Opinion
2017 CW 1483
02-28-2019
JAMES J. DONELON, COMMISSIONER OF INSURANCE FOR THE STATE OF LOUISIANA, IN HIS CAPACITY AS REHABILITATOR OF LOUISIANA HEALTH COOPERATIVE, INC. v. TERRY S. SHILLING, GEORGE G. CROMER, WARNER L. THOMAS, IV, WILLIAM A. OLIVER, CHARLES D. CALVI, PATRICK C. POWERS, CGI TECHNOLOGIES AND SOLUTIONS, INC., GROUP RESOURCES INCORPORATED, BEAM PARTNERS, LLC, MILLIMAN, INC., BUCK CONSULTANTS, LLC, AND TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA
James A. Brown Mirais M. Holden A'Dair R. Flynt New Orleans, Louisiana Jamie D. Rhymes Lafayette, Louisiana Attorneys for Applicant-Relator Buck Consultants, LLC J.E. Cullens, Jr. Edward J. Walters, Jr. Darrel J. Papillion David Abboud Thomas Jennifer Wise Moroux Baton Rouge, Louisiana Attorneys for Respondent, James J. Donelon, Commissioner of Insurance for the State of Louisiana, in His Capacity as Rehabilitator of Louisiana Health Cooperative, Inc., through His Duly Appointed Receiver, Billy Bostick
On review from the Nineteenth Judicial District Court Parish of East Baton Rouge State of Louisiana
Case No. 651,069
The Honorable Timothy E. Kelley
James A. Brown
Mirais M. Holden
A'Dair R. Flynt
New Orleans, Louisiana Jamie D. Rhymes
Lafayette, Louisiana Attorneys for Applicant-Relator
Buck Consultants, LLC J.E. Cullens, Jr.
Edward J. Walters, Jr.
Darrel J. Papillion
David Abboud Thomas
Jennifer Wise Moroux
Baton Rouge, Louisiana Attorneys for Respondent,
James J. Donelon, Commissioner of
Insurance for the State of Louisiana,
in His Capacity as Rehabilitator of
Louisiana Health Cooperative, Inc.,
through His Duly Appointed Receiver,
Billy Bostick BEFORE: HIGGINBOTHAM, HOLDRIDGE, and PENZATO, JJ.
HOLDRIDGE, J.
In this writ application, applicant, Buck Consultants, LLC ("Buck"), challenges the ruling of the trial court, which overruled Buck's Declinatory Exception of Improper Venue. For the following reasons, we affirm the ruling of the trial court.
The companion case involving the Declinatory Exception of Subject Matter Jurisdiction and writ application filed by Milliman, Inc., Docket No. 2017 CW 1545, is decided by this Court under a separate ruling.
FACTS AND PROCEDURAL HISTORY
This matter arises from the insolvency and the rehabilitation of Louisiana Health Cooperative, Inc. ("LAHC"). On March 31, 2014, Buck tendered a letter agreement ("Agreement") to LAHC, outlining the terms of its engagement with LAHC to provide certain actuarial and consulting services. The Agreement states, in pertinent part, as follows:
1. Services. In consideration for, and subject to, the mutual undertakings set forth herein, [Buck] agrees to provide the Services described in Exhibit A hereto.A representative of LAHC signed the Agreement on April 4, 2014. Exhibit A to the Agreement outlined Buck's scope of services as follows:
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9. Miscellaneous. ... The parties hereto expressly agree that this Agreement will be construed and enforced in accordance with the internal laws of the State of New York, without regard to New York choice of law provisions. The parties hereby consent to the exclusive jurisdiction and venue of the federal and state courts situated in and for the State of New York, County of New York with respect to any dispute arising between the parties, regardless of whether such dispute arises pursuant to this Agreement or otherwise. ...
• Review current plan designs and calculate the Average Benefit Value for each plan
• Review previous documents filed with [Centers for Medicare and Medicaid Services] for the 2014 rates
• Review current demographics and adjust rates to reflect population enrolled
• Develop cost models to prepare 2015 rates for Public Exchange
• Adjust rates to reflect network discounts
• Prepare rates by Region
• Prepare smoke[r] and non-smoker rates
• Present target rates for review and revision
• Adjust plan designs to meet market objections
• Review and price new plan designs
• Review proposed administrative budget and commissions and incorporate into 2015 rates
• Review rate filing requirements
• Prepare and submit rate filings and assist [LAHC] with state rate filing
• Review competitive products and rates
• Prepare rates for commercial group quotes as requested (Off exchange quotes)
• Prepare Incurred But Not Reported (IBNR estimates)
• Assist with Commercial rate filing
• Meet with [LAHC] as needed
On November 4, 2014, Buck tendered a second letter ("Addendum") to LAHC, modifying the scope of services, payments to Buck, and the term of the Agreement. The Addendum notes that "[t]he Agreement, as modified hereby, remains and continues in full force and effect ..." A representative of LAHC signed the Addendum.
It is alleged that LAHC applied for and received loans from the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services. However, it is alleged that, by July 2015, LAHC stopped doing business.
On September 21, 2015, in response to a verified petition and testimony on behalf of Caroline Brock, Deputy Commissioner of Financial Solvency for the Louisiana Department of Insurance and Billy Bostick, a Permanent Order of Rehabilitation and Injunctive Relief (the "Rehabilitation Order") was signed, confirming James J. Donelon, Commissioner of Insurance for the State of Louisiana ("the Commissioner") as Rehabilitator of LAHC and Billy Bostick as Receiver of LAHC. The Rehabilitation Order further states, in pertinent part, as follows:
[T]he requirements for rehabilitation under the provisions of La. R.S. 22:2001, et seq., have been met ... LAHC shall be and hereby is placed into rehabilitation under the direction and control of the Commissioner
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IT IS FURTHER ORDERED, ADJUDGED AND DECREED that ... any and all persons and entities shall be and hereby are permanently enjoined from obtaining preferences, judgments, attachments or other like liens or the making of any levy against LAHC, its property and assets
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IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Rehabilitator shall be and hereby is entitled to the right to enforce or cancel ... contract performance by any party who had contracted with LAHC.
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IT IS FURTHER ORDERED, ADJUDGED AND DECREED that LAHC providers and contractors are required to abide by the terms of their contracts with LAHC
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IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Rehabilitator and Receiver of LAHC ... shall be and hereby are allowed and authorized to ... [c]ommence and maintain all legal actions necessary, wherever necessary, for the proper administration of this rehabilitation proceeding
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IT IS FURTHER ORDERED, ADJUDGED AND DECREED that all contracts between LAHC and any and all persons or entities providing services to LAHC ... shall remain in full force and effect unless canceled by the Receiver, until further order of this Court.
On August 31, 2016, the Commissioner, as Rehabilitator of LAHC, through his duly appointed Receiver, Billy Bostick, filed a Petition for Damages and Jury Demand, in a separate matter from the rehabilitation proceeding, asserting claims of breach of fiduciary duty, breach of contract, negligence, and gross negligence against multiple defendants and seeking damages in connection with LAHC's failure. Buck was named as a defendant in the Commissioner's First Supplemental, Amending and Restated Petition for Damages and Request for Jury Trial filed on November 29, 2016.
The Commissioner alleged professional negligence, breach of contract, and negligent misrepresentation against Buck. The Commissioner alleged that Buck was engaged to provide actuarial and consulting services and outlined Buck's tasks as set forth in the Agreement, including developing cost models to prepare 2015 rates; presenting target rates for review and revision; reviewing and pricing new plan designs; preparing and submitting rate filings; and assisting LAHC with the rate filings.
As to the professional negligence and breach of contract claims, the Commissioner alleged the following: (1) Buck's April 2, 2015 Statement of Actuarial Opinion was inaccurate and unreliable; (2) Buck's actuarial work was unreliable, inaccurate, and not the result of careful, professional analysis; (3) Buck may have been unqualified to provide actuarial services; (4) Buck owed a duty to LAHC to exercise reasonable care and to act in accordance with the professional standards applicable to actuaries; (5) when preparing premium rates in 2015, Buck unreasonably disregarded data and claim experience and made unreasonable assumptions; (6) Buck breached its duty by failing to discharge its duties to LAHC with reasonable care and failing to act in accordance with the professional standards applicable to actuaries by failing to produce a feasibility study and premium rates that were accurate and reliable and failing to exercise the reasonable judgment expected of professional actuaries under like circumstances; and (7) Buck's failure to exercise reasonable care and its failure to act in accordance with the professional standards applicable to actuaries was the legal cause of LAHC's damages. The Commissioner further alleged that Buck's advice and reports to LAHC negligently misrepresented the actual funding needs and premium rates of LAHC, and Buck had a duty to provide accurate and up-to-date information to LAHC that Buck knew or should have known LAHC would rely on in making its decision concerning premium amounts.
In response to the First Supplemental, Amending and Restated Petition for Damages, Buck filed a Declinatory Exception of Improper Venue, requesting that the trial court enforce the forum-selection clause contained in the Agreement. Buck requested that the Commissioner's claims against it be dismissed, without prejudice. Attached to Buck's exception was the Affidavit of Harvey Sobel, an employee of Buck who managed and directed actuarial work for LAHC, which attached the Agreement and the Addendum.
The Commissioner opposed the exception arguing, in pertinent part, as follows: (1) the forum-selection clause violates Louisiana public policy where the Rehabilitation, Liquidation, Conservation Act, La. R.S. 22:2001 et seq. ("the RLC Act") of the Louisiana Insurance Code is comprehensive and exclusive in scope and La. R.S. 22:257(F) gives the Nineteenth Judicial District Court exclusive jurisdiction of this matter; (2) forcing the Commissioner to litigate in New York would violate the Rehabilitation Order; (3) the Commissioner did not sign the Agreement containing the forum-selection clause and is not bound thereto; (4) Buck does not cite or distinguish Ohio Supreme Court's decision in Taylor v. Ernst & Young, L.L.P., 2011-Ohio-5262, 130 Ohio St. 3d 411, 958 N.E.2d 1203; (5) the Commissioner does not stand precisely in the shoes of the insolvent insurer because he acts as an officer of the State and owes an overriding duty to the people of the State of Louisiana; and (6) the Commissioner's claims do not arise from the Agreement because the Commissioner is not seeking a declaration of Buck's obligations under the Agreement, and the Commissioner's allegations against Buck do not require the court to interpret the Agreement to determine Buck's obligations. Attached to the Commissioner's opposition was a copy of the First Supplemental, Amending and Restated Petition for Damages and the Rehabilitation Order.
The Commissioner further attacked the Affidavit of Harvey Sobel, as not in a form allowed or contemplated by the Louisiana Code of Evidence. However, the trial court admitted the affidavit into evidence, and this issue is not before this Court.
Buck filed a reply arguing, in pertinent part, as follows: (1) the Commissioner failed to meet its heavy burden to resist enforcement of the forum-selection clause; (2) the forum-selection clause overrides La. R.S. 22:257(F); (3) the Ohio Supreme Court's decision in Taylor, supra, is erroneous and "illogical"; and (4) the Commissioner's claims against Buck rely upon the Agreement's provisions and accuse Buck of breaching the contract.
A copy of the reply brief was not contained within the suit record provided to this Court by the Clerk of Court for the Parish of East Baton Rouge. Nevertheless, a copy of the reply brief was attached to the writ application and bears a file stamp of the East Baton Rouge Parish Clerk of Court. Because the filing of the reply brief is not an issue herein, this Court will consider the arguments raised therein.
A hearing was held on August 25, 2017. Copies of the Affidavit of Harvey Sobel, with the attached Agreement and Addendum and the Rehabilitation Order, were offered and accepted into evidence at the hearing. The trial court denied the exception. Buck filed a writ application, seeking supervisory review of the trial court's judgment that denied its Declinatory Exception of Improper Venue and asking that the trial court's judgment be reversed. We granted certiorari and stayed the trial court proceeding.
ERROR
Buck argues that the trial court erroneously denied its Declinatory Exception of Improper Venue despite the Commissioner's failure to carry his heavy burden of proof to resist enforcement of the forum-selection clause.
STANDARD OF REVIEW
Venue is a question of law, and the denial of an Exception of Improper Venue is reviewed de novo by the appellate court. Price v. Roy O. Martin Lumber Co., 2004-0227 (La. App. 1 Cir. 4/27/05), 915 So.2d 816, 824, writ denied, 2005-1390 (La. 1/27/06), 922 So.2d 543. The facts are not in dispute with respect to this writ application. The issue before us is whether the trial court correctly interpreted and applied the law in denying the exception and refusing to enforce the forum-selection clause.
DISCUSSION
Forum-selection clauses are prima facie valid, legal, and binding in Louisiana, and a party seeking to set aside such a provision bears a "heavy" burden of proof. Vallejo Enterprise, L.L.C. v. Boulder Image, Inc., 2005-2649 (La. App. 1 Cir. 11/3/06), 950 So.2d 832, 835; See also Rising Resources Control, Inc. v. KIE Commodities and Finance, L.L.C., 2011-1026 (La. App. 1 Cir. 12/21/11), 80 So.3d 1217, 1219, writ denied, 2012-0658 (La. 4/27/12), 86 So.3d 632. Louisiana courts utilize the criteria set forth by the U.S. Supreme Court in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15-16, 92 S.Ct. 1907, 1916, 32 L.Ed.2d 513 (1972) for determining the enforceability of a forum-selection clause. Shelter Mutual Insurance Co. v. Rimkus Consulting Group, Inc. of Louisiana, 2013-1977 (La. 7/1/14), 148 So.3d 871, 874; Vallejo Enterprise, L.L.C., 950 So.2d at 835. A forum-selection clause should be enforced unless the resisting party clearly proves that enforcement would be unreasonable and unjust, or that the clause arises from fraud or overreaching, or that enforcement would contravene a strong public policy of the forum where the suit is brought. Vallejo Enterprise, L.L.C., 950 So.2d at 835 (citing M/S Bremen, 407 U.S. at 15-16).
It is incumbent upon the Commissioner to overcome the presumption in favor of the forum-selection clause's validity by proof of fraud or a showing that its enforcement would be unreasonable or unjust, or contrary to the established public policy of this state. Absent proof of fraud or a showing as to one of the other criteria warranting its invalidation, the forum-selection clause is unambiguous and enforceable as a matter of law. See Vallejo Enterprise, L.L.C., 950 So.2d at 837.
Ultimately, a forum-selection clause should be "given controlling weight in all but the most exceptional cases." Atlantic Marine Construction Company, Inc. v. U.S. District Court for the Western District of Texas, 571 U.S. 49, 59-60, 134 S. Ct. 568, 579, 187 L. Ed. 2d 487 (2013) (citing Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 33, 108 S. Ct. 2239, 2246, 101 L. Ed. 2d 22 (1988) (Kennedy, 1, concurring)). In the context of a 28 U.S.C § 1404(a) transfer motion premised on a forum-selection clause, the U.S. Supreme Court has found that "[o]nly under extraordinary circumstances unrelated to the convenience of the parties" should the motion be denied. Atlantic Marine Construction Company, Inc., 571 U.S. at 61.
In this case, it must be determined whether enforcement of the forum-selection clause would be unreasonable and unjust. Vallejo Enterprise, L.L.C., 950 So.2d at 835 (citing M/S Bremen, 407 U.S. at 15-16). In making this determination, courts generally require the party seeking to avoid its enforcement to bear the heavy burden of showing that the chosen forum is seriously inconvenient. Vallejo Enterprise, L.L.C., 950 So.2d at 836-837 (citing M/S Bremen, 407 U.S. at 16-17, 92 S.Ct. at 1916-17); Rising Resources Control, Inc., 80 So.3d at 1220. Since the claimed inconvenience would generally be foreseeable at the time the freely negotiated agreement was made, the party seeking to escape the clause must demonstrate that trial in the contractual forum will be so gravely difficult and inconvenient that it will for all practical purposes be deprived of its day in court. Id. at 1220. Mere inconvenience or additional expense should not suffice as proof of hardship since these are burdens that were allocated by the parties' private bargain. Vallejo Enterprise, LLC, 950 So.2d at 837. Nevertheless, "extraordinary circumstances" unrelated to the convenience of the parties may make enforcement of the forum-selection clause unjust. See e.g. Atlantic Marine Construction Company, Inc., 571 U.S. at 62.
This matter is a multi-defendant case where both contract and tort claims have been asserted against the defendants, including Buck. The Commissioner has requested a jury trial of these claims. The Commissioner argues that "[t]his is not a simple, two-party, 'garden variety' contract dispute between the Receiver and a third party like Buck ..."and enforcing the forum-selection clause increases the risk of inconsistent or conflicting rulings. This Court agrees.
In light of the tort claims pending against multiple defendants, enforcing the forum-selection clause would be unjust and unreasonable. It would require the Commissioner to try the same case in multiple venues with the real danger of inconsistent jury verdicts. Defendants in a venue where Buck has been dismissed may attempt to have the jury allocate fault on Buck. A real danger exists that that jury could allocate a percentage of fault to Buck's empty chair which could be inconsistent and not reconcilable with a New York court's determination of Buck's fault. Different juries in different venues may allocate fault to different parties in different percentages based upon the parties which may be excluded because of a forum-selection clause. Such a result would be unreasonable and unjust not only to the Commissioner but also to the various defendants.
Buck argues that federal courts have enforced forum-selection clauses in multi-defendant litigation in cases where the convenience of the parties and judicial economy were argued as reasons against enforcement. See Instrument & Valve Services Co. v. Burt Group, Inc., No. CV 17-00223-BAJ-RLB, 2018 WL 1547340 (M.D. La. Mar. 29, 2018), Royal Smit Transformers BV v. HC BEA-LUNA M/V, No. CV 16-14647, 2017 WL 819243 (E.D. La. Mar. 2, 2017), and Buc-ee's, Ltd. v. Bucks, Inc., 262 F. Supp. 3d 453 (S.D. Tex. 2017).
In cases exclusively involving claims for breach of contract without tort claims, the comparative fault principles would not be applicable and enforcement of the forum-selection clause could be appropriate. See e.g. In re Rolls Royce Corp., 775 F.3d 671, 682-83 (5th Cir. 2014), cert denied, 136 S.Ct. 45, 193 L.E.2d 27 (2015) (forum-selection clause enforced in multi-defendant litigation where only breach of contract claims remained at the time of the enforcement of the forum-selection clause). Moreover, Buck's cited cases do not consider the intersection of Louisiana's comparative fault principles (which would require the jury to allocate a percentage of fault to all parties who may have caused injury to the plaintiff, pursuant to La. Civ. Code article 2323) and the enforcement of a forum-selection clause in multi-defendant litigation.
This case involves extraordinary circumstances where tort claims necessarily invoking comparative fault principles have been filed against multiple defendants, and a single defendant seeks to enforce a forum-selection clause. Such extraordinary circumstances are wholly unrelated to the convenience of the parties and judicial economy considerations, which were at issue in Instrument & Valve Services Co., supra, Royal Smit Transformers BV, supra, and Buc-ee's, Ltd., supra.
Since the Commissioner's claims in both tort and contract are against multiple defendants, enforcing a forum-selection clause as to one defendant would be unreasonable, unjust, and create the opportunity for inconsistent and incoherent jury verdicts. Unlike a situation where multiple defendants are joined to a suit in a transparent effort to defeat a forum-selection clause, see e.g. In re Rolls Royce Corp., 775 F.3d at 683, this case is an action by the Commissioner to attempt to recoup the losses to the state due to the alleged negligent conduct of many defendants.
In this case, if a forum-selection clause would be enforced as to one or more defendants, two or more juries in two or more states would be determining the percentage of fault of some but not all of the potential defendants. There would be no mechanism for the court or juries to use to make their verdicts consistent so that the fault of all of the same defendants would be equal in all courts. The risk of inconsistent verdicts as well as unfairness to both the Commissioner and the party defendants is significant if the Declinatory Exception of Improper Venue would be granted and this case as to only one defendant would be tried in the State of New York.
Although forum-selection clauses should be enforced in most cases, the exceptional and extraordinary circumstances presented in this case are an exception to that rule. Enforcement of the forum-selection clause under these circumstances would be unreasonable and unjust. Accordingly, the trial court did not err in overruling the Declinatory Exception of Improper Venue.
Because this Court finds that enforcement of the forum-selection clause would be unreasonable and unjust, this Court pretermits a discussion of whether the clause arose from fraud or overreaching, whether enforcement would contravene Louisiana public policy, and whether the Commissioner's claims against Buck fall within the scope of the forum-selection clause.
The result reached in this matter varies from the result reached in the companion case Donelon v. Shilling, et al." 2017 CW 1545 (La. App. 1 Cir. ___/___/___), whereby a defendant-actuary in this litigation sought to enforce an arbitration provision in its contract with LAHC against the Commissioner. In that case, this Court was bound to uphold the arbitration provision, in light of the governing statutory provisions of the Louisiana Binding Arbitration Law, La. R.S. 9:4201 et seq., the jurisprudence of the Louisiana Supreme Court favoring arbitration, and the provisions of the RLC Act and the Rehabilitation Order, which do not prohibit arbitration. However, unlike arbitration which is governed by statute, Louisiana's law on forum-selection clauses is jurisprudential with the noted exceptions to the enforcement of forum-selection clauses. Therefore, to avoid injustice, this Court will not enforce the forum-selection clause at issue.
CONCLUSION
For the reasons stated, the judgment of the trial court is affirmed.
AFFIRMED.