Court Asked to Compel Arbitration in Captive Insurance Suit

Dimitri Shivkov et al.,
Plaintiffs
v.
Artex Risk Solutions, Inc. et al.,
Defendants.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA

Barbara J. Dawson (#012104)
bdawson@swlaw.com
Joseph G. Adams (#018210)
jgadams@swlaw.com
SNELL & WILMER LLP
400 East Van Buren Street
Suite 1900
Phoenix, AZ 85004-2202
Telephone: (602) 382-6000

Stephen V. D’Amore (Admitted pro hac vice)
sdamore@winston.com
Scott P. Glauberman (Admitted pro hac vice)
sglauber@winston.com
Michael A. Skokna (Admitted pro hac vice)
mskokna@winston.com
WINSTON & STRAWN LLP
35 West Wacker Drive
Chicago, IL 60601-9703
Telephone: (312) 558-5600

Lawrence M. Hill (Admitted pro hac vice)
lhill@winston.com
WINSTON & STRAWN LLP
200 Park Avenue
New York, NY 10166-4193
Telephone: (212) 294-6700

Tom Melsheimer (Admitted pro hac vice)
tmelsheimer@winston.com
WINSTON & STRAWN LLP
2121 North Pearl Street, Suite 900
Dallas, TX 75201
Telephone: (214) 453-6500

Attorneys for Defendants
Artex Risk Solutions, Inc., Arthur J. Gallagher & Co., and Debbie Inman

DEFENDANTS' JOINT MOTION TO COMPEL INDIVIDUAL ARBITRATIONS

(Oral argument requested)

This lawsuit arises out of five separate engagement agreements, each involving a different group of Plaintiffs. Each agreement included a broad dispute resolution provision stating that “in the event of any dispute that cannot be resolved between the parties” to the agreement, “all disputes will be subject to binding arbitration.” It emphasized that “[t]o reduce time and expenses,” the parties “waive our right to litigate against one another regarding the services provided and obligations pursuant to this Agreement, and instead you and we have chosen binding arbitration.” In 2017, the Maricopa County Superior Court upheld that arbitration provision and ruled that claims against Artex, similar to the claims in this case, must be arbitrated.

The five agreements are about “captive” insurance companies, which were formed and managed to insure the businesses of their owners, the different Plaintiffs in this case. In separate proceedings, the IRS issued and litigated tax deficiency notices against each group of Plaintiffs, each of which settled their respective cases, resulting in the assessment of back-taxes, interest, and penalties. All of the Plaintiffs then joined together and filed this putative class action lawsuit on behalf of themselves and a putative class of “hundreds if not thousands” of others.

All of the claims in this lawsuit must be arbitrated. Each agreement to arbitrate is valid, and each arbitration provision reaches “any dispute . . . between the parties.” All of Plaintiffs' claims grow directly out of the formation and management of each captive insurance company, which was done pursuant to each agreement. This is all clear on the face of the Complaint and the agreements.

Knowing they agreed to arbitrate, Plaintiffs include in the Complaint a long but shallow list of arguments about why the arbitration agreements are invalid. They argue the agreements have by now terminated, but the arbitration provisions still govern claims that relate to the time the agreements were in force. They argue the provisions are procedurally unconscionable — that is, unfairly surprising — but the provisions are written clearly and appear in the normal font size in the final section of short contracts. They argue the provisions are substantively unconscionable, but the provisions are evenhanded, applying equally to both sides, without giving Defendants any advantage. And they argue the provisions violate the reasonable expectations doctrine, which protects consumers from contract terms they never would have expected, but here there is no reason to believe that the sophisticated Plaintiffs and businesses would not have seen or understood the simple arbitration provisions.

The Supreme Court has held that arbitration must be ordered according to the terms of the agreement, “including terms providing for individualized proceedings.” Epic Sys. v. Lewis, 138 S. Ct. 1612, 1619 (2018). Class arbitration is allowed only if there is a contractual basis to find the parties agreed to it. Here, there is no such basis. No agreement affirmatively authorizes class arbitration, and each contains terms such as disputes “between the parties” and “against one another,” as well as “you and we have chosen binding arbitration,” that limit the scope of any arbitration to the parties to each agreement, without including the “hundreds if not thousands” of non-party class members that Plaintiffs want to include.

For all of these reasons and those stated in the Memorandum of Points and Authorities below, Defendants respectfully move the Court to dismiss this case and order the parties to arbitrate all of their disputes on an individual basis pursuant to each of the five separate engagement agreements. If this Motion to Compel is denied in any respect, Defendants respectfully move the Court to grant their Motion to Dismiss.

MEMORANDUM OF POINTS AND AUTHORITIES

I. Background

A. Plaintiffs entered into contracts with Artex/Tribeca.

As explained in detail in Defendants' Motion to Dismiss, filed separately on this date, this case arises from engagement agreements between Plaintiffs and Artex/Tribeca related to the formation and operation of captive insurance companies to insure Plaintiffs' businesses. The agreements specify the services that Artex would provide, as well as the responsibilities of the captive insurance companies' owners.

Pursuant to those agreements, different Plaintiffs worked with Defendants to form and operate three different captive insurance companies: the Spectra Plaintiffs from 2011 to 2015 (¶¶ 114, 140), the Symphony Plaintiffs from 2005 to 2013 (¶¶ 156, 176), and the Treadstone Plaintiffs from 2009 to 2015 (¶¶ 180, 194).¹ The Symphony and Treadstone contracts were re-negotiated and amended to address their owners' business issues. (¶¶ 168, 180)

B. Each contract required the parties to arbitrate “any dispute” between them, but Plaintiffs filed this lawsuit anyway.

Each engagement agreement included the same dispute resolution provision, requiring arbitration in the event of “any dispute” between the parties to the agreement:

You and we agree that in the event of any dispute that cannot be resolved between the parties, that we will agree to seek to resolve such disputes through mediation in Mesa, Arizona, and if that fails, that all disputes will be subject to binding arbitration in Mesa, Arizona, with arbitrators to be agreed upon by the parties, and if no agreement is reached, then arbitrated by the American Arbitration Association (AAA). Each party shall bear its own costs in such mediation and arbitration. To reduce time and expenses, we each waive our right to litigate against one another regarding the services provided and obligations pursuant to this Agreement, and instead you and we have chosen binding arbitration.

(Ex. 1 at 6; Ex. 2 at 5; Ex. 4 at 5-6; Exs. 3, 5 at 11 (emphasis added).)

Despite the agreement that both sides “waive our right to litigate against one another,” Plaintiffs filed suit in this Court on behalf of themselves and a putative class. In it, they seek “the recovery of damages that [they] sustained in connection with their participation in Captive Insurance Strategies” — the strategies that were governed by, and implemented through, the engagement agreements. (¶ 62)

Plaintiffs are well aware that they agreed to arbitrate all disputes. For that reason, they include in the Complaint their arguments for avoiding or ignoring the dispute resolution provision. (¶¶ 272-78) Those arguments are addressed below.

II. Legal Standard

The Federal Arbitration Act enacts a “liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract.” AT&T Mobility v. Concepcion, 563 U.S. 333, 339 (2011). It permits any party “aggrieved by the alleged . . . refusal of another to arbitrate” to petition a district court for an order “directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4. Courts provide such relief under the FAA, Rule 12(b)(1), or both. Filimex v. Novoa Invs., 2006 WL 2091661, at *2 (D. Ariz.).

“By its terms, the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Chiron v. Ortho Diagnostic Sys., 207 F.3d 1126, 1130 (9th Cir. 2000). The court's inquiry is limited to two issues: “(1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Id. If the agreement is valid and encompasses the dispute, the court must “enforce the arbitration agreement in accordance with its terms.” Id. In making its decision, the court must take into account the “presumption of arbitrability” that applies “where the contract contains an arbitration clause[.]” Comedy Club v. Improv West Assocs., 553 F.3d 1277, 1284 (9th Cir. 2009).

III. Argument

The contracts here are valid agreements to arbitrate, and all of Plaintiffs claims are arbitrable, so under the FAA this Court must compel separate, individual, non-class arbitrations pursuant to each of the five engagement agreements' terms.

This is not an issue of first impression. In 2017, the Maricopa County Superior Court analyzed this exact same arbitration provision, found it to be “a clear and unambiguous agreement to arbitrate,” and compelled another of Artex's captive insurance clients to arbitrate all claims. (Ex. 6, Order in Catamount Constructors v Artex Risk Solutions (Ariz. Sup. Ct. 2017).)

A. The agreements are valid and enforceable.

There is no dispute that Plaintiffs signed engagement agreements and were bound by them. But the Complaint offers a list of reasons, veering between meritless and frivolous, that the arbitration provisions cannot be enforced. This Court should, like the court in Catamount, enforce this arbitration provision.

1.The agreement to arbitrate did not end.

Plaintiffs first contend that they are no longer bound by the arbitration clause because they terminated the engagement agreements before they filed this lawsuit. (¶ 272) They have it backwards. The arbitration provisions here do not say that the obligation to arbitrate ends when the contracts end, and the Supreme Court has long held that such silence “affords a basis for concluding that [the parties] intended to arbitrate all grievances arising out of the contractual relationship.” Nolde Bros. v. Local No. 358, 430 U.S. 243, 255 (1977).

The expiration of an agreement does not “automatically extinguish [a] duty to arbitrate grievances arising under the agreement.” Operating Eng'rs. v. Newmont Min., 476 F.3d 690, 692-93 (9th Cir. 2007). Instead, a dispute “arises under the contract, and therefore subjects the parties to arbitration,” if it “involves facts and occurrences that arose before expiration.” Id. at 693. Even if the case also involves some post-termination events, arbitration is mandatory so long as the pre-termination events “and the dispute over them is one that the parties agreed to arbitrate.” Id.; see also Filimex 2006 WL 2091661, at *5 (if an arbitration clause “fixes no temporal boundaries to its application,” it applies to post-termination conduct that is alleged along with pre-termination conduct).

This case centers on facts and occurrences that arose before the agreements ended in 2013 (Symphony) and 2015 (Spectra and Treadstone). The essence of the Complaint is that Defendants “developed, promoted, sold, implemented, and managed” the captive insurance arrangements to Plaintiffs' detriment. (¶ 62) All of that activity occurred while the agreements were still in place; providing for that activity was the very reason the agreements were put in place. And, by definition, the back-taxes, interest, and penalties that Plaintiffs hope to recover all relate to the years the agreements were in effect.

The Complaint's only allegations about post-termination conduct concern IRS and Tax Court proceedings about the captive insurance companies' tax effects (¶¶ 152, 176, 194, 262), which depend entirely on the pre-termination conduct of how those companies were formed and operated. The termination itself is irrelevant for purposes of arbitrating claims. “The arbitration must proceed even if it may take account of, and have some impact on, events that occurred after expiration” of the contract. Operating Eng'rs., 476 F.3d at 693-94.

2.The arbitration clause is not unconscionable.

Plaintiffs next contend that the arbitration provision is unenforceable because it is unconscionable. (¶¶ 273-76) Plaintiffs “have a high bar to meet in demonstrating that an arbitration agreement is unconscionable.” Coup v. Scottsdale Plaza Resort, 823 F. Supp. 2d 931, 947 (D. Ariz. 2011). They cannot clear that bar by convincing this Court to “assume an overly paternalistic attitude toward the parties to a contract by relieving one or another of them of the consequences of what is at worst a bad bargain.” Shupe v. Cricket Commc'ns, 2013 WL 68876, at *5 (D. Ariz.).

a. The arbitration clause is not procedurally unconscionable.

Procedural unconscionability means unfair surprise. Coup, 823 F. Supp. 2d at 947. To evaluate it, courts examine factors “influencing the real and voluntary meeting of the minds” including party sophistication, relative bargaining power, and whether the contract terms were clear or explained. Shupe, 2013 WL 68876, at *5. Applying those factors, the arbitration clauses here are enforceable.

Each arbitration provision, a single paragraph in the agreement's final section, is not “fine print”: it appears in the same size font as the rest of the contract. It is written clearly, stating that “all disputes will be subject to binding arbitration,” meaning “we each waive our right to litigate against one another . . . instead you and we have chosen binding arbitration.” (The Complaint's allegation (¶ 276) that Plaintiffs “would not have understood the language . . . to mandate arbitration or waive a jury trial” is simply a refusal to understand the meaning of English words.) An arbitration provision written in “easily understood language” with the “same size font” in “plain sight on a signature page” is valid. Perry v. NorthCentral Univ., 2011 WL 4356499, at *5 (D. Ariz.).

The Plaintiffs allege they are sophisticated businesspeople and businesses. (¶¶ 102-03, 155, 177, 221) There is no reason to doubt their bargaining power, but, in any event, “[m]ere inequality in bargaining power is not sufficient to invalidate an arbitration agreement.” Coup, 823 F. Supp. 2d at 948.

The contracts, three of them six pages long and two of them only twelve pages long, contained the arbitration provision in the last section of the contract — immediately preceding Plaintiffs' signature. By signing, Plaintiffs acknowledged that they “fully read, understand, accept, and agree to all the terms and conditions of this Agreement as set forth above.” The contracts also stated in that section, “[y]ou acknowledge that we have encouraged you to consult with your own attorneys, accountants and advisors prior to entering into this Agreement, and that you have had ample opportunity to do so. We recommend that you consult with other professionals and advisors regarding the appropriateness, terms, and conditions of this contract” — one of which, of course, was the arbitration provision.

The proffered time to consult with counsel and other advisors was not illusory. The Spectra agreement, for example, was prepared on October 26, 2011 and signed over two weeks later, on November 10. The Spectra and Symphony agreements were also re-negotiated and amended over a period of years, further showing that Plaintiffs could not have been surprised by the arbitration clause.

Plaintiffs do not allege that they asked about the meaning of the arbitration provision, nor do they allege that anyone “prevented [them] from inquiring about the meaning of any of the arbitration provisions.” Perry, 2011 WL 4356499, at *5. An arbitration provision is not unconscionable when plaintiffs have “the opportunity to review the contents and ask any questions[.]” Coup, 823 F. Supp. 2d at 948. In short, there is no sign of any unfair surprise here.

b. The arbitration clause is not substantively unconscionable.

Substantive unconscionability means unfairness to one side. Coup, 823 F. Supp. 2d at 950. Signs of “substantive unconscionability are contract terms so one-sided as to oppress or unfairly surprise an innocent party, an overall imbalance in the obligations and rights imposed by the bargain, and significant cost-price disparity.” Id. But an arbitration clause “should not be struck down as unconscionable merely because Plaintiffs' counsel speculates, with no supporting facts of any kind, that the arbitration rules themselves are not fair and are so one-sided to be oppressive to Plaintiffs.” Id. at 954.

Here, the arbitration clause is not one-sided — it is mutual — and Plaintiffs have not alleged any “significant cost-price disparity,” let alone met their burden of showing arbitration would be “prohibitively expensive.” Id. at 955; see also Perry, 2011 WL 4356499, at *7. The class litigation they propose in violation of the agreements would surely be more expensive than the individual arbitration required by the agreements.

Nor is the agreement's silence about specific arbitration rules (¶¶ 274, 276) unconscionable. Whatever rules the parties agree to use, or are imposed by the arbitrators, will apply equally to both sides. And there is no support for the contention that Artex added the arbitration provision “to reduce liability exposure for and prevent public disclosure” of alleged misconduct. (¶ 274) The arbitration provision does not even require confidentiality, which will apply only if the arbitration rules require it or the parties agree to it.

Finally, Plaintiffs cannot avoid arbitration with the conclusory allegation that it was part of a “fraudulent scheme.” (¶ 274) A fraud-based challenge to arbitration “must allege fraud in the inducement of the arbitration clause itself — an issue which goes to the 'making' of the agreement to arbitrate.” Chaney v. Berkshire Hathaway Auto., 2017 WL 6520662, at *3 (D. Ariz.). Here, Plaintiffs do not and cannot allege that they were fraudulently induced into agreeing to arbitration itself. Thus, Plaintiffs have failed to establish that the arbitration provision is unconscionable.

3.The arbitration clause does not violate the “reasonable expectations” doctrine.

Third, Plaintiffs contend the arbitration provision violates the “reasonable expectations” doctrine (¶ 277), which is a consumer protection doctrine that “protects parties to standardized contracts against overreaching by holding the drafter to good faith and terms which are conscionable.” Coup, 823 F. Supp. 2d at 945. Terms are beyond the range of reasonable expectation “if one party to the contract has reason to believe that the [consumer party] would not have accepted the agreement if he had known that the agreement contained the particular term.” Harrington v. Pulte Home, 119 P.3d 1044, 1050-51 (Ariz. Ct. App. 2005).

As explained above, this is an ordinary, clearly-written arbitration provision that applies to both sides equally and contains no oppressive or one-sided terms. It was printed in the normal font in the final section of short contracts. Its meaning was obvious to anyone who read the contract. It was not part of a take-it-or-leave-it consumer contract; it was part of a negotiated deal between sophisticated people and businesses who were agreeing to pay “substantial fees” to form and operate captive insurance companies. (¶¶ 77, 229) The reasonable expectation doctrine has no role to play here.

B. All of Plaintiffs' claims are arbitrable.

The Supreme Court holds that a valid arbitration agreement carries “a presumption of arbitrability,” and a motion to compel arbitration “should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” AT&T Techs. v. Commc'ns Workers of Am., 475 U.S. 643, 650 (1986). The presumption is “particularly applicable” when the language of the arbitration provision is broad. Id. “[D]ue regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration.” Volt Info. Scis. v. Bd. of Trustees of Stanford, 489 U.S. 468, 475-76 (1989).

The arbitration provision here applies to “any dispute” and “all disputes,” including disputes “regarding the services provided and obligations pursuant to this Agreement.” This language is extraordinarily broad—at least as broad as the “arising under or pursuant to” language that this Court has previously found to be “especially broad.” Filimex, 2006 WL 2091661, at *5; see also Heron v. Sky NJ, 2016 WL 705246, at *3 (E.D. Pa.) (“'Any disputes regarding' is broad language . . .”). This broad arbitration clause “clearly embraces every dispute having a relationship” to the agreements. Filimex, 2006 WL 2091661, at *5.

Each of the Complaint's 13 causes of action is about the captive insurance companies that were formed and managed pursuant to the engagement agreements. All of Plaintiffs' claims for damages relate to tax-related payments that they agreed to pay the IRS due to those captive insurance companies. Thus, all of the disputes between the parties clearly have a relationship to the agreements, and they must be arbitrated.

In their final attempt to avoid arbitration, Plaintiffs include this sentence in the Complaint: “In addition, the claims of Plaintiffs and the Class are beyond the scope of the arbitration provision in the Retainer Agreements because these agreements specifically do not govern the tax, legal, investment, and accounting advice Artex provided.” (¶ 278) That is a reference to the following language from the engagement agreement:

Please note that Artex Risk Solutions, Inc. is neither a law firm nor an accounting firm. Artex does not provide any legal, tax or accounting advice. We are not your lawyers or accountants. You acknowledge that we have encouraged you to consult with your own attorneys, accountants and advisors prior to entering into this Agreement, and that you have had ample opportunity to do so. We recommend that you consult with other professionals and advisors regarding the appropriateness, terms, and conditions of this contract.

As the context makes clear, Plaintiffs have misread the agreement. It provides that Artex is not responsible for giving any tax or legal advice, which Plaintiffs must obtain from their own lawyers, accountants, and advisors. The agreement strongly encourages Plaintiffs to consult their own legal counsel. But the language does not, as Plaintiffs seem to believe, remove from the scope of arbitration disputes over any tax and legal advice that Artex allegedly gave. The arbitration provision reaches “all disputes” between the parties, which necessarily includes disputes over whether any advice (tax, legal, or otherwise) allegedly offered by Artex during the course of its services to Plaintiffs is actionable. (As explained in the Motion to Dismiss, it is not.) And again, even if there were some ambiguity, any doubts must be resolved in favor of arbitration. Volt, 489 U.S. 475-76.

C. This Court should compel individual, non-class arbitrations.

Presented with valid agreements to arbitrate and arbitrable claims, this Court must enforce the agreements according to their terms — “including terms providing for individualized proceedings.” Epic, 138 S. Ct. at 1619. “[E]very federal court of appeals to have considered the question . . . has determined that class availability is a fundamental question of arbitrability” for the court to decide. JPay v. Kobel, 904 F.3d 923, 935-36 (11th Cir. 2018) (collecting cases).

Given the vast differences between arbitration against an individual versus a class, a court may not compel class arbitration “unless there is a contractual basis for concluding that the party agreed to do so.” Stolt-Nielsen v. AnimalFeeds Int'l, 559 U.S. 662, 684 (2010); see also Epic, 138 S. Ct. at 1623 (detailing the “risks and costs” associated with classwide arbitration).² For several reasons, there is no basis for finding that the parties here agreed to class arbitration.

“The principal reason to conclude that this arbitration clause does not authorize classwide arbitration is that the clause nowhere mentions it.” LexisNexis Div. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013). The arbitration clause here does not mention class arbitration or say anything at all about “class” claims, “collective” claims, or “joining” claims. The lack of affirmative authorization for class arbitration shows that the parties did not agree to it.

Second, the arbitration clause addresses disputes “between the parties,” and “against one another,” including disputes “regarding the services provided and obligations pursuant to this Agreement.” It does not include disputes between Artex and parties to other agreements. The words used do not contemplate a group arbitration including people or companies that are strangers to the disputes that have arisen out of the single contract in which the arbitration clause is found.³ The language, instead, “suggests a presumption of individual arbitration.” Hernandez v. San Gabriel Temp. Staffing Servs., 2018 WL 1582914, at *7 (N.D. Cal.) (“[I]n addition to not mentioning class proceedings, the terms of the arbitration provision focus exclusively on only two parties”); see also Cobarruviaz v. Maplebear, 143 F. Supp. 3d 930, 945 (N.D. Cal. 2015) (“The arbitration clause . . . focuses its scope on disputes that arise out of or are related to 'services performed by the Contractor' or the Agreement, which is specifically between Instacart and the individual Contractor.”); Martinez v. Leslie's Poolmart, 2014 WL 5604974, at *4 (C.D. Cal.) (“the agreement refers to plaintiff exclusively in terms of 'I,' 'me,' and 'my'”); Chico v. Hilton Worldwide, 2014 WL 5088240, at *12 (C.D. Cal.) (the contracts “make no reference to employee groups, putative class members, other employees, or other employees' claims or disputes”).

Third, the arbitration provision explains that arbitration is intended to “reduce time and expenses” by foregoing litigation. But “switch[ing] from bilateral to class arbitration sacrifices the principal advantage of arbitration — its informality — and makes the process slower [and] more costly.” Concepcion, 563 U.S. at 348. Reading the arbitration provisions here to allow class arbitration would defeat, rather than enforce, the agreements' terms.

Fourth, arbitration with a class makes no sense when considering the contracts as a whole. The disputes here, which involve the tax treatment of captive insurance companies, are individualized and fact-intensive. As the 2009 Treadstone agreements put it, “[t]he tax deductibility of the insurance premiums and the tax status of the company is an issue of fact . . . the final determination of this fact could ultimately depend on an assessment of all the relevant facts and circumstances by a court.” (Exs. 3, 5 at 10.)

Experience has shown that assessment to require the analysis of numerous individual details. The U.S. Tax Court has ruled on five captive insurance cases in recent years, none of which involved the Defendants in the present case.⁴ Three were taxpayer victories; two were taxpayer losses. In each case, the Tax Court recognized that the tax issues around captive insurance arrangements involve the complex interplay of portions of the tax code that are not clear, and the decisions rely on an analysis of the facts and circumstances of each case. Some of these opinions are over 100 pages long. The essence of a classwide proceeding is that the same evidence can prove every class member's claim, but here the evidence will be especially individualized. Thus, “[n]othing in the terms of the agreement implies that the parties envisioned anything other than bilateral arbitration.” Carvajal v. Garden Fresh Rest., 2014 WL 12607682, at *3 (C.D. Cal.) (compelling individual arbitration).

The lengthy decisions in the five Tax Court cases thus make clear that even in litigation (rather than arbitration, as required by the agreements), a class could not be certified. In all five decisions, many pages are spent analyzing the particular facts and circumstances of the captive insurance arrangement in question, including (among other issues) the number and types of risks covered by the specific insurance policies issued by the captive insurance company, whether premiums for each policy were priced reasonably, whether and to what extent the captive insurance company paid out claims, and whether binding insurance policies had been issued. In the present case, too, the facts and circumstances are different for each captive insurance company, precluding any decision maker from addressing them collectively, on a classwide basis.

The Complaint itself also makes this clear. Looking just at the captive insurance companies operated by the named Plaintiffs (and setting aside those operated by the “hundreds if not thousands” of class members), the Complaint alleges critical differences: (i) the captive insurance companies were formed at different times and maintained for different periods (¶¶ 113, 140, 163-64, 176, 180, 194); (ii) the captive insurance companies issued different insurance policies that covered different risks for different premiums (¶¶ 102, 123 (Spectra's telecommunications business risks), 155-56, 168 (Symphony's real estate development business risks), 177 (Treadstone's medical-profession and other business risks)); and (iii) two of the captive insurance companies participated in the Provincial risk pool, but one did not (¶ 181).

Those are only a few of the individual issues present in this case which necessarily would predominate over any common issues, and also render the named Plaintiffs atypical of the putative class. It is thus not surprising that attempts to certify classes arising from other alleged “tax shelter” arrangements have failed. Becnel v. KPMG, 229 F.R.D. 592, 596-97 (W.D. Ark. 2005). Thus, even if there were no arbitration agreements, it would be proper to strike the class allegations at this stage. Baughman v. Roadrunner Commc'ns, 2013 WL 4230819, at *2 (D. Ariz.) (“this Court may strike class allegations prior to discovery if the complaint demonstrates that a class action cannot be maintained”); Galas v. Lending, 2014 WL 4053406, at *13 (D. Ariz.) (refusing to certify a class on civil RICO and common law fraud allegations).

In sum, there is no contractual basis to conclude that the parties agreed to class arbitration, so this Court should compel individual arbitration under each separate engagement agreement. In addition, because all of Plaintiffs' claims are arbitrable, this lawsuit should be dismissed rather than stayed pending arbitration. Johnmohammadi v. Bloomingdale's, 755 F.3d 1072, 1074 (9th Cir. 2014) (affirming dismissal).

IV. Conclusion

For the foregoing reasons, Defendants respectfully request that this Court dismiss this case and order the parties to arbitrate all of their disputes on an individual basis pursuant to each of the five separate engagement agreements. If this Motion to Compel is denied in any respect, Defendants respectfully move the Court to grant their Motion to Dismiss.

DATED this 8th day of March, 2019

Respectfully submitted,

SNELL & WILMER LLP

By: Barbara J. Dawson
Joseph G. Adams
Attorneys for Defendants
Artex Risk Solutions, Inc., Arthur J.
Gallagher & Co., and Debbie Inman

WINSTON & STRAWN LLP

By: Stephen V. D'Amore
Scott P. Glauberman
Michael A. Skokna
Attorneys for Defendants
Artex Risk Solutions, Inc., Arthur J.
Gallagher & Co., and Debbie Inman

Tom Melsheimer
tmelsheimer@winston.com
WINSTON & STRAWN LLP
2121 North Pearl Street, Suite 900
Dallas, TX 75201
Telephone: (214) 453-6500

Lawrence M. Hill
lhill@winston.com
WINSTON & STRAWN LLP
200 Park Avenue
New York, NY 10166-4193
Telephone: (212) 294-6700

STEPTOE & JOHNSON LLP

By: Karl Tilleman
ktillema@steptoe.com
Erin Bradham
ebradham@steptoe.com
Telephone: (602) 257-5200

Attorneys for Defendants
TSA Holdings, LLC f/k/a Tribeca Strategic Advisors, LLC;
TBS LLC d/b/a PRS Insurance;
Karl Huish;
Jeremy Huish;
Jim Tehero;
Provincial Insurance, PCC

SANDERS & PARKS, P.C.

By: J. Steven Sparks
Steve.sparks@sandersparks.com
Vincent Miner
Vincent.miner@sandersparks.com
Telephone: (602) 532-5679

Attorneys for Defendants
Epsilon Actuarial Solutions, LLC;
Julie A. Ekdom

KUTAK ROCK LLP

By: J. Michael Low
Michael.low@kutakrock.com
Paul Gerding, Jr.
Paul.gerding@kutakrock.com
Telephone: (480) 429-4874

Attorneys for Defendant
AmeRisk Consulting, LLC

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ORDER

Upon consideration of Defendants' Joint Motion to Compel Individual Arbitrations, and good cause appearing therefore,

IT IS HEREBY ORDERED that Defendants' Joint Motion to Compel Individual Arbitrations is GRANTED.

IT IS FURTHER ORDERED that this case is dismissed and the parties shall submit the claims in the Complaint to individual arbitrations.