B & S Underwriters, Inc. v. Constitution State Service Company

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

CA 06-583

B & S UNDERWRITERS, INC.

VERSUS

CONSTITUTION STATE SERVICES COMPANY, ET AL.

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APPEAL FROM THE
NINTH JUDICIAL DISTRICT COURT
PARISH OF RAPIDES, NO. 213,243
HONORABLE GEORGE CLARENCE METOYER, JR., DISTRICT JUDGE

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JOHN D. SAUNDERS
JUDGE

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Court composed of Sylvia R. Cooks, John D. Saunders, and Marc T. Amy, Judges.

REVERSED AND RENDERED.

Kenneth Alfred Doggett
P.O. Box 13498
Alexandria, LA 71315-3498
(318) 487-4251
Counsel for Plaintiff/Appellant:
B & S Underwriters, Inc.

John Patrick Doggett
Provosty, Sadler, & DeLaunay
P.O. Drawer 1791
Alexandria, LA 71309-1791
(318) 445-3631
Counsel for Plaintiff/Appellant:
B & S Underwriters, Inc.

Jimmy Roy Faircloth, Jr.
Faircloth & Davidson, L.L.C.
P.O. Box 12730
Alexandria, LA 71315-2730
(318) 442-9533
Counsel for Defendant/Appellee:
Constitution State Services Company

Seth Andrew Schmeeckle
601 Poydras St., Suite 2775
New Orleans, LA 70130
(504) 568-1990
Counsel for Defendant/Appellee:
Constitution State Services Company

SAUNDERS, Judge.

This cause of action arises from an alleged breach of a three party contract

governed by Connecticut law and entered into in Louisiana. The parties consisted of

an Insurer, a Manager and Constitution State Services, L.L.C. f/k/a Constitution State

Services Company (hereinafter “CSSC”). The contract in question called for one of

the parties, the Insurer, to pay a refundable initial service fee to CSSC. This initial

service fee was refundable to the Insurer based upon conditions relating to the amount

of money deemed as charges and fees received by CSSC.

The party deemed Manager under the contract brought this action claiming that

CSSC owed it the full refund of the initial service fee. It based this claim on CSSC

improperly allocating money that should be deemed charges and fees as expenses.

CSSC filed an exception of no right of action due to the contract specifically

stating that it was Insurer that has a claim, if any, to reimbursement of the initial

service fee, and not Manager. The trial court dismissed this exception.

We reverse, and render.

FACTS AND PROCEDURAL HISTORY:

B&S Underwriters, Inc., (hereinafter “B&S”), is a managing general agent and

third party administrator of insurance products. B&S developed and owned the

workers’ compensation insurance program issued by and licensed to Guarantee

Mutual Life Company, (hereinafter “Guarantee Mutual”).

As a result of a regulatory requirement of the State of Georgia, B&S was

unable to provide claims administration services for the workers’ compensation

insurance sold in Georgia. B&S contacted CSSC, and entered into a contract wherein

B&S and Guarantee Mutual transferred the entire open claims inventory and agreed

to assign all future claims in the State of Georgia to CSSC for the provision of claims

services. In the 1994 contract, CSSC received a $1,000,000 initial service fee to

protect against premature termination of the agreement due to incurring costs

associated with setting up a place of business to handle the claims. The contract

called for Guarantee Mutual to pay a $1,000,000 initial service fee to CSSC. This fee

was to be reimbursed to Guarantee Mutual based upon certain thresholds being met

by CSSC as they earned charges and fees. These reimbursements were to come when

Guarantee Mutual submitted to CSSC, in writing, a request to have these

reimbursements paid.

B&S brought a suit against CSSC for breach of contract. B&S alleged that it

was owed reimbursement of the initial service fee. B&S served CSSC with its petition

alleging that CSSC was using an improper procedure in calculating charges and fees

and propounded discovery to CSSC. B&S claimed that the 1994 contract could be

interpreted to include allocated lost adjustment expenses in calculating charges and

fees and under such method of calculating charges and fees, CSSC had reached the

threshold to reimburse all of the initial service fee.

CSSC filed the peremptory exception of no right of action claiming that B&S,

even if all of the allegations in its petition were true, had no remedy under the 1994

contract. The trial court denied this exception.

CSSC then filed an answer to the B&S petition but did not answer the

propounded discovery. Instead, CSSC filed a motion for summary judgment alleging

that there was no ambiguity in the 1994 contract that charges and fees did not include

allocated loss adjustment expenses, and as such, it was entitled to a judgment as a

matter of law. This motion was granted.

B&S applied for and was granted a rehearing on CSSC’s motion for summary

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judgment. The trial court once again ruled in favor of CSSC’s motion. B&S appealed.

This court, on its own motion pursuant to La.Code Civ.P. art. 927, can notice

the peremptory exception of no right of action. The record reflects that B&S has no

right of action under the 1994 contract against CSSC for the reimbursement of the

initial service fee. As such, we reverse the trial court’s ruling denying CSSC’s

exception of no right of action and assess all costs of this appeal to B&S.

ASSIGNMENTS OF ERROR:

1. Did the trial court err in finding that there was no genuine issue of material fact
regarding the interpretation and application of the contracts between
Constitution State Services Company, B&S Underwriters, Inc. and Guarantee
Mutual Life Company and that defendant/appellee was entitled to judgment as
a matter of law, by concluding that money deemed as “Allocated Lost
Adjustment Expenses” was not to be included within “Charges and Fees” for
purposes of calculating CSSC’s obligation to refund the Initial Service Fee?

2. Did the trial court err in failing to apply the “Annual Minimum Charge”
defined in the 1994 contract for purposes of determining CSSC’s obligation to
refund the Initial Service Fee?

3. Did the trial court err in granting CSSC’s motion for summary judgment prior
to its answering of discovery propounded to it by B&S?

CSSC’S EXCEPTION OF NO RIGHT OF ACTION:

CSSC did not appeal the trial court ruling that dismissed its peremptory

exception of no right of action. CSSC did submit some argument to this court that its

exception of no right of action should have been granted, but did not claim it as an

assignment of error. However, this court, on its own motion pursuant to La.Code

Civ.P. art. 927, can notice the peremptory exception of no right of action. We choose

to do so in this case.

Louisiana Code of Civil Procedure Article 927(B) states in pertinent part:

The nonjoinder of a party, or the failure to disclose a cause of action or
a right or interest in the plaintiff to institute the suit, may be noticed by

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either the trial or appellate court of its own motion.

B&S asserts in its petition that it is entitled to the return of remnants of an

Initial Service Fee from CSSC under section VII of a 1994 contract between B&S,

Guarantee Mutual and CSSC. We find that B&S has no right of action under the 1994

contract for return of any of the Initial Service Fee paid by Guarantee Mutual to

CSSC.

The test for the application of the peremptory exception of no right of action

is whether the plaintiff has the capacity or legal interest to enforce the rights asserted

in the petition. Babineaux v. Pernie-Bailey Drilling Co., 262 So.2d 328 (La.1972).

This exception is a threshold device that terminates suits brought by one who cannot

enforce the right asserted judicially. Id.

“Whether a plaintiff has a right of action is a question of law.” Mississippi

Land Co. v. S&A Properties II, Inc., 01-1623, p.3 (La.App. 3 Cir. 5/8/02), 817 So.2d

1200. 1203. Because this suit is before us on a motion for summary judgment, we

have the record from below before us for review. We will review this question of law

de novo from the record before us and from the substance of the contract upon which

plaintiff has claimed its right of action. Id. Therefore, we look to the 1994 contract

to make a determination of what rights, if any, B&S has in recouping the Initial

Service Fee as it has claimed in its petition.

The parties agree that Connecticut law applies to the interpretation of the 1994

contract per the following choice of law provision:

SECTION XVII - APPLICABLE LAW

This Agreement shall be governed by the Laws of the State of
Connecticut.

Louisiana Civil Code Article 3540 allows for choice of law provisions such as

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the one in the 1994 contract “except to the extent that law contravenes the public

policy of the state whose law would otherwise be applicable under Article 3537.”

Louisiana Civil Code Article 3537 is the general article for selecting the law

applicable to a contract. Under La.Civ.Code art. 3537 only Louisiana and Connecticut

are states that could be chosen. We do not find any public policy that is offended in

either state regarding this choice of law provision; therefore, we will apply

Connecticut law.

Connecticut law is similar to Louisiana law when addressing the interpretation

of contracts. A contract is interpreted so as to put into effect the intent of the parties.

Niehaus v. Cowles Bus. Media, Inc., No. 16644 (Conn. 4/22/03), 819 A.2d 765. The

source in reaching the intent of the parties is the language used in the agreement. The

language that the parties choose to put into the contract must be given its common

usage and ordinary meaning. When this language is unambiguous, the contract is to

be interpreted according to its terms. Courts are not to twist or torture words to

attempt to import ambiguity where the substance of the agreement is clear. Any

ambiguity that the court finds must come from the words in the contract itself, rather

than one party’s idea of what the terms mean. Id.

Page one of the 1994 contract denotes that Guarantee Mutual will be referred

to as “Insurer”, B&S as “Manager” and Constitution State Services Company as

“CSSC”.

The 1994 contract reads as follows:

SECTION I - APPLICABILITY OF AGREEMENT
This Agreement is between Insurer, Manager and CSSC. However, the
right afforded by, and the duties set forth in, each section of the
Agreement (or paragraphs and subsections thereof) apply only to the
parties specifically referenced therein.

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B&S claims it has a right to reimbursement of the Initial Service Fee under

section VII of the contract, which states:

SECTION VII - CHARGES AND FEES
A. Charges and Fees earned by CSSC under this Agreement will be
determined as follows.

1. CSSC will receive an Initial Service Fee of $1,000,000
payable by Insurer with $250,000 due June 9, 1994, and
$250,000 due at the execution of this Agreement and
$500,000 due August 1, 1994. If the Agreement is not
executed by August 1, 1994, then $750,000 will be due on
that date from the Insurer. The Initial Service Fee is fully
earned upon payment and is non-refundable, except under
the following conditions:

(a) If during the term of this Agreement of the Charges
and Fees paid to CSSC by Insurer, excluding the
Initial Service Fee, Start Up Charges and
Termination Costs, exceed $5,000,000, then CSSC
will return $500,000 of the Initial Service Fee to
Insurer within 5 business days of receipt of Insurer’s
written request for payment.

(b) If during the term of this Agreement the Charges and
Fees paid to CSSC by Insurer, excluding the Initial
Service Fee, Start Up Charges and Termination
Costs, exceed $10,000,000, then CSSC will return
the remaining $500,000 of the Initial Service Fee to
Insurer within 5 business days of receipt of
Insurer’s written request for payment, according to
the following schedule:

Total Charges and Fees Initial Service Fee Returned

Greater Than or Equal to $10,000,000 and
Less Than $11,000,000 $100,000

Greater Than or Equal to $11,000,000 and
Less Than $12,000,000 $100,000

Greater Than or Equal to $12,000,000 and
Less Than $13,000,000 $100,000

Greater Than or Equal to $13,000,000 and
Less Than $14,000,000 $100,000

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Greater Than or Equal to $14,000,000 $100,000

We find no reference to “Manager” in the relevant provision that B&S claims

it has a right of reimbursement for the Initial Service Fee from CSSC. From the clear

and unambiguous wording of the contract under section I, the right afforded by

section VII, if any, is granted by the contract to “Insurer”, Guarantee Mutual, and not

“Manager” B&S.

As such, we find that CSSC’s exception of no right of action should have been

granted. B&S has no right of action under the 1994 contract for reimbursement of the

Initial Service Fee. Accordingly, B&S cannot be afforded a remedy in this action.

Therefore, we reverse the trial court’s ruling and grant CSSC’s peremptory exception

of no right of action. Costs of the appeal are to be paid by B&S.

CONCLUSION:

We conclude that, based on the clear provisions of the 1994 contract, CSSC’s

peremptory exception of no right of action shall be granted. The assignment of errors

raised by B&S regarding whether Allocated Lost Adjustment Expenses should be

included in the calculation of Charges and Fees, whether the Annual Minimum

Charge should be applied and whether it was improper to grant CSSC’s motion for

summary judgment when discovery was outstanding are moot, as B&S has no remedy

against CSSC under the 1994 contract. Therefore, we grant CSSC’s exception of no

right of action and dismiss B&S’s suit with prejudice. We assess all costs of this

appeal to B&S.

REVERSED AND RENDERED.

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