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Atkins v. CGI Technologies and Solutions, Inc.

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

September 11, 2018

NANCY G. ATKINS, LIQUIDATOR OF KENTUCKY HEALTH COOPERATIVE, INC., Plaintiff,
v.
CGI TECHNOLOGIES AND SOLUTIONS, INC., Defendant.

          MEMORANDUM OPINION & ORDER

          GREGORY F. VAN TATENHOVE UNITED STATES DISTRICT JUDGE.

         This Court has an obligation to exercise jurisdiction granted to it by Congress. Having determined that such jurisdiction exists, and, having determined that Kentucky law does not reverse preempt the Federal Arbitration Act, the Liquidator asks this Court to abstain from exercising jurisdiction. However, no “exceptional circumstances” exist in this case where such abstention would be appropriate. For the foregoing reasons, CGI's Motion to Compel Arbitration is GRANTED and 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. Shortly thereafter, KYHC contracted with CGI Technologies and Solutions, Inc., whereby CGI would provide administrative services as an independent contractor for KYHC. [R. 71-1.] This Administrative Services Agreement included a section where parties agreed to arbitrate claims and disputes arising under or relating to the Agreement. [R. 9-2 at 27-28.]

         Similarly, KYHC contracted with Milliman, Inc., for Milliman to perform actuary and consulting services to KYHC [Milliman, Inc., v. Roof, 3:18-cv-000012-GFVT, R. 1-2], and around the same time, KYHC contracted with Beam Partners, LLC, for Beam 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. 9-1 at 3.] 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. 34-6 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. [Milliman, Inc., v. Roof, 3:18-cv-00012-GFVT, R. 1 at 2.]

         On May 13, 2016, the Liquidator sued CGI in Franklin Circuit Court for breach of contract and negligence. [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 here. [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.]

         In this case, the Liquidator sought remand to Franklin Circuit Court. KYHC is a Kentucky non-profit corporation with a principal place of business in Kentucky, while CGI is a business incorporated in Delaware with a principal place of business in Virginia. [R. 1 at 1.] The amount in controversy exceeds $75, 000. Id. Accordingly, under a traditional analysis of diversity jurisdiction, this Court has requisite authority and subject-matter jurisdiction. 28 U.S.C. § 1332(b). However, the Liquidator sought remand for reverse preemption. [R. 49 at 3- 4.] Early in 2017, this Court determined that federal diversity jurisdiction was not reverse preempted by application of the Kentucky Insurers Rehabilitation and Liquidation Law (IRLL) through the McCarran-Ferguson Act. Id. at 16. Accordingly, the Liquidator's Motion to Remand was denied. Id.

         Meanwhile, in Gaither v. Beam, the Liquidator sought remand for the contract and tort action. In Gaither, however, there was not complete diversity, as both plaintiffs and several defendants were residents of Kentucky. [Jeff Gaither, Deputy Liquidator of Kentucky Health Cooperative, Inc. v. Beam Partners, LLC, et al., 3:16-cv-00094-GFVT, R. 44 at 6.] Ultimately, this Court declined to sever the claims against the nondiverse parties and remanded for lack of jurisdiction. Id. at 30.

         After these developments, this Court denied CGI's Motion to Compel Arbitration without prejudice and directed the parties to re-brief the issue based on the significantly altered procedural posture, as Gaither v. Beam had now been remanded but Atkins v. CGI Techs. & Sols., Inc., had not. [R. 63.] Instead, CGI appealed the Court's Order to the Sixth Circuit Court of Appeals. [R. 67.]

         On February 9, 2018, the Sixth Circuit vacated this Court's Order denying CGI's Motion to Compel Arbitration and remanded for further proceedings. Atkins v. CGI Techs. & Sols., Inc., 724 Fed.Appx. 383 (6th Cir. 2018). The Court of Appeals reviewed only this Court's denial of the Motion to Compel Arbitration and did not review any decision involving abstention. Id. at 388. Accordingly, the Circuit Court determined that denial of the Motion to Compel Arbitration was not proper insofar as it was based on reverse preemption under Kentucky's IRLL. Id. at 390-93. Because the case had been removed from state court and this Court had denied remand, the purposes served by the exclusive jurisdiction provision of the IRLL did not apply, and state interests could not trump federal interests in the disposition of the case. Id. CGI subsequently filed a renewed motion to compel arbitration [R. 71] and the Liquidator filed a renewed motion to dismiss [R. 73].

         While removing the issue of reverse preemption from this case, the Sixth Circuit did not resolve the other pending issues, nor did the Sixth Circuit resolve the issue of reverse preemption in Beam v. Atkins or in Milliman v. Roof. The parties appeared before this Court on July 23, 2018, for oral argument. [R. 87.][3]

         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. 73 at 7.] 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 CGI, the Liquidator will likely be able to collect monetary damages from CGI, 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. ...


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