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Aviation Alliance Insurance Risk Retention Group, Inc. v. Polaris Enterprise Group, Inc.

United States District Court, D. Montana, Missoula Division

June 27, 2017



          Donald W. Molloy, United States District Court District Judge

         Plaintiff Aviation Alliance Insurance Retention Group, Inc. ("Aviation Alliance") is a risk retention group[1] based out of Missoula, Montana. In 2009, Aviation Alliance contracted with Defendants Polaris Enterprise Group, Cameron Crebs, and Rick Crebs (collectively "Polaris") under a Master Service Agreement, (Doc. 9-1 (Dec. 1, 2009)), whereby Polaris provided administrative, underwriting, and support services for the operation, management, and administration of Aviation Alliance. Under that Agreement, Polaris was the Broker of Record for all shareholders and policy holders of Aviation Alliance, the program manager of all Aviation Alliance's insurance operations, and the manager and administrator of Aviation Alliance.

         In March 2017, Aviation Alliance sued, alleging nine causes of action against Polaris for its actions relating to and following the termination of the parties' relationship in October 2016. Aviation Alliance claims Polaris used its confidential and trade secret information to make misrepresentations to shareholders and, after the termination of the parties' relationship, failed to return that information and improperly used it to sell Aviation Alliance policy holders insurance policies provided by other carriers. According to Aviation Alliance, Polaris has "unlawfully replaced at least 49 [of its] policies with insurance issued by other companies with a resulting loss of [sic] in excess of $758, 000.00 of premium." (Compl., Doc. 1 at ¶ 19.)

         Polaris, which has not yet filed an answer, seeks to compel arbitration pursuant to an arbitration clause in the 2009 Master Service Agreement. (Doc. 7.) Section 7 of that Agreement states in relevant part:

Except as otherwise provided herein, no civil action with respect to any dispute, claim, or controversy arising out of or relating to this Agreement may be commenced until the matter has been submitted to the Judicial Arbitration and Mediation Service ("JAMS") for non-binding arbitration under the JAMS' then-effective commercial arbitration rules. The parties covenant that they will participate in non-binding arbitration in good faith and that they will share equally in its costs Either party may seek equitable relief prior to the non-binding arbitration to preserve the status quo pending the completion of that process. Except for such an action to obtain equitable relief, neither party may commence a civil action with respect to the matters submitted to non-binding arbitration until after the arbitrator makes his determination. During the pendency of such arbitration, any applicable statute of limitations for claims related to this agreement will be tolled. The provisions of this Clause may be enforced by any Court of competent jurisdiction, and the party seeking enforcement shall be entitled to an award of all costs, fees, and expenses, including attorneys' fees, to be paid by the party against whom enforcement is ordered.

(Doc. 9-1 at 10.) The question here is whether this clause died with the Agreement or whether the arbitration clause, like a zombie, continues to come to life ever after the death of the Agreement. Polaris' motion is granted in part and denied in part.

         Summary Conclusion

         The 2009 Master Service Agreement, which terminated in October 2016, included a broad arbitration provision, requiring arbitration of "any dispute, claim or controversy arising out of or relating to th[e] Agreement." (Doc. 9-1 at 10.) Aviation Alliance-the drafter of the Agreement and arbitration clause-argues the arbitration provision died with the contract. Polaris insists it survived. Both parties are partially correct. To the extent Aviation Alliance's claims arise under the 2009 Agreement, they remain subject to the zombie arbitration provision postexpiration. Litton Fin. Printing Div., aDiv. of Litton Bus. Sys., Inc. v. Nat'l Labor Relations Bd. (Litton), 501 U.S. 190, 205 (1991).


         Federal law governs the question of arbitrability because the Master Service Agreement is covered by the Federal Arbitration Act ("FAA") and the parties did not "clearly and unmistakably designate[] that nonfederal arbitrability law applies." Brennan v. Opus Bank, 796 F.3d 1125, 1129 (9th Cir. 2015) (emphasis omitted) (citing Mitsubishi Motors Corp. v. Soler Chrylser-Plymouth, Inc., 473 U.S. 614, 626 (1985)). The FAA applies to any contract, like the present one, "evidencing a transaction involving commerce." 9 U.S.C. § 2. This provision reflects both a "liberal federal policy favoring arbitration, " AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)), and the "fundamental principle that arbitration is a matter of contract, " id. (quoting Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)).

         There are two "gateway" issues in deciding whether to compel arbitration: "(1) whether there is an agreement to arbitrate between the parties; and (2) whether the agreement covers the dispute." Brennan, 796 F.3d at 1130 (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)). Both issues are implicated here. Although the 2009 Master Service Agreement undisputedly contains the arbitration provision indicated above, Aviation Alliance insists it does not apply here because: (1) the Agreement terminated in October 2016 and there is no survival provision, (2) the conduct alleged occurred after the termination of the Agreement, and (3) the claims raised do not arise out the Agreement.

         I. Termination

         Aviation Alliance first argues that the arbitration provision does not apply because the 2009 Master Service Agreement terminated in October 2016. (See Termination Letter, Doc. 14-1.) In the absence of an express negation or clear implication that the parties intended the arbitration clause to terminate automatically with the contract, there is a "presumption in favor of postexpiration arbitration ... of matters and disputes arising out of the relation governed by contract." Litton, 501 U.S. at 204. The 2009 Master Service Agreement does not address termination of the arbitration provision, but generally provides in Section 5 "Term and Termination" that "this Agreement shall be extended a minimum of an additional five (5) years" and that the parties were to notify each other of such an extension 180 days prior to the end of the initial five-year period. (Doc. 9-1 at 7.) Nothing in the Agreement, nor in the arbitration clause itself, shows that the parties intended to eliminate the duty to arbitrate as of the date of the Agreement's termination.

         Aviation Alliance argues that the absence of a "survival" clause in the 2009 Agreement-which was included in the proposed but not executed March 29, 2016 Service Agreement-rebuts the Litton presumption because it indicates that the parties did not intend for the arbitration clause to survive contract termination under the 2009 Agreement. (See 2016 Agreement, Section 13, Doc. 9-2 at 12 ("Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements and covenants set forth in paragraph 6 (Books and Records), 7 (Non-solicitation), 10 (Arbitration) and 12 (General Provisions) shall survive the termination for any reason of this agreement.").) Aviation Alliance insists the parties' silence shows they intended to terminate the arbitration clause. See Garland Coal & Min. Co. v. United Mine Workers of Am.,778 F.2d 1297, 1301-02 (8th Cir. 1985); O'Connor Co., Inc. v. Carpenters Local Union No 1408 of the Untied Broth. Of Carpenters & Joiners of Am., AFL-CIO,702 F.2d 824, 825 (9th Cir. 1983). That argument is backwards in light of Litton, especially given the expansive nature of the arbitration clause at issue here. 501 U.S. at 204 (explaining that an "extensive obligation to arbitrate" under a contract would not be consistent "with an interpretation that would eliminate all duty to arbitrate as of the date of [the contract's] expiration"). The duty to arbitrate under the 2009 Master ...

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