Goshawk Dedicated v. Portmouth Settlement Co. I

• Decision Date: 18 December 2006
• Docket Number: Civil Action No. 1:06-CV-274-RWS.
• Citation: 466 F.Supp.2d 1293
• Parties: GOSHAWK DEDICATED LIMITED, Plaintiff, v. PORTSMOUTH SETTLEMENT COMPANY I, INC., Defendant.
• Court: U.S. District Court — Northern District of Georgia

466 F.Supp.2d 1293

GOSHAWK DEDICATED LIMITED, Plaintiff, v. PORTSMOUTH SETTLEMENT COMPANY I, INC., Defendant.

Civil Action No. 1:06-CV-274-RWS.

United States District Court, N.D. Georgia, Atlanta Division.

December 18, 2006.

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Edwin A. Oster, Michael J. Levin, R. Steven Anderson, Raenu Barod, Richard B. Hopkins, II, Barger & Wolen, LLP, Irvine, CA, Jennifer Marie Rubin, John Howard Fleming, Sutherland, Asbill & Brennan, Atlanta, GA, for Plaintiff.

J. David Hopkins, III, Lord, Bissell & Brook, Atlanta, GA, for Defendant.

ORDER

STORY, District Judge.

Plaintiff Goshawk Dedicated Ltd. ("Goshawk"), a British insurance underwriting company, brought this action against Defendant Portsmouth Settlement Company I, Inc. ("PSC"), a Georgia-based investment company, seeking a court order compelling arbitration, and. in the alternative, alleging fraud against PSC in the procurement of an insurance policy. (See Pl.'s Compl. [1-1].) This case comes before the Court on Defendant's Motion to Dismiss [10] and Plaintiff's Motion to Compel Arbitration [18]. For the reasons that follow, the Court concludes that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards requires arbitration in this case. Accordingly, the Court grants Plaintiffs Motion to Compel Arbitration. The Court also concludes that the issues raised by PSC in its Motion to Dismiss are proper for arbitrators, and not the Court, to decide. Accordingly, the Court denies Defendant's Motion to Dismiss.

Background

This case arises out of a cost contingent insurance policy entered into between the parties in January 1999, under which Goshawk insured PSC against losses related to PSC's investment in the secondary life insurance market. (See Ex. A to Pl.'s Compl. [hereinafter "CCI Policy"] [1-2] ). Before turning to the merits of the parties' Motions, the Court briefly reviews and accepts as true the factual allegations contained in the Complaint.

In January 1999, PSC, as a substantial part of its business, invested in the secondary life insurance market by purchasing life insurance policies from individual life insureds. In a typical transaction, PSC made a lump sum payment to a life insured, and in return took over the life insured's policy by paying the remaining premiums due on that policy (usually up to the death of the life insured) and then receiving its proceeds upon the death of the life insured.

As a part of each transaction, PSC analyzed the likely life expectancy of the life insured to determine the value of the policy.¹ To this end, PSC contracted with American Viatical Services, LLC ("AVS") to obtain life expectancy ("LE") evaluations that predicted, through medical record analysis, the remaining longevity of the life insured. PSC used these LEs to evaluate the life insurance policies it purchased, and later to procure insurance from Goshawk.

Because PSC bore the risk that any individual life insured would live substantially longer than predicted by an LE — which would consequently cause PSC a significant loss — PSC entered into a contingent cost insurance ("CCI") policy with Goshawk in January 1999 to mitigate against that risk. Under the CCI Policy, Goshawk insured PSC against the risk that any individual on a covered life insurance policy would outlive his or her life expectancy beyond a specified period of time. Thus, the CCI Policy required PSC to provide Goshawk with the LEs connected to PSC's life insurance investments to determine when insurance coverage would be triggered.

In addition to outlining the terms of the agreement between PSC and Goshawk, the CCI Policy contains an arbitration clause purporting to require arbitration in London, England. The Arbitration Clause provides: "All disputes and differences arising under or in connection with this Policy shall be referred to arbitration under ARIAS Arbitration Rules ... The seat of arbitration shall be London, England." (See CCI Policy, Arbitration Clause, 9-10.) The CCI Policy also contains a choice-oflaw provision, which provides: "This policy shall be subject to the Laws of England." (See CCI Policy, Conditions, 9.)

On April 22, 1999, approximately three months after the parties entered into the CCI Policy, PSC assigned all of its interest in the CCI Policy to ROP, Inc. Several years later, Goshawk began incurring significant losses relating to the CCI Policy, and concluded that PSC had fraudulently manipulated the LEs it provided to Goshawk to recover greater insurance proceeds. This action followed.

Discussion

I. Plaintiff's Motion to Compel Arbitration

Goshawk moves this Court to compel arbitration pursuant to the arbitration clause contained in the CCI Policy. PSC, seeking to avoid arbitration on foreign soil, raises two defenses to enforcement. First, PSC argues that an agreement to arbitrate no longer exists between PSC and Goshawk. Specifically, PSC argues that its assignment to ROP, Inc. of its interest in the CCI Policy in April 1999 constituted a novation under Georgia law, which extinguished PSC's obligation to arbitrate under its original agreement with Goshawk. Second, PSC argues that, assuming that an arbitration agreement exists, it is, in any event, unenforceable under O.C.G.A. § 9-9-2, which renders arbitration clauses in insurance contracts void as against public policy. The Court addresses each of PSC's contentions in turn.

A. The "Existence" of an. Agreement to Arbitrate

As stated, PSC argues that, as a result of its April 1999 novation of its CCI Policy with Goshawk, it is discharged from any obligation to arbitrate because the agreement between Goshawk and PSC no longer exists. In response, Goshawk does not dispute that PSC's assignment to ROM, Inc. constituted a novation. Instead, Goshawk argues that its original agreement to arbitrate survives the parties' novation, and continues to control any dispute arising out of the performance of its original agreement with PSC. For the reasons provided below, the Court agrees with Goshawk's contention and concludes that the arbitration clause in the parties' original agreement remains in effect.

1. Applicable Law

As an initial matter, the parties dispute -whether English or Georgia law applies in determining the effect of a novation on a prior agreement to arbitrate.

On a motion to compel arbitration, courts may consider certain issues relating to the enforceability of an arbitration agreement when such questions are not within the body of substantive questions reserved for resolution by arbitrators. See Love v. Money Tree, Inc., 279 Ga. 476, 614 S.E.2d 47, 50 & n. 15 (2005) (holding that the question of aibitrability "is, not an issue that goes to the merits of the parties' underlying dispute, but instead ... may be decided by a court"); see also AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) ("Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator."); Great Am. Trading Corp. v. I.C.P. Cocoa, Inc., 629 F.2d 1282, 1288-89 (7th Cir.1980) (reversing trial court for failing to consider the threshold question of whether valid agreement to arbitrate existed in light of one party's contention that contract was novated). Indeed, the Supreme Court recently reaffirmed that it is for courts, not arbitrators, to decide "whether the parties have a valid arbitration agreement at all." Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003); see also Terminix Int'l Co. v. Palmer Ranch. Ltd. P'ship, 432 F.3d 1327, 1331 (11th Cir.2005).

It is equally clear that courts examining threshold questions of contractual formation must apply state law in determining whether an agreement to arbitrate exists. See Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1368 (11th Cir.2005); see also Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987) (stating that, on a motion to compel arbitration, "state law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, `revocability, and enforceability of contracts generally"). Therefore, even where parties have included a choice-of-law provision, Georgia courts have applied Georgia law in determining whether an arbitration agreement is enforceable in the first instance. See Cont'l Ins. Co. v. Equity Residential Props. Trust, 255 Ga.App. 445, 565 S.E.2d 603, 604-05 (2002) (concluding that, despite Illinois choice-of-law provision in insurance agreement, Georgia law controlled question of whether provision was enforceable under public policy of Georgia).

Applying these principles to the case at bar, the Court concludes, that Georgia law applies in determining whether the parties' novation extinguished their agreement to arbitrate. Although the CCI Policy calls for the application of English law, PSC's contractual defense of novation concerns the question of whether a valid agreement to arbitrate exists. It requires the Court, at the threshold, to determine the arbitrability of the dispute in light of a defense raised under general principles of contract law. As such, Georgia law controls.²

2. Novation Does not Extinguish Obligation to Arbitrate

Having concluded that Georgia law controls the first defense raised by PSC, the Court turns to examine what appears to be a question of first impression in Georgia: whether a novation extinguishes the original parties' obligation to arbitrate disputes between one another. The Court concludes that it does not.

Under Georgia's law of novation, "if new parties are introduced so as to change the person to whom the obligation is due, the original contract is at an end." O.C.G.A. § 13-4-5. PSC argues that, because its contract with Goshawk was novated and is therefore "at an end," its...