Change font size
It is currently Tue Apr 25, 2017 3:11 pm
Adkisson's Captive Insurance Companies
Untitled 1

 

Adkisson's Captive Insurance Companies  Real Experience Means Over 100 Captives Formed Since 1998      
Riser Adkisson LLP
The Captive Insurance Law Firm
Newport Beach, CA - Athens, GA
info @ risad.com or 949-200-7753
Formation & Licensing -- Second Opinions -- Ongoing Review -- Litigation of Captive Issues

 

Captive Insurance News and Events

Capstone - PoolRe - Arbitration Of Risk Pool Dispute

News and upcoming events involving captive insurance companies and alternative risk management, including association meetings, educational forums, etc. Please send us your news, press release, or meeting information to add to our list! Send to jay <at> captivebook.com

Capstone - PoolRe - Arbitration Of Risk Pool Dispute

Postby Riser Adkisson LLP » Mon Aug 05, 2013 9:09 pm

PoolRe Ins. Corp. v. Organizational Strategies, Inc., 2013 WL 3929077 (S.D.Tex. July 29, 2013). _ http://goo.gl/B83WZP

United States District Court, S.D. Texas.

POOLRE INSURANCE CORP., Plaintiff,

v.

ORGANIZATIONAL STRATEGIES, INC., et al., Defendants.

Civil Action No. H–13–1857.

July 29, 2013.

Attorneys and Law Firms

Joseph F. Greenberg, The Feldman Law Firm LLP, Houston, TX, for Plaintiff.

John F. Unger, Royston Rayzor Et Al., Houston, TX, for Defendants.

Opinion

Memorandum Opinion & Order

GRAY H. MILLER, District Judge.

*1 Pending before the court are the following: (1) plaintiff PoolRe Insurance Corp.'s ("PoolRe")1 second amended petition, motion to confirm arbitration award ("motion to confirm"), and motion to compel arbitration ("motion to compel") (Dkt.6); (2) defendants Organizational Strategies, Inc. ("OSI"), Nicolette Hendricks, and William Hendricks's (collectively, "defendants" or "OSI parties") opposition to the motion to compel (Dkt.9); and (3) defendants' motion for a temporary restraining order ("TRO motion"). Dkt. 10.

The court has carefully reviewed the pleadings, briefing, exhibits, and applicable law. Plaintiff's motion to compel (Dkt.6) is DENIED; any and all arbitration proceedings related to the second arbitration2 are immediately STAYED pending further order of this court; proceedings related to plaintiff's motion to confirm (Dkt.6) are STAYED pending Judge Andrews's decision on the motion to compel arbitration; and the TRO motion (Dkt.10) is DENIED AS MOOT.

I. Background

This contract dispute regarding captive insurance companies3 is now before two federal district courts and is the subject of two arbitral proceedings. Nevertheless, the court will provide a brief summary of the relevant facts that have already been presented to the respective tribunals, beginning with an identification of the parties to the relevant disputes.4

A. Factual Background

Capstone is a series of related companies that provide turnkey formation and administration of captive insurance companies. See De. Case Dkt. 6, Ex. E (Capstone's first arbitration demand) at 1–2. Capstone administers PoolRe, a third party insurer engaged in providing pooling insurance services, on behalf of its officers, directors, and owners, id. at 2, and the Firm provides legal services related to Capstone's support for the captive insurance companies. Id. at 1 n. 2.5 Nicollete and William Hendricks manage OSI, a professional services firm that provides classified programming and systems work for the United States Department of Defense. Id. at 1.

In April 2011, the OSI parties sought advice from the Firm regarding captive insurance planning options. See De. Case Dkt. 6, Ex. G (planning memorandum) at 1. On April 25, 2011, Stewart Feldman, the named partner of the Firm, sent a planning memo to the OSI parties, outlining the process for the provision of services and describing the need for a feasibility study "addressing the application of alternative risk/captive planning to your operating entities." Id. After an on-site visit to OSI, the Firm sent an engagement letter to the OSI parties on June 20, 2011 for the "formation and administration of a captive insurance program." De. Case Dkt. 6, Ex. F at 1. This multi-year agreement contemplated the formation of two to three captive insurance companies under section 831(b) of the Internal Revenue Code. Id. Further, the parties to the agreement understood that these companies would underwrite alternative risk programs for the benefit of the OSI parties to protect them against loss exposures beyond those covered by other commercial insurance carriers. Id. at 1–2. The letter noted that this protection was "especially critical given the niche industry in which OSI operates." Id. at 2. As a defense contractor with more than 200 staff personnel, OSI maintains field offices across the United States specializing in applied technology and services. Id.

*2 Both the planning memo and the engagement letter contain identical attachments regarding client information and billing guidelines. See De. Case Dkt. 6, Ex. F at 14–16; id., Ex. G at 7. Within the guidelines, the parties agreed to a broad arbitration provision, including a clause specifying that an arbitrator, not a court, would hear "any and all ... disputes or claims whatsoever between us related to or arising out of our services (but in no event for attorneys' fees and/or costs)...." See, e.g., De. Case Dkt. 6, Ex. G at 7 (hereinafter referred to as the "disputes clause"). And after that clause, the arbitration provision contained a delegation of authority to decide gateway and substantive questions of arbitrability to the arbitrator: "All arbitration ... shall be conducted pursuant to the Commercial Arbitration Rules of the AAA ... [and] ... the issue of arbitrability shall ... be decided by the arbitrator, and not by any other person. That is, the question of whether a dispute itself is arbitrable shall be decided solely by the arbitrator and not, for example, by any court...." Id. (hereinafter referred to as the "delegation clause").

The engagement letter also included an Exhibit B, the Capstone Services Agreement (the "services agreement"), which was to be entered among the Capstone entities, the OSI parties, and the three captive companies, namely Optimal Casualty Corp., Systems Casualty Corp., and Integration Casualty Corp. (the "captives"). De. Case Dkt. 6, Ex. B to Ex. F at 1. The parties agreed that the services agreement would become effective at a subsequent date upon the "issuance of the insurance licenses for each of the [captives]." Id. Although the parties' briefing does not mention the precise issuance date, neither party disputes the services agreement's validity. In fact, Capstone's second arbitration demand invokes the protections of the services agreement and seeks relief against the OSI parties for allegedly disclosing Capstone's intellectual property in violation of Article V of that agreement. See Dkt. 10, Ex. A (second arbitration demand) at 2 (captioned as "Claimant Capstone's New Demand for Arbitration Regarding Violation of Capstone Services Agreement Article V (Information Disclosure and License)"). Further, Article VI of the services agreement contains a venue clause specifying that "[f]or purposes of any disputes arising under Article V of this Agreement, the sole venue and jurisdiction for resolution of such disputes shall be courts located in Harris County, Texas." See id., Ex. B at 9 art. 6.4 (emphasis added). Article VI does not specifically refer to the prior broad arbitration clauses contained in the billing guidelines of the Firm, but Article 6.1 provides: "To the extent of any conflict between the terms and provisions of this Agreement and the Engagement Letter, this Agreement exclusively shall control." Id. at 9 art. 6.1; accord id. at 2 art. III ("Any conflict between this Agreement and the Engagement Letter shall be construed in a manner giving precedence to this Agreement in all cases whatsoever."); Dkt. 10, Ex. C (Capstone's reply on its motion to compel in the Delaware Case) at 7 (describing the relationship between the guidelines' and services agreement's forum provisions and admitting that "[t]he first sentence of the venue clause merely carves out an exception that intellectual property disputes must be resolved in courts located in Harris County, Texas") (emphasis added).

*3 From June 2011 through early 2012, Capstone provided its services under the engagement letter to the OSI parties without any apparent material disputes. De. Case Dkt. 6, Ex. E at 2. However, in 2012, a disagreement arose when OSI's retained accounting firm, Watkins Meegan, performed its annual audit and prepared OSI's tax return. Id. As a result of Watkins Meegan's work, OSI requested in mid–2012 that Capstone alter certain accounting information for 2011 involving PoolRe and the three captives. Id. Capstone resisted the request, claiming that it could not justify the alterations. Id.

After continued discussions throughout 2012 failed to achieve a resolution, PoolRe cancelled its agreements with the captives and returned the total deposit of retention premiums. Id. OSI subsequently claimed that it had not received the refund checks, and PoolRe began a process of tendering the disputed funds to an escrow account in Anguilla, PoolRe's domicile.6 Further, in December 2012, after consulting with ethics counsel, the Firm withdrew from further work for the OSI parties until the dispute was resolved. Id. at 3. On February 26, 2013, the OSI parties sent a letter to Capstone, which the latter contends effectively blocked Capstone from providing further services to the OSI parties under the engagement letter. Id.; see also De. Case Dkt. 6, Ex. H.

B. Procedural Background

Capstone filed an arbitration demand (the "first arbitration") against the OSI parties on March 12, 2013. De. Case Dkt. 6, Ex. E at 1. Capstone stated that its claim arose "out of a breach of contract in which the [OSI parties] made further performance by [Capstone] impossible." Id. at 1. Capstone forwarded its demand to Dion Ramos ("Ramos")7 of Conflict Resolution Systems, PLLC ("CRS") in Houston, Texas on Friday, March 15, 2013, and requested that he appoint an arbitrator and set a scheduling order.8 Dkt. 6, Ex. 7 (email string) at 3. On Monday, March 18, 2013, Ramos appointed himself as the arbitrator of the first arbitration pursuant to CRS procedures. Id. at 2–3.

On March 29, 2013, the director of the Anguilla Financial Services Commission, Keith Bell, sent a letter to "PoolRe Property & Casualty Insurance Corporation, c/o Capstone Insurance Management (Anguilla), Ltd." located in The Valley, Anguilla, to Stewart Feldman's attention. Dkt. 6, Ex. 6. The letter related to PoolRe's dispute with the captives, for which PoolRe was seeking arbitration under clauses that specified as follows:

The ICC Rules of Arbitration shall control except with respect to the selection of the arbitration panel, which shall consist of one qualified, independent arbitrator selected by the Anguilla, B.W.I. [British West Indies] Director of Insurance.... The Arbitration Proceeding shall take place in the Territory of Anguilla, B.W.I.

Dkt. 6 at 5 para. 11 (quoting the arbitration provision in three stop loss endorsements between PoolRe and each captive). Bell notified Stewart Feldman that he understood that certain arbitration provisions in insurance agreements designated "the Anguilla, B.W.I. Director of Insurance" to select an independent arbitrator for dispute resolution. Dkt. 6, Ex. 6 (letter from director Keith Bell) at 1. Bell further explained that while there was no such official in Anguilla, he designated Ramos and CRS as the independent arbitrators and administrators of the arbitration proceedings. Id. at 1–2. He also directed that further contact should be made with Ramos at his Houston address. Id.

*4 PoolRe and the Firm then intervened in the initial arbitration, and the parties began discovery in April 2013. See Dkt. 6 at 6 para. 13; De. Case Dkt. 6, Ex. A (the Firm's intervention demand) at 1. Ramos held a series of oral hearings, and OSI filed a motion to dismiss on grounds that the arbitration clauses were not binding. See Dkt. 6 at 6 para. 13; Dkt. 6, Ex. 8 (order on motion to dismiss) at 1. On May 1, 2013, Ramos denied OSI's motion to dismiss, stating in relevant part:

[OSI] argues that the Capstone Services Agreement controls. The Arbitrator finds the Claimant's [Capstone] Arbitration Demand claims violations by the Respondents of the lawfirm's engagement agreement and the Capstone Services Agreement. Clearly the lawfirm's actions under the engagement letter are subject to the Arbitration clause.... The Arbitrator finds that the written agreements between the parties have a valid Arbitration clause which requires all parties to Arbitrate their claims rather than seeking relief in courts.

Id.

Meanwhile, as the first arbitration continued, the OSI parties filed suit in the Delaware Court of Chancery in late April 2013, asserting claims against the Capstone entities for professional negligence, malpractice, fraud in the inducement, and breach of contract. De. Case Dkt. 6, Ex. J (email string) at 2. Vice Chancellor Sam Glasscock, III of the chancery court issued a status quo order on May 1 and set a hearing on the application for a temporary restraining order ("TRO") on May 6, which, if granted, would have stayed the first arbitration. Dkt. 7 at 4 para. 12. But before the TRO hearing, Capstone removed the case to the United States District Court for the District of Delaware on May 2. De. Case Dkt. 1 (notice of removal).

Upon removal the Delaware Case was assigned to Judge Richard G. Andrews. Dkt. 7 at 4 para. 12. On May 24, 2013, Judge Andrews denied the TRO request, vacated the status quo order, and held Capstone's motion to dismiss and motion to compel in abeyance for further briefing. Id. These motions remain pending before Judge Andrews. Id. Notably, as discussed in Part II.C, infra, a critical issue in the motion to compel arbitration is whether, and if so, to what extent, the services agreement supersedes the prior arbitration provisions. See Dkt. 10, Ex. C at 2 (Capstone's discussion in its reply brief regarding the argument over whether "a subsequent agreement, the [services agreement], negated the parties' original arbitration agreement").

And as the parties continued briefing the motion to compel in Delaware, the first arbitration proceeded through discovery and pre-hearing activities in May and June 2013. On Sunday, June 23, three days before the first arbitration hearing was set to begin in Houston on June 26, Capstone filed a second arbitration demand alleging that the OSI parties breached Article V of the services agreement. Dkt. 10, Ex. A at 2. The following day, on Monday, June 24, Capstone and PoolRe filed a notice purportedly withdrawing the second arbitration demand because they "incorrectly failed to note that their May 2013 pleading identified misuse and dissemination of confidential and proprietary information and trade secrets in violation of the parties' contractual agreements as one of their claims. Yesterday, [the Capstone entities] incorrectly filed this as a new claim and incorrectly stated that such was not a claim in the pending arbitration." Dkt. 9, Ex. A (Claimants/Intervenors' Correction) at 1–2. When the hearing began two days later on Wednesday, June 26, Ramos deferred consideration of the second arbitration demand, concluding: "I think I have to treat that as a new claim for arbitration that was filed on Sunday. So it won't be part of this case." See Dkt. 9, Ex. B (Arb. Hr'g Tr., June 26, 2013) at 5:6–8. The first arbitration hearing concluded the following day on Thursday, June 27, 2013. Dkt. 6, Ex. 9 (arbitration award) at 1.

*5 Back on the judicial front, as the parties were preparing for the June 26 arbitration hearing, plaintiff filed a pleading seeking to confirm an arbitration award in the instant case, in which plaintiff applied "to this Court for an order confirming a forthcoming arbitration award." Dkt. 1 (confirmation motion) at 1. Recognizing the unusual step of a litigant seeking confirmation of an award that had not yet been entered, the court issued a show cause order on June 27 and ordered the plaintiff to demonstrate why the court should not dismiss the case for want of jurisdiction under the Federal Arbitration Act. See Dkt. 4 (order to show cause) at 1; 9 U.S.C. sec. 9 (providing jurisdiction for the court to confirm an arbitration award "at any time within one year after the award is made") (emphasis added). The court ordered plaintiff to respond no later than July 9, 2013. Dkt. 4 at 1.

On the evening of July 9, plaintiff timely filed its response (Dkt.5) and filed a second amended petition (Dkt.6) in which plaintiff informed the court that "[t]he arbitrator issued an Arbitration Award concerning all of the matters that were the subject of the first arbitration on July 9, 2013." See Dkt. 6 at 7 para. 14.9 The second amended petition restated plaintiff's original motion to confirm the arbitration award that, as expected, was rendered in plaintiff's favor, and the pleading also moved for the court to compel the defendants to the second arbitration, which was already underway before Ramos. On July 11, the summons were issued, and the defendants filed their answer to plaintiff's second amended petition on July 23, 2013. On the same day, the defendants filed a brief in opposition to the motion to compel arbitration (Dkt.9) and a motion for a TRO to stay the second arbitration. Dkt. 10.

II. Analysis

Plaintiff's second amended petition seeks two measures of relief: (1) an order compelling the OSI parties to participate in the second arbitration; and (2) confirmation of the award entered after the first arbitration. Dkt. 6. As discussed further below, plaintiff's first request will be denied because the claims in the second arbitration are not arbitrable and must be heard in a court located in Harris County, Texas, and consideration of plaintiff's motion to confirm is premature while the issues surrounding the validity of the arbitration agreements remain before Judge Andrews in the Delaware Case.

A. The Motion to Compel

First, Plaintiff contends that the court should compel the OSI parties to participate in the second arbitration pursuant to the relevant arbitration agreements. Dkt. 6 at 7–9 paras. 16–18. The OSI parties respond that the second arbitration's claims for relief arise under Article V of the services agreement and are not arbitrable, as a separate provision of the services agreement provides for resolution of Article V claims in "courts located in Harris County, Texas." Dkt. 9 (OSI parties' response) at 2–5; Dkt. 10, Ex. B at 9 art. 6.4. This court agrees with the OSI parties and holds that the venue clause of Article VI of the services agreement supersedes the broad arbitration provisions of the billing guidelines insofar as they relate to claims for relief under Article V of the services agreement. Accordingly, the claims raised in the second arbitration are not arbitrable and, pursuant to the parties' explicit venue clause, those claims must be heard in a court located in Harris County, Texas. After reviewing the relevant background law for motions to compel arbitration, the court explains its reasoning below.

*6 Under section 4 of the FAA, "[a] party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition ... for an order directing that such arbitration proceed in the manner provided for in such agreement." 9 U.S.C. sec. 4. Section 4's repeated references to the agreement make it clear that a court will often be called upon to decide whether the parties executed a valid arbitration agreement before compelling arbitration of the dispute. Jolley v. Welch, 904 F.2d 988, 994 (5th Cir.1990); Rent–A–Center, W., Inc. v. Jackson, ––– U.S. ––––, ––––, 130 S.Ct. 2772, 2778, 177 L.Ed.2d 403 (2010) ("If a party challenges the validity under [FAA] sec. 2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under sec. 4."). Although movants in these circumstances often tout the strong federal policy favoring arbitration, that policy does not come into play during the initial determination of validity. Will–Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 214 (5th Cir.2003). It arises in step two of the analysis, when the court determines the scope of a valid arbitration agreement through a favorable lens and resolves ambiguities in favor of arbitration. Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1073–74 (5th Cir.2002). But when the agreement "obviously excludes" particular claims from its coverage, those exclusions must be given effect to respect the parties' intent. Local Union No. 4–449, Oil Chem. & Atomic Workers Union v. Amoco Chem. Corp., 589 F.2d 162, 163 (5th Cir.1979) (per curiam). Arbitration is a matter of consent and a method "to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration." First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).

Moreover, in evaluating the threshold issue of arbitrability, the Supreme Court has stated: "The question whether the parties have submitted a particular dispute to arbitration, i.e., the 'question of arbitrability,' is 'an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise.' " Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (quoting AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)). In other words, unlike most issues that the FAA leaves to the arbitrator, the parties must "clearly and unmistakably" intend for the arbitrator to answer the gateway question of arbitrability. Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir.2012). Otherwise, arbitrability is presumptively an issue for the court to decide. Id. "In this manner the law treats silence or ambiguity about the question 'who (primarily) should decide arbitrability' differently from the way it treats silence or ambiguity about the question 'whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement'—for in respect to this latter question the law reverses the presumption." First Options, 514 U.S. at 944–45 (first emphasis added); cf. Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ("[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.").

*7 The court is thus presented with two questions in evaluating the motion to compel: (1) who—whether this court or an arbitrator—makes the gateway decision of arbitrability of the dispute; and (2) if the court finds under federal law that it has the power to decide that question, whether the claims asserted in the second arbitration are arbitrable.

1. Who Determines Arbitrability?

As discussed above, the default rule regarding who decides arbitrability is the court, not the arbitrator, " '[u]nless the parties clearly and unmistakably provide otherwise.' " Petrofac, 687 F.3d at 675 (quoting AT & T Techs., 475 U.S. at 649). In Petrofac, the Fifth Circuit addressed a situation in which the parties incorporated the Rules of the American Arbitration Association ("AAA") into their arbitration agreement. Id. Under AAA Rules, "[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 validity of the arbitration agreement." Id. The court found that the express adoption of these rules provided "clear and unmistakable evidence that the parties agreed to arbitrate arbitrability." Id.

Like Petrofac, the delegation clause in this case contains clear and unmistakable evidence of a delegation of authority to the arbitrator regarding the question of arbitrability. See, e.g., De. Case Dkt. 6, Ex. F at 16 (incorporating the "Commercial Arbitration Rules of the AAA" and purporting to "divest the courts of all powers in disputes involving the parties"). If the delegation clause was the last word on arbitrability, the court's analysis would likely be complete. But this case presents a different reality. The parties before the court executed a subsequent agreement, the services agreement, in which they appeared to depart from the broad grant of arbitrability in prior provisions. Unlike Petrofac, in which the parties clearly expressed their intent in a single agreement, the court must consider the interaction of multiple agreements in assessing whether there is "clear and unmistakable evidence" regarding the question of "who determines arbitrability" in this case.

The court recognizes that Article VI of the services agreement is silent with regard to whether the court or arbitrator should determine the arbitrability of disputes arising under Article V or elsewhere in the agreement. What appears clear, though, is that the parties intended to entrust disputes arising under Article V to a judicial forum in Harris County, Texas. See Dkt. 10, Ex. B at 9 art. 6.4 ("For purposes of any disputes arising under Article V of this Agreement, the sole venue and jurisdiction for resolution of such disputes shall be courts located in Harris County, Texas"); Dkt. 10, Ex. C at 7 (Capstone's concession on this point in its reply in support of its motion to compel pending in the Delaware Case). The key inquiry thus becomes whether the services agreement clearly and unmistakably demonstrates an intent to retain the arbitrator as the decision-maker regarding gateway questions of arbitrability.

*8 There is an argument that the parties' silence in the services agreement should be construed as an implicit affirmance that all arbitral evaluations, including gateway questions, should remain with the arbitrator. However, there is an equally compelling argument that Article VI's anti-arbitration language, particularly regarding the parties' desire to have certain disputes heard by a court of law when resort to such a forum was previously prohibited, demonstrates that the parties revoked the delegation clause. At the very least, the existence of this dispute indicates that the parties' intent is ambiguous, thereby precluding a finding that the services agreement "clearly and unmistakably" reaffirms the delegation clause. Cf. First Options, 514 U.S. at 945 (stating that courts hesitate to find that, in the face of silence or ambiguity, the parties gave the arbitrator the power to make the traditional judicial determination "on the 'who should decide arbitrability' point"). Accordingly, the court holds that because the parties' intent in the services agreement regarding who determines arbitrability is not clear and unmistakable, the delegation clause will not be given effect under federal law, and the default rule of judicial construction applies.

2. Are the Claims in the Second Arbitration Arbitrable?

The court now turns to an evaluation of whether and if so, how, the services agreement revokes or modifies the disputes clause of the engagement letter. For purposes of its analysis the court assumes, without deciding, that the disputes clause has not been revoked in its entirety. Instead, the court turns to the second step of analysis, the determination of whether the claims raised in the second arbitration are within the scope of the parties' arbitration agreements.

As alluded to above, the claims in the second arbitration, which arise under Article V of the services agreement, appear to fall within the auspices of the venue clause of Article VI. That clause states that the sole venue and jurisdiction of Article V disputes regarding intellectual property "shall be courts located in Harris County, Texas." Dkt. 10, Ex. B at 9 art. 6.4. Language in the engagement letter's billing guidelines is broader than the venue clause, but the services agreement provides that "[t] o the extent of any conflict between the terms and provisions of [the services agreement] and the Engagement Letter, [the services agreement] exclusively shall control." Id. at 9 art. 6.1.

Under Texas law,10 the court will construe these provisions and enforce them according to their plain meaning unless to do so would defeat the intentions of the parties. See Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 590 (Tex.App.-Houston [14th Dist.] 1999, no pet.). The court has carefully considered the relevant agreements and agrees with the OSI parties' position in this case, and Capstone's position in the Delaware Case, that the parties intended to carve out disputes under Article V from the broad grant of arbitrability in the previous agreements among the parties.11 The claims in the second arbitration arise under Article V, see Dkt. 10, Ex. A, and thus they are plainly not arbitrable. See Amoco, 589 F.2d at 163 (holding that the federal court's policy favoring arbitration is displaced by the parties' clear exclusions of arbitrability). Plaintiff's motion to compel (Dkt.6) is DENIED.

B. Staying the Second Arbitration

*9 In an ordinary case, the denial of a motion to compel arbitration upon a finding of non-arbitrability would logically preclude initiation of arbitral proceedings. But this case is far from ordinary. The OSI parties have presented documentary evidence that the Capstone entities are currently proceeding with the second arbitration on an expedited schedule, requesting short response deadlines for document production. See Dkt. 10, Ex. D at 2–3 (email dated July 22, 2013 from Stewart Feldman to counsel for OSI, in which he states: "We have document production and deposition requests ready to go, but wanted to reach out to you before involving [Ramos]. We're thinking of 10 days for document responses."). This situation thus requires the court to consider its power under federal law to stay an ongoing arbitration, particularly when this court has determined that the dispute is not arbitrable and must be heard in a court located in Harris County, Texas.

To be sure, the FAA contains no explicit textual support for a federal court to stay ongoing arbitration proceedings. But the case law in the Fifth Circuit and in other circuits establishes that, in "appropriate circumstances," the district court may stay an arbitration. See Tai Ping Ins. Co., Ltd. v. M/V Warschau, 731 F.2d 1141, 1144 (5th Cir.1984). Surely one such circumstance is to prevent the continued arbitration of a dispute that is not arbitrable. See id. at 1147 (suggesting that a stay order is appropriate by distinguishing the converse situation: "Moses Cone makes it clear that only the most exceptional circumstances will justify any action on the part of a federal court that serves to impede arbitration of an arbitrable dispute." ) (emphasis added); see also In re Am. Exp. Fin. Advisors Secs. Litig., 672 F.3d 113, 141 (2d Cir.2011) ("If the parties to this appeal have not consented to arbitrate a claim, the district court was not powerless to prevent one party from foisting upon the other an arbitration process to which the first party had no contractual right."); PaineWebber Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir.1990) ("If a court determines that a valid arbitration agreement does not exist or that the matter at issue clearly falls outside of the substantive scope of the agreement, it is obliged to enjoin arbitration."), abrogated on other grounds by Howsam, 537 U.S. 79, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002); Societe Generale de Surveillance, S.A. v. Raytheon European Mgmt. & Sys. Co., 643 F.2d 863, 868 (1st Cir.1981) (Breyer, Circ. J.) (concluding that "[t]o allow a federal court to enjoin an arbitration proceeding which is not called for by the contract interferes with neither the letter nor the spirit" of the FAA); cf. Texaco, Inc. v. Am. Trading Transp. Co., 644 F.2d 1152, 1154 (5th Cir. Unit A May 1981) (upholding a stay of arbitration in which the dispute was not covered by the arbitration clause).

The court finds the First Circuit's Societe Generale decision particularly helpful in these circumstances. In that case, then-Judge Breyer pointed to the district court's unquestioned power under the FAA to compel parties to arbitration when a stay of litigation is warranted and the dispute is arbitrable under the relevant agreement. See Societe Generale, 643 F.2d at 868. As a corollary to this rule, Judge Breyer found that staying "a party from arbitrating where an agreement to arbitrate is absent is the concomitant of the power to compel arbitration where it is present." Id. Accordingly, because the court has found that the second arbitration raises non-arbitrable claims, the court relies on its inherent powers to stay the second arbitration. To hold otherwise would implicitly sanction the arbitrator's asserted powers over the arbitrability determinations in this dispute, decisions that are within this court's jurisdiction. Any and all arbitration proceedings related to the second arbitration are immediately STAYED pending further order of this court.

C. The Motion to Confirm

*10 Plaintiff also moves the court to confirm the July 9, 2013 arbitration award issued after the conclusion of the first arbitration. See Dkt. 6 at 7 paras. 14–15; id., Ex. 9 (arbitration award). While defendants have not yet responded to the motion to confirm, plaintiff's request requires the court to consider the propriety of continued confirmation proceedings in light of fundamental questions about judicial discretion when a similar matter is pending in another federal court.

The Fifth Circuit follows the general rule that when two cases before different judges raise substantially overlapping issues, the court in which the first case was filed should decide those issues and the second court should defer. See Save Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 950 (5th Cir.1997); W. Gulf Mar. Ass'n v. ILA Deep Sea Local 24, 751 F.2d 721, 728–29 (5th Cir.1985). "The federal courts long have recognized that the principle of comity requires federal district courts—courts of coordinate jurisdiction and equal rank—to exercise care to avoid interference with each other's affairs." W. Gulf, 751 F.2d at 728. "The concern manifestly is to avoid the waste of duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result." Id. at 729. Once the second court determines that its case requires resolution of issues that substantially overlap those in the first court, the second court should abate the matter, either through a stay or a dismissal without prejudice to refiling. Dillard v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 961 F.2d 1148, 1159 (5th Cir.1992) (affirming the district court's stay of duplicative claims pending before another court, for the stay order under those circumstances was within its "broad discretion"); see also First City Nat'l Bank & Trust Co. v. Simmons, 878 F.2d 76, 80 (2d Cir.1989) (affirming dismissal without prejudice). Indeed, "[a] stay pending the outcome of litigation between the same parties involving the same or controlling issues is an acceptable means of avoiding unnecessary duplication of judicial machinery." ACF Indus., Inc. v. Guinn, 384 F.2d 15, 19 (5th Cir.1967).

Much ink has been spilled (including by this court) over whether the OSI parties are subject to valid agreements to arbitrate, and who—the court or the arbitrator—should make that determination. Nonetheless, the questions of validity remain before Judge Andrews and may dispose of the motion to compel in his court. See De. Case Dkt. 4 (motion to compel) at 16 (framing the critical issue as follows: "Plaintiffs' dispute as to arbitrability rests on only one agreement, referred to by Plaintiffs as the [services agreement], which Plaintiffs allege does not have an arbitration provision and controls in the event of any conflict."). Thus, pending Judge Andrews's decision regarding the validity and potential coverage of the arbitration agreements over the claims in the first arbitration, this court finds that it would be imprudent and inefficient to proceed with its consideration of the motion to confirm that presupposes a valid arbitration agreement. In the interests of judicial comity, the proceedings related to plaintiff's motion to confirm (Dkt.6) are STAYED pending Judge Andrews's resolution of the motion to compel in the Delaware Case.

III. Conclusion

*11 For the foregoing reasons, plaintiff's motion to compel arbitration (Dkt.6) is DENIED; any and all arbitration proceedings related to the second arbitration are immediately STAYED pending further order of this court; proceedings related to plaintiff's motion to confirm (Dkt.6) are STAYED pending Judge Andrews's decision on the motion to compel in the Delaware Case; and the TRO motion (Dkt.10) is DENIED AS MOOT.

To ensure timely receipt and compliance with this order by affected parties and non-parties alike, defendants' counsel is ORDERED to serve copies of this order, within two business days of the date of entry of this order, on Ramos, all parties to the first and second arbitrations, Judge Andrews, and all parties to the Delaware Case.

Pending Judge Andrews's ruling on the motion to compel, this case will be ADMINISTRATIVELY CLOSED. The defendants' counsel is further ORDERED to notify this court of Judge Andrews's decision within seven days of the date of entry of his order.

It is so ORDERED.

Footnotes

1

Plaintiff purportedly filed this case on its own behalf and that of The Feldman Law Firm LLP (the "Firm") and its affiliated entities Capstone Associated Services, Ltd., Capstone Associated Services (Nevada), LP n/k/a Capstone Associated Services (Wyoming), LP, and Capstone Insurance Management, Ltd. (collectively, "Capstone"). Dkt. 6 (second amended petition) at 1. Unless otherwise noted, the court's references to the "plaintiff" or the "Capstone entities" include the named plaintiff PoolRe, Capstone, and the Firm.

2

The "second arbitration," as referenced throughout this order, is the "Remaining Arbitration" proceeding described in plaintiff's second amended petition, namely the proceeding styled " 'Capstone Associated Services, Ltd., Capstone Associated Services (Nevada), LP n/k/a Capstone Associated Services (Wyoming), LP, and Capstone Insurance Management (Anguilla), Ltd. (a/k/a Capstone Insurance Management, Ltd.) (collectively, "Capstone") and PoolRe Insurance Corp. v. Organizational Strategies, Inc., Nicolette Hendricks, William Hendricks' and those in privity with any of the aforementioned arbitration respondents." See Dkt. 6 at 7–8 para. 16 (footnote omitted).

3

A "captive insurance company" is "organized for the purpose of insuring the liabilities of its owner." Westchester Fire Ins. v. Heddington Ins. Ltd., 883 F.Supp. 158, 160 n. 4 (S.D.Tex.1995) (Hittner, J.) (quoting Clougherty Packing Co. v. Commissioner, 811 F.2d 1297, 1298 n. 1 (9th Cir.1987)). In Westchester, Heddington Insurance Ltd. was Texaco's captive insurer, and the named insureds under the policy at issue were Texaco and its subsidiaries. Id.

4

In addition to summarizing the facts in the record of this proceeding, the court will also refer to the facts as presented within the related case now pending before Judge Richard Andrews of the United States District Court for the District of Delaware. See Organizational Strategies Inc. et al. v. The Feldman Law Firm LLP et al., No. 1:13–cv–764–RGA (D. Del. removed May 2, 2013) (hereinafter the "Delaware Case" or the "De. Case"). The court takes judicial notice of the pending judicial proceedings and public documents filed in Judge Andrews's related case. See Lowrey v. Tex. A & M Univ. Sys., 117 F.3d 242, 246 n. 3 (5th Cir.1997).

5

According to the Firm's engagement letter with the OSI parties, the Firm is associated with Capstone, "which is owned by certain of the Firm's lawyers and related parties," in order "to provide many of the needed support services." De. Case Dkt. 6, Ex. F (June 20, 2011 engagement letter) at 2.

6

Anguilla is a Caribbean island and a member of the British Overseas Territories. Koehler v. Bank of Berm. (N.Y.) Ltd., 229 F.3d 187, 187 n. 1 (2d Cir.2000) (Sotomayor, Circ. J., dissenting from den. of reh'g en banc). Other members include the Cayman Islands, Bermuda, and the British Virgin Islands. Id.

7

Ramos is a former civil district court judge of the 55th Judicial District Court of Harris County, Texas.

8

Capstone's arbitration demand was emailed to the arbitrator by a senior counsel of RSL Funding, LLC, a nonparty to the arbitration proceeding and both of the federal district court proceedings. Dkt. 6, Ex. 7 at 3–4. RSL Funding's senior counsel identified himself as Capstone's "attorney of record in this arbitration." Id. at 3.

9

For the sake of precision, the court notes that plaintiff filed its response at 11:26 p.m. (CDT) on July 9, and then filed its second amended petition at 1:06 a.m. (CDT) on July 10, 2013. Dkts. 5–6.

10

The services agreement contains a Texas choice-of-law clause, and neither party disputes its applicability. Dkt. 10, Ex. B at 9 art. 6.4.

11

To be clear, the sole issue before the court is whether the Capstone entities' claims in the second arbitration are arbitrable under the allegedly valid agreements among the parties. The court expresses no opinion on whether Article VI of the services agreement effects a broad release of any prior arbitration obligations beyond those specifically excluded by the parties' services agreement as held herein. As discussed in detail later in this opinion, see Part II.C, infra, that issue is appropriately left to the determination of Judge Andrews in the first-filed case in this dispute.

= = = = = = = = C A P T I V E S = = = = = = =

Posted by Jay D. Adkisson, the author of Adkisson's Captive Insurance Companies, with main website http://www.captiveinsurancecompanies.com and with an interactive online forum at http://www.captiveforum.com and blog at http://www.captivenews.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Captive Insurance at http://www.linkedin.com/groups?mostPopular=&gid=3296784

Join our Twitter on Captive Insurance at http://twitter.com/adkissoncaptive

Get our RSS Feed on Captive Insurance at: rss
My book: Adkisson's Captive Insurance Companies: An Introduction to Captives, Closely-Held Insurance Companies and Risk Retention Groups
My website: http://www.captiveinsurancecompanies.com
My e-mail: jay >>>at<<< risad.com
My phone: 900-200-7284
User avatar
Riser Adkisson LLP
The Captive Insurance Lawfirm - http://www.risad.com
The Captive Insurance Lawfirm - http://www.risad.com
 
Posts: 135
Joined: Sun Nov 23, 2008 8:41 pm
Location: Admitted in Arizona, California, Nevada, Oklahoma and Texas

Re: Capstone - PoolRe - Arbitration Of Risk Pool Dispute

Postby Riser Adkisson LLP » Tue Aug 06, 2013 11:00 am

This dispute is a doozy between the owners of a captive and a captive management firm (Capstone) and its related law firm (Feldman Law Firm) and Risk Pool in Angiulla (PoolRe). Apparently, there was:

(1) An arbitration in Anguilla, alleged by the owners of the captive captive to be a sham;

(2) A lawsuit by the captive owners in the Delaware Court of Chancery, which was then removed to the U.S. District Court for the District of Delaware; and

(3) Another action in the U.S. District Court for the District of Texas where PoolRe apparently has tried unsuccessfully to shift the litigation down there -- this is the case that popped up on my Westlaw search that flagged this litigation to me.

Full Opinion of the Texas Court at http://goo.gl/B83WZP

To get a full favor of what is going on, you must read:

The Delaware removal petition - http://www.captiveinsurancecompanies.co ... 2may13.pdf

OSI's Motion for TRO in the Delaware action - http://www.captiveinsurancecompanies.co ... 2may13.pdf

Enjoy! But note that allegations by any party are just that -- allegations, and apparently no court has yet made finding of anything.
My book: Adkisson's Captive Insurance Companies: An Introduction to Captives, Closely-Held Insurance Companies and Risk Retention Groups
My website: http://www.captiveinsurancecompanies.com
My e-mail: jay >>>at<<< risad.com
My phone: 900-200-7284
User avatar
Riser Adkisson LLP
The Captive Insurance Lawfirm - http://www.risad.com
The Captive Insurance Lawfirm - http://www.risad.com
 
Posts: 135
Joined: Sun Nov 23, 2008 8:41 pm
Location: Admitted in Arizona, California, Nevada, Oklahoma and Texas

Re: Capstone - PoolRe - Arbitration Of Risk Pool Dispute

Postby Riser Adkisson LLP » Tue Aug 06, 2013 11:00 am

This dispute is a doozy between the owners of a captive and a captive management firm (Capstone) and its related law firm (Feldman Law Firm) and Risk Pool in Angiulla (PoolRe). Apparently, there was:

(1) An arbitration in Anguilla, alleged by the owners of the captive captive to be a sham;

(2) A lawsuit by the captive owners in the Delaware Court of Chancery, which was then removed to the U.S. District Court for the District of Delaware; and

(3) Another action in the U.S. District Court for the District of Texas where PoolRe apparently has tried unsuccessfully to shift the litigation down there -- this is the case that popped up on my Westlaw search that flagged this litigation to me.

Full Opinion of the Texas Court at http://goo.gl/B83WZP

To get a full favor of what is going on, you must read:

The Delaware removal petition - http://www.captiveinsurancecompanies.co ... 2may13.pdf

OSI's Motion for TRO in the Delaware action - http://www.captiveinsurancecompanies.co ... 2may13.pdf

Enjoy! But note that allegations by any party are just that -- allegations, and apparently no court has yet made finding of anything.
My book: Adkisson's Captive Insurance Companies: An Introduction to Captives, Closely-Held Insurance Companies and Risk Retention Groups
My website: http://www.captiveinsurancecompanies.com
My e-mail: jay >>>at<<< risad.com
My phone: 900-200-7284
User avatar
Riser Adkisson LLP
The Captive Insurance Lawfirm - http://www.risad.com
The Captive Insurance Lawfirm - http://www.risad.com
 
Posts: 135
Joined: Sun Nov 23, 2008 8:41 pm
Location: Admitted in Arizona, California, Nevada, Oklahoma and Texas

Re: Capstone - PoolRe - Arbitration Of Risk Pool Dispute

Postby Riser Adkisson LLP » Thu Feb 20, 2014 9:50 am

Capstone wins on the arbitration agreement in Delaware, see Organizational Strategies, Inc. v. Feldman Law Firm, LLP, 2014 WL 576324 (D.Del., Feb. 12, 2014).

United States District Court, D. Delaware.Organizational Strategies, Inc., Integration Casualty Corp., Systems Casualty Corp., and Optimal Casualty Corp., Plaintiffs,v.The Feldman Law Firm LLP, Stewart A. Feldman, Capstone Associated Services (Wyoming) LP, Capstone Associated Services, Ltd., and Capstone Insurance Management, Ltd., Defendants.Civil Action No. 13–764–RGAFebruary 12, 2014Attorneys and Law FirmsNeil R. Lapinski, Esq., Gordon, Fournaris & Mammarella, Wilmington, DE, attorney for Plaintiffs.Kelly E. Farnan, Esq., Richards, Layton & Finger, Wilmington, DE, attorney for Defendants.OpinionMemorandum OpinionANDREWS, U.S. District Judge: *1 Presently before the Court are Defendants The Feldman Law Firm LLP, Capstone Associated Services (Wyoming) LP and Capstone Insurance Management, Ltd.'s Motion to Dismiss or, in the Alternative Stay (D.I. 24), Defendant Stewart A. Feldman's Motion to Dismiss for Lack of Personal Jurisdiction (D.I. 26), Defendant Capstone's Joinder in Other Defendants' Previous Motions to Dismiss and Its Motion to Dismiss for Lack of Subject Matter Jurisdiction or Alternatively to Transfer to the Southern District of Texas (D.I. 40), as well as related briefing.This case arises out of an agreement between Plaintiff Organizational Strategies, Inc. (“OSI”) and Defendants to set up and run three captive insurance companies, Plaintiffs Integration Casualty Corp., Systems Casualty Corp, and Optimal Casualty Corp (“the captives”). Captive insurance companies are owned by the policyholder and result in a number of tax advantages. Because captives qualify as an insurance company under the Internal Revenue Code, premiums paid to the captive are deductible business expenses. Because the policyholder owns the captive, they have control over the investment of the premiums. Additionally, if the captive has $1.2 million or less in annual premium income, it is taxed only on its investment income.In this case, the Feldman Law Firm was responsible for setting up the three captives and Capstone was responsible for managing them. In 2011, in the course of an audit of OSI, an independent auditor questioned the amount of the premiums paid to the captives. OSI engaged an independent captive insurance consultant, who concluded that the premiums were too high, and would not withstand scrutiny by the Internal Revenue Service. OSI alleges that this would have resulted in the captives losing their status as bona fide insurance companies, thereby negating their tax advantages. OSI asked Defendants to adjust the premiums. Defendants refused, leading to this suit. Defendants contend that this suit is covered by an arbitration agreement. Plaintiffs dispute this.There are numerous arguments in the briefs. Because the Texas arbitrator has decided that there are valid arbitration agreements between the parties, Defendants argue that should be the end of the matter. Furthermore, Defendants argue that because the arbitration has already taken place, Plaintiffs are bound by res judicata and collateral estoppel. These arguments put the cart before the horse. If there was no agreement to arbitrate in the first place, then what happened in the arbitration is irrelevant.The agreement at issue is in two parts, the Engagement Letter (D.I. 30–1 at 2) and the Capstone Services Agreement (“Services Agreement”) (D.I. 30–1 at 20). The Engagement Letter lists as enclosures an Engagement Retainer Invoice, Guidelines on Firm Administration and Billing, Exhibit A—Duties and Responsibilities of Capstone and The Feldman Law Firm, Exhibit B—the Capstone Services Agreement, Exhibit C—Tax Risks, and Exhibit D—Comparison of Types of Captives. Only the Engagement Letter is executed. The parties, however, agree that the Engagement Letter and Services Agreement are part of an integrated agreement. (D.I. 30 at 2). *2 The Guidelines on Firm Administration and Billing contains the arbitration language, which states:With respect to any and all other1 disputes or claims whatsoever between us related to or arising out of our services (but in no event for attorney's fees and/or costs), such shall be submitted to a recognized, neutral, arbitral association or arbitrator for resolution pursuant to its single arbitrator, expedited rules ...The parties agree that the issue of arbitrability shall likewise be decided by the arbitrator, and not by any other person. That is, the question of whether a dispute itself is arbitrable shall be decided solely by the arbitrator and not, for example, by any court. In so doing, the intent is to divest the courts of all powers in disputes involving the parties, except for the confirmation of the award and enforcement thereof.(D.I. 30–1 at 16–17) (footnote added). The Services Agreement contains a venue and jurisdiction clause, which states:For purposes of any dispute arising under Article V of this Agreement, the sole venue and jurisdiction for resolution of such disputes shall be courts located in Harris County, Texas.2 As to other disputes arising under this Agreement (with the express exception of disputes arising under Article V hereof), venue and jurisdiction shall be in Delaware, it being expressly recognized that parallel proceedings may thereby result.(D.I. 30–1 at 28)(footnote added). The Services Agreement also states that “[a]ny conflict between this Agreement and the Engagement Letter shall be construed in a manner giving precedence to this Agreement in all cases whatsoever.” (D.I. 30–1 at 21).Plaintiffs argue that there is no valid arbitration agreement because the venue and jurisdiction clause in the Services Agreement conflicts with the arbitration agreement in the Engagement Letter, and therefore there is no agreement to arbitrate. In distinguishing between “Article V of this Agreement” and “other disputes,” the Services Agreement specifically refers to the “courts located in Harris County,” whereas the same passage does not use the term “courts” in reference to venue in Delaware. Plaintiffs maintain that this results in an ambiguity, and contra proferentem dictates that ambiguities are construed against the drafter. Defendants argue that the absence of the term “courts” means that the two provisions do not conflict, i.e., that the Delaware venue provision does not preclude arbitration being mandatory.While Plaintiffs point to one principle of contract interpretation, there are countervailing principles as well. For instance, a contract should be construed “to give effect to all the provisions of the contract so that none will be rendered meaningless.” El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 808 (Tex.2012) (internal citations omitted).3 Additionally, “[a] presumption exists that every provision of a contract was included for a particular purpose.” TM Prods., Inc. v. Nichols, 542 S.W.2d 704, 708 (Tex.Civ.App.1976). “If we determine that the contract's language can be given a certain or definite legal meaning or interpretation, then the contract is not ambiguous and we will construe it as a matter of law.” El Paso, 389 S.W.3d at 806. *3 Applying these principles of contract interpretation, I find that the contract is not ambiguous. If the Delaware venue clause were read to permit jurisdiction in the courts of Delaware, then the arbitration clause would be meaningless.4 Further support for this finding is in the specific wording used in the Services Agreement venue clause. In describing the venue and jurisdiction for claims arising under Article V, the Services Agreement refers to “courts located in Harris County, Texas.” (D.I. 30–1 at 28). As for other disputes, the Services Agreement states that “venue and jurisdiction shall be in Delaware.” Id. The drafters could have used the term “courts” had they intended for disputes to be litigated in the Delaware courts. But they did not. The absence of the term “courts” must be given meaning, or else the use of the term “courts” in the preceding sentence would be superfluous. An interpretation which permitted this lawsuit would go against the presumption that every provision has a purpose. Because the contract is not ambiguous, contra proferentum does not apply.The Court's interpretation makes sense of the contract as a whole. It has a strong preference for arbitration. Certain fee disputes would be handled by the Houston Bar Association. Article V disputes belong in the Harris County courts. All other disputes must be resolved by a Delaware arbitrator.Plaintiffs also argue that the arbitration clause is void due to the Feldman Law Finn's ethical violations. Essentially, they argue that fraud in the inducement negates the arbitration clause. For support, Plaintiffs cite to Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444–45 (2006). However, Buckeye differentiated between claims of fraud in the inducement regarding the contract as a whole and fraud in the inducement regarding an arbitration clause itself. Id. The Court explained that “if the claim is fraud in the inducement of the arbitration clause itself-an issue which goes to the making of the agreement to arbitrate-the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally.” Id.Plaintiffs' arguments are directed to the contract as a whole, not the arbitration agreement itself. They maintain that the contract was against public policy because it involved a fee splitting arrangement and should therefore be void. I need not reach this argument. Plaintiffs have not alleged that they were unaware of the terms of the arbitration agreement or that there was any fraud involved with the arbitration agreement itself, only the contract as a whole. Those questions must be resolved by an arbitrator under the arbitration agreement.Since the integrated agreement requires arbitration except for limited circumstances not present in this case, the motions to dismiss for lack of subject matter jurisdiction must be granted.5 A separate order will be entered.OrderFor the reasons discussed in the accompanying memorandum, it is hereby ordered: Defendants' motions to dismiss for lack of subject matter jurisdiction (D.I. 24, 40) are GRANTED. Defendant Stewart A. Feldman's motion to dismiss for lack of personal jurisdiction (D.I. 26) is hereby DISMISSED AS MOOT.Footnotes1The Guidelines state that fee disputes shall be decided by the Houston Bar Association's Fee Dispute Committee.2Neither side contends that the claims at issue arise under Article V.3The agreement provides that Texas law applies. (D.I. 30–1 at 28)4Unless the venue provision only applies to claims that arise under the Services Agreement, not to those that arise under the Engagement Letter. The parties did not argue this point, however, and even if they had, there is a presumption that a claim “should be resolved in favor of arbitration.” Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983).5While Defendant Stewart A. Feldman did not join in these motions to dismiss, he is also covered by the arbitration agreement. (D.I. 30–1 at 16). Therefore, there is no subject matter jurisdiction over the claims against Mr. Feldman, and I therefore dismiss the case in its entirety.

Organizational Strategies, Inc. v. Feldman Law Firm LLP, CV 13-764-RGA, 2014 WL 576324 (D. Del. Feb. 12, 2014)
My book: Adkisson's Captive Insurance Companies: An Introduction to Captives, Closely-Held Insurance Companies and Risk Retention Groups
My website: http://www.captiveinsurancecompanies.com
My e-mail: jay >>>at<<< risad.com
My phone: 900-200-7284
User avatar
Riser Adkisson LLP
The Captive Insurance Lawfirm - http://www.risad.com
The Captive Insurance Lawfirm - http://www.risad.com
 
Posts: 135
Joined: Sun Nov 23, 2008 8:41 pm
Location: Admitted in Arizona, California, Nevada, Oklahoma and Texas

Re: Capstone - PoolRe - Arbitration Of Risk Pool Dispute

Postby Riser Adkisson LLP » Mon Mar 24, 2014 6:51 pm

Organizational Strategies, Inc. v. The Feldman Law Firm LLP, 2014 WL 576324 (D.Del., Feb. 12, 2014).

United States District Court, D. Delaware.

Organizational Strategies, Inc., Integration Casualty Corp., Systems Casualty Corp., and Optimal Casualty Corp., Plaintiffs,

v.

The Feldman Law Firm LLP, Stewart A. Feldman, Capstone Associated Services (Wyoming) LP, Capstone Associated Services, Ltd., and Capstone Insurance Management, Ltd., Defendants.

Civil Action No. 13–764–RGA

February 12, 2014

Attorneys and Law Firms

Neil R. Lapinski, Esq., Gordon, Fournaris & Mammarella, Wilmington, DE, attorney for Plaintiffs.

Kelly E. Farnan, Esq., Richards, Layton & Finger, Wilmington, DE, attorney for Defendants.

Opinion

Memorandum Opinion

ANDREWS, U.S. District Judge:

*1 Presently before the Court are Defendants The Feldman Law Firm LLP, Capstone Associated Services (Wyoming) LP and Capstone Insurance Management, Ltd.'s Motion to Dismiss or, in the Alternative Stay (D.I. 24), Defendant Stewart A. Feldman's Motion to Dismiss for Lack of Personal Jurisdiction (D.I. 26), Defendant Capstone's Joinder in Other Defendants' Previous Motions to Dismiss and Its Motion to Dismiss for Lack of Subject Matter Jurisdiction or Alternatively to Transfer to the Southern District of Texas (D.I. 40), as well as related briefing.

This case arises out of an agreement between Plaintiff Organizational Strategies, Inc. ("OSI") and Defendants to set up and run three captive insurance companies, Plaintiffs Integration Casualty Corp., Systems Casualty Corp, and Optimal Casualty Corp ("the captives"). Captive insurance companies are owned by the policyholder and result in a number of tax advantages. Because captives qualify as an insurance company under the Internal Revenue Code, premiums paid to the captive are deductible business expenses. Because the policyholder owns the captive, they have control over the investment of the premiums. Additionally, if the captive has $1.2 million or less in annual premium income, it is taxed only on its investment income.

In this case, the Feldman Law Firm was responsible for setting up the three captives and Capstone was responsible for managing them. In 2011, in the course of an audit of OSI, an independent auditor questioned the amount of the premiums paid to the captives. OSI engaged an independent captive insurance consultant, who concluded that the premiums were too high, and would not withstand scrutiny by the Internal Revenue Service. OSI alleges that this would have resulted in the captives losing their status as bona fide insurance companies, thereby negating their tax advantages. OSI asked Defendants to adjust the premiums. Defendants refused, leading to this suit. Defendants contend that this suit is covered by an arbitration agreement. Plaintiffs dispute this.

There are numerous arguments in the briefs. Because the Texas arbitrator has decided that there are valid arbitration agreements between the parties, Defendants argue that should be the end of the matter. Furthermore, Defendants argue that because the arbitration has already taken place, Plaintiffs are bound by res judicata and collateral estoppel. These arguments put the cart before the horse. If there was no agreement to arbitrate in the first place, then what happened in the arbitration is irrelevant.

The agreement at issue is in two parts, the Engagement Letter (D.I. 30–1 at 2) and the Capstone Services Agreement ("Services Agreement") (D.I. 30–1 at 20). The Engagement Letter lists as enclosures an Engagement Retainer Invoice, Guidelines on Firm Administration and Billing, Exhibit A—Duties and Responsibilities of Capstone and The Feldman Law Firm, Exhibit B—the Capstone Services Agreement, Exhibit C—Tax Risks, and Exhibit D—Comparison of Types of Captives. Only the Engagement Letter is executed. The parties, however, agree that the Engagement Letter and Services Agreement are part of an integrated agreement. (D.I. 30 at 2).

*2 The Guidelines on Firm Administration and Billing contains the arbitration language, which states:

With respect to any and all other1 disputes or claims whatsoever between us related to or arising out of our services (but in no event for attorney's fees and/or costs), such shall be submitted to a recognized, neutral, arbitral association or arbitrator for resolution pursuant to its single arbitrator, expedited rules ...

The parties agree that the issue of arbitrability shall likewise be decided by the arbitrator, and not by any other person. That is, the question of whether a dispute itself is arbitrable shall be decided solely by the arbitrator and not, for example, by any court. In so doing, the intent is to divest the courts of all powers in disputes involving the parties, except for the confirmation of the award and enforcement thereof.

(D.I. 30–1 at 16–17) (footnote added). The Services Agreement contains a venue and jurisdiction clause, which states:

For purposes of any dispute arising under Article V of this Agreement, the sole venue and jurisdiction for resolution of such disputes shall be courts located in Harris County, Texas.2 As to other disputes arising under this Agreement (with the express exception of disputes arising under Article V hereof), venue and jurisdiction shall be in Delaware, it being expressly recognized that parallel proceedings may thereby result.

(D.I. 30–1 at 28)(footnote added). The Services Agreement also states that "[a]ny conflict between this Agreement and the Engagement Letter shall be construed in a manner giving precedence to this Agreement in all cases whatsoever." (D.I. 30–1 at 21).

1Plaintiffs argue that there is no valid arbitration agreement because the venue and jurisdiction clause in the Services Agreement conflicts with the arbitration agreement in the Engagement Letter, and therefore there is no agreement to arbitrate. In distinguishing between "Article V of this Agreement" and "other disputes," the Services Agreement specifically refers to the "courts located in Harris County," whereas the same passage does not use the term "courts" in reference to venue in Delaware. Plaintiffs maintain that this results in an ambiguity, and contra proferentem dictates that ambiguities are construed against the drafter. Defendants argue that the absence of the term "courts" means that the two provisions do not conflict, i.e., that the Delaware venue provision does not preclude arbitration being mandatory.

234While Plaintiffs point to one principle of contract interpretation, there are countervailing principles as well. For instance, a contract should be construed "to give effect to all the provisions of the contract so that none will be rendered meaningless." El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 808 (Tex.2012) (internal citations omitted).3 Additionally, "[a] presumption exists that every provision of a contract was included for a particular purpose." TM Prods., Inc. v. Nichols, 542 S.W.2d 704, 708 (Tex.Civ.App.1976). "If we determine that the contract's language can be given a certain or definite legal meaning or interpretation, then the contract is not ambiguous and we will construe it as a matter of law." El Paso, 389 S.W.3d at 806.

*3 5Applying these principles of contract interpretation, I find that the contract is not ambiguous. If the Delaware venue clause were read to permit jurisdiction in the courts of Delaware, then the arbitration clause would be meaningless.4 Further support for this finding is in the specific wording used in the Services Agreement venue clause. In describing the venue and jurisdiction for claims arising under Article V, the Services Agreement refers to "courts located in Harris County, Texas." (D.I. 30–1 at 28). As for other disputes, the Services Agreement states that "venue and jurisdiction shall be in Delaware." Id. The drafters could have used the term "courts" had they intended for disputes to be litigated in the Delaware courts. But they did not. The absence of the term "courts" must be given meaning, or else the use of the term "courts" in the preceding sentence would be superfluous. An interpretation which permitted this lawsuit would go against the presumption that every provision has a purpose. Because the contract is not ambiguous, contra proferentum does not apply.

The Court's interpretation makes sense of the contract as a whole. It has a strong preference for arbitration. Certain fee disputes would be handled by the Houston Bar Association. Article V disputes belong in the Harris County courts. All other disputes must be resolved by a Delaware arbitrator.

67Plaintiffs also argue that the arbitration clause is void due to the Feldman Law Finn's ethical violations. Essentially, they argue that fraud in the inducement negates the arbitration clause. For support, Plaintiffs cite to Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444–45, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). However, Buckeye differentiated between claims of fraud in the inducement regarding the contract as a whole and fraud in the inducement regarding an arbitration clause itself. Id. The Court explained that "if the claim is fraud in the inducement of the arbitration clause itself-an issue which goes to the making of the agreement to arbitrate-the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally." Id.

Plaintiffs' arguments are directed to the contract as a whole, not the arbitration agreement itself. They maintain that the contract was against public policy because it involved a fee splitting arrangement and should therefore be void. I need not reach this argument. Plaintiffs have not alleged that they were unaware of the terms of the arbitration agreement or that there was any fraud involved with the arbitration agreement itself, only the contract as a whole. Those questions must be resolved by an arbitrator under the arbitration agreement.

Since the integrated agreement requires arbitration except for limited circumstances not present in this case, the motions to dismiss for lack of subject matter jurisdiction must be granted.5 A separate order will be entered.

Order

For the reasons discussed in the accompanying memorandum, it is hereby ordered: Defendants' motions to dismiss for lack of subject matter jurisdiction (D.I. 24, 40) are GRANTED. Defendant Stewart A. Feldman's motion to dismiss for lack of personal jurisdiction (D.I. 26) is hereby DISMISSED AS MOOT.

Footnotes

1

The Guidelines state that fee disputes shall be decided by the Houston Bar Association's Fee Dispute Committee.

2

Neither side contends that the claims at issue arise under Article V.

3

The agreement provides that Texas law applies. (D.I. 30–1 at 28)

4

Unless the venue provision only applies to claims that arise under the Services Agreement, not to those that arise under the Engagement Letter. The parties did not argue this point, however, and even if they had, there is a presumption that a claim "should be resolved in favor of arbitration." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

5

While Defendant Stewart A. Feldman did not join in these motions to dismiss, he is also covered by the arbitration agreement. (D.I. 30–1 at 16). Therefore, there is no subject matter jurisdiction over the claims against Mr. Feldman, and I therefore dismiss the case in its entirety.
My book: Adkisson's Captive Insurance Companies: An Introduction to Captives, Closely-Held Insurance Companies and Risk Retention Groups
My website: http://www.captiveinsurancecompanies.com
My e-mail: jay >>>at<<< risad.com
My phone: 900-200-7284
User avatar
Riser Adkisson LLP
The Captive Insurance Lawfirm - http://www.risad.com
The Captive Insurance Lawfirm - http://www.risad.com
 
Posts: 135
Joined: Sun Nov 23, 2008 8:41 pm
Location: Admitted in Arizona, California, Nevada, Oklahoma and Texas

Fifth Circuit Rules Against Capstone re Anguilla Arbitration

Postby Riser Adkisson LLP » Sun Apr 12, 2015 11:45 am

PoolRe Ins. Corp. v. Organizational Strategies, Inc., 2015 WL 1566633 (5th Cir., April 7, 2015).

United States Court of Appeals, Fifth Circuit.

POOLRE INSURANCE CORPORATION; Capstone Associated Services, Limited; Capstone Associated Services (Wyoming), L.P.; The Law Firm, L.L.P.; Capstone Insurance Management, Limited, Plaintiffs–Appellants

v.

ORGANIZATIONAL STRATEGIES, INCORPORATED; Nicolette Hendricks; William Hendricks, Defendants–Appellees.

No. 14–20433. | April 7, 2015.

Attorneys and Law Firms

Edward John Gorman, John Robert Craddock, Counsel, Feldman Law Firm, L.L.P., Luis Andres Paredes, RSL Funding, L.L.C., Houston, TX, for Plaintiffs–Appellants.

Neil R. Lapinski, Esq., William M. Kelleher, Esq., Gordon, Foumaris & Mammarella, P.A., Wilmington, DE, John F. Unger, Royston, Rayzor, Vickery & Williams, L.L.P., Houston, TX, for Defendants–Appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before SMITH, PRADO, and OWEN, Circuit Judges.

Opinion

EDWARD C. PRADO, Circuit Judge:

*1 This arbitration case arises from disputes over Appellee OSI's captive insurance program, created with Appellant Capstone's assistance. Appellant PoolRe, managed by Capstone, provided insurance services to OSI's newly created captive insurance companies. Capstone and OSI entered into contracts requiring AAA arbitration, whereas PoolRe and the captive insurance companies entered into contracts requiring ICC arbitration. Arbitrator Ramos joined all of the parties for arbitration under AAA rules. Because Ramos acted contrary to the express provisions of the PoolRe arbitration agreements, the district court held that Ramos exceeded his authority and, pursuant to 9 U.S.C. sec. 10, vacated the award. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellants Capstone Associated Services, Capstone Associated Services (Wyoming) L.P., and Capstone Insurance Management, Limited (collectively "Capstone") are related companies that provide turnkey formation and administrative services for captive insurance companies.1 Appellant PoolRe Insurance Corporation, administered by Capstone,2 is a third-party insurer that provides insurance-pooling services. The Feldman Law Firm, L.L.P. ("the Firm")3 provides legal services related to Capstone's captive insurance support program.

Appellee Organizational Strategies, Incorporated (OSI) is a professional-services firm managed by Appellees Nicolette and William Hendricks. Capstone discussed OSI's captive insurance options with the Hendrickses. After an on-site visit, the Firm sent the Hendrickses an Engagement Letter, attached to which were the Firm's Billing Guidelines. The Billing Guidelines contain an arbitration clause requiring, with the exception of certain disputes,4 arbitration "pursuant to the Commercial Arbitration Rules of the AAA [American Arbitration Association]." The Billing Guidelines also include a delegation clause: "The parties agree that the issue of arbitrability shall likewise be decided by the arbitrator, and not by any other person."

Also attached to the Engagement Letter was the Services Agreement, which was to be executed after the formation of the captive insurance companies.5 The Services Agreement contains a venue and jurisdiction clause providing that for most6 disputes "venue and jurisdiction shall be in Delaware". Additionally, the Services Agreement contains an integration clause: "To the extent of any conflict between the terms and provisions of this Agreement and the Engagement Letter, this Agreement exclusively shall control." PoolRe is not a party to any of the Capstone/OSI agreements.

Mrs. Hendricks signed the Engagement Letter and a copy was sent to Capstone. This multiyear agreement contemplated the formation of three captive insurance companies ("the Captives"), which would underwrite alternative-risk programs for OSI. Capstone provided its services under the Engagement Letter from June 2011 to early 2012 without incident.

*2 During this time PoolRe and the Captives issued a series of insurance policies to OSI. PoolRe entered into a separate Reinsurance Agreement with each of the three Captives. The three contracts contain identical arbitration clauses requiring International Chamber of Commerce (ICC) arbitration. The Reinsurance Agreements also state that arbitration "shall take place in the Territory of Anguilla, B.W.I."7

Disputes arose between OSI and the Capstone parties and the Firm. After an annual audit, OSI came to believe it was overpaying insurance premiums. As a result, OSI requested that Capstone change certain accounting information, and Capstone refused. The parties failed to resolve their issues, OSI terminated the Engagement Letter, and PoolRe cancelled its agreements with the Captives. A dispute arose over whether PoolRe properly refunded deposits to OSI. The Firm subsequently withdrew from further work with OSI, pending resolution of the dispute.

A. Arbitration Begins

Capstone filed an arbitration demand against OSI in March 2013 for breach-of-contract claims. The demand was forwarded to Dion Ramos of Conflict Resolution Systems, PLLC (CRS) in Houston, Texas. Ramos appointed himself arbitrator.

The Reinsurance Agreements between PoolRe and the Captives require that the arbitrator be "selected by the Anguilla, B.W.I. Director of Insurance." The director of the Anguilla Financial Services Commission, Keith Bell, sent a letter to PoolRe explaining that no such official existed. Bell designated CRS, in Houston, to select "any such independent arbitrators and to administer related arbitration proceedings." Bell did not mention the ICC requirements in the PoolRe arbitration clauses.

On April 15, 2013, OSI first appeared in the Ramos arbitration, objecting to the arbitrator's authority and moving to dismiss based on the Services Agreement's venue clause. OSI also filed counterclaims against Capstone, alleging that Stewart Feldman, the Firm's named partner, owned and controlled Capstone and PoolRe, creating a conflict of interest in the Firm's representation of OSI. On April 22, PoolRe and the Firm intervened in the Ramos arbitration. PoolRe joined "for the limited purpose of having [Ramos] appoint an Anguilla-based arbitrator."

On April 29, Ramos issued a jurisdictional ruling via email to the parties. Ramos, applying AAA rules, found jurisdiction over Capstone's claims pursuant to the Billing Guidelines and over PoolRe's claims pursuant to the Reinsurance Agreements, holding that PoolRe waived its right to arbitration in Anguilla by intervening. OSI objected to the ruling via email, specifically noting that the PoolRe ruling removed the arbitration from ICC's jurisdiction. Ramos then denied OSI's motion to dismiss.

B. Parallel Proceedings in Delaware

Shortly after the Ramos arbitration began, OSI and the Captives sued Capstone8 in the Delaware Court of Chancery, claiming the premiums OSI paid to the Captives were too high and seeking, inter alia, a temporary restraining order on the Ramos arbitration. Capstone removed the case to federal court. Capstone then filed a motion to dismiss on the ground that arbitrability of the disputes should be decided by Ramos. OSI argued that the dispute was not covered by a valid arbitration clause.

*3 On February 12, 2014, the Delaware district court ruled on the motions. Reading the language in the Billing Guidelines and the Services Agreement together, the court found that the contract was unambiguous and that all disputes—other than Article V disputes and certain fee disputes9—are "to be resolved by arbitration for which 'venue and jurisdiction shall be in Delaware.' " Having found that the agreements required arbitration of the dispute, the district court dismissed for lack of subject matter jurisdiction. OSI then initiated arbitration in Delaware and successfully moved the Delaware district court to compel Capstone to join that arbitration. Capstone appealed the district court's interpretation of the arbitration agreement and its order compelling arbitration in Delaware; the Third Circuit affirmed. Organizational Strategies, Inc. v. Feldman Law Firm LLP, No. 14–1704, 2015 WL 1285958, at *2–3 (3d Cir. Mar. 20, 2015).

C. The Second Arbitration Demand and the First Award

On June 23, three days before the first merits hearing in the Ramos arbitration, Capstone filed a second arbitration demand alleging OSI breached Article V of the Services Agreement. Ramos deferred consideration of the second demand until after the first hearing. On July 9, Ramos found OSI in material breach of the contracts with Capstone, PoolRe, and the Firm; granted declaratory relief to the Firm that it was not liable for professional negligence or breach of fiduciary duty; found PoolRe was properly joined in the arbitration; and granted to Capstone, the Firm, and PoolRe "attorney's fees, expenses and costs ... in the amount of $451,244.44, to be divided among themselves as they see fit." Ramos denied all of OSI's counterclaims.

PoolRe filed a second amended petition to confirm the award with the Texas district court.10 In the petition, PoolRe sought to compel OSI to join the second arbitration ("Phase II arbitration"). OSI filed a brief opposing the motion to confirm and seeking a temporary restraining order to stay the second petition.

On July 29, the Texas district court issued its first memorandum order and opinion addressing these motions. It stayed PoolRe's motion to confirm pending the Delaware district court's decision on the motion to compel because the Delaware action was filed first. Reading the Billing Guidelines arbitration clause together with the Services Agreement integration and venue clauses, the Texas district court concluded that "the parties intended to carve out disputes under Article V from the broad grant of arbitrability in the previous agreements among the parties." The court thus denied the Capstone Parties' motion to compel and stayed the Phase II arbitration.

Capstone and the Firm joined the motion to confirm on August 26, 2013. OSI later filed a motion to lift the stay on the confirmation proceedings and a motion to vacate the first award. The Texas district court lifted the stay on the confirmation proceedings and OSI filed its response to the motion to confirm. As noted above, the Delaware district court ruled on February 12, dismissing for lack of subject matter jurisdiction.

*4 On March 31, 2014, the Texas district court ruled on the pending motions to confirm and vacate the award and to compel Phase II arbitration. The district court found that Ramos exceeded his authority by exercising jurisdiction over and applying AAA rules to the disputes between PoolRe and the Captives. Because this "tainted the entire process" the court vacated the award and denied the motion to confirm. Lastly, the court denied the motion to compel because the live arbitration demand requested relief on the first, and now vacated, award. Capstone and PoolRe now appeal the court's vacatur of the award and denial of the motion to compel Phase II arbitration.

II. JURISDICTION AND STANDARD OF REVIEW

This district court had diversity jurisdiction under 28 U.S.C. sec. 1332. We have jurisdiction over the district court's order vacating the arbitration award and denying the motion to compel pursuant to 9 U.S.C. sec. 16(a)(1)(B) and (E).

Our "review of the district court's confirmation or vacatur of an arbitrator's award is de novo." Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., 713 F.3d 797, 802 (5th Cir.2013) (citing Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir.1994)). But review of the arbitration award itself "is very deferential." Id. (internal quotation marks omitted). The Court must sustain an award "as long as the arbitrator's decision 'draws its essence' from the contract." Id. (quoting Executone, 26 F.3d at 1320). "However, where the arbitrator exceeds the express limitations of his contractual mandate, judicial deference is at an end." Delta Queen Steamboat Co. v. Dist. 2 Marine Eng'rs Beneficial Ass'n, Associated Mar. Officers, AFL–CIO, 889 F.2d 599, 602 (5th Cir.1989).

We also review de novo a district court's denial of a motion to compel arbitration. Galey v. World Mktg. Alliance, 510 F.3d 529, 531 (5th Cir.2007).

III. DISCUSSION

A. The District Court Correctly Concluded that Ramos Exceeded His Power

Under the Federal Arbitration Act (FAA), a district court may vacate an award in limited circumstances, including "where the arbitrators exceeded their powers." 9 U.S.C. sec. 10(a)(4). "It is well-established that courts may set aside awards when the arbitrator exceeds his contractual mandate by acting contrary to express contractual provisions." Beaird Indus., Inc. v. Local 2297, Int'l Union, 404 F.3d 942, 946 (5th Cir.2005) (citing Delta Queen, 889 F.2d at 604).

Arbitration "is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit." Action Indus., Inc. v. U.S. Fid. & Guar. Co., 358 F.3d 337, 340 (5th Cir.2004) (quoting Volt Info Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989)). Parties are free to "specify with whom they choose to arbitrate their disputes." Stolt–Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S.Ct. 1758, 1774 (2010).

*5 Agreements mandating arbitration of disputes that "relate to" or "are connected with," rather than merely those "arising out of," a contract are "broad arbitration clauses capable of expansive reach." Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir.1998). Courts resolve "doubts concerning the scope of coverage of an arbitration clause in favor of arbitration." Id. (quoting Neal v. Hardee's Food Sys., Inc., 918 F.2d 34, 37 (5th Cir.1990)).

In this case, Ramos construed the multiple arbitration agreements between Capstone and OSI, and between PoolRe and the Captives, concluding that "PoolRe is properly joined in the existing arbitration involving Capstone and the Firm pursuant to its own arbitration agreements and ancillary to the otherwise pending litigation."

1. The Arbitrator–Selection Clauses

The Reinsurance Agreements between PoolRe and the Captives require that arbitration of all disputes under the insurance policies be submitted to ICC arbitration before an arbitrator "selected by the Anguilla, B.W.I. Director of Insurance." Ramos was not appointed by the Director of Insurance. Indeed, no such individual exists. The district court vacated Ramos's award because he was not "the actual decisionmaker that [PoolRe and the Captives] selected as an integral part of their agreement."

"[T]he power and authority of arbitrators in an arbitration proceeding [are] dependent on the provisions under which the arbitrators were appointed." Brook v. Peak Int'l, Ltd., 294 F.3d 668, 672 (5th Cir.2002) (quoting Szuts v. Dean Witter Reynolds, Inc., 931 F.2d 830, 831 (11th Cir.1991)). Section 5 of the FAA "expressly provides that where a method for appointment is set out in the arbitration agreement, the agreed upon method of appointment 'shall be followed.' " Id. at 672–73 (quoting 9 U.S.C. sec. 5). Thus, "arbitration awards made by arbitrators not appointed under the method provided in the parties' contract must be vacated." Id. at 673 (quoting Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos Basicos, 25 F.3d 223, 226 (4th Cir.1994)); see also 3 Thomas H. Oehmke & Joan M. Brovins, Commercial Arbitration sec. 61:6 (2014) ("The arbitral selection process is a material contract term, including methodology of appointment, source of the list of potential panelists, ... and more."). But a "trivial departure" from the selection method may not warrant vacatur. Bulko v. Morgan Stanley DW Inc., 450 F.3d 622, 625–26 (5th Cir.2006) (citing Brook, 294 F.3d at 673).

In Brook we addressed the vacatur of an award granted by an arbitrator selected in a manner inconsistent with the arbitration agreement. 294 F.3d at 672–74. An employee and an employer arbitrated a dispute pursuant to an arbitration clause in an employment agreement. Id. at 670. The agreement required, in the event the parties could not agree on an arbitrator, that the AAA submit a list of nine potential arbitrators. Id. at 670 n. 1. The parties were then supposed to alternate removing names from the list until one arbitrator remained. Id. Rather than follow this procedure, the AAA submitted two lists naming fifteen arbitrators and instructed the parties to strike the impermissible arbitrators and rank the rest in order of preference. Id. at 673.

*6 This Court, citing numerous cases where "courts, relying on [9 U . S.C. sec. 5]," have "vacated arbitration awards because of irregularities in the process for selecting arbitrators," stated that the "AAA's departure from the contractual selection process fundamentally contradicts its role in voluntary dispute resolution." Id. However, we reversed the vacatur order because we found that the plaintiff had waived this issue. Id. at 670, 674.11

Here, Ramos was appointed in the manner provided in the Billing Guidelines—to which PoolRe was not a party—but was appointed in a manner contrary to that provided in the Reinsurance Agreements between PoolRe and the Captives, which required "select[ion] by the Anguilla, B.W.I. Director of Insurance." Capstone submitted its original arbitration demand to Ramos. PoolRe only intervened in that arbitration after Bell notified PoolRe that no Director of Insurance existed.

Ramos had not been "selected according to the contract-specified method," Bulko, 450 F.3d at 625, when he decided the dispute between PoolRe and the Captives. Cf. Stolt–Nielsen, 130 S.Ct. at 1774 ("We think it is also clear from our precedents and the contractual nature of arbitration that parties may specify with whom they chose to arbitrate disputes."); First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 943 (1995) ("[A]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes—but only those disputes—that the parties have agreed to submit to arbitration." (emphasis added)). Thus, the district court properly vacated the arbitrator's award with regard to the claims against PoolRe.12

2. The Forum Selection Clauses

Further, Ramos acted contrary to the Reinsurance Agreements' clause requiring that all disputes "be submitted for binding, final, and non-appealable arbitration to the [ICC] under and in accordance with its then prevailing ICC Rules of Arbitration."

We interpret clauses providing for arbitration "in accordance with" a particular set of rules as forum selection clauses. Galey, 510 F.3d at 532 (citing, inter alia, In re Salomon, 68 F.3d at 558 (construing a clause requiring arbitration "in accordance with the Constitution and rules then obtaining of the [NYSE]" as a forum selection clause and refusing to compel arbitration in a different forum when the NYSE was unavailable)). If the "parties' agreement specifies that the laws and procedures of a particular forum shall govern any arbitration between them, that forum-selection clause is an 'important' part of the arbitration agreement," and, therefore, the court "need not compel arbitration in a substitute forum if the designated forum becomes unavailable." Ranzy v. Tijerina, 393 F. App'x 174, 176 (5th Cir.2010) (per curiam) (citing Nat'l Iranian Oil Co. v. Ashland Oil, Inc., 817 F.2d 326, 333–35 (5th Cir.1987)); see also Galey, 510 F.3d at 534 ("Absent the availability of [the chosen] forum, there is no other forum to which the court may send the parties to arbitrate.").

*7 Here, PoolRe is party to arbitration agreements with the Captives requiring arbitration "in accordance with" ICC rules. This constitutes a forum selection clause integral to the agreement. See, e.g., Galey, 510 F.3d at 532–34. Ramos, however, applied AAA rules to the dispute. Thus, Ramos acted "contrary to [an] express contractual provision[ ]," Delta Queen, 889 F.2d at 604, and the district court properly vacated the award. See id.13 Because Ramos acted contrary to the express arbitrator- and forum-selection clauses in the arbitration agreements to which PoolRe was a party, we affirm the district court's holding that Ramos exceeded his authority under 9 U.S.C. sec. 10(a)(4).

B. The District Court Did Not Err in Vacating the Entire Award

Appellants argue that even if Ramos improperly arbitrated the dispute between PoolRe and the Captives, the district court should have vacated the award in part insofar as it gave recovery to PoolRe. The arbitrator awarded to Capstone, the Firm, and PoolRe "attorney's fees, expenses and costs ... in the amount of $451,244.44, to be divided among themselves as they see fit." The district court—after concluding that the arbitrator exceeded his authority by conducting the PoolRe/Captives proceedings pursuant to AAA, rather than ICC, rules—concluded that "PoolRe's intervention tainted the entire process." The award included attorney's fees and costs incurred in the Delaware case, to which PoolRe was not a party.

The FAA provides that a district court "may make an order vacating [an arbitration] award" if "the arbitrators exceeded their powers." 9 U.S.C. sec. 10(a)(4) (emphasis added).

Appellants cite Smith v. Transport Workers Union of America, AFL–CIO Air Transport Local 556, 374 F.3d 372, 375 (5th Cir.2004) (per curiam), where we stated, "If an arbitral panel exceeds its authority, it provides grounds for a court to vacate that aspect of its decision." In Smith, an arbitrator issued an award and a month later modified the award. Id. at 374. This Court determined that the plain language of the arbitration agreement did not permit such a modification and, therefore, the arbitrator had exceeded his authority in so doing. Id. at 374–75. Thus, the Court affirmed the district court's decision to vacate the modified award and confirm the initial award. Id.

Appellants argue that, under Smith, a court "can carve out only the objectionable part of the award and confirm the rest." However, a district court does not have to vacate in part and confirm in part just because it may do so. Moreover, unlike in Smith, the district court here found that PoolRe's involvement tainted the entire process. Additionally, the lump sum awarded to the parties was not easily divisible like the two separate awards at issue in Smith. Nothing in the statute or our cases suggests that a district court errs by failing to vacate in part, particularly where the arbitrator awarded a lump sum "to be divided among the parties as they see fit." Thus, we hold that the district court did not err in vacating the entire award.

C. The District Court Properly Denied the Motion to Compel

*8 Appellants also appeal the district court's denial of their motion to compel Phase II arbitration. The district court noted that "the live [Phase II] arbitration demand seeks to enforce relief from the claims asserted in the first arbitration." The district court denied the motion because the vacatur of the first arbitration award "precludes the relief requested in the second arbitration." Because we affirm the vacatur of the Phase I arbitration award, we also affirm the district court's denial of the motion to compel. See Safer v. Nelson Fin. Grp., Inc., 422 F.3d 289, 293 (5th Cir.2005) ("In order to [compel arbitration] we must decide: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement." (internal quotation marks omitted)).

IV. CONCLUSION

For the foregoing reasons, we AFFIRM the district court's vacatur of the arbitration award and its denial of the motion to compel arbitration.

Footnotes

1

A captive insurance company is created for the purpose of insuring its owner.

2

We refer to Capstone and PoolRe as "the Capstone Parties."

3

The Firm is not a party to the appeal, but was a party in the district court.

4

Disputes arising "out of or in conjunction with attorneys' fees and/or costs and/or expenses" are to be submitted to the "Houston Bar Association's Fee Dispute Committee for binding and nonappealable resolution."

5

A signed copy of the Services Agreement is not in the record, but the record includes three signed letters on Capstone letterhead, one for each Captive, memorializing the agreement.

6

The Services Agreement provides that "disputes arising under Article V of this Agreement, the sole venue and jurisdiction for resolution of such disputes shall be courts located in Harris County, Texas." Article V concerns Capstone's intellectual property rights.

7

B.W.I. is the abbreviation for British West Indies.

8

PoolRe is not a party to the Delaware litigation.

9

The Billing Guidelines require fee disputes over the Firm's legal work to be submitted to "the Houston Bar Association's Fee Dispute Committee for binding and nonappealable arbitration."

10

PoolRe inexplicably filed a motion to confirm the arbitration award in the district court before the arbitration hearing began.

11

The magistrate judge in Brook raised the issue for the first time sua sponte at oral argument of the plaintiff's motion to vacate. Id. at 672.

12

Obviously, no arbitrator could be appointed in accordance with the Reinsurance Agreements because no Anguilla Director of Insurance exists. The FAA provides a solution to this problem, however. Under sec. 5 of the FAA, a party may move the district court to appoint an arbitrator if for any "reason there [is] a lapse in the naming of an arbitrator." 9 U.S.C. sec. 5. A "lapse" under sec. 5 is "a lapse in time in the naming of an arbitrator or in the filling of a vacancy on a panel of arbitrators, or some other mechanical breakdown in the arbitrator selection process." BP Exploration Libya Ltd. v. ExxonMobil Libya Ltd., 689 F.3d 481, 491–92 (5th Cir.2012) (quoting Weiner v. Gutfreund (In re Salomon Inc. S'holders' Derivative Litig.), 68 F.3d 554, 557–60 (2d Cir.1995) (citations and internal quotation marks omitted) (distinguishing a lapse in selection of an arbitrator from the designated arbitral forum's refusal, under its constitution, to permit "the use of its facilities to arbitrate the dispute in question")).

13

Appellants contend the "OSI parties submitted the PoolRe dispute to the arbitrator because their relationship with Capstone and the Firm would likely bring PoolRe into the mix." By submitting these claims, Appellants argue OSI empowered the arbitrator to decide those claims, regardless of the arbitration agreements between PoolRe and the Captives. See, e.g., Executone, 26 F.3d at 1323 ("If the parties go beyond their promise to arbitrate and actually submit an issue to the arbitrator, we look both to the contract and to the scope of the submissions to the arbitrator to determine the arbitrator's authority."). We do not address this argument because Appellants did not raise it before the district court. See XL Specialty Ins. Co. v. Kiewit Offshore Servs., Ltd., 513 F.3d 146, 153 (5th Cir.2008).
My book: Adkisson's Captive Insurance Companies: An Introduction to Captives, Closely-Held Insurance Companies and Risk Retention Groups
My website: http://www.captiveinsurancecompanies.com
My e-mail: jay >>>at<<< risad.com
My phone: 900-200-7284
User avatar
Riser Adkisson LLP
The Captive Insurance Lawfirm - http://www.risad.com
The Captive Insurance Lawfirm - http://www.risad.com
 
Posts: 135
Joined: Sun Nov 23, 2008 8:41 pm
Location: Admitted in Arizona, California, Nevada, Oklahoma and Texas


Return to Captive Insurance News and Events

cron

User Control Panel

Login



Active Captive Management


Adkisson's Captive Insurance Companies

Who is online

In total there is 1 user online :: 0 registered, 0 hidden and 1 guest (based on users active over the past 5 minutes)
Most users ever online was 397 on Thu Jun 28, 2012 4:03 am

Users browsing this forum: No registered users and 1 guest

Birthdays

No birthdays today