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CLARENDON NAT. INS. CO. v. LAN

July 25, 2001

CLARENDON NATIONAL INSURANCE COMPANY, PETITIONER,
v.
LIN W. LAN, ET AL., RESPONDENTS.



The opinion of the court was delivered by: Koeltl, District Judge.

      OPINION AND ORDER

This is a petition to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. § 4 ("FAA"), brought by Clarendon National Insurance Co. ("Clarendon") against Lin W. Lan ("Lan"), Pacific Pioneer Insurance Company ("Pacific"), UCA General Insurance Services, Inc., UCA General Insurance Agency, Inc. (collectively "UCA"), and Precision Risk Management ("Precision"). Respondent Pacific cross-moves to dismiss the petition pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction and Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. Respondent Lan also cross-moves to dismiss the petition pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. All of the respondents cross-move to transfer this action pursuant to 28 U.S.C. § 1404(a) to the Central District of California.

I.

This dispute arises out of a complex series of agreements among the parties relating to insurance and reinsurance. Petitioner Clarendon, which is in the property and casualty insurance business, is a New Jersey corporation and also contends that its principal place of business is in New York City. Respondents Pacific, UCA, and Precision are California corporations and have their principal place of business in La Mirada, California. Respondent Lan, a citizen of California, is a principal of Pacific, UCA and Precision. (Pet.'s Petition for Order Compelling Arbitration ("Pet."), ¶¶ 1-2; UCA and Precision Resp'ts.' Answer ("Answer"), ¶¶ 1-2; Declaration of Lin W. Lan dated January 2, 2001 ("Lan Transfer Decl."), ¶ 2, attached to Notice of Motion to Transfer Action pursuant to 28 U.S.C. § 1404(a).)

On or about January 1995, Clarendon entered into an Agency Agreement ("Agency Agreement") with UCA and a Claims Services Agreement ("Claims Agreement") with Precision (collectively the "Agreements"). Pursuant to the Agreements, UCA and Precision agreed to produce, administer and manage insurance policies and related claims on behalf of Clarendon. (Pet. ¶ 5 & Exs. A & B; Answer ¶ 5.) Article IX, Paragraph A of the Agency Agreement and Article 17, Paragraph A of the Claims Agreement provide for arbitration of any dispute arising out of those agreements. (Pet. Ex. A at 14 & Ex. B at 10.) The arbitration provisions in the Agreements provide, in relevant part:

As a condition precedent to any right of action hereunder, any dispute arising out of this Agreement or the enforcement hereof shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire, meeting in New York City, New York, unless otherwise agreed. The laws of the State of New York shall govern the interpretation and application of this Agreement and the enforcement of the arbitration award.

(Pet. Ex. A at 14 & Ex. B at 10.) In addition, the Agreements provide that "[a]ny suit, action, or other proceeding . . . to compel arbitration . . . may be brought in . . . the United States District Court for the Southern District of New York. . . ." (Pet. Ex. A at 15; Pet. Ex B at 11.)

On May 25, 1995, Lan provided a Continuing Indemnification and Guaranty Agreement ("Guaranty") to Clarendon. (Pet. ¶ 9 & Ex. C; Answer ¶ 9.) In the Guaranty, Lan indemnified Clarendon against all liability and against "all loss, expenses, damages, court costs and attorney fees which [Clarendon] may at any time be exposed to, or suffer in any manner whatsoever because of any failure of" UCA to perform according to the terms and limitations of the Agreements. (Pet. Ex. C, ¶ 1.) The Guaranty also provides that Lan:

guarantees prompt payment to [Clarendon] and complete performance, according to all the terms and limitations of the Agreements, in the past, present and future, including payment to [Clarendon] of all court costs, and/or reasonable attorney fees incurred in enforcing the [Guaranty]. . . .

(Pet.Ex. C, ¶ 2.) The Guaranty further provides that it "shall be governed by the laws of the State of New York" and that:

[a]ny suit, action, or other proceeding by or against either party to [the Guaranty] may be brought in . . . the United States District Court for the Southern District of New York, and each of the parties hereto submits and consents to the nonexclusive jurisdiction of . . . such court for the purpose of any such suit, action or proceeding.

(Pet.Ex. C, ¶¶ 7-8.)

Effective January 1, 1995, Pacific, as reinsurer, entered into a reinsurance contract with Clarendon, entitled the "50% Multi Line Quota Share Reinsurance Contract" ("January 1995 Reinsurance Agreement"). (Pet.Ex. D.) The January 1995 Reinsurance Agreement provided that Pacific would reinsure 50% of the risks assumed by Clarendon on the policies sold by UCA under the Agency Agreement and the claims adjusted by Precision under the Claims Agreement. (Pet.Ex. D.) Effective April 1, 1995, Pacific and Clarendon entered into a separate reinsurance agreement in which Clarendon agreed to act as reinsurer of Pacific with respect to certain specific claims made against policies issued by Pacific as insurer ("April 1995 Reinsurance Agreement"). (Pet.Ex. E.) Both the January 1995 Reinsurance Agreement and the April 1995 Reinsurance Agreement contain arbitration provisions which provide, in relevant part:

A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration.
D. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which [Clarendon] has its principal office.

(Pet. Ex. D, Article XVI; Ex. E, Article XVI.)

Subsequently, Clarendon and Pacific have entered into no fewer than five additional reinsurance agreements for periods commencing with July 1, 1997 and continuing to the year 2001 each of which contain an arbitration provision similar to the arbitration provision contained in the January 1995 Reinsurance Agreement and the April 1995 Reinsurance Agreement. (Pet. Exs. F, G, H, I, & J.)

The respondents allege that Clarendon and Pacific entered into another retroactive reinsurance agreement for the year 1998 entitled the "Aggregate Access Reinsurance Agreement," which is memorialized in a term sheet ("Term Sheet"). (Pet. ¶ 11 & Ex. K; Answer ¶ 11.) Clarendon argues that the Term Sheet is unsigned, undated and does not constitute a binding contract between the parties. (Pet. ¶ 11; Affidavit of Robert D. Ferguson sworn to November 8, 2000 ("Ferguson Aff."), ¶ 9.) Clarendon asserts that the Term Sheet was a summary of terms under discussion and that this proposal was abandoned in April 1999, when the parties entered into four unrelated and separate reinsurance agreements. (Ferguson Aff. ¶ 9.) Clarendon contends that, in any event, the Term Sheet expressly incorporates a form arbitration clause known as "Arbitration Clause BRMA 6A" and that, if the Term Sheet is considered a contract, then the respondents are required to arbitrate claims "arising out of or relating to, the formation, interpretation, performance, or breach" of the Term Sheet. (Pet. ¶ 11 & Exs. K & L.)

Various disputes have arisen between the parties under the Agreements, and on May 9, 2000, Lan and Pacific filed a lawsuit against Clarendon in the California Superior Court (the "California Action"). (Pet. ¶ 12 & Ex. M; Answer ¶ 12.) The California Action alleges, among other things, that Clarendon has engaged in a campaign to compete unfairly with Lan, Pacific, and UCA and to destroy their businesses. The California Action alleges claims for unfair competition (Count 1); declaratory relief to determine whether the Term Sheet is an enforceable agreement (Count 2); breach of contract (Count 3); breach of the covenant of good faith and fair dealing (Count 4); intentional infliction of emotional distress (Count 5); and negligent infliction of emotional distress (Count 6).

On or about June 22, 2000, Clarendon served the respondents with its first written demand for arbitration as provided in the various agreements. (Pet. ¶ 17 & Ex. O; Answer ¶ 17.) The respondents' formal response to Clarendon's demand for arbitration was postponed by agreement of the parties while the parties attempted to amicably resolve their disputes. (Pet. ¶ 18; Answer ¶ 18.) On June 23, 2000, Clarendon filed an action in the Southern District of New York against Lan, which Clarendon dismissed on August 8, 2000 without prejudice. See Order dated August 8, 2000. On or about October 6, 2000, Clarendon served the respondents with a written amended demand for arbitration, which included Clarendon's appointment of its arbitrator. (Pet. ¶ 19 & Ex. P; Answer ¶ 19.) Clarendon alleges that the respondents refused to comply with the terms of the various agreements and submit their disputes to arbitration.

On or about October 11, 2000, Clarendon removed the California Action from the California State Court to the United States District Court for the Central District of California before the Honorable Lourdes G. Baird. (Pet. ¶ 13; Answer ¶ 13.) The plaintiffs in the California Action filed a motion to remand the action to state court because of the alleged absence of diversity jurisdiction. Clarendon filed a motion to stay the California Action pending arbitration or to transfer the California Action to the Southern District of New York.

On November 13, 2000, Clarendon filed the present petition to compel arbitration in this Court. Clarendon argues that all of the issues and disputes that have arisen between the parties are arbitrable and should be arbitrated in one proceeding in New York, New York. (Pet. ¶¶ 22-23.) The issues and disputes that Clarendon contends are arbitrable include, but are not limited to: (1) all issues and claims raised in the California Action; (2) what sums, if any, the respondents owe Clarendon under the Agreements; (3) whether the respondents failed to account properly for premiums, return premiums, commissions and provisional commissions and other matters; failed to supply adequate documentation verifying the records they have produced; failed to produce records and/or an accounting thereof; mishandled funds; failed to pay funds to Clarendon; failed to segregate funds; failed to follow Clarendon's written instructions and demands; and concealed information; and (4) whether the respondents' failure to comply with their obligations has damaged Clarendon in an amount which cannot be precisely determined until the respondents have complied with their fiduciary obligations. (Pet. ¶ 22.)

On December 14, 2000, Judge Baird issued an order in the California Action denying the motion to remand for lack of diversity jurisdiction, finding that Clarendon's principal place of business is in New York. (Affidavit of David L. Fox sworn to January 16, 2001 ("Fox Aff."), Ex. A.) On December 22, 2000, Judge Baird issued an order transferring ...


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