United States District Court, D. Arizona
ORDER
Dominic W. Lanza, United Slates District Judge.
Pending
before the Court is Defendant Continuing Care Risk Retention
Group Incorporated's (“CCRRG”) renewed motion
to compel arbitration. (Doc. 63.) The Court requested
supplemental briefing on this motion, which the parties have
provided. (Docs. 81, 82.) The Court also held oral argument
on July 25, 2019. For the following reasons, the Court grants
the motion to the extent CCRRG requests dismissal without
prejudice.
BACKGROUND
I.
Factual Background
In
December 2012, Jacob Benson, his parents, and his son
(together, “Plaintiffs”) filed suit in Maricopa
County Superior Court against Casa De Capri Enterprises LLC
(“Casa De Capri”), a skilled nursing facility.
(Doc. 1-1 at 5-15.)
Casa De
Capri had purchased a number of successive annual
“claims-paid” insurance policies from CCRRG. The
policies for the 2012-2013 and 2013-2014 periods contained
arbitration provisions. (Doc. 13-1 at 41-42; Doc. 56-1 at
30.) Casa De Capri and CCRRG had also entered into a
Subscription Agreement (Doc. 13-1 at 53-73) in September 2009
containing an arbitration provision (id. at 72),
which was incorporated into the policies (id. at 6;
Doc. 56-1 at 37). These arbitration provisions provided that
arbitration would take place in Sonoma County, California.
(Doc. 13-1 at 41-42, 72; Doc. 56-1 at 30.)
Casa De
Capri canceled its policy with CCRRG effective August 1, 2013
(Doc. 13-1 at 49) and then filed for bankruptcy on August 19,
2013 (2:13-bk-14269-EPB). Upon Casa De Capri's
cancellation of the policy, CCRRG withdrew from defending
Casa De Capri in Plaintiffs' lawsuit.
On
November 29, 2017, Plaintiffs obtained a $1, 501, 069.90
judgment against Casa De Capri. (Doc. 1-2 at 231-32.) On
December 18, 2017, Plaintiffs sought a writ of garnishment
against CCRRG. (Id. at 233-35.) On January 2, 2018,
the garnishment action was removed to this Court. (Doc. 1.)
II.
Procedural Background
On
January 9, 2018, CCRRG moved to dismiss, or, alternatively,
to stay litigation and compel arbitration. (Doc. 13.)
CCRRG's motion was premised on three main contentions:
(1) the arbitration agreements were valid; (2)
Plaintiffs' “claims [were] fully encompassed within
the scope of the agreement[s]”; and (3) Plaintiffs
“are claiming rights that Casa de Capri had under the
CCRRG Policy as assignees of Casa de Capri, thus they stand
in the shoes of Casa de Capri and are subject to the
arbitration agreement[s] between CCRRG and Casa de
Capri.” (Id.) Plaintiffs responded on January
20, 2018, contending that (1) they were strangers to the
arbitration clauses and therefore could not be bound; (2) the
clauses were contrary to Casa De Capri's reasonable
expectations; and (3) the clauses were procedurally and
substantively unconscionable. (Doc. 17.) CCRRG filed its
reply on January 29, 2018. (Doc. 22.)
On
August 17, 2018, Judge Logan issued an order denying
CCRRG's motion. (Doc. 27.)[1] That order reasoned that
“no circumstances appear to suggest that any of the
contract or agency principles that would provide an exception
binding the Plaintiffs to arbitration per the terms of the
insurance agreement apply.” (Doc. 27 at 4.)
Specifically, it found that “Plaintiffs never assumed
the insurance contract between the Defendant and Casa de
Capri, and the Defendant does not set forth any evidence that
the Plaintiffs received any benefit from the agreement
between the Co-Defendants.” (Id.)
Additionally, the last paragraph cited an Arizona Court of
Appeals opinion, Able Distributing Co., Inc. v. James
Lampe, General Contractor, 773 P.2d 504 (Ariz.Ct.App.
1989), for the proposition that “it is well settled
under Arizona law that actions for garnishment do not bind a
non-signatory garnishing creditor to the terms of an
agreement with an arbitration clause.” (Id. at
4-5.)
After
that order was issued, Plaintiffs moved to amend their
complaint to add claims for (1) a declaratory judgment
regarding coverage for the underlying judgment and (2)
insurance bad faith. (Doc. 40-1 at 8-10.) Plaintiffs also
moved for summary judgment on their garnishment claim. (Doc.
55.)
On
April 18, 2019, CCRRG filed a renewed motion to compel
arbitration. (Doc. 63.) CCRRG argued that, although
Plaintiffs asserted in their response to the initial motion
to compel arbitration that they weren't seeking to
collect from CCRRG as an assignee of Casa De Capri's
contract, Plaintiffs have since made clear their
“intent to pursue claims as assignees” by (1)
seeking “broad discovery on issues related to the
proposed breach of contract and bad faith claims, ” (2)
seeking to add breach of contract and bad faith claims in an
amended complaint, and (3) “mov[ing] for summary
judgment seeking to void certain provisions in the CCRRG
Policy.” (Id. at 1-4, 6-9, 11.)
In
response, Plaintiffs made the same main argument they made in
response to the initial motion: the garnishment action is not
premised on an assignment of Casa De Capri's claims under
the insurance contract, and therefore Plaintiffs, as
non-signatories to the contracts between Casa De Capri and
CCRRG, cannot be compelled to arbitrate the garnishment
claim. (Doc. 70.) In a similar vein, Plaintiffs argued that
CCRRG's renewed motion was a “repeat” of its
previous motion to compel arbitration that Judge Logan
denied, and “the law of the case doctrine applies to
preclude a rehash of same.” (Id. at 2.)
On May
31, 2019, the Court requested supplemental briefing regarding
the applicability of equitable estoppel under Arizona law in
the circumstances of this case. (Doc. 79.) The parties have
since submitted their briefs. (Docs. 81, 82.) Plaintiffs have
also withdrawn their motion to amend the complaint to add new
claims. (Doc. 80.)
ANALYSIS
In
response to the Court's order requesting supplemental
briefing, Plaintiffs made three arguments: (1) Judge
Logan's order should be treated as law of the case, thus
preventing reconsideration of the arbitration issue; (2)
equitable estoppel does not apply here because Plaintiffs
have not obtained “direct benefits” under the
contract during the life of the contract and CCRRG has not
detrimentally relied on Plaintiffs' conduct; and (3) the
right of a judgment creditor to garnish the debts of a
judgment debtor in a garnishment proceeding is statutorily
guaranteed and is a judicial remedy not subject to private
arbitration. (Doc. 81.) Plaintiffs also “renewed and
incorporated” the arguments contained in their earlier
arbitration-related briefs (id. at 1), and
Plaintiffs clarified during oral argument that this
incorporation effort was intended to preserve their earlier
arguments concerning unconscionability.
I.
Law Of The Case
The
Court has already addressed the law-of-the-case argument in
the order requesting supplemental briefing. (Doc. 79 at 4.)
As noted in that order, the law of the case “doctrine
expresses only the practice of courts generally to refuse to
reopen questions formerly decided, and is not a limitation of
their power.” United States v. Maybusher, 735
F.2d 366, 370 ...