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Epix Holdings Corporation v. Marsh & McLennan Companies, Inc.

410 N.J. Super. 453, 982 A.2d 1194 (App. Div. 2009)

ARBITRATION; STANDING — Under principles of estoppel, non-signatory standing to enforce an agreement to arbitrate exists where a careful review of the relationship among the parties, the contracts they signed, and the issues that had arisen among them, disclose that the issues the non-signatory is seeking to resolve are arbitration are intertwined with the agreement that the estopped party has signed.

A company retained an exclusive broker to secure workers compensation coverage for its employees. For the next two years, the broker arranged for a particular insurance carrier to provide coverage. It then negotiated with another insurance carrier to provide workers compensation insurance. Thereafter, a subsidiary of the new insurance carrier issued a binder, and the company started making payment to the insurance carrier. The letter, which was not signed by either the company or the broker, quoted the premium amounts, provided a payment schedule, and required execution of a more detailed payment agreement. The payment agreement was executed by the company and the subsidiary that placed the policy, “on behalf of itself and its affiliates.” In addition to payment provisions, the payment agreement also contained an arbitration clause which required the parties to submit certain disputes “arising out of” the agreement to arbitration. The arbitrators would have “exclusive jurisdiction over the entire matter in dispute, including any question as to arbitrability.” Despite the arbitration provision, the company sued the insurance carrier, its subsidiary, the original insurance carrier that had provided the company with insurance, and the broker, alleging violations of the New Jersey Antitrust Act – including restraint of trade, price fixing, unfair business practices, civil conspiracy, commercial bribery, and unjust enrichment – as well as common law claims against the broker for breach of contract and fiduciary duty, professional negligence, negligent misrepresentation, and fraud. The gravamen of the action concerned an alleged elaborate conspiracy among the insurance companies and the broker to “manipulate the market for insurance” and rig the bidding on the insurance policies. The insurance carrier moved to compel arbitration.

The lower court denied the insurance carrier’s motion, holding that it lacked standing to enforce the arbitration clause because: (a) it was not a party to the payment agreement; and (b) the company’s dispute was not within the scope of the arbitration clause. The lower court also agreed with the company that because the insurance carrier’s alleged wrongful conduct took place before the payment agreement was executed, the company’s claims did not fall within the scope of the arbitration clauses “arising out of” provision and had “nothing to do with the policy.” The insurance carrier appealed.

The Appellate Division reversed and remanded for a determination whether to stay the remainder of the matter pending arbitration. It agreed with the insurance carrier that the company should be equitably estopped from avoiding arbitration because its allegations against its insured carrier were intertwined with the payment agreement and with the company’s allegations against the insurance carrier’s subsidiary, a signatory to that document, with whom the insurance carrier was clearly aligned. It noted that New Jersey law recognizes non-signatory standing to compel arbitration based on the principle of equitable estoppel. According to the Court, the estoppel inquiry is fact specific. It held that under the principles of estoppel, non-signatory standing to enforce an agreement to arbitrate exists “where a careful review of the relationship among the parties, the contracts they signed *** and the issues that had arisen among them disclose that the issues the non-signatory is seeking to resolve in arbitration are intertwined with that agreement that the estopped party has signed.” Here, the Court held that all the factors favoring estoppel were present. First, the insurance carrier was clearly aligned with its wholly-owned subsidiary. Second, the insured’s claims against the insurance carrier were identical to its claims against the insurance carrier’s subsidiary. In fact, the complaint referred to them collectively and interchangeably and did not contain a single factual allegation that specified any acts that were purportedly performed by one and not the other. As added weight, the Court found that the alleged wrongful conduct by the insurance carrier resulted in inflated premiums being charged for the workers compensation insurance provided by the subsidiary. Accordingly, it found that their conduct was substantially interconnected. The court further determined that had the company not purchased workers compensation insurance and entered into the payment agreement by which it undertook payment obligations, no cause of action against the insurance carrier would have arisen.

Given the integral relationship between the insurance carrier and its subsidiary, the identity of the company’s claims against both, and the close nexus of the company’s claims with the payment agreement, the Court concluded, on the basis of estoppel, that the insurance carrier had standing as a non-signatory to compel arbitration. As to the question of whether the company’s price-fixing and common law claims fell within the scope of the payment agreement’s arbitration clause, the Court disagreed with the insured when it contended that the operative document was the binder letter rather than the payment agreement. It held that the textbook understanding of a “binder” is a temporary contract of insurance, intended to give the applicant protection pending the execution and delivery of a formal written policy. As such, it concluded that a binder was not a complete contract, but evidenced the parties’ intention to complete a written contract at a later date. Moreover, it determined that a binder merges into the subsequently issued insurance contract, and, where there is any ambiguity between the binder and the contract, the latter would govern. Finally, the binder letter was not signed by the company, broker, insurance carrier or its subsidiary, and not only contemplated, but expressly required, execution of a subsequent payment agreement. It also held that the arbitration clause – providing “any other disputes arising out of this Agreement must be submitted to arbitration” – was broad enough to encompass the disputes in issue here. To ascertain the existence and scope of an agreement to arbitrate, it ruled that courts apply state contract principles. However, since the payment contract provided that its arbitration clause was to be governed by the Federal Arbitration Act, the Court also said that due regard had to be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration.

The Court noted that New Jersey courts have a strong public policy favoring arbitration as a means of dispute resolution, and courts operate under a “presumption of arbitrability.” Governed by this standard, it ruled that “when phrases such as ‘arising under’ and ‘arising out of’ appear in arbitration provisions, they are normally given broad construction to encompass claims going to the formation of the underlying agreements.” In fact, the customer conceded had the arbitration clause been contained in the binder letter, it would have covered the dispute in question. The Court, however, rejected the conclusion reached by the customer and the lower court to the effect that the alleged wrongful actions perpetrated by the insurance carriers and the broker did not relate to the policy because the policy was signed after the acts took place. According to the Court, the central factual allegation here was that the insurance carriers and the broker participated in a bid rigging scheme to the financial detriment of the customer. Thus, in the Court’s view, the claims the carriers sought to arbitrate not only “arose out of,” but were undeniably intertwined with the contract between the company and the subsidiary, since it was the customer’s entry into the contract containing the allegedly inflated price and other oppressive terms that gave rise to the claimed injury. It also rejected the customer’s contention that its antitrust and restraint of trade claims required an explicit waiver of its right to pursue its statutory remedy in court. The Court found that the customer cited nothing in the Anti-Trust Act or in the Act’s legislative history that suggested the Court should treat claims arising thereunder in a manner different than any other claims for purposes of arbitration. It found that a party who agrees to arbitrate a statutory claim does not forgo the substantive rights afforded by the statute; it only submits their resolution in an arbitral, rather than judicial forum. Accordingly, in the absence of any right to a jury trial, or other indication in a statute to the contrary, it concluded that the customer could effectively vindicate its statutory and common law claims in an arbitration proceeding. Finally, the Court did not view the possibility of litigation in two different forums – the claims against the broker and original carrier in the Law Division, and the claims against the other carrier and its subsidiary in an arbitration proceeding – as a bar to the grant of the motion to compel arbitration. Further, because the arbitration clause at issue was expressly governed by federal law, it required piecemeal resolution when necessary to give effect to an arbitration agreement, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums. Although the Court looked with disfavor at the unnecessary bifurcation of disputes between judicial resolution and arbitration, the parties explicit agreement to arbitrate in this case made bifurcation necessary.


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