published at 

7 CFR 400, subpart J.

Id. at 37722. (These proposed changes are referred to as the

“New Dispute Resolution Provision.” Subparagraph (a) is referred

to as the “New Arbitration Clause” and subparagraph (d) as the

“New FCIC Referral Clause.”) In contrast to the Old Dispute

Resolution Provision, the New Dispute Resolution Provision

explicitly allows the insurer to make determinations of good

farming practices and requires growers seeking reconsideration of

such determinations to go through FCIC’s administrative process

rather than through arbitration. However, unknown to FCIC at the

time, the proposed language of the New Dispute Resolution

Provision conflicted with the very reconsideration process it

references (7 C.F.R. § 400, Subpart J). See id. at 37701. The

nature of the conflict is as follows.

C. Subpart J and “Good Farming Practices.”

The Basic Provisions state that the insurer may deny a claim

if the grower fails to use “recognized good farming practices”

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when cultivating the insured crop. 7 C.F.R. § 457.8(12)(b); see

also Doc. 1, Ex. C § 12(b). In 2000, Congress amended the FCIA

through the Agricultural Risk Protection Act (“ARPA”), Pub. L.

No. 106-224, 114 Stat. 358, to provide: “A producer shall have

the right to review of a determination regarding good farming

practices...in accordance with an informal administrative process

to be established by [FCIC].” 7 U.S.C. § 1508(a)(3)(B)(i). 

Pursuant to ARPA, FCIC promulgated an “informal administrative

process” referred to as “Subpart J.” See 7 C.F.R. §§ 400.90-97. 

Subpart J first became effective on April 22, 2002, and permitted

insured growers to appeal determinations of good farming

practices made by FCIC itself. However, good farming

determinations made by private insurers could not be challenged

through this new process:

(a) This subpart applies to:

***

(2) Determinations of good farming practices made

by personnel of the Agency [i.e., the FCIC or the

Risk Management Agency of the U.S. Department of

Agriculture].

(b) This subpart is not applicable to any decision:

***

(2) Made by any private insurance company with

respect to any contract of insurance issued to any

producer by the private insurance company and

reinsured by the FCIC....

67 Fed. Reg. 13251 (emphasis added). (This version of Subpart J

is referred to as “Old Subpart J.”) Old Subpart J, therefore,

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conflicted with the proposed language of the New FCIC Referral

Clause which indicated that if the insured grower does

not agree with any determination made by [the private

insurance company] or FCIC regarding whether you have

used a good farming practice, [the grower] may request

reconsideration of this determination in accordance

with the review process established for this purpose

and published at 7 CFR 400, subpart J.

68 Fed. Reg. 37722.

During the public comment process on the proposed changes,

FCIC became aware of the incompatibility between the New FCIC

Referral Clause and Old Subpart J. Id. at 37701. To resolve the

conflict, FCIC proposed “conforming amendments” to Old Subpart J,

bringing it in line with the New FCIC Referral Clause. Id. at

37698. Subpart J, as amended (“New Subpart J”), would no longer

except good farming determinations made by insurance companies. 

See id. at 37721 (codified at 7 C.F.R. § 400.98(e)). Like the

New FCIC Referral Clause, New Subpart J provided that all good

farming determinations must be resolved through the FCIC

administrative reconsideration process, whether those

determinations were made by FCIC or a private insurance company. 

Id.

FCIC promulgated the New FCIC Referral Clause, New Subpart

J, and other changes not relevant to this dispute as a Final Rule

on June 18, 2003 (“June 2003 Amendments”). See 68 Fed. Reg.

37697-98. Although the rule came into force immediately upon

promulgation, see id. at 37720, the official summary qualifies

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4 The New Dispute Resolution Provision and New Subpart J

took effect in the middle of this year (2003) to have application

to the 2004 crop year.

9

the actual applicability of the Amendments:

The changes will apply for the 2004 and succeeding crop

years for all crops with a contract change date on or

after the effective date of this rule, and for the 2005

and succeeding crop years for all crops with a contract

change date prior to the effective date of this rule.

Id. at 37698.

D. The Present Dispute.

In 2002, Plaintiff Hartford issued identical FCIC insurance

policies to Defendants for their 2003 apple crops.4 Doc. 1 ¶ 13;

Doc. 12 at 1:20-23, filed Mar. 28, 2005. These policies

contained the Old Dispute Resolution Provision. Doc. 1, Ex. C 

¶ 20(a); Doc. 12 at 1:24-26. In April 2003, Defendants

apparently suffered crop losses and filed claims with Plaintiff

at some point thereafter. Doc. 1 ¶ 14; Doc. 12 at 2:3-4. In

December 2003, Plaintiff denied these claims on grounds that

Defendants had not employed good farming practices. Doc. 1 ¶ 15;

Doc. 12 at 2:3-5.

Pursuant to the Old Dispute Resolution Provision, Defendant

Valley Pearl, LLC, initiated arbitration proceedings with the AAA

on October 26, 2004, to resolve the good farming practices

disagreement. Valley Pearl, Doc. 12 at 2:10-12. Defendants S&W

Farms and Christie Hendricks did likewise on December 10, 2004. 

Hendricks, Doc. 12 at 2:11-14; S&W Farms, Doc. 12 at 2:5-7. The

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AAA assigned Wyatt, its employee, to administer the arbitral

proceedings. Doc. 1 ¶ 3; Doc. 9 at 1:21-24.

Plaintiff, however, refused to participate in the

arbitration process. Doc. 12 at 2:8-9. Plaintiff asserts that

the arbitration is time-barred according to the Basic Provisions. 

Doc. 1 ¶ 17. Plaintiff also contends that New Subpart J controls

this dispute and therefore divests the arbitrator of jurisdiction

to resolve the disagreement over good farming practices. Doc. 1

¶¶ 21-22.

III. SUMMARY OF PLEADINGS

Plaintiff commenced these actions against Defendants on

February 16, 2005, seeking a declaration under 28 U.S.C. 

§ 2201(a) that: (a) Defendants’ demands for arbitration are timebarred; and (b) regardless of the timeliness of arbitration, New

Subpart J prohibits the arbitrator from resolving disputes over

the adequacy of Defendants’ farming practices. Doc. 1 at 9, ¶ 1. 

Plaintiff also requests that the district court enjoin Defendants

from proceeding with arbitration. Id. at 9, ¶ 2.

Defendants all moved to compel arbitration, asserting that

the arbitrator herself should decide whether good farming

determinations are within her jurisdiction. Doc. 12 at 2:16-17. 

Hartford opposes the motions to compel and moves for summary

adjudication on the legal issues outlined above. Doc. 15.

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5 The parties in this case are diverse from one another and

the amount in controversy is believed to exceed $75,000. Doc. 1

¶¶ 6-8. Therefore, the court would “otherwise have jurisdiction

under [28 U.S.C. § 1332]” over the subject matter of this suit. 

See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395,

405 (1967) (holding that the FAA confers upon district courts the

power to resolve disputes over arbitration clauses arising in

diversity cases).

11

Defendant Wyatt moves to dismiss the claims against her in

all three suits. Doc. 9. Hartford had failed to respond to this

motion by opposition or statement of non-opposition as required

by Local Rule 78-230(c).

Finally, Hartford and Defendants cross-move for sanctions

under Rule 11. Doc. 1 at 10, ¶ 6; Doc. 18 at 19:5-20:16.

IV. LEGAL ANALYSIS

A. The District Court’s Jurisdiction To Evaluate Arbitrability.

The district court has jurisdiction over the present dispute

under the Federal Arbitration Act, which provides in pertinent

part:

A party aggrieved by the alleged failure, neglect, or

refusal of another to arbitrate under a written

agreement for arbitration may petition any United

States district court which, save for such agreement,

would have jurisdiction under Title 28, in a civil

action or in admiralty of the subject matter of a suit

arising out of the controversy between the parties, for

an order directing that such arbitration proceed in the

manner provided for in such agreement.

9 U.S.C. § 4.5

Facially, the FAA provides a claim to those wishing to

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enforce an arbitration agreement. Here, Hartford’s complaint

seeks to enjoin or stay arbitration. (The complaint also seeks

interpretation of the scope of the arbitration provision

contained within the operative FCIC policies.) Some courts have

applied the FAA to adjudicate disputes over the scope of an

arbitration agreement or motions to stay arbitration. See Tracer

Research Corp. v. National Environmental Services Co., 42 F.3d

1292, 1294 (9th Cir. 1994) (question concerning “scope of

arbitration clause is governed by federal law.”); Rosenberg v.

Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 19 (1st

Cir. 1999). Under these cases, it is appropriate to decide the

issues presented under the auspices of the FAA.

The FAA limits the district court’s discretion to

determining whether the arbitration agreement is valid, and if

so, whether the subject matter of the dispute is arbitrable. 

Lifescan, Inc. v. Premier Diabetic Services, Inc., 363 F.3d 1010,

1012 (9th Cir. 2004). If the court answers both inquiries in the

affirmative, it must order the parties to arbitrate their dispute

according to the terms of the arbitration agreement in question. 

Id. (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218

(1985)).

The parties do not dispute that the operative policy

language is in the Old Arbitration Clause. The parties do

dispute the scope and meaning of the Old Arbitration Clause and

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the effect of the June 2003 Amendments on its operation. The

critical inquiry centers on the “question of arbitrability”

(i.e., whether the parties have submitted a particular dispute to

arbitration). See AT&T Technologies, Inc. v. Communications

Workers, 475 U.S. 643, 649 (1986).

B. The Arbitrability Of Arbitrability: May The Arbitrator

Decide?

The question of arbitrability is one form of “gateway

question,” whose answer “will determine whether the underlying

controversy will proceed to arbitration on the merits.” See

Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002). 

While there are a large number of questions with such potentially

dispositive effect, the Supreme Court has indicated that a court

(as opposed to an arbitrator) may involve itself in only a narrow

range of such questions, those that are “substantive” rather than

“procedural.” See id. at 83-85. For example, questions about

timeliness or proper notice of the arbitration demand are

considered procedural and should be left to the arbitrator to

answer. Id. at 85. On the other hand, “a disagreement about

whether an arbitration clause in a concededly binding contract

applies to a particular type of controversy” is substantive and

may properly be resolved by the court. Id. at 84. However, even

this presumption may be overcome if the parties’ contract

“clearly and unmistakably” gives an arbitrator the power to

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decide all “gateway questions,” including whether the subject

matter of a particular dispute is arbitrable. Id. at 83-84; AT&T

Technologies, 475 U.S. at 649.

1. An arbitrator should resolve Plaintiff’s claims that

Defendants’ demand for arbitration was procedurally

defective.

Plaintiff alleges that Defendants’ demand for arbitration

did not conform to relevant AAA rules regarding timeliness of

demands and proper notice thereof. Doc. 1 ¶¶ 16-17. These

issues fall under the rubric of “procedural” disputes and are

thus left to the arbitrator to resolve.

2. An arbitrator should determine whether a dispute over

good farming practices may be resolved through

arbitration.

When the dispute involves a substantive matter, a court

retains authority to determine arbitrability unless the parties

have “clearly and unmistakably” granted such authority to the

arbitrator. Howsam, 537 U.S. at 83-84; AT&T Technologies, 475

U.S. at 649. On its face, the language of the Old Arbitration

Clause appears ambiguous in this regard. It provides only that

factual disagreement between insured and insurer are to be

resolved “in accordance with the rules of the American

Arbitration Association.” Doc. 1, Ex. C ¶ 20(a). However, by

invoking the AAA’s rules in the Old Arbitration Clause, FCIC has

expressly made those rules part of the Basic Provisions. See 

C & L Enterprises, Inc. v. Citizen Band Potawatomi Indian Tribe

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6 Defendants cite the jurisdictional provision of the AAA

Rules as R-8(a) (rather than R-7(a)). Doc. 12 at 3:15. 

Defendants take their citation from an arbitrator’s interim award

in a nearly identical case wherein the arbitrator found that he

had jurisdiction to determine whether good farming practices

disputes were arbitrable. Doc. 12, Ex. B ¶ 5. That arbitrator,

who issued his interim award in June 2004, seems to have worked

under an older copy of the AAA Rules. On July 1, 2003, the AAA

amended, consolidated, deleted, and renumbered many of its rules. 

See American Arbitration Association, Summary of Changes:

Commerical Arbitration Rules and Mediation Procedures (Including

Procedures for Large, Complex Commercial Disputes) Amended and

Effective July 1, 2003, at <http://www.adr.org/sp.asp?id=22287>

(last visited Jun. 30, 2005). Rule R-8 is now Rule R-7. See

American Arbitration Association, Commerical Arbitration Rules

and Mediation Procedures, at <http://www.adr.org/sp.asp?id=22440>

(last visited Jun. 30, 2005). Rule R-7(a) and the former Rule R8(a) are textually identical. Therefore, the district court will

refer to Rule R-7(a).

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of Okla., 532 U.S. 411, 419 n.1 (2001) (when AAA rules are

specified by contract as the method of resolving disputes, those

rules “are not secondary interpretive aides that supplement [the]

reading of the contract; they are prescriptions incorporated by

the express terms of the agreement itself.”).

The AAA rules applicable to the current dispute expressly

specify that the AAA is the arbitrator and empower the arbitrator

to “rule on his or her own jurisdiction, including any objections

with respect to the existence, scope or validity of the

arbitration agreement.” AAA Commercial Arbitration Rules R-2, 

R-7(a) [“Rule R-7(a)”], at <http://www.adr.org/sp.asp?id=22440>

(last visited Jun. 30, 2005); see also Doc. 12, Ex. B ¶ 5.6 As

an effective a part of the Basic Provisions themselves, see C & L

Enterprises, 532 U.S. at 419 n.1, the language of Rule R-7(a)

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7 Plaintiff asserts that it previously engaged in

arbitration on this very question at great expense, only to have

the arbitrator (a retired California Court of Appeal justice)

find that he lacked jurisdiction over the dispute. See Doc. 1 

¶ 24; Doc. 15 at 2:8-3:5; Doc. 20 at 1:27-2:5. Plaintiff wishes

to avoid the expense and hassle of further arbitral proceedings

and the possibility of multiple conflicting rulings. See Doc. 20

at 8:19-9:6. This equitable argument is simple irrelevant to the

requisite legal analysis. Furthermore, Plaintiff, an experienced

litigant, bargained for arbitration by issuing these FCIC

policies. Arbitration entails many risks, including the

possibility of incorrect analysis and application of the law.

16

clearly and unmistakably gives the arbitrator authority to decide

whether the issue at hand — good farming practice determinations

— is within the scope of the Old Arbitration Clause. Therefore,

as with procedural questions, the Basic Provisions require the

district court to defer to the arbitrator on the substantive

question of arbitrability. See First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 943 (1995) (when a contract gives the

arbitrator the authority to decide arbitrability, courts must

give “considerable leeway” to the arbitrator).

C. Plaintiff’s Argument That Good Farming Practices Disputes

Are Not Arbitrable.

Plaintiff argues that the June 2003 Amendments (see Part

II.B-C, supra) simply override the arbitrator’s authority to

resolve disputes over good farming practices determinations, and

therefore it would be both unlawful and wasteful for the

arbitrator to make that determination herself under Rule R-7(a).7

Doc. 15 at 7:19-12:4; Doc. 20 at 8:19-9:6. The AAA arbitrator

has jurisdiction under Rule R-7(a) to decide the arbitrability of

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jurisdiction. She must make her own ruling on the issue if

Plaintiff chooses to raise it. However, even assuming, arguendo,

that the Basic Provisions do not clearly and unmistakably assign

this task to the arbitrator, Plaintiff’s argument fails on the

merits and the district court must compel arbitration in this

case.

1. Timetable Summary of the Development of the Dispute

Resolution Provisions.

In supporting or refuting the contention that the June 2003

Amendments preclude arbitral resolution of good farming practices

disputes, the parties place great emphasis on the timing and

effect of those Amendments. The critical events leading to this

dispute are set forth in the following timetable:

December 1997 FCIC inserts the Old Dispute

Resolution Provision into the Basic

Provisions.

June 2000 Congress enacts ARPA, amending the

Federal Crop Insurance Act (FCIA)

with a requirement that FCIC

establish an informal

administrative process for

reconsideration of good farming

practice determinations.

Some point in 2002 Defendants purchase FCIC crop

insurance from Hartford for their

apple crops to be grown in 2003. 

The Basic Provisions of these

policies contain the Old Dispute

Resolution Clause.

April 2002 FCIC promulgates Old Subpart J, the

informal administrative process

called for in ARPA. Old Subpart J

explicitly excepts good farming

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determinations made by private

insurance companies from its review

process.

September 2002 FCIC proposes the New Dispute

Resolution Provision, specifying

that good farming practices

determinations can be made by

private insurers and can only be

reconsidered through the FCIC

process contained in Old Subpart J. 

Public commentary thereon reveals a

conflict: the terms of Old Subpart

J state that it is not applicable

to determinations made by private

insurers.

April 2003 Defendants apparently suffer damage

to their apple crops. They file

claims with Hartford.

Prior to June 2003 FCIC drafts New Subpart J,

resolving the conflict between the

New Dispute Resolution Provision

and Old Subpart J. New Subpart J

and the New Dispute Resolution

Provision both state that good

farming practices determinations,

whether made by FCIC or private

insurers, can only be reconsidered

through New Subpart J.

June 2003 FCIC issues the June 2003

Amendments, codifying the New

Dispute Resolution Provision and

New Subpart J. FCIC states that

the new provisions will not apply

until at least the 2004 crop year.

December 2003 Hartford denies Defendants’

insurance claims because it

believes Defendants did not follow

recognized good farming practices.

October 2004 Defendant Valley Pearl Markenting,

LLC, initiates AAA arbitration

proceedings to resolve the good

farming dispute.

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December 2004 Defendant Christie Hendricks and

Defendant S&W Farms initiate AAA

arbitration proceedings to resolve

their respective good farming

disputes.

February 2005 Plaintiff files suit, commencing

the present litigation.

2. The Effect Of The June 2003 Amendments.

In its initial pleadings, Plaintiff Hartford impliedly

argued that the New Dispute Resolution Provision (contained in

the June 2003 Amendments) actually displaced the Old Dispute

Resolution Provision as of June 2003, thus displacing the

language applying the rules of the AAA to good farming practices

disputes. Doc. 1 ¶ 21. Plaintiff later revised its position and

now seeks to establish that the New Dispute Resolution Provision

and New Subpart J are not in fact new, but are clarifications of

a preexisting procedure for reconsidering good farming practices

— a procedure which required growers to seek FCIC administrative

review of any adverse good farming determinations made by a

private insurer. Doc. 15 at 10:11-12:4. Hartford asserts that

this procedure has been in place since the enactment of ARPA in

2000. Id. at 7:19-9:1.

For a number of reasons, Hartford’s position is

unsupportable. The starting point is the face of the contract

which does not identify who may make factual determinations. 

Furthermore, regardless of who may make factual determinations

about the adequacy of farming practices, ARPA did not establish

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8 Plaintiff makes no mention of Old Subpart J in any of its

briefs and, at best, appears to have completely overlooked it, or

at worst to have intentionally omitted mention of it. For

example, Plaintiff quotes ARPA’s call for an “informal

administrative process,” see 7 U.S.C. § 1508(a)(3)(B)(i), as the

basis for its conclusion that ARPA mandated FCIC review of good

farming determinations made by private insurers. Doc. 15 at

7:19-8:26. Plaintiff’s conclusion simply makes no sense. The

language Plaintiff quotes from ARPA clearly did not create any

review process — nor did it address the separate issue of whether

a private insurer may make good farming determinations, and to

whom and through what process a grower may appeal such a

determination. The first FCIC pronouncement on those questions

came in Old Subpart J. By its terms, Old Subpart J does not

apply to determinations of good farming practices made by private

insurers (such as Hartford). See 67 Fed. Reg. 13251.

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any process of review for such determinations. Rather, ARPA

mandated that an “informal administrative process [] be

established.” 7 U.S.C. § 1508(a)(3)(B)(i) (emphasis added). No

such process existed until FCIC issued Old Subpart J in April

2002.8

FCIC’s commentary in the Federal Register regarding the June

2003 Amendments further undermines Hartford’s argument that New

Subpart J should apply to the current dispute. First, FCIC’s

summary of the June 2003 Amendments plainly provides that the

changes would apply at the earliest to disputes about crops grown

during the 2004 crop year:

The changes will apply for the 2004 and succeeding crop

years for all crops with a contract change date on or

after the effective date of this rule, and for the 2005

and succeeding crop years for all crops with a contract

change date prior to the effective date of this rule.

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9 While this passage addresses the actual implementation of

the change, the June 2003 Rule technically took effect on June

18, 2003. See 68 Fed. Reg. 37698. FCIC issued a lengthy comment

regarding this, from which Plaintiff quotes:

[S]uch changes regarding the inclusion of an informal

reconsideration process for determinations of good

farming practices and making determinations of good

farming practices more objective are in the public

interest.... For the reasons stated above, good cause

exists to make these policy changes effective upon

filing with the Office of the Federal Register [i.e.,

June 18, 2003].

Id. at 37720; see also Doc. 15 at 11:5-9. Plaintiff believes

that such statements support its position that New Subpart J

immediately began to control all disputes arising from

outstanding FCIC insurance policies. Doc. 15 at 11:4-14. 

However, Plaintiff’s quotation omits important contextual

material showing that FCIC’s decision regarding the effective

date was made in light of upcoming contract renewals, not

preexisting contracts. The complete text of the passage in

question is as follows:

[S]uch changes regarding the inclusion of an informal

reconsideration process for determinations of good

farming practices and making determinations of good

farming practices more objective are in the public

interest....

***

[FCIC then finds that four other changes in the June

2003 Amendments (unrelated to this dispute) are “in the

public interest.”]

***

If FCIC is required to delay the implementation of

this rule 30 days after the date it is published, the

provisions of this rule could not be implemented until

the next crop year for those crops having a contract

change date of June 30, 2003. This would mean that the

affected producers and insurance providers would be

without the benefits described above for an additional

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68 Fed. Reg. 37698.9 The dispute giving rise to this litigation 

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year.

For the reasons stated above, good cause exists to

make these policy changes effective upon filing with

the Office of the Federal Register [i.e., so that they

will apply to crop year 2004].

68 Fed. Reg. 37720.

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involves crops (i.e., Defendants’ apples) grown during the 2003

crop year, making the June 2003 Amendments inapplicable to them.

A number of additional FCIC statements emphasize that the

June 2003 Amendments were in fact changes (rather than

clarifications) and would not to apply until the following crop

year (2004). For example,

FCIC has revised the [reconsideration] provision and

now the insurance providers will be making the

determinations based on what agricultural experts

determine are generally recognized production methods.

Id. at 37704 (emphasis added). Also, “FCIC has elected not to

implement the rule in the middle of the crop year.” Id. at

37700. Most importantly,

Providing [an administrative] reconsideration process

for determinations regarding good farming practices

will reduce costs incurred by insurance providers and

insured producers. Prior to this rule [i.e., the June

2003 Amendments], arbitration or judicial review were

the mechanisms used to settle disputes regarding the

use of good farming practices, and both are

significantly more expensive than the reconsideration

process that FCIC will perform.

Id. at 37698 (emphasis added).

Clearly, the June 2003 Amendments to the good farming

practice reconsideration process were actual changes to Subpart

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10 Plaintiff derives its “clarification” argument from

another FCIC comment in the Federal Register:

FCIC is also publishing a technical correction...to

clarify determinations of good farming practices made

by either [FCIC] or private insurance companies are

subject to administrative review....

68 Fed. Reg. 37715. Plaintiff claims that this language further

supports its belief that the June 2003 Amendments clarified a

reconsideration process in existence since ARPA. Doc. 15 at 9. 

The full quotation undermines Plaintiff’s position:

FCIC is also publishing a technical correction,

concurrently with this final rule, to amend the appeal

procedure regulations found in 7 CFR part 400, subpart

J, to clarify determinations of good farming practices

made by either the Agency or private insurance

companies are subject to administrative review and to

make other changes required in response to comments to

the proposed rule.

68 Fed. Reg. 37715 (emphasis added). The quote, unedited,

explicitly references Old Subpart J and makes no mention of ARPA. 

That Plaintiff would attempt to demonstrate otherwise by editing

out the reference to Old Subpart J is inexcusable. Hartford is

admonished that failure to disclose contrary authority to the

court (as shown in this footnote and footnotes 8 and 9, supra) is

sanctionable conduct. Fed. R. Civ. P. 11; Local Rules 11-110,

83-184(a); see also Moser v. Bret Harte Union High School Dist.,

366 F. Supp. 2d 944, 949-53 (E.D. Cal. 2005).

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J, and not simply clarifications of a procedure in existence

since ARPA, as Plaintiff has contended.10 FCIC has admitted that

prior to the June 2003 Amendments, arbitration was authorized to

resolve disputes over good farming determinations. See id. at

37698. FCIC additionally stated that the June 2003 Amendments

would apply no earlier than the 2004 crop year. See id. at

37698. Finally, FCIC assured that they had “elected not to

implement the [June 2003 Amendments] in the middle of the crop

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11 The cases cited by plaintiff only tangentially concern

the primary jurisdiction doctrine, but it is this doctrine that

Plaintiff appears to invoke, rather than the “Garmon doctrine”

itself, which essentially concerns preemption of a state court’s

jurisdiction by federal administrative law.

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year.” Id. at 37700. These statements unequivocally confirm

FCIC’s intent to change its regulations, but not to disturb Old

Subpart J or the Old Dispute Resolution Provision for crops grown

during the 2003 crop year (such as Defendants’ apples).

D. Plaintiff’s Argument Regarding FCIC’s Authority To Interpret

Its Regulations.

In its final submission to the court on this matter,

Plaintiff suggests that this case involves a dispute over which

FCIC has exclusive interpretive power. Doc. 20 at 4:4-6:8. In

support, Plaintiff cites 7 C.F.R. § 400, Subpart X, which

addresses procedures by which one may request a final agency

determination of the meaning of any provision of the Federal Crop

Insurance Act or any regulation promulgated by FCIC. See

especially 7 C.F.R. § 400.767. Plaintiff asserts that

Defendants’ “only remedy is to petition the FCIC for a Final

Agency Determination regarding this threshold subject matter

jurisdiction issue.” Doc. 20 at 6:7-8 (emphasis in original). 

Hartford also relies upon a line of cases beginning with San

Diego Building Trades Council v. Garmon, 359 U.S. 236, 247 (1959)

in an apparent attempt to invoke the doctrine of primary

jurisdiction.11 According to this doctrine, a federal court

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should permit an administrative agency the first opportunity to

decide issues over which the court and the agency have concurrent

jurisdiction. See Poulos v. Caesars World, Inc., 379 F.3d 654,

671-72 (9th Cir. 2004); Black’s Law Dictionary (7th ed.) at 1209.

Plaintiff’s invocation of Subpart X and the primary

jurisdiction doctrine is puzzling. If Plaintiff truly believes

that the district court should defer to the primary jurisdiction

of the FCIC, it is unclear why Plaintiff has not initiated the

Subpart X process of its own accord. Instead, Plaintiff has

filed suit for declaratory relief to the effect that (a) its

interpretation of FCIC regulations is correct, (b) only FCIC may

interpret its own regulations, and (c) the district court shares

jurisdiction with FCIC and should defer to it in the spirit of

comity.

Plaintiff’s argument as to the exclusivity of FCIC’s

interpretive authority is simply another variant on the question

of arbitrability. Should Plaintiff choose to raise this issue at

arbitration, Rule R-7(a) authorizes the arbitrator to decide

whether Subpart X has any bearing on her authority to reach the

merits of this dispute.

E. Arbitral Forum.

FCIC has issued a Final Agency Determination stating that

the Old Arbitration Clause allows arbitration before “any

Alternative Dispute Resolution organization, provided the

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organization applies the rules of the AAA to the proceedings.” 

FAD-007 (issued May 18, 2001), at <http://www.rma.usda.gov/regs/

533/fad-007.html> (last visited June 30, 2005). Plaintiff raised

FAD-007 at oral argument, apparently seeking a declaration that

it is not required to arbitrate the current dispute with

Defendants before the AAA. FAD-007 makes clear that the Basic

Provisions do not require arbitration before the AAA. However,

the policy Plaintiff issued incorporates AAA rules, which make

AAA the arbitrator. See AAA Commercial Arbitration Rules R-2. 

There is nothing in FAD-007 that would enable the district court

to halt AAA-administered proceedings already underway by

rewriting the contract. No such declaration can be issued.

F. Rule 11 Sanctions.

Both Hartford and the apple grower Defendants have moved for

Rule 11 sanctions against each other. Rule 11 provides the

district court the opportunity to sanction attorneys whose

pleadings, motions, or other submissions to the court are legally

or factually unsupportable, frivolous, or otherwise intended for

an improper purpose (such as unnecessary delay or increasing the

cost of litigation). See Fed. R. Civ. P. 11(b). Before

petitioning the court for sanctions, the moving party must serve

the allegedly offending party with a motion for sanctions and

allow that party twenty-one days to correct or withdraw the

submission at issue. Fed. R. Civ. P. 11(c)(1)(A).

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Although Plaintiff is cautioned to consider carefully its

duty to cite contrary authority, see supra note 10, neither

Plaintiff nor Defendants have demonstrated that Rule 11 sanctions

are factually or procedurally appropriate. The motions are

DENIED.

G. Wyatt’s Motion to Dismiss.

Defendant Wyatt, the AAA administrator of the arbitration

initiated by Defendants, moves the district court to dismiss her

as a defendant on grounds of arbitral immunity. Doc. 9. The

Federal Arbitration Act does not grant immunity to arbitrators,

but courts considering the issue (including the Ninth Circuit)

have uniformly extended the doctrine of judicial immunity to

encompass arbitrators. See, e.g., Wasyl, Inc. v. First Boston

Corp., 813 F.2d 1579, 1582 (9th Cir. 1987) (holding that

arbitrators enjoy judicial immunity and citing numerous decisions

that reach the same conclusion). Plaintiff has not opposed

Wyatt’s motions in any of the cases currently under

consideration. Therefore, Wyatt is DISMISSED AS A DEFENDANT.

V. CONCLUSION

For the reasons set forth above:

1. Plaintiff’s request for declaratory relief

pursuant to 28 U.S.C. § 2201(a) is DENIED.

2. Plaintiff’s request that the district court enjoin

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Defendants from proceeding with the arbitration of

this dispute is DENIED.

3. Plaintiff’s request for Rule 11 sanctions against

Defendants is DENIED.

4. Defendants’ Motion to Compel Arbitration is

GRANTED.

5. Defendants’ request for Rule 11 sanctions against

Plaintiff is DENIED.

6. Dorothy Wyatt’s motion to dismiss is GRANTED and

she is DISMISSED AS A DEFENDANT.

SO ORDERED.

Dated: Jul7 6, 2005

/s/ OLIVER W. WANGER 

______________________________

 Oliver W. Wanger

UNITED STATES DISTRICT JUDGE

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