Petition for Writ of Certiorari — Milliman, Inc., Applicant v. James J. Donelon, Commissioner of Insurance for Louisiana, in His Capacity as Rehabilitator of Louisiana Health Cooperative, Inc.
Supreme Court briefSep 3, 2020
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No. 20-_______
IN THE
Supreme Court of the United States
OCTOBER TERM, 2020
MILLIMAN, INC.,
Petitioner
v.
JAMES J. DONELON, COMMISSIONER OF INSURANCE FOR THE STATE OF LOUISIANA, IN HIS
CAPACITY AS REHABILITATOR OF LOUISIANA HEALTH COOPERATIVE, INC.,
Respondent
ON APPLICATION TO STAY THE MANDATE
OF THE LOUISIANA SUPREME COURT
APPLICATION FOR A STAY PENDING THE FILING AND DISPOSITION OF A
PETITION FOR A WRIT OF CERTIORARI
SIMON A. STEEL
DENTONS US LLP
1900 K Street, NW
Washington, DC 20006
(202) 496-7077
simon.steel@dentons.com
REID L. ASHINOFF
Counsel of Record
JUSTIN N. KATTAN
ILYA SCHWARTZBURG
DENTONS US LLP
1221 Avenue of the Americas
New York, New York 10020
(212) 768-6700
reid.ashinoff@dentons.com
justin.kattan@dentons.com
ilya.schwartzburg@dentons.com
Attorneys for Petitioner Milliman, Inc.
i
CORPORATE DISCLOSURE STATEMENT
Applicant Milliman, Inc., has no parent company, and no publicly held
company holds 10% or more of its stock.
ii
TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT ............................................................... ii
TABLE OF AUTHORITIES ......................................................................................... iv
OPINIONS BELOW ................................................................................................... viii
JURISDICTION.......................................................................................................... viii
STATEMENT OF THE CASE....................................................................................... 6
REASONS FOR GRANTING THE STAY .................................................................... 9
I.
THERE IS A REASONABLE PROBABILITY THAT THIS
COURT WILL GRANT CERTIORARI. ...................................................... 10
A.
The Louisiana Supreme Court’s Decision Deepens A
Conflict Between Federal And State Appellate Courts,
and Among State Courts of Last Resort. ............................................... 10
B.
The Question Presented Is An Important and Recurring
One That Warrants The Court’s Review In This Case. ........................ 13
II.
THERE IS A SIGNIFICANT POSSIBILITY THAT THIS
COURT WILL REVERSE THE LOUISIANA SUPREME
COURT’S DECISION. ................................................................................. 15
III.
MILLIMAN WILL SUFFER IRREPARABLE HARM IF
PROCEEDINGS ARE NOT STAYED. ....................................................... 19
IV.
THE EQUITIES FAVOR A STAY............................................................... 22
CONCLUSION............................................................................................................. 23
iii
TABLE OF AUTHORITIES
Page(s)
Cases
Alascom, Inc. v. ITT N. Elec. Co.,
727 F.2d 1419 (9th Cir. 1984) ................................................................................ 22
AmSouth Bank v. Dale,
386 F.3d 763 (6th Cir. 2004) ............................................................................ passim
AT&T Mobility, LLC v. Concepcion,
563 U.S. 333 (2011) ................................................................................................ 22
Bennett v. Liberty Nat’l Fire Ins. Co.,
968 F.2d 969 (9th Cir. 1992) ........................................................................ 2, 10, 18
Blinco v. Green Tree Servicing, LLC,
366 F.3d 1249 (11th Cir. 2004) .............................................................................. 21
Bradford-Scott Data Corp., Inc. v. Physician Computer Network, Inc.,
128 F.3d 504 (7th Cir. 1997) ............................................................................ 21, 22
Corcoran v. Ardra Ins. Co., Ltd.,
567 N.E.2d 969 (N.Y. 1990).................................................................................... 12
Dean Witter Reynolds, Inc. v. Byrd,
470 U.S. 213 (1985) .......................................................................................... 18, 19
Deaver v. United States,
483 U.S. 1301 (1987) ................................................................................................ 9
Ehleiter v. Grapetree Shores, Inc.,
482 F.3d 207 (3d Cir. 2007) .............................................................................. 21, 22
Ernst & Young, LLP v. Clark,
323 S.W.3d 682 (Ky. 2010) ............................................................................... 12, 14
Granite Rock Co. v. Int’l Bhd. of Teamsters,
561 U.S. 287 (2010) .......................................................................................... 17, 18
Grode v. Mut. Fire, Marine and Inland Ins. Co.,
8 F.3d 953 (3d Cir. 1993) ............................................................................ 10, 17, 18
Hardin v. First Cash Fin. Servs., Inc.,
465 F.3d 470 (10th Cir. 2006) .......................................................................... 21, 22
iv
Hollingsworth v. Perry,
558 U.S. 183 (2010) .................................................................................................. 9
Humana Inc. v. Forsyth,
525 U.S. 299 (1999) .......................................................................................... 16, 17
Knickerbocker Agency, Inc. v. Holz,
149 N.E.2d 885 (N.Y. 1958).................................................................................... 12
Levin v. Alms & Assocs., Inc.,
634 F.3d 260 (4th Cir. 2011) ............................................................................ 21, 22
Milliman, Inc. v. Roof,
353 F. Supp. 3d 588 (E.D. Ky. 2018).................................................................. 3, 11
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1 (1983) .................................................................................................... 19
Ommen v. Milliman,
941 N.W.2d 310 (Iowa 2020) ........................................................................ 3, 11, 18
Philip Morris USA Inc. v. Scott,
561 U.S. 1301 (2010) ................................................................................................ 9
Quackenbush v. Allstate Ins. Co.,
121 F.3d 1372 (9th Cir. 1997) .......................................................................... 10, 17
State ex rel Richardson v. Eighth Judicial Dist. Court in & for Cty. of
Clark,
454 P.3d 1260 (Nev. 2019).................................................................................. 3, 11
Riverview Health Inst. LLC v. Med. Mut. Of Ohio,
601 F.3d 505 (6th Cir. 2010) .................................................................................. 15
S.E.C. v. Nat’l Secs., Inc.,
393 U.S. 453 (1969) ................................................................................................ 15
S.E.C. v. Variable Annuity Life Ins. Co. of Am.,
359 U.S. 65 (1959) .................................................................................................... 5
Shearson/Am. Exp., Inc. v. McMahon,
482 U.S. 220 (1987) ................................................................................................ 18
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,
559 U.S. 662 (2010) ................................................................................................ 19
v
Suter v. Munich Reins. Co.,
223 F.3d 150 (3d Cir. 2000) ................................................................................ 2, 10
Taylor v. Ernst & Young,
958 N.E.2d 1203 (Ohio 2011) ........................................................................... 12, 14
Trailer Marine Transp. Corp. v. Rivera Vazquez,
977 F.2d 1 (1st Cir. 1992) ......................................................................................... 5
U.S. Dep’t of Treasury v. Fabe,
508 U.S. 491 (1993) ............................................................................................ 4, 16
Statutes
9 U.S.C. § 16 ................................................................................................................. 21
15 U.S.C. § 1012(b) .................................................................................................... 1, 2
28 U.S.C. § 2101(f) .............................................................................................. viii, 1, 9
Colo. Rev. Stat. Ann. § 10-3-504(5) ............................................................................. 13
Conn. Gen. Stat. Ann. § 38a-906(e)............................................................................. 13
D.C. Code Ann. § 31-1303(e)........................................................................................ 13
Ga. Code Ann. § 33-37-4(e) .......................................................................................... 13
Haw. Rev. Stat. Ann. § 431:15-104(g) ......................................................................... 13
Idaho Code Ann. § 41-3304(5) ..................................................................................... 13
Ind. Code Ann. § 27-9-1-3(f) ........................................................................................ 13
Iowa Code Ann. § 507C.4(5) ........................................................................................ 13
Kan. Stat. Ann. § 40-3608(e) ....................................................................................... 13
Ky. Rev. Stat. Ann. § 304.33-040(3)(a)........................................................................ 13
Miss. Code. Ann. § 83-24-9(5) ...................................................................................... 13
Mo. Ann. Stat. § 375.1154(6) ....................................................................................... 13
Mont. Code Ann. § 33-2-1308 ...................................................................................... 13
N.C. Gen. Stat. Ann. § 58-30-15(d) ............................................................................. 14
vi
N.D. Cent. Code Ann. § 26.1-06.1-04(5) ...................................................................... 14
N.J. Stat. Ann. § 17B:32-34(e)..................................................................................... 13
Neb. Rev. Stat. Ann. § 44-4804(5) ............................................................................... 13
Ohio Rev. Code Ann. § 3903.04(E) .............................................................................. 14
40 Pa. Stat. Ann. § 221.4(d) ......................................................................................... 14
P.R. Laws Ann. § 4004(5) ............................................................................................ 14
R.I. Gen. Laws Ann. § 27-14.3-4(e) ............................................................................. 14
S.C. Code Ann. § 38-27-60(f)........................................................................................ 14
S.D. Codified Laws § 58-29B-7 .................................................................................... 14
Tenn. Code Ann. § 56-9-104(e) .................................................................................... 14
Tex. Ins. Code Ann. § 443.005(g)................................................................................. 14
Utah Code Ann. § 31A-27a-105(8)............................................................................... 14
Vt. Stat. Ann. tit. 8, § 7032(e) ..................................................................................... 14
22 V.I. Code Ann. § 1269(a) ......................................................................................... 14
Wis. Stat. Ann. § 645.04(3) .......................................................................................... 14
Other Authorities
AlphaStreet (Apr. 8, 2020), https://news.alphastreet.com/covid-19-putsinsurers-in-tricky-position-risks-range-from-insolvency-to-litigation/ ................ 14
NAIC Receiver’s Handbook for Insurance Company Insolvencies
(2018), available at
https://www.naic.org/documents/prod_serv_fin_receivership_rec_bu.
pdf ........................................................................................................................... 13
vii
OPINIONS BELOW
The opinion of the Louisiana Supreme Court will be reported at — So. 3d —
and is included in the Appendix (“App.”) at pages 3-16.
The decision of the
Louisiana Supreme Court to deny a stay of proceedings pending a decision by this
Court on Milliman’s forthcoming writ of certiorari is unreported, and is included at
App. 18-19. The Louisiana First Circuit Court of Appeals’ opinion unanimously
granting Milliman’s appeal to compel arbitration is unreported, and is included at
App. 21-50. A transcript of the Louisiana 19th Judicial District Court’s oral opinion
denying Milliman’s motion to compel arbitration is unreported, and is included at
App. 52-55.
JURISDICTION
The Louisiana Supreme Court entered judgment on April 27, 2020.
Applicant Milliman, Inc. (“Milliman”) moved the Louisiana Supreme Court on May
15, 2020 for a stay of proceedings pending a decision by this Court on Milliman’s
forthcoming writ of certiorari. The Louisiana Supreme Court denied the stay on
May 18, 2020. Milliman submits this application pursuant to 28 U.S.C. § 2101(f)
and Supreme Court Rule 23 to stay proceedings in Louisiana state court “for a
reasonable time to enable the party aggrieved to obtain a writ of certiorari from the
Supreme Court.”
viii
To the Honorable Samuel A. Alito, Jr., Associate Justice of the Supreme
Court of the United States and Circuit Justice for the Fifth Circuit:
Pursuant to 28 U.S.C. § 2101(f) and Supreme Court Rule 23, Milliman, Inc.
(“Milliman”) applies to stay all ongoing Louisiana state court proceedings against it
in this case pending a decision on Milliman’s petition for a writ of certiorari and this
Court’s consideration of the merits.
The action below was brought against Milliman by the Louisiana
Commissioner of Insurance, acting as the rehabilitator of Louisiana Health
Cooperative, Inc. (“LAHC”), an insolvent health care insurer created in 2011 and
funded pursuant to the Patient Protection and Affordable Care Act. After LAHC
was declared insolvent in 2015, the Commissioner sued Milliman in state court,
along with various other defendants, for contract and tort damages arising from
Milliman’s pre-insolvency performance of actuarial services for LAHC pursuant to
an agreement that includes a broad arbitration clause. Milliman moved to compel
arbitration.
Milliman’s petition for certiorari, filed simultaneously with this Application,
seeks review of the Louisiana Supreme Court’s holding that the forum selection
clause in the state’s insurance insolvency statute reverse preempts the Federal
Arbitration Act (“FAA”) pursuant to the McCarran-Ferguson Act, 15 U.S.C. §
1012(b), and therefore the state’s insurance Commissioner may proceed with his
pre-insolvency, contract-based damages claims against Milliman in state court,
rather than in arbitration.
1
The question presented in Milliman’s petition is whether state insurance
commissioners, acting as rehabilitators/liquidators for an insolvent insurer, must
arbitrate damages claims against a non-policyholder arising out of the insurer’s preinsolvency agreement containing a broad arbitration clause, here Milliman, or
whether such claims implicate, or arbitration of such claims impairs or interferes
with, the state’s regulation of the “business of insurance” under Section 2(b) of the
McCarran-Ferguson Act. 15 U.S.C. § 1012(b).
We respectfully refer the Court to the petition for a fuller discussion of the
relevant case law and the entrenched conflicts exacerbated by the Louisiana
Supreme Court decision. Briefly stated, there is an irreconcilable split between (1)
decisions of the United States Courts of Appeals for the Third and Ninth Circuits
holding that state insurance commissioners must arbitrate pre-insolvency damages
claims against a non-policyholder, and that the McCarran-Ferguson Act does not
reverse preempt the FAA with respect to the arbitration of these claims, see, e.g.,
Suter v. Munich Reins. Co., 223 F.3d 150, 161 (3d Cir. 2000); Bennett v. Liberty Nat’l
Fire Ins. Co., 968 F.2d 969, 972-73 (9th Cir. 1992); and (2) Louisiana and Kentucky
Supreme Court holdings that arbitrating such claims would interfere with the
state’s regulation of the business of insurance, and therefore the commissioner is
not required to arbitrate because the state’s forum selection provision reverse
preempts the FAA.
The Louisiana and Kentucky Supreme Court decisions also conflict with
recent decisions by the Iowa Supreme Court and Nevada Supreme Court, and a
2
Kentucky federal district court, in parallel cases involving the same pre-insolvency
arbitration agreement and substantively the same contract and tort claims against
Milliman.1 Each of those courts compelled the state insurance commissioners, who
were acting as liquidators for insolvent insurers, to arbitrate their pre-insolvency
damages claims against Milliman (the Nevada Supreme Court, finding “no clear
error of law” in the trial court’s decision compelling arbitration, refused
interlocutory review). Those courts each concluded that the bringing of these claims
by the state insurance commissioner is not the regulation of the “business of
insurance,” and further that arbitration of these claims does not interfere with or
impair the state’s regulation of the “business of insurance.”
See Ommen v.
Milliman, 941 N.W.2d 310 (Iowa 2020); State ex rel Richardson v. Eighth Judicial
Dist. Court in & for Cty. of Clark, 454 P.3d 1260 (Nev. 2019); Milliman, Inc. v. Roof,
353 F. Supp. 3d 588 (E.D. Ky. 2018).
To add to this multi-state conflict, the New York Court of Appeals and the
Ohio Supreme Court have held that their state insurance commissioners need not
On Friday, August 28, Milliman received the Iowa liquidators' petition for
certiorari seeking review of the Iowa Supreme Court’s decision (see Doug Ommen, in
His Capacity as Liquidator of CoOportunity Health, et al., v. Milliman, Inc., et al.,
no. 20-249). That petition recognizes (in its second question presented) that the
Iowa and Louisiana Supreme Court decisions deepen the existing conflicts
concerning whether a state insurance commissioner, acting as rehabilitator or
liquidator for an insolvent insurer, is bound to arbitrate the insurer’s damages
claims arising out of a pre-insolvency agreement with a broad arbitration clause.
The Iowa petition also challenges and seeks this Court’s review (first question
presented) of the Iowa Supreme Court’s construction of Iowa state contract law and
provisions of the Iowa insurance insolvency statute. Milliman will respond to the
Iowa petition at the appropriate time for filing its response.
1
3
arbitrate pre-insolvency damages claims, in decisions that failed to discuss the FAA
or the McCarran-Ferguson Act.
Review, and a stay pending this Court’s review, is further warranted because
the Louisiana Supreme Court is on the wrong side of this conflict. Its reasoning is
inconsistent with this Court’s, as well as federal circuit court, precedents. In U.S.
Dep’t of Treasury v. Fabe, 508 U.S. 491, 508-09 (1993) this Court reaffirmed that
state statutes or actions regulate the “business of insurance” under the McCarranFerguson Act only to the extent that they “regulate policyholders.” Fabe recognized
that bringing additional funds into the estate of an insolvent insurer—which is
what the Commissioner hopes to achieve here—while it could “indirect[ly]” benefit
policyholders, does not constitute the “business of insurance” under the McCarranFerguson Act. Similarly, the choice of forum in which a commissioner brings preinsolvency damages claims against non-policyholders does not impair or interfere
with the state’s regulation of the insurer-policyholder relationship. The Louisiana
and Kentucky decisions, and both the New York Court of Appeals and Ohio
Supreme Court holdings, are not consistent with either this Court’s or federal
circuit court precedents.
Nor is this a limited dispute. In a majority of U.S. states and territories, the
forum selection clauses in the state insolvency statutes are written to require (like
Kentucky) or permit (like Louisiana) state insurance commissioners to bring these
pre-insolvency damages claims in state court, thereby nullifying pre-insolvency
arbitration agreements.
Because the core issue here—construction of the
4
McCarran-Ferguson Act as applied to the bringing of these pre-insolvency damages
claims—is governed by federal law,2 only this Court can provide the certainty of
what should be a uniform national answer, binding both on federal and state courts,
and on insurance commissioners and third party contractors doing business with
insurers across the country.
The Louisiana Supreme Court denied Milliman’s application for a stay.
Absent a stay, Milliman will remain embroiled in a very large and expensive multidefendant case, which the Louisiana Insurance Commissioner expeditiously revived
in the wake of the Louisiana Supreme Court’s decision (and refusal to grant
Milliman a stay). And, absent a stay, Milliman’s FAA-protected right to proceed in
an efficient, less costly, single-defendant arbitration proceeding will be irreparably
compromised before this Court can even consider, let alone rule on, the merits of
Milliman’s petition for certiorari.
Milliman therefore respectfully requests a stay of the district court
proceedings pending the disposition of Milliman’s Petition. Forcing Milliman to
engage in further state court litigation, which in this case involves ten other
defendants, costly, multi-party discovery, and a multi-year case schedule that will
imminently be ordered, will irreparably deprive Milliman of its bargained-for right
2 See S.E.C. v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65, 67, 69 (1959);
Trailer Marine Transp. Corp. v. Rivera Vazquez, 977 F.2d 1, 13 (1st Cir. 1992),
citing Variable Annuity Life Ins. Co. of Am., 359 U.S. at 69 (a state’s “classification
does not control in deciding whether an activity is the ‘business of insurance’ under
the McCarran-Ferguson Act.”).
5
to resolve its claims efficiently and expeditiously through arbitration directly with
the Louisiana Commissioner.
STATEMENT OF THE CASE
1.
This action was brought against Milliman by the Louisiana
Commissioner of Insurance, acting as the rehabilitator of Louisiana Health
Cooperative, Inc. (“LAHC”), an insolvent health care co-operative insurer, or “co-op,”
created in 2011 and funded pursuant to the Patient Protection and Affordable Care
Act (the “ACA”).
2.
Pursuant
to
a
2011
“Consulting
Services
Agreement”
(the
“Agreement”), LAHC engaged Milliman, one of the United States’ leading actuarial
firms, to provide it with “actuarial support.” Milliman provided all of its actuarial
services, fully performing its obligations to LAHC pursuant to the Agreement, from
August 2011 to March 2014, prior to LAHC’s insolvency.
The Agreement contains a broad, unambiguous arbitration clause requiring
the arbitration of all claims arising out of or relating to the Agreement:
Disputes: In the event of any dispute arising out of or relating
to the engagement of Milliman by [LAHC], the parties agree
that the dispute will be resolved by final and binding arbitration
under the Commercial Arbitration Rules of the American
Arbitration Association.
(App. 109). The arbitration clause has no exception should the insurer later become
insolvent.
3.
In 2015, LAHC became insolvent and was placed into rehabilitation.
In November 2016, the Louisiana Insurance Commissioner, acting as Rehabilitator,
filed an amended petition in Louisiana’s 19th Judicial District Court (the “19th
6
JDC”) against several third party contractors who performed pre-insolvency work
for LAHC, as well as against LAHC’s officers and directors. The petition pled two
causes of action against Milliman, both of which arise out of and relate to
Milliman’s work under the Agreement: (1) “professional negligence and breach of
contract,” and (2) negligent misrepresentation.
4.
On February 17, 2017, Milliman moved to compel arbitration of both
claims. The trial court denied Milliman’s motion.
5.
Milliman appealed to the Louisiana First Circuit Court of Appeals,
which sua sponte entered an order on March 15, 2018 staying all trial court
proceedings, as to all parties, pending resolution of Milliman’s appeal. On February
28, 2019, the Louisiana First Circuit Court of Appeals unanimously reversed the
trial court’s denial of Milliman’s motion to compel arbitration, and ordered the
Louisiana Commissioner to arbitrate these claims.
6.
The Commissioner appealed to the Louisiana Supreme Court, which
unanimously reversed the Louisiana First Circuit on April 27, 2020. The Louisiana
Supreme Court acknowledged that the Commissioner’s action “aris[es] out of an
agreement between the cooperative and a third-party contractor” that contains an
arbitration clause.
(App. 4).
However, it held that Louisiana Rehabilitation,
Liquidation, and Conservation Act (“RLCA”) Section 22:2004(A)—pursuant to which
the state Insurance Commissioner “may” bring rehabilitation proceedings in the
19th JDC “or any court where venue is proper”—permits the Rehabilitator “to
choose where and how to litigate an action.” (App. 7). The court held that, “[b]y
7
using the permissive ‘may,’ the statute does not foreclose the option of arbitration, if
provided in a contract, but effectively delegates the choice to the Commissioner.”
(Id.).
The court emphasized public policy arguments to support its decision,
including the “purpose and spirit of the RLCA,” (App. 8), the Commissioner’s role as
“a protector of public interests,” (id.), and the “substantial public interest” in
consolidating proceedings in one forum to “promote the efficient and cohesive
management of the affairs of insolvent insurers.” (App. 8). It further stated that
binding the Commissioner to a private arbitration agreement “would clearly violate
the exclusivity of the rehabilitation scheme provided by law” and contravene
Louisiana “public policy.” (App. 10).
The court then addressed whether the “FAA… preempts Louisiana law, thus
compelling arbitration,” or whether “state law reverse preempts the FAA by virtue
of the McCarran-Ferguson Act.” (App. 11). It concluded that the RLCA as a whole
was “enacted for the purpose of regulating the business of insurance” and that
“Section 2004 is part of a coherent policy to address that interest.”
(App. 14)
(citations omitted). With respect to section 2004(A) specifically, the court reasoned
that it was enacted to avoid piecemeal litigation in different fora that might
exacerbate litigation costs and generate inconsistent outcomes.
(App. 15).
court then concluded that:
Forcing arbitration upon the Commissioner conflicts with the
Louisiana law authorizing him to choose which forum to proceed
in as rehabilitator.
This conflict sufficiently impairs the
8
The
Commissioner’s rights under Section 2004 to trigger McCarranFerguson’s reverse preemption effect.
(Id.).
7.
The Louisiana Supreme Court remanded the case to the 19th JDC.
The stay of all trial court proceedings was immediately lifted and discovery is
ongoing.
8.
On May 18, 2020, the Louisiana Supreme Court denied Milliman’s
motion for a stay pending resolution of Milliman’s petition for a writ of certiorari.
(App. 18-19).
REASONS FOR GRANTING THE STAY
28 U.S.C. § 2101(f) authorizes this Court to stay proceedings in state court
pending the disposition of Milliman’s petition for a writ of certiorari. In reviewing
such a stay application, this Court considers the following factors: “First, there must
be a reasonable probability that certiorari will be granted (or probable jurisdiction
noted). Second, there must be a significant possibility that the judgment below will
be reversed. And third, assuming the applicant's position on the merits is correct,
there must be a likelihood of irreparable harm if the judgment is not stayed.”
Philip Morris USA Inc. v. Scott, 561 U.S. 1301, 1302 (2010) (Scalia, J., in chambers)
(staying proceedings in Louisiana state court); see also Deaver v. United States, 483
U.S. 1301, 1302 (1987). “In close cases,” the Court will further “balance the equities
and weigh the relative harms to the applicant and to the respondent.”
Hollingsworth v. Perry, 558 U.S. 183, 190 (2010) (per curiam).
Each of these factors favors a stay in this case.
9
I.
THERE IS A REASONABLE PROBABILITY THAT THIS COURT
WILL GRANT CERTIORARI.
A.
THE LOUISIANA SUPREME COURT’S DECISION DEEPENS A
CONFLICT BETWEEN FEDERAL AND STATE APPELLATE
COURTS, AND AMONG STATE COURTS OF LAST RESORT.
The circumstances are compelling for this Court to grant review. This case
presents an entrenched conflict between two federal circuit courts and the Iowa
Supreme Court, on the one hand, and two state supreme courts (including the
Louisiana Supreme Court in this case), on the other hand, on an important and
recurring question of federal law.
The Louisiana Supreme Court’s ruling directly contravenes unanimous
federal circuit authority holding that an insurance commissioner’s arbitration of
damages claims arising out of an insolvent insurer’s pre-insolvency contract which
requires arbitration does not implicate, nor does arbitration impair or interfere
with, the state’s regulation of the “business of insurance” under the McCarranFerguson Act.
Accordingly, the FAA requires the insurance commissioners to
arbitrate these claims, and the FAA is not reverse preempted by the state’s forum
selection provision pursuant to the McCarran-Ferguson Act. See Quackenbush v.
Allstate Ins. Co., 121 F.3d 1372, 1381-82 (9th Cir. 1997) (California Commissioner
compelled to arbitrate); Bennett, 968 F.2d at 972 (Montana Commissioner); Suter,
223 F.3d at 161 (New Jersey Commissioner); Grode v. Mut. Fire, Marine and Inland
Ins. Co., 8 F.3d 953, 959-61 (3d Cir. 1993) (Pennsylvania Commissioner); see also
AmSouth Bank v. Dale, 386 F.3d 763, 781, 783 (6th Cir. 2004) (“[A]n ordinary suit
10
against a tortfeaser by an insolvent insurance company” does not implicate the
state’s regulation of the business of insurance under McCarran-Ferguson).
The Iowa Supreme Court followed this federal precedent, holding that “the
McCarran-Ferguson Act does not permit reverse preemption of the FAA” with
respect to the common law claims at issue, and that arbitration “does not impede
the liquidator’s ability to conduct an orderly dissolution” or otherwise impede “the
state process designed to protect the interests of policyholders.”
Ommen, 941
N.W.2d at 320-21; see also State ex rel Richardson, 454 P.3d at 1260 (rejecting
Nevada Insurance Commissioner’s McCarran-Ferguson Act reverse preemption
argument and finding no clear error of law with the trial court order granting
Milliman’s motion to compel arbitration); Milliman v. Roof, 353 F. Supp. 3d at 594,
604 (granting Milliman’s motion to compel arbitration and holding that “the
McCarran-Ferguson Act does not allow reverse-preemption of the FAA when the
Liquidator… brings suit against a third-party independent contractor for tort or
breach of contract claims.”).
Milliman respectfully refers the Court to its petition for more detailed
discussion of each of these federal decisions, as well as the decisions of the Iowa and
Nevada Supreme Courts, and a Kentucky federal district court that reach the same
conclusion.
The Louisiana Supreme Court is not the only state court of last resort to
refuse to order the state’s insurance commissioner to arbitrate these claims. In 2010,
the Kentucky Supreme Court had held that Kentucky’s insurer insolvency statute’s
11
forum selection provision, by virtue of the McCarran-Ferguson Act, reversepreempts the FAA and precludes arbitration of the commissioner’s (acting as
liquidator) common law claims brought against a third party. Ernst & Young, LLP
v. Clark, 323 S.W.3d 682, at 692 (Ky. 2010). The Kentucky Supreme Court held
that “[p]ursuant to the [statute], the federal policy favoring arbitration is
subordinated to the state’s superior interest in having matters relating to the
rehabilitation of an insurance company adjudicated in the Franklin Circuit Court.”
Id.
The Ohio Supreme Court and the New York Court of Appeals have also held
that their respective state insurance insolvency statutes preclude their state
insurance commissioners from being compelled to arbitrate common law damages
claims against a third party. In doing so, neither court analyzed whether the FAA
preempted the state law. Rather, the Ohio Supreme Court held that its insurance
commissioner acting as liquidator cannot be bound to an insolvent insurer’s preinsolvency arbitration agreement because he stands in a “public protection role.”
Taylor v. Ernst & Young, 958 N.E.2d 1203, 1210-13 (Ohio 2011). The New York
Court of Appeals has also long held, without addressing federal law, that the
Superintendent of Insurance cannot be compelled to arbitrate because the New
York State Insurance Law does not expressly authorize the Superintendent to do so.
Corcoran v. Ardra Ins. Co., Ltd., 567 N.E.2d 969, 972-73 (N.Y. 1990); Knickerbocker
Agency, Inc. v. Holz, 149 N.E.2d 885, 891 (N.Y. 1958).
12
There is no way to square the analyses and holdings of the U.S. Courts of
Appeals for the Third and Ninth Circuits and the Iowa Supreme Court, on the one
hand, with the Louisiana and Kentucky Supreme Court decisions, on the other
hand, on the question presented. The courts of appeals and state supreme courts
have fully developed the relevant arguments on both sides of the question, and the
question presented is ripe for this Court’s review.
B.
THE QUESTION PRESENTED IS AN IMPORTANT AND
RECURRING ONE THAT WARRANTS THE COURT’S REVIEW
IN THIS CASE.
The question presented in this case is, and if this Court does not resolve the
question will continue to be, a recurring one of substantial legal and practical
importance. It is the subject of an irreconcilable split and extensive state and lower
court litigation.
See NAIC Receiver’s Handbook for Insurance Company
Insolvencies,
pp.
499–500
(2018),
available
https://www.naic.org/documents/prod_serv_fin_receivership_rec_bu.pdf
at
(discussing
split in authority concerning arbitrability of disputes involving insurance
commissioners acting as liquidators). This federal question under the McCarranFerguson Act—whether state insurance insolvency forum selection provisions
consolidating rehabilitation insolvency proceedings in a single state court may
override federal statutes and contracts providing for arbitration—is the subject of
considerably more litigation and conflict. Notably, the insolvency statutes in over
13
half of U.S. states and territories have forum selection provisions that are
substantially similar to Louisiana’s.3
A definitive ruling would have great impact on companies that regularly do
business with insurers, particularly in light of the COVID-19 pandemic. There will
likely be a wave of new insurer insolvencies nationwide as insurers bear many of
the costs of this pandemic. See, e.g., COVID-19 puts insurers in tricky situation;
risks
range
from
litigation
to
insolvency,
ALPHASTREET
(Apr.
8,
2020),
https://news.alphastreet.com/covid-19-puts-insurers-in-tricky-position-risks-rangefrom-insolvency-to-litigation/. And there is every reason to expect that state
insurance commissioners nationwide will react, as the Louisiana Commissioner did
in this case, by looking for out-of-state deep-pockets—such as professional service
firms—to sue on behalf of the insolvent insurers, and will seek to pursue those suits
in their home state courts.
Every significant insurer contracts for the services of (frequently national)
auditors, actuaries, accountants, and other diverse professional service firms.
Professional services firms such as Milliman and Ernst & Young (the defendant in
3 See, e.g., Colo. Rev. Stat. Ann. § 10-3-504(5); Conn. Gen. Stat. Ann. § 38a-906(e);
D.C. Code Ann. § 31-1303(e); Ga. Code Ann. § 33-37-4(e); Haw. Rev. Stat. Ann. §
431:15-104(g); Idaho Code Ann. § 41-3304(5); Ind. Code Ann. § 27-9-1-3(f); Iowa
Code Ann. § 507C.4(5); Kan. Stat. Ann. § 40-3608(e); Ky. Rev. Stat. Ann. § 304.33040(3)(a); Miss. Code. Ann. § 83-24-9(5); Mo. Ann. Stat. § 375.1154(6); Mont. Code
Ann. § 33-2-1308; Neb. Rev. Stat. Ann. § 44-4804(5); N.J. Stat. Ann. § 17B:32-34(e);
N.C. Gen. Stat. Ann. § 58-30-15(d); N.D. Cent. Code Ann. § 26.1-06.1-04(5); Ohio
Rev. Code Ann. § 3903.04(E); 40 Pa. Stat. Ann. § 221.4(d); 26 P.R. Laws Ann. §
4004(5); 27 R.I. Gen. Laws Ann. § 27-14.3-4(e); S.C. Code Ann. § 38-27-60(f); S.D.
Codified Laws § 58-29B-7; Tenn. Code Ann. § 56-9-104(e); Tex. Ins. Code Ann. §
443.005(g); Utah Code Ann. § 31A-27a-105(8); Vt. Stat. Ann. tit. 8, § 7032(e); 22 V.I.
Code Ann. § 1269(a); Wis. Stat. Ann. § 645.04(3).
14
both the Ohio and Kentucky Supreme Court cases addressed above) insist on broad
arbitration clauses in those contracts because arbitration is essential to limit their
litigation costs and manage their risks. It is an essential element of the bargain
between insurers and professional service firms that the professional services
firm—particularly an out-of-state firm—will not be forced to defend itself in the
insurer’s home-state courts, before home-state judges and jurors. But under the law
as it currently stands in the state courts of last resort in Louisiana, Kentucky, New
York, and Ohio, that contract will not be honored when it is most important to do
so—when the insurer goes into insolvency.
II.
THERE IS A SIGNIFICANT POSSIBILITY THAT THIS COURT WILL
REVERSE THE LOUISIANA SUPREME COURT’S DECISION.
If this Court grants certiorari, it will likely reverse the Louisiana Supreme
Court’s decision.
Pages 22–29 of Milliman’s petition explain, and we briefly
summarize below, why that is so.
The McCarran-Ferguson Act was passed “to assure that the activities of
insurance companies in dealing with their policyholders would remain subject to
state regulation.” S.E.C. v. Nat’l Secs., Inc., 393 U.S. 453, 459-60 (1969) (emphasis
added).
Accordingly, “courts should narrowly construe the McCarran-Ferguson
Act,” Riverview Health Inst. LLC v. Med. Mut. Of Ohio, 601 F.3d 505, 513 (6th Cir.
2010), citing Nat’l Secs., Inc., 393 U.S. at 460, the focus of which is on “the
relationship between the insurance company and the policyholder. Statutes aimed
at protecting or regulating this relationship... are laws regulating the ‘business of
insurance.’” Nat’l Secs., Inc., 393 U.S. at 460.
15
Thus, in Fabe, this Court held that to the extent the Ohio priority statute at
issue “regulates policyholders, [it] is a law enacted for the purpose of regulating the
business of insurance.” 508 U.S. at 508. However, to the extent the same statute
does not regulate policyholders “it is not a law enacted for the purpose of regulating
the business of insurance.” Id. The arbitration of these claims against Milliman
does not implicate, impair or interfere with the state’s regulation of the “business of
insurance” under the McCarran-Ferguson Act.
Neither the RLCA’s forum selection provision nor the Commissioner’s claims
against
Milliman
relationship.
implicate,
protect
or
regulate
the
insurer-policyholder
Even if the Commissioner’s suit against Milliman could indirectly
benefit policyholders by increasing the size of LAHC’s estate, such “indirect”
benefits to policyholders do not constitute the “business of insurance” under the
McCarran-Ferguson Act. Fabe, 508 U.S. at 508. “[E]very business decision made
by an insurance company has some impact on its reliability… and its status as a
reliable insurer.”
Id. at 508-09 (citation omitted).
That does not make every
business decision of an insurance company part of the “business of insurance”
under the McCarran-Ferguson Act.
Arbitration of these pre-insolvency, contract-based claims against Milliman
would not impair or interfere with the state’s regulation of the “business of
insurance.”
When assessing whether a general federal statute “impairs” the
operation of a state law, the proper inquiry is whether the particular action being
taken would impair state law. See Humana Inc. v. Forsyth, 525 U.S. 299, 311, 313
16
(1999) (analyzing effect of McCarran-Ferguson Act on RICO suit with respect to
particular suit, rather than only general operation of statute). See also AmSouth,
386 F.3d at 783 (stating that McCarran-Ferguson “business of insurance” analysis
must be “defined with respect to the particular cause of action” at issue), citing
Humana Inc., 525 U.S. at 311, 313.
The Commissioner’s bringing of these claims against Milliman has no bearing
on the administration, allocation between and among policy holders and creditors,
or ownership, of LAHC’s property or assets, which is the province of the insolvency
action. These claims do not involve the assertion of a claim or an interest in LAHC
assets or property. They will not alter any policyholder’s legal rights or claims.
Enforcing the Agreement’s arbitration clause therefore will not “disrupt the orderly
[rehabilitation] of” LAHC. Quackenbush, 121 F.3d at 1381; see also AmSouth, 386
F.3d at 780 (distinguishing claims by “angry creditors attempt[ing] to sue insolvent
insurance companies in federal court to jump ahead in the queue of claims,” from
claims “where the insurance companies are themselves the natural plaintiffs”).
As the Third Circuit explained in Grode:
Insurance companies tend to issue identical policies to a large
number of people, rendering a single forum necessary to dispose
equitably of the company’s limited assets so as to avoid a race to
the courthouse. However, such a concern is not present in this
case. This is not a suit against the insurance company or the
Insurance Commissioner, or a claim on assets of the debtor….
The insolvent insurance company… is the plaintiff, not the
defendant. As a result, there is not a large number of similarly
situated plaintiffs competing for a limited amount of money.
The insolvent insurer in liquidation is not called upon to
dissipate its funds defending unconnected suits across the
17
country. Rather, the insurance company is the only plaintiff and
the defendants are not insolvent.
8 F.3d at 960.
The Louisiana Supreme Court also erred in holding that the Commissioner’s
choice of a state court forum for litigation is integral to the State’s regulation of the
“business of insurance.” Arbitration does not alter “substantive rights,” the scope of
the relief available, or eliminate court review of the arbitration award; it merely
regulates the choice of initial forum. Shearson/Am. Exp., Inc. v. McMahon, 482
U.S. 220, 229-30 (1987). As the Iowa Supreme Court held in Ommen, arbitration
“does not impede the [Commissioner’s] ability to conduct an orderly dissolution….
The [Commissioner] can bring the same claims in arbitration as it asserted in
district court, and the [Commissioner] has identified no procedural impediments to
a full recovery in arbitration.” Ommen, 941 N.W.2d at 320. Even where litigation
generally is “integral to” the performance of an insurance contract, and thus
implicates the business of insurance, “the choice of forum [is] not.” AmSouth, 386
F.3d at 781; Bennett, 968 F.2d at 972 (“Application of the FAA does not impair the
liquidator’s substantive remedy under Montana law. Instead it simply requires the
liquidator to seek relief through arbitration.”).
The Louisiana Supreme Court’s improper expansion of reverse preemption to
protect purported state “policies” also contravenes this Court’s holding that a court
cannot rely on “policy considerations” to vitiate an otherwise valid arbitration
agreement. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985) (“[C]ourts
[should] enforce the bargain of the parties to arbitrate, and not substitute [their]
18
own views of economy and efficiency” (quotations omitted)); Granite Rock Co. v. Int’l
Bhd. of Teamsters, 561 U.S. 287, 303 (2010) (stating that the U.S. Supreme Court
has never “held that courts may use policy considerations as a substitute for party
agreement” concerning arbitration).
Moreover, this Court has rejected the specific state “public policy”
considerations underlying the Louisiana Supreme Court’s decision as a basis to
deny Milliman’s right to arbitrate. The FAA “requires piecemeal resolution when
necessary to give effect to an arbitration agreement.” Moses H. Cone Mem’l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 20 (1983) (emphasis in original).
And an
arbitration clause must be enforced as drafted even when arbitration would
bifurcate proceedings, potentially leading to inefficiency and inconsistent results.
Dean Witter Reynolds, 470 U.S. at 217.
III.
MILLIMAN WILL SUFFER IRREPARABLE HARM IF
PROCEEDINGS ARE NOT STAYED.
Milliman will suffer irreparable harm without a stay.
Parties to an
arbitration agreement contract for “lower costs, greater efficiency and speed, and
the ability to choose expert adjudicators to resolve specialized disputes.”
Stolt-
Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 685 (2010). Here, the parties’
Agreement “authorize[s],” but does not require, the arbitrators “to permit limited
discovery,” consistent with the Federal Rules of Civil Procedure.
(App. 109).
Whether any discovery is appropriate, and the scope of such discovery, is within the
sole discretion of the arbitrators.
In practice, experienced arbitrators police
19
discovery to ensure that it is genuinely relevant to the bilateral issues between the
contracting parties, and not unduly burdensome.
In contrast, the state court proceedings, which immediately resumed
following the Louisiana Supreme Court’s ruling, involve multiple parties and an
overwhelmingly burdensome, and increasing, volume of discovery.
The Commissioner has asserted claims against three contractor firms (two
actuarial firms, including Milliman, and one of LAHC’s third party administrators),
six individual officers or directors, and five D&O insurers who provided excess
coverage. Another two contractor firms, four individual officers or directors, and
one primary D&O insurer have settled and been dismissed.
The Commissioner
alleges that each firm or individual’s acts or omissions contributed to LAHC’s
insolvency, and seeks to hold all the defendants collectively liable “for all
compensatory damages caused by their actionable conduct,” including LAHC’s
losses of “more than $82 million,” payment of all rehabilitation administrative costs,
the return of fees and expenses, costs, and attorney’s fees. (App. 71, 101). These
realities compound the costs and burdens for litigation and particularly discovery,
as distinct from an arbitration proceeding involving only the Commissioner and
Milliman, and focused only on the Commissioner’s liability and damages claims
against Milliman, and Milliman’s defenses to those claims. Each party will conduct
its own discovery, hire its own experts, and depose its own witnesses.
Moreover, actions of the Louisiana Commissioner and the state court have
exacerbated Milliman’s discovery-related costs and burdens. For example, the trial
20
court has ordered Milliman (and the other defendants) to share the cost of a
common e-discovery vendor with the Commissioner and the other parties for
purposes of searching through and hosting the Commissioner’s documents. Absent
a stay from this Court, Milliman will therefore be compelled to subsidize the
Commissioner’s discovery costs for the next several months. All of this additional
cost and expense to Milliman would be highly unlikely to occur in an AAA
arbitration.
The industry context of the case and its parties creates further costs and
burdens.
Milliman and another defendant are direct competitors.
Therefore,
Milliman must vigilantly ensure that its proprietary and confidential trade secret
information is appropriately protected. Arbitration proceedings would be entirely
confidential and Milliman’s competitor would not have access to Milliman’s
proprietary information except through more discrete non-party discovery.
Staying the state court proceedings against Milliman would also comport
with FAA principles.
By making available an immediate appeal when a court
denies a stay in favor of arbitration, but not when a stay is granted, see 9 U.S.C.
§§ 16(a)(1)(A), (b)(1), “Congress acknowledged that one of the principal benefits of
arbitration, avoiding the high costs and time involved in judicial dispute resolution,
is lost if the case proceeds in both judicial and arbitral forums.” Blinco v. Green
Tree Servicing, LLC, 366 F.3d 1249, 1251-52 (11th Cir. 2004) (holding that district
court proceedings should be stayed in all non-frivolous appeals of denials of motions
to compel arbitration); accord Bradford-Scott Data Corp., Inc. v. Physician
21
Computer Network, Inc., 128 F.3d 504, 505-06 (7th Cir. 1997); Levin v. Alms &
Assocs., Inc., 634 F.3d 260, 265-66 (4th Cir. 2011); Ehleiter v. Grapetree Shores, Inc.,
482 F.3d 207, 214-15 (3d Cir. 2007); Hardin v. First Cash Fin. Servs., Inc., 465 F.3d
470, 474 (10th Cir. 2006). Absent a stay, if the Court were to reverse and compel
arbitration, this principal benefit would be “eroded, and may be lost or even turned
into net losses,” since the parties would have continued to litigate in a more
expensive and inefficient forum and would have to restart proceedings. BradfordScott Data Corp., 128 F.3d at 505-06. Here, the costs to Milliman of proceeding as a
party to the Louisiana proceedings pending this Court’s decision could eclipse that
of an entire arbitration by the time its rights are enforced—that is irreparable
harm. Alascom, Inc. v. ITT N. Elec. Co., 727 F.2d 1419, 1422 (9th Cir. 1984) (If a
party “must undergo the expense and delay of a trial before being able to appeal,
the advantages of arbitration—speed and economy—are lost forever.”).
IV.
THE EQUITIES FAVOR A STAY.
The equities heavily favor a stay of state court proceedings concerning
Milliman.
The Commissioner can be made whole for any delay through pre-
judgment interest. On the other hand, Milliman will lose forever the benefits of its
contracted-for and FAA-mandated arbitration rights if now forced to proceed in
state court.
The public interest also favors a stay of proceedings. Public policy strongly
favors arbitration. See AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 339 (2011)
(section 2 of the FAA “reflect[s] a liberal federal policy favoring arbitration, and the
fundamental principle that arbitration is a matter of contract” (citations omitted)).
22
It is contrary to that public policy to require the parties to burden the courts and
the public by continuing to litigate the merits of this dispute while this Court
decides the question of arbitrability.
CONCLUSION
The application for a stay of state court proceedings should be granted.
Respectfully submitted,
SIMON A. STEEL
DENTONS US LLP
1900 K Street, NW
Washington, DC 20006
(202) 496-7077
simon.steel@dentons.com
REID L. ASHINOFF
Counsel of Record
JUSTIN N. KATTAN
ILYA SCHWARTZBURG
DENTONS US LLP
1221 Avenue of the Americas
New York, New York 10020
(212) 768-6700
reid.ashinoff@dentons.com
justin.kattan@dentons.com
ilya.schwartzburg@dentons.com
Attorneys for Petitioner Milliman, Inc.
23
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.