Ga. Cas. & Sur. Co. v. Excalibur Reinsurance Corp., Civil Action No. 1:13–cv–00456–JEC.

• Decision Date: 13 March 2014
• Docket Number: Civil Action No. 1:13–cv–00456–JEC.
• Parties: GEORGIA CASUALTY & SURETY COMPANY, Plaintiff, v. EXCALIBUR REINSURANCE CORPORATION f/k/a PMA Capital Insurance Company, Defendants.
• Court: U.S. District Court — Northern District of Georgia

4 F.Supp.3d 1362

GEORGIA CASUALTY & SURETY COMPANY, Plaintiff,

v.EXCALIBUR REINSURANCE CORPORATION f/k/a PMA Capital Insurance Company, Defendants.

Civil Action No. 1:13–cv–00456–JEC.

United States District Court,

N.D. Georgia,

Atlanta Division.

Signed March 13, 2014.

J. Robert Persons, Robert Bruce Wedge, Smith Moore Leatherwood, LLP, Atlanta, GA, for Plaintiff.

Brian J. O'Sullivan, Harry P. Cohen, Crowell & Moring, NY, New York, NY, Jo Lanier Meeks, James Bates Brannan Groover, LLP, Atlanta, GA, for Defendants.

ORDER & OPINION

JULIE E. CARNES, Chief Judge.

This case is before the Court on defendant's Motion to Dismiss the First Amended (Verified) Complaint [11]. Having reviewed the record and the arguments of the parties, the Court concludes that defendant's Motion to Dismiss the First Amended (Verified) Complaint [11] should be GRANTED. Because it is superseded, defendant's earlier Motion to Dismiss [6] is DENIED as moot. Further motions are also rendered moot by this Order and are also DENIED as moot: plaintiff's Motion for an Expedited Hearing on Pending Motions and to Waive Usual Procedures [13]; plaintiff's Motion for Leave to Submit New Evidence in Opposition to Defendant's Motion to Dismiss and in Support of Plaintiff's Motion to Waive the Usual Procedures [17]; and defendant's Motion to Strike [19].

BACKGROUND

I. THE PARTIES AND CONTRACTS

This case arises from a dispute over two reinsurance contracts. Georgia Casualty & Surety Company (“plaintiff”) is an insurance company, incorporated under Georgia law. (Pl.'s Am. Compl. [9] at ¶ 1.) It was acquired by Columbia Mutual Insurance Company (“CMI”) in 2008. ( Id.) Since August of 2009, plaintiff has divided its management operations between Missouri and Georgia. ( Id.) Excalibur Reinsurance Corporation (“defendant”) is a reinsurance company incorporated and based in Pennsylvania. ( Id. at ¶ 2.) It is the successor in interest and name to PMA Capital Insurance Company (“PMA”). ( Id. at ¶ 3.)

Plaintiff and PMA entered into two reinsurance contracts, both effective January 1, 2003. (Pl.'s Am. Compl. [9] at ¶¶ 8–15.) Under one, the First Excess Multiple Line Reinsurance Contract (“First Excess Contract”), plaintiff bore responsibility for the first $300,000 of ultimate net loss with respect to any one risk in each loss, and defendant bore the remaining net losses up to $700,000 for any one risk in each loss, with a cap of $1,400,000 for all risks in any one occurrence. ( Id. at ¶ 8; First Excess Contract [1–1] at Art. IV.) Under the other contract, the Second Excess Multiple Line Reinsurance Contract (“Second Excess Contract”), plaintiff bore the first $1,000,000 of ultimate net loss with respect to any one risk in each loss covered, and defendant was liable for the remainder, capped at $5,000,000 for any single risk in each loss and capped at $7,500,000 for all risks involved in any single occurrence. (Pl.'s Am. Compl. [9] at ¶ 12; Second Excess Contract [1–2] at Art. IV.)

Both contracts contain mandatory arbitration clauses. (First Excess Contract [1–1] at Art. XXIV; Second Excess Contract [1–2] at Art. XXIV.) The clauses are not identical. Importantly for the present dispute, the First Excess Contract has a choice of laws provision that states, “[a]ny arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which [plaintiff] has its principal office.” (First Excess Contract [1–1] at Art. XXIV(E).) Also important in this dispute, the Second Excess Contract states that “any dispute arising out of this Contract shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire, meeting in Atlanta, Georgia, unless otherwise agreed.” (Second Excess Contract [1–2] at Art. XXIV(A).) Thus, the First Excess Contract contains a choice of laws provision but no forum selection clause, and the Second Excess Contract contains a forum selection clause but no choice of laws provision.

II. THE UNDERLYING LITIGATION AND INSURANCE CLAIMS

The loss that forms the basis of the dispute between the parties arises from a lawsuit filed in November of 2006 by Douglas Asphalt Company (“DAC”) against Applied Technical Services, Inc. (“ATS”). The facts and resolution of that dispute are more fully set out in Douglas Asphalt Co. v. QORE, Inc., 657 F.3d 1146 (11th Cir.2011). Briefly, ATS, an insured of plaintiff, was found liable in tort after a jury trial in district court.¹ The verdict was appealed to the Eleventh Circuit, which reversed on the grounds that the district court erred in not granting ATS judgment as a matter of law. Id. at 1156. It seems probable that the case only made it to trial because the law firm plaintiff hired to defend ATS, Drew, Eckl & Farnum, LLC (“Drew Eckl”), neglected to move for summary judgment on all counts. Id. at 1150.

While the ATS trial verdict was under appeal, plaintiff entered a “high low memorandumof agreement” (“high-low agreement”) with ATS, guaranteeing that, whatever the outcome of the appeal, plaintiff would pay ATS no less than $3,000,000 and no more than $12,000,000. (Pl.'s Am. Compl. [9] at ¶ 23.) Shortly after plaintiff concluded this high-low agreement, the Eleventh Circuit vacated the judgment against ATS. Douglas Asphalt Co., 657 F.3d at 1154–56. Plaintiff estimates that it has expended $3,000,000 under the high-low agreement and $2,641,692 in litigation expenses. (Pl.'s Am. Compl. [9] at ¶ 25.) By plaintiff's calculations, there is “currently due and owing from [defendant] to [plaintiff] the sum of $1, 418, 708 under the two reinsurance contracts.” ( Id. at ¶ 27.)

Plaintiff kept defendant apprised of these litigation and settlement developments and notified it that there would likely be reinsurance claims. ( Id. at ¶¶ 22 and 24.) Defendant, however, has thus far not paid the amounts plaintiff has claimed it owes under the contracts. ( Id. at ¶ 25.) Defendant admits this, but cites as justification plaintiff's promise that it would seek recovery for malpractice against Drew Eckl and defendant's lack of consent to the high-low agreement. (Mot. to Dismiss [11–1] at 4–5.) Defendant believes that recovery from Drew Eckl would cover any amounts defendant would have to pay plaintiff under the contract and that a suit against the above law firm is a prerequisite to determining what, if anything, defendant is required to pay under the contracts. ( Id. at 6.)

In late 2012 and early 2013, Plaintiff demanded arbitration of what it considered defendant's breach of the contracts. ( Id. at 1.) Defendant, for its part, demanded arbitration on a counterclaim that plaintiff has unpaid premiums due on the First Excess Contract. ( Id.) Although both parties are in agreement that arbitration is appropriate, defendant has refused plaintiff's demands for consolidated arbitration of all the claims under both contracts. ( Id. at 2.) Defendant also has informed plaintiff that it will request that the arbitrators stay arbitration pending the resolution of plaintiff's claims against Drew Eckl. (Mot. to Dismiss [11–1] at 6.) Plaintiff believes this to be a delaying tactic, as it has gathered evidence purporting to show that defendant is in dire financial straits and will soon be unable to pay any judgment required of it. (Pl.'s Am. Compl. [9] at ¶ 48.)

Because of its belief that defendant is in breach of its contractual obligations, including its obligations under the arbitration agreement, plaintiff filed suit in this Court. Plaintiff requests that the Court order consolidated arbitration to be held in Atlanta, Georgia. (Pl.'s Am. Compl. [9] at ¶¶ 29–37; Pl.'s First Mem. [10] at 9–17.) Plaintiff also seeks an order from the Court denying defendant's attempt to stay arbitration pending the resolution of plaintiff's potential suit against the Drew Eckl. (Pl.'s Am. Compl. [9] at ¶¶ 38–44; Pl.'s First Mem. [10] at 18–20.) Based on its contentions that defendant is approaching insolvency, plaintiff requests that this Court require defendant to post security sufficient to cover the loss and loss adjustment expenses plaintiff claims. (Pl.'s Am. Compl. [9] at ¶¶ 45–50; Pl.'s First Mem. [10] at 20–25; Pl.'s Second Mem. [12] at 1–4.) Finally, if the Court grants plaintiff the foregoing relief, plaintiff further seeks a stay of further proceedings in this Court pending the outcome of the arbitration. (Pl.'s Am. Compl. [9] at ¶¶ 51–53.) Defendant has moved to dismiss all of plaintiff's claims.

DISCUSSION

I. MOTION TO DISMISS STANDARD

In deciding a motion to dismiss under Federal Rule 12(b)(6), the Court assumes that all of the allegations in the complaint are true and construes all of the facts in favor of the plaintiff. Randall v. Scott, 610 F.3d 701, 705 (11th Cir.2010). That said, in order to survive a motion to dismiss, a complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim [for] relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim is “facial[ly] plausib[le]” when it is supported with facts that “allow [ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Courts will “eliminate any allegations in the complaint that are merely legal conclusions.” Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1290 (11th Cir.2010). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

II. PLAINTIFF'S COMPLAINTA. May the Court Order the Arbitration Proceedings to be Consolidated and Located in Atlanta, Georgia?

For this Court to determine whether it is appropriate to order consolidation of the...