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Miriam Haskins, et al. v. First American Title Insurance Company

May 4, 2012


The opinion of the court was delivered by: Joel Schneider United States Magistrate Judge


This Opinion addresses whether non-signatories to an insurance policy containing an arbitration clause should be compelled to arbitrate rather than litigate their claims. Plaintiffs allege they were overcharged for the title insurance policies they purchased as a condition of refinancing their mortgages. The beneficiaries of the policies were plaintiffs' non-party mortgage lenders. Plaintiffs' title insurer, First American Title Insurance Company ("First American"), seeks to compel arbitration pursuant to an arbitration clause included in the policies issued to plaintiffs' lenders. For the following reasons, First American's Motion to Stay and Compel Individual Arbitration is DENIED. *fn1


Plaintiffs are homeowners who refinanced their homes in 2005 (Haskins) and 2007 (Rogers, Garnes and the Groovers). In order to proceed with their refinancing plaintiffs were required to purchase title insurance in the form of lenders' policies. Although plaintiffs paid for the insurance policies at their closings, they were not named parties or beneficiaries in the policies. The named insureds and beneficiaries were plaintiffs' mortgage lenders. The policies contained identical arbitration clauses which read:


Unless prohibited by applicable law, either the Company [First American] or the insured [non-party mortgage lenders] may demand arbitration pursuant to the Title Insurance Arbitration Rules of the American Arbitration Association. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the insured arising out of or relating to this policy, any service of the Company in connection with its issuance or the breach of a policy provision or other obligation. All arbitrable matters within the Amount of Insurance is $1,000,000 or less shall be arbitrated at the option of either the Company or the insured.

At their closings plaintiffs signed "HUD-1 Settlement Statements" which set forth the amounts they owed for title insurance. As to the premium to be paid, title insurance companies such as First American are required to file its "schedule of fees, every manual of classifications, rule and plans pertaining thereto . . . which it proposes to use in [New Jersey]." N.J.S.A. 17:46B-42. The rates are set forth in a Manual of Rates and Charges. First American is required to charge its approved filed rates. N.J.S.A. 17:46B-42.d. New Jersey law permits title insurers to satisfy their rate-filing requirements by joining a licensed title insurance organization that submits proposed rates to the New Jersey Department of Banking and Insurance for approval. N.J.S.A. 17:46B-42.b; In re New Jersey Title Ins. Litigation, C.A. No. 08-1425, 2009 WL 3233529, at *1-2 (D.N.J. Oct. 5, 2009). The specific filed rates are not included in the lenders' policies, and plaintiffs allege they were unknown when their properties were refinanced. Plaintiffs allege that although First American filed its rates as required, it charged them more than the approved rate. Amend. Compl. ¶¶ 37, 43. The crux of plaintiffs' claim is that they were charged a "standard underwriting rate" rather than a lower "refinance" rate.*fn2 See generally Amend. Compl. ¶¶ 36-40.

Plaintiffs' original complaint asserted claims under state and federal RICO statutes and the New Jersey Consumer Fraud Act. Plaintiffs also alleged common-law and equitable fraud claims. On April 4, 2011, the Honorable Renee Bumb, U.S.D.J., dismissed without prejudice plaintiffs' RICO and common-law fraud claims. On October 25, 2011, Judge Bumb denied defendant's motion to dismiss plaintiffs' claim under the New Jersey Consumer Fraud Act.*fn3

Although plaintiffs were not parties to the title insurance policies that covered their properties, First American argues they are bound by the arbitration clause contained therein under a theory of equitable estoppel.*fn4 First American argues plaintiffs benefitted from the policies and are not permitted to "pick and choose" which policy terms are enforceable. First American's Brief ("FAB") at 11. First American also contends the arbitration clause covers all claims that "arise out of or relate to" the policies or any service provided under the policies, and that plaintiffs may not evade arbitration simply because they are not named insureds. Id. at 12-13. In addition, First American argues its motion was timely filed because it would have been futile prior to recent intervening caselaw. (Id. at 14 (citing AT&T Mobility LLC v. Concepcion ("Concepcion"), 131 S. Ct. 1740 (2011)). First American also argues that compelling arbitration would not cause plaintiffs undue prejudice. Plaintiffs oppose First American's motion on several grounds. Plaintiffs argue equitable estoppel does not apply because they did not "exploit[] or benefit[] from the terms of the agreement containing the arbitration clause." Plaintiffs' Brief ("PB") at 9. Plaintiffs deny their claims seek to enforce any provisions of the policies. Plaintiffs also argue the arbitration clause does not encompass their claims because the clause is explicitly limited to legal disputes arising between First American and the "insured" -- i.e., the mortgage lenders. In addition, plaintiffs argue First American waived the right to pursue arbitration because it waited six months after the Supreme Court's decision in Concepcion before it filed the instant motion.*fn5


The standard of review for a motion to compel arbitration is the same standard applied to a motion for summary judgment. Kaneff v. Delaware Title Loans, Inc., 587 F.3d 616, 620 (3d Cir. 2009). A court may grant summary judgment if the pleadings, depositions, answers to interrogatories and admissions show that there is no genuine issue as to any material fact, and if the court determines that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a). When determining the existence of a genuine issue of material fact in the context of arbitration, "[t]he party opposing arbitration is given the benefit of all reasonable doubts and inferences that may arise." Kaneff, 587 F.3d at 620 (internal quotation and citation omitted). Because the parties do not dispute the relevant facts, First American's motion is ripe for decision.

The black letter law regarding contractual arbitration provisions is relatively well-settled. "[A]rbitration is . . . a matter of contract between the parties; it is a way to resolve those disputes-but only those disputes-that the parties have agreed to submit to arbitration." First Options of Chicago, Inc. v. Kaplan ("First Options"), 514 U.S. 938, 943 (1995). In the absence of "clea[r] and unmistakabl[e]" evidence, "it is 'the court's duty to interpret the agreement and to determine whether the parties intended to arbitrate grievances concerning' a particular matter." Granite Rock Co. v. International Broth. of Teamsters, 130 S.Ct. 2847, 2858 (2010) (quotation and citation omitted). Courts apply a two-step test to determine whether a cause of action is supplanted by an existing arbitration agreement. Trippe Mfg. Co. v. Niles Audio Corp. ("Trippe"), 401 F.3d 529, 532 (3d Cir. 2005). Courts first determine whether a valid agreement to arbitrate exists. If a valid agreement exists, a court should then determine whether the agreement encompasses the dispute at issue. Id. "When determining both the existence and the scope of an arbitration agreement, there is a presumption in favor of arbitrability." Id. This presumption is not absolute, however, and should be applied "only where a validly formed and enforceable arbitration agreement is ambiguous about whether it covers the dispute at hand; and . . . where the presumption is not rebutted." Granite Rock Co., 130 S.Ct. at 2858-859. If a valid and enforceable arbitration agreement is broad in its scope, "[a]n order to arbitrate . . . 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." Century Indem. Co. v. Certain Underwriters at Lloyd's, London, 584 F.3d 513, 556 (3d Cir. 2009) (quotation and citation omitted). If the arbitration agreement is itself narrowly crafted, it should not be presumed that the parties agreed to arbitrate any and all disputes. Id. If an agreement to arbitrate exists and the dispute is encompassed by the agreement, the decision to enforce arbitration is mandatory. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985); Great Western Mortg. Corp. v. Peacock, 110 F.3d 222, 228 (3d Cir. 1997). In this case it is plain that plaintiffs are not contractually bound to arbitrate.*fn6 Although plaintiffs paid for the policies, they were neither parties to nor beneficiaries of the insurance contracts. Nevertheless, this is not the end of the story.

Although a party may not ordinarily be compelled to arbitrate an issue it has not agreed to submit to arbitration, non-signatories such as plaintiffs may be bound to arbitrate under applicable principles of contract and agency law. E.I. DuPont de Nemours and Co. v. Rhone Poulence Fiber and Resin Intermediates, S.A.S. ("DuPont"), 269 F.3d 187, 194 (3d Cir. 2001); Alfano v. BDO Seidman, LLP 393 N.J. Super. 560, 568 (App. Div. 2007). "[F]ederal courts should generally apply ordinary state-law principles that govern the formation of contracts to assess whether the parties agreed to arbitrate a certain matter . . . ." Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2783 (2010) (internal quotation marks and citation omitted). Under New Jersey law, a non-signatory may be bound to an arbitration agreement under one of several theories: (1) incorporation by reference, (2) assumption, (3) agency, (4) third-party beneficiary, (5) veil-piercing/alter ego, and (6) waiver and estoppel. See EPIX Holdings Corp. v. Marsh & McLennan Companies, Inc., 410 N.J. Super. 453, 463 (App. Div. 2009); Alfano, 393 N.J. Super. at 569. First American relies exclusively on the theory of equitable estoppel to support its motion. Under New Jersey law "[e]quitable estoppel is conduct, either express or implied, which reasonably misleads another to his prejudice so that a repudiation of such conduct would be unjust in the eyes of the law." McDade v. Siazon, 208 N.J. 463, 480 (2011) (quotation and citation omitted). "The doctrine is designed to prevent injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment." Angrisani v. Financial Technology Ventures, L.P., 402 N.J. Super. 138, 153 (App. Div. 2008) (quoting Knorr v. Smeal, 178 N.J. 169, 178 (2003)). The theory should be applied "only in very compelling circumstances." IBS Financial Corp. v. Seidman & Assoc., L.L.C., 136 F.3d 940, 948 (3d Cir. 1998) (quoting Palatine I v. Planning Board, 133 N.J. 546, 560 (1993)). In Angrisani, supra, the New Jersey Appellate Division addressed whether to compel a non-party to arbitrate pursuant to an equitable estoppel theory. The decision held that in order to invoke equitable estoppel to bind a non-signatory to arbitration, "[the party relying upon this doctrine] must show that [the other party] engaged in conduct, either intentionally or under circumstances that induced reliance, and that [the party relying upon the doctrine] acted or changed [its] position to [its] detriment." Angrisani, 402 N.J. Super. at 153 (alterations in original) (quoting Knorr, 178 N.J. at 178).*fn7

The New Jersey Appellate Division recently addressed equitable estoppel again in Hirsch v. Amper Financial Services, LLC, 2012 WL 1379976 (N.J. Super. App. Div. April 23, 2012). In that case the Court compelled signatories to an agreement containing an arbitration clause to arbitrate their dispute with non-signatories because the claims and the parties were integrally related to an ongoing, arbitrable dispute involving the signatories. See also Angrisani, 402 N.J. Super. at 154 (addressing equitable estoppel in connection with claims inextricably intertwined with a contract containing an arbitration clause). In Hirsch, the plaintiffs and a third-party defendant were signatories to an account agreement that contained an arbitration clause; no such agreement existed between the plaintiffs and the defendants. Plaintiffs were already engaged in arbitration with the third-party defendant on claims arising from the same facts, and the Court noted extensive links between the defendants and an individual who was a party to the arbitration clause. Affirming the lower court's decision granting the third-party defendant's motion to compel arbitration, the Court ruled, "the combination of the requisite nexus of the claim to the contract together with the integral relationship between the non-signatory and the other contracting party [is] recognized as a sufficient basis to invoke estoppel." Hirsch, supra, at *5 (emphasis omitted) (quoting EPIX Holding Corp., 410 N.J. Super. at 465-66 ...

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