Catalina Holdings (Bermuda) Ltd. v. Hammer

• Decision Date: 22 March 2019
• Docket Number: No. 18 CV 5642,18 CV 5642
• Citation: 378 F.Supp.3d 687
• Parties: CATALINA HOLDINGS (BERMUDA) LIMITED, Petitioner, v. Jennifer HAMMER, Director of Insurance of the State of Illinois, as Liquidator of Legion Indemnity Company, Respondent.
• Court: U.S. District Court — Northern District of Illinois

378 F.Supp.3d 687

CATALINA HOLDINGS (BERMUDA) LIMITED, Petitioner,

v.Jennifer HAMMER, Director of Insurance of the State of Illinois, as Liquidator of Legion Indemnity Company, Respondent.

No. 18 CV 5642

United States District Court, N.D. Illinois, Eastern Division.

Signed March 22, 2019

Jennifer Elizabeth Arnold, Novak Law Offices, Neal R. Novak, Chicago, IL, for Petitioner.

James Leo Oakley, Ryan John Gehbauer, Thompson Coburn LLP, Chicago, IL, for Respondent.

MEMORANDUM OPINION AND ORDER

Manish S. Shah, United States District Judge

Alea Group Limited provided reinsurance to Legion Indemnity Company. Shortly after the terms of their agreements ended, Legion entered liquidation proceedings and the respondent (the Director of Insurance of the State of Illinois) was appointed as liquidator. Petitioner Catalina Holdings (Bermuda) Limited bought Alea. Many years later, the Director sent Catalina an offer to settle an outstanding balance that she said had resulted from claims ceded under the original agreements between Alea and Legion. When Catalina refused to pay, the Director initiated arbitration, citing arbitration clauses in the old reinsurance agreements. Catalina filed counterclaims before the arbitrators for unpaid premiums and attorney's fees, and the panel ruled in Catalina's favor. Catalina then filed a petition to confirm the panel's award. The Director moves to dismiss.

I. Legal Standards

A complaint must contain a short and plain statement of factual allegations that plausibly suggest a right to relief. Ashcroft v. Iqbal , 556 U.S. 662, 677–78, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Fed. R. Civ. P. 8(a)(2). In ruling on a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), I must accept as true all well-pleaded factual allegations, and draw reasonable inferences in favor of the non-moving party. Ezekiel v. Michel , 66 F.3d 894, 897 (7th Cir. 1995). I am not limited to the jurisdictional allegations of the complaint and may "view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Capitol Leasing Co. v. F.D.I.C. , 999 F.2d 188, 191 (7th Cir. 1993). "At each stage of the jurisdictional analysis, the plaintiff bears the burden of proof." Glaser v. Wound Care Consultants, Inc. , 570 F.3d 907, 913 (7th Cir. 2009).

II. Facts

Alea Group Limited provided reinsurance to Legion Indemnity Company during the early 2000s. [25-2] at 3–4.¹ Some of their reinsurance agreements required that certain disputes be arbitrated "in accordance with the rules and procedures established by the Uniform Arbitration Act as enacted in Pennsylvania." [22-3] at 28; 54–55; 73–74. Legion ceded claims to Alea pursuant to the agreements during the early 2000s, but Legion eventually stopped communicating with Alea. [25-2] at 4. Catalina (a Bermuda company with its principal place of business in the United Kingdom) bought Alea and assumed responsibility for the relevant reinsurance agreements in 2013. Id. at 2 n2.

As it turns out, Legion had run into financial trouble. It was placed into conservatorship in 2002 and entered liquidation proceedings in 2003. [25-1] at 3; [25-2] at 4; [19-2] § D. The Illinois Director of Insurance was appointed as liquidator shortly thereafter. Id. According to the Director, both before and during the liquidation proceedings, claims continued to cede to Catalina. [19] at 4. In 2014, the Director sent Catalina a commutation offer reflecting a balance owed of roughly $ 1 million. [25-2] at 4. According to Catalina, this was the first time they had received any communications regarding Alea's reinsurance contracts with Legion since 2003. Id. When Catalina declined to pay, the Director demanded arbitration. [25-1] at 4. Catalina counterclaimed in the arbitration proceedings for unpaid premiums and attorneys' fees and costs. [25-2] at 10.

The parties agreed to hold arbitration hearings in Chicago, id. n.11, and those hearings took place before a panel of arbitrators during the summer of 2018. [25] at 3, [25-3]. The panel ultimately awarded Catalina $ 76,602.63 in unpaid premiums and $ 437,501.04 in attorneys' fees and costs. [25] at 3–4.² That amount was to be offset against future amounts that the Director might bill Catalina, or that might qualify for distribution in accordance with Illinois's liquidation statutes. [19] at 10–11 n.3. Catalina filed this petition to confirm the award, citing the Federal Arbitration Act, 9 U.S.C. § 9, and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. § 201 et seq. [1]. The Director filed a motion to dismiss or stay the petition, citing Federal Rule of Civil Procedure 12(b)(1), reverse preemption under the McCarran-Ferguson Act, and abstention under Burford v. Sun Oil Co. , 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). [19].

III. Analysis

A. Subject Matter Jurisdiction & Choice of Law

The Convention governs my review of the petition, not the Pennsylvania Uniform Arbitration Act. The arbitration clause dictated the rules and procedures that governed the arbitration proceeding—not my review of the arbitrator's award. See, e.g. , [22-3] at 28 ("the arbitration will be in accordance with the rules and procedures established by the Uniform Arbitration Act as enacted in Pennsylvania"); Generica Ltd. v. Pharm. Basics, Inc. , 125 F.3d 1123, 1125, 1129 (7th Cir. 1997) (applying 9 U.S.C. §§ 201 et seq. when reviewing arbitral award issued pursuant to an arbitration clause that called for the agreement to be interpreted "in accordance with English law").

I have jurisdiction over the petition. The arbitration agreement arises out of a dispute over reinsurance contracts, see 9 U.S.C. § 202 (arbitral "awards arising out of a legal relationship ... which is considered as commercial" fall under the Convention, and agreements described in 9 U.S.C. § 2 are "considered as commercial"); Oblix, Inc. v. Winiecki , 374 F.3d 488, 491 (7th Cir. 2004) (reinsurance treaties generally fall under 9 U.S.C. § 2 ), and the contracts arise out of a relationship between a citizen of the United States and a citizen of the United Kingdom. 9 U.S.C. § 202 (all arbitral awards fall under the Convention unless they arise out of "a relationship which is entirely between citizens of the United States"); Lear Corp. v. Johnson Elec. Holdings Ltd. , 353 F.3d 580, 582 (7th Cir. 2003) (a Bermuda corporation is a citizen of the United Kingdom for purposes of 28 U.S.C. § 1332(a)(3) ). The Convention grants district courts original jurisdiction in such cases. 9 U.S.C. § 203 ("[t]he district courts of the United States ... shall have original jurisdiction over" any "action or proceeding falling under the Convention"). See also Jain v. de Mere , 51 F.3d 686, 688 (7th Cir. 1995) ("the Act creates a strong presumption in favor of arbitration, especially in international commercial agreements").³

B. McCarran-Ferguson Preemption

The Director contends that the Convention is reverse-preempted by the McCarran-Ferguson Act. See 15 U.S.C. § 1012 ("[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, ..., unless such Act specifically relates to the business of insurance"). This would mean that a federal court could not entertain the petition to confirm the arbitration award. The analysis "requires three inquiries: first, does the federal statute at issue ‘specifically relate to the business of insurance;’ second, was the state statute ‘enacted ... for the purpose of regulating the business of insurance’; and third, would application of the federal statute ‘invalidate, impair or supersede’ the state law." Autry v. Nw. Premium Servs., Inc. , 144 F.3d 1037, 1040–41 (7th Cir. 1998). Neither the Arbitration Act nor the Convention specifically relate to the business of insurance, see 9 U.S.C. §§ 201 et seq. ; 9 U.S.C. § 1 et seq. , and Article XIII of the Illinois Insurance code does. See 215 ILCS 5/187 et seq. Neither party disputes this.

This case does not require me to construe any federal law in a way that "invalidate[s], impair[s] or supersede[s]" state law. "The term ‘invalidate’ ordinarily means ‘to render ineffective, generally without providing a replacement rule or law,’ " and the term " ‘supersede’ ordinarily means ‘to displace (and thus render ineffective) while providing a substitute rule.’ " Humana Inc. v. Forsyth , 525 U.S. 299, 307, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999). "[T]o ‘impair’ a law is to hinder its operation or ‘frustrate [a] goal’ of that law." Id. at 311, 119 S.Ct. 710. See also id. at 309, 119 S.Ct. 710 ("[w]hen federal law does not directly conflict with state regulation, and when application of the federal law would not frustrate any declared state policy or interfere with a State's administrative regime, the McCarran-Ferguson Act does not preclude its application").

Confirming the arbitration award would not "invalidate, impair or supersede" Illinois's liquidation statutes. Article XIII both grants the Director title to all of Legion's contracts (that were in existence as of the date of the liquidation order), 215 Ill. Comp. Stat. Ann. 5/191, and authorizes her to institute any "action, claim, suit, or proceeding upon any cause of action" so long as it is not time-barred. 215 Ill. Comp. Stat. Ann. 5/194(b). The Director assumed control of Legion's contracts, requested payment on balances she believed to be outstanding and, when Catalina refused, demanded arbitration proceedings pursuant to the reinsurance agreements. [25-1] at 4. The Director appears to have thought there was nothing inconsistent with arbitrating a claim that would eventually be dealt with in liquidation court right up until the panel ruled in Catalina's favor.

According to the Director, the petition risks interference with two sections of Article XIII that say that Sangamon and Cook...