United States District Court, W.D. Washington, Seattle
S. Zilly United States District Judge
MATTER comes before the Court on defendants' motion for
summary judgment, docket no. 7, and plaintiff's motion to
vacate, docket no. 22. Having reviewed the motions and all
relevant filings, and considered the arguments of counsel at
the hearing on August 29, 3017, the Court enters the
The Underlying Dispute
Steven Katz M.D. formed REI Protect, LLC (“REI
Protect”) to provide claims prevention and management
services to reproductive endocrinology and infertility
doctors (collectively “infertility doctors”).
Declaration of Benjamin Stone, docket no. 8, Ex. A
(Arbitration Transcript at 17:14-18:21); Complaint, docket
no. 1, ¶ 3.3. To service its clients, REI Protect sought
out an insurance company to issue appropriate policies and
was eventually introduced to plaintiff Medchoice Risk
Retention Group, Inc. (“MedChoice”), Stone Decl.,
Ex. A (Arbitration Transcript at 18:22-21:2), a national
insurance company that provides specialized medical
professional liability and casualty coverages, products, and
services. Complaint ¶ 3.1.
2015, REI Protect and MedChoice entered into two contracts-a
Limited Services Agreement, Stone Decl., Ex. B, and an
Exclusive Producer Agreement, Stone Decl., Ex. C. Under the
terms of the Limited Services Agreement, REI Protect agreed
to provide certain limited services to MedChoice in exchange
for a $60, 000 advance of commissions. Stone Decl., Ex. B
§ 2. The Limited Services Agreement provided that the
advance was to be repaid by “commission offset”
as set forth in the Exclusive Producer Agreement.
Id. at § 3.
Limited Services Agreement also required that REI Protect
“obtain all required producer's licenses and
insurance agency licenses in any state in which they market
the Program, including but not limited to the State of
Washington and California.” Stone Decl., Ex B, §
1(f). On April 10, 2015, Dr. Katz applied for an insurance
producer license in California. Stone Decl., Ex A.
(Arbitration Transcript at 24:17-25:19). While Dr. Katz's
application for an insurance producer license was pending,
REI Protect and MedChoice executed the Exclusive Producer
Agreement, effective June 1, 2015. Stone Decl., Ex. C.
Exclusive Producer Agreement required REI Protect to act as
an insurance producer exclusively on behalf of MedChoice for
a term of five years and set forth a commission structure by
which REI Protect would be compensated for its services. The
Exclusive Producer Agreement set forth a dispute resolution
procedure pursuant to which “all disputes involving
this transaction, or between the parties hereto with respect
to the subject matter thereof, ” were to be resolved by
a three-step process: informal negotiation, followed by
mediation, and if necessary, binding arbitration. Stone
Decl., Ex. C, § 5.
January 12, 2016, the State of California denied Dr.
Katz's application for an unrestricted insurance
producer's license and issued a restricted license, which
allowed Dr. Katz to act as an insurance producer in his
personal capacity, but precluded him from acting as a
“controlling person” of REI Protect. Declaration
of Cindy Lin, docket no. 14, Ex. A. As a result, in April of
2016, MedChoice requested that REI Protect assign the
Exclusive Producer Agreement to Dr. Katz. Stone Decl., Ex. D.
Dr. Katz declined to do so because, as he testified at
Arbitration, “the relationship had failed.” Stone
Decl., Ex. A (Arbitration Transcript at 35:16-18).
2, 2016, MedChoice informed Dr. Katz that it had issued
payment for a portion of commissions owed to REI Protect due
to an oversight and that MedChoice would be “unable to
process” further commissions unless
“reassignment” of the Exclusive Producer
Agreement was completed. Stone Decl., Ex. E. Dr. Katz
testified at the Arbitration that he understood this email to
mean that “the contract was over.” Stone Decl.,
Ex. A (Arbitration Transcript at 39:18-40:14).
Letter dated July 25, 2016, REI Protect informed MedChoice
that it was exercising its right to terminate the Exclusive
Producer Agreement pursuant to Section 4.2(e), Lin Decl.,
docket no. 23, Ex. F, because the Exclusive Producer
Agreement permitted termination “if any public
authority cancels or declines to renew . . . REI
Protect's or Dr. Katz's license to sell insurance,
” Stone Decl., Ex. C § 4.2(e). Shortly after
terminating the Exclusive Producer Agreement with MedChoice,
Dr. Katz entered into an agreement to act as an insurance
producer for The Doctor's Company, Stone Decl., Ex. A
(Arbitration Transcript at 141:1-142:14).
August 9, 2016, after learning that Dr. Katz had become an
insurance producer for The Doctor's Company,
MedChoice's counsel wrote to Dr. Katz claiming that his
termination of the agreement was invalid because no public
entity had canceled or declined to renew either Dr.
Katz's or REI Protect's license. Stone Decl., Ex. H.
The Dispute Resolution Process
August 23, 2016, MedChoice invoked the dispute resolution
process set forth in Section 5 of the Exclusive Producer
Agreement. Lin Decl., docket no. 23, Ex. J. On September 20,
2016, MedChoice and REI Protect conducted a direct
negotiation and on October 20, 2016, mediated the dispute,
neither of which was successful. Stone Decl., ¶ 10.
November 16, 2016, REI Protect filed and served a demand for
arbitration with the American Arbitration Association
(“AAA”). Stone Decl., ¶ 11, Ex. I. REI
Protect sought a declaration that the Exclusive Producer
Agreement was illegal and unenforceable, because REI Protect
could not obtain an insurance producer license in California,
and also asserted a claim for tortious interference.
Id. By letter to REI Protect and MedChoice dated
November 28, 2016, the AAA acknowledged receipt of the
arbitration demand and informed the parties that there would
be a telephonic administrative conference on December 13,
2016 at 1:00 p.m. Stone Decl., Ex. J.
the December 13 telephone conference, REI Protect requested
that the arbitration be governed by the AAA's Expedited
Procedures of the Commercial Rules (“Expedited
Procedures”), which apply where the damages sought do
not exceed $75, 000. Stone Decl., ¶ 13, Ex. K. MedChoice
did not participate in the telephone conference. Stone Decl.,
¶ 12. On December 15, 2016, the AAA confirmed that the
matter would be administered under the Expedited Procedures,
provided the parties with a list of arbitrators and set a
deadline of December 22, 2016, for arbitrator selection
submissions. Stone Decl., Ex. L. REI Protect submitted its
selections on December 21, 2016, but MedChoice did not submit
a response by the December 22 deadline. Stone Decl., ¶
December 27, 2016, MedChoice informed the AAA, for the first
time, that MedChoice was represented by outside counsel,
Michael & Alexander. Stone Decl., Ex. N. Although the
deadline for selecting arbitrators had passed, the AAA
extended the deadline until January 4, 2017,  to allow
MedChoice to participate in the arbitrator selection process.
Id. After MedChoice submitted its arbitrator choice,
the AAA appointed Peggy Rasmussen as arbitrator on January
12, 2017. After receiving no objections, the AAA confirmed
Arbitrator Rasmussen's appointment on January 23, 2017.
Stone Decl., Ex. P (Letter confirming Ms. Rasmussen's
confirmation, MedChoice and REI Protect disputed whether the
use of the Expedited Procedures were appropriate. Stone
Decl., Ex. Q. On January 24, 2017, the AAA confirmed that the
matter would be administered under the Expedited Procedures.
Stone Decl., Ex. R.
January 31, 2017, the AAA informed the parties that
Arbitrator Rasmussen would hold a preliminary conference call
on February 7, 2017, and was available for a one-day hearing
Monday, February 20, 2017. Stone Decl., Ex. S. The letter
notified the parties that absent any objection, the AAA would
schedule the hearing. Id. Also on January 31, 2017,
MedChoice filed and served its answer and counterclaim
alleging damages in an amount between $75, 000 and $150, 000.
Stone Decl., Ex. T. MedChoice alleged that the Exclusive
Producer Agreement was enforceable against both Dr. Katz and
REI Protect, and that he and REI protect had materially
breached the agreement. Id. MedChoice also claimed
that Dr. Katz should be joined as a party to the arbitration
and that REI Protect and Dr. Katz (1) misappropriated
MedChoice's trade secrets; (2) “converted
MedChoice's property” by retaining the commission
advance despite ceasing to perform the obligations imposed by
the Exclusive Producer Agreement; (3) tortiously interfered
with MedChoice's business expectancies by inducing
MedChoice insureds to cancel or decline to renew their
MedChoice policies; (4) breached alleged fiduciary duties
and/or duties of loyalty to MedChoice by referring REI
Protect's clients to MedChoice's competitor; and (5)
negligently misrepresented their ability to attract customers
to MedChoice. Id. On February 2, 2017, the AAA
informed the parties that because MedChoice's
counterclaims exceeded $75, 000, the matter would be
administered under the AAA's Regular Procedures, but did
not strike the arbitration hearing tentatively set for
February 20, 2017. Lin Decl., docket no. 31, Ex. F.
February 7, 2017, REI Protect submitted a letter objecting to
MedChoice's counterclaim as untimely. Stone Decl., ¶
24, Ex. V. Under the AAA's Commercial Rules, once an
arbitrator has been appointed, “no new or different
claim may be submitted except with the arbitrator's
consent.” Stone Decl., Ex. K (Expedited Procedures);
Ex. U (Standard Procedures). Arbitrator Rasmussen provided
MedChoice the opportunity to explain the delay in filing its
counterclaim both during the preliminary conference call and
by letter, which MedChoice submitted on February 10, 2017.
Stone Decl., ¶ 25, Ex. W.
February 13, 2017, Arbitrator Rasmussen issued a scheduling
order finding that MedChoice “knowingly delayed filing
the counterclaim” and ruling that the case would remain
on the Expedited Procedures track. Stone Decl., Ex. X.
Arbitrator Rasmussen allowed MedChoice to assert its
counterclaim on the condition “that no damages will be
sought or awarded in excess of the $75, 000 limit for claims
under the Expedited Procedures.” Id. The
February 13, 2017, Scheduling Order also confirmed that the
arbitration hearing would occur on February 20, 2017.
February 14, 2017, MedChoice submitted nine subpoenas for
Arbitrator Rasmussen to sign seeking to compel attendance of
witnesses from The Doctor's Company, as well as one other
third-party witness, and Dr. Katz himself. Stone Decl., Ex.
Y. On Monday, February 20, 2017, a one-day arbitration
hearing was held before Arbitrator Rasmussen. None of the
third-party witnesses appeared at the arbitration. Lin Decl.,
docket no. 14, ¶ 8.
Submission of Post-Hearing Evidence
prior to the arbitration, on February 16, 2017, MedChoice
served a Subpoena Duces Tecum on REI Protect requesting
documents related to its business dealings with The
Doctor's Company and MedChoice's insureds. Lin Decl.,
Ex. H. Counsel for REI Protect and Dr. Katz, however, failed
to bring any responsive documents to the hearing. Stone
Decl., Ex. A (Arbitration Transcript at 131:10-134:7); Lin
Decl., docket no. 14, ¶ 10. As a result, MedChoice
refused to turn over documents requested by REI Protect.
Stone Decl., Ex. A (Arbitration Transcript at 134:10-135:7).
the Arbitration, Arbitrator Rasmussen proposed a solution.
Id. (Arbitration Transcript at 133:24-139:17). REI
Protect would produce the documents the following day, and
the parties would submit written closing arguments by
Thursday at 5pm. Id. The parties copied Arbitrator
Rasmussen on their communications regarding the status of the
post-arbitration production of documents. Lin Decl., docket
no. 14, Ex. I. In response to the parties' dialogue,
however, Arbitrator Rasmussen reversed course, sending the
following email to the parties:
The hearing concluded on Monday, February 20. The final
record in this case consists of the testimony, documents and
exhibits presented at that time. The record is now closed.
The arbitration award will be issued on the basis of that
Leave was granted for counsel to file a short brief on
Thursday making any final argument based on the evidence at
the hearing. No new documents or evidence may be presented
with that submission.
Id. On February 23, 2017, MedChoice filed its
closing brief with Arbitrator Rasmussen, reiterating the
arguments it had advanced in its opening brief. Stone Decl.,
Ex. Z (Opening Brief) & Ex. AA (closing brief).
The Arbitration Award
March 6, 2017, Arbitrator Rasmussen issued her Partial Final
Award. Stone Decl., Ex. BB. Arbitrator Rasmussen found that
the Exclusive Producer Agreement was “illegal and
unenforceable” because (1) “it would have been
illegal for REI Protect to perform the services required
under the [Exclusive Producer Agreement] in California
without having obtained the license that California
denied”; and (2) “[t]he evidence showed that the
issuance of the [insurance producer's] license to REI
Protect was a condition precedent to REI ...