Ommen v. Ringlee
Citation | 941 N.W.2d 310 |
Decision Date | 03 April 2020 |
Docket Number | No. 18-0335,18-0335 |
Parties | Doug OMMEN, in His Capacity as Liquidator of CoOportunity Health, and Dan Watkins, in His Capacity as Special Deputy Liquidator of CoOportunity Health, Appellees, v. Stephen Ringlee, David Lyons, and Clifford Gold, Defendants, and MILLIMAN, INC., Kimberley Hiemenz, and Michael Strum, Appellants. |
Court | United States State Supreme Court of Iowa |
Stephen H. Locher of Belin McCormick, P.C., Des Moines, Reid L. Ashinoff and Justin N. Kattan of Dentons US LLP, New York, New York, Stephen R. Eckley (until withdrawal), Matthew C. McDermott, and Christopher J. Jessen of Belin McCormick, P.C., Des Moines, for appellants.
Kirsten A. Byrd of Husch Blackwell LLP, Kansas City, Missouri, and Kevin J. Driscoll and John David Hilmes of Finley Law Firm, P.C., Des Moines, for appellees.
In 2014, a multimillion dollar Iowa-based health-insurance provider collapsed. The question we must answer is whether a court-appointed liquidator of the now-insolvent health insurer, pursuing common law tort claims against a third-party contractor, is bound by an arbitration provision in a preinsolvency agreement between the health insurer and the third-party contractor.
The plaintiff in this case is a court-appointed liquidator of an insolvent health-insurance provider. Prior to its insolvency, the health-insurance provider entered into an agreement with a third-party contractor for actuarial consulting services. The third-party contractor assisted the health-insurance provider in securing federal funding approval and setting rates. One year after the health-insurance provider began operations, it was declared insolvent and placed into liquidation.
The liquidator of the health-insurance provider filed a petition against the third-party contractor, asserting common law tort damages for preliquidation work the contractor performed under the agreement. The third-party contractor submitted a motion to dismiss and compel arbitration because the agreement between itself and the health-insurance provider contained an arbitration provision.
The district court denied the third-party contractor’s motion. It determined that the liquidator’s claims did not arise out of or relate to the agreement, that the Iowa Liquidation Act precludes arbitration of the liquidator’s claims, and that the McCarran-Ferguson Act reverse preempts the Federal Arbitration Act (FAA). The third-party contractor appealed the judgment, and we retained the appeal.
On our review, we conclude the court-appointed liquidator is bound by the arbitration provision because, under the principles of contract law and as pled, the liquidator stands in the shoes of the health-insurance provider and is bound by the preinsolvency arbitration agreement. Therefore, the liquidator’s claims cannot be detached from the contractual relationship between the health-insurance provider and the third-party contractor, pursuant to which all of the preinsolvency work was performed. We also conclude the liquidator cannot use Iowa Code section 507C.21(k ) (2017) to disavow a preinsolvency agreement that the third-party contractor already performed. Finally, in this case, the McCarran-Ferguson Act does not permit reverse preemption of the FAA when the liquidator asserts common law tort claims against a third-party contractor. Courts in other states have unanimously required liquidators to arbitrate their claims against the same third-party contractor under the same arbitration provision.
Because we are reviewing a ruling on a motion to dismiss, we take as true the petition’s well-pled facts. See Karon v. Elliott Aviation , 937 N.W.2d 334, 335 (Iowa 2020) ; Shumate v. Drake Univ. , 846 N.W.2d 503, 507 (Iowa 2014).
Doug Ommen and Dan Watkins are court-appointed liquidators of the now-insolvent CoOportunity Health—an Iowa–based insurer.1 CoOportunity was a nonprofit health insurer launched under the Affordable Care Act. In 2012, CoOportunity secured a $145 million federal start-up loan to launch the company. Member enrollment began in October 2013 and CoOportunity started the coverage of healthcare claims in January 2014. After one year of operation, CoOportunity faced significant financial distress; it reported $163 million in losses. CoOportunity was declared insolvent and placed into liquidation by a Final Order of Liquidation on March 2, 2015.
The liquidator of CoOportunity filed a petition against Milliman and the founders of CoOportunity, asserting common law tort damages for preliquidation work Milliman performed for CoOportunity pursuant to a 2011 Consulting Services Agreement (2011 Agreement). Milliman is an actuarial and consulting firm. Before CoOportunity secured its $145 million loan, the federal government, on July 28, 2011, announced a funding opportunity inviting nonprofit health insurance companies, such as CoOportunity, to apply for federal funding. CoOportunity relied on Milliman to secure federal funding approval, set rates, and provide other actuarial work. On September 30, 2011, a CoOportunity founder signed the 2011 Agreement for Milliman to provide "consulting services" including "general actuarial consulting services." The liquidator’s petition seeks to recover millions in losses sustained by CoOportunity "as a result of the professional negligence, breach of fiduciary duty, and reckless, willful, or intentional misconduct by the actuarial firm, Milliman, Inc."
Milliman submitted a motion to dismiss and compel arbitration pursuant to Iowa arbitration laws and the FAA. It indicated the liquidator’s claims arose out of and related to its engagement by CoOportunity pursuant to the 2011 Agreement. The 2011 Agreement contained an arbitration provision which stated any dispute "will be resolved by final and binding arbitration."
The district court entered an order denying Milliman’s motion to dismiss and compel arbitration. It determined the liquidator’s claims did not arise out of or relate to the 2011 Agreement, the liquidator disavowed the 2011 Agreement, the Iowa Liquidation Act precluded arbitration of the liquidator’s claims against Milliman, and the McCarran-Ferguson Act reverse preempted the FAA.
Milliman appealed the district court’s order, which we retained.
The denial of a motion to compel arbitration is reviewed for correction of errors at law. Bullis v. Bear, Stearns & Co. , 553 N.W.2d 599, 601 (Iowa 1996) ; see Heaberlin Farms, Inc. v. IGF Ins. , 641 N.W.2d 816, 818, 823 (Iowa 2002).
(Emphasis added.) This written provision to resolve any dispute by arbitration is central to the issue before us. We must determine whether the parties are bound to that arbitration agreement. We note that courts in other jurisdictions have unanimously required the liquidator to honor the same arbitration provision in pursuing claims against Milliman. Milliman, Inc. v. Roof , 353 F. Supp. 3d 588, 603–04, 606 (E.D. Ky. 2018) ( ); Donelon v. Shilling , 2017 CW 1545, 2019 WL 993328, at *13–14 (La. Ct. App. Feb. 28, 2019) ( ); State ex rel. Richardson v. Eighth Judicial Dist. Ct. , No. 77682, 2019 WL 7019006, at *1 (Nev. Dec. 19, 2019) ( )(allowing Milliman’s motion to compel arbitration to proceed and rejecting liquidator’s argument that arbitrating her common law damages claims against Milliman would "thwart the insurance liquidator’s broad statutory powers and the general policy under" Nevada law). We reach the same conclusion.
A. Is the Liquidator Bound by the Preinsolvency Arbitration Agreement? The thrust of the FAA, 9 U.S.C. §§ 1 – 14 (Supp. IV 2017), declares a written agreement to arbitrate in "a contract evidencing a transaction involving commerce ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Id. § 2. Essentially, section 2 of the FAA is a "congressional declaration of a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. , 460 U.S. 1, 24, 103 S. Ct. 927, 941, 74 L.Ed.2d 765 (1983). A party to the arbitration agreement may petition a court for an order to compel arbitration. 9 U.S.C. § 4 ; Bullis , 553 N.W.2d at 601. Where the arbitrability of a dispute between parties occurs in state court, as is the case here, the FAA governs. Moses H. Cone Mem'l Hosp. , 460 U.S. at 24, 103 S. Ct. at 941. According to the Supreme Court, the FAA "places arbitration agreements on an equal footing with other contracts, and requires courts to enforce them according to their terms." Rent-A-Ctr., W., Inc. v. Jackson , 561 U.S. 63, 67, 130 S. Ct. 2772, 2776, 177 L.Ed.2d 403 (2010) (citation omitted). States may regulate arbitration agreements under general principles of contract law, and states may even invalidate arbitration agreements under the same grounds for the revocation of any contract. Allied-Bruce Terminix Cos. v. Dobson , 513 U.S. 265, 281, 115 S. Ct. 834, 843, ...
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