National Union Fire Insurance Company of Pittsburgh v. Specialists

Background

National Union Fire Insurance Company of Pittsburgh, PA (NUFIC) issued workers’ compensation policies to Landscape Specialists, Inc. from 2012 through 2016. Under the policies and a related Payment Agreement, NUFIC paid workers’ compensation claims initially and later sought reimbursement from Landscape for the first $250,000 paid on each claim. Landscape was also required to provide collateral.

NUFIC alleged that Landscape began missing reimbursement payments in September 2015. NUFIC later demanded unpaid amounts and additional collateral. In September 2016, NUFIC alleged that Landscape owed approximately $1.8 million in unpaid invoices, premiums, fees, and collateral.

The Payment Agreement contained an arbitration clause covering disputes related to the Agreement. It also required each party to select an arbitrator within 30 days after receiving an arbitration demand and designated New York as the forum for motions concerning arbitration.

Motions and procedural history

NUFIC served Landscape with an arbitration demand on May 5, 2017. The demand stated that, under New York Civil Practice Law and Rules § 7503(c), Landscape had 20 days to ask a court to stop the arbitration or risk losing certain objections. Landscape instead requested additional time while the parties pursued settlement discussions. It did not ask to stop the arbitration or formally object to the arbitration agreement within 20 days. After settlement efforts failed, NUFIC again asked Landscape to respond to the demand and appoint its arbitrator; Landscape refused.

NUFIC moved to compel arbitration under the Federal Arbitration Act. Landscape moved to dismiss for failure to state a claim, arguing that the arbitration agreement was invalid and violated California insurance law. NUFIC also asked the court to appoint Landscape’s arbitrator and to stop Landscape from pursuing a related California action. NUFIC removed that California action to federal court, where it was stayed.

Court’s analysis

The court held that New York’s 20-day deadline applied to this Federal Arbitration Act dispute because the Act does not establish a deadline for objecting to an arbitration demand and does not conflict with § 7503(c). Under that New York rule, a party that does not timely ask to stop arbitration is barred from later objecting that the arbitration agreement was invalid, was not complied with, or was subject to a time limitation.

The court concluded that Landscape’s objections were untimely. Its argument that the arbitration agreement was invalid because it was not attached to the policies or filed under California law concerned the agreement’s enforceability and therefore had to be raised within the 20-day period. The court likewise treated Landscape’s argument that California was the proper arbitration forum because of an alleged violation of California insurance law as an untimely objection concerning compliance with the agreement or a statutory condition.

Because Landscape had not timely objected, the court compelled arbitration. The court also relied on the Federal Arbitration Act’s requirement that a court designate or appoint an arbitrator when a party fails to do so under the parties’ agreement. The opinion states that both parties must provide the court with the names and qualifications of qualified, willing, and available candidates to serve as Landscape’s arbitrator.

Ruling

NUFIC’s motion to compel arbitration was GRANTED. NUFIC’s cross-motion to appoint an arbitrator for Landscape was GRANTED. Landscape’s motion to dismiss was DENIED. NUFIC’s cross-motion to enjoin Landscape from prosecuting its California action was DENIED as moot.

The court stayed this action pending arbitration. It ordered the parties to submit their arbitrator candidates by March 20, 2020, and to submit joint quarterly updates on the arbitration. The first update was due June 1, 2020. The opinion does not decide the parties’ underlying reimbursement dispute on its merits.