Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Medchoice Risk Retention Group Inc., v. Katz

United States District Court, W.D. Washington, Seattle

September 8, 2017

MEDCHOICE RISK RETENTION GROUP INC., Plaintiff,
v.
STEVEN KATZ, M.D. and REI PROTECT, LLC, Defendants.

          ORDER

          Thomas S. Zilly United States District Judge

         THIS 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 following Order.

         Background

         A. Factual Background

         1. The Underlying Dispute

         Defendant 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.

         In 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.

         The 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.

         The 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.

         On 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).

         On May 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).

         By 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).

         On 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.

         2. The Dispute Resolution Process

         On 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.

         On 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.

         During 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., ¶ 15.

         On 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, [1] 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 appointment).

         After 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.

         On 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.

         On 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.

         On 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. Id.

         On 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.

         3. Submission of Post-Hearing Evidence

         Just 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).

         During 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 record.
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).

         4. The Arbitration Award

         On 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 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.