Argued: October 29, 2019
Appeals from the United States District Court for the
District of South Carolina, at Charleston. David C. Norton,
District Judge. (2:18-cv-00151-DCN-MGB)
Michael Gregory Pattillo, Jr., MOLOLAMKEN LLP, Washington,
D.C., for Appellants.
S. Whitley, SMYTH WHITLEY, LLC, Charleston, South Carolina,
William J. Cooper, Washington, D.C., Thomas J. Wiegand,
Chicago, Illinois, W. Alex Harris, MOLOLAMKEN LLP, New York,
New York; Christy Ford Allen, John A. Massalon, WILLS
MASSALON & ALLEN LLC, Charleston, South Carolina, for
International Limited and Hub International Midwest Limited.
Robert H. Jordan, Amanda C. Williams, PARKER, POE, ADAMS
& BERNSTEIN, LLP, Charleston, South Carolina, for
Pokorney. Deborah B. Barbier, DEBORAH B. BARBIER, LLC,
Columbia, South Carolina, for Appellant Stanley J. Pokorney.
Jeffrey A. Breit, BREIT CANTOR GRANA BUCKNER, PLLC, Virginia
Beach, Virginia, for Appellee.
KING, FLOYD, and RUSHING, Circuit Judges.
defendants in the underlying proceedings - Hub International
Limited and Hub International Midwest Limited (collectively,
"Hub International"), along with two of their
employees, Stanley Pokorney and Scott Pokorney (together with
Hub International, the "Appellants") - pursue these
consolidated appeals from the district court's denial of
their motion to compel arbitration. The Appellants sought
arbitration of federal and state claims alleged against them
by plaintiff Berkeley County School District ("Berkeley
Schools") in the District of South Carolina. The
district court denied the Appellants' motion to compel
arbitration, ruling that Berkeley Schools had not agreed to
arbitrate those claims. See Berkeley Cty. Sch. Dist. v.
Hub Int'l Ltd., 363 F.Supp.3d 632, 651 (D.S.C. 2019)
(the "Denial Order"). In rendering its decision,
however, the court failed to resolve - in the proper manner -
factual disputes that are material to the arbitration
agreement issue. Because federal law, that is, 9 U.S.C.
§ 4, requires those disputes to be resolved in trial
proceedings, we vacate and remand.
January 18, 2018, a plaintiff denominated as the Berkeley
County School Board of Trustees filed suit in the District of
South Carolina against multiple defendants. Pertinent here,
the complaint alleged federal and state claims against the
four Appellants, plus Knauff Insurance Agency, Inc. (which
Hub International purchased in 2012), and Brantley Thomas, a
former Berkeley Schools Chief Financial Officer. The claims
were predicated on a massive insurance contract steering and
kickback fraud conspiracy that spanned the period from 2001
to 2016, and that was perpetrated by the Appellants, Knauff
Insurance, and CFO Thomas. The complaint alleged that the
steering and kickback fraud scheme caused Berkeley Schools to
lose millions of dollars.
March 5, 2018, appellant Hub International moved in the
district court to compel arbitration of the claims alleged,
pursuant to the Federal Arbitration Act (the
"Arbitration Motion"). Appellants Stanley Pokorney
and Scott Pokorney joined the Arbitration Motion, and Hub
International supported it with six purported Brokerage
Service Agreements between Knauff Insurance and Berkeley
Schools, spanning the period from 2002 to 2011 (the
"Brokerage Service Agreements" or the
"Agreements").The Agreements generally provided that,
in exchange for annual fees, Knauff Insurance would provide
insurance-related services to Berkeley Schools. Those
services included identifying risks, reviewing existing
insurance contracts, recommending additional insurance
policies, arranging the purchase of new policies, and
monitoring insurance claims made under the various policies.
Arbitration Motion emphasized that each of the Brokerage
Service Agreements contained an arbitration clause. In that
regard, the Agreements provided thusly:
All disputes, claims or controversies relating to [these
Agreements], or the services provided, which are not
otherwise settled, shall be submitted to a panel of three
arbitrators and resolved by final and binding arbitration, to
the exclusion of any courts of laws, under the commercial
rules of the American Arbitration Association.
See J.A. 91, 96, 101, 106, 114, 121 (the
"Arbitration Clauses"). Invoking the Arbitration
Clauses, the Arbitration Motion contended that the claims
alleged in the complaint related to the Agreements and thus
had to be arbitrated.
pertinent here, the six Brokerage Service Agreements were
each addressed to CFO Thomas and dated June 18, 2002; June
27, 2003; August 16, 2005; December 19, 2006; December 19,
2009; and May 1, 2011. The June 2002 Agreement was for one
year and was signed on behalf of Berkeley Schools by a person
named Angel Cartwright and on behalf of Knauff Insurance by
Stanley Pokorney. The June 2003 Agreement was also for one
year and was signed on behalf of Berkeley Schools by CFO
Thomas and on behalf of Knauff Insurance by Stanley Pokorney.
In contrast to the two earlier Agreements, the August 2005,
December 2006, December 2009, and May 2011 Agreements were
not signed, but generally purported to be between Berkeley
Schools and Knauff Insurance for multi-year periods.
March 19, 2018 - about two weeks after the Appellants moved
to compel arbitration - Berkeley Schools substituted itself
for the Berkeley County School Board of Trustees as the only
plaintiff in these proceedings and filed an amended
complaint. See Berkeley Cty. Sch. Dist. v. Hub Int'l
Ltd., No. 2:18-cv-00151 (D.S.C. Mar. 19, 2018), ECF No.
36 (the "Operative Complaint"). The Operative
Complaint names as defendants the four Appellants, Knauff
Insurance, and CFO Thomas.
to the Operative Complaint, Knauff Insurance and its
employee, Stanley Pokorney, had provided insurance brokerage
and consulting services to Berkeley Schools from 2001 to
2012. After acquiring Knauff Insurance in 2012, Hub
International began providing insurance brokerage and
consulting services to Berkeley Schools, and Stanley and
Scott Pokorney - who became Hub International employees after
it purchased Knauff Insurance - were closely involved in
providing those services.
Operative Complaint alleges, inter alia, that beginning in
2005 and continuing into 2017, Berkeley Schools CFO Thomas
helped the Appellants and Knauff Insurance secure contracts
to broker insurance policies for Berkeley Schools and to
conduct reviews of the existing insurance policies of
Berkeley Schools. In exchange for Thomas's assistance in
steering those contracts to them, the Appellants and Knauff
Insurance paid Thomas kickbacks "in the form of cash,
expensive trips, hotel rooms, dinners, and spa
services." See Operative Complaint ¶ 62.
The Appellants and Knauff Insurance were the "insurance
consultants" for Berkeley Schools, id. ¶
238, and repeatedly breached their fiduciary duties by
advising Berkeley Schools to purchase insurance that was
unnecessary and excessive, and by charging Berkeley Schools
"sham consulting fees for brokerage and insurance
review," id. ¶ 213.
Operative Complaint alleges that CFO Thomas, acting on
Berkeley Schools' behalf, secured from the Appellants and
Knauff Insurance a series of excessive and unnecessary
insurance policies. Even though Thomas purportedly obtained
those policies for Berkeley Schools, the Schools already had
insurance coverage for most of the risks. For policies
secured from the Appellants and Knauff Insurance that were
not duplicative, the Operative Complaint specifies that they
were entirely unnecessary for other reasons, i.e., that
Berkeley Schools had not historically purchased them, or that
they were "highly unusual and prohibitively
expensive." See Operative Complaint ¶ 96.
Under the Operative Complaint, from 2005 to 2012, Berkeley
Schools paid Knauff Insurance more than $3, 300, 000 in
insurance premiums and approximately $1, 600, 000 in
consulting and broker's fees. From 2012 through 2017,
Berkeley Schools paid Hub International more than $3, 400,
000 in insurance premiums and about $1, 500, 000 in
consulting and broker's fees.
to the Operative Complaint, Berkeley Schools first learned on
February 6, 2017, of the steering and kickback fraud scheme
and conspiracy that the Appellants, Knauff Insurance, and CFO
Thomas had orchestrated and executed. On that occasion,
federal agents informed Berkeley Schools officials that CFO
Thomas was the subject of a criminal investigation. In
connection with that investigation, Thomas pleaded guilty in
Charleston on January 16, 2018, to a twenty-count criminal
Information filed on December 7, 2017, by the United States
Attorney for the District of South Carolina. The Information
charged Thomas with a single count of fraud and embezzlement
from a federally funded program, nine counts of money
laundering, and ten counts of honest services wire
to the Information, the ten honest services wire fraud
offenses spanned the time period from March 2010 through
November 2016. Those offenses related to Thomas receiving
kickbacks from an insurance broker in exchange for steering
insurance contracts to the broker. The Information further
alleged that Thomas had used his CFO position with Berkeley
Schools to steer the contracts to the broker, in that Thomas
was responsible for procuring insurance policies on Berkeley
Schools' behalf and for ensuring payments to its vendors.
The Information identified ten checks received from the
broker by Thomas between February 2013 and November 2016, and
alleged that those checks represented wire fraud kickbacks.
The Operative Complaint identifies the broker as appellant
2017, while the federal investigation into Thomas's
conduct was ongoing, he was indicted by a South Carolina
grand jury in Columbia, in connection with the steering and
kickback fraud scheme. The state Indictment charged Thomas
with four embezzlement offenses, and Thomas pleaded guilty to
all counts. Pertinent here, Thomas admitted to
"deliberately causing [Berkeley Schools] to overpay a
vendor, and then having the vendor send a refund of the
overpayment to his home address, upon which the funds were
converted to his personal use." See J.A. 209.
The Operative Complaint alleges that the person who sent the
refund to Thomas's home was appellant Stanley Pokorney,
who was working for Knauff Insurance. That unlawful conduct
occurred in November 2007.
Schools attached to the Operative Complaint a total of
twenty-three exhibits, including the federal Information, the
state Indictment, and various emails that carried out and
implemented the scheming and conspiratorial dealings between
the Appellants and Thomas. Berkeley Schools also attached
thereto a spreadsheet specifying payments for brokerage
services from Berkeley Schools to Knauff Insurance beginning
in March 2005 and continuing through November 2012.
on the steering and kickback fraud scheme and conspiracy, the
Operative Complaint alleges claims against the Appellants,
Knauff Insurance, and Thomas for federal RICO violations,
that is, civil violations of the Racketeer Influenced and
Corrupt Organizations Act, plus state law claims for fraud,
negligent misrepresentation, civil conspiracy, breach of
fiduciary duty, negligence, conversion, constructive trust,
and unjust enrichment. The Operative Complaint seeks
statutory treble damages totalling more ...