Masco Corp v. Zurich Amer Ins Co ( 2004 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Masco Corp. v. Zurich No. 03-3071
ELECTRONIC CITATION: 2004 FED App. 0287P (6th Cir.) Am. Ins. Co., et al.
File Name: 04a0287p.06
_________________
UNITED STATES COURT OF APPEALS COUNSEL
FOR THE SIXTH CIRCUIT ARGUED: Joseph A. Hinkhouse, LORD, BISSELL &
_________________ BROOK, Chicago, Illinois, for Appellant. Marc A. Sanchez,
FRANTZ WARD, Cleveland, Ohio, for Appellee.
MASCO CORPORATION , X ON BRIEF: Damon N. Vocke, LORD, BISSELL &
Plaintiff-Appellee, - BROOK, Chicago, Illinois, Hugh D. Berkson, HERMANN,
- CAHN & SCHNEIDER, Cleveland, Ohio, for Appellant.
- No. 03-3071 Marc A. Sanchez, FRANTZ WARD, Cleveland, Ohio, for
v. - Appellee.
>
,
ZURICH AMERICAN ROGERS, J., delivered the opinion of the court, in which
-
INSURANCE COMPANY , BELL, D. J., joined. MARTIN, J. (pp. 12-18), delivered a
-
Defendant-Appellant, - separate dissenting opinion.
- _________________
NEAR NORTH INSURANCE -
- OPINION
AGENCY , INC., et al.,
- _________________
Defendants. -
N ROGERS, Circuit Judge. The district court in this case
Appeal from the United States District Court refused to give effect to a broad arbitration clause in an
for the Northern District of Ohio at Akron. insurance policy, where the underlying dispute between the
No. 02-00988—James S. Gallas, Magistrate Judge. parties revolved around policy coverage that neither party
intended, but that was imposed on the contract by law as
Argued: April 27, 2004 determined by subsequent Ohio Supreme Court opinions.
Because the dispute nonetheless falls within the ambit of the
Decided and Filed: August 31, 2004 arbitration agreement, we reverse.
Before: MARTIN and ROGERS, Circuit Judges; BELL, Zurich American Insurance Company (“Zurich”), through
Chief District Judge.* its agent, Near North Insurance Agency, Inc. (“Near North”),
sold to Masco Corporation (“Masco”) two commercial
automobile insurance policies, one effective June 30, 1997, to
June 30, 1998, and a second, renewal policy, effective June
*
30, 1998, to June 30, 1999. The two policies included a
The Honorable Robert Holmes Bell, Chief United States District deductible agreement, consisting of a basic agreement and a
Judge for the W estern D istrict of M ichigan, sitting by de signation.
1
No. 03-3071 Masco Corp. v. Zurich 3 4 Masco Corp. v. Zurich No. 03-3071
Am. Ins. Co., et al. Am. Ins. Co., et al.
set of specifications. As part of the deductible agreement, Zurich has paid a pair of UM/UIM claims made against the
Zurich agreed to pay and handle the claims made under the policies. On March 11, 1999, Natalie Ruska, the daughter of
policies, and Masco agreed to pay Zurich a $500,000 an employee of a Masco subsidiary, was killed in an
deductible for claims made under the policies. The deductible automobile accident. Ms. Ruska’s estate sued Zurich in an
agreement included an arbitration clause reading, “Any Ohio state court claiming entitlement to Scott-Pontzer
dispute arising out of the interpretation, performance or benefits. Zurich settled the suit, paying Ms. Ruska’s estate
alleged breach of this agreement, shall be submitted to approximately $700,000. Zurich then demanded payment of
arbitration . . . .” the $500,000 deductible from Masco.
In negotiating the purchase of automobile insurance, Masco On April 7, 1999, Linda Collins was injured in an
specifically instructed Near North that it wished to purchase automobile accident. At the time of the accident, Ms. Collins
policies that contained no uninsured/underinsured-motorist was a passenger in a vehicle being driven by her daughter,
(“UM/UIM”) coverage. Near North and Zurich provided Rachael Collins, an employee of a Masco subsidiary. Collins
Masco with forms that all parties thought rejected UM/UIM sued Zurich demanding Scott-Pontzer benefits. At oral
coverage. At the time the polices were purchased and the argument, Zurich admitted that it paid Ms. Collins at least
deductible agreement was entered into, both parties to this $140,000 in Scott-Pontzer benefits. Masco believes that
appeal thought that their contract did not include UM/UIM Zurich will demand payment of a deductible for the Collins
coverage. claim.
Later events, however, rendered the parties’ rejection of Wishing to clarify its legal position, Masco filed a
UM/UIM coverage ineffective. The Ohio Supreme Court in complaint in the Ohio Court of Common Pleas against Zurich
Scott-Pontzer v. Liberty Mutual Fire Insurance Co., 710 and Near North seeking a declaration that: (a) it owed no
N.E.2d 1116 (Ohio 1999), and Linko v. Indemnity Insurance obligation to pay deductibles for UM/UIM claims brought
Co. of North America, 739 N.E.2d 338 (Ohio 2000), against Zurich, (b) if it is required to pay Zurich a deductible
interpreted § 3937.18 of the Ohio Revised Code to extend then Near North should indemnify it, and (c) that the
UM/UIM coverage to almost all corporations buying deductible contained in the liability portion of the policies
automobile insurance unless they expressly rejected the does not apply to UM/UIM coverage imposed by operation of
coverage in a very precise way. Both Zurich and Masco agree law. Zurich removed the case to the federal district court, and
that the manner in which they rejected possible UM/UIM moved to stay and compel arbitration based on the arbitration
coverage, although arguably valid at the time of contracting, clause in the deductible agreement. The district court denied
did not satisfy the Linko requirements. It is thus the motion to stay, holding that the “the underlying disputes
uncontroverted that a new burden of coverage arose flowing in the complaint are beyond the scope” of the deductible
from Zurich to Masco and those affiliated with Masco.1 agreement because “Masco could never have agreed to pay a
deductible for coverage that would arise by operation of law
years later as a result of a deficiency in the policy or waiver
1 drafted by Zurich.” Masco Corp. v. Zurich Am. Ins. Co., No.
The Ohio Supreme Co urt has since drastically reduced the scope of
Scott-Pontzer cove rage. See Westfield Ins. Co. v. Galatis, 797 N.E.2d
4:02 CV 0988, slip op. at 5 (N.D. Ohio Dec. 5, 2002). Zurich
1256 (O hio 2003).
No. 03-3071 Masco Corp. v. Zurich 5 6 Masco Corp. v. Zurich No. 03-3071
Am. Ins. Co., et al. Am. Ins. Co., et al.
timely appealed. The question of arbitrability is the sole issue & T Techs., 475 U.S. at 650). Of course, “[w]hile ambiguities
on appeal. in the language of the agreement should be resolved in favor
of arbitration, we do not override the clear intent of the
The Federal Arbitration Act (the “FAA”) manifests “a parties, or reach a result inconsistent with the plain text of the
liberal federal policy favoring arbitration agreements.” Moses contract, simply because the policy favoring arbitration is
H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, implicated.” EEOC v. Waffle House, Inc., 534 U.S. 279, 294
24 (1983). “To enforce this dictate, [the FAA] provides for (2002) (internal citations omitted).
a stay of proceedings when an issue is referable to arbitration
and for orders compelling arbitration when one party has Here, notwithstanding Masco’s argument to the contrary,
failed or refused to comply with an arbitration agreement.” the arbitration clause in the deductible agreement was
Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. patently broad enough to cover the dispute as to whether
2003) (citing 9 U.S.C. §§ 3 & 4 ). This court reviews de novo Zurich can recover deductibles for the UM/UIM payments
a district court’s decision whether to compel arbitration made under the policies. The arbitration clause encompasses
pursuant to the FAA. Burden v. Check Into Cash of “[a]ny dispute arising out of the interpretation, performance
Kentucky, LLC, 267 F.3d 483, 487 (6th Cir. 2001). or alleged breach of [the deductible agreement].” J.A. at 66.
Masco’s claims against Zurich, which pray for a declaration
Case law amply supports arbitrability of Masco’s claims that Masco has no obligation under the deductible agreement
against Zurich in this case. “Before compelling an unwilling to pay deductibles for UM/UIM coverage, plainly fall within
party to arbitrate, the court must engage in a limited review to these spacious terms. The dispute “arises out of” the parties’
determine whether the dispute is arbitrable; meaning that a conflicting “interpretation” of Masco’s obligations under the
valid agreement to arbitrate exists between the parties and that deductible agreement and Masco’s “alleged breach” of the
the specific dispute falls within the substantive scope of that deductible agreement by failing to pay deductibles for
agreement.” Javitch, 315 F.3d at 624. “[A]s a matter of UM/UIM coverage.
federal law, any doubts concerning the scope of arbitrable
issues should be resolved in favor of arbitration.” Moses H. Masco argues that, because the parties did not contemplate
Cone, 460 U.S. at 24-25 (1983). “[T]here is a general UM/UIM coverage, they could not possibly have contracted
presumption of arbitrability, and any doubts are to be resolved to submit disputes arising out of this coverage to arbitration.
in favor of arbitration ‘unless it may be said with positive But, by its plain terms, the arbitration clause embraces any
assurance that the arbitration clause is not susceptible of an dispute arising out of the deductible agreement whether or not
interpretation that covers the asserted dispute.’” Highlands the parties anticipated the dispute at the time of contracting.
Wellmont Health Network, Inc. v. John Deere Health Plan, Our task, of course, is limited to enforcing the parties’
Inc., 350 F.3d 568, 576-77 (6th Cir. 2003) (quoting AT & T agreement as written, and we have no license to write a
Techs., Inc. v. Communications Workers of Am., 475 U.S. “foreseeability” limitation into the arbitration agreement. As
643, 650 (1986)). Where, as here, the arbitration clause is the Seventh Circuit held in Deputy v. Lehman Bros., Inc., 345
broad, “only an express provision excluding a specific F.3d 494, 513 (7th Cir. 2003), “[w]hether a claim is subject to
dispute, or ‘the most forceful evidence of a purpose to arbitration depends on the contractual language, and in this
exclude the claim from arbitration,’ will remove the dispute case the arbitration clause did not limit its scope to reasonably
from consideration by the arbitrators.” Id. at 577 (quoting AT
No. 03-3071 Masco Corp. v. Zurich 7 8 Masco Corp. v. Zurich No. 03-3071
Am. Ins. Co., et al. Am. Ins. Co., et al.
foreseeable claims.” See also Fazio v. Lehman Bros., Inc., invalid. “An arbitration agreement may be invalidated for the
340 F.3d 386, 395-96 (6th Cir. 2003). same reasons for which any contract may be invalidated,
including forgery, unconscionability, and lack of
Masco further argues that (1) the deductible, which applies consideration.” Fazio, 340 F.3d at 393. In this case, Masco
to “Masco Policies for Automobile Liability” (J.A. at 75), argues that the arbitration clause fails because it cannot apply
does not apply to UM/UIM claims, and (2) Ohio law forbids to a contractual provision that Masco did not agree to. But,
the imposition of a deductible on UM/UIM coverage created by virtue of Ohio law, the extension of UM/UIM coverage
by operation of law. These arguments address the substance was legally deemed to be an obligation arising from the
of the parties’ dispute, not whether the dispute falls with the contract, and it is an issue of contract interpretation whether
terms of the arbitration clause, and hence the arguments lie the deductible reimbursement requirement applied to the
within the province of the arbitrator. UM/UIM obligation. One seeking to challenge an arbitration
clause must make an argument that is specific to the
In essence, Masco attempts to recast its challenge to the arbitration clause, however, and that does not simply
underlying contractual liability as a challenge to the challenge the contractual obligation to which the arbitration
arbitrability of the dispute. While Masco denies that it is clause applies. See Burden, 267 F.3d at 491.
obligated by the deductible agreement to reimburse Zurich for
deductible amounts that Zurich paid as a result of the The dissent concludes that Masco’s obligation to reimburse
imposition of UM/UIM coverage, it has no argument for Zurich for the UM/UIM deductibles arose from a mutual
making a particular challenge to the arbitration agreement. mistake, and that the arbitration agreement with respect to
Instead, Masco’s challenge is based squarely on the absence that dispute was infected by the same mutual mistake.
of an underlying contractual obligation. Masco argues that it Masco’s complaint contains a claim for contract reformation
never purchased UM/UIM coverage, that the deductibility based on mutual mistake, but the theory was not otherwise
obligation accordingly did not apply to such coverage, and argued by the parties, and normally this court treats an issue
that, in turn, it cannot be compelled to arbitrate a non-existent not raised by a party as waived. Rybarczyk v. TRW, Inc., 235
obligation to pay UM/UIM deductibles. F.3d 975, 984 (6th Cir. 2000). In particular, the parties have
not addressed whether, under the relevant law, a party can
Where challenges to an arbitration clause, like those in this base a mutual mistake claim on a change in the law
case, are based on disagreement regarding an underlying subsequent to the formation of the contract, given the
contractual dispute, the Supreme Court’s holding in Prima requirement that the mistake exist at the time the contract was
Paint Corporation v. Flood & Conklin Manufacturing made. The answer appears to be no. See In the Matter of the
Company, 388 U.S. 395 (1967), makes clear that arbitration Liquidation of the New York Agency and Other Assets of
is required. Under Prima Paint, a general arbitration clause Bank of Credit & Commerce Int’l, S.A., 683 N.E.2d 756, 764
is enforceable even if it is contained in a contract that is (N.Y. 1997) (“The doctrine of mutual mistake requires that
generally asserted to be voidable, unless the basis for the mistake exist at the time the contract is negotiated.”); cf.
rescission applies specifically to the arbitration clause. Wheelabrator Envtl. Sys., Inc. v. Galante, 136 F. Supp. 2d 21,
33 (D. Conn. 2001) (holding that the defendant could not base
It is true that a party opposing a motion to stay and compel a defense of mutual mistake on a court decision rendered a
arbitration may argue that the arbitration clause is itself year after the contract was formed); Sheet Metal Workers
No. 03-3071 Masco Corp. v. Zurich 9 10 Masco Corp. v. Zurich No. 03-3071
Am. Ins. Co., et al. Am. Ins. Co., et al.
Local 137 v. Vic Constr. Corp., 825 F. Supp. 463, 467 severability doctrine. The teaching of Prima Paint is that
(E.D.N.Y. 1993) (stating that a failure to determine or predict a federal court must not remove from the arbitrators
a controlling interpretation of a statute does not constitute a consideration of a substantive challenge to a contract
mistake); Krantz v. Univ. of Kansas, 21 P.3d 561, 567 (Kan. unless there has been an independent challenge to the
2001) (“A subsequent change in the law will not justify making of the arbitration clause itself. The basis of the
rescission of a settlement agreement or contract on the basis underlying challenge to the contract does not alter the
of ‘mistake of the law.’”). severability principle. Thus, the Seventh Circuit,
applying Prima Paint to a case similar to the one before
Even assuming that the mutual mistake theory might apply us, held that a party could not avoid arbitration through
in this case, the argument still amounts to an attack on the rescission of an entire agreement when it had made no
underlying liability, and only derivatively on the obligation to independent challenge to the arbitration clause. See,
arbitrate. Therefore, under Prima Paint, the general Wilson Wear, Inc. v. United Merchants &
arbitration provision still applies. The existence of a mutual Manufacturers, Inc., 713 F.2d 324, 327-28 (7th Cir.
mistake leads at most to the conclusion that the underlying 1983).
contract obligation was voidable, or subject to rescission.
Chastain v. The Robinson-Humphrey Co, Inc., 957 F.2d 851, Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins.
855 (11th Cir. 1992); Gould v. Bd. of Educ. of Sewanhaka Co., 774 F.2d 524, 528-29 (1st Cir. 1985). The reasoning
Cent. High Sch. Dist., 616 N.E.2d 142, 145 (N.Y. 1993); applies a fortiori to a claim of mutual mistake.2 In the instant
Restatement (Second) of Contracts § 152 (1981). In a similar case, Masco’s claims, including its mutual mistake claim, are
situation, where the party objecting to arbitration claimed that entirely unrelated to the arbitration clause. As Masco’s
the entire contract was fraudulently induced, the Supreme complaint makes clear, its allegation of mutual mistake
Court in Prima Paint nonetheless required arbitration where concerns the coverage of the automobile liability policies, not
the fraudulent inducement did not relate specifically to the the arbitration clause itself. Prima Paint accordingly requires
arbitration clause. The Court reasoned that a court may reversal.
consider only claims concerning the validity of the arbitration
clause itself, as opposed to challenges to the validity of the
contract as a whole, in determining whether a valid agreement
to arbitrate exists. Prima Paint, 388 U.S. at 402-06; see also
Great Earth Cos., Inc. v. Simons, 288 F.3d 878, 889-90 (6th 2
Cir. 2002). The reasoning clearly extends beyond the This is not like a case where , for instance, a contract is void for lack
fraudulent inducement context to cases involving other bases of a valid signature. In such cases, courts have indicated that an
arbitration clause contained in the contract would not be binding. See,
for rescinding a contract in toto. As the First Circuit e.g., Chastain v. The Robinson-Hump hrey Co., Inc., 957 F.2d 851, 855
reasoned: (11th Cir. 1992). Such cases involve the asserted total absence of any
expressed intent to arbitrate contractual issues. There is clearly no such
Contrary to Beneficial’s assertion, the fact that its absence in this case, where at most the contract is void able rather than
attempt to rescind the entire agreement is based on the void ab initio. (We do not mean to suggest that Prim a Paint cannot apply
in at least some cases of contracts that are allegedly void, only that Prima
grounds of frustration of purpose rather than on fraud in Paint does apply where the contract is said to be voidable rather than
the inducement does not change applicability of the void.)
No. 03-3071 Masco Corp. v. Zurich 11 12 Masco Corp. v. Zurich No. 03-3071
Am. Ins. Co., et al. Am. Ins. Co., et al.
The judgment of the district court is REVERSED and ______________
REMANDED for proceedings consistent with this opinion.
DISSENT
______________
BOYCE F. MARTIN, JR., Circuit Judge, dissenting. This
is not a simple case. At its core, it asks whether a state-court
decision can trump the clear intent of the parties and bar
access to a declaration of rights in federal court. Because I
believe that Masco and Zurich did not agree to arbitrate this
dispute, I respectfully dissent. When we compel arbitration,
we should actualize the parties' intent. I do not believe that is
what the Court has done.
My principal difference with the Court, and the reason I
cannot join the opinion, is that I believe the arbitration
ag r e e me n t , a s a p p lie d to a d is p u te o v er
uninsured/underinsured-motorist coverage, is not binding on
the parties due to a mutual mistake. In other words, I believe
the parties did not intend for this dispute to go arbitration.
They did not intend for there to be uninsured/underinsured-
motorist coverage at all.
The law is clear. "Before compelling an unwilling party to
arbitrate, [a] court must engage in a limited review to
determine whether the dispute is arbitrable; meaning that a
valid agreement to arbitrate exists between the parties and the
specific dispute falls within the substantive scope of that
agreement." Bratt Enters., Inc. v. Noble Intern., Ltd., 338
F.3d 609, 612 (6th Cir. 2003). "An arbitration agreement
may be invalidated for the same reasons for which any
contract may be invalidated, including forgery,
unconscionability, and lack of consideration." Fazio v.
Lehman Bros., Inc., 340 F.3d 386, 393 (6th Cir. 2003).
"'[O]rdinarily state-law principles that govern formation of
contracts' will apply to this analysis." Id. at 394 (quoting
First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944
(1995)). One who challenges an arbitration clause must make
No. 03-3071 Masco Corp. v. Zurich 13 14 Masco Corp. v. Zurich No. 03-3071
Am. Ins. Co., et al. Am. Ins. Co., et al.
an argument that is specific to the arbitration clause and does I am convinced that under either Ohio law or New York
not challenge the contract as a whole. See Burden v. Check law the parties' mutual mistake as to their repudiation of
into Cash of Kentucky, LLC, 267 F.3d 483, 491 (6th Cir. uninsured/underinsured-motorist coverage was fundamental,
2001). and significantly affected their agreed upon exchange of
promises. When Masco and Zurich agreed to arbitrate "any
There appears to be some dispute as to what state law dispute" arising out of the deductibles agreement, they knew
governs the validity of the arbitration agreement. Zurich what the range of those disputes might be. They knew,
suggests that New York law applies. Masco is not willing to because they had just negotiated the substantive terms of the
concede that New York law applies, but it does not offer a contract. They both thought this contract was a barren cow,
suggestion of what law applies, or which it would prefer to with uninsured/underinsured-motorist coverage expressly
apply. The deductibles agreement contains a New York rejected, not a calf, with coverage aplenty. It is true that an
choice-of-law provision, and the District Court applied New Ohio Supreme Court case changed the coverage from a barren
York law. I need not reach the issue in my reasoning, cow to a calf, but that does not change the nature of the
however, as there is no conflict between Ohio and New York mistake. Nor does it change the time of the mistake. The
state law as to the relevant issue. Both Ohio and New York parties were mistaken as to a key fact – what was being sold
recognize that a defense of mutual mistake will generally – at the time they agreed to arbitrate "any dispute." By
support the rescission or reformation of a contract. See submitting this case to arbitration, I believe the Court ignores
Reilley v. Richards, 69 Ohio St. 3d 352, 352-53, 632 N.E.2d a clear mutual mistake and judicially constructs intent to
507, 509 (1994), and Morris v. New York City Employees' arbitrate when the facts at the time the parties signed the
Ret. Sys., 129 F. Supp. 2d 599, 605 (S.D.N.Y. 2001). contract repudiate that construction.
Under Ohio law, a "mistake is material when it is a mistake Arbitration is a creature of consent. Inland Bulk Transfer
as to a basic assumption on which the contract was made that v. Cummins Engine Co., 332 F.3d 1007, 1015 (6th Cir. 2002).
has a material effect on the agreed upon exchange of Consent, in turn, is a creature of intent. It is the parties' intent
promises." R.J. Wildner Contracting Co., Inc. v. Ohio Tpk., and not ours that dictates whether a dispute should be
913 F. Supp. 1031, 1041 (N.D. Ohio 1996). "The mutual arbitrated. See Javitch v. First Union Sec., Inc., 315 F.3d 619,
mistake must . . . frustrate the intent of the parties." Ibid. 624 (2003). Here the parties were clear as to their intended
Similarly, "[u]nder New York law a remedy for mistake is coverage relationship, and derivatively clear, although in an
available only where a mistake of both parties at the time the implied way, as to the limited scope of the arbitration
contract was made as to a basic assumption on which the agreement. That the parties were mutually mistaken about the
contract was made has a material effect on the agreed scope of their uninsured/underinsured-motorist coverage, or
exchange of performance." Emergent Capital Inv. Mgmt., lack thereof, does not change their original limited intent as
LLC v. Stonepath, 165 F. Supp. 2d 615, 624 (S.D.N.Y. 2001) to arbitration. To do so by judicial fiat, it seems, would
(internal citations and quotations omitted). The mistake must frustrate their original purpose.
speak "to the very nature of the subject sold . . . for example,
where what both parties believed to be barren cow turns out Relatedly, I don't find persuasive the Court's reading of
to be a calf." Ibid. Prima Paint Corp. v. Flood & Conklin Manufacturing Co.,
388 U.S. 395 (1967). See also Burden 267 F.3d at 491. The
No. 03-3071 Masco Corp. v. Zurich 15 16 Masco Corp. v. Zurich No. 03-3071
Am. Ins. Co., et al. Am. Ins. Co., et al.
Prima Paint Court held that an argument that contests the parties agreed to resolve a dispute. It is a question of contract
applicability of an arbitration agreement must be specific to law and contract interpretation. Unlike the Court, I suspect
the arbitration agreement and not be a defense that invalidates the resolution of the substantive issue will have very little to
the whole contract. Prima Paint, 388 U.S. at 404. Stretched do with Ohio contract law. The parties expressly excluded
to an extreme, the Prima Paint Court's instruction could bar uninsured/underinsured-motorist coverage from their
a lower court from looking at the rest of a contract when contractual relationship. My hunch is that the parties will be
analyzing the validity of an arbitration agreement. I do not tossing around arguments regarding: gratuitous payments,
believe that was the intent of the Prima Paint Court – failure to join, implied indemnities, and the like.
especially in the context of a mutual-mistake defense. The Consequently, the trier of the substantive issue will likely
reasons for not applying an arbitration agreement must be resolve a question of equity and fairness, not a question of
specific to the arbitration agreement, it is true, but the parties' contract law. Thus, I do not think my analysis is a ruling on
intent, as manifested in the whole agreement, certainly can the merits. The mutual mistake certainly defeats the claim
inform our understanding of the parties' intent as to the scope that the parties should be compelled to resolve this dispute in
of the arbitration agreement. Here, Masco and Zurich's arbitration, but it does not necessarily resolve the merits
specific exclusion of uninsured/underinsured-motorist question. After reviewing the equities, the trier of the
coverage from their limited relationship suggests that they did substantive issue may or may not find in favor of Zurich.
not intend their arbitration agreement to control claims based Where to resolve the dispute and how to resolve the dispute
on uninsured/underinsured-motorist coverage, or had at least are separate questions.1
not expressly agreed to submit those claims to arbitration. It
is our duty to give some effect to that repudiation.
1
The Ma jority distinguishes Chastain v. The Robinson-Humphrey
My analysis is not premised on a question of forseeability. Co., Inc., 957 F.2d 85 1 (11th Cir. 1992) in a footnote. I, in turn, disagree
Instead, it gives effect to the parties' contractual language. in a footno te. In the body o f its opinion, the M ajority argues that: "[t]he
See Deputy v. Lehman Bros. Inc., 345 F.3d 494, 513 (7th Cir. [Prima Paint] Court reasoned that a court may consider only claims
2003). Put in abstract terms, arbitration agreements speak to considering the validity of the arbitration clause itself, as opposed to
challenges to the validity of the contract as a whole, in determining
the parties' intent regarding how alleged breaches of duties are whether a valid agreement exists." Ante at 9. In Chastain , the Eleventh
to be resolved. If, at the time they agree to arbitrate alleged Circuit reasoned that the Supreme Court's holding in Prima Paint does not
breaches of duty A or B, parties to a contract expressly agree compel the arbitration of "a purported contract which indisp utab ly lacks
that there is no duty C, I believe it is a logical construction of the formalities necessary to signal Chastain's ex an te assent to the
the parties' manifested intent not to arbitrate any later alleged agreement as a whole." Id. at 855 . While I believe that Masco's mutual-
breach of the expressly repudiated duty C. mistake argument satisfies the Prima Paint doctrine, it is enough to note
that the Ele venth Circuit believed that an argument, which potentially
could invalidate the contract as a whole, could also defeat an attem pt to
The Court rejects my view, arguing that my understanding compel arbitration. In essence, the question to ask is whether the
is a hidden ruling on the merits. I do not think it is. I purported invalidating cause can be asserted once or twice. If a party can
concede, as I must, that Masco can, and likely will, assert a only argue that the contract is invalid, then Prim a Paint instructs that the
mutual-mistake defense in the substantive dispute. The facts case sh ould be sent to arbitration. If the argument can be asserted twice
– i.e., (1) the lack of a signature invalidates the arbitration clause, and (2)
alleged will be the same, but the legal analysis will be the lack of a signature also invalidates the contract as a whole – then
different. The arbitration analysis looks only at where the Prima Paint's separability doctrine is satisfied, and a district court is free
No. 03-3071 Masco Corp. v. Zurich 17 18 Masco Corp. v. Zurich No. 03-3071
Am. Ins. Co., et al. Am. Ins. Co., et al.
I admit I am not without some sympathy for Zurich's Cir. 2000), stated that "[f]ailure to raise an issue on appeal
argument. The parties agreed that disputes arising out of the would normally constitute a waiver." But, in the very next
"interpretation, performance or alleged breach" of the sentence, the Court states: "[h]ere, however, we have a pure
deductibles agreement would be submitted to arbitration. The question of law that cries out for resolution – and in such a
Court accepts this contention and believes this is a dispute situation we are not foreclosed from considering the issue."
about deductibles. I believe that view is too narrow. To Ibid.; see also Hutcherson v. Lauderdale Cty., 326 F.3d 747,
reach the conclusion advanced, the Court has to read the 756 (6th Cir. 2003) (holding an appellate court may reach
deductibles agreement and the arbitration clause in a vacuum. legal issue not raised by the parties to affirm the lower court).
This is actually a dispute about the deductibles agreement as While I think Masco sufficiently raised the mistake argument
it relates to uninsured/underinsured-motorist coverage – to survive a waiver challenge, even if it hadn't, this is a purely
coverage that both parties thought at the time they agreed to legal issue that cries out for resolution.
arbitrate deductibles disputes had been expressly rejected. At
best, Zurich can argue that the parties probably would have I respectfully dissent.
wanted to submit this type of claim to arbitration, but
"probably" is not enough. Although there is a "liberal federal
policy favoring arbitration agreements," Moses H. Cone
Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24
(1983), and it is "a well established rule that any doubt
regarding arbitrability should be resolved in favor of
arbitration," Fazio, 340 F.3d at 392, "[t]he duty to arbitrate
a dispute derives from the parties' agreement and a party
cannot be required to submit to arbitration any dispute that the
party has not agreed to submit." Bratt Enters., 338 F.3d at
612. Evidence of what they might have done is different than
evidence of what they did. That the arbitration agreement can
be interpreted to cover Zurich's claim is a product of both
parties' mistake, and by submitting this claim to arbitration,
the Court extends the scope of the original agreement to an
extent I do not believe the parties agreed to or intended.
Lastly, I disagree with the Court's alternative holding that
Masco waived the mutual-mistake argument. It is true that
the Court in Rybarczyk v. TRW, Inc., 235 F.3d 975, 984 (6th
to move on to hearing the merits of the ca se. I believe my argum ent is
entirely consistent with this position. As I have explained, the mutual-
mistake defense can be asserted twice.