Berkeley Cnty. Sch. Dist. v. Hub Int'l Ltd.
| Decision Date | 04 December 2019 |
| Docket Number | No. 19-1171, No. 19-1170,No. 19-1158,19-1158 |
| Parties | BERKELEY COUNTY SCHOOL DISTRICT, Plaintiff – Appellee, v. HUB INTERNATIONAL LIMITED; Hub International Midwest Limited, Defendants – Appellants, and Knauff Insurance Agency, Inc.; Stanley J. Pokorney; Scott Pokorney; Brantley Thomas, Defendants. Berkeley County School District, Plaintiff – Appellee, v. Scott Pokorney, Defendant – Appellant, and Hub International Limited; Hub International Midwest Limited; Knauff Insurance Agency, Inc.; Stanley J. Pokorney; Brantley Thomas, Defendants. Berkeley County School District, Plaintiff – Appellee, v. Stanley J. Pokorney, Defendant – Appellant, and Hub International Limited; Hub International Midwest Limited; Knauff Insurance Agency, Inc.; Scott Pokorney; Brantley Thomas, Defendants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: Michael Gregory Pattillo, Jr., MOLOLAMKEN LLP, Washington, D.C., for Appellants. Joshua S. Whitley, SMYTH WHITLEY, LLC, Charleston, South Carolina, for Appellee. ON BRIEF: William J. Cooper, Washington, D.C., Thomas J. Wiegand, Chicago, Illinois, W. Alex Harris, MOLOLAMKEN LLP, New York, New York; Christy Ford Allen, John A. Massalon, WILLS MASSALON & ALLEN LLC, Charleston, South Carolina, for Appellants Hub International Limited and Hub International Midwest Limited. Robert H. Jordan, Amanda C. Williams, PARKER, POE, ADAMS & BERNSTEIN, LLP, Charleston, South Carolina, for Appellant Scott Pokorney. Deborah B. Barbier, DEBORAH B. BARBIER, LLC, Columbia, South Carolina, for Appellant Stanley J. Pokorney. Jeffrey A. Breit, BREIT CANTOR GRANA BUCKNER, PLLC, Virginia Beach, Virginia, for Appellee.
Before KING, FLOYD, and RUSHING, Circuit Judges.
Vacated and remanded by published opinion. Judge King wrote the opinion, in which Judge Floyd and Judge Rushing joined.
Four defendants in the underlying proceedings — Hub International Limited and Hub International Midwest Limited (collectively, "Hub International"), along with two of their employees, Stanley Pokorney and Scott Pokorney (together with Hub International, the "Appellants") — pursue these consolidated appeals from the district court’s denial of their motion to compel arbitration. The Appellants sought arbitration of federal and state claims alleged against them by plaintiff Berkeley County School District ("Berkeley Schools") in the District of South Carolina. The district court denied the Appellants’ motion to compel arbitration, ruling that Berkeley Schools had not agreed to arbitrate those claims. See Berkeley Cty. Sch. Dist. v. HUB Int’l Ltd. , 363 F. Supp. 3d 632, 651 (D.S.C. 2019) (the "Denial Order"). In rendering its decision, however, the court failed to resolve — in the proper manner — factual disputes that are material to the arbitration agreement issue. Because federal law, that is, 9 U.S.C. § 4, requires those disputes to be resolved in trial proceedings, we vacate and remand.1
On January 18, 2018, a plaintiff denominated as the Berkeley County School Board of Trustees filed suit in the District of South Carolina against multiple defendants. Pertinent here, the complaint alleged federal and state claims against the four Appellants, plus Knauff Insurance Agency, Inc. (which Hub International purchased in 2012), and Brantley Thomas, a former Berkeley Schools Chief Financial Officer. The claims were predicated on a massive insurance contract steering and kickback fraud conspiracy that spanned the period from 2001 to 2016, and that was perpetrated by the Appellants, Knauff Insurance, and CFO Thomas. The complaint alleged that the steering and kickback fraud scheme caused Berkeley Schools to lose millions of dollars.
On March 5, 2018, appellant Hub International moved in the district court to compel arbitration of the claims alleged, pursuant to the Federal Arbitration Act (the "Arbitration Motion").2 Appellants Stanley Pokorney and Scott Pokorney joined the Arbitration Motion, and Hub International supported it with six purported Brokerage Service Agreements between Knauff Insurance and Berkeley Schools, spanning the period from 2002 to 2011 (the "Brokerage Service Agreements" or the "Agreements").3 The Agreements generally provided that, in exchange for annual fees, Knauff Insurance would provide insurance-related services to Berkeley Schools. Those services included identifying risks, reviewing existing insurance contracts, recommending additional insurance policies, arranging the purchase of new policies, and monitoring insurance claims made under the various policies.
The Arbitration Motion emphasized that each of the Brokerage Service Agreements contained an arbitration clause. In that regard, the Agreements provided thusly:
All disputes, claims or controversies relating to [these Agreements], or the services provided, which are not otherwise settled, shall be submitted to a panel of three arbitrators and resolved by final and binding arbitration, to the exclusion of any courts of laws, under the commercial rules of the American Arbitration Association.
See J.A. 91, 96, 101, 106, 114, 121 (the "Arbitration Clauses").4 Invoking the Arbitration Clauses, the Arbitration Motion contended that the claims alleged in the complaint related to the Agreements and thus had to be arbitrated.5
As pertinent here, the six Brokerage Service Agreements were each addressed to CFO Thomas and dated June 18, 2002; June 27, 2003; August 16, 2005; December 19, 2006; December 19, 2009; and May 1, 2011. The June 2002 Agreement was for one year and was signed on behalf of Berkeley Schools by a person named Angel Cartwright and on behalf of Knauff Insurance by Stanley Pokorney. The June 2003 Agreement was also for one year and was signed on behalf of Berkeley Schools by CFO Thomas and on behalf of Knauff Insurance by Stanley Pokorney. In contrast to the two earlier Agreements, the August 2005, December 2006, December 2009, and May 2011 Agreements were not signed, but generally purported to be between Berkeley Schools and Knauff Insurance for multi-year periods.
On March 19, 2018 — about two weeks after the Appellants moved to compel arbitration — Berkeley Schools substituted itself for the Berkeley County School Board of Trustees as the only plaintiff in these proceedings and filed an amended complaint. See Berkeley Cty. Sch. Dist. v. Hub Int’l Ltd. , No. 2:18-cv-00151 (D.S.C. Mar. 19, 2018), ECF No. 36 (the "Operative Complaint").6 The Operative Complaint names as defendants the four Appellants, Knauff Insurance, and CFO Thomas.7
According to the Operative Complaint, Knauff Insurance and its employee, Stanley Pokorney, had provided insurance brokerage and consulting services to Berkeley Schools from 2001 to 2012. After acquiring Knauff Insurance in 2012, Hub International began providing insurance brokerage and consulting services to Berkeley Schools, and Stanley and Scott Pokorney — who became Hub International employees after it purchased Knauff Insurance — were closely involved in providing those services.
The Operative Complaint alleges, inter alia, that beginning in 2005 and continuing into 2017, Berkeley Schools CFO Thomas helped the Appellants and Knauff Insurance secure contracts to broker insurance policies for Berkeley Schools and to conduct reviews of the existing insurance policies of Berkeley Schools. In exchange for Thomas’s assistance in steering those contracts to them, the Appellants and Knauff Insurance paid Thomas kickbacks "in the form of cash, expensive trips, hotel rooms, dinners, and spa services." See Operative Complaint ¶ 62. The Appellants and Knauff Insurance were the "insurance consultants" for Berkeley Schools, id. ¶ 238, and repeatedly breached their fiduciary duties by advising Berkeley Schools to purchase insurance that was unnecessary and excessive, and by charging Berkeley Schools "sham consulting fees for brokerage and insurance review," id. ¶ 213.
The Operative Complaint alleges that CFO Thomas, acting on Berkeley Schools’ behalf, secured from the Appellants and Knauff Insurance a series of excessive and unnecessary insurance policies. Even though Thomas purportedly obtained those policies for Berkeley Schools, the Schools already had insurance coverage for most of the risks. For policies secured from the Appellants and Knauff Insurance that were not duplicative, the Operative Complaint specifies that they were entirely unnecessary for other reasons, i.e., that Berkeley Schools had not historically purchased them, or that they were "highly unusual and prohibitively expensive." See Operative Complaint ¶ 96. Under the Operative Complaint, from 2005 to 2012, Berkeley Schools paid Knauff Insurance more than $3,300,000 in insurance premiums and approximately $1,600,000 in consulting and broker’s fees. From 2012 through 2017, Berkeley Schools paid Hub International more than $3,400,000 in insurance premiums and about $1,500,000 in consulting and broker’s fees.
According to the Operative Complaint, Berkeley Schools first learned on February 6, 2017, of the steering and kickback fraud scheme and conspiracy that the Appellants, Knauff Insurance, and CFO Thomas had orchestrated and executed. On that occasion, federal agents informed Berkeley Schools officials that CFO Thomas was the subject of a criminal investigation. In connection with that investigation, Thomas pleaded guilty in Charleston on January 16, 2018, to a twenty-count criminal Information filed on December 7, 2017, by the United States Attorney for the District of South Carolina. The Information charged Thomas with a single count of fraud and embezzlement from a federally funded program, nine counts of money laundering, and ten counts of honest services wire fraud.8
Pursuant to the Information, the ten honest services wire fraud offenses spanned the time period from March 2010 through November 2016. Those offenses related to Thomas receiving kickbacks from an insurance broker in exchange for...
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