Limited Life Assets Services Limited v. BNC National Bank
Filing
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MEMORANDUM OPINION AND ORDER granting in part and denying in part 5 Defendant's Motion to Dismiss (Written Opinion). Signed by Judge Ann D. Montgomery on 10/15/2012. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Limited Life Assets Services Limited,
a private limited company
Plaintiff,
MEMORANDUM OPINION
AND ORDER
Civil No. 12-1532 ADM/FLN
v.
BNC National Bank, a national
banking association, as trustee of the
Herman Leimzider 2007A
Irrevocable Trust, a Minnesota trust,
the Herman Leimzider 2007B
Irrevocable Trust, a Minnesota trust,
Herman Leimzider 2007C Irrevocable
Trust, a Minnesota trust,
Defendant.
______________________________________________________________________________
Tim P. Griffin, Esq., Leonard Street and Deinard, PA, Minneapolis, MN, on behalf of Plaintiff.
Randy G. Gullickson, Esq., Anthony Ostlund Baer & Louwagie PA, Minneapolis, MN, on behalf
of Defendant.
______________________________________________________________________________
I. INTRODUCTION
On September 5, 2012, the undersigned United States District Judge heard oral argument
on Defendant BNC National Bank’s (“BNC”) Motion to Dismiss and to Compel Arbitration, or
Alternatively, to Stay Litigation Pending Arbitration [Docket No. 5]. For the reasons discussed
below, Defendant’s Motion is granted in part and denied in part.
II. BACKGROUND
Plaintiff Limited Life Assets Services (“Limited Life”) bought a lender’s interest in loans
used to finance three Trusts—the Herman Leimzider 2007A Irrevocable Trust, the Herman
Leimzider 2007B Irrevocable Trust, and the Herman Leimzider 2007C Irrevocable Trust
(collectively, “the Trusts”). Compl. ¶¶ 7–8. Each Trust purchased an insurance policy on the
life of Herman Leimzider. Id. Defendant BNC is the trustee. Id. Limited Life claims that the
Trusts defaulted on the loans; Limited Life then held a public sale, made the only bid, and
bought the insurance policies. Compl. ¶¶ 13–40. Limited Life claims it owns all rights, title and
interest in each of the policies and that BNC has a contractual obligation to sign over the title.
Compl. ¶¶ 41–42.
BNC argues the dispute falls under the broad arbitration clause in each of the three Term
Financing Facility Agreements (“TFFA”). Def.’s Mem. in Supp. of Mot. to Dismiss [Docket No.
9]. Limited Life cites provisions in the Control Agreements and similar language in the Pledge
and Security Agreements as controlling the issue of title possession. Pl.’s Mem. in Opp’n. to
Mot. to Dismiss [Docket No. 15]. Limited Life also asserts that its request for specific
performance is an equitable remedy not covered by the arbitration clause and that the arbitration
clause specifically contemplates interim relief be decided by the Court. Id.
The TFFA includes a definition and terms section, Section 1.1, which in relevant part
defines “Control Agreement” as “the Control Agreement among the Borrower, the Lender and
the Securities Intermediary named therein, a copy of which is attached hereto as Exhibit H.”
Harman Decl. in Supp. of Mem. in Supp. of Mot. to Dismiss [Docket 10] Exhibit 1 (“TFFA”).
The Pledge Agreement, referring to the Borrower Pledge and Security Agreement is similarly
defined in this section as “attached hereto as Exhibit C.” Id. If there is confusion about the word
“Agreement” in Term Financing Facility Agreement, as well as in the Control and Pledge
Agreements, the construction of the contract makes clear that the Control and Pledge
Agreements are exhibits, part of the larger TFFA.
The TFFA also includes a choice of law provision, Section 11.8, entitled, “Governing
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Law, Jurisdiction, Etc.” Section 11.8 provides,
This Agreement shall in all respects be governed by, and construed in accordance
with, the internal laws of the State of Minnesota, including all matters of
construction, validity and performance, without regard to the principles of the
conflict or choice of laws. Each of the parties hereto hereby consents and agrees
that the State or Federal courts located in Minnesota shall have exclusive
jurisdiction to enforce arbitral awards and to hear and determine any claims to
obtain equitable relief pertaining to this Agreement or to any matter arising out of
or relating to this Agreement. . . .
The TFFA’s arbitration clause follows in Section 11.10(a), providing,
Any dispute, controversy or claim arising out of, relating to, in connection with or
in respect of this Agreement, including any question regrading its existence,
validity, interpretation, breach or termination (a “Dispute”), shall be finally
resolved by arbitration under the Commercial Arbitration Rules of the American
Arbitration Association, which Rules are deemed to be incorporated by reference
into this Section 11.10.
The arbitration clause adds in Section 11.10 (f), “Nothing in these dispute resolution provisions
shall be construed as preventing either party from seeking conservatory, equitable or similar
interim relief in any court of competent jurisdiction.”
As mentioned in the definitions section of the TFFA, the Control Agreement is attached
to the TFFA as Exhibit H (“Control Agreement”). The TFFA does not have an arbitration clause
in the Control Agreement, but it does reemphasize in its Section 13 the choice of law
consideration: “This Agreement and the rights and obligations of the parties under this
Agreement shall be governed by, and construed and interpreted in accordance with, the laws of
the State of Minnesota.” TFFA Exhibit C is the “Borrower Pledge and Security Agreement”
((Pledge Agreement”). The Pledge Agreement’s Section 13.2 choice of law language is
identical to that in the main TFFA Section 11.8. The Control Agreement also includes a
“Waiver of Jury Trial” clause in Section 14. In all capitalized type the section provides, “Each
of the Parties hereto irrevocably submits to the exclusive jurisdiction of any federal or state court
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sitting in the County of Hennepin and State of Minnesota in respect of [sic] any action or
proceeding arising out of or in connection with this agreement....” Id.
III. DISCUSSION
The pivotal issue is whether the parties have agreed to submit this dispute to arbitration.
If so, the Federal Arbitration Act (“FAA”) directs the Court to compel arbitration and either
dismiss or stay this action. 9 U.S.C. §§ 1–16.
A. Arbitration
The FAA instructs district courts to order arbitration when a contract dispute falls within
the scope of a valid arbitration clause. 9 U.S.C. §§ 2–4. “Arbitration is a matter of contract and
a party cannot be required to submit to arbitration any dispute which he has not agreed so to
submit.” Newspaper Guild of St. Louis, Local 36047 v. St. Louis Post Dispatch, LLC, 641 F.3d
263, 266 (8th Cir. 2011) (quoting United Steelworkers v. Warrior & Gulf Navigation Co., 363
U.S. 574, 582 (1960)). Generally, “there is a presumption of arbitrability in the sense that an
order to arbitrate the particular grievance should not be denied unless it may be said with
positive assurance that the arbitration clause is not susceptible of an interpretation that covers the
asserted dispute.” AT & T Tech., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986)
(citation and quotation omitted). This presumption reflects a “federal policy favoring
arbitration.” Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987) (citation and
quotation omitted). Enforcement of an arbitration policy occurs by means of a motion to compel
arbitration. 9 U.S.C. § 4.
B. Scope of Arbitration
Limited Life raises two main arguments. First, Limited Life argues the TFFA arbitration
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clause does not govern the Control Agreement or the Pledge Agreement because those
Agreements are separate and independent. Second, Limited Life contends that even if the
Control Agreement and Pledge Agreement are subsidiary, the control of title for the insurance
policies at issue is outside the scope of the arbitration clause. Both are issues of scope.
The U.S. Court of Appeals for the Eighth Circuit has analyzed the scope question, ruling
that broad arbitration clauses can encompass disputes that “simply touch matters covered by the
arbitration clause.” 3M Co. v. Amtex Sec., Inc., 542 F.3d 1193, 1199 (8th Cir. 2008); see also,
PRM Energy Sys., Inc. v. Primenergy, L.L.C., 592 F.3d 830, 836-37 (8th Cir. 2010) (finding "all
disputes arising under” language encompasses even claims that sound in tort rather than
contract); and CD Partners, LLC v. Grizzle, 424 F.3d 795, 800 (8th Cir. 2005) (finding tort
disputes with non-signatories "arising out of or relating to" the contract is arbitrable).
1. Broad Arbitration Language
Examining the language and construction of the contract, on its face, resolves the first
question of scope. The TFFA includes broad arbitration clause language: “Any dispute,
controversy or claim arising out of, relating to, in connection with or in respect of this
Agreement, including any question regarding its existence, validity, interpretation, breach or
termination (a “Dispute”), shall be finally resolved by arbitration.” TFFA §11.10. The Eighth
Circuit has interpreted similar broad language to compel arbitration even if the dispute “simply
touch[es] matters covered by the Arbitration clause.” 3M Co., 592 F.3d at 836-37. Attached to
the TFFA are “exhibits,” including the Control Agreement and the Pledge Agreement. TFFA pg.
iii. These exhibits further the facilitation of the TFFA and are not independent of the TFFA. Id.
Since there is no language in the subsidiary agreements to the contrary, the TFFA’s arbitration
clause covers the disputes that may arise out of them and a dispute about title of the insurance
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policies clearly arises out of this contract dispute.
Limited Life argues that language in the Control Agreement becomes superfluous if the
Court reads the arbitration clause this broadly, but upon close examination, none of the language
in the Control Agreement contradicts the arbitration clause. Limited Life’s cites language from
the “Governing law” section, which addresses choice of law, rather than venue. Control
Agreement §13. The TFFA arbitration clause plainly states the parties preferred the venue of
arbitration for settling their disputes; and, the governing law clauses suggest to the arbitrator the
parties’ choice of law. Cf. UHC Mgmt. Co. v. Computer Sciences Corp., 148 F.3d 992 (8th Cir.
1998). Limited Life also cites language in sections of both subsidiary agreements that concern
“waiver of jury trial,” arguing that the Trusts agreed to submit to the jurisdiction of Minnesota
courts. Mem. in Opp’n at 6, 10-11. As with the “Governing Law” section, the jury trial sections
do not contradict the arbitration clause. Control Agreement § 14.
Even if these sections cause confusion about the arbitration clause, the federal policy
favoring arbitration would cause this court to err on the side of arbitration. Medcam, Inc. v.
MCNC, 414 F.3d 972, 975 (8th Cir. 2005) (finding “order compelling arbitration should not be
denied unless it may be said with positive assurance that the arbitration is not susceptible of an
interpretation that covers the asserted dispute”). TFFA’s arbitration clause covers a dispute
about title of insurance policies. The insurance policies are the object of the contract and
disputes about ownership arise out the contract. To the extent that the Control Agreement and
Pledge Agreements confuse the contract, the Court finds the federal policy favoring arbitration
easily embraces this dispute.
2. Specific Performance
As its second argument, Limited Life argues that Section 11.10 (f) removes claims for
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specific performance from the scope of this arbitration clause. Although TFFA Section 11.10(f)
provides “[n]othing in these dispute resolution provisions shall be construed as preventing either
party from seeking conservatory, equitable or similar interim relief in any court of competent
jurisdiction,” Limited Life’s interpretation of this language causes conflict with the intent of
arbitration clauses. Granting specific performance would require the Court to examine the
underlying merits of the claim, the merits of whether Limited Life properly foreclosed on the
BNC Trusts.
Limited Life argues based on Minnesota law that the question of whether a claim is legal
or equitable depends on “the substance of the claim, based on the pleadings and the underlying
elements of the claim, and the nature of the relief sought.” United Prairie Bank-Mountain Lake
v. Haugen Nutrition & Equip., LLC, 813 N.W.2d 49, 54 (Minn. 2012). But the reliance on this
case is unhelpful and out of context. The case is unhelpful to Limited Life because it identifies
the major problem—this Court would need to examine the “substance of the claim” to decide the
appropriateness of the specific performance remedy. Medcam, 414 F.3d at 975 (finding the
question of scope goes to whether the parties have agreed to arbitrate a particular claim, not to
the potential merits of that claim). In the context of arbitration clauses, an allowance for interim
or equitable relief is not concerned with the substance of a party’s claim, but with the possibility
of “irreparable harm” to a party if the arbitration process is allowed to move forward. Local
Union No. 884, United Rubber, Cork, Linoleum & Plastic Workers v. Bridgestone/Firestone, 61
F.3d 1347, 1354-1356 (8th Cir. 1995) (finding the claimed injury “must be irreparable and must
threaten the integrity of the arbitration process itself.”). When a court grants equitable or interim
relief from an arbitration clause, the goal is to maintain parties’ status quo position while the
arbitration is pending. Id. Limited Life has not argued irreparable harm. To the extent that
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Section 11.10(f) sows confusion, this court follows the example set in 3M Co., 542 F.3d at
1199-1200, and finds that the broad scope of the arbitration clause embraces this dispute.
As a practical matter ruling on the merits of the control of title is not in the interest of
judicial economy. Contracting Nw, Inc. v. Fredericksburg, 713 F.2d 382, 387 (8th Cir. 1983)
(finding “considerations of judicial economy and avoidance of confusion” make staying the
entire action pending arbitration favorable). The FAA provides, the court “shall on application
of one of the parties stay the trial of the action until such arbitration has been had . . . .” 9 U.S.C.
§3. Having found a valid arbitration clause that covers the dispute between the parties, the Court
will compel arbitration and stay litigation pending that arbitration.
IV. CONCLUSION
Based upon the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendant BNC National Bank’s Motion to Dismiss and to Compel
Arbitration, or Alternatively, to Stay Litigation Pending Arbitration [Docket No. 5] is
GRANTED in part and DENIED in part.
1. Motion to Compel Arbitration is GRANTED; and
2. Motion to Stay Litigation Pending Arbitration is GRANTED; and
3. Motion to Dismiss is DENIED.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: October 15, 2012.
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