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Donelon v. Shilling

Court of Appeals of Louisiana, First Circuit

February 28, 2019

JAMES J. DONELON, COMMISSIONER OF INSURANCE FOR THE STATE OF LOUISIANA, IN HIS CAPACITY AS REHABILITATOR OF LOUISIANA HEALTH COOPERATIVE, INC.
v.
TERRY S. SHILLING, GEORGE G. CROMER, WARNER L. THOMAS, IV, WILLIAM A. OLIVER, CHARLES D. CALVI, PATRICK C. POWERS, CGI TECHNOLOGIES AND SOLUTIONS, INC., GROUP RESOURCES INCORPORATED, BEAM PARTNERS, LLC, MILLIMAN, INC., BUCK CONSULTANTS, LLC, AND TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA

          On review from the Nineteenth Judicial District Court Parish of East Baton Rouge State of Louisiana Case No. 651, 069 The Honorable Timothy E. Kelley.

          V. Thomas Clark, Jr. Grant J. Guillot Baton Rouge, Louisiana Attorneys for Applicant -Relator Milliman, Inc.

          Harry A. Rosenberg New Orleans, Louisiana H. Alston Johnson Baton Rouge, Louisiana J. E. Cullens, Jr. Edward J. Walters, Jr. Darrel J. Papillion David Abboud Thomas Jennifer Wise Moroux Baton Rouge, Louisiana Attorneys for Respondent, James J. Donelon, Commissioner of Insurance for the State of Louisiana, in His Capacity as Rehabilitator of Louisiana Health Cooperative, Inc., through His Duly Appointed Receiver, Billy Bostick

          BEFORE: HIGGINBOTHAM, HOLDRIDGE, and PENZATO, JJ.

          HOLDRIDGE, J.

         In this writ application, applicant, Milliman, Inc. ("Milliman"), challenges the ruling of the trial court, which overruled Milliman's Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction.[1] For the following reasons, we reverse the ruling of the trial court and dismiss the claims of James J. Donelon, Commissioner of Insurance for the State of Louisiana, through his duly appointed Receiver, Billy Bostick, against Milliman, without prejudice.

         FACTS AND PROCEDURAL HISTORY

         This matter arises from the insolvency and the rehabilitation of Louisiana Health Cooperative, Inc. ("LAHC"). LAHC executed a Consulting Services Agreement ("Agreement") with Milliman for actuarial services. The Agreement states, in pertinent part, as follows:

This Agreement is entered into between [Milliman] and [LAHC] (Company) as of August 4, 2011. Company has engaged Milliman to perform consulting services as described in the letter dated August 4, 2011 and attached hereto. The parties agree that these terms and conditions will apply to all current and subsequent engagements of Milliman by Company unless specifically disclaimed in writing by both parties prior to the beginning of the engagement. In consideration for Milliman agreeing to perform these services, Company agrees as follows.
4. DISPUTES. In the event of any dispute arising out of or relating to the engagement of Milliman by Company, the parties agree that the dispute will be resolved by final and binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association. ...
5. CHOICE OF LAW. The construction, interpretation, and enforcement of this Agreement shall be governed by the substantive contract law of the State of New York without regard to its conflict of laws provisions. In the event any provision of this agreement is unenforceable as a matter of law, the remaining provisions will stay in full force and effect.

Representatives of Milliman and LAHC signed the Agreement on August 4, 2011, and August 15, 2011, respectively.

         A Proposal for Actuarial Services ("Engagement Letter") from Milliman to Beam Partners, dated August 4, 2011, was attached to the Agreement. The Engagement Letter outlined that Beam Partners was working with LAHC, which is sponsored by Ochsner Health System, to investigate the creation of a Consumer Operated and Oriented Plan ("CO-OP") in Louisiana. Beam Partners, on behalf of LAHC, had asked Milliman to provide a proposal for actuarial support of the proposed CO-OP, with initial support including assistance with a feasibility study and LAHC's loan application in response to Funding Opportunity Announcement No. OO-COO-11-001, CFDA 93.545 released from the U.S. Department of Health and Human Services on July 28, 2011. The Engagement Letter provided Milliman's work plan as well as timing, staffing, and professional fees.

         It is alleged that LAHC became registered with the Louisiana Secretary of State on September 12, 2011, and applied for and received loans from the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, in 2012. However, it is undisputed that, by July 2015, LAHC stopped doing business.

         On September 21, 2015, in response to a verified petition and testimony on behalf of Caroline Brock, Deputy Commissioner of Financial Solvency for the Louisiana Department of Insurance and Billy Bostick, a Permanent Order of Rehabilitation and Injunctive Relief (the "Rehabilitation Order") was signed, confirming James J. Donelon, Commissioner of Insurance for the State of Louisiana ("the Commissioner") as Rehabilitator of LAHC and Billy Bostick as Receiver of LAHC. The Rehabilitation Order further states, in pertinent part, as follows:

[T]he requirements for rehabilitation under the provisions of La. R.S. 22:2001, et seq., have been met ... LAHC shall be and hereby is placed into rehabilitation under the direction and control of the Commissioner
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that ... any and all persons and entities shall be and hereby are permanently enjoined from obtaining preferences, judgments, attachments or other like liens or the making of any levy against LAHC, its property and assets
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Rehabilitator shall be and hereby is entitled to the right to enforce or cancel ... contract performance by any party who had contracted with LAHC.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that LAHC providers and contractors are required to abide by the terms of their contracts with LAHC
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the Rehabilitator and Receiver of LAHC ... shall be and hereby are allowed and authorized to ... [c]ommence and maintain all legal actions necessary, wherever necessary, for the proper administration of this rehabilitation proceeding
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that all contracts between LAHC and any and all persons or entities providing services to LAHC ... shall remain in full force and effect unless canceled by the Receiver, until further order of this Court.

         On August 31, 2016, the Commissioner, as Rehabilitator of LAHC, through his duly appointed Receiver, Billy Bostick, filed a Petition for Damages and Jury Demand, in a separate matter from the rehabilitation proceeding, asserting claims of breach of fiduciary duty, breach of contract, negligence, and gross negligence against multiple defendants and seeking damages in connection with LAHC's failure. Milliman was named as a defendant in the Commissioner's First Supplemental, Amending and Restated Petition for Damages and Request for Jury Trial filed on November 29, 2016.

         The Commissioner alleged professional negligence, breach of contract, and negligent misrepresentation against Milliman. The Commissioner stated that Milliman was engaged via the Engagement Letter to provide "actuarial support" for LAHC including the production of a feasibility report and loan application. The Commissioner further alleged that Milliman was engaged via a separate engagement letter dated November 13, 2012, to develop 2014 premium rates in Louisiana.[2]

         As to the professional negligence and breach of contract claims, the Commissioner alleged the following: (1) the feasibility study was prepared using unrealistic and unreasonable assumption sets failing to consider the possibility of adverse enrollment and/or medical loss ratio scenarios; (2) Milliman conditioned its payment upon LAHC being awarded a loan, compromising its actuarial independence and breaching its duty to LAHC; (3) Milliman's feasibility study and pro forma reports were unreliable, inaccurate, and not the result of careful professional analysis; (4) Milliman owed a duty to LAHC to exercise reasonable care in accordance with the professional standards for actuaries; (5) Milliman provided actuarial memorandums for 2014 rate filings utilizing unreasonable assumptions, grossly underestimating the level of non-claim expenses in 2014, and providing no basis for assumptions made therein; (6) Milliman breached its duty to LAHC by failing to discharge its duties with reasonable care, failing to act in accordance with the professional standards applicable to actuaries, failing to produce an accurate and reliable feasibility study, failing to set premium rates that were accurate and reliable, and failing to exercise the reasonable judgment expected of professional actuaries under like circumstances; and (7) Milliman's failure to exercise reasonable care, failure to act in accordance with the professional standards applicable to actuaries and breach of contract were the legal causes of all or substantially all of LAHC's damages. The Commissioner further alleged that Milliman's advice and reports to LAHC negligently misrepresented the actual funding needs and premium rates of LAHC, and Milliman had a duty to provide accurate and up-to-date information to LAHC that Milliman knew or should have known LAHC would rely on in making its decision concerning premium amounts.

         In response to the First Supplemental, Amending and Restated Petition for Damages, Milliman filed a Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction, asserting that the Commissioner's claims against it must be arbitrated, pursuant to the arbitration provision in the Agreement. Milliman requested that the Commissioner's claims against it be dismissed, with prejudice. Attached to Milliman's exception was a copy of the Agreement and the Engagement Letter.

         The Commissioner opposed the exception arguing, in pertinent part, as follows: (1) the Rehabilitation, Liquidation, Conservation Act, La. R.S. 22:2001 et seq. ("the RLC Act") of the Louisiana Insurance Code is comprehensive and exclusive in scope, and La. R.S. 22:257(F) gives the Nineteenth Judicial District Court exclusive jurisdiction of this matter; (2) arbitration interferes with the rehabilitation proceeding in violation of the Rehabilitation Order; (3) the Commissioner did not sign the Agreement and is not bound by the arbitration provision; (4) Milliman does not cite or distinguish Ohio Supreme Court's decision in Taylor v. Ernst & Young, LLP., 2011-Ohio-5262, 130 Ohio St.3d 411, 958 N.E.2d 1203; (5) the Commissioner does not stand precisely in the shoes of the insolvent insurer because he acts as an officer of the State and owes an overriding duty to the people of the State of Louisiana; and (6) the Commissioner's claims do not arise from the Engagement Letter because the Commissioner is not seeking a declaration of Milliman's obligations under the Engagement Letter and the Commissioner's allegations against Milliman do not require the court to interpret the Engagement Letter to determine Milliman's obligations. Attached to the Commissioner's opposition was a copy of the First Supplemental, Amending and Restated Petition for Damages and the Rehabilitation Order.

         Milliman filed a reply arguing, in pertinent part, as follows: (1) the Commissioner is vested with title to all contracts of LAHC, pursuant to La. R.S. 22:2008(A), and no provision of the RLC Act vests the Commissioner with greater rights than those LAHC held; (2) La. R.S. 22:257(F), which gives the Nineteenth Judicial District Court exclusive jurisdiction over suits arising from the takeover and liquidation of a health maintenance organization, does not apply herein because LAHC is not in liquidation; (3) enforcement of the arbitration provision does not violate the Rehabilitation Order; (4) the Commissioner is bound to the arbitration provision, despite being a non-signatory, because the Commissioner has sued Milliman for breach of the Agreement; (5) the Ohio Supreme Court's decision in Taylor is not binding on this Court and is factually distinguishable; (6) the Commissioner stands in the shoes of LAHC for purposes of exercising the rights and being obligated by the restrictions of the Agreement; and (7) the Commissioner's claims against Milliman arise out of the Agreement because the Engagement Letter was incorporated into the Agreement and the claims against Milliman arise out of the contractual relationship between LAHC and Milliman.

         A hearing on the Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction was held on August 25, 2017. Copies of the Agreement, the Engagement Letter and the Rehabilitation Order were introduced into evidence at the hearing.

         The trial court denied the exception. Milliman filed a writ application, seeking supervisory review of the trial court's judgment that denied its Declinatory Exception raising the objection of Lack of Subject Matter Jurisdiction and asking that the trial court's ...


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