McDougle et al v. Kemper Corporate Services, Inc.

Filing 6

OPINION AND ORDER: that the Motion of Defendant to CompelArbitration 4 is hereby granted as set out herein. Signed by District Judge William H. Barbour, Jr on 5/31/2017 (cwl)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI,
NORTHERN DIVISION
MARY McDOUGLE, Individually, and as
Administrator of the Estate of
Michael D. McDougle Sr., Deceased; and
the Estate of Michael D. McDougle Sr.
VS.

PLAINTIFFS

CIVIL ACTION NO. 3:17-cv-231 WHB-JCG

KEMPER CORPORATE SERVICES, INC. d/b/a
UNION NATIONAL LIFE INSURANCE COMPANY

DEFENDANT

OPINION AND ORDER
This cause is before the Court on the Motion of Defendant to
Compel Arbitration and to Stay Proceedings Pending Arbitration.
Plaintiff has not responded to the subject Motion, and the time
period for so doing has expired.
the

attachments

thereto,

as

Having considered the pleadings,

well

as

supporting

and

opposing

authorities, the Court finds the Motion to Compel Arbitration is
well taken and should be granted, and judicial proceedings should
be stayed in accordance with 9 U.S.C. § 3.

I.

Factual Background and Procedural History

In August of 2010, Michael McDougle, Sr. (“Michael McDougle”),
applied for a life insurance policy from Kemper Corporate Services,
Inc.,

d/b/a

Union

National

Life

Insurance

Company

(“Union

National”). As part of the application, Michael McDougle signed an
“Acknowledgment of Arbitration Agreement”, whereby he acknowledged,

inter alia: (1) the Policy for which he was applying contained a
binding arbitration agreement and waiver of right to trial by jury,
and (2) that any dispute related to the Policy would be decided by
an arbitrator instead of a judge and/or jury.

See Mot. to Compel

Arbitration [Docket No. 4], Ex. 3. The Policy, which provided life
insurance benefits in the amount of $10,000.00, was issued in
September of 2010, and named Michael McDougle as the insured, and
his mother, Mary McDougle (“Mary McDougle”), as the Policy owner
and

primary

beneficiary.

The

subject

Policy

contains

an

“Arbitration Agreement and Waiver of Right to Trial by Jury”, which
provides, in part:
This Arbitration Agreement and Waiver of Right to Trial
by Jury requires that any dispute involving this Policy
between the Company, and the insured, owner, beneficiary
or any other party who has an interest as a claimant
(“Claimant”),
must
be
resolved
through
binding
arbitration, this includes, but is not limited to,
disputes regarding the following:
Whether a Policy Dispute must be arbitrated
under this Arbitration Agreement;
Interpretation of this Policy;
Payment or denials of claims;
Any claim alleging fraud, deceit, suppression,
misrepresentation or omission of any material
fact in the sale of the Policy;
Any other matter arising out of or relating in
any way to this Policy or the Claimant’s
relationship with the Company, its agents,
servants, employees, officers, directors or
affiliate companies.

2

Any arbitration will be administered by the American
Arbitration Association (“AAA”) in accordance with:
The AAA’s
procedures;

commercial

dispute

resolution

The
AAA’s
supplementary
procedures
consumer-related disputes; and

for

Any other applicable laws of the state in
which this Policy was delivered.
The results of arbitration are final and binding on the
Claimant and the Company.... This means that the parties
are giving up their rights to resolve all disputes in
court, including the right to a trial by jury.
Id., Ex. 1, 13-14 (alterations in original).1
In November of 2014, Michael McDougle died as the result of
head trauma and mixed drug toxicity.
McDougle,

individually

McDougle’s

and

as

the

In April of 2017, Mary

Administratrix

of

Michael

estate, filed a lawsuit in state court alleging that

Union National had failed and/or refused to pay the benefits due
and owing under the Policy.

Based on the allegations in the

Complaint, Mary McDougle seeks an undisclosed amount of actual and
punitive damages on claims sounding in breach of contract, and bad
faith refusal to pay insurance benefits.
federal

court

jurisdiction.

on

the

basis

of

The case was removed to

diversity

of

citizenship

As a review of the pleadings evidences that the

parties are diverse, and it is apparent from the face of Mary
McDougle’s Complaint that the jurisdiction requisite is satisfied,

1

The referenced page numbers reflect those assigned when
the document was electronically filed.
3

the Court may properly exercise federal subject matter jurisdiction
in this case pursuant to 28 U.S.C. § 1332.2

Union National has now

moved to compel Mary McDougle to arbitrate her claims, and to stay
judicial proceedings pending arbitration.

Mary McDougle did not

respond to the subject Motion, and the time period for so doing has
expired.

II.

Discussion

Under the Federal Arbitration Act (“FAA”):
A written provision in ... a contract evidencing a
transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract or
transaction, or the refusal to perform the whole or any
part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such
a contract, transaction, or refusal, 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.

To determine whether a contract “evidenc[es] a

transaction involving commerce” for the purposes of the FAA, the
United States Supreme Court has held that “control over interstate

2

Courts have found it apparent that bad faith denial of
insurance claims have been shown to be worth more than $75,000
under Mississippi law. See Lee v. Safeco Ins. Co. of Ill., 2012
WL 12882890, at *2 (S.D. Miss. Oct. 5, 2012)(“Juries in
Mississippi frequently award damages (compensatory and punitive)
in excess of $75,000 in actions based on wrongful denial of
insurance benefits.”)(quoting Chambley v. Employers Ins. of
Wausau, 11 F.Supp.2d 693, 695 (S.D. Miss. 1998)(citing Andrew
Jackson Life Ins. Co. v. Williams, 566 So.2d 1172 (Miss. 1990),
Universal Life Ins. Co. v. Veasley, 610 So.2d 290 (Miss. 1992),
Bankers Life and Cas. Co. v. Crenshaw, 483 So.2d 254 (Miss.
1985), Employers Mut. Cas. Co. v. Tompkins, 490 So.2d 897 (Miss.
1986)).
4

commerce reaches not only the actual physical interstate shipment
of goods but also [extends to] contracts relating to interstate
commerce.”

Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S.

265, 273-74 (1995).
U.S.

52,

56

See also Citizens Bank v. Alafabco, Inc., 539

(2003)(“[T]he

FAA

encompasses

a

wider

range

of

transactions than those actually ‘in commerce’ - that is, ‘within
the flow of interstate commerce’”, it also encompasses cases in
which “the aggregate of the economic activity in question would
represent ‘a general practice subject to federal control’, i.e. one
that

“bear[s]

on

interstate

commerce

in

a

substantial

way.”)(alterations in original)(citations omitted). Here, because
the insurance Policy is a contract that is to be performed by
individuals/entities in different states, and the Policy involves
the interstate transfer of funds, the Court finds it involves
interstate commerce as that term has been interpreted by the
Supreme Court. See e.g. Mississippi Fleet Card, L.L.C. v. Bilstat,
Inc., 175 F.Supp.2d 894, 898 (S.D. Miss. 2001)(finding that as the
parties’ agreement and attendant arbitration clause was entered
into, and was to be performed by, citizens of different states, the
agreement involved interstate commerce as that term is defined by
FAA precedent). Accordingly, the Court finds the subject insurance
Policy

and

the

incorporated

Arbitration

Agreement

involve

interstate commerce as that term is applied to the FAA and,
therefore, may be enforced under that statute.

5

See Allied-Bruce,

513 U.S. at 273-74 (indicating that the term “involving commerce”
should be construed liberally as meaning “affecting commerce.”);
Arce v. Cotton Club of Greenville, Inc., 883 F. Supp. 117, 119
(N.D.

Miss.

contractual

1995)(“Section
activity

2’s

facilitates

requirements
or

affects

are

met

where

commerce,

even

tangentially.”).
Next, to determine whether parties to an arbitration agreement
should be compelled to arbitrate under the FAA, courts generally
apply a two-step analysis.

See e.g. Webb v. Investacorp, Inc., 89

F.3d 252, 257-58 (5th Cir. 1996):
The first step is to determine whether the parties agreed
to arbitrate the dispute in question. This determination
involves two considerations: (1) whether there is a valid
agreement to arbitrate between the parties; and (2)
whether the dispute in question falls within the scope of
that arbitration agreement. When deciding whether the
parties agreed to arbitrate the dispute in question,
courts generally ... should apply ordinary state-law
principles that govern the formation of contracts. In
applying state law, however, due regard must be given to
the federal policy favoring arbitration, and ambiguities
as to the scope of the arbitration clause itself must be
resolved in favor of arbitration. The second step is to
determine whether legal constraints external to the
parties’ agreement foreclosed the arbitration of those
claims.
Id. (alterations in original)(citations omitted). Ordinarily, both
steps are questions for the court.

See Will–Drill Res., Inc. v.

Samson Res. Co., 352 F.3d 211, 214 (5th Cir. 2003).

In cases,

however, in which “the arbitration agreement contains a delegation
clause giving the arbitrator the primary power to rule on the
arbitrability of a specific claim, the analysis changes.”
6

Kubala

v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201 (5th Cir. 2016)
(citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942
(1995)).
Thus, if the party seeking arbitration points to a
purported delegation clause, the court’s analysis is
limited. It performs the first step — an analysis of
contract formation — as it always does. But the only
question, after finding that there is in fact a valid
agreement, is whether the purported delegation clause is
in fact a delegation clause — that is, if it evinces an
intent to have the arbitrator decide whether a given
claim must be arbitrated.
If there is a delegation
clause, the motion to compel arbitration should be
granted in almost all cases.
Id., at 202 (citing Rent–A–Ctr., W., Inc. v. Jackson, 561 U.S. 63,
68–69 (2010)).
As regards the first inquiry, i.e. whether the parties entered
a valid arbitration agreement, courts are instructed to “apply
ordinary

state-law

contracts.”

principles

that

govern

the

formation

of

Kaplan, 514 U.S. at 943; May v. Higbee Co., 372 F.3d

757, 764 (5th Cir. 2004).

Here, there are no allegations in the

Complaint concerning the validity of the Arbitration Agreement
contained in the Policy. In addition, because Mary McDougle is the
primary beneficiary under the Policy, she can be compelled to
arbitrate

in

accordance

Mississippi law.

with

the

Arbitration

Agreement

under

See e.g. American Family Life Assur. Co. of

Columbus v. Biles, 2011 WL 4014463. at *10 (S.D. Miss. Sept. 8,
2011)(finding

that

third-party

beneficiaries

to

an

insurance

policy, although not signatories to the arbitration agreement

7

therein, were nevertheless bound to arbitrate their claims under
Mississippi law)(citing Adams v. Greenpoint Credit, LLC, 943 So.2d
703,

708

(Miss.

2006)(arbitration

agreements

can

be

enforced

against non-signatories if such nonsignatory is a third-party
beneficiary)(citing Smith Barney, Inc. v. Henry, 775 So.2d 722, 727
(Miss. 2001)); Todd v. Steamship Mut. Underwriting Ass’n (Bermuda)
Ltd., 601 F.3d 329, 336 (5th Cir. 2010)(observing that the Supreme
Court

has

“made

clear

that

state

law

controls

whether

an

arbitration clause can apply to nonsignatories”)(citing Arthur
Andersen

LLP

v.

Carlisle,

556

U.S.

624,

630-31

(2009)).

Accordingly, the Court finds the Arbitration Agreement in the
subject Policy is valid under Mississippi law. As discussed below,
the issue of whether the Arbitration Agreement is enforceable is
one that has been delegated to the arbitrator.
Having found that there exists a valid agreement between Union
National and Mary McDougle, the Court next considers whether the
subject Arbitration Agreement contains a delegation provision
giving the arbitrator the primary power to rule on arbitrability.
The Fifth Circuit has found that if an arbitration agreement
contains a delegation provision, “the role of the federal courts is
strictly limited — we must refer the claim to arbitration absent
Kubala, 830 F.3d at 203.

some exceptional circumstance.”

The

subject Arbitration Agreement provides that any dispute including
“whether a Policy dispute must be arbitrate under this Arbitration

8

Agreement” must be resolved through binding arbitration.
to Compel Arbitration, Ex. 1, at 11.

See Mot.

Thus, unless Mary McDougle

“challenge[s] the delegation provision specifically”, the Court
“must treat it as valid under FAA § 2, and must enforce it under
FAA §§ 3 and 4, leaving any challenge to the validity of the
Agreement as a whole for the arbitrator.”

Rent-A-Center, West,

Inc., 561 U.S. at 72 (alterations in original).

Mary McDougle has

not challenged the delegation provision, and the Court cannot find
anything on the face of that provision that would render it
unenforceable.
In sum, having found that a valid agreement to arbitrate
exists between Union National and McDougle, and that the subject
Arbitration Agreement contains a delegation provision under which
the parties agreed to arbitrate arbitrability, the Court finds the
Motion to Compel Arbitration should be granted.
In addition to seeking to compel arbitration, Union National
has moved to stay litigation of the claims alleged against it in
this action as authorized by the FAA.

Under 9 U.S.C. § 3, “the

court in which [a] suit is pending, upon being satisfied that the
issue

involved

in

such

suit

or

proceeding

is

referable

to

arbitration ..., shall on application of one of the parties stay
the trial of the action until such arbitration has been had in
accordance with the terms of the agreement ...”. Having found that
Mary McDougle is required to arbitrate the claims she has alleged

9

against Union National in this case, the Court finds all proceeding
in this case should be stayed pending arbitration.

Additionally,

as nothing remains to be litigated in this lawsuit, the Court will
dismiss this case.

Either party may move to re-open if further

judicial intervention is necessary to enforce the rulings of this
Court, or to enforce the rulings of the arbitrator(s).

III. Conclusion
For the foregoing reasons:
IT IS THEREFORE ORDERED that the Motion of Defendant to Compel
Arbitration [Docket No. 4] is hereby granted.

As Mary McDougle is

hereby ordered to arbitrate all of the claims she has alleged
against Kemper Corporate Services, Inc., d/b/a Union National Life
Insurance Company in this case, and as nothing remains here to be
litigated, the Court will enter a Final Judgment dismissing this
case.

Either party may move to re-open if further judicial

intervention is necessary to enforce the rulings of this Court, or
to enforce the rulings of the arbitrator(s).
SO ORDERED this the 31st day of May, 2017.

s/ William H. Barbour, Jr.
UNITED STATES DISTRICT JUDGE

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