113WF4

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Search Terms: 97 Antitrust & Trade Reg. Rep. (BNA) 606

Send to: INT'L ISLAMIC UNIVERSI, LEXIS/113WF4

INTERNATIONL ISLAMIC UNIVERSITY MALAYSIA
JALAN GOMBAK
KUALA LUMPUR, MYS 53100
 Page 1

Copyright 2011 The Bureau of National Affairs, Inc.

Antitrust and Trade Regulation Report

97 Antitrust & Trade Reg. Rep. (BNA) 606

November 27, 2009

LENGTH: 2424 words

SECTION: STATE NEWS

TOPIC: Arbitration:

TITLE: NONSIGNATORY TO ACCORD REQUIRING ARBITRATION HAS STANDING TO COMPEL

ALTERNATIVE FORUM

TEXT:

A nonsignatory to a contract signed by a subsidiary that includes an arbitration clause may compel arbitration under
principles of equitable estoppel, the New Jersey Appellate Division instructs, where the issues to be litigated are
intertwined with the agreement containing the arbitration clause (EPIX Holdings Corp. v. Marsh & McLennan Cos.,
Inc., N.J. App. Div., No. A-3059-08T3, 11/17/09).

The court, reversing the denial of the defendant's motion to compel arbitration of the plaintiff's antitrust and related
common law claims, rules that the arbitration clause, which provides for arbitration of any dispute "arising out of" the
agreement, is broad enough to encompass claims going to the formation of the underlying contract and thus extends to
the price-fixing and related common law claims here.

Unlike employment claims alleging violations of the Law Against Discrimination, the state legislature did not
intend statutory antitrust and restraint of trade claims to be non-arbitrable, the court holds. Finally, the court is not
disturbed by the fact that arbitration in this case will not conclude the entire litigation. The fact that claims remain
pending in the trial court against other co-defendants is not a bar to the enforcement of the arbitration clause, as
"piecemeal resolution is allowed when necessary to give effect to an arbitration agreement."

Challenged Conduct.

EPIX Holdings Corp. is a professional employer organization that contracts with small businesses to provide
payroll services and other benefits, including workers' compensation insurance coverage.

In September 2000, EPIX retained Marsh & McLennan Companies, Inc. as its exclusive broker-agent and advisor
to secure workers' compensation coverage. In the 2000 and 2001 policy years, EPIX's primary workers' compensation
insurance provider was Hartford Underwriters Insurance Co. In June 2002, with little notice, Hartford gave notice that it
was declining to renew its workers' compensation insurance policies with EPIX for that year. With no alternative plan in
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BNA, Inc., Antitrust and Trade Regulation Report, November 27, 2009

the works, on July 26, 2002, Marsh finalized negotiations with American International Group, Inc. for EPIX's workers'
compensation insurance policy and premium for the 2002 policy year.

Subsequently, AIG subsidiary AIG Risk Management, Inc. (AIGRM) issued a Binder Letter to Marsh, and EPIX
immediately commenced making payment on the insurance policy that went into effect on Sept. 1, 2002. The Binder
Letter, among other things, explicitly required execution of a more detailed Payment Agreement. The Payment
Agreement was ultimately executed between National Union, with whom AIG placed the insurance policy, and EPIX in
February 2003, but was made effective as of September 2002.

Included in the Payment Agreement was an arbitration clause requiring unresolved disputes "arising out of this
Agreement must be submitted to arbitration."

In August 2008, EPIX sued AIG, National Union, Hartford, and Marsh; it alleged 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. The gravamen of EPIX's action was that the defendants engaged in an elaborate conspiracy to
"manipulate the market for insurance" and rig the bidding on its 2002 and 2003 workers' compensation insurance
policies, resulting in inflated premiums and onerous terms with inadequate coverage for participants.

After answering plaintiff's complaint, AIG moved to compel arbitration.

The lower court denied the motion after it found AIG lacked standing to enforce the arbitration clause because it
was not a party to the Payment Agreement. The lower court further held that, in any event, EPIX's dispute with the
defendants was not within the scope of the arbitration clause.

Standing to Compel Arbitration.

Judge Anthony J. Parrillo, disagreeing with the lower court, concludes that, based on equitable estoppel principles,
AIG has standing to enforce the arbitration provision in the Payment Agreement.

EPIX cannot avoid arbitration, the court rules, because its allegations against AIG are intertwined with the Payment
Agreement and with EPIX's allegations against National Union -- a signatory to the Payment Agreement -- with whom
AIG is clearly aligned.

Judge Parrillo explains that it "is clear" that, in some situations, a non-signatory to an arbitration agreement may
compel a signatory to arbitrate. See Arthur Anderson LLP v. Carlisle, 129 S.Ct. 1896, 1901 (2009). Arbitration
agreements are analyzed under traditional principles of state law, and New Jersey law recognizes non-signatory
standing to compel arbitration based on the principle of equitable estoppel. See Bruno v. Mark McGrann Assoc., 388
N.J. Super. 539, 548 (App. Div. 2006).

The estoppel inquiry is fact specific, JLM Indus., Inc. v. Stolt-Nielsen, S.A., 387 F.3d 163, 178 (2d Cir. 2004), but
usually involves an analysis of the connection between the claim, the arbitration agreement and the parties. JLM, at 177.
The court finds that this approach is consistent with federal case law interpreting the Federal Arbitration Act (FAA), 9
U.S.C. § 1 - § 16.

But even where the inextricable connectivity was not considered itself dispositive of the issue, the combination of
the requisite nexus of the claim to the contract, together with the integral relationship between the non-signatory and the
other contracting party, was recognized as a sufficient basis to invoke estoppel. Angrisani v. Fin. Tech. Ventures, L.P.,
402 N.J. Super. 138, 154 (App. Div. 2008).

Here, "all the factors favoring estoppel are present," and AIG has standing as a non-signatory to compel arbitration
of EPIX's claims against both AIG and National Union. As the parent corporation, AIG clearly is aligned to its
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BNA, Inc., Antitrust and Trade Regulation Report, November 27, 2009

wholly-owned subsidiary National Union. Furthermore, the court notes that EPIX's claims against AIG are identical to
its claims against National Union. Most significant to the court, however, is the fact that EPIX's claims "are bound up
with the Payment Agreement to which EPIX and National Union are parties." The court reasons that, had EPIX "not
purchased workers' compensation insurance and entered into the Payment Agreement ..., no cause of action against the
AIG defendants would have arisen."

Broad Arbitration Clause.

Having concluded that AIG has standing to compel arbitration, Judge Parrillo has no difficulty determining that
EPIX's price-fixing and related common law claims fall within the scope of the arbitration clause.

EPIX cannot convince the court that the operative document at issue actually is the Binder Letter, which included
no arbitration provision, and that the Payment Agreement "merely creates an optional finance plan."

"[T]he textbook understanding of binder is '[a] temporary contract of insurance ... intended to give the applicant
protection pending the execution and delivery of a formal written policy.' " AGF Marine Aviation & Transp. v. Richard
C. Cassin CIT Group/Sales Fin., Inc., 544 F.3d 255, 261 (3d Cir. 2008). The court also notes that, in this case, the
Binder Letter "not only contemplated but expressly required execution of a subsequent Payment Agreement."

Having established the Payment Agreement as the operative document, the court has no trouble finding the
arbitration provision to be broad enough to encompass the disputes at issue here. The court considers that "the claims
the AIG defendants seek to arbitrate not only 'arise out of' but are undeniably intertwined with the contract between
EPIX and National Union, as it is the fact of EPIX's entry into the contract containing the allegedly inflated price and
other oppressive terms that gives rise to the claimed injury.

EPIX fails to persuade the court that its price-fixing claim is not subject to arbitration because the defendants'
antitrust conduct occurred before execution of, and was therefore independent and distinct from, the February 2003
Payment Agreement "solely misses the point. Simply because the alleged wrongful conduct pre-dates the parties'
agreement does not mean that the claimed antitrust injury is unconnected or unrelated thereto."

No Legislative Bar.

The court, having found the claims to fall within the scope of the arbitration clause, next determines that the claims
are arbitrable.

EPIX argued that its claims, at a minimum, require an explicit waiver of its right to pursue its statutory remedy in
court. However, the court notes that EPIX "cites nothing in the text of the New Jersey Antitrust Act or in its legislative
history that suggests we should treat claims arising thereunder in a manner different than any other claims for purposes
of arbitration."

The court, after examining the Act and its "scant legislative history," perceives nothing that would suggest that the
state legislature intended to prohibit arbitration of claims pursuant to the Act without a clear and explicit waiver of the
right to judicial adjudication. The court can discern no right to a jury trial in the Act. The court thus concludes that
EPIX "may effectively vindicate its statutory cause of action and related common law claims against the AIG
defendants" through arbitration "without an express and specific waiver of its right to judicial adjudication."

Bifurcation of Claims.

The court finds no bar to the defendants' motion to compel arbitration based on the fact that arbitration of EPIX's
claims will not conclude the entire litigation, and its claims against Marsh and Hartford remain pending in the lower
court.
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BNA, Inc., Antitrust and Trade Regulation Report, November 27, 2009

The arbitration clause here is governed by the FAA, and Judge Parrillo reminds that federal law "requires
piecemeal resolution when necessary to give effect to an arbitration agreement." Moses H. Cone Mem'l Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 20 (1983) (emphasis added).

The court rules that the possible inconvenience to EPIX "is not a sufficiently compelling ground to overcome New
Jersey's strong public policy favoring arbitration," in particular where the parties have expressly agreed to this method
of dispute resolution. While the court "look[s] with disfavor upon the unnecessary bifurcation of disputes between
judicial resolution and arbitration," Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 137
(2001) (quoting Ohio Cas. & Ins. Co. v. Benson, 87 N.J. 191, 199 (1981)) (emphasis added), in this case the parties'
"explicit agreement to arbitrate in this case makes bifurcation necessary."

Counsel for National Union: Shalom D. Stone, Walder, Hayden & Brogan, P.A., Rosedale, N.J.; Andrew C. Finch,
admitted pro hac vice, Paul, Weiss, Rifkind, Wharton & Garrison, L.L.P., New York, N.Y.; counsel for EPIX: Richard
A. DeTar, admitted pro hac vice, Miles & Stockbridge, P.C., Easton, Md.; Robert G. Goodman, Palmisano & Goodman,
Woodbridge, N.J.

LANGUAGE: ENGLISH
 113WF4
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Time of Request: Wednesday, May 18, 2011 11:00:30 EST

Print Number: 1843:286244879

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Send To: INT'L ISLAMIC UNIVERSI, LEXIS/113WF4

INTERNATIONL ISLAMIC UNIVERSITY MALAYSIA
JALAN GOMBAK
KUALA LUMPUR, MYS 53100