Wilmington Savings Fund Society, FSB v. Universitas Education, LLC et al

Filing 105

ORDER denying 19 Motion to Remand to State Court; granting 26 Motion to Dismiss; denying as moot 41 Motion to Dismiss; granting 45 Motion to Strike; granting in part and denying in part 30 Motion to Stay. See attached order. The Clerk of Court is directed to enter a separate judgment. Signed by Judge Vanessa L. Bryant on 02/17/2016. (Thomas, R.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

WILMINGTON SAVINGS FUND SOCIETY,
FSB, as successor-in-interest to
Christiana Bank & Trust Company,
Plaintiff,
v.
UNIVERSITAS EDUCATION, LLC, and
RIDGEWOOD FINANCE II, LLC, as
successor-in-interest to Ridgewood
Finance, Inc.
Defendants.

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CIVIL CASE NUMBER:
3:15-cv-911 (VLB)
February 17, 2016

MEMORANDUM OF DECISION
This action involves the arbitrability of a dispute between a beneficiary and
alleged trustee of an insurance policy issued pursuant to a Multiple Employer
Welfare Arrangement (―MEWA‖). This action also raises three thorny issues of
civil procedure.

The first procedural issue is whether the action must be

remanded to state court because the diverse defendant removed it here on
diversity grounds and alleged that the non-diverse defendant was fraudulently
joined. The second procedural issue is whether the plaintiff should be allowed to
amend its complaint after removal to assert new claims against the non-diverse
defendant if the Court rules that the non-diverse defendant was fraudulently
joined. The final procedural issue is whether this case should be stayed if the
Court rules that the plaintiff and diverse defendant agreed to arbitrate.

The details surrounding the formation of the MEWA are not entirely clear,
but the facts are sufficiently clear to permit this Court to resolve all issues
presented. The MEWA at issue, Charter Oak Trust (―COT‖), held itself out as a
vehicle for employers to obtain life insurance coverage for their employees.
Plaintiff Wilmington Savings Fund Society, FSB, as successor-in-interest to
Christiana Bank & Trust Company (―Wilmington‖), served as the insurance
trustee for a MEWA named Charter Oak Trust. A participating employer in COT
obtained two life insurance policies for its chief executive officer, and that
executive designated Defendant Universitas Education, LLC (―Universitas‖) as
the beneficiary of both policies. At least one of the policies was deposited in a
trust account opened by Wilmington, and Wilmington monitored both policies.
The executive passed away, and the insurance company paid the death benefits
to COT, which rebuffed Universitas‘s demand for payment of the benefits.
Universitas later sought arbitration with Wilmington, alleging that it acted
improperly as COT‘s insurance trustee.
Soon thereafter, in Connecticut Superior Court, Wilmington sought a
declaratory judgment ruling that it was not obligated to arbitrate Universitas‘s
claims because Wilmington was not a party to the declaration of trust containing
the arbitration agreement referenced in the arbitration demand. Wilmington
alleged that it served as the insurance trustee for a different trust, also named
Charter Oak Trust but sponsored by a different entity. Wilmington contends that
it was not responsible for administering the insurance policies claimed by
2

Universitas and not a proper party to the arbitration proceeding initiated by
Universitas.

The complaint names Universitas, a diverse defendant, and

Defendant Ridgewood Finance II, LLC, as successor-in-interest to Ridgewood
Finance, Inc. (―Ridgewood‖), a non-diverse party who, according to Universitas‘s
arbitration demand, appointed Wilmington to serve as COT‘s insurance trustee.
Universitas removed the action to this Court on the basis of diversity jurisdiction,
and Wilmington moves to remand the action back to state court on the basis that
Ridgewood‘s presence deprives this Court of diversity jurisdiction.
The first issue—whether the action must be remanded to state court—
turns on whether there is any possibility, based on the state court pleadings, that
Wilmington can state a cause of action against Ridgewood.

As explained in

greater detail below, no possibility exists because Ridgewood is not a
permissive, necessary, or indispensible party to the arbitrability dispute and the
allegations in the state court complaint do not suggest a separate, yet related,
declaratory judgment against Ridgewood.
Wilmington sought to amend its complaint after Universitas removed the
action here, and the proposed amendment also seeks a declaratory judgment
declaring Wilmington‘s rights and obligations arising from its appointment
agreement with Ridgewood. The second issue—whether Wilmington should be
allowed to amend—turns on whether amendment would be fundamentally fair. It
would not.

The allegations in the amended complaint still do not suggest a

separate, yet related, declaratory judgment against Ridgewood because the only
3

legal dispute between the two parties vis–à–vis the appointment agreement
concerns indemnification and the amended complaint does not raise that dispute.
Notably, that dispute is currently being litigated in a separate state-court action.
Even assuming that the amended complaint had properly sought a declaratory
judgment against Ridgewood, permitting Wilmington to circumvent fraudulent
joinder has no equitable justification.
The final two issues concern Universitas‘s motion to compel arbitration
and stay litigation.

Whether the dispute is arbitrable turns on whether

Wilmington and Universitas agreed to arbitrate the payment of the disputed life
insurance benefits. The undisputed evidence demonstrates that, even assuming
that there were two trusts named COT, Wilmington agreed to arbitrate any and all
disputes relating to the COT holding the insurance policies claimed by
Universitas. Whether this action should be stayed pending arbitration turns on
whether any or all claims in this action have been referred to arbitration. None
have. This action raises only a judicial dispute—that is, arbitrability. In other
words, a stay should be denied because the proceeding is ―independent‖ rather
than ―embedded.‖
Factual and Procedural Background
In April 2015, Universitas brought an arbitration demand against
Wilmington.
allegations.

ECF No. 1-1.

The arbitration demand contains the following

Daniel Carpenter, currently being prosecuted in connection with

activities related to this litigation, concocted a financial conspiracy involving a
4

MEWA named COT.

Id. at ¶¶ 20, 25, 61.

COT held itself out as exclusively

designed to provide life insurance benefits to participating employer‘s employees
for the benefit of those employees, their dependents, and their beneficiaries. Id.
at ¶ 22.

COT would own and be named as beneficiary of the life insurance

policies, but it would pay death benefits to a beneficiary selected by the insured
employee (―insurance beneficiary‖). Id. at ¶ 21. The declaration of trust named
Nova Group, LLC (―Nova‖) as COT‘s sponsor, fiduciary, and corporate trustee.
Id. at ¶ 24. The corporate trustee‘s duties consisted of managing COT‘s assets.
ECF No. 1-2 at §§ 2.24, 10.02. The declaration of trust vested the power ―[t]o
compromise, settle[,] or adjust any claim or demand by or against the Trust
and/or th[e] Plan & Trust with regard to . . . any insurance policy that may be held
thereunder‖ with the insurance trustee. Id. at § 12.01. The declaration of trust did
not identify an insurance trustee and instead gave an interested third-party
(subject to the plan sponsor‘s approval) the authority to appoint an insurance
trustee. Id. at § 2.13. Ridgewood, a private equity group financing COT with
millions, acted as the interested third-party and later appointed Wilmington as the
insurance trustee.1 ECF No. 1-1 at ¶¶ 27–28. Under COT, ―any and all disputes

1

The arbitration demand alleges that Ridgewood Finance, Inc., rather than
Defendant Ridgewood, acted as the interested third-party and that Christiana
Bank & Trust Company, rather than Plaintiff Wilmington, acted as the insurance
trustee. For the sake of clarity, the Court refers to Ridgewood Finance, Inc. and
Christiana Bank & Trust Company as Ridgewood and Wilmington, who are their
successors-in-interest.
5

regarding the Trust or the Plan shall be settled by Arbitration.‖2

Id. at ¶ 18

(internal quotation marks and alteration omitted).
The arbitration demand further alleged that Holding Capital Group, Inc., a
participating employer in COT, purchased two life insurance policies totaling $30
million for its chief executive officer, Sash A. Spencer.

Id. at ¶ 48.

Spencer

selected Universitas, the research and development arm of a charitable
foundation, as his insurance beneficiary. Id. at ¶¶ 9, 48. Spencer died in 2008,
and the insurance company tendered his death benefits to COT in 2009. Id. at
¶ 50. COT rebuked Universitas‘s demand for those benefits. Id. at ¶ 51. Instead,
Carpenter and his associates transferred the money to shell entities controlled by
Carpenter, who thereafter used it for his own purposes, including purchasing a
beachfront vacation home. Id. at ¶ 53. Universitas seeks to hold Wilmington
liable under the following common law causes of action: breach of fiduciary duty,
aiding and abetting breach of fiduciary duty, negligence, aiding and abetting
fraud, theft, and aiding and abetting theft. Id. at ¶¶ 66, 71, 76, 82, 87, 94.
In June 2015, Wilmington brought a one-count complaint in Connecticut
Superior Court seeking a declaratory judgment ruling that Wilmington is not
required to arbitrate its dispute with Universitas. ECF No. 1-2 at ¶¶ 16–24. The
2

The declaration of trust, which was attached to the arbitration demand,
also adopts the Commercial Arbitration Rules of the American Arbitration
Association. ECF No. 1-2 at § 8.02(d). Those rules provide that ―[t]he arbitrator
shall have the power to rule on his or her own jurisdiction, including any
objection with respect to the existence, scope, or validity of the arbitration
agreement or to the arbitrability of any claim or controversy.‖ AAA Commercial
Arbitration Rules, at R-7, available at https://www.adr.org.
6

complaint, which names Universitas and Ridgewood, contains the following
allegations. Id. at ¶¶ 3–4. There are two trusts named COT, one sponsored by
Nova and one sponsored by Grist Mill Capital, LLC (―Grist Mill‖). Id. at ¶¶ 9, 12.
Universitas alleges that it was named the insurance beneficiary of policies held
by Nova COT. Id. at ¶ 10. Ridgewood, on the other hand, appointed Wilmington
to serve as the insurance trustee for Grist Mill COT pursuant to the purported
appointment agreement.

Id. at ¶ 12.

Wilmington did not serve as insurance

trustee to Nova COT and did not otherwise consent to arbitrate any dispute with
Universitas. Id. at ¶ 14. The complaint also names Ridgewood, but the complaint
seeks no relief from Ridgewood.

Ridgewood and Wilmington are separately

represented by different law firms.
Universitas removed the action to federal court solely on the basis of
diversity jurisdiction, arguing as follows.

ECF No. 1 at ¶ 5.

The amount in

controversy exceeds $75,000 because the arbitration concerns a multimilliondollar dispute. Id. at ¶ 6. Wilmington, a citizen of Delaware, and Universitas, a
citizen of New York, are completely diverse. Id. at ¶¶ 8–9. Ridgewood, a citizen of
Delaware and Connecticut, defeats diversity jurisdiction, but it was fraudulently
joined.

Id. at ¶ 10. The state-court complaint does not state a claim against

Ridgewood, and Ridgewood‘s presence is ―entirely unnecessary‖ to resolve the
question of arbitrability. Id. at ¶ 12.

7

I.

Motion to Remand and First Motion to Dismiss
Wilmington moves to remand the action back to state court. ECF No. 19.

Wilmington does not dispute the amount in controversy or that Wilmington and
Universitas are completely diverse. ECF No. 20 at 7–8. Wilmington contends that
Universitas failed to prove fraudulent joinder. Id. at 9–15. Wilmington argues that
Ridgewood is an ―essential party‖ to the arbitration dispute because the Court
cannot determine arbitrability without first interpreting the

appointment

agreement and because Ridgewood may be joined under Connecticut‘s
Declaratory Judgment Act as an interested party.

Id. at 12. Wilmington also

argues that it ―stated a claim properly against Ridgewood under the Connecticut
[Declaratory Judgment] Act‖ because Ridgewood and Wilmington‘s interests are
adverse, a legal dispute exists over whether Ridgewood has a contractual
obligation to indemnify it and whether Ridgewood appointed Wilmington as the
insurance trustee, and the dispute over arbitrability affects Ridgewood.

Id.

Wilmington also seeks costs and attorney fees. Id. at 15–16.
Universitas opposes the motion, reiterating the arguments from its notice
of removal. ECF No. 39. Ridgewood opposes as well, raising the following two
arguments. ECF No. 38. First, the state-court complaint fails to state a claim
against Ridgewood because Wilmington does not allege a case or controversy
involving Ridgewood.

Id. at 5–6.

Wilmington and Ridgewood have an

indemnification dispute, but the state-court complaint does not raise that
allegation, which is the subject of a separate action.
8

Id. at 6 n.3.

Second,

Ridgewood is not essential because Connecticut law does not require that it be
joined; Wilmington must only provide notice. Id. at 6–7. Ridgewood also moves
to dismiss the purported claims against it, relying on the same reasons as
articulated in its memorandum in opposition to remand. ECF Nos. 26, 27.
II.

Proposed Amended Complaint and Second Motion to Dismiss
Wilmington has also filed an amended complaint in this Court, reiterating

its allegation that Ridgewood appointed it to act as the insurance trustee for a
different trust, the Grist Mill COT. ECF No. 34. This time around Wilmington‘s
one-count complaint seeks a declaratory judgment with five sub-rulings,
including the following three sub-rulings: Ridgewood had the authority to appoint
an insurance trustee for the Grist Mill COT; Ridgewood appointed Wilmington as
the insurance trustee for Grist Mill COT; and Ridgewood did not appoint
Wilmington to act as insurance trustee for the Nova COT. Id. at ¶ 36.
Ridgewood moves to dismiss, arguing that the amended complaint again
fails to state a claim against Ridgewood and that Ridgewood is not a necessary
party because the only existing dispute concerns the arbitrability of a dispute
between Wilmington and Universitas. ECF No. 42. Wilmington opposes, arguing
as follows. ECF No. 49. The amended complaint properly seeks a declaratory
judgment against Ridgewood because the Court must interpret the appointment
agreement before determining arbitrability.

Id. at 7–9.

A controversy exists

between Wilmington and Ridgewood because Wilmington has a claim against
Ridgewood that it did not appoint Wilmington to act as an insurance trustee. Id.
9

9–11.

Ridgewood‘s interest in this legal controversy is adverse to Wilmington

because Ridgewood is defending itself in this action and the parties dispute
whether Ridgewood must indemnify Wilmington. Id. Ridgewood is a necessary
party because of its participation in the appointment agreement and, even if it
were only a permissible party, dismissal would be inappropriate. Id. at 12–15.
III.

Motions to Compel Arbitration and Stay Proceedings
Universitas further moves to compel arbitration, arguing as follows. ECF

No. 30. The only dispute is whether a valid arbitration agreement exists. ECF No.
31 at 11. One exists because Wilmington agreed to arbitrate any disputes arising
out of the purported Grist Mill COT. Id. at 12 (citing ECF No. 31-5 (Grist Mill COT
Declaration of Trust)). The purported Grist Mill COT is the same trust as the
purported Nova COT, which held the Spencer policies, because the evidence
demonstrates that Wilmington acted as the insurance trustee over the Spencer
policies.

Id. (citing ECF Nos. 31-11 (Trust Vault Receipt); 31-12 (Account

Statement)). There is no evidence that two COTs existed, ―each with the same
effective date, the same name, the same federal tax identification number, the
same internal Christiana account number, created by identical trust instruments,
and each somehow accepted the Spencer policies as Trust assets.‖ Id. at 13.
Universitas moves to stay, arguing that the Second Circuit requires one and that
denying one would allow ―an intransigent party to stymie and delay arbitration
further by forcing the case through the appellate process.‖ Id. at 13–14.

10

Universitas attaches in support, inter alia, ―a true and correct copy of
excerpts of the transcript of Jack Robinson‘s sworn testimony, given during the
December 2010 American Arbitration Association arbitration hearing in Case No.
13-195-Y-1558-10.‖ ECF No. 31-2 at ¶ 3. Robinson testified that the two COT
declarations of trust are versions of the same trust. ECF No. 31-4.

Universitas

does not rely on this evidence in its argument section and instead utilizes it in its
fact section to describe the Grist Mill COT declaration of trust as a draft.
Moreover, in its declaration in support, Universitas describes the Grist Mill COT
declaration of trust as a draft. ECF No. 31-2 at ¶ 4. Wilmington moves to strike
Robinson‘s deposition testimony because it constitutes inadmissible hearsay,
any assertion of fact relying on his deposition testimony as unfounded, and
paragraph four from the declaration in support because the statement exceeds
the declarant‘s personal knowledge. ECF No. 46 at ¶¶ 10–12. Universitas does
not oppose the motion to strike. ECF No. 48 at 4.
Wilmington opposes the motion to compel arbitration, arguing as follows.
ECF No. 44. Universitas has not produced any agreement demonstrating that
Wilmington and Universitas agreed to arbitrate the dispute now pending before
the American Arbitration Association. Id. at 2. The arbitration demand solely
concerns Wilmington‘s purported role as insurance trustee for Nova COT. Id. at
10. There is no record evidence that Wilmington agreed to be bound by Nova

11

COT‘s declaration of trust, which includes an arbitration agreement.3 Id. at 10–11.
Robinson‘s testimony cannot be considered on this point (for the reasons
articulated in its motion to strike), and no other evidence supports this position.
Id. at 12–13. Wilmington does not explicitly state reasons for denying a stay, but
presumably opposes a stay on the grounds that the dispute is not arbitrable.
Universitas replies that, even assuming the existence of two trusts,
Wilmington agreed to arbitrate its dispute with Universitas.

ECF No. 48.

Wilmington agreed to arbitrate all disputes pertaining to Grist Mill COT, and Grist
Mill COT held the Spencer policies, as evidenced by Wilmington‘s trust vault
receipt and account statements. Id. at 3. Wilmington sur-replies that the Court
should not consider Universitas‘s new argument and that it nonetheless fails to
demonstrate an agreement to arbitrate because Nova COT still forms the entire
basis of Universitas‘s arbitration demand. ECF No. 53 at ¶¶ 6–7.

3

In support of its argument, Wilmington provides only a copy of the
purported Grist Mill COT declaration of trust and a declaration from Jeffery
Everhart. ECF Nos. 44-1; 44-2. Wilmington relies on the Everhart declaration to
demonstrate that Wilmington did not possess a copy of the purported Nova COT
and that Wilmington never received notice of a change of plan sponsor. ECF No.
44 at 7–8.
12

LEGAL DISCUSSION
I.

Motion to Remand and First Motion to Dismiss
A party generally may not remove an action from state to federal court

unless the federal court possesses original jurisdiction. 28 U.S.C. § 1441(a). The
removing party bears the burden of proof.

See United Food & Commercial

Workers Union, Local 919 v. CenterMark Properties Meriden Square, Inc., 30 F.3d
298, 301 (2d Cir. 1994). Universitas invokes diversity jurisdiction. 4 ECF No. 1 at
¶ 5.

Diversity jurisdiction exists over ―civil actions where the matter in

4

This Court may not consider whether federal-question jurisdiction exists
because Universitas does not assert that jurisdictional basis in its notice of
removal. See Lastih v. Elk Corp. of Alabama, 140 F.Supp.2d 166 (D. Conn. 2001)
(denying motion to amend notice of removal to add an assertion of federalquestion jurisdiction to previous assertion of diversity because more than 30
days had passed); cf. Lupo v. Human Affairs Int’l, Inc., 28 F.3d 269, 274 (2d Cir.
1994) (declining to exercise diversity jurisdiction because notice of removal relied
solely on federal-question jurisdiction and did not allege amount in controversy).
This rule applies even where, as here, the underlying claims possibly implicate a
federal court‘s exclusive jurisdiction. Cf. Cantrell v. Great Republic Ins. Co., 873
F.2d 1249, 1255 (9th Cir. 1989) (remanding action removed on the basis of ERISA
preemption because action was removed after the 30-day limitation period).
The Court uses the word ―possibly‖ for the following reasons. Federal
district courts have jurisdiction over arbitrability disputes if the well-pleaded
arbitration demand raises a federal claim. See Vaden v. Discover Bank, 556 U.S.
49, 62 (2009). The arbitration demand here alleges common law causes of action,
but ERISA preempts any state law claims that ―relate to any employee benefit
plan.‖ 29 U.S.C. § 1144(a). A claim relates to an employee benefit if the claim
―purports to provide a remedy for the violation of a right expressly guaranteed by
[ERISA].‖ Ingersoll–Rand Co. v. McClendon, 498 U.S. 133, 142 (1990). ERISA
expressly provides a plan beneficiary with a right to bring a claim for breach of
fiduciary against a plan fiduciary. 29 U.S.C. § 1132(a)(2). From the face of the
arbitration demand, it appears that COT, a MEWA, is an employee benefit plan,
that Universitas is a plan beneficiary, and that Wilmington is a plan fiduciary. The
Court, however, declines to answer these questions and instead proceeds with its
discussion on diversity jurisdiction.
13

controversy exceeds the sum or value of $75,000, exclusive of interest and costs,
and is between . . . citizens of different States.‖ 28 U.S.C. § 1332(a)(1). ―Citizens
of different states‖ requires complete diversity, i.e., the citizenships of all
defendants must be different from the citizenships of all plaintiffs. Cresswell v.
Sullivan & Cromwell, 922 F.2d 60, 68 (2d Cir. 1990).
This action meets the amount-in-controversy requirement.

In an action

seeking a declaratory judgment ruling that the parties are not required to
arbitrate, the arbitration demand determines the amount in controversy. Webb v.
Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996); see Doctor’s Assocs., Inc. v.
Hamilton, 150 F.3d 157, 160–61 (2d Cir. 1998) (citing Webb with approval and
observing that, in petition to compel arbitration, amount in controversy
determined by arbitration demand). The arbitration demand seeks millions, easily
exceeding $75,000 requirement. ECF No. 1-1 at 21.
Ascertaining citizenship also presents little difficulty.

Wilmington is a

citizen of Delaware because it is a federal savings bank with its home office in
Delaware. See 12 U.S.C. § 1464(x) (―In determining whether a Federal court has
diversity jurisdiction over a case in which a Federal savings association is a
party, the Federal savings association shall be considered to be a citizen only of
the State in which such savings association has its home office.‖); see 12 U.S.C.
§ 1813(b)(2) (―The term ‗Federal savings association‘ means any Federal savings
association or Federal savings bank.‖).

Universitas is a citizen of New York

because it is a limited liability company with two individual members who are
14

both citizens of New York.

Universitas Educ., LLC v. Nova Grp., Inc., 513 F.

App‘x 62, 63 (2d Cir. 2013). Ridgewood is a citizen of Delaware and Connecticut
because it is a limited liability company with one corporate member incorporated
in Delaware with its principal place of business in Connecticut. See Bayerische
Landesbank v. Aladdin Capital Mgmt. LLC, 692 F.3d 42, 49 (2d Cir. 2012)
(observing that LLC derives citizenship from each of its members, including
domestic corporation that obtains citizenship from its place of incorporation and
principal places of business).
The jurisdictional dispute turns on whether Wilmington fraudulently joined
Ridgewood because the action satisfies the amount-in-controversy requirement
and complete diversity exists only if Ridgewood is not a proper party to the
action.

To demonstrate fraudulent joinder, the diverse defendant ―must

demonstrate, by clear and convincing evidence, either that there has been
outright fraud committed in the plaintiff‘s pleadings, or that there is no
possibility, based on the pleadings, that a plaintiff can state a cause of action
against the non-diverse defendant in state court.‖ Pampillonia v. RJR Nabisco,
Inc., 138 F.3d 459, 461 (2d Cir. 1998). In ruling on fraudulent joinder, a court must
resolve all factual and legal issues in plaintiff‘s favor. Id. A court may examine
evidence outside of the pleadings but only if that evidence ―clarif[ies] or
amplif[ies] claims actually made in the notice of removal.‖ 16 Moore’s Federal
Practice, § 107.14[2][c] (Matthew Bender 3d ed.) (citing Griggs v. State Farm
Lloyds, 181 F.3d 694, 699–702 (5th Cir. 1999)). A court cannot consider ―post15

removal filings when reviewing a fraudulent joinder claim [if] they raise a new
cause of action or theories not raised in the controlling petition filed in state
court.‖ Id. A court may resolve a fraudulent joinder claim without holding an
evidentiary hearing. See Pampillonia, 138 F.3d at 461 (deciding fraudulent joinder
issue on affidavits submitted by parties).
Defendant Universitas does not assert that Wilmington committed fraud
and instead argues that Wilmington cannot recover from Ridgewood because
Wilmington has asserted no claims against Ridgewood.5 ECF No. 1 at ¶ 12. This

5

Defendant Universitas also raises the following argument under its
fraudulent joinder heading. ECF No. 1 (Notice of Removal) at ¶¶ 14–15. In a
declaratory judgment action, a court must realign the claims and parties as they
would appear in a coercive suit. Id. at ¶ 14. In a coercive suit, such as the
ongoing arbitration, Universitas would bring claims only against Wilmington and
then Wilmington would involve Ridgewood, either by relying on it for evidence or
impleading it as a third-party defendant. Id. at ¶ 15. Analyzed this way,
Ridgewood‘s citizenship would be irrelevant to the diversity calculus. Id.
The Court finds this argument confusing for two reasons. First, the
argument does not appear to implicate fraudulent joinder. Fraudulent joinder
requires dismissal of the fraudulently joined party. In Universitas‘s hypothetical,
Ridgewood could properly be joined as a third-party defendant. Second, as
Universitas correctly observes, realignment under ―Skelly Oil and its canonical
progeny are doctrines of federal-question jurisdiction,‖ and that type of
realignment ―has been extended to the diversity jurisdiction context as well.‖
Garanti Finansal Kiralama A.S. v. Aqua Marine & Trading Inc., 697 F.3d 59, 68 (2d
Cir. 2012). Garanti, however, cites to cases where realignment occurred for the
purpose of assessing the amount in controversy, not the citizenship of the
parties. Realignment of all parties would not alter the diversity calculus.
The argument for realignment is thus separate from the question of
fraudulent joinder, and realignment appears to be based on the collision-ofinterests test, which requires an ―actual, substantial controversy.‖
Maryland
Cas. Co. v. W.R. Grace & Co., 23 F.3d 617, 622 (2d Cir. 1993) (declining to realign
the parties to defeat diversity in a declaratory judgment action brought by insurer
against insured and insured‘s current insurer to determine what obligation, if any,
plaintiff insurer owed to defend or indemnify insured). In other words, assuming
16

Court applies state law to determine whether there is any possibility of recovery
against the non-diverse party.6 Whitaker v. Am. Telecasting, Inc., 261 F.3d 196,
207 (2d Cir. 2001); Cain v. XTO Energy Inc., 2012 WL 1068199, at *6 (N.D.W. Va.
Mar. 29, 2012) (―[T]he Court will look to whether the plaintiff would be able to
establish a possible claim under the state declaratory judgment act.‖).
that Ridgewood was properly named as a party, the Court would also need to
consider whether Wilmington and Ridgewood have adverse interests in this
proceeding concerning the arbitrability of a dispute between Wilmington and
Universitas. The Court does not need to resolve this question.
Nevertheless, where the Court to do so, it would conclude that Wilmington
and Ridgewood do not have diverse interests because no claims are asserted
against Ridgewood in the arbitration proceeding. Moreover, there is nothing in
the record suggesting that Ridgewood has any interest in the forum in which the
dispute is resolved. Nor is there any basis to conclude that Wilmington has
diverse interests from Ridgewood with regard to the substance of the underlying
dispute. Wilmington and Ridgewood have an identity of interests in the
substance of the dispute in its present posture. The interests of both Ridgewood
and Wilmington are advanced by a finding that Wilmington was not the insurance
trustee because that finding would absolve both Wilmington and Ridgewood from
any liability to Universitas. Even if Wilmington was the insurance trustee for the
operative trust, there is nothing in the record to suggest that Wilmington and
Ridgewood would have adverse interests because there are no contractual
defenses or conditions precedent to Ridgewood‘s duty to indemnify Wilmington.
There is nothing on the record from which to conclude that there is an ―actual,
substantial controversy‖ between Wilmington and Ridgewood.
6
Whitaker‘s reference to ―the law of the state‖ means the state‘s
substantive law.
Connecticut‘s declaratory judgment act, however, is a
procedural vehicle for asserting substantive legal questions. Thus, it‘s not
entirely clear whether state or federal law applies. If state law applies and
Connecticut‘s declaratory judgment procedure is more permissive than the
federal declaratory judgment procedure, would the Court then be required to
conduct a fraudulent misjoinder analysis? See, e.g., Tapscott v. MS Dealer
Service Corp., 77 F.3d 1353 (11th Cir. 1996), abrogated on other grounds by
Cohen v. Office Depot, Inc., 204 F.3d 1069 (11th Cir. 2000). Further, with respect
to the substantive legal dispute involved in the declaratory judgment action, it‘s
not entirely clear which state‘s law would apply under Connecticut‘s choice-oflaw rules. The parties tacitly agree that Connecticut law applies, and the Court
thus applies Connecticut law, expressing no opinion as to which law applies.
17

Connecticut permits a party to seek a declaratory judgment if (1) ―the interests
are adverse‖; (2) ―there is an actual bona fide and substantial question or issue in
dispute or substantial uncertainty of legal relations which requires settlement‖;
(3) ―all persons having an interest in the subject matter of the complaint are
parties to the action or have reasonable notice thereof‖; and (4) the determination
will result in practical relief to the complainant. Milford Power Co., LLC v. Alstom
Power, Inc., 263 Conn. 616, 626 (2003). The dispute ―must rest on some cause of
action that would be cognizable in a nondeclaratory suit.‖ Wilson v. Kelley, 224
Conn. 110, 116 (1992).
The pleadings suggest a single coercive proceeding: an application for an
order to proceed with arbitration pursuant to Connecticut General Statutes § 52410.

See Webb, 89 F.3d at 256–57 (―The Webbs also sought a judgment

‗declaring that the written documents in question do not require the Webbs to
submit to arbitration.‘ These claims are sufficiently analogous to a motion to
compel arbitration.‖). Ridgewood could not bring such an application against
Wilmington.

The reason is simple.

In the underlying arbitration, Ridgewood

asserts no causes of action against Universitas or Wilmington, and Universitas
and Wilmington assert no causes of action against Ridgewood. ECF No. 1-1 at
¶¶ 66, 71, 76, 82, 87, 94. Indeed, none of the pre-removal filings suggest that a
cause of action could be stated against Ridgewood in an arbitration proceeding
because none of the filings demonstrate or even allege that Ridgewood agreed to
arbitrate with Universitas or Wilmington. The post-removal filings point to an
18

indemnification dispute between Ridgewood and Universitas, but even those
filings do not suggest an arbitrable dispute that could result in an application to
compel arbitration. See ECF No. 39-4. Wilmington therefore does not seek any
relief from Ridgewood by seeking a declaratory judgment ruling that it is not
bound to arbitrate.
Wilmington‘s argument that Ridgewood is an ―essential‖ party to the
arbitrability dispute touches on ―[a]n additional basis upon which a defendant
must be considered for diversity purposes.‖ Zhaoyin Wang v. Beta Pharma, Inc.,
2015 WL 5010713, at *5 (D. Conn. Aug. 24, 2015). This Court, as well as other
district courts in this Circuit, consider a non-diverse defendant‘s citizenship if
that ―defendant is a necessary or indispensable party to the lawsuit,‖ even when
the complaint states no cause of action against the non-diverse party.
(internal quotation marks and alterations omitted).

Id.

The terms necessary and

indispensible derive from Federal Rule of Civil Procedure 19.

See 9 Moore’s

Federal Practice, § 19.02[2][a] (Matthew Bender 3d ed.). ―Necessary refers to
those absentees who should be joined in the pending case; if joinder is not
feasible, however, the present action can continue without necessary parties.
Indispensible refers to those absentees who must be joined in the pending case if
it is to go.‖ Id. at § 19.02[2][c] (Matthew Bender 3d ed.). ―Connecticut courts look
to federal jurisprudence in determining whether a party is necessary or
indispensable,‖ Zhaoyin Wang, 2015 WL 5010713, at *6, so the Court need not
resolve whether to apply state or federal law.
19

Ridgewood does not qualify as a necessary or indispensible party to the
declaratory judgment ruling on arbitrability. To be considered necessary, one of
two things must be true: (1) the Court cannot accord complete relief among
existing parties; or (2) ―the unjoined party has an interest in the litigation and his
absence may either impede his ability to protect that interest or subject the
already-joined parties to a risk of inconsistent obligations—which often means
the risk of piecemeal litigation.‖ Doctor’s Assocs., 66 F.3d at 446 (citing Fed. R.
Civ. P. 19(a)). These requirements are not met.
The Court may declare that Wilmington is not bound to arbitrate without
Ridgewood because Ridgewood is not a party to the arbitration agreement. See
id. (―A district court should not consider the citizenship of strangers to the
arbitration contract, since they are not ‗parties‘ [to] the suit arising out of the
controversy within the meaning of the FAA.‖). The arbitration agreement is COT,
even though Wilmington‘s alleged obligation to indemnify derives from its
subsequent agreement to be bound by COT. The following analogy illustrates the
point.

Where one party becomes obligated to arbitrate pursuant to assignment,

the only parties needed to compel arbitration are the parties disputing arbitration
(the assignee and obligor), not the assignor, because the arbitration agreement
lies in the initial contract, not the assignment contract. See, e.g., Cedrela Transp.
Ltd. v. Banque Cantonale Vaudoise, 1999 WL 782494, at *1 (S.D.N.Y. Sept. 30,
1999) (interpreting assignment agreement and compelling arbitration without
assignor‘s participation).

The assignee and assignor may have a different
20

dispute, but that dispute doesn‘t concern arbitrability. Ridgewood never agreed
to arbitrate any disputes (including its ongoing, state-court, indemnification
dispute with Wilmington), it merely provided Wilmington with a right/obligation to
arbitrate with COT beneficiaries.
The second half of Rule 19‘s test is not met either. Ridgewood also has no
interest in the forum where Wilmington and Universitas litigate their substantive
dispute because Ridgewood is not an arbitration participant.7 As a nonparty,
Ridgewood would not be bound by any factual or legal determination made by
this Court. Ridgewood‘s participation is therefore unnecessary to protect any
interest because it has no interest to protect. Moreover, the failure to include
Ridgewood would not expose Wilmington or Universitas to multiple liability, only
determine where those parties resolve their substantive dispute.
Wilmington nonetheless argues that it ―stated a claim properly against
Ridgewood under the Connecticut [Declaratory Judgment] Act‖ because, inter
alia, a legal dispute exists over whether Ridgewood has a contractual obligation
to indemnify it and whether Ridgewood appointed Wilmington as the insurance
trustee. ECF No. 20 at 12. This argument misses the point. These disputes may
suggest separate, yet related, causes of action against Ridgewood (and by
extension a separate, yet related, declaratory judgment), but they do not suggest

7

Because Ridgewood is not a party interested in the arbitrability dispute,
the Court declines to address Wilmington‘s argument that Connecticut permits
the joinder of any interested party, a rule ostensibly broader than Federal Rule of
Civil Procedure 19 and thereby raising the specter of fraudulent misjoinder.
21

that Ridgewood is a party to the arbitrability dispute. Moreover, neither of these
arguments demonstrates that, based on the pleadings, Wilmington could seek a
separate, yet related, declaratory judgment against Ridgewood.

The first

assertion identifies a cognizable legal dispute. The problem, however, is that the
complaint did not raise any factual allegations supporting this theory of relief—
that is, a declaratory judgment concerning the parties indemnification rights and
obligations. See 16 Moore’s Federal Practice, § 107.14[2][c] (Matthew Bender 3d
ed.); cf. Vera v. Saks & Co., 335 F.3d 109, 116 n.2 (2d Cir. 2003) (observing that
courts evaluate right to removal at the time removal notice filed).

The

appointment agreement, which was attached to the state court complaint, omitted
the section governing Ridgewood‘s obligation to indemnify Wilmington.
The second argument suffers from the same flaw: the state-court complaint
does not seek a declaratory judgment ruling on the scope of Wilmington‘s role as
an insurance trustee. Moreover, the complaint summarily asserts, but does not
identify, a legal dispute that could be brought in a coercive suit between
Ridgewood and Wilmington.

By purportedly appointing Wilmington as the

insurance trustee, Ridgewood acted as COT‘s agent because the trust received a
benefit from Wilmington in exchange for consideration paid by COT. ―An agent
who makes a contract on behalf of a competent, disclosed principal, does not
become liable on the contract.‖ Precision Mech., Inc. v. Empyrean Hosp., 2007
WL 3011010, at *2 (Conn. Super. Ct. Sept. 26, 2007). If Wilmington failed to fulfill
its obligations as insurance trustee, a beneficiary would bring a coercive action
22

against Wilmington, not the party selecting the trust‘s insurance trustee. See
Spezzano v. Andersen, 2014 WL 2696724, at *3 (Conn. Super. Ct. May 13, 2014) (―It
is axiomatic that in order for there to be a breach of fiduciary duty, a fiduciary
relationship must exist in the first instance.‖).

Wilmington‘s claims against

Ridgewood are limited to the independent consideration provided by Ridgewood:
indemnification. See 12 S. Williston, Contracts § 35:37 (4th ed. 2012) (―While an
agent is not ordinarily liable . . . , the agent may, for good consideration, make a
personal contract of warranty that will be binding and enforceable.‖). However,
as noted above, the complaint does not make any allegations with respect to the
indemnification dispute.
In sum, Wilmington‘s state-court pleadings do not establish any possibility
of a claim against Ridgewood. Ridgewood is not a permissive, necessary, or
indispensible party to the declaratory judgment against Universitas. The onecount complaint seeks only this declaratory judgment. The allegations do not
suggest another legal dispute that could be brought in a coercive suit with
respect to the appointment agreement, whether the dispute relates to
indemnification or the scope of Wilmington‘s role as insurance trustee.
Accordingly, the Court DENIES the motion to remand and for costs and attorney
fees and GRANTS Ridgewood‘s motion to dismiss.8 Pampillonia, 138 F.3d at 462

8

Wilmington argues that its amended complaint moots Ridgewood‘s first
motion to dismiss. ECF No. 40 at 6–7. However, as demonstrated below, a
plaintiff needs permission before filing an amended complaint when the amended
complaint attempts to circumvent the application of fraudulent joinder through
23

(―Accordingly, since there is no possibility, based on the pleadings, that plaintiff
can state a cause of action against RJRN in state court, the district court
correctly denied plaintiff‘s motion to remand to the state court and granted the
motion to dismiss RJRN as a party to the action.‖).
II.

Proposed Amended Complaint and Second Motion to Dismiss
The Court must now determine the legal effect of the amended complaint,

which purports to seek a declaratory judgment against Ridgewood, because the
Court dismissed Ridgewood from the original complaint.

A plaintiff may

ordinarily file an amended complaint without leave within 21 days of the answer.
See Fed. R. Civ. P. 15(a)(1)(B). The federal statute governing the procedure after
removal generally, however, provides that ―[i]f after removal the plaintiff seeks to
join additional defendants whose joinder would destroy subject matter
jurisdiction, the court may deny joinder, or permit joinder and remand the action
to the State court.‖ 28 U.S.C. § 1447(e). These two principles create a conflict in
cases where, as here, a plaintiff raises a new theory of relief against a nondiverse defendant who either was dismissed as fraudulently joined or added as a
new defendant after removal.

The Second Circuit has not addressed how to

handle this conflict, but ―every federal court that has considered the issue has
found that the discretionary decision called for by § 1447(e) is appropriate even
when plaintiff has amended as a matter of course under Rule 15(a)(1)(A).‖ McGee
v. State Farm Mut. Auto. Ins. Co., 684 F.Supp.2d 258, 261 (E.D.N.Y. 2009). Joinder
the addition of new theories of relief.
24

of a non-diverse defendant is appropriate only if amendment satisfies Federal
Rule of Civil Procedure 20 and ―remand under Section 1447(e) would ‗comport
with the principles of fundamental fairness.‘‖ Hosein v. CDL W. 45th St., LLC,
2013 WL 4780051, at *4 (S.D.N.Y. June 12, 2013) (quoting Deutchman v. Express
Scripts, Inc., 2008 WL 3538593, at *3 (E.D.N.Y. Aug. 11, 2008)).
Federal Rule of Civil Procedure 20 provides that multiple defendants may
be joined in the same federal action if ―(A) any right to relief is asserted against
them jointly, severally, or in the alternative with respect to or arising out of the
same transaction, occurrence, or series of transactions or occurrences; and
(B) any question of law or fact common to all defendants will arise in the action.‖
Fed. R. Civ. P. 20(a)(2). Fundamental fairness requires consideration of ―‗(1) any
delay, as well as the reason for delay, in seeking joinder; (2) resulting prejudice to
defendant; (3) likelihood of multiple litigation; and (4) plaintiff‘s motivation for the
amendment.‘‖ Collins v. Kohl’s Dep't Stores, Inc., 2004 WL 1944027, at *2 (D.
Conn. Aug. 26, 2004) (quoting Nazario v. Deere & Company, 295 F.Supp.2d 360,
363 (S.D.N.Y. 2003)). ―Diversity-destroying joinder is permitted when the factors
weigh in the moving party‘s favor.‖ Nazario, 295 F.Supp.2d at 363. Where, as
here, the amendment raises the prospect of ―fraudulent joinder, that fact should
be a factor—and perhaps the dispositive factor—that the court considers in
deciding whether a plaintiff may join a nondiverse defendant.‖
Rapoport, 198 F.3d 457, 463 (4th Cir. 1999).

25

Mayes v.

The convoluted nature of the amended complaint complicates the
application of these principles because it purports to seek a single declaratory
judgment but actually seeks a separate declaratory judgment from Ridgewood.
Wilmington seeks a declaratory judgment ruling that it is not bound to arbitrate
its dispute with Universitas pursuant to COT but also now seeks sub-rulings
concerning ―an interpretation of the legal rights arising under the Appointment
Agreement,‖ a separate agreement. As already explained, Ridgewood is not a
party to any declaratory judgment concerning arbitrability. The Court therefore
construes Wilmington to be seeking a separate declaratory judgment interpreting
its legal rights under the appointment agreement. Rule 20 permits the joinder of
this separate ―claim‖ against Ridgewood because all claims arise out of the same
series of transactions and common questions of fact will be litigated.
The problem, however, is that permitting Wilmington to amend its
complaint to seek a separate declaratory judgment against Ridgewood would not
comport with fundamental fairness. The dispositive reason is that there is no
possibility, based on the amended pleadings, that Wilmington can state a cause
of action against Ridgewood.

The amended complaint alleges a dispute

concerning the scope of Wilmington‘s duties as insurance trustee vis–à–vis the
appointment agreement. However, in a coercive suit, Ridgewood has no legal
claim against Ridgewood for failure to act as insurance trustee. If Wilmington
failed to fulfill its obligations as insurance trustee, a beneficiary would bring a
coercive action against Wilmington, not the party selecting the trust‘s trustee.
26

See Spezzano, 2014 WL 2696724, at *3; see also Precision Mech., 2007 WL
3011010, at *2. Wilmington‘s rights are limited to its indemnification agreement,
and

the

amended

complaint

contains

no

allegations

with

respect

to

indemnification.
Even assuming that Wilmington properly sought a declaratory judgment
ruling against Ridgewood, the other factors also demonstrate that amendment
should be denied. The amendment delay is not substantial, but the delay—as
well as Wilmington‘s motivation for amendment—can only be attributed to
Wilmington‘s attempt to defeat fraudulent joinder. Defendants in this case would
be prejudiced by remand because it would entail duplicative litigation that could
have been avoided had the state-court complaint prevented removal in the first
place. Further, the denial of amendment will not lead to multiple suits on this
issue because, aside from indemnification, Wilmington has no independent legal
claim against Ridgewood that could be separately litigated.
Finally, it would appear that amendment would be futile. Ridgewood and
Wilmington have an identity of interest. Ridgewood‘s exposure to liability is
inextricably linked to Wilmington‘s exposure because Ridgewood is Wilmington‘s
indemnitor. There is nothing in the record suggesting that Ridgewood had an
interest in the dispute resolution forum, that Ridgewood challenges Wilmington‘s
claim that Ridgewood has a duty to indemnify it, or that Ridgewood either
possesses or has asserted any defenses against a now inchoate claim by
Wilmington for indemnification. There is therefore nothing in the pleadings or
27

other record evidence suggesting that there is any case or controversy between
Wilmington and Ridgewood affecting arbitrability or the substance of the
underlying dispute, which should be considered in determining arbitrability, or an
arbitration of the underlying dispute.
In sum, the proposed amendment seeks a new declaratory judgment
against Ridgewood concerning an interpretation of the appointment agreement.
That declaratory judgment, however, does not suggest an underlying cause of
action that could be stated in a coercive suit because Ridgewood‘s only rights
and obligations vis–à–vis the appointment agreement concern indemnification
and the amended complaint makes no allegations concerning indemnification.
Moreover, even assuming that the amended complaint properly sought a new
declaratory judgment, permitting Wilmington to circumvent fraudulent joinder by
amendment has no equitable justification.

Accordingly, the Court STRIKES

Ridgewood as a party from the amended complaint and DENIES as moot
Ridgewood‘s second motion to dismiss.
III.

Motions to Compel Arbitration and Stay Proceedings
The Federal Arbitration Act (―FAA‖), which applies to transactions

involving interstate commerce, provides that arbitration agreements ―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. ―Section 4 of the FAA
authorizes federal district courts to compel a party to comply with an agreement
to arbitrate.‖ 31 Moore’s Federal Practice, § 904.03[4] (Matthew Bender 3d ed.). A
28

motion to compel may be filed as an independent proceeding or, as here, in an
ongoing federal proceeding.

See Hartford Fin. Sys., Inc. v. Florida Software

Servs., Inc., 712 F.2d 724, 728 (1st Cir. 1983) (observing that motions to compel
are normally brought as independent proceedings but they may occasionally be
raised in an ongoing proceeding).
When ruling on a motion to compel arbitration, courts employ ―a standard
similar to that applicable for a motion for summary judgment.‖ Bensadoun v.
Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003) (citations omitted). The moving party
bears the initial burden of putting forth evidence demonstrating an agreement to
arbitrate. See Oppenheimer & Co., Inc. v. Neidhardt, 56 F.3d 352, 358 (2d Cir.
1995). Once the moving party does so, the non-moving party ―may not rest on a
denial but must submit evidentiary facts showing‖ a disputed factual issue. Id. If
the evidence suggests a genuine issue of material fact, the district court must
summarily proceed to trial. Bensadoun, 316 F.3d at 175 (citing 9 U.S.C. § 4).
A federal court must compel arbitration if ―a valid agreement or obligation
to arbitrate exists‖ and ―one party to the agreement has failed, neglected or
refused to arbitrate.‖ Shaw Group Inc. v. Triplefine Int’l Corp., 322 F.3d 115, 120
(2d Cir. 2003) (quotation marks and citations omitted). There is no dispute that
Wilmington refuses to arbitrate, which leaves only the question of arbitrability. A
valid agreement to arbitrate exists when ―the parties agreed to arbitrate‖ and ―the
scope of that agreement encompasses the claims at issue.‖ Holick v. Cellular
Sales of New York, LLC, 802 F.3d 391, 394 (2d Cir. 2015) (quotation marks and
29

citations omitted).

The sole dispute over arbitrability concerns whether the

parties agreed to arbitrate because Wilmington does not dispute that the
purported arbitration agreement covers any and all disputes relating to trust
beneficiaries or that the arbitrator would determine the scope of the arbitration
agreement. Courts apply state law when determining whether the parties agreed
to arbitrate.9 Bell v. Cendant Corp., 293 F.3d 563, 566 (2d Cir. 2002).
Before determining whether the parties agreed to arbitrate, the Court must
assess what evidence to consider. Wilmington moves to strike paragraph four
from Attorney Lang‘s Declaration Exhibit D because the statement exceeds
Lang‘s personal knowledge, Jack E. Robinson‘s deposition testimony because it
constitutes inadmissible hearsay, and any assertion of fact relying on his
deposition testimony as unfounded. ECF No. 46 at ¶¶ 10–12. Universitas states
that ―it would be a fruitless exercise to debate the merits of WSFS/Christiana‘s

9

Universitas neither identifies what law applies nor cites any cases in its
argument section. ECF No. 31 at 11–13. Wilmington argues that Connecticut law
applies because the Nova COT provides that Connecticut law applies. ECF No. 44
at 9. Wilmington‘s argument puts the cart before the horse: the arbitration
agreement cannot determine what law applies if the parties dispute whether they
agreed to the agreement. The proper analysis applies Connecticut‘s choice of
law rules because this is a diversity action. See Progressive Cas. Ins. Co. v. C.A.
Reaseguradora Nacional De Venezuela, 991 F.2d 42, 49 n.2 (2d Cir. 1993) (citation
omitted). In Connecticut, ―‗[t]he general rule is that the validity and the
construction of a contract are determined by the law of the place where the
contract was made. But if the contract is to have its operative effect or place of
performance in a jurisdiction other than the place where it was entered into, our
rule is that the law of the place of operative effect or performance governs its
validity and construction.‘‖ Whitfield v. Empire Mut. Ins. Co., 167 Conn. 499, 506,
356 A.2d 139, 143 (1975). The Court lacks sufficient information to apply this test,
so it will adopt Wilmington‘s assertion because Universitas does not dispute it.
30

objection.‖ ECF No. 48 at 4. The Court GRANTS the motion to strike because
Universitas failed to submit a memorandum in opposition. See Local R. Civ. P.
7(a)(1) (―Failure to submit a memorandum in opposition to a motion may be
deemed sufficient cause to grant the motion, except where the pleadings provide
sufficient grounds to deny the motion.‖).
The arbitrability question requires the Court to determine whether, as a
matter of law, Wilmington and Universitas agreed to arbitrate their current dispute
over the Spencer polices.

The undisputed evidence shows the following.

Wilmington agreed to serve as insurance trustee for the purported Grist Mill
COT.10 ECF No. 31-5 (Appointment Agreement). Wilmington agreed to arbitrate
any and all disputes relating to the purported Grist Mill COT by virtue of its
appointment as insurance trustee. ECF No. 31-5 (Grist Mill COT). As insurance
trustee for the purported Grist Mill COT, Wilmington opened a corporate trust
account with the identification number CH125161-0. ECF Nos. 31-8 (Letter); 31-9
(New Account Form). One of the Spencer policies was placed in trust account
numbered CH125161-0, opened by Wilmington incident to its appointment as
insurance trustee. ECF Nos. 31-11 (Trust Vault Receipt); 31-12 (Account
Statement). It is also undisputed that both policies were monitored by
10

The Court uses the word ―purported‖ because it does not determine
whether one or two trusts existed. The Court does not reach this question
because there is no evidence demonstrating that a trust named COT and
sponsored by Nova held the Spencer policies. Had it done so, the Court would
have concluded that the purported Grist Mill COT and Nova COT are the same
trust because that evidence, along with the record evidence, would have
demonstrated that both trusts held the Spencer policies.
31

Wilmington. Id. Wilmington provides no explanatory or contrary evidence to
refute the implication that these facts establish that it acted as insurance trustee
for the Spencer policies. Thus, the undisputed evidence establishes that
Wilmington acted as insurance trustee for the Spencer policies pursuant to the
appointment agreement in which Wilmington admittedly agreed to arbitrate any
and all disputes relating to its performance of its duties as insurance trustee.
Wilmington raises two challenges.

It first argues that the Court is not

required to consider the argument above because it was raised for the first time
in a reply memorandum. ECF No. 53 at ¶ 5. Wilmington is correct that the Court
is not required to consider the argument, but the Court may consider new
arguments as long as the opposing party has a fair opportunity to respond. Cf.
Herbert v. Nat’l Acad. of Scis., 974 F.2d 192, 196 (D.C. Cir. 1992) (observing that
no-new-arguments rule stems from party‘s inability to respond but that ―there do
exist circumstances in which a court may consider, or even raise sua sponte,
arguments ignored or left undeveloped by counsel in the first round of briefing‖).
The new argument is based entirely on evidence previously in the record, and
Wilmington has filed an adequate, substantive response.

No unfairness will

result from its consideration.
As to the substance, Wilmington argues that the amended arbitration
demand still alleges that Nova COT held the Spencer policies and as such,
Universitas can identify no agreement to arbitrate pursuant to Nova COT. ECF
No. 53 at ¶¶ 6–7. True, but irrelevant. The Court is tasked only with examining
32

the record evidence to determine whether Wilmington agreed to arbitrate with
Universitas. As Wilmington acted as insurance trustee for the Spencer policies
pursuant to the appointment agreement in which it admittedly agreed to arbitrate
any and all disputes relating to its performance of its insurance trustee duties,
the Court rules that there is sufficient evidence in the record to find, and does
find, that Wilmington agreed to act as insurance trustee for the Spencer policies.
Further, a motion to compel arbitration does not require an ongoing
arbitration; it merely requires proof that the non-moving party fails, neglects, or
refuses to arbitrate. See 31 Moore’s Federal Practice § 904.03 (Matthew Bender
3d ed.) (―There is no requirement, however, that an arbitration be pending at the
time

the

stay is

sought.‖

(citing

Midwest

Mech.

Contractors,

Inc.

v.

Commonwealth Constr. Co., 801 F.2d 748, 753 (5th Cir. 1986)); see also Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22 (1983) (describing §§ 3
and 4 as ―two parallel devices for enforcing an arbitration agreement‖). There is
no dispute that Wilmington refuses to arbitrate with Universitas, and Wilmington
does not now contend that it would happily do so if only Universitas amended its
arbitration demand to swap out Nova for Grist Mill. The Court therefore GRANTS
Universitas‘s motion to compel arbitration.
Relatedly, the Court must also determine whether to stay litigation pending
arbitration. Universitas argues that the denial of a stay allow ―an intransigent
party to stymie and delay arbitration further by forcing the case through the
appellate process‖ and that the Second Circuit mandates a stay in this
33

circumstance. ECF No. 31 at 13. Universitas is wrong.
Section 3 of the FAA mandates a stay ―when all of the claims in an action
have been referred to arbitration and a stay requested.‖ Katz v. Cellco P’ship, 794
F.3d 341, 347 (2d Cir.) cert. denied, 136 S.Ct. 596 (2015) (emphasis added). In this
case, however, no claims have been referred to arbitration.

The one-count

complaint seeks a declaratory judgment on an exclusively judicial question. In
other words, this proceeding is ―independent‖ rather than ―embedded.‖ Filanto,
S.p.A. v. Chilewich Int’l Corp., 984 F.2d 58, 60 (2d Cir. 1993) (observing that a suit
is independent when ―the plaintiff seeks . . . a declaration that a dispute is
arbitrable or not arbitrable, and no party seeks any other relief‖). The Court is
bereft of proceedings to stay because this order represents its final ruling on the
questions raised by this litigation.

See Dynegy Midstream Servs. v.

Trammochem, 451 F.3d 89, 94 (2d Cir. 2006) (―Although the Supreme Court in
Green Tree called into question the independent-embedded distinction, the
Court‘s reliance on traditional notions of finality suggests that an order in any
independent proceeding, which by definition disposes of all the claims before the
court, would still be a final order under FAA Section 16.‖ (emphasis added)). The
Court therefore DENIES the motion for a STAY and ENTERS judgment for
Ridgewood and Universitas.
CONCLUSION
For the foregoing reasons, the Court: (I) DENIES Wilmington‘s motion to
remand to state court and for costs and attorney fees and GRANTS Ridgewood‘s
34

motion to dismiss; (II) STRIKES the amended complaint‘s attempt to seek a new
declaratory
Ridgewood‘s

judgment
motion

ruling
to

against

dismiss

the

Ridgewood
amended

and

DENIES

complaint;

(III)

as

moot

GRANTS

Wilmington‘s motion to strike, GRANTS Universitas‘s motion to compel
arbitration, and DENIES Universitas‘s motion for a STAY. The Clerk of Court is
directed to enter a separate judgment in favor of Universitas and Ridgewood.

IT IS SO ORDERED.
/s/
_
Vanessa L. Bryant
United States District Judge

Dated at Hartford, Connecticut, February 17, 2015.

35