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State Farm Mutual Automobile Insurance Co v. Electrolux Home Products

May 7, 2012


The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge


On November 14, 2011, State Farm Mutual Automobile Insurance Co. ("State Farm") brought this breach of contract action against Electrolux Home Products, Inc. ("Electrolux"). Now before me is Electrolux's Motion to Dismiss State Farm's First Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(3) on the ground of improper venue because of an arbitration agreement between the parties. For the reasons stated herein, I deny the motion.


State Farm is a commercial insurer of homeowners, while Electrolux manufactures household appliances, including clothes dryers and washing machines. As alleged in State Farm's First Amended Complaint ("FAC"), some of its insureds purchased defective Electrolux appliances and suffered losses as a result of fire or water damage. State Farm and its affiliates then paid those individuals for their losses and became subrogated to their rights against Electrolux. State Farm seeks to recoup its payments to its insureds, and contends that Electrolux became obligated to reimburse State Farm when it failed to contest the claims in the manner provided for in the parties' Dispute Resolution Agreement ("DRA"). In particular, the FAC involves seven claims for fire or water damage allegedly caused by a defective Electrolux clothes dryer or washing machine, and ranging in amount from $12,037.43 to $168,416.62.

On September 14, 2007, Electrolux and State Farm entered into the DRA, which governed the resolution of State Farm subrogation claims for losses of $200,000 or less. The parties disagree as to whether the provisions of the DRA, which will be discussed more fully below, require arbitration of the seven breach of contract counts at issue before the court. State Farm contends that Electrolux failed to comply with its duty to provide State Farm with written notice of its decision to pay, deny, or seek to negotiate the claims at issue within 180 days of its receipt and review of supporting information from State Farm, as required by Section VI(C)of the DRA. Because of this failure, State Farm's option to elect to arbitrate the claims was never triggered, and the arbitration provision of the DRA is inapplicable, State Farm contends. Electrolux contends that under the plain language of the DRA, all claims subrogated to State Farm that are for losses of $200,000 or less are subject to arbitration.


The Federal Arbitration Act ("FAA") provides "that a written provision in any contract evidencing an intent to settle by arbitration any future controversy arising out of such contract 'shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.'" Livingston v. Assocs. Fin., Inc., 339 F.3d 553, 556 (7th Cir. 2003) (quoting 9 U.S.C. § 2). The FAA was enacted to counter the traditional disfavor shown toward arbitration agreements and place them on the same footing as other contracts. E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 289 (2002).

Because arbitration is a matter of contract, however, a party cannot be forced to submit to arbitration any dispute that it has not agreed to submit. Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83 (2002) (citing Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960)). This means that although there is a liberal federal policy favoring arbitration, the question of whether the parties have submitted a particular dispute for arbitration is for the courts to decide. Id. (citing AT&T Techs., Inc. v. Commc'n Workers, 475 U.S. 643, 649 (1986)). In determining whether the parties agreed to arbitrate a particular dispute, courts should apply the ordinary principles of contract interpretation. Granite Rock Co. v. Int'l Bhd. Of Teamsters, 130 S. Ct. 2847, 2856 (2010); see AT&T Techs, 475 U.S. at 648--49 (noting that arbitrators have authority to resolve disputes only because the parties have agreed in advance to this method of dispute resolution).

I note that Electrolux styles its motion to dismiss as one brought under Fed. R. Civ. P. 12(b)(3) for improper venue. It is correct, as Electrolux argues, that if an agreement calls for arbitration in another district, dismissal for improper venue may be appropriate. See Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 810--11 (7th Cir. 2011); Cont'l Cas. Co. v. Am. Nat'l Ins., 417 F.3d 727, 733 (7th Cir. 2005).

In this case, however, the DRA calls for arbitrations to be held on a rotating basis in Chicago and Cleveland, Ohio. DRA, §

VII. Because it is not clear that improper venue would be an appropriate basis for granting Electrolux's motion as to all of the claims in the FAC, I will instead consider this motion to be a request to stay the proceedings pending arbitration, which does not take its authority from Rule 12 of the Federal Rules of Civil Procedure, but rather from the FAA itself. Cont'l Cas. Co., 417 F.3d at 732 n. 7 (citing 9 U.S.C. § 3). In determining whether the claims fall within the scope of the arbitration agreement, I will accept as true the factual allegations in State Farm's complaint. See Dialysis Access Center, LLC v. RMS Lifeline, 638 F.3d 367, 378 (1st Cir. 2011).*fn1


Electrolux argues, in essence, that all seven of the claims at issue in the FAC are "classic insurance subrogation claims" covered by the DRA. The DRA provides, in Section I, relating to "Claims or Disputes Covered by This Agreement:

This Agreement covers subrogation claims for amounts equal to or less than $200,000.00 arising out of Products manufactured by ELECTROLUX and its affiliates . . . brought by STATE FARM against ELECTROLUX only, for losses occurring on or after the effective date of this Agreement and covered by personal lines policies issued by State Farm, and any counterclaims brought by ELECTROLUX arising out of such claims. . . . Disputes covered by this Agreement mean those instances in which STATE FARM and ELECTROLUX disagree regarding ...

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