Pomeroy, et al v. Lincoln National Life Insurance Company, et al
Filing
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Memorandum Opinion and Order granting in part 5 Defendant The Lincoln National Life Insurance Company's Motion to Dismiss, or in the Alternative, to Compel Arbitration in that the Court agrees that Arbitration should be compelled unde r the terms of the Agent Contract. As the Arbitrators must decide whether all of Plaintiffs' claims are arbitrable, the entire action must be sent to arbitration. Accordingly, this action will be dismissed without prejudice. Judge Donald C. Nugent (C,KA)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
JACQUES C. POMEROY, et al.,
Plaintiffs,
v.
LINCOLN NATIONAL LIFE INSURANCE
COMPANY,
Defendant.
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CASE NO. 12 CV 1743
JUDGE DONALD C. NUGENT
MEMORANDUM OPINION
This matter is before the Court on the Motion of Defendant Lincoln National Life
Insurance Company (“Lincoln”) to Dismiss, or in the alternative, to Compel Arbitration. (ECF
#5).
PROCEDURAL AND FACTUAL BACKGROUND
Plaintiffs Jacques Pomeroy and the JP Agency, Inc. filed this action against Defendant
Lincoln in the Court of Common Pleas for Cuyahoga County, Ohio on May 18, 2012. Lincoln
removed the action to this Court pursuant to 28 U.S.C. §§ 1332, 1441 and1446 based upon
complete diversity of citizenship between the parties. In their Complaint, Plaintiffs bring causes
of action against Lincoln for negligence, breach of fiduciary duty, bad faith, breach of contract,
and fraud and misrepresentation. The claims arise under or relate to Mr. Pomeroy’s independent
insurance broker contract with Lincoln. A copy of the contract was attached to the Complaint.1
Plaintiffs’ claims against Lincoln arise out of a previous lawsuit in which Plaintiffs and
Lincoln were named as co-defendants in an action brought by the Eleanor Schwartz Trust (the
“Trust”), which purchased two life insurance policies from Plaintiffs. Plaintiffs claim that the
illustrations for the Trust’s policies, which were solely prepared and provided by Lincoln, were
faulty and contained a number of misrepresentations, false statements and errors, including
incorrect premium terms. (Compl. ¶¶ 18-19) As a result of these flawed illustrations, the Trust
filed an action against Plaintiffs and Lincoln on July 19, 2007 in the Court of Common Pleas for
Cuyahoga County. (Id. at ¶ 21) Just prior to the trial of the Trust’s action, counsel for Plaintiffs,
Lincoln and the Trust met in Greensboro, North Carolina for a settlement meeting. (Id. at ¶ 23)
Plaintiffs complain that Plaintiffs were isolated while counsel for the Trust and Lincoln secretly
negotiated a settlement in which Lincoln agreed to cooperate with the Trust against Plaintiffs.
Further, the settlement between Lincoln and the Trust called for a “premium holiday” whereby
Plaintiffs would not receive its profit from premiums on the Trust policies. (Id. at ¶¶ 24, 26 and
31) Plaintiffs and the Trust went to trial on May 18, 2011 which resulted in a verdict against the
Trust and in favor of Plaintiffs. (Id. at ¶22) As a result of Lincoln’s wrongful actions, Plaintiffs
assert that they lost profits under the compensation arrangement in the contract, incurred
expenses and fees from having to defend the Trust’s action as well as incurring out of pocket
1
The Agent Contract attached to the Complaint was executed by Jacques C. Pomeroy on
May 31, 2005 and Mr. May, Executive Vice President of Jefferson Pilot Life Insurance
Company, Jefferson Pilot Financial Insurance Company on June 1, 2005. Next to his
signature, Mr. Pomeroy listed his individual social security number but did not provide
any partnership or corporate tax ID number. Apparently Lincoln was formerly known as
Jefferson Pilot Life Insurance Company. The Contract provides that Mr. Pomeroy is an
independent contractor and not an employee of the Company.
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expenses, lost profits and business opportunities and other damages. (Id. at ¶¶30-33)
After Plaintiffs filed the instant action, counsel for Lincoln sent a letter to Plaintiffs’
counsel on July 9, 2012, demanding that Mr. Pomeroy withdraw the lawsuit and file an
arbitration demand as required by the Contract between the parties. (ECF #5, Ex.D) The
Contract attached to the Complaint contains an arbitration clause which provides that “all claims
or controversies arising out of it or relating to this contract shall be settled in arbitration. This
paragraph provides the exclusive remedy for any dispute that may arise between you and us.”
(ECF #5, Ex. A) Plaintiffs’ counsel refused to withdraw this action and file an arbitration claim
based on his belief that the most of the claims set forth in the Complaint do not arise under the
Contract but are based on Lincoln’s tortious conduct in the Trust litigation. Further, Plaintiffs
assert that the arbitration clause is unconscionable based upon the inconvenient forums selected
in the arbitration provision and the unequal bargaining positions of the parties. (ECF #5, Ex.F)
Lincoln seeks dismissal of all of Plaintiffs’ claims pursuant to Fed. R. Civ. P. 12(b)(6) on
the following grounds:
–All of the claims fail because Plaintiffs have not pleaded any legally cognizable
damages;
–the tort claims, as they relate to the alleged faulty illustrations that were the subject of
the Schwartz litigation commenced in 2007, necessarily accrued over four years ago and are time
barred;
–the tort claims, as they relate to Lincoln’s alleged secret settlement, fail because Lincoln
did not have a duty, either contractually or at law, to not settle;
–the tort claims are duplicative of the breach of contract claim and are precluded as a
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matter of law; and
–the breach of contract claim fails because Mr. Pomeroy does not allege that any
provision of the contract between the parties was breached.
Alternatively, Lincoln states that each of Mr. Pomeroy’s claims arises out of or relates to
the Agent Contract and that the Contract requires that such claims be submitted to arbitration. As
there is an Arbitration Agreement between the parties, the Court will first address the issue of
whether any or all of these claims must be sent to arbitration.
DISCUSSION
Federal law requires that courts “rigorously enforce agreements to arbitrate.” See
Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d
185 (1987) (declaring a federal policy favoring arbitration) (internal citation omitted). The
Federal Arbitration Act embodies "the strong federal policy in favor of enforcing arbitration
agreements." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217, 105 S.Ct. 1238, 84 L.Ed.2d
158 (1985); Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984).
Courts are to examine the language of the contract in light of the strong federal policy in favor of
arbitration. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 626, 105
S.Ct. 3346, 87 L.Ed.2d 444 (1985); Arnold v. Arnold, 920 F.2d 1269, 1281 (6th Cir.1990). It is
settled authority that doubt regarding the applicability of an arbitration clause should be resolved
in favor of arbitration. See, e.g., Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460
U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).
In accordance with Sixth Circuit precedent, a district court must apply a four-pronged test
to determine whether to grant motions to dismiss or stay the proceedings and compel arbitration:
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[F]irst, it must determine whether the parties agreed to arbitrate;
second, it must determine the scope of that agreement; third, if
federal statutory claims are asserted, it must consider whether
Congress intended those claims to be non-arbitrable; and fourth, if
the court concludes that some, but not all, of the claims in the
action are subject to arbitration, it must determine whether to stay
the remainder of the proceedings pending arbitration.
Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir.2000) (citation omitted).
Moving first to the question of whether these parties agreed to arbitrate, there is no
dispute that there is an Agent Contract between Plaintiff Jacques C. Pomeroy and Jefferson Pilot
Financial and that the Agent Contract includes an arbitration agreement. Defendant Lincoln
apparently acquired Jefferson Pilot Financial and is now subject to the Agent Contract. Neither
party disputes these facts. Plaintiff JP Agency (dba Pomeroy Financial Services) is not a
signatory to the Agent Contract nor does it appear to have any connection to Lincoln,
contractually or otherwise.2 As such Plaintiffs contend that JP Agency is not subject to the
arbitration agreement, thus all arbitration should be denied.3 Lincoln on the other hand argues
that JP Agency has no standing to bring any of the alleged tort or contract claims against it
because there is no contract or relationship of any kind between JP Agency and Lincoln.
2
At this point in the proceedings the Court has little information about the JP Agency
other than the Complaint which states that JP Agency is “an insurance agency and a
corporation organized under the laws of the State of Ohio, having its principal place of
business in Cincinnati, Ohio.” (Comp. ¶ 2) In addition, Plaintiffs stated in their
opposition brief that “Pomeroy is the sole owner of Pomeroy Financial Services” and that
the “business is exclusively dependent on Pomeroy’s professional services.” (ECF #7 at
p. 5)
3
Despite Plaintiffs assertion in its brief that JP Agency did not sign the contract, Plaintiffs
assert in their Complaint that “Plaintiffs and Defendant were parties to a written contract
whereby Plaintiffs sold life insurance policies and services underwritten by Defendant.”
(Compl. ¶9).
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Alternatively, Lincoln argues that if JP Agency has standing it should be bound to the arbitration
agreement on three of the five theories recognized by the Sixth Circuit to bind non-signatories to
arbitration agreements: agency, veil piercing/alter ego and estoppel. See Javitch v. First Union
Securities, Inc., 315 F.3d 619, 629 (6th Cir.2003).
In as much as the JP Agency has asserted that it was a party to the Agency Contract,
albeit incorrectly, and is attempting to recover its alleged damages as a result of Defendant’s
alleged breach of the Contract and its alleged tortious acts in contravention of Defendant’s duties
as established in the Contract, then JP Agency may be bound to the arbitration provision of the
Contract under an estoppel theory. Courts have bound nonsignatories to an arbitration agreement
under an estoppel theory in situations such as this where the nonsignatory seeks a direct benefit
from the Contract but claims not to be bound by the arbitration provision. Tolbert v. Coast to
Coast Dealer Services, Inc., 789 F.Supp.2d 811, 817 (N.D.Ohio 2011). Thus, in this situation,
the JP Agency may be bound by the arbitration provision.
Moving on to the issue of whether Plaintiffs’ claims are within the scope of the
arbitration provision, Lincoln contends that all of Plaintiffs’ claims are covered by the arbitration
agreement and that to the extent that the scope of the arbitration provision is in question, that
issue is for the arbitrator to decide under the terms of the arbitration provision in this Contract.
The Arbitration provision provides in relevant part, that “[t]he arbitrators shall have the authority
to determine all disputes, including the applicability of arbitration to the dispute.” Parties may
agree that arbitrators may decide the question of arbitrability. See First Options of Chi., Inc. v.
Kaplan, 514 U.S. 938, 942-44 (1995). A Court when deciding whether the parties agreed to
arbitrate a certain matter (including arbitrability), should apply ordinary state-law principles that
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govern the formation of contracts. However, when courts decide whether a party has agreed that
arbitrators should decide arbitrability, courts should not assume that the parties agreed to
arbitrate arbitrability unless there is “clea[r] and unmistakabl[e]” evidence that they did so. Id. at
944 citing AT & T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 106 S.Ct.
1415, 1418, 89 L.Ed.2d 648 (1986).
In this case it is clear that the parties have agreed to arbitrate arbitrability under the
express terms of the arbitration agreement. As such, the Court finds that the question of whether
all of Plaintiffs’s claims are arbitrable is for the arbitrators in this instance.
The only other objections raised by Plaintiffs to arbitration are the arguments that the
arbitration provision is unenforceable as it is unconscionable and/or a contract of adhesion and
because the forum selection clause in the arbitration provision violates the doctrine of forum
non-conveniens. An arbitration clause may be found to be void where the clause is
unconscionable. To demonstrate that an arbitration clause is unenforceable, the party asserting
unconscionability must prove that the clause is both substantively and procedurally
unconscionable under Ohio law.4 Stachurski v. Directv, Inc., 642 F.Supp.2d 758, 767 (N.D. Ohio
2009) citing Hayes v. Oakridge Home, 122 Ohio St.3d 63, 908 N.E.2d 408 (2009). See also
Collins v. Click Camera & Video, Inc., 86 Ohio App.3d 826, 621 N.E.2d 1294, 1299 (1993);
Taylor Bldg. Corp. of Am. v. Benfield, 884 N.E.2d at 20. Unconscionability consists of both an
absence of meaningful choice for the party opposing enforceability of the agreement (procedural
unconscionability) combined with contract terms that are unreasonably favorable to the other
4
Both parties refer to Ohio law with respect to the issue of unconscionability, as such the
Court presumes that the parties agree that Ohio law applies.
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party (substantive unconscionability).
To determine whether an arbitration clause is procedurally unconscionable, courts have
considered factors such as whether: (1) the arbitration clause was presented on a
“take-it-or-leave-it basis;” (2) a disparity in bargaining power exists between the parties; (3) the
arbitration clause was hidden in small print within the document; and (4) one of the parties could
unilaterally modify the agreement. Stachurski, 642 F.Supp.2d at 767 (citations omitted). The
only allegations of unconscionability, either procedural or substantive, made by Mr. Pomeroy
are that “Jack Pomeroy had no bargaining position relative to Lincoln with respect to this
provision of the Agent Contract” and the requirement that “arbitration be conducted in North
Carolina or New Hampshire imposes an undue hardship on Jack Pomeroy relative to Lincoln.”
(ECF #7 at 18). These bare bones allegations, without specific facts or explanation as to why it
would be unconscionable to hold him to an agreement that he voluntarily signed, fail to sustain
his burden of proof on this issue. See Squires Constr. Co. v. Thomas, 2008 WL 802654, at *6
(Ohio Ct. App. Mar. 25, 2008). Accordingly, Plaintiff’s argument that the arbitration clause
should be voided as unconscionable is overruled.5
5
Plaintiff’s forum non conveniens argument more properly belongs in his substantive
unconscionability allegation. While a court may recognize that enforcement of a
forum-selection clause is in an arbitration agreement may be inconvenient and
burdensome to the parties in some instances, the Court does not have the authority to
invalidate a term of an arbitration agreement simply on the forum non conveniens
argument that it is unfair, unreasonable, or inconvenient to one of the parties. See
Management Recruiters Intern., Inc. v. Griffith, 1992 WL 46100 (N.D.Ohio, Feb. 23,
1992) Under 9 U.S.C. § 4, this Court may only review the “making of the agreement to
arbitrate.” If the arbitration clause was unconscionable or the product of fraud, then it
would be unenforceable and vitiate any consent to personal jurisdiction and venue.
Moreover, even if the Court were to consider a forum non conveniens argument with
respect to an arbitration clause, forum selection clauses found in contracts are generally
enforced unless shown to be unfair or unreasonable. Security Watch v. Sentinel Systems,
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The final consideration under the Stout test, as the third factor involving review of any
federal claims is not applicable in this instance, is whether to stay or dismiss this action pending
arbitration. Since the Court has determined that the parties agreed to arbitrate and that the
parties agreed that the arbitrators will determine the scope of the arbitrable claims, it follows that
the entire action should be dismissed with instructions compelling Plaintiffs to seek arbitration in
accordance with the Agent Contract. See Green v. Ameritech Corp., 200 F.3d 967, 973 (6th
Cir.2000) (“The weight of authority clearly supports dismissal of the case when all of the issues
raised in the district court must be submitted to arbitration.”) (quoting Alford v. Dean Witter
Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir.1992)).
CONCLUSION
For the reasons set forth above, the Motion of Defendant Lincoln National Life Insurance
Company to Dismiss, or in the Alternative, to Compel Arbitration (ECF #5) is GRANTED IN
PART, in that the Court agrees that Arbitration should be compelled under the terms of the
Agent Contract. As the Arbitrators must decide whether all of Plaintiffs’ claims are arbitrable,
the entire action must be sent to arbitration. Accordingly, this action will be dismissed without
Inc., 176 F.3d 369 (6th Cir. 1999). Once again, Plaintiff alleges without any support that
neither party has any connection to North Carolina or New Hampshire. However,
Plaintiff’s own complaint shows otherwise as the settlement negotiations with respect to
the previous Trust litigation occurred in North Carolina. Further, Lincoln notes that
Jefferson Pilot and Jefferson Pilot Financial Insurance Co., the actual parties to the
Contract, were North Carolina entities that were subsequently merged into Lincoln, thus
the Contract, and all the evidence relating to it, is tied to North Carolina. In this case,
Plaintiff has made no showing that the forum selection in the arbitration provision is
unfair or unreasonable, much less that it was unconscionable.
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prejudice.
IT IS SO ORDERED.
_/s/Donald C. Nugent
_____
DONALD C. NUGENT
UNITED STATES DISTRICT JUDGE
DATED:___October 30, 2012_____
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