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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ACE AMERICAN INSURANCE COMPANY, AND ESIS, INC., Petitioners, MISCELLANEOUS ACTION
v.

NO. RCR PLUMBING AND MECHANICAL, INC. tfk/a AMP AM RCR COMPANIES, Respondent.

PETITION OF ACE AMERICAN INSURANCE COMPANY AND ESIS, INC. PURSUANT TO 9 U.S.C 4 FOR AN ORDER DIRECTING THAT ARBITRATION PROCEED IN ACCORDANCE WITH THE PARTIES' ARBITRATION PROVISIONS REQUIRING THAT THE ARBITRATION PANEL DETERMINE SCOPE OF ARBITRATION AND RESPONDENT'S OBLIGATION TO ARBITRATE WITH PETITIONER ESIS Petitioners ACE American Insurance Company ("ACE") and ESIS, Inc. ("ESIS"), by and through their counsel Duane Morris LLP, hereby petition this Court for an Order directing that the arbitration panel in Philadelphia (the "Arbitration Panel") presiding over the pending arbitration (the "Philadelphia Arbitration") between ACE and ESIS, on the one hand, and Respondent RCR Plumbing and Mechanical, Inc. f/k/a AMP AM RCR Companies ("RCR"), on the other, determine: (a) the scope of the claims to be arbitrated; and (b) the obligation by RCR to arbitrate its claims with ESIS. Based on broad arbitration clauses contained in their agreements with RCR, ACE and ESIS made a demand upon RCR for arbitration which included all of the claims that RCR had asserted against ACE and ESIS in a lawsuit RCR had filed in California. Despite its obligation to arbitrate all of those claims, and despite the entry of an Order from a California federal court

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staying the litigation pending the completion of the arbitration, RCR has made clear that it will arbitrate only one issue (relating to RCR's obligation to provide collateral) with one of the claimants (ACE). In short, RCR has unambiguously refused to arbitrate any issues with ESIS, and all but one issue with ACE. RCR expressly disputes that the Arbitration Panel has the authority to decide on the scope of the arbitration itself, as well as the question of the obligation by RCR to arbitrate its claims with ESIS. RCR has taken these positions even though the relevant contracts contain arbitration provisions that incorporate the rules of the American Arbitration Association (the "AAA"), which in turn specify that these issues shall be determined by the Arbitration Panel. Although RCR previously filed its lawsuit in California, any motion to direct and compel an arbitration being conducted in Philadelphia under the Federal Arbitration Act ("FAA") must be filed in the federal district where the arbitration is taking place. For these reasons, and for the other reasons stated below, ACE and ESIS now turn to this Court for relief pursuant to the FAA.1 In support of their petition, ACE and ESIS state as follows: PARTIES, JURISDICTION, AND VENUE 1. Petitioner ACE was and is a corporation duly organized and existing under the

laws of the Commonwealth of Pennsylvania. ACE is an insurer in the business of providing various lines of insurance, including commercial general liability policies.

To avoid any confusion, ACE and ESIS are not asking that this Court to determine the scope of the arbitration clauses or RCR's obligation to arbitrate with ESIS, as these issues are properly within the purview of the Arbitration Panel.

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2.

Petitioner ESIS was and is a corporation duly organized and existing under the

laws of the Commonwealth of Pennsylvania. ESIS is a third-party administrator of claims, and is not an insurer. 3. Upon information and belief, Respondent RCR was and is a corporation duly

organized and existing under the laws of the State of California and doing business in California, County of Riverside. 4. This Court has subject matter jurisdiction under Section 4 of the FAA, 9 U.S.C.

4, and 28 U.S.C. 1332, because the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and there exists complete diversity of citizenship between ACE and ESIS, on the one hand, and RCR, on the other hand. 5. This Court has personal jurisdiction over RCR under 9 U.S.C. 4, because the

parties have written contracts that require, among other things, that all disputes be resolved in arbitration to be conducted in Philadelphia, Pennsylvania, and because of RCR's contacts with this jurisdiction, which include, inter alia, the location where its letter of credit has been deposited. 6. Venue is proper in this District under 28 U.S.C. 1391(a) and 9 U.S.C. 4,

because the parties are subject to the personal jurisdiction of this Court; because the parties agreed to conduct an arbitration that is currently pending within this District; and because, as explained below, only this Court is empowered to direct and compel arbitration in a situs falling within this District. FACTUAL AND PROCEDURAL BACKGROUND A. 7. The Relevant Agreements On October 13, 2003, RCR's predecessor, AMP AM RCR Companies

("AMP AM"), and certain of its subsidiaries and affiliates (collectively with AMP AM, the

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"Debtors") filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. At about the same time, AMP AM negotiated with several potential insurance carriers, including ACE, to provide general liability, automobile liability, and workers' compensation insurance coverage so that the Debtors could continue in the construction business. 8. Ultimately, AMP AM selected ACE to provide it with worker's compensation,

general liability, and automobile liability insurance coverage. ACE subsequently issued four successive insurance policies ("ACE Policies" or "Policies") to AMPAM, and later to RCR, from November 1, 2003 to November 1, 2007. AMP AM, and later RCR, specifically sought an insurance program under which AMPAM, and then RCR, would be financially responsible for claim-related losses and expenses under high deductibles. The benefit to an insured of a highdeductible program is much lower premiums. 9. From the beginning, ACE was willing to, and did, provide a high-deductible

insurance program. However, following ACE's customary practice, and in light of AMP AM's exceptionally poor financial condition, ACE would agree to provide such insurance only under certain terms and conditions. For this reason, ACE required AMP AMand later RCRto provide collateral security to ACE. 10. In this connection, ACE required AMPAMand then RCRto enter into

Program Agreements detailing the terms and conditions of the insurance program. The Program Agreements were in effect during the same time-period as the ACE Policies and remained in effect throughout the four relevant years. A copy of the 2003 Program Agreement is attached hereto as Exhibit 1. 11. The Program Agreements provided that RCR was ultimately responsible for

paying or reimbursing any and all losses that fell within high deductibles. The purpose of the

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collateral was to protect ACE against a default by RCR in its obligation to pay for, or to reimburse ACE for payments within the deductible. 12. The Program Agreements also required that a third party administrator, selected

by AMP AM and later RCR, be assigned to handle all claims brought against the ACE Policies, and that AMP AM and RCR pay for the claims handling costs within the deductible. 13. The claims administrator for all four of the relevant years was ESIS. Its role was

to investigate, adjust, settle, and provide for the defense of claims and to collect, calculate, and administer the Paid Loss Deposit Fund. 14. The Program Agreement for the first year of the insurance program (i.e., 2003-04)

specified that ACE had contracted with ESIS to perform the claims handling. 15. Thereafter, AMP AM, and later RCR, contracted directly with ESIS through a

Risk Management Services Agreement (the "RMSA"). Each RMSA required ESIS to "investigate, adjust, and otherwise administer Client's ... claims that result from occurrences taking place during the term" of the agreement. The RMS As were in effect during the same time period as the ACE Policies and remained the same during the four-year period in all relevant respects. A copy of an RMSA is attached as Exhibit 2. B. 16. The Broad Arbitration Provisions in the Program Agreements and RMSAs The Program Agreements and RMSAs all contain broad mandatory arbitration

provisions that require the parties to the contracts to submit any and all disputes arising from or relating to the agreements to binding arbitration. The arbitration clauses specifically incorporate and require adherence to the AAA Rules. 17. Article VI, Paragraph 5 of each of the Program Agreements directs that the

arbitration is to be conducted in Philadelphia, PA in accordance with AAA Rules, as follows:

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5. Arbitration: Any controversy, dispute, claim or question arising out of or relating to this Agreement, including without limitation its interpretation, performance or non-performance by any party, or any breach thereof (hereinafter, collectively, Controversy) shall be referred to and resolved exclusively by three arbitrators through private, confidential arbitration conducted in Philadelphia, PA ... Except as otherwise specifically provided in this Article, the arbitration of any Controversy shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Exh. 1 at p. 8 (emphasis added). 18. Section 5 (J) of the RMS As likewise provides that the arbitration is to be

conducted in accordance with AAA Rules: J. Arbitration - In the event that a dispute arises concerning the meaning, interpretation or performance of this Agreement, such dispute shall be resolved consensually if possible and, if not possible, by binding arbitration of the dispute...The arbitration rules and procedures of the American Arbitration Association shall be employed Exh. 2 at p. 6 (RMSA) (emphasis added). C. 19. The Relevant American Arbitration Association Rules Among the AAA Rules incorporated into the arbitration clauses, and to which the

parties have agreed, are Rules 1(a) and 7(a). 20. AAA Rule 1(a) provides that "[tjhe parties shall be deemed to have made these

rules apart of their arbitration agreement whenever they have provided for arbitration by the American Arbitration Association (hereinafter AAA) under its Commercial Arbitration Rules or for arbitration by the AAA of a domestic commercial dispute without specifying particular rules...." (Emphasis added). A true and correct copy of Rule 1(a) of the current AAA Commercial Arbitration Rules is attached hereto as Exhibit 3. 21. AAA Rule 7(a) provides that "[t]he arbitrator shall have the power to rule on

his or her own jurisdiction, including any objections with respect to the existence, scope or

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validity of the arbitration agreement." (emphasis added). A true and correct copy of Rule 7(a) of the current AAA Commercial Arbitration Rules is attached hereto as Exhibit 3. D. 22. RCR's Filing of Lawsuit Against ACE and ESIS In breach of its agreements with ACE and ESIS, on July 7, 2010, RCR initiated a

lawsuit entitled RCR Plumbing and Mechanical, Inc v. ACE American Ins. Co. and ESIS, Inc., No. EDCV 10-00995 VAP (DTBx) (the "California Action"), by filing a Complaint. RCR never served this Complaint on ACE and ESIS. 23. On March 1, 2011, RCR filed its First Amended Complaint, asserting claims for

breach of contract, breach of the implied covenant of good faith and fair dealing, and seeking declaratory relief. See Exhibit 4 (First Amended Complaint, attached hereto without exhibits). E. 24. ACE and ESIS' Demand for Arbitration On March 21, 2011, ACE and ESIS initiated an arbitration in Philadelphia,

Pennsylvania ("the Philadelphia Arbitration") by serving a Demand for Arbitration upon RCR. See Exhibit 5 (Demand for Arbitration). ACE and ESIS commenced the Philadelphia Arbitration in order to resolve all of the issues and claims presented in RCR's First Amended Complaint, a copy of which was attached to the Demand for Arbitration. 25. RCR responded to the Demand for Arbitration on April 20, 2011, with a

reservation of rights to later challenge the arbitrability of the dispute, an objection to the arbitration, and a designation of its party-appointed arbitrator. See Exhibit 6. F. 26. Order Staying the Litigation in the California Action On March 21,2011, ACE and ESIS filed a Motion to Dismiss for Failure to

Arbitrate or, in the Alternative, to Stay the Action ("Motion to Stay") in the California Action. ACE and ESIS based their Motion to Stay on the arbitration clauses found in the Program Agreements and the RMS As. See Exhibit 7 at p. 1-2 (Motion to Stay).

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27.

On May 2,2011, based upon the broad arbitration provisions of the Program

Agreements and the RMS As, the Central District Court of California issued an order staying the California Action pending arbitration of RCR's claims in Philadelphia. Exhibit 8 at p. 29 1. 1315 (May 2, 2011 Order). 28. On June 3, 2011, the Central District Court of California issued a Minute Order,

inter alia, clarifying that the entire litigation is stayed pending the resolution of the arbitration in Philadelphia, Pennsylvania. Exhibit 9 at pp. 1-2. 6 (Minute Order). 29. That same day, the Central District Court of California issued an Amended Order

incorporating the clarifications it discussed in the Minute Order. See Exhibit 10 (Amended Order). 30. The Amended Order held, in part, that RCR had failed to demonstrate that the

arbitration provisions in the Program Agreements were either procedurally or substantively unconscionable. Id. at pp. 23-26. 31. Further, the Amended Order held that one of RCR's claimsthat ACE required it

to commit to an unreasonable collateral obligation "clearly fall[s] under the arbitration provisions in the Program Agreements," because "[t]he terms of the collateral obligation are contained in the Program Agreements." Id. at p. 25,1. 14 - p. 27,1. 23. 32. The Amended Order also noted that, because a motion to compel arbitration was

not before that Court, the Court was not reaching "which of [RCR]'s claims should be arbitrated or whether ESIS may choose to participate in the arbitration between [RCR] and ACE." Id. at p. 29,1. 23-27.2

In the Amended Order, the Court did not provide an indication that it was aware that ESIS itself had filed for arbitration against RCR.

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33.

Nevertheless, having found that at least those issues related to the collateral

obligation were arbitrable, that Court clarified that, "given the interrelated nature" of the arbitrable collateral obligation issues under the Program Agreement and other claims, the entire action must be stayed, Exh. 9 (Minute Order) at p. 7, "pending arbitration of some or all of [RCR's] claims in Philadelphia." Exh. 10 (Amended Order) at p. 29,1. 13-16. 34. The Central District Court of California presciently explained that "[i]f the parties

prove unable to agree which claims are subject to arbitration without the Court's intervention, the parties may bring a motion to compel arbitration." See Exh. 9 at p. 7 (Minute Order). G. 3 5. The Dispute Regarding Arbitrability On May 4,2011, the Arbitration Panel in the Philadelphia Arbitration, through the

Umpire Mr. John Costigan, gave notice to the parties that an Organizational Meeting was to be held on June 20, 21, or 22, 2011, and that the parties should meet and confer prior to the submission of their respective Position Statements, which were to be submitted ten days before the Organizational Meeting. See Exhibit 11. 36. On May 13,2011, RCR requested the Organizational Meeting be held on June 21,

2011. See Exhibit 12. 37. On June 9, 2011, the Parties engaged in a meet-and-confer conference during

which RCR refused to submit all of its claims to arbitration. See Declaration of Richard H. Lowe ("Lowe Declaration") at fl 4-7. 38. During the meet-and confer-conference, RCR: (1) denied that all of the issues it

raised in its First Amended Complaint in the California Action are arbitrable; (2) denied that the Arbitration Panel has the ultimate authority to determine which of the issues in dispute are arbitrable, and stated that the Court had such ultimate authority; and (3) challenged ESIS's

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ability to arbitrate the claims asserted against it in RCR's First Amended Complaint. Id. atfflf611. 39. Specifically, at the June 9, 2011 meet-and-confer conferenceand in its

subsequent June 10, 2011 letterRCR expressly stated that it would oppose the submission to the Arbitration Panel of any issue beyond the collateral obligation with ACE; and that because RCR had already "opted out" of the arbitration of claims against ESIS (or would soon do so), RCR would not agree that any issues relating to ESIS could be properly submitted to the Arbitration Panel. Id. atfflf8, 12-14, and Exhibit A attached thereto. 40. At the June 9, 2011 meet-and-confer conference, RCR also said that if ACE and

ESIS disagreed, ACE and ESIS should file a petition to compel arbitration to resolve this issue. Id. at 19. 41. Accordingly, ACE and ESIS request an order of this Court directing that the

arbitration panel in Philadelphia conducting the pending arbitration between ACE and ESIS, on the one hand, and RCR, on the other, determine: (a) the scope of the claims to be arbitrated; and (b) the obligation by RCR to arbitrate its claims with ESIS. REQUEST FOR RELIEF 42. The foregoing arbitration provisions are enforceable by this Court pursuant to the

Federal Arbitration Act, 9 U.S.C. 1 et seq. 43. Action. 44. Title 9 U.S.C. 4 of the Federal Arbitration Act provides that, "upon being The Agreements already have been held to be enforceable in the California

satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement." 9 U.S.C. 4. 10

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45.

The arbitration clauses specifically require that the rules of the American

Arbitration Association govern the pending Philadelphia Arbitration. 46. Under the AAA Rules, the parties are required to submit to the arbitrator the issue

of which claims are within the scope of the arbitration clauses. See Exh. 3 (AAA Rules 1(a) & 7(a)). 47. RCR's refusal to agree to submit to the Arbitration Panel in the pending

Philadelphia Arbitration the issue of which of RCR's claims are subject to arbitration unambiguously manifests its intention not to arbitrate pursuant to the terms of the arbitration provisions, and entitles ACE and ESIS to the relief they seek in this Petition. 48. Because the arbitration is already pending in this District, not in the Central

District of California where the Stay Order was entered, ACE and ESIS have submitted a petition with this Court to compel arbitration. See 9 U.S.C. 4 ("proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed") (emphasis added); Econo-Car Int'l, Inc. v. Antilles Car Rentals, Inc., 499 F.2d 1391, 1394 (3d Cir. 1974) (district court has power to order arbitration inside the district in which the district court is located, and not outside that district).

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WHEREFORE, based upon the foregoing and the accompanying Memorandum of Law, Petitioners ACE and ESIS respectfully request that this Honorable Court enter an Order directing that the arbitration panel in the pending Philadelphia Arbitration between ACE and ESIS, on the one hand, and Respondent RCR, on the other, determine a) the scope of the claims to be arbitrated and b) the obligation by RCR to arbitrate its claims with ESIS, and granting such further relief as the Court may deem proper.

Richard H. Lowe, Esquire (PA ID. No. 43973) Daniel R. Walworth, Esquire (PA I.D. No. 204968) Duane Morris LLP 30 South 17th Street Philadelphia, PA 19103 Tel: 215-979-1137/215-979-1194 Fax: 215-689-3592/215405-2917 Email: rhlowe@duanemorris.com dwalworth@duanemorris.com Attorneys for Petitioners ACE American Insurance Company and ESIS, Inc. Date: June 17,2011

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