United States District Court, E.D. Kentucky, Central Division, Frankfort
NANCY G. ATKINS, LIQUIDATOR OF KENTUCKY HEALTH COOPERATIVE, INC., Plaintiff,
CGI TECHNOLOGIES AND SOLUTIONS, INC., Defendant.
MEMORANDUM OPINION & ORDER
GREGORY F. VAN TATENHOVE UNITED STATES DISTRICT JUDGE.
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.
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.]
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].
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.]
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,  Joseph E. Smith,  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.]
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.
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.
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.]
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].
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.]
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).
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).
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.
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. ...