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Mountain Valley Property, Inc. v. Applied Risk Services, Inc.

United States Court of Appeals, First Circuit

July 13, 2017

MOUNTAIN VALLEY PROPERTY, INC., Plaintiff, Appellee,
v.
APPLIED RISK SERVICES, INC.; APP IED UNDERWRITERS, INC.; APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE CO., INC., Defendants, Appellants.

         APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE [Hon. D. Brock Hornby, U.S. District Judge]

          Melissa A. Murphy-Petros, with whom Christopher P. Flanagan and Wilson Elser Moskowitz Edelman & Dicker LLP were on brief, for appellants.

          David W. Bertoni, with whom Michael E. Carey and Brann & Isaacson were on brief, for appellee.

          Before Torruella, Thompson, and Barron, Circuit Judges.

          TORRUELLA, Circuit Judge.

         Defendants-Appellants Applied Risk Services, Inc. ("ARS"), Applied Underwriters, Inc. ("AU"), and Applied Underwriters Captive Risk Assurance Co., Inc. ("AUCRA") (collectively, "Applied"), challenge the district court's order denying their motion to vacate an arbitrator's decision. Because the arbitrator did not manifestly disregard the law and did not exceed his powers, we affirm.

         I. Background

         Plaintiff-Appellee, Mountain Valley Property, Inc. ("MVP"), purchased from AU a comprehensive insurance package known as SolutionOne® (the "Program") that integrated multiple lines of insurance, including workers' compensation insurance and employment practices liability insurance, while also offering certain payroll and tax services and profit sharing.

         As part of the Program, on December 23, 2010, MVP entered into a three-year Reinsurance Participation Agreement ("RPA") with AUCRA. The RPA contained a mandatory arbitration clause, as well as a Nebraska choice-of-law clause.

         On April 17, 2015, MVP filed a complaint in Franklin County Maine Superior Court, asserting breach of contract and various tort claims against Applied and seeking, inter alia, a return of the amount it was improperly charged from AU. In the complaint, MVP alleged that the Program, though marketed as a cost- saving insurance alternative, was overpriced, with Applied imposing on MVP unlawful fees both in premiums and in amounts claimed to be due under the RPA. MVP also stated that AU, the entity from which it purchased the Program, was not even authorized to transact insurance in Maine. Applied removed the case to the U.S. District Court for the District of Maine based on diversity jurisdiction and filed a counterclaim, requesting that MVP pay $13, 556 in outstanding premiums. In addition, Applied argued that claims by and against AUCRA, alone, had to be arbitrated in accordance with the RPA between MVP and AUCRA. MVP contended that the RPA's arbitration clause was unenforceable.

         On February 25, 2016, over MVP's objection, the district court referred the claims against AUCRA to arbitration, for a determination of their arbitrability.

         On April 12, 2016, the arbitrator decided that the case was not arbitrable and had to be adjudicated in court. The arbitrator, in a decision captioned "Final Award of Arbitrator, " stated that whether this case should be arbitrated turned on the applicability of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, [1] and not on the intent of the contracting parties. If the McCarran-Ferguson Act applies, the arbitrator reasoned, then the Nebraska Uniform Arbitration Act, Neb. Rev. Stat. §§ 25-2601 to 2622 (the "NUAA"), [2] reverse-preempts the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (the "FAA"). The arbitrator observed that the NUAA bans arbitration of insurance-related cases such as this one, regardless of the parties' intent to arbitrate. Thus, the arbitrator continued, if the NUAA reverse-preempts the FAA, then the present case would not be arbitrable.

         To determine the applicability of the McCarran-Ferguson Act, the arbitrator relied on American Bankers Insurance Co. of Florida v. Inman, which stated:

Under the McCarran-Ferguson Act, a state law reverse preempts federal law only if: (1) the federal statute does not specifically relate to the business of insurance; (2) the state law was enacted for the purpose of regulating the business of insurance; and (3) the federal ...

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