Opinion
2017 CW 1545
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
V. Thomas Clark, Jr. Grant J. Guillot Baton Rouge, Louisiana Harry A. Rosenberg New Orleans, Louisiana H. Alston Johnson Baton Rouge, Louisiana Attorneys for Applicant-Relator Milliman, Inc. 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
V. Thomas Clark, Jr.
Grant J. Guillot
Baton Rouge, Louisiana Harry A. Rosenberg
New Orleans, Louisiana H. Alston Johnson
Baton Rouge, Louisiana Attorneys for Applicant-Relator
Milliman, Inc. 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, Milliman, Inc. ("Milliman"), challenges the ruling of the trial court, which overruled Milliman's Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction. For the following reasons, we reverse the ruling of the trial court and dismiss the claims of James J. Donelon, Commissioner of Insurance for the State of Louisiana, through his duly appointed Receiver, Billy Bostick, against Milliman, without prejudice.
The companion case involving the Declinatory Exception raising the objection of Improper Venue and writ application filed by Buck Consultants, LLC, Docket No. 2017 CW 1483, 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"). LAHC executed a Consulting Services Agreement ("Agreement") with Milliman for actuarial services. The Agreement states, in pertinent part, as follows:
This Agreement is entered into between [Milliman] and [LAHC] (Company) as of August 4, 2011. Company has engaged Milliman to perform consulting services as described in the letter dated August 4, 2011 and attached hereto. The parties agree that these terms and conditions will apply to all current and subsequent engagements of Milliman by Company unless specifically disclaimed in writing by both parties prior to the beginning of the engagement. In consideration for Milliman agreeing to perform these services, Company agrees as follows.Representatives of Milliman and LAHC signed the Agreement on August 4, 2011, and August 15, 2011, respectively.
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4. DISPUTES. In the event of any dispute arising out of or relating to the engagement of Milliman by Company, the parties agree that the dispute will be resolved by final and binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association. ...
5. CHOICE OF LAW. The construction, interpretation, and enforcement of this Agreement shall be governed by the substantive contract law of the State of New York without regard to its conflict of laws provisions. In the event any provision of this agreement is unenforceable as a matter of law, the remaining provisions will stay in full force and effect.
A Proposal for Actuarial Services ("Engagement Letter") from Milliman to Beam Partners, dated August 4, 2011, was attached to the Agreement. The Engagement Letter outlined that Beam Partners was working with LAHC, which is sponsored by Ochsner Health System, to investigate the creation of a Consumer Operated and Oriented Plan ("CO-OP") in Louisiana. Beam Partners, on behalf of LAHC, had asked Milliman to provide a proposal for actuarial support of the proposed CO-OP, with initial support including assistance with a feasibility study and LAHC's loan application in response to Funding Opportunity Announcement No. OO-COO-11-001, CFDA 93.545 released from the U.S. Department of Health and Human Services on July 28, 2011. The Engagement Letter provided Milliman's work plan as well as timing, staffing, and professional fees.
It is alleged that LAHC became registered with the Louisiana Secretary of State on September 12, 2011, and applied for and received loans from the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, in 2012. However, it is undisputed 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. Milliman 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 Milliman. The Commissioner stated that Milliman was engaged via the Engagement Letter to provide "actuarial support" for LAHC including the production of a feasibility report and loan application. The Commissioner further alleged that Milliman was engaged via a separate engagement letter dated November 13, 2012, to develop 2014 premium rates in Louisiana.
A copy of the November 13, 2012 Engagement Letter has not been provided to this Court and is not in evidence.
As to the professional negligence and breach of contract claims, the Commissioner alleged the following: (1) the feasibility study was prepared using unrealistic and unreasonable assumption sets failing to consider the possibility of adverse enrollment and/or medical loss ratio scenarios; (2) Milliman conditioned its payment upon LAHC being awarded a loan, compromising its actuarial independence and breaching its duty to LAHC; (3) Milliman's feasibility study and pro forma reports were unreliable, inaccurate, and not the result of careful professional analysis; (4) Milliman owed a duty to LAHC to exercise reasonable care in accordance with the professional standards for actuaries; (5) Milliman provided actuarial memorandums for 2014 rate filings utilizing unreasonable assumptions, grossly underestimating the level of non-claim expenses in 2014, and providing no basis for assumptions made therein; (6) Milliman breached its duty to LAHC by failing to discharge its duties with reasonable care, failing to act in accordance with the professional standards applicable to actuaries, failing to produce an accurate and reliable feasibility study, failing to set premium rates that were accurate and reliable, and failing to exercise the reasonable judgment expected of professional actuaries under like circumstances; and (7) Milliman's failure to exercise reasonable care, failure to act in accordance with the professional standards applicable to actuaries and breach of contract were the legal causes of all or substantially all of LAHC's damages. The Commissioner further alleged that Milliman's advice and reports to LAHC negligently misrepresented the actual funding needs and premium rates of LAHC, and Milliman had a duty to provide accurate and up-to-date information to LAHC that Milliman 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, Milliman filed a Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction, asserting that the Commissioner's claims against it must be arbitrated, pursuant to the arbitration provision in the Agreement. Milliman requested that the Commissioner's claims against it be dismissed, with prejudice. Attached to Milliman's exception was a copy of the Agreement and the Engagement Letter.
The Commissioner opposed the exception arguing, in pertinent part, as follows: (1) 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) arbitration interferes with the rehabilitation proceeding in violation of the Rehabilitation Order; (3) the Commissioner did not sign the Agreement and is not bound by the arbitration provision; (4) Milliman 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 Engagement Letter because the Commissioner is not seeking a declaration of Milliman's obligations under the Engagement Letter and the Commissioner's allegations against Milliman do not require the court to interpret the Engagement Letter to determine Milliman'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.
Milliman filed a reply arguing, in pertinent part, as follows: (1) the Commissioner is vested with title to all contracts of LAHC, pursuant to La. R.S. 22:2008(A), and no provision of the RLC Act vests the Commissioner with greater rights than those LAHC held; (2) La. R.S. 22:257(F), which gives the Nineteenth Judicial District Court exclusive jurisdiction over suits arising from the takeover and liquidation of a health maintenance organization, does not apply herein because LAHC is not in liquidation; (3) enforcement of the arbitration provision does not violate the Rehabilitation Order; (4) the Commissioner is bound to the arbitration provision, despite being a non-signatory, because the Commissioner has sued Milliman for breach of the Agreement; (5) the Ohio Supreme Court's decision in Taylor is not binding on this Court and is factually distinguishable; (6) the Commissioner stands in the shoes of LAHC for purposes of exercising the rights and being obligated by the restrictions of the Agreement; and (7) the Commissioner's claims against Milliman arise out of the Agreement because the Engagement Letter was incorporated into the Agreement and the claims against Milliman arise out of the contractual relationship between LAHC and Milliman.
A hearing on the Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction was held on August 25, 2017. Copies of the Agreement, the Engagement Letter and the Rehabilitation Order were introduced into evidence at the hearing.
The trial court denied the exception. Milliman filed a writ application, seeking supervisory review of the trial court's judgment that denied its Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction and asking that the trial court's judgment be reversed. We granted certiorari and stayed the trial court proceeding.
ERROR
Milliman argues that the trial court erroneously denied its Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction, where the trial court found that the Commissioner's claims against Milliman must be heard in the Nineteenth Judicial District Court rather than in arbitration, in violation of the language of the Rehabilitation Order, the Louisiana Insurance Code, the Louisiana Binding Arbitration Law and Federal Arbitration Act, and controlling jurisprudence of this Court and the U.S. Supreme Court.
STANDARD OF REVIEW
Milliman filed a Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction, arguing that the Commissioner's claims should be dismissed with prejudice because the trial court does not have subject matter jurisdiction in light of the arbitration provision in the Agreement. Subject matter jurisdiction is the legal power and authority of a court to hear and determine a particular class of actions or proceedings, based upon the object of the demand, the amount in dispute, or the value of the right asserted. La. Code Civ. P. art. 2. A judgment rendered by a court which has no jurisdiction over the subject matter of the action or proceeding is void. See La. Code Civ. P. arts. 3 and 925(C). A trial court is precluded from exercising jurisdiction once arbitration has commenced. Williams v. International Offshore Services, LLC, 2011-1240 (La. App. 1 Cir. 12/7/12), 106 So.3d 212, 217, writ denied, 2013-0259 (La. 3/8/13), 109 So.3d 367. Furthermore, subject matter jurisdiction cannot be waived or conferred by the consent of the parties. Id. However, arbitration has not yet commenced in this matter, and the trial court has not yet been divested of subject matter jurisdiction. Moreover, the arbitration provision is powerless to waive or confer subject matter jurisdiction. Therefore, an exception of lack of subject matter jurisdiction is not a proper procedural vehicle to raise arbitration.
However, "[e]very pleading shall be so construed as to do substantial justice." La. Code Civ. P. art. 865. In this regard, an exception is treated as what it actually is, not as what it is entitled. Smith v. Smith, 341 So.2d 1147, 1148 (La. App. 1 Cir. 1976) (citing Jackson v. Dickens, 236 So.2d 81, 83 (La. App. 1 Cir. 1970)). The defense that a plaintiff is not entitled to judicial relief because of a valid agreement to submit claims to arbitration may be raised by the dilatory exception of prematurity. Green v. Regions Bank, 2013-0771 (La. App. 1 Cir. 3/19/14), 2014 WL 3555820, *2 (unpublished) (citing Cook v. AAA Worldwide Travel Agency, 360 So.2d 839, 841 (La. 1978); O'Neal v. Total Car Franchising Corp., 44,793 (La. App. 2 Cir. 12/16/09), 27 So.3d 317, 319). Therefore, this Court will consider Milliman's Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction as a Dilatory Exception raising the objection of Prematurity, which properly raises arbitration.
Louisiana Code of Civil Procedure article 926(A)(1) provides for the dilatory exception raising the objection of prematurity. Such an objection is intended to retard the progress of the action rather than defeat it. La. Code Civ. P. art. 923. A suit is premature if it is brought before the right to enforce the claim sued on has accrued. La. Code Civ. P. art. 423.
Prematurity is determined by the facts existing at the time suit is filed. Houghton v. Our Lady of the Lake Hospital, Inc., 2003-0135 (La. App. 1 Cir. 7/16/03), 859 So.2d 103, 106 (citing Hidalgo v. Wilson Certified Express, Inc., 94-1322 (La. App. 1 Cir. 5/14/96), 676 So.2d 114, 116; Allied Signal, Inc. v. Jackson, 96-0138 (La. App. 1 Cir. 2/14/97), 691 So.2d 150, 157 n.9, writ denied, 97-0660 (La. 4/25/97), 692 So.2d 1091). Evidence may be introduced to support or controvert the exception, when the grounds do not appear from the petition. La. Code Civ. P. art. 930. The objection of prematurity raises the issue of whether the judicial cause of action has yet come into existence because some prerequisite condition has not been fulfilled. Bridges v. Smith, 2001-2166, (La. App. 1 Cir. 9/27/02), 832 So.2d 307, 310, writ denied, 2002-2951 (La. 2/14/03), 836 So.2d 121. The objection contemplates that the action was brought prior to some procedure or assigned time, and is usually utilized in cases where the applicable law or contract has provided a procedure for one aggrieved of a decision to seek relief before resorting to judicial action. Plaisance v. Davis, 2003-0767 (La. App. 1 Cir. 11/7/03), 868 So.2d 711, 716, writ denied, 2003-3362 (La. 2/13/04), 867 So.2d 699; Harris v. Metropolitan Life Insurance Co., 2009-34 (La. App. 1 Cir. 2/5/10), 35 So.3d 266, 274. An exception of prematurity raising a question of law is subject to a de novo standard of review on appeal. Bridges v. Citimortgage, Inc., 2011-1508 (La. App. 1 Cir. 5/24/12), 2012 WL 1922457, *1, writ denied, 2012-1739 (La. 11/2/12), 99 So.3d 673 (citing La. Code Civ. P. art. 926; Bridges, 832 So.2d at 310).
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 arbitration provision. This is a question of law subject to a de novo standard of review.
Appellate review of questions of law is simply a review of whether the trial court was legally correct or legally incorrect. Bridges, 832 So.2d at 310 (citing City of Baker School Board v. East Baton Rouge Parish School Board, 99-2505 (La. App. 1 Cir. 2/18/00), 754 So.2d 291, 292). On legal issues, the appellate court gives no special weight to the findings of the trial court, but exercises its constitutional duty to review questions of law and renders judgment on the record. Bridges, 832 So.2d at 310 (citing Northwest Louisiana Production Credit Association v. State, Department of Revenue and Taxation, 98-1995 (La. App. 1 Cir. 11/5/99), 746 So.2d 280, 282.
When the issue of failure to arbitrate is raised by the dilatory exception raising the objection of prematurity, the defendant pleading the exception has the burden of showing the existence of a valid contract to arbitrate, by reason of which the judicial action is premature. Green, 2014 WL 3555820 at *2 (citing Cook, 360 So.2d at 841; O'Neal, 27 So.3d at 319). If the dilatory exception of prematurity is sustained, the premature action shall be dismissed. Green, 2014 WL 3555820 at *2 (citing La. Code Civ. P. art 933).
DISCUSSION
The positive law of Louisiana favors arbitration. Aguillard v. Auction Mgmt. Corp., 2004-2804 (La. 6/29/05), 908 So.2d 1, 7 superseded by statute on other grounds, as stated in Arkel Constructors, Inc. v. Duplantier & Meric, Architects, L.L.C., 2006-1950 (La. App. 1 Cir. 7/25/07), 965 So.2d 455, 458-59. Louisiana Revised Statutes 9:4201 of the Louisiana Binding Arbitration Law ("LBAL"), specifically states as follows:
A provision in any written contract to settle by arbitration a controversy thereafter arising out of the contract, or out of the refusal to perform the whole or any part thereof, or an agreement in writing between two or more persons to submit to arbitration any controversy existing between them at the time of the agreement to submit, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
Such favorable treatment echoes the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1, et seq. Aguillard, 908 So.2d at 7. Section 2 of the FAA provides:
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.The Louisiana Supreme Court in Aguillard adopted the liberal federal policy favoring arbitration agreements, and a Louisiana presumption of arbitrability now exists with regard to the enforceability of arbitration agreements. See Vishal Hospitality, LLC v. Choice Hotels International, Inc., 2004-0568 (La. App. 1 Cir. 6/28/06), 939 So.2d 414, 416, writ denied, 2006-2517 (La. 1/12/07), 948 So.2d 152 (citing Aguillard, 908 So.2d at 3-4). Louisiana courts look to federal law in interpreting the LBAL, because it is virtually identical to the FAA. Snyder v. Belmont Homes, Inc., 2004-0445 (La. App. 1 Cir. 2/16/05), 899 So.2d 57, 60, writ denied, 2005-1075 (La. 6/17/05), 904 So.2d 699. In this regard, determinations regarding the viability and scope of arbitration clauses would be the same under either law, and is consistent with the federal jurisprudence interpreting the FAA which may be considered in construing the LBAL. Lafleur v. Law Offices of Anthony G. Buzbee, P.C., 2006-0466 (La. App. 1 Cir. 3/23/07), 960 So.2d 105, 111, called into doubt on other grounds, as stated in Arkel Constructors, Inc., 965 So.2d at 459 (citations omitted).
Even when the scope of an arbitration clause is fairly debatable or reasonably in doubt, the court should decide the question of construction in favor of arbitration. Aguillard, 908 So.2d at 18. The weight of this presumption is heavy and arbitration should not be denied unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation that could cover the dispute at issue. Id. Therefore, even if some legitimate doubt could be hypothesized, the Louisiana Supreme Court requires resolution of the doubt in favor of arbitration. Id.
A two-step analysis is applied to determine whether a party is required to arbitrate. Snyder, 899 So.2d at 61-62 (citing Fleetwood Enterprises, Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002), opinion supplemented on denial of rehearing, 303 F.3d 570 (5th Cir. 2002)). The first inquiry is whether the party has agreed to arbitrate the dispute, which contains two questions: (1) whether there is a valid agreement to arbitrate; and (2) whether the dispute in question falls within the scope of that arbitration agreement. Then, the court must determine whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims. Fleetwood Enterprises, Inc., 280 F.3d at 1073.
Validity of the Agreement to Arbitrate
As to whether there is a valid agreement to arbitrate, arbitration is a matter of contract, and a party cannot be required to arbitrate any dispute he has not agreed so to submit. Snyder, 899 So.2d at 63 (citing Billieson v. City of New Orleans, 2002-1993 (La. App. 4 Cir. 9/17/03), 863 So.2d 557, 561, writ denied, 2004-0563 (La. 4/23/04), 870 So.2d 303). The burden of proof is on Milliman to establish that a valid and enforceable arbitration agreement exists. See Lafleur, 960 So.2d at 109. If Milliman satisfies its burden of proof establishing its right to arbitration, the burden then shifts to the Commissioner to demonstrate that he did not consent to arbitration or his consent was vitiated by error, which rendered the arbitration provision unenforceable. Id.
The policy favoring arbitration does not apply to a determination of whether there is a valid agreement to arbitrate between the parties. Snyder, 899 So.2d at 62. Rather, ordinary state law contract principles determine who is bound. Id. In determining whether the parties agreed to arbitrate a certain matter, courts apply the contract law of the particular state that governs the agreement. Id. at 61.
In making that determination, Louisiana's codal provisions concerning choice of laws provide, in part, that the parties are free to select the law that will govern contracts "except to the extent that law contravenes the public policy of the state whose law would otherwise be applicable under Article 3537." La. Civ. Code art. 3540. In this regard, the Agreement contains a choice-of-law provision which states, in pertinent part, as follows: "The construction, interpretation, and enforcement of this Agreement shall be governed by the substantive contract law of the State of New York without regard to its conflict of laws provisions."
The trial court did not address the choice-of-law provision contained in the Agreement. The issue was first raised via the Commissioner's Post-Argument Brief filed after oral argument with this Court. (Commissioner's Post Argument Brief, pp. 4-8) Generally, an appellate court will not consider issues raised for the first time on appeal. Segura v. Frank, 630 So.2d 714, 725 (La. 1994). Uniform Rules, Courts of Appeal, Rule 1-3 further articulates that "[t]he Courts of Appeal will review only issues which were submitted to the trial court and which are contained in specifications or assignments of error, unless the interest of justice clearly requires otherwise." As noted in the Official Revision Comment (a) to La. Code Civ. P. art. 2164, "[t]he purpose of this article [Article 2164] is to give the appellate court complete freedom to do justice on the record irrespective of whether a particular legal point or theory was made, argued, or passed on by the court below." This Court has considered a question of conflicts or choice of laws for the first time on appeal, when the question is necessarily invoked by the issues before it. See e.g. Berard v. L-3 Communications Vertex Aerospace, LLC, 2009-1202 (La. App. 1 Cir. 2/12/10), 35 So.3d 334, 340, n.1, writ denied, 2010-0715 (La. 6/4/10), 38 So.3d 302. Because courts apply the contract law of the particular state governing the agreement containing the arbitration provision when determining the validity of the arbitration provision, we must determine what state's law applies to the Agreement.
In order to determine if New York law should be applied, it must first be determined whether Louisiana law is applicable under an analysis of La. Civ. Code art. 3537 and, if so, whether New York law contravenes the public policy of Louisiana. Louisiana Civil Code article 3537 provides that the issue of which state law applies to a conventional obligation "is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue." See also La. Civ. Code art. 3515. In making this analysis, we must look to each state's connection to the parties and the transaction, as well as its interests in the conflict, to determine which state would bear the most serious legal, social, economic, and other consequences if its laws were not applied to the issues at hand. La. Civ. Code art. 3537, 1991 Revision Comments - Comment (c).
There is no record evidence as to the place of negotiation, formation, and performance of the Agreement. It is undisputed that LAHC is a Louisiana corporation doing business in Louisiana. Moreover, the object of the Agreement was to prepare a feasibility study and assist with LAHC's loan application to enable it to offer insurance in Louisiana. It is undisputed that Milliman is domiciled in Washington with its principal place of business in Washington.
Louisiana has a strong public policy favoring the enforcement of arbitration provisions. However, the New York courts have prohibited the enforcement of arbitration provisions in contracts with insurers when the insurer is insolvent and is in either rehabilitation or liquidation. See e.g. Matter of Allcity Insurance Co., 66 A.D.2d 531, 535-38, 413 N.Y.S.2d 929, 932 (1979); Knickerbocker Agency, Inc. v. Holz, 4 N.Y.2d 245, 251-54, 149 N.E.2d 885, 889 (1958); Washburn v. Corcoran, 643 F.Supp. 554, 556-57 (S.D.N.Y. 1986). For reasons discussed in this opinion, Louisiana contains no such limitation. Therefore, La. Civil Code art. 3540 precludes the application of New York law herein, because the application of New York law would reach a different result than that reached by the application of Louisiana law.
Applying Louisiana law, arbitration agreements and provisions are to be enforced unless they are invalid under principles of Louisiana state law that govern all contracts. Lafleur, 960 So.2d at 112. Applicable contract defenses such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements. Id. One of the conditions of a valid contract is the consent of both parties. Id. (citing La. Civ. Code art. 1927).
The parties do not dispute that the underlying arbitration agreement, as between LAHC and Milliman is valid. Representatives of both LAHC and Milliman signed the Agreement. It is well-settled that a party who signs a written instrument is presumed to know its contents. Aguillard, 908 So.2d at 17. However, the Commissioner did not sign the Agreement and argues that he is not bound to the arbitration provision contained therein. Milliman responded that the Commissioner has asserted claims against it based on Milliman's alleged breach of the Agreement, yet impermissibly seeks to avoid the arbitration provision in that same Agreement.
A non-signatory to a contract containing an arbitration provision may be bound by that provision under accepted theories of agency or contract law. Courville v. Allied Professionals Insurance Co., 2016-1354 (La. App. 1 Cir. 4/12/17), 218 So.3d 144, 148, n.3, writ denied, 2017-0783 (La. 10/27/17), 228 So.3d 1223 (internal citations omitted). When a signatory to a contract requiring arbitration seeks to compel a non-signatory to arbitrate a dispute, as in the present case, the signatory is required to establish that the non-signatory derived a direct benefit from the contract. Id. Direct-benefit estoppel applies when a non-signatory plaintiff sues to enforce a contract containing an arbitration provision yet seeks to avoid an arbitration provision. Id. The non-signatory cannot have it both ways; he cannot rely on the contract when it works to his advantage and then repudiate the contract when it works to his disadvantage. Id. On the other hand, when the non-signatory's claims are not associated with the enforcement of the contract containing the arbitration provision, the non-signatory is not bound to arbitrate those claims. Id.
The Commissioner has brought breach of contract, professional negligence, and negligent misrepresentation claims against Milliman based on Milliman's allegedly deficient performance under the Agreement. The Commissioner's breach of contract claims against Milliman seek to enforce the Agreement containing the arbitration provision. Furthermore, claims for negligence and negligent performance arising from work performed pursuant to a contract may be contractual in nature and subject to the arbitration provision in the contract. See e.g. Green, 2014 WL 355820, at *5-7; Shroyer v. Foster, 2001-0385 (La. App. 1 Cir. 3/28/02), 814 So.2d 83, 89, superseded by statute on unrelated grounds, as stated in Arkel Constructors, Inc., 965 So.2d at 458-49. Apart from the Agreement, there would have been no performance by Milliman and no alleged breach of professional standards and negligent misrepresentation. As such, the Commissioner's claims against Milliman for professional negligence and negligent misrepresentation, like the claim for breach of contract, are associated with the enforcement of the Agreement, making direct-benefit estoppel applicable. The Commissioner, despite being a non-signatory, cannot sue to enforce the Agreement and avoid the arbitration provision. Accordingly, the arbitration provision is valid.
Scope of the Arbitration Provision
Next, it must be determined whether, the Commissioner's claims against Milliman fall within the scope of the arbitration provision. The Commissioner argues that his claims do not arise from the Engagement Letter because the Commissioner is not seeking a declaration of Milliman's obligations thereunder and his allegations against Milliman do not require the court to interpret the Engagement Letter to determine Milliman's obligations. Milliman argues that its contractual relationship and obligations with LAHC are embodied in the Engagement Letter, and the conduct complained of arises out of the contractual relationship. Milliman notes that it would not have had a duty to LAHC but for the Agreement.
In construing an arbitration agreement under the FAA, for example, a determination of whether a dispute falls within an arbitration clause requires the court to characterize the clause as "broad" or "narrow." Snyder, 899 So.2d at 62 (citing Hornbeck Offshore (1984) Corp. v. Coastal Carriers Corp., 981 F.2d 752, 754-55 (5th Cir. 1993)). If the court finds that the clause is broad, then any dispute between the parties falls within the scope of the clause if it is connected with or related to the contract. Id. A narrow clause, for example, restricts and requires that the dispute literally "arise out of the contract" and relate to the parties' performance of the contract. Id. (citing Pennzoil Exploration & Production Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir. 1998). However, a broad arbitration clause governs disputes that "relate to" or "are connected with" the contract. Pennzoil Exploration & Production Co., 139 F.3d at 1067.
The arbitration provision at issue states that "[i]n the event of any dispute arising out of or relating to the engagement of Milliman by Company [LAHC], parties agree that the dispute will be resolved by final and binding arbitration ..." The term "any," when used in an arbitration provision, is broad. See e.g. In Re Complaint of Hornbeck Offshore (1984) Corp., 981 F.2d 752, 755 (5th Cir. 1993) (arbitration clauses containing the "any dispute" language are of the broad type).
Moreover, other courts have found the phrase "relating to," in particular, to be very broad in the context of arbitration provisions. See e.g. Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 406, 87 S.Ct. 1801, 1807, 18 L.Ed.2d 1270 (1967) (agreement to arbitrate "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof" is "easily broad enough" to encompass a claim of fraud in the inducement regarding the contract); See also Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 165 (5th Cir. 1998); Hamel-Schwulst v. Country Place Mortgage, Ltd., 406 Fed. Appx. 906, 913 (5th Cir. 2010).
Furthermore, broad arbitration provisions mandating arbitration for claims "arising from or relating to" the contract have been found to include tort claims such as negligent misrepresentation, negligent manufacture, and negligent repair as well as any disagreement over any rights and violations reasonably traceable to the pertinent contract. See e.g. Rain CII Carbon LLC v. ConocoPhillips Co., 2012-0203 (La. App. 4 Cir. 10/24/12), 105 So.3d 757, 763, writ denied, 2012-2496 (La. 1/18/13), 107 So.3d 631 (arbitration clause providing "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration" was broad enough to include breach of contract claims as well as claims for negligent representation, unfair trade practices, and indemnification); See also Vector Electric & Controls, Inc. v. ABM Industries Inc., No. CV31500252JWDRLB (M.D. La. Jan. 11, 2016), 2016 WL 126752 at *5; Snyder, 899 So.2d at 62 (citing Izzi v. Mesquite Country Club, 186 Cal.App.3d 1309, 231 Cal. Rptr. 315 (1986). Therefore, we find the arbitration provision at issue herein is of the broad type.
The Commissioner specifically alleged that Milliman was engaged, via the Engagement Letter dated August 4, 2011, to provide "'actuarial support' for LAHC, including production of a feasibility study and loan application." Furthermore, the Commissioner alleged that Milliman was engaged, via a separate engagement letter dated November 13, 2012, to "develop 2014 premium rates in Louisiana" for LAHC. The remainder of the Commissioner's allegations attack Milliman's actuarial work, the feasibility study, pro forma reports, actuarial memorandums prepared for the 2014 rate filings, and advice on LAHC's funding needs. Each of these claims relates to LAHC's engagement of Milliman to provide a feasibility study, assist with LAHC's loan application, and develop premium rates. The roots of each of the Commissioner's claims, whether resounding in contract or tort, are the Agreement. But for Milliman's allegedly defective performance under the Agreement, the Commissioner would have no tort claim against Milliman.
As noted, a copy of the Engagement Letter dated November 13, 2012, is not in evidence. However, the copy of the Agreement in evidence reflects that its "terms and conditions will apply to all current and subsequent engagements of Milliman by [LAHC] unless specifically disclaimed in writing by both parties prior to the beginning of the engagement." There is no allegation or record evidence that either LAHC or Milliman disclaimed the terms of the Agreement, in writing or otherwise, prior to the beginning of the November 2012 engagement. Therefore, Milliman's work under the 2012 engagement would fall under the terms of the Agreement and the arbitration provision.
The Commissioner further relies upon Taylor, a decision from the Ohio Supreme Court, arguing that the claims do not fall under the scope of the arbitration provision, because the Commissioner is not seeking a declaration of Milliman's obligations under the Agreement. In Taylor, Ernst & Young ("E & Y"), an independent accounting firm, provided auditing services to American Chambers Life Insurance Company ("ACLIC"). E & Y submitted an audit report to the Ohio Department of Insurance ("ODI"). The audit was undertaken pursuant to an engagement letter signed by E & Y and ACLIC that contained an arbitration clause. The Taylor decision does not provide the exact language of the arbitration provision but states that "[t]he agreement provides that all claims 'related to' the services covered in the engagement letter shall be arbitrated." Id. at 1213, n.5. The superintendent later filed an action to place ACLIC in rehabilitation, and a final liquidation order was entered based on ACLIC's insolvency. The superintendent then filed suit against E & Y alleging that E & Y had "negligently failed to perform its duties as the independent certified public accountant retained to conduct the audit of ACLIC's December 31, 1998, Annual Statement, thus breaching the duties owed (i.e. the malpractice claim), and E & Y had received preferential or fraudulent payments of more than $25,000 (i.e. the preference claim). E & Y sought to compel the matter to arbitration.
The Ohio Supreme Court found that the test for whether the claims fell under the scope of the arbitration provision was not whether the superintendent's claims "relate to" the subject matter of the engagement letter but instead whether the liquidator, a non-signatory, asserted claims that arise from the contract containing the arbitration clause. Id. at 1213. In reference to the claim for malpractice, the court found that this claim arose from statutory duties and certifications filed in public record by ACLIC and E & Y and did not seek judicial interpretation of the engagement letter. The claims could be resolved without reference to the engagement letter and did not arise from the engagement letter and was not arbitrable. As to the preference claim, the court found that preference and fraudulent-transfer claims arise only by virtue of statute and arise only in favor of the liquidator, and they could not as a matter of law arise from a contract entered into by an insolvent insurer.
This Court is not bound by decisions of the Ohio Supreme Court. Nevertheless, the Taylor decision is distinguishable. In Taylor, the liquidator sued for breach of the auditor's statutory duties, specifically malpractice and preference claims, that did not require reference to the contract or engagement letter for determination. Moreover, the Taylor liquidator did not sue for breach of contract. In the present case, the Commissioner is suing for breach of contract, which requires reference to the Agreement and the incorporated Engagement Letter. Furthermore, the Commissioner's claims for negligence and negligent misrepresentation are not determinable by reference to any particular statutory duty of actuaries, and the Commissioner cites no statutory duty that Milliman allegedly breached. As such, Taylor is distinguishable.
In the present case, each of the Commissioner's claims relate to Milliman's engagement. Moreover, even if the scope of an arbitration clause is fairly debatable or reasonably in doubt, the court should decide the question of construction in favor of arbitration. Aguillard, 908 So.2d at 18. Accordingly, all of the Commissioner's claims against Milliman fall within the scope of the arbitration provision.
Whether the Claims Are Non-Arbitrable
Finally, it must be determined whether any statute or legal constraint renders the matter non-arbitrable. Both the FAA and the LBAL contain identical language that written agreements to arbitrate disputes "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." La. R.S. 9:4201; 9 U.S.C. § 2. Federal courts interpreting the FAA allow for a determination to be made as to whether any federal statute or policy renders the claims non-arbitrable. Sherer v. Green Tree Servicing LLC, 548 F.3d 379, 381 (5th Cir. 2008). Utilizing federal cases to interpret the LBAL, it must be determined whether any statute or legal constraints external to the parties' agreement foreclosed the arbitration of those claims. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3353-55, 87 L.Ed.2d 444 (1985); Sherer, 548 F.3d at 381.
In this regard, the Commissioner argues that the RLC Act and La. R.S. 22:257(F) preclude arbitration and venue is mandatory in the Nineteenth Judicial District Court. Milliman argues that the Insurance Code does not grant the Commissioner greater rights than LAHC had, under the Agreement, and La. R.S. 22:257(F) is not applicable because LAHC is not in "liquidation." The RLC Act sets forth the provisions pertaining to rehabilitation, liquidation, and conservation of insurers. La. R.S. 22:2001. La. R.S. 22:2(A)(1) states that insurance is "an industry affected with the public interest." The Commissioner is charged with the duty of administering the Insurance Code. La. Const. art. IV, § 11; La. R.S. 22:2(A)(1). As liquidator or rehabilitator of an insurance company, the Commissioner acts as an officer of the state to protect the interests of the public, the policyholders, the creditors, and the insurer. Green v. Louisiana Underwriters Ins. Co., 571 So.2d 610, 615 (La. 1990). However, the Commissioner's role as such does not involve the assertion or protection of any state interest or right. Id. The Commissioner, in his role as liquidator or rehabilitator, represents the insurer's interests and not the state's. Id. at 615, n.10.
The statutory scheme for the liquidation and/or rehabilitation of insurers is comprehensive and exclusive in scope. Brown v. Associated Ins. Consultants, Inc., 97-1396 (La. App. 1 Cir. 6/29/98), 714 So.2d 939, 942. This statutory scheme takes precedence over general law to the extent that the general law is inconsistent with the provisions or purpose of the comprehensive, statutory scheme. Bernard v. Fireside Commercial Life Ins. Co., 92-0237 (La. App. 1 Cir. 1993), 633 So.2d 177, 185, writ denied, 93-3170 (La. 1994), 634 So.2d 839.
Louisiana Revised Statutes 22:2004 (renumbered from La. R.S. 22:732.3 by 2008 La. Acts, No. 415, § 1, eff. Jan. 1, 2009) is entitled "Venue" and states as follows:
A. An action under this Chapter brought by the commissioner of insurance, in that capacity, or as conservator, rehabilitator, or liquidator may be brought in the Nineteenth Judicial District Court for the parish of East Baton Rouge or any court where venue is proper under any other provision of law.
B. Any action under this Chapter may also be brought in the parish where at least twenty-five percent of the policyholders of the insurer reside.
C. If an action is filed in more than one venue, the court shall consolidate all such cases into one court where venue is proper.
When originally added by 1993 La. Acts, No. 955, § 1, La. R.S. 22:2004 stated as follows:
An action under this Part brought by the commissioner of insurance, in that capacity, or as conservator, rehabilitator, or liquidator may be brought in the Nineteenth Judicial District Court for the Parish of East Baton Rouge or any court where venue is proper under any other provision of law, at the sole option of the commissioner of insurance. See 1993 La. Acts, No. 955, § 1.However, in 1997, the legislature amended the statute to its current form, removing the language "at the sole option of the commissioner of insurance" from the statute. See 1997 La. Acts, No. 1298, § 1. Accordingly, venue for actions brought by the Commissioner of Insurance, pursuant to the RLC Act, is no longer at the sole option of the Commissioner or Insurance.
LAHC is in rehabilitation, pursuant to the Rehabilitation Order designating the Commissioner as Rehabilitator and authorizing him to commence and maintain all legal actions necessary, wherever necessary, for the proper administration of the rehabilitation proceeding. LAHC presently is not in liquidation, which is different than rehabilitation. Prematurity is determined by the facts existing at the time suit is filed. Houghton, 859 So.2d at 106. As such, the exclusive venue provision of La. R.S. 22:257(F) does not apply and does not render the matter non-arbitrable. See also Wooley v. AmCare Health Plans of Louisiana, Inc., 2005-2025 (La. App. 1 Cir. 10/25/06), 944 So.2d 668, 677 n.7 (in a suit by the Commissioner against contractor of insolvent insurer, this Court noted that there was "no mandatory Louisiana venue statute applicable herein and ... [La. R.S. 22:2004(A) formerly] La. R.S. 22:732.3 [(A)] controls in Louisiana").
Louisiana Revised Statutes 22:2009 (formerly La. R.S. 22:736) sets out the duties of the Commissioner as a rehabilitator. Dardar v. Insurance Guaranty Association, 556 So.2d 272, 274 (La. App. 1 Cir. 1990). Under this statute, the Commissioner conducts the business of the insurer in an attempt to remove the causes and conditions which were grounds for the rehabilitation and may apply to the court at any time for either an order directing liquidation, if further efforts to rehabilitate the insurer would be futile, or for an order permitting the insurer to resume control of the business, if the causes and conditions which made the proceeding necessary have been removed. Id. La. R.S. 22:2010 (formerly La. R.S. 22:737), however, deals with the duties of the Commissioner as a liquidator. Dardar, 556 So.2d at 274. Under this statute, he may sell property of the insurer, give notice to claimants of the insurer to present claims and, to protect policyholders of the insurer whose contracts were cancelled by the liquidation order, solicit a contract whereby a solvent insurer assumes some or all liabilities of former policyholders. Id. These acts for the most part are subject to the prior approval of the court. Id.
Furthermore, nothing in the Rehabilitation Order expressly prohibits arbitration. The Rehabilitation Order notes that the "Rehabilitator ... 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 ..." Moreover, contracts such as the Agreement remain in "full force and effect," and "LAHC providers and contractors [such as Milliman] are required to abide by the terms of their contracts with LAHC ..."
The Commissioner argues that the Rehabilitation Order's injunction provisions prevent arbitration. However, the injunction provisions of the Rehabilitation Order are not applicable to bar arbitration because Milliman is not suing LAHC, the Commissioner, or the Receiver and does not seek any property, encumbrance, or liability from LAHC, the Commissioner, or the Receiver. Instead, Milliman is the defendant. Moreover, the assertion of exceptions, including those asserting an arbitration provision like the present case, causes no interference in violation of the Rehabilitation Order.
Citing this Court's decisions in LeBlanc v. Bernard, 554 So.2d 1378, 1381 (La. App. 1 Cir. 1989), writ denied, 559 So.2d 1357 (La. 1990), and Republic of Texas Savings Association v. First Republic Life Insurance Co., 417 So.2d 1251, 1254 (La. App. 1 Cir. 1982), writ denied, 422 So.2d 161 (La. 1982), the Commissioner argues that public policy prohibits arbitration because he "owes an overriding duty to the public of the State of Louisiana" and does not stand precisely in the shoes of the insolvent insurer. In LeBlanc, 554 So.2d at 1379-80, this Court found that the Commissioner does not stand in the shoes of an insolvent insurer; however, in LeBlanc, a claim was brought against the Commissioner as a party defendant by a plaintiff seeking to dissolve a sale and regain certain immovable property under the control of the Commissioner in his capacity as rehabilitator of an insurance company. Similarly, in Republic of Texas Savings Association, 417 So.2d at 1253-54, the Commissioner objected to a foreclosure proceeding being brought against the insolvent insurer's property, and this Court found that the Commissioner did not stand in the shoes of the insolvent insurer in that he was not barred from raising certain defenses, although the insurer may have been barred from asserting said defenses.
In the present case, the Commissioner, as plaintiff, sued Milliman. No claims are being brought against the Commissioner, LAHC, or LAHC's property, as contrasted with facts of LeBlanc and Republic of Texas Savings Association. Since the LeBlanc and Republic of Texas decisions, this Court has found that the Commissioner, as rehabilitator, "takes control of the insurer, has the authority to conduct business ... steps into the shoes of the insurer" and "is bound by the same constraints as is the insurer in the normal course of business." Dardar v. Insurance Guaranty Association, 556 So.2d 272, 274 (La. App. 1 Cir. 1990).
Similarly, the Rehabilitation Order states that "LAHC providers and contractors are required to abide by the terms of their contracts with LAHC ..." Although La. R.S. 22:2009(E)(4) allows the Commissioner to "disavow any contracts to which the insurer is a party," it only allows disavowal of an entire contract rather than repudiating certain provisions. The Commissioner is bound to the terms of the Agreement including the arbitration provision, as LAHC would have been.
This Court is bound to uphold the arbitration provision, since we have found no exception in the law or jurisprudence that would allow for an exception to its enforcement. In light of Louisiana's strong public policy favoring arbitration and consistent with the views expressed herein, we find that the trial court erred in overruling Milliman's exception.
CONCLUSION
For the reasons stated, the judgment of the trial court is reversed. The claims of the Commissioner against Milliman are dismissed, without prejudice.
REVERSED.