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Epix Holdings Corp. v. Marsh & McLennan Companies

November 17, 2009


On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-5283-08.

The opinion of the court was delivered by: Parrillo, J.A.D.



Argued September 30, 2009

Before Judges Carchman, Parrillo and Lihotz.

This appeal presents issues concerning whether a nonsignatory may enforce an arbitration clause in a contract signed by its subsidiary corporation, the scope of that arbitration agreement, and whether, even if included therein, the Legislature nevertheless intended statutory antitrust claims to be non-arbitrable. Defendants National Union Fire Insurance Company of Pittsburg, PA (National Union) and its parent company, American International Group, Inc. (collectively, AIG defendants) appeal the Law Division's order denying AIG defendants' motion to compel arbitration of plaintiff EPIX Holdings Corporation's (EPIX or plaintiff) antitrust and common law claims in a pending lawsuit, based on an arbitration clause in a "Payment Agreement" executed between EPIX and National Union. For the following reasons, we reverse.

EPIX is a professional employer organization (PEO) that contracts with small businesses to provide payroll services and other benefits, including workers' compensation insurance coverage, generally offering lower insurance rates due to the economies of scale attained by pooling many employees into one large group within the PEO. In September 2000, EPIX retained Marsh & McLennan Companies, Inc.*fn1 as its exclusive broker-agent and advisor to secure workers' compensation coverage for EPIX and its nearly 50,000 worksite employees and 3,000 small business customers at the best rate and coverage available in the marketplace. During the 2000 and 2001 policy years, EPIX's primary workers' compensation insurance provider was Hartford Underwriters Insurance Company (Hartford). According to EPIX, in June 2002, less than ninety days before their expiration, Hartford unexpectedly gave notice that it was declining to renew its workers' compensation insurance policies with EPIX for the 2002 policy year. With no alternative plan in the works, on July 26, 2002, Marsh finalized negotiations with AIG for EPIX's workers' compensation insurance policy and premium for the 2002 policy year.

Thereafter, on August 29, 2002, AIG Risk Management, Inc. (AIGRM), an AIG subsidiary, issued a Binder Letter to Marsh, and EPIX immediately commenced making payment on the insurance policy that went into effect on September 1, 2002.*fn2 The document, which was not signed by either EPIX or Marsh, quoted the annual and monthly premiums and provided that payments were due on the fifteenth of each month of the policy year. In addition, the letter included formulas for monthly premium adjustments and loss provision annual adjustments as well as the collateral requirement of $15 million. Further, AIG reserved the right to modify and amend the list of undesirable class codes (of the employees covered under the workers' compensation insurance policy) "on a going forward basis." Significantly, for present purposes, the Binder Letter explicitly required execution of a more detailed Payment Agreement:

You must execute and return an original executed copy of both the Payment Agreement and the Schedule, and any other documents we deem necessary to adequately document the terms of the program, to us at our address shown above within 30 days after the Effective Date above or 30 days after the date of the Underwriter's signature hereon, whichever is later.

Failure to execute the Payment Agreement allowed National Union, with whom AIG placed the insurance policy, to void the "Finance Plan" summarized in the Binder Letter, making the entire amount of the "Estimated Total Cost" immediately due and payable to National Union.

The Payment Agreement was executed by EPIX and National Union, "on behalf of itself and its affiliates," in February 2003, but made effective as of September 2002. The agreement expressly set forth in detail the terms and conditions of EPIX's payment obligation, including the "premiums and premium surcharges" payable for the workers' compensation policies and described the "collateral," including letters of credit, EPIX was required to deliver. In a section entitled "What have you and we agreed to?", the Payment Agreement expressly stated:

We have agreed to the following: - to provide You insurance and services according to the Policies and other agreements; and - to extend credit to You by deferring our demand for full payment of the entire amount of Your Payment Obligation if You make partial payments according to this Agreement.

To induce us to agree as above, You have agreed to the following: - to pay us all Your Payment Obligation and to perform all Your other obligations according to this Agreement and Schedule for all entities covered by the Policies. - to provide us with collateral according to this Agreement and Schedule.

The Payment Agreement also contained an arbitration clause providing:


What if we disagree about payment due?

If You disagree with us about any amount of Your Payment Obligation that we have asked You to pay, within the time allowed for payment You must: - give us written particulars about the items with which You disagree; and - pay those items with which You do not disagree . . . .

What about disputes other than disputes about payment due?

Any other unresolved dispute arising out of this Agreement must be submitted to arbitration . . . .

The arbitration clause also provides that "arbitration must be governed by the United States Arbitration Act," and that the arbitrators would have "exclusive jurisdiction over the entire matter in dispute, including any question as to arbitrability."

On August 20, 2008, plaintiff sued AIG,*fn3 National Union, Hartford,*fn4 and Marsh, alleging various claims arising from this transaction under the New Jersey Antitrust Act, N.J.S.A. 56:9-3 - including restraint of trade, price-fixing, unfair business practices, civil conspiracy, commercial bribery, and unjust enrichment - as well as common law claims against Marsh for breaches of contract and fiduciary duty, professional negligence, negligent misrepresentation, and fraud.*fn5 The gravaman of plaintiff's action, as described in the first fifteen paragraphs of its 60-page, 208-paragraph complaint, concerned an alleged elaborate conspiracy among the AIG, Hartford, and Marsh defendants to "manipulate the market for insurance" and rig the bidding on its 2002 and 2003 workers' compensation insurance policies, thereby enabling the AIG defendants to charge "inflated premiums" and impose "onerous terms" "with inadequate coverage." Pursuant to this scheme, Hartford submitted a false and contrived "B quote" in June 2002 "to deceive EPIX into believing the AIG's July 2002 premium quote was fair and reasonable" in comparison. Marsh, acting in concert with AIG and Hartford, obtained Hartford's renewal quote for the 2002 policy year supposedly in exchange for kickbacks that AIG had agreed to pay Marsh pursuant to "a confidential contingent commission agreement" between the three defendants. This scheme was designed "to cause Marsh to steer business to [AIG and Hartford] and not others, and to shield them from fair competition at fair prices in the market place." Consequently, according to plaintiff, negotiations for the quote were completed on July 26, 2002, resulting in EPIX paying "more in premiums, costs and letters of credit than it would have paid in the absence of this conduct," and thus sustaining "substantial damages." Based on these allegations, plaintiff sought, inter alia, disgorgement "of all premiums paid by EPIX . . . over and above the fair and competitive premium price for the [workers' compensation] Insurance provided by AIG to EPIX during this time period."

After answering plaintiff's complaint, AIG moved to compel arbitration, to which EPIX objected. Following argument, the Law Division judge denied the motion, holding that AIG lacked standing to enforce the arbitration clause because it was not a party to the Payment Agreement and that, in any event, EPIX's dispute with defendants was not ...

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