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Arctic Glacier U.S.A., Inc. v. Principal Life Insurance Company

United States District Court, D. Maryland

June 19, 2017

ARCTIC GLACIER U.S.A., INC., et al., Petitioners,
v.
PRINCIPAL LIFE INSURANCE COMPANY, Respondent.

          MEMORANDUM OPINION

          Paula Xinis United States District Judge

         Pending before the Court is a “Petition to Compel Arbitration and Other Dispute Resolution Procedures, ” ECF No. 1, pursuant to the 9 U.S.C. § 4 of the Federal Arbitration Act, filed by Arctic Glacier U.S.A., Inc. (“Arctic Glacier U.S.A.”) and the Arctic Glacier U.S.A., Inc. Savings and Retirement Plan (“the Plan, ” and collectively, “Petitioners”). Respondent Principal Life Insurance Company (“Respondent”) opposes the Petition. See ECF No. 7.[1] For the reasons stated below, the Court orders that this case be transferred to the United States District Court for the District of Nebraska, consistent with the arbitration clause in the pertinent agreement.

         I. Background

         Arctic Glacier U.S.A. is a Delaware corporation headquartered in the state of Minnesota and is in the business of providing packaged ice products. The Plan is a retirement benefits plan sponsored by Arctic Glacier U.S.A. for their employees. See Service Agreement, ECF No. 1-1 at 2. Respondent Principal Life Insurance Company is an Iowa corporation with its principal place of business also in Iowa, licensed to conduct business as an insurance company in the state of Maryland.[2] See ECF No. 1 at 3.

         According to the Petition, Respondent entered into a Service and Expense Agreement (the “Agreement”) with Arctic Glacier International, Inc. as the Plan's original sponsor, effective January 1, 2011. See Service Agreement, ECF No. 1-1; see also ECF No. 1 at 1.[3] The “Duration of Agreement” provision in the Agreement states that the “Agreement will remain in effect indefinitely. It will be fully binding on the Parties. It will also extend to their respective successors and assigns.” See Service Agreement, ECF No. 1-1 at 8. However, the Agreement also requires that “any right, title, interest or performance with regard to this Agreement” may be assigned only with “the express written agreement of both Parties.” See Service Agreement, ECF No. 1-1 at 8-9.

         Petitioner acknowledges that there is no one document that expressly reflects assignment to Artic Glacier U.S.A. and the Plan by “express written agreement of both Parties” of the Agreement. Rather Petitioners include in the Petition documentary evidence supporting that as of July 2012, the Agreement was assigned from Arctic Glacier International, Inc. to Arctic Glacier U.S.A. Petitioners specifically include amendments executed by both parties which changed the Plan's name from “Arctic Glacier International, Inc. Savings and Retirement Plan” to “Arctic Glacier U.S.A., Inc. Savings and Retirement Plan.” See Adoption Agreement, ECF No. 1-6 at 12; see also Letter re “Change in Plan Sponsorship, ” ECF No. 1-6 at 5. This Plan amendment, effective July 27, 2012 and prepared by Respondent, expressly provided that the employer sponsoring the Plan going forward would be Arctic Glacier U.S.A., and not Arctic Glacier International. See Adoption Agreement, ECF No. 1-6 at 12. Petitioners also include Respondent's submission to the IRS identifying Arctic Glacier U.S.A. as the new employer and sponsor of the Plan and identifying Arctic Glacier U.S.A's employees as the Plan participants. See Principal Financial Group Prototype for Savings Plans, ECF No. 1-6 at 12.

         A. The Allegations Underlying the Dispute

         In early 2013, the Plan fiduciaries elected to make various changes to the Plan's investment options on behalf of Arctic Glacier U.S.A.'s employee-participants to take effect on April 1, 2013. See ECF No. 1 at 5. Pursuant to the Plan changes, unless the Plan's participants made an alternative selection, the Plan's participants invested by default in funds which were based upon a participant's age (“target date funds”). See Id. The degree of risk exposure in a particular target date fund is dependent upon the participant's anticipated retirement date. See id.

         Under the Employee Retirement Income Security Act of 1974 (“ERISA”), Respondent was required to provide a Notice of Change of Investment Options (“Notice”) to Plan participants by no later than March 1, 2013. See ERISA § 404(c)(4)(C)(i), 29 U.S.C. § 1104(c)(4)(C)(i) (notices required “at least 30 days and no more than 60 days prior to the effective date of the change . . . .”). Arctic Glacier U.S.A. provided Respondent with the names and addresses of the Plan's participants. See ECF No. 1 at 6; ECF No. 1-4 at 5. According to the Petition, Respondent failed to provide the requisite notice and instead sent the notices to nonparticipants. See ECF No. 1 at 6. Consequently, on April 1, 2013, the Plan participants had their entire retirement account balances and additional future contributions placed into the applicable default target date funds. See id.

         To make matters worse, say Petitioners, Respondent had no mechanism in place to catch the error. Accordingly, the Plan participant funds were misallocated until January 2014. Had Respondent employed quality control procedures, “Respondent would have become aware of its failures and, at a minimum, been able to limit the harm suffered by the Plan and its participants.” See ECF No. 1 at 7.

         B. The Dispute Resolution Procedures of the Agreement

         The Agreement that governs the Plan administration contains an arbitration provision. The parties do not dispute at this stage that Respondent's alleged notice failures fall under the Agreement's arbitration clause. Accordingly, Arctic Glacier U.S.A. and the Plan contend that Respondent's refusal to participate in the predicate resolution procedures per the Agreement justifies this Court compelling Respondent to submit to arbitration pursuant to § 4 of the Federal Arbitration Act (“FAA”).

         The Agreement's Dispute Resolution clause specifically describes a three-step procedure of negotiation, mediation, and then arbitration:

*Negotiation. If the Parties cannot resolve a dispute in the ordinary course of business, the Party claiming a dispute against the other shall give the other Notice of that dispute in writing, stating the nature of the dispute and the relevant facts, including documentation, and referring to this article. The other Party will then have 15 calendar days to make a complete, written response in a Notice to the other. The Parties will meet to discuss the dispute. If practicable and mutually desirable, the Parties will meet in person. If the dispute remains unresolved for any reason after 60 calendar days following the mailing of the response, the Parties will then proceed to mediation.
*Mediation. The Parties will, as soon as commercially reasonable after the 60 calendar day period referred to under negotiation, above, initiate the mediation process and endeavor in good faith to settle their dispute by mediation. Unless the Parties agree to the contrary, the mediation will conform to the then current Mediation Rules for Commercial Financial Disputes of the American Arbitration Association or such similar organization as the Parties may agree. If the Parties cannot agree on a neutral mediator, one will be appointed by the American Arbitration Association in accordance with its mediation rules. Mediation will occur within 60 days of the initiation of the mediation process. The Parties will share equally in the Fees and expenses of the mediator and the cost of the facilities used for the mediation, but will otherwise bear their respective costs incurred in connection with the mediation. The mediation shall be non-binding. If the dispute remains unresolved for any reason after the completion of the mediation process, the Parties will then proceed to arbitration.
*Arbitration. If a dispute is to be resolved by arbitration, the arbitration proceeding will take place in the capital city of the State, unless the Parties agree to the contrary. The arbitration will be governed by the Federal Arbitration Act. . . . The arbitrators must decide the dispute in accordance with the substantive law which would govern the dispute had it been litigated in court. This ...

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