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Ggis Insurance Services, Inc. D/B/A v. Lincoln General Insurance Company

April 9, 2012

GGIS INSURANCE SERVICES, INC. D/B/A GUARDIAN GENERAL INSURANCE SERVICES,
PLAINTIFF
v.
LINCOLN GENERAL INSURANCE COMPANY, SCOTT BUTLER, KINGSWAY FINANCIAL SERVICES, INC., AND DOES 1-100, DEFENDANTS



The opinion of the court was delivered by: (Judge Conner)

MEMORANDUM

GGIS Insurance Services, Inc. ("GGIS") brings this diversity action against Lincoln General Insurance Company ("Lincoln"), Scott Butler ("Butler"), Kingsway Financial ("Kingsway"), and Does 1 through 100. GGIS asserts claims of breach of contract, breach of implied covenant of good faith and fair dealing, statutory unfair competition, common law unfair competition, promissory fraud, fraud and deceit, negligent misrepresentation, and negligent claims handling. Presently before the court are two motions for summary judgment, one filed by Lincoln (Doc. 83), and the other filed by Butler and Kingsway (Doc. 80). For the reasons that follow, the motions will be granted and Does 1 through 100 will be dismissed.

I. Background*fn1

A. The Parties and the Contract*fn2

GGIS is a California corporation with its principal place of business in Burbank, California. (Doc. 85 ¶ 1; Doc. 102 ¶ 1). Lincoln is a corporation with its principal place of business in York, Pennsylvania. (Doc. 85 ¶ 2; Doc. 102 ¶ 2). Butler, a resident of Illinois, was Vice President of Lincoln during all times relevant to this action. (Doc. 81 ¶¶ 1, 2; Doc. 98 ¶¶ 1, 2). Kingsway is a Canadian holding company with its principal place of business in Ontario, Canada. (Doc. 81 ¶ 3; Doc. 98 ¶ 3). Kingsway owned Lincoln as an indirect, wholly-owned subsidiary during the period described in the Complaint. (Doc. 81 ¶ 4; Doc. 98 ¶ 4).

In April 2005, GGIS and Lincoln executed the Program Manager Agreement ("the agreement"), under which GGIS agreed to become a general agent for Lincoln. (Doc. 85 ¶ 3; Doc. 85-1; Doc. 102 ¶ 3). Pursuant to the agreement, GGIS acted as Lincoln's fiduciary in managing insurance brokers selling Lincoln's insurance policies. (Doc. 85-1). The agreement required GGIS to repay previously advanced commissions if it did not meet certain loss targets. (Id. at 32-33). The agreement also required GGIS to establish an Escrow Account to secure prospective contingent commission amounts and deposit four percent of earned premiums into the account each month until the account reached $3,400,000. (Doc. 85 ¶¶ 34, 35; Doc. 85-1, at 37).

Article XIX of the agreement required that, any dispute between [Lincoln] and [GGIS] with reference to the interpretation, application, formation, enforcement or validity of this Agreement, or their rights with respect to any transaction involved, whether such dispute arises before or after the termination of this Agreement, such dispute, upon written request of either party, shall be submitted to the decision of a board of arbitration . . . . (Doc. 85 ¶ 5; Doc. 102 ¶ 5). The agreement also contained a forum selection clause whereby Lincoln and GGIS agreed to the exclusive jurisdiction of York County Court of Common Pleas or the United States District Court for the Middle District of Pennsylvania. (Doc. 85 ¶ 14; Doc. 102 ¶ 14).

B. The Arbitration Proceeding and Award

In May of 2007, Lincoln instigated an action against GGIS in the Los Angeles Superior Court for claims relating to the agreement. (Doc. 48, at 1). Lincoln voluntarily dismissed the action subsequent to the denial of its motion for preliminary injunction. (Id. at 1-2). On June 30, 2008, pursuant to Article XIX of the agreement, Lincoln requested arbitration against GGIS. (Doc. 85 ¶ 6; Doc. 102 ¶ 6). Lincoln sought payment from GGIS for contingent commissions it alleged were past due and owing. (See Doc. 85-4). The arbitration commenced on March 1, 2010, with an evidentiary hearing in York, Pennsylvania. (Doc. 85 ¶ 10; Doc. 102 ¶ 10). GGIS did not participate in the arbitration arguing that the arbitration panel lacked jurisdiction over it. (Doc. 85 ¶ 11; Doc. 102 ¶ 11; see also Doc. 85-4, at 2-5). On March 30, 2010, the arbitration panel entered an award in favor of Lincoln in the amount of $1,952,515. (Doc. 85 ¶¶ 28, 29). The panel reaffirmed its jurisdiction over GGIS and found that the business produced by GGIS failed to meet the profitability requirements of the agreement and that GGIS failed to fund the escrow account to secure its obligation to pay future commissions. (Doc. 85 ¶¶ 28, 29; Doc. 85-4, at 2-5).*fn3

On April 29, 2010, Lincoln and GGIS filed related actions to confirm and vacate the Arbitration Award. (Doc. 85 ¶¶ 20, 21; Doc. 102 ¶¶ 20, 21). GGIS filed its Petition to Vacate the Arbitration Award in this court. (Doc. 85 ¶ 20; Doc. 102 ¶ 20). Lincoln brought its petition to confirm the Arbitration Award in the York County Court of Common Pleas, which GGIS then removed to this Court on May 5, 2010. (Doc. 85 ¶ 21; Doc. 102 ¶ 21). The court consolidated the petitions under docket number 1:10-CV-0932, (see Doc. 85 ¶ 22; Doc. 102 ¶ 22), and confirmed the Arbitration Award on February 25, 2011. (Doc. 85 ¶ 26).

C. Procedural History

On June 24, 2009, GGIS filed its complaint in the instant action (Doc. 1-2) in the Los Angeles Superior Court, alleging breach of contract, breach of implied covenant of good faith and fair dealing, statutory unfair competition, common law unfair competition, declaratory relief, promissory fraud, fraud and deceit, negligent misrepresentation, and negligent claims handling. (Doc. 85 ¶ 5; Doc. 102 ¶ 5). On February 10, 2010, Lincoln removed the case to the United States District Court for the Central District of California. (Doc. 85 ¶ 15; Doc. 102 ¶ 15). On May 3, 2010, the presiding judge, the Honorable Dale S. Fischer, ruled that all of the claims in the complaint were related to the agreement and granted Lincoln's Motion to Transfer Venue to the Middle District of Pennsylvania. (Doc. 85 ¶ 19; Doc. 102 ¶ 19; see also Doc. 48).

On August 2, 2011, Butler, Kingsway, and Lincoln filed motions for summary judgment on all counts. (Docs. 80, 83). GGIS filed briefs in opposition (Docs. 94, 95) on January 27, 2012. Butler and Kingsway filed their joint reply brief on February 9, 2012. (Doc. 103). On February 10, 2012, Lincoln filed its reply brief. (Doc. 104). The motions have been fully briefed and are ripe for disposition.

II. Standard of Review

Through summary adjudication the court may dispose of those claims that do not present a "genuine dispute as to any material fact" and for which a jury trial would be an empty and unnecessary formality. See FED. R. CIV. P. 56(a). The burden of proof is upon the non-moving party to come forth with "affirmative evidence, beyond the allegations of the pleadings," in support of its right to relief. Pappas v. City of Lebanon, 331 F. Supp. 2d 311, 315 (M.D. Pa. 2004); FED. R. CIV. P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). This evidence must be adequate, as a matter of law, to sustain a judgment in favor of the non-moving party on the claims. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-57 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-89 (1986); see also FED. R. CIV. P. 56(a), (c), (e). Only if this threshold is met may the cause of action proceed. Pappas, 331 F. Supp. 2d at 315.

III. Discussion

In this diversity action, GGIS asserts claims of breach of contract, breach of implied covenant of good faith and fair dealing, statutory unfair competition, common law unfair competition, promissory fraud, fraud and deceit, negligent misrepresentation, and negligent claims handling. (See Doc. 1-2). In addition GGIS seeks a declaration of the parties' rights and obligations under the agreement. (Id.) Lincoln, Butler, and Kingsway argue that all claims are barred by the doctrine of res judicata. GGIS counters that its claims are not barred by the doctrine of res judicata, that the arbitration award should be vacated because Lincoln waived its right to force arbitration when it pursued legal action in the California courts in 2007, and the award should not be enforced because default awards are disfavored. The court will first address the res judicata issue, followed by the waiver and default award issues. Finally, the court will sua sponte consider the status of defendant Does 1 through 100.

A. Res Judicata

As an initial matter, this Court must consider whether federal or state rules of res judicata apply. The agreement between Lincoln and GGIS provides that "The rights of the parties to this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to Pennsylvania rules on conflict of laws." (Doc. 85-1, at 21).

The Third Circuit has yet to consider whether state or federal rules of claim preclusion apply where a federal court is exercising diversity jurisdiction to determine the preclusive effect of a prior federal judgment confirming an arbitration award. Lincoln argues that applying Pennsylvania rules of claim preclusion would be incompatible with federal interests, because federal courts have a strong interest in determining the preclusive effect of their judgments. GGIS notes the absence of Third Circuit precedent on the issue and applies the Second Restatement on Judgments § 83.*fn4

The Supreme Court has held that "[t]he preclusive effect of a federal-court judgment is determined by federal common law." Taylor v. Sturgell, 553 U.S. 880, 891 (2008) (citing Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 507-508 (2001)). In diversity actions, the Third Circuit directs district courts to "apply the preclusion rules of the forum state, unless they are ...


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