Milliman, Inc. v. Roof

• Decision Date: 23 October 2018
• Docket Number: Civil No. 3:18-cv-00012-GFVT
• Citation: 353 F.Supp.3d 588
• Parties: MILLIMAN, INC., and Rachel Killian, Petitioners, v. Donald ROOF, Deputy Liquidator of Kentucky Health Cooperative, Inc., Respondent.
• Court: U.S. District Court — Eastern District of Kentucky

353 F.Supp.3d 588

MILLIMAN, INC., and Rachel Killian, Petitioners,

v.Donald ROOF, Deputy Liquidator of Kentucky Health Cooperative, Inc., Respondent.

Civil No. 3:18-cv-00012-GFVT

United States District Court, E.D. Kentucky, Central Division. Frankfort.

Signed October 23, 2018

Catharine Luo, Justin N. Kattan, Reid L. Ashinoff, Dentons US LLP, New York, NY, Daniel Luke Morgan, Jason R. Hollon, Stephen Garrett Amato, McBrayer, McGinnis, Leslie & Kirkland, PLLC, Lexington, KY, for Petitioners.

Connor B. Egan, Perry M. Bentley, Stoll Keenon Ogden, PLLC, Lexington, KY, Paul Christopher Harnice, Sarah Jackson Bishop, Stoll Keenon Ogden, Frankfort, KY, for Respondent.

MEMORANDUM OPINION & ORDER

Gregory F. Van Tatenhove, United States District JudgeFederal judges often find themselves at the intersection of state law and federal law and faced with the dilemma of which direction to turn. Occasionally, an area of state law can circumvent the Founding Fathers' dictate that federal law reign supreme, but only in rare situations. This action is the third and final installment of several related cases, all concerning the same intersection of state law and federal law. After several hearings and many hundreds of pages of briefing, the Court finds that federal law governs. Kentucky's prohibition of arbitration between insolvent insurance companies and third-party contractors does not trump the mandate of the Federal Arbitration Act that valid arbitration agreements must be upheld. For the following reasons, the Liquidator's Motion to Dismiss is DENIED .

I

The Kentucky Health Cooperative (KYHC) sought approval from the Center for Medicare and Medicaid Services (CMS) to offer health plans to Kentucky citizens in 2011 and 2012. During this time, KYHC contracted with Milliman, Inc., whereby Milliman would provide actuarial services to KYHC. [R. 6 at 2.] Through this Consulting Services Agreement (CSA), Milliman agreed to provide consulting services to KYHC. [R. 1-2; R. 1-3.] The CSA included a section where parties agreed to arbitrate claims and disputes arising out of or relating to the CSA. [R. 1-2 at 1; R. 1-3 at 2.]

Similarly, KYHC contracted with CGI Technologies and Solutions, Inc., for CGI to perform administrative services [CGI Techs. & Sols., Inc. v. Atkins , 3:16-cv-0037-GFVT, R. 71-1], and around the same time, KYHC contracted with Beam Partners, LLC, for Beam Partners to provide management and support services to KYHC [ Beam Partners, LLC v. Atkins , 3:17-cv-00004-GFVT; R. 4-2].

KYHC issued its initial health plan policy on January 1, 2014, but by late 2015, KYHC was insolvent and placed into rehabilitation by Franklin Circuit Court in Franklin County, Kentucky. [R. 6 at 2.] Pursuant to KRS § 304.33-010, et seq. , Franklin Circuit Court placed KYHC into liquidation on January 15, 2016, and appointed H. Brian Maynard, Commissioner of the Kentucky Department of Insurance, as the Liquidator. Id. Jeff Gaither and David Hurt were appointed as Special Deputy Liquidators. Pursuant to the Liquidation Order,

The Liquidator and the Special Deputy Liquidators are hereby authorized to deal with the property, business, and affairs of KYHC and KYHC's estate, and in any necessary forum, to sue or defend for KYHC, or for the benefit of KYHC's policyholders, creditors, or shareholders in the courts and tribunal, agencies or arbitration panels of this states and other states, or in any applicable federal court in the Liquidator's name as Commissioner of the Kentucky Department of Insurance, in his capacity as Liquidator, or a Special deputy in his capacity as Special Deputy Liquidator, or in the name of KYHC.

[R. 6-1 at 9.] Since that time, Nancy G. Atkins has replaced H. Brian Maynard as Commissioner of the Kentucky Department of Insurance, and thus also as the Liquidator. See KRS § 304.33-200. Donald Roof was also appointed as a Deputy Litigator for KYHC on August 14, 2017. [R. 1 at 2.]

On May 13, 2016, the Liquidator sued CGI in Franklin Circuit Court for breach of contract and negligence. [CGI Techs. & Sols., Inc. v. Atkins , 3:16-cv-0037-GFVT, R. 71-1 at 2.] The Liquidator refused to honor the arbitration clause, so CGI removed that claim to this Court and filed a Petition to Compel Arbitration. Id. These actions were consolidated in this Court. [CGI Techs. & Sols., Inc. v. Atkins , 3:16-cv-0037-GFVT, R. 8.] Six months later, the Liquidator sued Beam Partners and Terry Shilling, along with Janie Miller,¹ Joseph E. Smith,² the Officers and Board of Directors of KYHC, and CGI for similar breach of contract and tort claims. [ Beam Partners, LLC v. Atkins , 3:17-cv-00004-GFVT; R. 4-4.] The Liquidator again refused to arbitrate, and CGI removed that action to this Court. [Jeff Gaither, Deputy Liquidator of Kentucky Health Cooperative, Inc. v. Beam Partners, LLC, et al. , 3:16-cv-00094-GFVT, R. 1.] Beam Partners then filed a Petition to Compel Arbitration. [ Beam Partners, LLC v. Atkins , 3:17-cv-00004-GFVT; R. 1.]

Over a year after filing suit against CGI, the Litigator amended the complaint to include actions against Milliman, Inc. [R. 6-2.] Milliman petitioned this Court for arbitration in March, and the Liquidator filed a motion to dismiss, raising many of the same issues raised in CGI Techs. & Sols., Inc. v. Atkins and Beam Partners, LLC v. Atkins. [R. 6.] In September, this Court filed contemporaneous Orders in CGI and Beam Partners denying the Liquidator's Motions for Summary Judgment and granting CGI's and Beam Partners' Motions to Compel Arbitration.

II

A

As an initial matter, the Liquidator challenges this Court's ability to hear this action by claiming the prior exclusive jurisdiction doctrine bars jurisdiction. [R. 6 at 5.] The doctrine of prior exclusive jurisdiction states, "If two suits are in rem or quasi in rem, so that the court must have possession or some control over the property in order to grant the relief sought, the jurisdiction of one court must yield to that of the other." Cartwright v. Garner , 751 F.3d 752, 761 (6th Cir. 2014.) This Court must assess "whether the doctrine of prior exclusive jurisdiction applies at the time of filing, and not any time thereafter." Chevalier v. Estate of Barnhart , 803 F.3d 789, 803 (6th Cir. 2015).

In rem jurisdiction involves or determines "the status of a thing, and therefore the rights of persons generally with respect to that thing." Black's Law Dictionary (10th ed. 2014). Conversely, in personam jurisdiction involves or determines "the personal rights and obligations of the parties" and is "brought against a person rather than a property." Black's Law Dictionary (10th ed. 2014). "A normal action brought by one person against another for breach of contract is a common example of an action in personam. " R.H. Graveson, Conflict of Laws, 98 (7th ed. 1974).

If the Liquidator is successful in its tort claims against Milliman, the Liquidator will likely be able to collect monetary damages from Milliman, thus increasing the amount of assets that can be distributed among its creditors. However, the Liquidator has not provided sufficient case law to convince the Court that this results in an in rem action governed by the prior exclusive jurisdiction doctrine. The cases cited by the Liquidator involve creditors suing the insolvent company, whereas in the tort action here, the insolvent company is the plaintiff. See Gillis v. Keystone Mut. Cas. Co. , 172 F.2d 826 (6th Cir. 1949) ; Blackhawk Heating & Plumbing Co. Inc. v. Geeslin , 530 F.2d 154 (7th Cir. 1976). By the Liquidator's logic, all suits brought by an insolvent company would need to be heard by the court of liquidation simply because those suits could increase assets available for distribution during liquidation.

The Court is not convinced. This is a petition to compel arbitration for a tort claim involving a breach of contract. A favorable result in this matter does not affect the distribution of the liquidated assets held in Franklin Circuit Court. Nor does the Court need to have jurisdiction over the assets to resolve this matter. Thus, the Court finds that the doctrine of prior exclusive jurisdiction does not apply here.

B

The Liquidator also challenges the Court's power to hear this matter, claiming that Milliman has not complied with Kentucky's requirements for pursuing arbitration, and this Court cannot grant or deny relief without Milliman fully complying with Kentucky's arbitration requirements. [R. 6 at 10.] Under the IRLL, no party may institute an action against the liquidator without approval of the court. KRS § 304.33-270(1). However, the Federal Arbitration Act does not require parties to comply with state requirements before seeking a petition from federal court for arbitration. See 9 U.S.C. § 4. Requiring Milliman to comply with the IRLL before petitioning this Court assumes that the IRLL reverse preempts the Federal Arbitration Act in this case. As explained next, it does not.

C

The Liquidator continues to argue that the IRLL reverse preempts the Federal Arbitration Act through the McCarran–Ferguson Act. [R. 6 at 16.] The Court has previously decided that it does not, however, the Court restates its analysis here. See Beam Partners, LLC, v. Atkins , Civil No. 3:17-cv-004-GFVT, 340 F.Supp.3d 627, 2018 WL 4344456 (E.D. Ky. Sept. 11, 2018).

The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. ,"manifests a liberal federal policy favoring arbitration agreements." Masco Corp. v. Zurich Am. Ins. Co. , 382 F.3d 624, 626 (6th Cir. 2004) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ) (internal quotation marks omitted). Section 2 of the FAA states that arbitration clauses in commercial contracts "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2 ; see also Javitch v. First Union Sec., Inc. , 315 F.3d 619, 624 (6th Cir. 2003). Under § 4, when a party is "aggrieved...