Owner's Management Company v. Arthur J. Gallagher & Co. et al
Opinion and Order. Defendant HealthSmart Benefits Solutions' Motion to Dismiss Counts II, IV, VI, VIII and IX of the Complaint against it Without Prejudice (Related doc # 9 ) is granted. Judge Christopher A. Boyko on 11/20/2017. (H,CM)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
ARTHUR J. GALLAGHER & CO., et al.,)
CASE NO. 1:17CV881
JUDGE CHRISTOPHER A. BOYKO
OPINION AND ORDER
CHRISTOPHER A. BOYKO, J.:
This matter comes before the Court upon the Motion (ECF DKT #9) of Defendant,
HealthSmart Benefit Solutions, Inc. (“HBS”), to Dismiss Counts II, IV, VI, VIII and IX of the
Complaint against it Without Prejudice. For the following reasons, the Motion is granted.
I. FACTUAL BACKGROUND
Plaintiff Owner’s Management Company (“OMC”) filed the instant Complaint on
April 25, 2017, against HBS and Arthur J. Gallagher & Co. (“Gallagher”) for breach of
contract, breach of fiduciary duties, negligent misrepresentation and for an accounting.
Plaintiff is an independent senior living and multi-family residences property
management company. Gallagher is an insurance brokerage and risk management company.
HBS is a healthcare management company.
Plaintiff had a long-standing relationship with Gallagher and relied upon Gallagher’s
expertise and advice for its employee healthcare benefit needs. Gallagher recommended a
self-funded employee healthcare benefit plan from November 1, 2014 through October 31,
2015 that minimized Plaintiff’s cost and potential exposure. Gallagher also recommended
that Plaintiff utilize HBS as Claims Administrator. On November 1, 2014, Plaintiff, as Plan
Sponsor, Administrator and Fiduciary, entered into the HealthSmart Benefit Solutions, Inc.
Administrative Services Agreement with HBS. (ECF DKT #1-2). Gallagher was not a party
to the Agreement. According to the Complaint, however, Gallagher and HBS modified how
the assets of the Plan would be managed and how the costs, including the amount of approved
benefit claims, were to be paid, all without Plaintiff’s knowledge or consent. As the result of
the alleged failures, mismanagement and misconduct of Gallagher and HBS, the Plan was
underfunded and was terminated.
The HealthSmart Benefit Solutions, Inc. Administrative Services Agreement contains
the following relevant provisions:
¶ 1.3: Scope of Undertaking. [OMC] has sole and final authority to control
and manage operation of the Plan. HBS is and shall remain an independent
contractor with respect to the services being performed hereunder and shall not
for any purpose be deemed an employee of [OMC]. HBS and [OMC] shall not
be deemed partners, engaged in a joint venture or governed by any legal
relationship other than that of independent contractors. HBS does not assume
any responsibility for the general design of the Plan, the adequacy of funding
required by the Plan, or any act or omission or breach of duty by [OMC].
Pursuant to ¶ 2.1, HBS’s sole responsibilities to OMC were limited to those described
in the Agreement and any Exhibits attached. HBS was to handle the claims process and care
management services for the Plan. These services involved reviewing claims, substantiating
benefits eligibility, corresponding with enrollees and providers regarding claim coverage,
preparing plan documents, coordinating stop-loss coverage and providing medical case
management. (See OMC Opposition Brief, ECF DKT #12 at 6-7).
According to ¶ 2.4, HBS and OMC agreed that HBS’s duties under the Agreement
Under ¶ 3.1, OMC would make all final determinations as to entitlement to Plan
benefits and would be responsible for the Plan’s compliance with all applicable federal and
state laws and regulations.
¶ 3.2: Final Authority. [OMC] shall have all discretionary authority and
control over the management and disposition of Plan assets to the exclusion of
HBS. HBS shall not exercise any authority or control with respect to the
management or disposition of the assets of the Plan. HBS shall have no
responsibility or liability with respect to (i) any funding of Plan Benefits ...
¶ 3.3: Banking Arrangements. [OMC] shall provide sufficient funds to
cover all of its obligations under the Plan, and HBS has no duty or obligation,
legal or otherwise, to make such payments should [OMC] fail to provide such
funding. [OMC] specifically authorizes HBS to issue claims payment via
check, electronic transfer, and/or any other valid form of payment on a bank
account established and maintained in the name of [OMC].
Pursuant to ¶ 10.3, the Agreement, including any Exhibits, constituted the entire
agreement between the parties with respect to the subject matter of this Agreement.
Under ¶ 10.8, in providing services to OMC under this Agreement, HBS was obliged
to act only as an independent contractor and not as a fiduciary of the Plan or an employee of
Finally, the Agreement contains an arbitration provision (¶ 10.11, ECF DKT #1-2,
Dispute Resolution. In the event that any dispute relating to this Agreement
arises between HBS and Customer, either party may, by written notice, call a
meeting regarding the dispute to be attended by executive officers of each
party who shall attempt in good faith to resolve the dispute. If the dispute
cannot be resolved through executive negotiation as described in the preceding
sentence within thirty (30) days from the date of the initial notice, and if any
party wishes to pursue the dispute, the dispute shall be submitted to
confidential binding arbitration before a single arbitrator in accordance with
the rules of the American Arbitration Association for commercial arbitration.
The arbitrator shall have no power to award any punitive damages or
exemplary damages or to ignore or vary the terms of this Agreement and shall
be bound by the laws of the State of Texas, without regard to provisions
relating to the conflict of laws. Arbitration shall be conducted in the location
of the principal place of business of the original defending party, as
identified in Section 10.10. Each party acknowledges that it is knowingly and
voluntarily waiving its right to judicial action (except to enforce the decision
of the arbitrator(s)) and to a trial by jury. (Emphasis added).
On June 26, 2017, HBS moved for dismissal of Count II (breach of contract); Count
IV (breach of common law fiduciary duty); Count VI (breach of ERISA fiduciary duty); and
Count VIII (negligent misrepresentations or concealments) in favor of arbitration in Texas.
HBS also contends that Count IX (accounting) is simply a remedy which rises or falls with
the substantive claims. For its part, OMC is willing to stipulate to a stay of Count II pending
arbitration; but contests that any of the other claims against HBS are subject to the arbitration
provision in the Agreement.
II. LAW AND ANALYSIS
The Federal Arbitration Act (“FAA”) 9 U.S.C. §§ 1, et seq.
The FAA provides that an arbitration clause in a “transaction involving commerce ...
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 (2003). The FAA further mandates
that when the Court is “satisfied that the making of the agreement for arbitration ... is not in
issue, the court shall make an order directing the parties to proceed to arbitration in
accordance with the terms of the agreement.” 9 U.S.C. § 4 (2003). The FAA establishes a
liberal policy favoring arbitration agreements and any doubts regarding arbitrability should be
resolved in favor of arbitration over litigation. Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d
624, 627 (6th Cir. 2004); see Fazio v. Lehman Bros., Inc., 340 F.3d 386, 392 (6th Cir. 2003).
“A central purpose of the FAA is ‘to reverse the longstanding judicial hostility to arbitration
agreements ... and to place arbitration agreements upon the same footing as other contracts.’”
In re Olshan Foundation Repair Company, LLC, 328 S.W.3d 883, 891 (Tex.2010) (quoting
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)).
The FAA requires courts to “rigorously enforce” arbitration agreements. Dean Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985). Yet, arbitration clauses are subject to the
same defenses or bars as other contract provisions. 9 U.S.C. § 4 (2003). The Court must
ascertain whether the parties agreed to arbitrate the dispute at issue. See Mitsubishi Motors
Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). A party cannot be required
to arbitrate any dispute if the party has not agreed to do so. Steelworkers v. Warrior & Gulf
Co., 363 U.S. 574, 582 (1960); Simon v. Pfizer Inc., 398 F.3d 765, 775 (6th Cir. 2005). The
FAA does not confer an absolute right to compel arbitration, but only a right to obtain an
order directing that “arbitration proceed in the manner provided for in [the parties’]
agreement.” Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior
University, 489 U.S. 468, 469 (1989). The “party resisting arbitration bears the burden of
proving that the claims at issue are unsuitable for arbitration.” Green Tree Financial Corp.Alabama v. Randolph, 531 U.S. 79, 91 (2000); Gilmer, 500 U.S. at 26.
In determining whether to grant motions to dismiss in favor of arbitration, courts must
apply a four-pronged test: (1) whether the parties agreed to arbitrate; (2) the scope of that
agreement; (3) if federal statutory claims are asserted, whether Congress intended those
claims to be arbitrated; and (4) whether to stay the remainder of the proceedings pending
arbitration. Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir.2000).
In the instant case, OMC does not dispute the existence and validity of the arbitration
clause in ¶ 10.11. As to the federal statutory claims under ERISA, the United States Supreme
Court noted: “[W]e are well past the time when judicial suspicion of the desirability of
arbitration and of the competence of arbitral tribunals should inhibit enforcement of the Act in
controversies based on statutes.” Shearson/American Express v. McMahon, 482 U.S. 220,
226 (1987) (internal citations omitted). Thus, the centerpiece of OMC’s dispute is the scope
of the Agreement.
As a threshold matter, then, the Court determines whether or not an issue is within the
scope of the parties’ arbitration agreement. Stout, 228 F.3d at 714. “A proper method of
analysis here is to ask if an action could be maintained without reference to the contract or
relationship at issue. If it could, it is likely outside the scope of the arbitration agreement.”
Fazio, 340 F.3d at 395, citing Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d
243, 250-51 (5th Cir.1998). The Sixth Circuit instructs as follows:
When faced with a broad arbitration clause, such as one covering any dispute
arising out of an agreement, a court should follow the presumption of
arbitration and resolve doubts in favor of arbitration. Indeed, in such a case,
only an express provision excluding a specific dispute, or the most forceful
evidence of a purpose to exclude the claim from arbitration, will remove the
dispute from consideration by the arbitrators. Solvay Pharms., Inc. v.
Duramed Pharms., Inc., 442 F.3d 471, 482 n.10 (6th Cir. 2006) (internal
OMC contends that HBS undertook fiduciary duties with respect to Plan assets that
were wholly outside the contemplated Plan Administration relationship. Furthermore,
according to OMC, the parties never contemplated a fiduciary relationship and could never
have agreed to arbitrate such a dispute.
Examining the clear language of the arbitration provision, the Court finds that OMC’s
arguments are unavailing and finds that the claims against HBS are arbitrable.
Broadly, OMC alleges that HBS, in concert with Gallagher, wrongfully modified the
parties’ Agreement and relationship. Paragraph 1.3 of the Agreement defines the scope of the
parties’ undertaking. Paragraphs 2.1 and 9.1 delineate the obligations, responsibilities and
duties of HBS under the Plan. Paragraph 10.8 describes the relationship of the parties. Thus,
the Court finds that any “modification” could run afoul of these provisions and the integration
clause (¶ 10.3).
OMC points out a number of examples of HBS’s allegedly wrongful conduct which
OMC asserts “are beyond the contemplated scope of HBS’s services in the Agreement.”
(OMC’s Opposition Brief, ECF DKT #12 at 7-8).
- HBS was obligated to notify OMC of the “amount needed to pay approved benefit
claims and [OMC] shall transfer or authorize payment from the bank account in order to fund
Plan benefits.” (OMC cites ¶ 3.3). Instead, HBS sent the invoices directly to Gallagher who
sent them to OMC; and the invoice amounts did not reflect the approved benefits amounts.
- HBS improperly shredded checks from OMC, resulting in underfunding of the Plan.
(See ¶¶ 2.1 and 2.1(c)).
- HBS failed to properly manage and account for Plan funds and failed to establish a
bank account. (See ¶¶ 2.1; 3.2; 3.3).
- HBS’s funding procedure was in violation of Plan documents. (See ¶¶ 1.3; 3.2; 3.3).
- HBS exercised improper authority and control over Plan funds and improperly
funded the Plan, resulting in denial of claims due to underfunding. (See ¶¶ 1.3; 3.2; 3.3).
- Due to underfunding, HBS improperly denied claims and made representations to
providers and beneficiaries regarding OMC and the Plan. (See ¶¶ 2.1; 3.1; 3.2).
As evidenced by this brief recitation, OMC itself has made reference to the Agreement
and specific Agreement provisions. In other instances, the Court has determined that certain
Agreement provisions likely apply to OMC’s examples of HBS’s alleged misconduct.
The arbitration provision at issue here is broadly worded to cover “any dispute
relating to this Agreement,” and it does not expressly exclude any specific disputes.
Furthermore, the Court is convinced that the instant case between OMC and HBS absolutely
cannot be resolved without reference to the Agreement. Nestle Waters N. Am., Inc. v.
Bollman, 505 F.3d 498, 505 (6th Cir. 2007). Arbitration of the claims asserted against HBS
For these reasons, the Motion (ECF DKT #9) of Defendant, HealthSmart Benefit
Solutions, Inc. (“HBS”), to Dismiss Counts II, IV, VI, VIII and IX of the Complaint against it
Without Prejudice is granted in favor of arbitration pursuant to the terms of ¶ 10.11 of the
HealthSmart Benefit Solutions, Inc. Administrative Services Agreement (ECF DKT #1-2).
IT IS SO ORDERED.
s/ Christopher A. Boyko
CHRISTOPHER A. BOYKO
United States District Judge
Dated: November 20, 2017
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