PINNACLE BENEFITS GROUP, L.L.C. v. AMERICAN REPUBLIC INSURANCE COMPANY et al

Filing 9

MEMORANDUM OPINION AND ORDER signed by JUDGE THOMAS D. SCHROEDER on 12/31/2013; that Defendants' motion to dismiss and to compel arbitration (Doc. 5 ) is GRANTED, that the parties proceed to arbitration, and that the complaint be DISMISSED WITHOUT PREJUDICE to the arbitration proceedings. (Garland, Leah)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

PINNACLE BENEFITS GROUP, LLC,

)
)
)
)
)
)
)
)
)
)
)
)

Plaintiff,
v.
AMERICAN
COMPANY,
GROUP,
INSURANCE

REPUBLIC
INSURANCE
AMERICAN ENTERPRISE
INC.,
and
WORLD
COMPANY,
Defendants.

1:13CV186

MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, District Judge.
Before the court is a motion to dismiss the complaint and
to

compel

Insurance
(“AEG”),

arbitration
Company
and

“Defendants”).

filed

(“ARIC”),

World

by

American

Insurance

(Doc. 5.)

Defendants

Company

American

Enterprise
(“WIC”)

Republic

Group,

Inc.

(collectively

Plaintiff Pinnacle Benefits Group,

LLC (“PBG”), opposes the motion in part, arguing that the court
should allow its tort claims to proceed to litigation and stay
the remaining contract claims while they are arbitrated.
7.)

(Doc.

For the reasons set forth below, Defendants’ motion will be

granted, all of PBG’s claims will be ordered to arbitration, and
the complaint will be dismissed.
I.

BACKGROUND
The

complaint

(Doc.

1),

considered

in

the

light

most

favorable to PBG, alleges the following:
PBG, a limited liability company with its principal place
of business in Winston-Salem, North Carolina, provides health
insurance

products

and,

in

doing

so,

maintains

contractual

relationships with a network of insurance agents.

ARIC is a

health insurance underwriter and distributor with its principal
place of business in Des Moines, Iowa.
¶ 6.)

On

November

15,

2002,

PBG

(Doc. 1–1 at 2; Doc. 1

and

ARIC

entered

into

a

Marketing Agreement (the “Agreement”), whereby PBG was permitted
to

“market

and

service

jointly-designed

products underwritten by ARIC.”

health

(Doc. 1 ¶ 12.)

insurance

At some point

in 2004, ARIC and WIC merged and came under the control of AEG.
(Id. ¶ 13.)

PBG alleges that, after the merger, Defendants

breached the Agreement in several ways.
A.

Systematic lapsing (First Claim)

The

Agreement

“systematically

provided

lapse

or

that

replace

pursuant to this Agreement.”

PBG

and

insurance

ARIC

were

coverage

not

to

written

(Doc. 1–1 ¶ 1(f); Doc. 1 ¶ 16.)

According to PBG, after ARIC and WIC merged, AEG (as the parent
company) wanted to bring the pricing and benefits of ARIC’s and
WIC’s

products

selections.”

“under

a

(Doc. 1 ¶ 18.)

common

set

of

assumptions

and

While PBG assisted AEG in 2009 in

creating a Major Medical Revamp Chassis (“Chassis”) for PBG’s
Private Label product underwritten by ARIC, (id. ¶ 19), WIC used
2

the

same

Chassis

in

a

product

it

underwrote;

AEG

then

incentivized the lapsing of existing ARIC policies by offering
full commissions for agents who sold the new WIC product to
existing ARIC policyholders while offering only half commissions
to agents who simply rolled over existing ARIC policies (id.
¶¶ 20–21).

In addition, AEG began soliciting PBG agents to sell

the WIC product to existing ARIC policyholders.
PBG

alleges

that

Defendants

encouraged

such

(Id. ¶ 22.)
re-writing

of

policies from March 2009 through July 2010 in violation of the
anti-lapsing

provision

of

affected PBG’s business.
B.

the

Agreement,

which

significantly

(Id. ¶¶ 24–25.)

Termination of policies (Second Claim)

In 2011, AEG decided to leave the market and chose not to
renew any of its current policies.

(Id. ¶ 28.)

According to

PBG, AEG contracted with Celtic Insurance Company (“Celtic”) to
offer

guaranteed

coverage

to

those

whose

polices

were

not

renewed (id. ¶ 30), and in turn AEG and Celtic contracted with
Entrecor (another AEG subsidiary) “to exclusively receive and
pay

commissions

for

those

non-renewed

AEG

policyholders

who

‘took up’ Celtic on its offer of guaranteed coverage” (id. ¶
31).

PBG, on the other hand, only received commissions through

Entrecor at a discounted rate.
were

allegedly

switched

to

(Id. ¶ 34.)
Celtic

before

replacement coverage through its own agents.
3

Many PBG clients
PBG

could

(Id. ¶ 35.)

offer

C.

Failure to provide notice (Third Claim)

PBG also alleges that Defendants had a duty to provide 360
days’ notice before terminating coverage.

(Id. ¶ 47.)

contends

provide

that,

because

Defendants

did

not

PBG

notice

of

cancellation until, at the earliest, November 19, 2011, they
breached their duty under the Agreement and caused damages to
PBG.

(Id. ¶¶ 49–51.)
D.

Tort Claims (Fifth and Sixth Claims)

In

addition

Agreement,

PBG

to

these

alleges

claims

contract
for

claims

tortious

based

on

the

interference

with

contractual relations (Fifth Claim) and civil conspiracy (Sixth
Claim) under Iowa law.
contends

that

relationship

Defendants

with

its

switch from ARIC to WIC.
caused

PBG’s

In the tortious interference claim, PBG

agents

to

interfered

agents

by

PBG’s

incentivizing

(Id. ¶ 60.)
stop

with

contractual
customers

The alleged interference

producing

business

for

PBG

eventually to end their business relationships with it.
¶ 61.)

to

and
(Id.

The civil conspiracy claim is premised on the underlying

tortious interference; PBG claims that Defendants conspired to
interfere with the contractual relations of PBG and its agents.
(Id. ¶¶ 66–68.)
PBG’s complaint includes a demand for arbitration on the
breach

of

contract

claims.

(Id.

¶¶

53–55

(Fourth

Claim).)

Defendants have responded with a motion to dismiss the complaint
4

and contend that all of PBG’s claims, including the tort claims,
are subject to arbitration under Paragraph 13 of the Agreement
(the “arbitration clause”).

(Doc. 6 at 6–8.)

that,

contract

while

its

breach

of

claims

PBG maintains
are

subject

to

arbitration, its tort claims are not and should be litigated.
(Doc.

7

at

6–8.)

Defendants

grounds for dismissal.

do

not

assert

any

additional

Therefore, the only issue before the

court is whether the arbitration clause applies to PBG’s tort
claims.
II.

ANALYSIS
The

Agreement’s

arbitration

clause

provides,

in

relevant

part:
13.

Arbitration
In the event said [sic] of a dispute between the
Parties, ARIC and PBG agree that such dispute
will be resolved by binding arbitration.
Such
arbitration shall be governed by the Rules then
in
effect
of
the
American
Arbitration
Association. . . .

(Doc. 1–1 ¶ 13.)

PBG argues, nevertheless, that because the

Agreement contains an Iowa choice of law clause (id. ¶ 12(e)),
the arbitration clause should be construed to give effect to
Iowa

Statute

§ 679A.1(2)(c),

which

provides

that

“[u]nless

otherwise provided in a separate writing executed by all parties
to

the

contract,

any

claim

sounding

in

tort

whether

or

not

involving a breach of contract” is not covered by an otherwise
5

valid arbitration clause.
“gives

a

rule

of

construction

arbitration clauses.”
concedes

that

its

PBG contends that the Iowa statute
for

the

(Doc. 7 at 8.)

breach

of

plain

meaning

of

Therefore, while PBG

contract

claims

are

subject

to

binding arbitration (and indeed demands arbitration on them), it
maintains

that

the

plain

meaning

of

the

arbitration

clause

excludes the tort claims, which PBG is entitled to litigate.
Defendants argue that the Federal Arbitration Act (“FAA”), 9
U.S.C. § 1, et seq., requires all of PBG’s claims to proceed to
binding

arbitration

dismissed.

and

that

this

case

should

therefore

be

(Doc. 6 at 9–11.)

Section 2 of the FAA provides that a written arbitration
agreement “shall be valid, irrevocable, and enforceable, save
upon

such

grounds

as

exist

revocation of any contract.”
this

court

to

“stay

the

at

law

or

in

9 U.S.C. § 2.
trial

of

the

equity

for

the

Section 3 requires
action

until

such

arbitration has been had in accordance with the terms of the
agreement.”

Id.

§

3.

“Notwithstanding

the

terms

of

§

3,

however, dismissal is a proper remedy when all of the issues
presented in a lawsuit are arbitrable.”

Choice Hotels Int’l,

Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709–10 (4th
Cir. 2001). 1

1

Although other circuits have disagreed, see, e.g., Lloyd v. HOVENSA,
LLC, 369 F.3d 263, 268–69 (3d Cir. 2004), the Fourth Circuit recently

6

PBG argues that the plain meaning of the arbitration clause
excludes its tort claims against Defendants because the parties
intended Iowa’s arbitration statute to inform the meaning of the
arbitration

clause.

Therefore,

PBG

asserts,

the

arbitration

clause should be construed narrowly to exclude tort claims, in
accordance with Iowa Statute § 679A.1(2)(c).
While

Defendants

are

correct

that

the

FAA

preempts

§ 679A.1, see Vis v. Am. Family Life Ins. Co. of Columbus, 778
F. Supp. 2d 971, 980 (N.D. Iowa 2011), that determination does
not

control

arbitration

this

case.

clause

is

PBG
invalid

arbitration of tort claims.

does

not

because

contend
Iowa

law

that

the

prohibits

Rather, its position is that the

intention of the parties when drafting the arbitration clause
was to exclude tort claims, using § 679A.1 as a guide.

“Whether

enforcing an agreement to arbitrate or construing an arbitration
clause,

courts

and

arbitrators

must

‘give

effect

to

contractual rights and expectations of the parties.’”
Nielsen

S.A.

v.

AnimalFeeds

Int’l

Corp.,

559

U.S.

the

Stolt662,

682

(2010) (quoting Volt Info. Scis., Inc. v. Bd. of Trs. of Leland
Stanford Junior Univ., 489 U.S. 468, 479 (1989)).

“In this

endeavor, ‘as with any other contract, the parties' intentions
control.’”

Id.

(quoting

Mitsubishi

Motors

Corp.

v.

Soler

reaffirmed that a district court should dismiss a complaint under
section 3 if all of the claims are subject to the arbitration
agreement.
Aggarao v. MOL Ship Mgmt. Co., Ltd., 675 F.3d 355, 376
(4th Cir. 2012).

7

Chrysler–Plymouth, Inc., 473 U.S. 614, 626 (1985)).

Arbitrators

possess limited power; they may only decide disputes that the
parties

submit

to

their

jurisdiction.

See

id.

Defendants’ preemption argument is misplaced.

Therefore,

The issue in this

case is whether the parties intended to submit possible tort
claims

arising

out

of

their

commercial

relationship

to

arbitration.
PBG argues that the fact the Agreement included an Iowa
choice-of-law clause is evidence that the parties intended to
exclude the
clause.

tort

claims

Defendants

from

counter

the

purview

that

the

of

the

arbitration

arbitration

clause

is

unambiguous and requires the arbitration of all PBG’s claims.
Iowa

generally

applies

contract interpretation.
v.

John

2006).

Deere

Health

the

four

corners

doctrine

of

See Clinton Phys. Therapy Servs., P.C.

Care,

Inc.,

714

N.W.2d

603,

615

(Iowa

“It is a fundamental and well-settled rule that when a

contract is not ambiguous, [the court] must simply interpret it
as written.”
“However,
engage

in

Smidt v. Porter, 695 N.W.2d 9, 21 (Iowa 2005).

when

the

language

a

process

of

is

ambiguous,

interpretation

to

[the

court]

search

for

must
‘the

meanings attached by each party at the time the contract was
made.’”

Clinton,

714

N.W.2d

at

615

(quoting

Farnsworth, Contracts § 7.9, at 458 (3d ed. 1999)).
allow

the

parties

to

introduce
8

extrinsic

E.

Allan

Iowa courts

evidence

to

prove

intent

only

if

the

contractual

language

is

ambiguous.

Id.

Here, PBG’s assertion that section 679A.1 should be used as a
rule

of

construction

is

essentially

an

attempt

to

use

that

statute as extrinsic evidence. 2
The

relevant

ambiguous.

It

portion

the

arbitration

“In

provides:

of

the

event

.

clause

.

.

of

a

is

not

dispute

between the Parties, ARIC and PBG agree that such dispute will
be resolved by binding arbitration.”

(Doc. 1–1 ¶ 13 (emphasis

added).)

The plain language of the clause covers any dispute

that

arise

may

between

the

contractual relationship.
against

Defendants

relationship;

in

do

fact,

parties

in

the

course

of

their

PBG cannot argue that its tort claims
not

arise

PBG’s

out

tortious

of

the

contractual

interference

claim

is

based on the same conduct that forms the basis of its first
breach of contract claim for systematic lapsing. 3
The

presence

of

the

change this determination.

Iowa

choice-of-law

clause

does

not

In Mastrobuono v. Shearson Lehman

2

Both parties have attached to their briefs various correspondence
that appears to be part of their settlement discussions that preceded
the filing of this lawsuit. (Docs. 6–1, 6–2, 6–3, 7–1, 7–2, 8–1.) As
PBG points out, these attachments are inadmissible under Federal Rule
of Evidence 408(a) to prove the validity of either party’s argument.
They are also not authenticated.
Therefore, the court will not
consider them.
3

By its nature, the civil conspiracy claim must be related to the
tortious interference claim; without an underlying tort, there can be
no action for civil conspiracy under Iowa law. See Wright v. Brooke
Group, Ltd., 652 N.W.2d 159, 172 (Iowa 2002).

9

Hutton, Inc., 514 U.S. 52 (1995), the Supreme Court considered
whether a choice-of-law clause can preclude an arbitral award of
punitive damages that would be proper under federal law.

The

defendants

law

in

that

case

argued

that,

because

New

York

prohibited arbitrators from awarding punitive damages, the New
York choice-of-law clause combined with the arbitration clause
“expresses an intent to preclude an award of punitive damages.”
Id. at 62.
law

clause

The court determined that “[a]t most, the choice-ofintroduces

agreement.”

Id.

an

ambiguity

into

[the]

arbitration

Further, the Court held that even if the

choice-of-law clause did create an ambiguity in the arbitration
clause, “when a court interprets such provisions in an agreement
covered by the FAA, ‘due regard must be given to the federal
policy favoring arbitration, and ambiguities as to the scope of
the

arbitration

arbitration.’”

clause

itself

resolved

in

favor

of

Id. (quoting Volt, 489 U.S. at 476); see also

Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847,
2866 (2010) (Sotomayor, J., concurring in part and dissenting in
part)

(describing

the

operation

of

the

presumption

of

arbitrability).
To this end, the Fourth Circuit has held that unless the
parties have “clearly indicated” otherwise, a dispute will be
considered arbitrable under the FAA.

Peabody Holding Co., LLC

v. United Mine Workers of Am., Int’l Union, 665 F.3d 96, 104
10

(4th Cir. 2012) (citing First Options of Chi., Inc. v. Kaplan,
514 U.S. 938, 944–45 (1995)); see also Aggarao, 675 F.3d at 368–
69 (describing the “heavy presumption” in favor of arbitrability
when an arbitration clause is broadly worded and noting that
“any doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration, even where the problem at hand
is the construction of the contract language itself” (quoting
Levin v. Alms & Assocs., Inc., 634 F.3d 260, 266—67 (4th Cir.
2011); Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24–25 (1983) (internal brackets omitted)).
Here, any possible ambiguity created by the Iowa choice-oflaw clause must be overcome by the combined force of the clear
and

broad

language

of

the

arbitration

presumption in favor of arbitrability.

clause

and

the

heavy

The Agreement contains

no clear statement that the parties intended to give effect to
the Iowa arbitration statute.
dismiss

and

compel

Therefore, Defendants’ motion to

arbitration

on

all

PBG’s

claims

will

be

granted. 4
III. CONCLUSION
For

the

arbitration

reasons

clause

stated,

applies

to

the
all

court
of

PBG’s

finds

that

claims

in

the
the

complaint.
4

PBG’s contention that it cannot be forced to arbitrate claims against
WIC because WIC was not a party to the Agreement is moot insofar as
WIC merged into ARIC in March 2013 and no longer exists as a separate
entity. (Doc. 8–1 ¶ 1.)

11

IT IS THEREFORE ORDERED that Defendants’ motion to dismiss
and to compel arbitration (Doc. 5) is GRANTED, that the parties
proceed

to

arbitration,

and

that

the

complaint

be

DISMISSED

WITHOUT PREJUDICE to the arbitration proceedings.

/s/
Thomas D. Schroeder
United States District Judge
December 31, 2013

12