SUSAN K. LEE, Magistrate Judge.
Before the Court are three motions for summary judgment: one filed by Defendants Farmers Crop Insurance Alliance, Inc. ("Farmers Crop Insurance") and Great American Insurance Company ("Great American") (collectively "Defendants") [Doc. 80], one filed separately by Great American [Doc. 85], and one filed by Plaintiffs Scruggs Farm Nursery ("Scruggs Farm"), Wanamaker Nursery, Inc.,
Plaintiffs allege Defendants issued a crop insurance policy to Timothy for the benefit of Scruggs Farm for the 2005 crop year [Doc. 1 at PageID#: 7].
The Court held oral argument on all of the above-referenced motions for summary judgment on March 20, 2012. At the oral argument, the parties agreed that there are no facts in dispute relating to their respective summary judgment motions. A brief summary of the relevant undisputed facts follows.
While Timothy was allowing Wanamaker Nursery, Inc. and Tennessee Bush Farm, Inc. to take nursery crops from Scruggs Farm land, he did not sell nursery crops from Scruggs Farm to any third party [id. at 636]. Wanamaker Nursery, Inc. paid Timothy an hourly wage for his work at Scruggs Farm and furnished labor for the farm, and Tennessee Bush Farm, Inc. provided equipment and fuel for the operation of Scruggs Farm [id.]. Although Timothy has paid the taxes on the Scruggs Farm property since 2002, he did not report any income or loss from any Scruggs Farm nursery business on his tax return for 2004 or 2005 [Doc. 78 at PageID#: 636-37; Doc. 82 at PageID#: 806].
As part of Timothy's ownership of the Scruggs Farm land and nursery crops on that land, he sought to secure crop insurance for the 2005 crop year and submitted an application to Farmers Crop Insurance through agent Richard Mackie on October 5, 2004 [Doc. 78 at PageID#: 628; Doc. 82 at PageID#: 807]. Timothy also submitted a Plant Inventory Value Report ("PIVR") for Scruggs Farm and a Crop Inventory Valuation Estimate [id.]. Mr. Mackie asked Timothy for nursery catalogs to submit with his application, and Timothy left two copies of a catalog/price list for Mr. Mackie to pick up for submission [Doc. 78 at PageID#: 633; Doc. 82 at PageID#: 807].
On October 28, 2004, Farmers Crop Insurance issued a Schedule of Coverage for policy No. 41-801-0002808 to Timothy and subsequently sent inspector Jeffrey Lawson to inspect Scruggs Farm [Doc. 82 at PageID#: 808; Doc. 78 at PageID#: 631, 633]. Mr. Lawson submitted a report signed November 13, 2004, which recommended acceptance of Timothy's application [id.]. Farmers Crop Insurance thereafter accepted the application and issued a Schedule of Insurance to Timothy [Doc. 82 at PageID#: 808; Doc. 78 at PageID#: 633-34].
After the hail storm in April 2005, Timothy submitted a claim to Farmers Crop Insurance [Doc. 82 at PageID#: 809; Doc. 78 at PageID#: 637]. Farmers Crop Insurance adjusted the claim and calculated the indemnity owed would be $1,391,223.00 [Doc. 82 at PageID#: 809; Doc. 78 at PageID#: 642-43]. In July 2005, however, the RMA directed Farmers Crop Insurance to review several nursery crop insurance policies in Tennessee to determine whether the policies had acceptable catalogs [Doc. 82 at PageID#: 809-10; Doc. 78 at PageID#: 637]. As part of this review, Farmers Crop Insurance determined Timothy had not provided a proper nursery catalog with his application and subsequently denied his insurance claim [Doc. 82 at PageID#: 810; Doc. 78 at PageID#: 640]. Farmers Crop Insurance first notified Timothy of its decision by letter of July 24, 2006, and the letter stated that valid nursery catalogs had not been submitted by the appropriate deadline and that a correct catalog had not been submitted to the insurance agent [id.; Doc. 82-21 at PageID#: 956]. A subsequent letter sent to Timothy by Farmers Crop Insurance on July 26, 2006 recounted a conversation about the catalog issue, noted that Farmers Crop Insurance had determined coverage would be declined because of the generic catalog submitted, and informed Timothy of his appeal rights [Doc. 78 at PageID#: 640-41; Doc. 82-22 at PageID#: 958-59]. A third letter dated August 9, 2006 informed Timothy that he could put the crop to another use because Farmers Crop Insurance was "rejecting your policy in whole" [Doc. 82 at PageID#: 811; Doc. 82-23 at PageID#: 961].
Timothy filed a demand for arbitration on December 20, 2006 [Doc. 78 at PageID#: 643]. A three-day arbitration hearing, combined with other arbitration proceedings involving Travis Wanamaker, was held June 18-20, 2008 [Doc. 78 at PageID#: 644]. Timothy was not represented by an attorney during the arbitration [id.; Doc. 84 at PageID#: 1093]. On August 5 or 6, 2008, the arbitrators issued an award upholding the voidance of Timothy's policy because Timothy had not established an insurable interest in the damaged Scruggs Farm crop [Doc. 82-25 at PageID#: 968-75]. Plaintiffs filed the instant case on August 4, 2009 [Doc. 1].
Summary judgment is mandatory where "there is no genuine dispute as to any material fact" and the moving party "is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A "material" fact is one that matters—i.e., a fact that, if found to be true, might "affect the outcome" of the litigation. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The applicable substantive law provides the frame of reference to determine which facts are material. Anderson, 477 U.S. at 248. A "genuine" dispute exists with respect to a material fact when the evidence would enable a reasonable jury to find for the non-moving party. Id.; National Satellite Sports, Inc. v. Eliadis Inc., 253 F.3d 900, 907 (6th Cir. 2001). In determining whether a dispute is "genuine," the court cannot weigh the evidence or determine the truth of any matter in dispute. Id. at 249. Instead, the court must view the facts and all inferences that can be drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); National Satellite Sports, 253 F.3d at 907. A mere scintilla of evidence is not enough to survive a motion for summary judgment. Anderson, 477 U.S. at 252; McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000).
The moving party bears the initial burden of demonstrating no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Moore v. James, No. 7:09-CV-98 (HL), 2011 WL 837179, at *1 (M.D. Ga. Feb. 2, 2011). The movant must support its assertion that a fact is not in dispute by "citing to particular parts of materials in the record." Fed. R. Civ. P. 56(c). If the moving party carries this burden, the opposing party must show that there is a genuine dispute by either "citing to [other] particular parts of materials in the record" or "showing that the materials cited do not establish the absence . . . of a genuine dispute. Id. In reply, the movant may then attempt to show that the materials cited by the nonmovant "do not establish the . . . presence of a genuine dispute." Id. Either party may also attempt to challenge the admissibility of its opponent's evidence. Id.
The court is not required to consider materials other than those specifically cited by the parties, but may do so in its discretion. Id. If a party fails to support its assertion of fact or to respond to the other party's assertion of fact, the court may "(1) give an opportunity to properly support or address the fact; (2) consider the fact undisputed for purposes of the motion; (3) grant summary judgment if the motion and supporting materials . . . show that the movant is entitled to it; or (4) issue any other appropriate order." Fed. R. Civ. P. 56(e).
Defendants argue that collateral estoppel bars Plaintiffs from relitigating the claims heard and decided during arbitration because the arbitration was a full and fair opportunity to litigate on the merits, complete with discovery and a three-day hearing in accordance with the rules of the American Arbitration Association, and Timothy was a party to the arbitration [Doc. 81 at PageID#: 789-93].
Plaintiffs argue that collateral estoppel should not apply because the arbitration was not, in fact, a full and fair opportunity to litigate the merits of all the claims presented in the instant case [Doc. 92 at PageID#: 1587-88]. Specifically, because the arbitration award concerns a factual determination only as to the insurable interest issue and states that no other factual determinations are made as to other issues, Plaintiffs argue there are claims that were not fully evaluated in arbitration and thus cannot be barred by collateral estoppel [id.]. Plaintiffs also argue that the policy provisions, by contemplating legal action after arbitration, suggest that they are not barred from further litigation and that the arbitration award is not binding [id. at 1589-90].
The parties have stipulated that the 2004 policy provisions are applicable and govern the parties' claims [Doc. 78 at PageID#: 621-22].
[Doc. 18-2 at PageID#: 110-11].
To address the parties' argument regarding collateral estoppel, and in the absence of further guidance about arbitration in the applicable policy provisions,
The FAA provides the parties may apply to the court for a confirmation of the award within one year of the award (9 U.S.C. § 9), the award may be vacated for various grounds (9 U.S.C. § 10), and a court may modify or correct an arbitration award (9 U.S.C. § 11). Although the FAA itself does not explicitly address a court's standard of review when faced with a lawsuit addressing an arbitration award, the United States Court of Appeals for the Sixth Circuit has indicated that the FAA "`expresses a presumption that arbitration awards will be confirmed. . . . When courts are called on to review an arbitrator's decision, the review is very narrow; it is one of the narrowest standards of judicial review in all of American jurisprudence.'" Uhi v. Komatsu Forklift Co., Ltd., 512 F.3d 294, 305 (6th Cir. 2008) (quoting Nationwide Mut. Ins. Co. v. Home Ins. Co., 429 F.3d 640, 643 (6th Cir. 2005)).
A preliminary hearing was held in the arbitration process on May 15, 2007, resulting in the issuance of a scheduling order to govern a period of time through September 4, 2007, for the parties to conduct discovery [Doc. 84-1 at PageID#: 1097-98]. This original discovery deadline appears to have been changed later, as the parties engaged in written discovery in November and December 2007 [id. at PageID#: 1102-03, 1106-11]. Farmers Crop Insurance submitted its pre-hearing brief on June 6, 2008, in which it made several arguments, including an argument that Timothy had no insurable share in the crop [id. at PageID#: 1123-37].
A three-day arbitration hearing commenced on June 18, 2008 to address the claims asserted by Timothy as they relate to this case and to address the claims of Travis Wanamaker as they relate to Civil Case No. 4:09-cv-78 [Doc. 84 at PageID#: 1092-93]. The parties have filed various portions of the transcript of the arbitration hearing, and the transcript spans some three volumes and several hundred pages [Doc. 78-1 at PageID#: 652-56; Doc. 84 at PageID#: 1092-93]. Timothy represented himself pro se during the arbitration hearing [Doc. 84 at PageID#: 1093]. After the arbitration hearing, Farmers Crop Insurance submitted a list of issues requiring factual determination to the arbitration panel, including the issue of whether Timothy had a 100% share in the Scruggs Farm crop [Doc. 84-1 at PageID#: 1139-42].
The arbitration award, signed on August 6, 2008, states, in relevant part:
[Doc. 82-25 at PageID#: 968-75; Doc. 84-1 at PageID#: 1149-56].
The Defendants primarily couch their argument regarding the effect of the arbitration in terms of collateral estoppel, as opposed to arguing for deference to the award pursuant to the FAA. Because the prior proceeding was an arbitration subject to the FAA, the Court will look to federal law for the applicable collateral estoppel factors.
The first two factors address the question of whether the issues raised and litigated in the prior proceeding were the same and if the issues decided were necessary to the outcome of the arbitration. Plaintiffs argue that the issues in the arbitration were not the same as the issues raised herein because the arbitrators made only one factual determination and declined to address any other issues. Plaintiffs argue that their ability to file suit allows for de novo review of all claims and issues raised rather than an appeal of the arbitrators' sole factual determination.
Contrary to Plaintiffs' argument, once the arbitrators decided a threshold issue that resulted in the voidance of the crop insurance policy, it was not necessary for the arbitrators to address all other issues raised in the arbitration proceedings.
Turning to the third factor, whether the prior proceeding resulted in a final judgment, arbitration proceedings have the same effect as judicial decisions and qualify as a prior proceeding for purposes of collateral estoppel. See Turpin v. Love, 1973 WL 16997, at *4 (Tenn. Ct. App. Aug. 14, 1973); Bright v. Spaghetti Warehouse, Inc., No. 03A01-9708-CV-00377, 1998 WL 205757 (Tenn. Ct. App. Apr. 29, 1998) (applying collateral estoppel when prior proceeding was an arbitration); see also Foster v. Windsor Republic Door, Inc., No. 1:10-cv-01081-egb, 2010 WL 6512343 (W.D. Tenn. Oct. 21, 2010); Cincinnati Ins. Cos. v. Tennessee Log Homes, Inc., No. 1:05-CV-7, 2008 WL 2944914, at *6-7 (E.D. Tenn. July 25, 2008). No party has alleged that the arbitration award was not a final judgment on the merits, and this factor also weighs in favor of finding that collateral estoppel applies to bar Plaintiffs from relitigating herein the same issue decided in the arbitration.
As for the final factor, the Court must determine whether the party against whom estoppel is sought had a full and fair opportunity to litigate the insurable interest issue. The parties were heard on this factor at length during oral argument on the pending motions. Defendants argued that Timothy was extensively involved in the arbitration process; that even representing himself pro se, he had a full and fair opportunity to litigate all claims and brief the issues both before and after the hearing; that Timothy could have challenged the arbitration decision if he believed the arbitrators erred in some way, but he did not attempt to vacate the award; that the factual determination made by the arbitrators is binding; and that the arbitrators addressed all the issues presented regardless of whether they explicitly addressed the issues in the award, as the award states it resolved all claims. Plaintiffs essentially argued once more that because the arbitrators did not make factual determinations as to all issues raised, Plaintiffs should have the opportunity for judicial review of those additional issues. Plaintiffs further argued that although the insurable interest issue was adequately litigated and addressed at arbitration, it was the first time the denial of Timothy's claim was based on that issue.
The record now contains a wealth of information on the subject of whether the arbitration was a full and fair opportunity to address the merits of the claims asserted in this matter.
Timothy is a Plaintiff in this lawsuit and was a key participant in and party to the arbitration. Timothy is also the named insured. As such, it was his insurable interest, if any, and his compliance with the insurance policy provisions at stake to determine if coverage existed. Scruggs Farm Nursery is merely a trade name, not a corporation or other legal entity, and there was no need for the arbitration to include the trade name as a party, as the insurance policy affecting the nursery crop was not in the farm's name. Because Scruggs Farm Nursery is merely a trade name and not a legal entity, any concerns about privity are not applicable. As for Wanamaker Nursery, Inc., this entity would not have any basis for participating in the arbitration, as it was not a party to the insurance policy at issue, and the parties have stipulated in this action that Wanamaker Nursery, Inc. had an insurance policy that did not include the nursery crops at Scruggs Farm, and Wanamaker Nursery, Inc. made no insurance claims for the 2005 crop year that are at issue in this case [Doc. 78 at PageID#: 632, 637]. Thus, its participation in this lawsuit does not alter the Court's conclusion that the parties against whom estoppel is sought are the same.
After reviewing the evidence and considering the arguments, the Court finds the arbitration provided the parties against whom estoppel is sought with a full and fair opportunity to address the issues raised, specifically the issue of whether Timothy had an insurable share in the crops. The arbitration process and hearing were quite extensive and fully addressed the facts and legal issues related to Timothy's policy and subsequent insurance claim. During the three-day arbitration hearing, Timothy represented himself pro se, but the parties clarified at oral argument that he had counsel prior to the arbitration hearing, and it does not appear from the arbitration transcripts that Timothy was unable to effectively represent himself. Timothy testified on his own behalf and other witnesses were questioned quite extensively by both sides; furthermore, the hearing covered in great depth all of the issues surrounding the denial of Timothy's claim. As Defendants point out, Timothy has never made any allegation that the award was subject to vacation due to any error by the arbitrators. Moreover, although Plaintiffs argue the issues are not the same because the arbitrators did not decide issues beyond the threshold and determinative issue of whether the policy was void, there was no need for the arbitrators to address any other issue once they decided a threshold issue that disposed of the need to make further factual determinations. Thus, the final factor also weighs heavily in favor of baring Plaintiffs from relitigating their claim that Timothy had an insurable interest here.
Accordingly, the Court finds, as a matter of law under the undisputed facts, that collateral estoppel bars Plaintiffs from relitigating in this Court the threshold issue determined in the arbitration: that Timothy did not have an insurable share or interest in the crops resulting in the voidance of his crop insurance policy. Accordingly, Defendants are entitled to summary judgment.
Although the Court has determined that Defendants are entitled to summary judgment on collateral estoppel grounds, there is one remaining argument asserted in Plaintiffs' motion the Court must consider, as it might survive the determination that the policy was properly voided. While Plaintiffs agreed at oral argument that none of the state law claims asserted against any of the Defendants in the Complaint would survive a determination that the policy was properly voided, in Plaintiffs' brief, they argue that Defendants should be estopped from voiding coverage because they accepted Timothy's insurance application without identifying any problems [Doc. 82 at PageID#: 825]. Plaintiffs assert that it was Defendants' agent, Richard Mackie, who guided them through the application process and that Defendants are bound by Mackie's actions and advice [id. at PageID#: 826].
Defendants argue that Timothy is deemed to know the policy terms and cannot establish, as a matter of law, that he relied upon an insurance agent's instructions that would essentially waive terms of the insurance policy [Doc. 89 at PageID#: 1436-39]. Defendants further argue that Richard Mackie did not have actual or apparent authority to bind the insurance company by making statements in contravention of the policy terms and federal crop insurance program procedures, and that Plaintiffs therefore acted unreasonably in their reliance [id. at PageID#: 1439-42].
To address the issue of estoppel as it relates to Defendants, the Court must first address the issue of estoppel as it relates to the previously dismissed federal agencies (the FCIC, the RMA, or the USDA). Pursuant to Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947), there is no estoppel against such federal governmental agencies in a case involving crop insurance policies. In Merrill, the plaintiff was told by an agent of the FCIC that he could insure the entire crop of spring wheat planted when, in fact, he could not insure the acres planted on reseeded winter wheat. Id. at 382. The plaintiff discovered the agent erred when a drought destroyed most of the crop and he unsuccessfully attempted to collect on the loss. Id. The United States Supreme Court held that the insurance regulations were binding on all who sought insurance under the FCIA regardless of actual knowledge, noting the duty of the courts "to observe the conditions defined by Congress for charging the public treasury" and uphold the terms and conditions imposed by Congress to create government liability for crop insurance policies. Id. at 385.
The principles outlined in Merrill have been employed to prevent litigants from asserting estoppel arguments against the government in a variety of factual scenarios, and it is generally settled that the United States cannot be estopped by acts of its individual officers or agents. See Office of Personnel Mgmt. v. Richmond, 496 U.S. 414, 420 (1990); United States v. River Coal Co., Inc., 748 F.2d 1103, 1108 (6th Cir. 1984). The reasoning for the prohibition against estoppel stems from a "concern that government agents. . . by their statement or conduct might waive or revise the laws as enacted by Congress. . . [and] might . . . give away assets or funds that the government holds for the public good under congressional mandate." Housing Authority of Elliott Cnty. v. Bergland, 749 F.2d 1184, 1190 (6th Cir. 1984). Courts have acknowledged, however, that estoppel might arise in circumstances involving "affirmative misconduct" by the government. River Coal, 748 F.2d at 1108; Rogers v. Tenn. Valley Authority, 692 F.2d 35, 37-38 (6th Cir. 1982).
In the instant case, the insurance agent alleged to have inadequately guided Plaintiffs through the insurance process was an agent of Defendants, not the federal agencies. This agent's alleged failures in the application process would not fall under any exception for affirmative misconduct because he was not a government agent and, as recognized in Merrill, Plaintiffs are charged with knowledge of the applicable regulations when dealing with the government (and a government sponsored program such as crop insurance). The federal entities, therefore, cannot be estopped and, as earlier noted, they were previously dismissed from this action.
In the context of federally reinsured crop insurance policies, courts have generally held that the private insurance company is still protected by the general prohibition against estoppel that applies to the federal government because "[t]he statements of an insurance company employee cannot be applied to extend coverage where there is none because the doctrine of estoppel cannot extend coverage beyond that authorized by the policy." William J. Mouren Farming, Inc. v. Great Am. Ins. Co., No. CV F 05-0031 AWI LJO, 2005 WL 2064129, at *10 (E.D. Cal. 2005) (citing Mann v. FCIC, 710 F.2d 144, 147 (4th Cir. 1983)). In Walpole v. Great Am. Ins. Co., 914 F.Supp. 1283 (D.S.C. 1994), the court addressed the very question of whether the prohibition against estoppel outlined in Merrill would apply to reinsured policies (and private insurance companies) as well as FCIC-issued policies, and the court determined that the statements at issue, although made by defendant insurance company's adjuster, could not extend coverage where coverage did not exist because of the estoppel doctrine, thereby adopting the Merrill principles as applicable to the private insurance company defendant. Id. at 1290 (citing Mann v. FCIC, 710 F.2d 144, 147 (4th Cir. 1983)).
As to the crop insurance policy at issue, then, if the policy was properly voided, Defendants cannot be estopped from denying coverage based on any reliance by Plaintiffs on Defendants' confirmation that insurance attached. As the Court has determined that collateral estoppel bars the Plaintiffs from relitigating the arbitrators' decision that Timothy had no insurable interest or share in the crop thus voiding the policy, Defendants cannot be estopped from denying coverage. Therefore, no claims remain against any of the Defendants in this action.
For the reasons explained above, Defendants' motion for summary judgment [Doc. 80] is
SO ORDERED.
