Appendix — American Reliable Insurance v. Stillwell

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APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

AMERICAN RELIABLE

INSURANCE COMPANY,

AMERICAN BANKERS

INSURANCE COMPANY OF

FLORIDA, and CAMPBELL

INSURANCE SERVICES, INC.,

Case No. 5:01CV59

(STAMP)

vs.

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)

)

)

)

)

)

Plaintiffs/Petitioners, )

)

)

ROBERT STILLWELL and y

HELEN STILLWELL, )

)

)

Defendants/Respondents.

MEMORANDUM OPINION AND ORDER

GRANTING DEFENDANTS’ MOTION TO DISMISS,

DENYING PLAINTIFFS’ MOTION TO COMPEL

ARBITRATION

DENYING DEFENDANTS’ MOTION FOR

ATTORNEYS’ FEES AND EXPENSES OF

LITIGATION

DENYING PLAINTIFFS’ MOTION FOR RULE 11

SANCTIONS,

ENYING DE ANTS’ MOTION TO STRIKE

AND GRANTING PLAINTIFFS’ MOTION FOR

LEAVE TO FILE SURREPLY

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I. Introduction

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Pending before this Court is the motion to dismiss of

defendants/respondents, Robert and Helen Stillwell. Also,

pending before this Court is the joint motion to compel

arbitration of plaintiffs/petitioners, American Reliable

Insurance Company (“American Reliable”), American Bankers

Insurance Company of Florida (“American Bankers”), and

Campbell Insurance Services, Inc. (“Campbell”) (collectively

“plaintiffs”), as well as several other motions.’ This Court has

now reviewed the motions and memoranda in support thereof

and in opposition thereto. For the reasons set in this opinion,

this Court finds that defendants’ motion to dismiss should be

granted, plaintiffs’ motion to compel arbitration of defendants’

claims should be denied, defendants’ motion to strike should be

denied, defendants’ motion for attorneys’ fees and expenses of

litigation should be denied, Campbell’s motion for leave to file

surreply should be granted, and American Reliable’s motion for

Rule 11 sanctions should be denied.

II. Facts

The defendants purchased an American Reliable mobile

home owners policy on or about February 9, 1999, which

contained an arbitration clause. On April 9, 1999, the

'The other motions pending before this Court include amotion by

defendants Stillwell to strike plaintiffs’ reply memorandum in support of

motion to compel arbitration, motion by defendants for attorneys’ fees and

expenses of litigation, motion by plaintiff Campbell for leave to file

instanter, a surreply memorandum of law in opposition to defendants’

motion to dismiss, and a motion by plaintiff American Reliable for Rule 11

sanctions.

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?The arbitration clause stated:

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defendants sustained a casualty loss to their property.

Defendants claim that the loss was covered by the American

Reliable insurance policy, but American Reliable claims that

the loss was not covered by the policy. Nevertheless, American

Reliable settled the plaintiffs’ property damage claim for

$9,200.00. The defendants then filed a lawsuit in the Circuit

Court of Ohio County, West Virginia on February 29, 2000

claiming that American Reliable and certain purported agents

breached the insurance policy agreement, engaged in a series of

unfair claims settlement practices, acted in bad faith in settling

the defendants’ claim, used an unlicensed insurance adjuster,

and violated West Virginia insurance law. American Reliable

and Campbell filed an answer offering 14 affirmative defenses,

none of which referred to their desire to arbitrate the claims in

accordance with the arbitration clause. The defendants

Stillwell subsequently filed a motion for leave to amend their

complaint, which was granted on April 2, 2001. The amended

complaint added class action allegations and added American

Bankers as a defendant. American Reliable and Campbell filed

an answer to the amended complaint, which contained 23

affirmative defenses. The 21" affirmative defense did mention

the existence of the arbitration clause.

Any and all disputes, controversies or claims of

any kind and nature between you and us arising out of or

in any way related to the validity, interpretation,

performance or breach of any provisions i this policy,

and upon which a settlement has not beenreached by you

and us, shall be resolved exclusively, by arbitration in

accordance with the Federal Arbitration Act. (9 U.S.C.

§ 1, ET SEO.)

American Reliable Ins. Co. Spec. Mobile Homeowners Policy at 9.

The plaintiffs participated in the state court proceedings

for 14 months prior to filing their joint motion to compel

arbitration and to stay judicial proceedings on May 1, 2001.°

The plaintiffs, along with a co-defendant not named in the

action before this Court, filed a joint motion to compel

arbitration and to stay judicial proceedings in the state court

pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1,

et seqg.* On May 18, 2001, the plaintiffs filed a complaint and

petition to compel arbitration in this Court.* On June 11, 2001,

the state court entered an order denying plaintiffs’ motion to

compel arbitration and stay judicial proceedings based upon the

fact that the state court found the insurance contract to be a

contract of adhesion and that there was no evidence that the

parties to the contract knowingly bargained for an arbitration

clause. On June 13, 2001, after the state court entered its order

denying the motion to compel arbitration, a summons was

issued and returned executed to this Court as to the defendants.

> American Reliable as well as a co-defendant not named in the

action before this Court filed a crossclaim against another co-defendant not

named in the action before this Court in May 2000. The plaintiffs have also

answered discovery, entered into agreements conceming discovery,

attended hearings, and have been ordered to produce documents that were

withheld from discovery. The state court also entered an order preserving

evidence in possession of Campbell and an agreed scheduling order

endorsed by American Reliable and Campbell.

* Section 3 of the FAA provides for a stay of the proceedings when

issues in the proceedings are referable to arbitration and Section 4 allows

a party to petition for an order compelling arbitration when one party has

failed, neglected, or refused to comply with an arbitration agreement in that

civil action.

* It should be noted that the plaintiffs could not remove the state

court case to this Court because one of the named defendants in the state

court action was a resident of West Virginia and therefore complete

diversity was not present.

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On June 22, 2001, the plaintiffs filed a joint motion to compel

arbitration and memorandum in support in this Court. In their

memorandum in support of their motion to compel arbitration,

the plaintiffs state:

On June 11, 2001, the state court issued an

erroneous ruling which failed to follow Federal

law under the FAA and which denied the

motion to compel arbitration on the ground that

the arbitration clause had not been separately

“bargained for.” . . . The state court’s decision

denying arbitration is directly contrary to

binding United States Supreme court authority

under the FAA, which firmly holds that a court

may not discriminate against an arbitration

clause by enforcing all other provisions of a

contract but not its arbitration clause. Allied-

Bruce Terminex Cos. v. Dobson, 513 U.S. 265,

277 (1995). Accordingly, the Petitioners hereby

move this Court to enforce Federal law under

the FAA and to enter an Order compelling the

parties’ dispute to arbitration.

Mem. in Supp. of Mot. to Compel Arbitration at 4. On June

29, 2001, the defendants filed a motion to dismiss and

memorandum in support based upon (1) the Rooker-Feldman

doctrine; (2) the Younger abstention doctrine; (3) the “wise

judicial administration” doctrine; (4) res judicata and/or

collateral estoppel; (5) lack of jurisdiction over the subject

matter of this action; (6) that the relief sought by the plaintiffs

cannot be granted because arbitration cannot be compelled

against the policyholders; and (7) the Full Faith and Credit Act,

28 U.S.C. § 1738.

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Ill. Discussion

A. Subject Matter Junsdiction

The defendants made several arguments in their motion

to dismiss, two of which focus on their contention that this

Court lacks subject matter jurisdiction over this action. “The

FAA does not create independent federal question jurisdiction

under 28 U.S.C. § 1331. A federal district court has

jurisdiction over a petition filed under the FAA only when the

plaintiffs establish an independent basis of jurisdiction, such as

diversity of citizenship.” Cigna Health f St. Louis, Inc. v.

Kaiser, 181 F.Supp.2d 914, 919 (N.D. Ill. 2002) (citing Moses

H. Coné Mem’! Hosp. v. Mercury Constr. Corp., 460 U.S. 1,25 »

n.32 (1983)).

Although defendants argue that this Court does not have

jurisdiction over this matter pursuant to 28 U.S.C. § 1332, this

- Court finds that complete diversity does exist and the amount

in controversy exceeds $75,000.00.

Defendants also contend that this Court lacks subject

matter jurisdiction under the Rooker-Feldman doctrine. The

Rooker-Feldman doctrine provides that “‘a United States

District Court has no authority to review final judgments of a

state court in judicial proceedings.”” Brown & Root, Inc. v.

Breckenridge, 211 F.3d. 194, 198 (4" Cir. 2000) (quoting

District of Columbia Court of Appeals v. Feldman, 460 U.S.

462, 482 (1983)). The Rooker-Feldman doctrine also bars

consideration of any claim that is “inextricably intertwined”

with the state court decision. See id. This means that a federal

district court cannot consider a claim that, although not actually

decided by the state court, requires the federal court to

determine that the state court wrongly decided the issues before

it. See id. (citing Plyler v. Moore, 129 F.3d 728, 731 (4 Cir.

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1997)). The Rooker-Feldman doctrine also applies to

interlocutory orders issued by state courts. See id. at 199. The

basic principle of the doctrine is that “‘[a] party losing in state

court is barred from seeking what in substance would be

appellate review of the state judgment in a Unites States district

court, based on the losing party’s claim that the state judgment

itself violates the loser’s federal rights.”” Id. at 198 (quoting

Johnson v. De Grandy, 512 U.S. 997, 1005-06 (1994)). The

defendants argue that the plaintiffs’ federal complaint is an

impermissible collateral attack on a state court decision. The

plaintiffs argue in response that this case is a separate parallel

petition under the FAA, which has been expressly approved by

federal courts and is not the type of federal appeal of a state

court action to which the Rooker-Feldman doctrine applies.

Plaintiffs contend that because they filed their federal court

petition before the state court ruled on the merits of their

motion to compel arbitration, the federal petition cannot be

characterized as an appeal, and therefore, the Rooker-Feldman

doctrine does not apply.

The plaintiffs rely on the case of Doctor’s Assocs., Inc.

v. Distajo, 107 F.3d 126 (2d Circ. 1997), to stand for the

proposition that the Rooker-Feldman doctrine is inapplicable

in a case where the federal court petition to compel arbitration

was filed prior to the state court denying a motion to compel

arbitration. However, the facts in Distajo differ greatly from

the facts of the case at hand.

In Distajo, several franchisees brought suit in the state

courts in Illinois, Pennsylvania, Massachusetts and North

Carolina against Doctor’s Associates, Inc. (“DAI”) alleging

fraud, various breaches of the franchise agreement, and seeking

a declaration that the arbitration clause in the franchise

agreement was unenforceable. Seeid. at 128. DAI did not file

a motion to compel arbitration in state court, but instead filed

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a motion to compel in federal court as well as a written demand

for arbitration with the American Arbitration Association. See

id. In one of the cases, the franchisees moved for and obtained

default judgment against DAI because DAI did not appear in

the state court action. See id. at 137. After default judgment

was obtained, the federal court granted DAI’s petition to

compel arbitration of those franchisees’ claims and entered a

preliminary injunction enjoining the franchisees from further

prosecuting their state court suit. See id. The Second Circuit

reversed the district court’s order and vacated the preliminary

injunction/temporary restraining order (“TRO”). See id. The

district court then entered a TRO enjoining the franchisees

from prosecuting their state suit. See id. However, the

franchisees did not advise the state court of the TRO. See id.

The state court, upon being advised of the Second Circuit’s

decision lifting the injunction, awarded the franchisees

$400,000.00 in damages. See id. The franchisees then argued

that the state court judgment stripped the district court of

subject matter jurisdiction to entertain DAI’s petition to compel

arbitration. See id. On appeal, the Second Circuit held that

“DAI filed its petitions to compel arbitration of the franchisees’

state actions before the state courts had made any rulings on the

merits in those actions.” Id. at 138 (citations omitted). On

these facts, the Second Circuit found that the district court did

not lack jurisdiction under Rooker-Feldman to adjudicate

DAI’s petitions to compel arbitration. See id.

Another case relied on by the plaintiffs is Central

Reserve Life Ins. Co. v. Marello, No. Civ. A. 00-3344, 2001

WL 41129 (E.D. Pa. Jan. 17, 2001). In Marello, Marello filed

a complaint in state court against her health insurance

company, Central Reserve Life Insurance Company, on June 6,

2000. Seeid. at *1. Central Reserve promptly filed its federal

complaint and motion to compel arbitration on June 30, 2000.

See id. It also filed preliminary objections to Marello’s state

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court complaint on July 5, 2000, raising, in part, the

arbitrability of Marello’s claim under the FAA. Seeid. The

state court overruled Central Reserve’s preliminary objections

on September 20, 2000 and the federal court subsequently

granted Central Reserve’s motion to compel on October 4,

2000. Seeid. The court found that “[a]t the time it was filed,

Central Reserve’s Motion to Compel Arbitration was neither a

direct appeal from an adverse state ruling, nor the functional

equivalent thereof.” Id. at *4. Accordingly, the court found

that the Rooker-Feldman doctrine was not implicated because

there was no ruling on the merits from which to appeal. See id.

These cases can be distinguished from the case

currently pending before this Court. In this case, although the

plaintiffs may have filed a complaint and petition to compel

arbitration in this Court before the state court entered its order

denying their state court motion to compel arbitration, they did

not file a memorandum in support of their motion to compel

with this Court until after the state court ruling. Also, the

plaintiffs’ memorandum in support of their motion to compel

arbitration contends that the state court issued an erroneous

ruling, which failed to follow federal law under the FAA.

Further, a summons on the comp'‘aint was not retumed

executed as to the defendants until June 13, 2001, which was

after the state court ruling.

This Court finds that this particular factual situation

renders the plaintiffs’ motion to compel arbitration a

“functional equivalent” of an appeal from the June 11, 2001

state court decision. This is not a case where the plaintiffs,

from the beginning, asked this Court to compel arbitration, but

rather one in which the plaintiffs attempted to shop between

two forums in order to gain a strategic advantage. Although

this Court recognized that it is proper for a party to file a

motion in federal court seeking an order compelling arbitration

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under the FAA while the underlying state court proceeding

remains pending, it is not proper for a party to file two of the

same motions in both state court and federal court and to then

wait until after the state court renders an unfavorable ruling

before the party pursues its motion in federal court. Plaintiffs

were clearly looking for the proverbial “two bites of the apple”

by filing a motion to compel arbitration in both the state and

federal court. Not only do the plaintiffs practically contend in

their memorandum in support of their motion to compel that

they are appealing the state court order, but their failure to

actively pursue their complaint and petition to compel

arbitration until after the state court ruling clearly demonstrates

that this is a functional equivalent of an appeal of a state court

order. Accordingly, this Court finds that the Rooker-Feldman

doctrine applies and that this Court lacks subject matter

jurisdiction to decide this case.

B. Waiver

However, even if this Court were to find that it did have

subject matter jurisdiction, this Court finds that the plaintiffs

have waived their right to insist on arbitration. “Under the

Federal Arbitration Act, a party may demand a stay of federal

judicial proceedings pending exercise of a contractual nght to

have the subject matter of the federal action decided by

arbitration, unless the party seeking arbitration is ‘in default’ of

that night.” MicroStrategy Inc. v. Lauricia, 268 F. 3d 244, 249

(4™ Cir. 2001) (quoting Maxum Founds., Inc. v. Salus Corp.,

779 F.2d. 974, 981 (4" Cir. 1985)); see also 9 U.S.C. § 3.

Although “default is akin to waiver,” any doubts as to whether

the party has waived its right to compel arbitration, must be

resolved in favor of arbitration. Id. The Fourth Circuit has

held:

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A party may waive its night to insist on

arbitration if the party “so substantially

utiliz[es] the litigation machinery that to

subsequently permit arbitration would prejudice

the party opposing the stay.” . . . But even in

cases where the party seeking arbitration has

invoked the “litigation machinery” to some

degree “[t]he dispositive question is whether the

party objecting to arbitration has suffered actual

prejudice.

Id. at 249 (citations omitted). “The party opposing arbitration

‘bears the heavy burden of proving waiver.’” Id. at 250

(quoting American Recovery Corp. v. Computerized Thermal

Imaging, Inc., 96 F.3d 88, 95 (4" Cir. 1996)).

A court may consider the delay in seeking arbitration

when determining whether a waiver occurred. See id. at 250.

There is no doubt that the plaintiffs delayed in seeking

arbitration for over a year after the complaint was filed. The

contention that the claim may be arbitrable was never raised

until the plaintiffs filed their answer and affirmative defenses

to the amended complaint and their motion to compel

arbitration in state court approximately 14 months after the

proceedings began and then filed their motion to compel in this

Court 18 days after they filed their state court motion to

compel.

However, this Court is aware that “mere delay, without

more, will not suffice to constitute a waiver.” Maxum Founds.

Inc., 779 F.2d at 982. This Court must also look at whether the

plaintiffs waived their nght to insist on arbitration by virtue of

their litigation activities in the state court. See MicroStrategy,

Inc., 268 F.3d at 250. This requires the Court to look at

whether the plaintiffs’ litigation in state court centered around

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the defendants’ arbitrable claims. See id. at 251. This Court

finds that the litigation in the state court did, in fact, center

around the claims that the plaintiffs now contend are arbitrable.

Accordingly, the plaintiffs’ litigation activities in the state court

can be used in support of the argument that the plaintiffs have

waived their nght to insist on arbitration.

In determining whether a party waived its right to seek

arbitration, this Court must also examine whether the party

objecting to arbitration has suffered actual prejudice.

“[P]rejudice . . .refers to the inherent unfaimmess — in terms of

delay, expense, or damage to a party’s legal position — that

occurs when the party’s opponent forces it to litigate an issue

and later seeks to arbitrate that same issue.” Distajo, 107 F.3d

at 134. This Court finds that the defendants have suffered

actual prejudice for several reasons. First, even though they

were aware of their right to arbitrate, the plaintiffs proceeded

to litigate the state court case for a period of 14 months before

they even mentioned that they wished to enforce the arbitration

provision in the contract. Second, not only did the plaintiffs

delay in seeking to compel arbitration, but their litigation in

state court centered around the defendants’ arbitrable claims.

Third, significant discovery has already taken place in the state

court. Fourth, the state court denied plaintiffs’ motion to

compel arbitration before plaintiffs actively pursued their

motion to compel arbitration in this Court. The plaintiffs

submitted their motion to compel to one forum and then when

they were disappointed with the result in that forum, actively

pursued a motion to compel in the other forum. The plaintiffs’

willing participation in the litigation in the state court forum

was inconsistent with a desire to arbitrate. Accordingly, this

Court finds that the defendants have suffered the type of

prejudice that supports a finding of waiver. Although the

defendants bear a heavy burden of proving waiver and each

factor, considered separately, does not support waiver, taken

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together, these factors demonstrate that the plaintiffs have

waived their right to insist on arbitration.

Even if this Court were to conclude that it had subject

matter jurisdiction, and even if this Court were to find that the

plaintiffs did not waive their nght to insist on arbitration, this

Court finds that it should abstain from deciding the plaintiffs’

motion to compel arbitration. However, before moving on to

the abstention analysis, this Court notes that it agrees with the

plaintiffs’ argument that any finding or waiver should not apply

to American Bankers because American Bankers was not added

to the case until the plaintiffs amended their complaint on Apnil

2, 2001. American Bankers delayed only a month in asserting

arbitration rights. However, because this Court finds that it

does not have subject matter jurisdiction over this matter and

because this Court finds that it must abstain from ruling on the

motion to compel, the fact that American Bankers did not

waive its arbitration rights has no effect on this Court’s

ultimate decision to dismiss the case.

&. Abstention

In their motion to dismiss, defendants argue that this

Court should dismiss this action based on_Younger v. Harris,

401 U.S. 37 (1971), and the “wise judicial administration”

doctrine enunciated in Colorado River Water Conservation

Dist. v. United States, 424 U.S. 800 (1976).

In Moses H. Cone Mem’! Hosp. v. Mercury Constr.

Corp., 460 U.S. 1 (1983), the Supreme Court addressed the

question of whether a federal district court may abstain from

hearing a motion to compel arbitration out of deference to the

parallel litigation brought in state court. See id. at 935. The

Court found that Colorado River provided persuasive guidance

in deciding the question before it. See id) The Court in

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Colorado River held that in certain “exceptional”

circumstances, a federal court may abstain from exercising its

subject matter jurisdiction due to the existence of a concurrent

state court proceeding, based upon “considerations of ‘[w]ise

judicial administration, giving regard to conservation of judicial

resources and comprehensive disposition of litigation.”

Colorado River, 424 U.S. at 817 (citations omitted).

The Moses Court identified the four factors in Colorado

River as well as two additional factors that a district court must

consider when deciding whether to abstain from exercising its

jurisdiction due to the concurrent jurisdiction of a state court.

These factors are: (1) whether either court has assumed

jurisdiction over any res or property; (2) whether the federal

forum is any less convenient to the parties than the state forum;

(3) the avoidance of piecemeal litigation; (4) the order in which

jurisdiction was obtained by the concurrent forums; (5) whether

federal or state law provides the rule of decision on the merits;

and (6) the adequacy of the state court proceedings to protect

the federal plaintiffs rights. The Court stated that “the

decision whether to dismiss a federal action because of parallel

state-court litigation does not rest on a mechanical checklist,

but on a careful balancing of the important factors as they apply

in a given case, with the balance heavily weighted in favor of

the exercise of jurisdiction. Moses H. Cone, 460 U.S. at 16.

The first and second factors do not weigh in favor of

abstention because the state court did not assume jurisdiction

Over any res or property and the federal forum is located in the

same county and city as the state forum.

The third factor, the avoidance of piecemeal litigation,

generally is not an issue in situations where there is a state

court proceeding and a parallel federal court proceeding

seeking to compel arbitration. See Moses H. Cone, 460 U.S. at

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21 (stating that the federal arbitrability issue is easily severable

from the merits of the underlying state court action). Also

Colorado River stated that “the mere potential for conflict in

the results of adjudications, does not, without more, warrant

staying exercise of federal jurisdiction.” Colorado River, 424

U.S. at 816. However, in this case, the fact that there is a

“potential” for conflict, is not the only reason this Court

chooses to abstain from exercising jurisdiction. “In analyzing

whether a dismissal or stay will further the interest in avoiding

piecemeal litigation, we look not for formal symmetry between

the two actions, but for a substantial likelihood that the state

litigation will dispose of all claims presented in the federal

case.” Lumen Const., Inc. v. Brant Const. Co., Inc., 780 F.2d

691, 695 (7™ Cir. 1986) (citation omitted). In this case, the

state litigation has disposed of all claims presented in this

Court. Not only has the state court already decided the issue

before this Court, bur the plaintiffs willingly submitted the

issue to the state court for a decision. Because the state court

already adjudicated the issues involved in this case, there is

much to be gained in judicial economy by abstaining from

exercising jurisdiction.

With regard to the fourth factor, the state court obtained

jurisdiction of the action more than 14 months before the

plaintiffs filed their petition and motion to compel arbitration

with this Court. This Court must not only look at which

complaint was filed first, but how much progress has been

made in the two actions. See Moses H. Come, 460 U.S. at 22.

This Court has already discussed the fact that there has been

substantial proceedings in the state court. Further, the fact that

the state court has already decided the motion to compel

arbitration demonstrates that the state court proceedings have

progressed well ahead of the proceedings in this Court.

Accordingly, the fourth factor weighs in favor of abstention.

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This Court finds that the fifth factor enunciated in

Moses, whether state or federal law provides the rule of

decision, weighs in favor of abstention. Although “[f]ederal

law governs the construction of contract language conceming

arbitrability,” see Smith Barney, Inc. v. Cnitical Health Sys. of

N.C., Inc., 212 F.3d 858, 860 (4" Cir. 2000), state law governs

a court’s determination of whether a valid agreement to

arbitrate arose between the parties. See First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Johnson v.

Circuit City Stores, 148 F3d 373, 377 (4" Cir. 1998) (citations

omitted) (“Whether a party agreed to arbitrate a particular

dispute is an issue for judicial determination to be decided as

a matter of contract. . . . In so deciding, the court should apply

‘ordinary state-law principles that govern the formation of

contracts.”). Thus, federal common law is relevant only to

provide the basic principle that federal policy favors arbitration

and ambiguities are to be interpreted in favor of arbitration.

West Virginia law determines the question of the validity,

revocability, or the enforceability of the agreement to arbitrate.

Because the defendants are challenging the validity of the

arbitration clause, West Virginia law becomes just as important

as federal law in determining whether to compel arbitration.

Further, the source of law factor is less significant where the

state and federal courts have concurrent jurisdiction. M H.

Cone, 460 U.S. at 25.

It is difficult for this Court to evaluate the last factor,

which is whether the state court proceeding will be adequate to

protect the plaintiffs’ mghts, because the state court has already

ruled on the motion to compel arbitration. The state court order

demonstrates that the court considered the plaintiffs’ motion to

compel arbitration and to stay the proceedings in accordance

with the FAA. Although the Supreme Court has never decided

whether state courts are obligated to apply 9 U.S.C. § 4, the

Supreme Court has stated that “state courts, as much as federal

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courts, are obliged to grant stays of litigation under § 3 of the

Arbitration Act.” Moses H. Cone, 460 U.S. at 26. However,

plaintiffs never argue that the state court did not have the

jurisdiction to decide their motion to compel arbitration; they

assert instead that the state court was wrong. This Court rejects

the notion that federal courts have any superior abilities over

their state court counterparts and has no reason to believe that

Judge Wilson did not decide the plaintiffs’ motion to compel

arbitration and to stay in accordance with applicable federal and

state law.°

This Court finds that the balance of these factors

demonstrates “exceptional circumstances” which weigh in

favor of abstention. This action was not filed until more than

14 months after the state court case was filed, the defendants

are challenging the validity of the arbitration clause, which

implicates state law, the state court forum is adequate to protect

the federal plaintiffs’ rights, and the state court has already

ruled on the issue before this Court. To retain jurisdiction over

the plaintiffs’ petition to compel arbitration, while a state court

has already ruled on the same motion, would not constitute

“wise judicial administration.” Colorado River, 424 U.S. at

817.

® This Court does not decide whether it agrees with the state court

ruling, but whether this Court agrees is irrelevant because it cannot act as

an appellate court to the West Virginia court. On September 28, 2001, the

state court entered an order stating that "the order denying arbitration

entered on June 11, 2001, is appealable by writ of prohibition or by direct

appeal under W. Va. Code § 58-5-1...." Defs.’ Ex. 1 to Supp. Memo. In

Support of Mot. to Dismiss. Therefore, ifthe plaintiffs believe that the state

court made an erroneous ruling, they may file an appeal with the West

Virginia Supreme Court of Appeals. Further, even though the West

Virginia Supreme Court ‘s decision to hear an appeal is discretionary, it is

not a reason for this Court to act as an alternative appellate court.

Because this Court finds that defendants’ motion to

dismiss should be granted, plaintiffs’ motion to compel

arbitration should, accordingly, be denied.

This Court also finds that defendants’ motion for an

award of attorneys’ fees and expenses of litigation should be

denied because this Court does not believe that statutory or

common law permits this Court to award attomeys’ fees

pursuant to Federal Rule of Civil Procedure 54(d). .

This Court further finds that American Reliable’s

motion for sanctions pursuant to Federal Rule of Civil

Procedure 11 should be denied because the defendants’ motion

for attorneys’ fees was not filed for any improper purpose such

as to harass or cause unnecessary delay or needless increase in

the cost of litigation. Although this Court does not agree with

the defendants’ argument that attorneys’ fees should be granted,

this Court does not find that the defendants’ argument was

frivolous.

This Court further finds that defendants’ motion to

strike plaintiffs’ reply memorandum in support of motion to

compel arbitration should be denied because the plaintiffs’

reply was timely filed.

Lastly, there being no objection to plaintiffs’ motion for

leave to file instanter a surreply memorandum in opposition to

defendants’ motion to dismiss, the plaintiffs’ motion should be

granted.

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IV. Conclusion

For the reasons set forth above, the defendants’ motion

to dismiss is hereby GRANTED. This court further finds that

plaintiffs’ motion to compel arbitration is DENIED;

defendants’ motion for attorneys’ fees and expenses of

litigation is DENIED; plaintiffs’ motion for Rule 11 sanctions

is DENIED; defendants’ motion to strike is DENIED; and

plaintiffs’ motion for leave to file

a surreply is GRANTED. It is further ORDERED that this

action be DISMISSED and STRICKEN from the active docket

of this Court.

IT IS SO ORDERED.

The Clerk is DIRECTED to transmit copies of this

order to counsel of record herein. Pursuant to Federal Rule of

Civil Procedure 58, the Clerk is DIRECTED to enter judgment

on this matter.

DATED: March 18, 2002

/s/ Frederick P. Stamp, Jr.

FREDERICK P. STAMP, JR.

UNITED STATES DISTRICT JUDGE

20a

APPENDIX B

a

IN THE SUPREME COURT OF APPEALS

OF WEST VIRGINIA

AMERICAN RELIABLE INSURANCE

COMPANY, AMERICAN BANKERS

INSURANCE COMPANY OF FLORIDA,

and CAMPBELL INSURANCE SERVICES, INC.,

Petitioners,

Vv.

ROBERT STILLWELL and

HELEN STILLWELL,

Respondents.

From the Circuit Court of Ohio County, West Virginia

Civil Action No. 00-C-116W

PETITIONERS’ EMERGENCY MOTION TO

EXTEND STAY OF CIRCUIT COURT

PROCEEDINGS PENDING RESOLUTION OF

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES SUPREME COURT

2la

* * *

ARGUMENT

* * *

Indeed, like the U.S. Supreme Court, this Court has noted in

the context of appellate review of arbitration orders that "to

compel [Petitioners] to proceed through the trial process and

then appeal to this Court would be inefficient, and a waste of

the time and resources of the circuit court and of this Court."

State ex rel. Ranger Fuel Corp. v. Lilly, 165 W. Va. 98, 101,

267 S.E.2d 435, 437 (1980) (emphasis added).

* footnote omitted.

At page 4 of motion filed by Petitioners in the state supreme court on

June 17, 2002.