United States District Court, D. Delaware
Organizational Strategies, Inc., Integration Casualty Corp., Systems Casualty Corp., and Optimal Casualty Corp., Plaintiffs,
The Feldman Law Firm LLP, Stewart A. Feldman, Capstone Associated Services (Wyoming) LP, Capstone Associated Services, Ltd., and Capstone Insurance Management, Ltd., Defendants
Neil R. Lapinski, Esq., Gordon, Fournaris & Mammarella, Wilmington, DE, attorney for Plaintiffs.
Kelly E. Farnan, Esq., Richards, Layton & Finger, Wilmington, DE, attorney for Defendants.
Richard G. Andrews, U.S.
Presently before the Court are Defendants The Feldman Law Firm LLP, Capstone Associated Services (Wyoming) LP and Capstone Insurance Management, Ltd.'s Motion to Dismiss or, in the Alternative Stay (D.I. 24), Defendant Stewart A. Feldman's Motion to Dismiss for Lack of Personal Jurisdiction (D.I. 26), Defendant Capstone's Joinder in Other Defendants' Previous Motions to Dismiss and Its Motion to Dismiss for Lack of Subject Matter Jurisdiction or Alternatively to Transfer to the Southern District of Texas (D.I. 40), as well as related briefing.
This case arises out of an agreement between Plaintiff Organizational Strategies, Inc. (" OSI" ) and Defendants to set up and run three captive insurance companies, Plaintiffs Integration Casualty Corp., Systems Casualty Corp, and Optimal Casualty Corp (" the captives" ). Captive insurance companies are owned by the policyholder and result in a number of tax advantages. Because captives qualify as an insurance company under the Internal Revenue Code, premiums paid to the captive are deductible business expenses. Because the policyholder owns the captive, they have control over the investment of the premiums. Additionally, if the captive has $1.2 million or less in annual premium income, it is taxed only on its investment income.
In this case, the Feldman Law Firm was responsible for setting up the three captives and Capstone was responsible for managing them. In 2011, in the course of an audit of OSI, an independent auditor questioned the amount of the premiums paid to the captives. OSI engaged an independent captive insurance consultant, who concluded that the premiums were too high, and would not withstand scrutiny by the Internal Revenue Service. OSI alleges that this would have resulted in the captives losing their status as bona fide insurance companies, thereby negating their tax advantages. OSI asked Defendants to adjust the premiums. Defendants refused, leading to this suit. Defendants contend that this suit is covered by an arbitration agreement. Plaintiffs dispute this.
There are numerous arguments in the briefs. Because the Texas arbitrator has decided that there are valid arbitration agreements between the parties, Defendants argue that should be the end of the matter. Furthermore, Defendants argue that because the arbitration has already taken place, Plaintiffs are bound by res judicata and collateral estoppel. These arguments put the cart before the horse. If there was no agreement to arbitrate in the first place, then what happened in the arbitration is irrelevant.
The agreement at issue is in two parts, the Engagement Letter (D.I. 30-1 at 2) and the Capstone Services Agreement (" Services Agreement" ) (D.I. 30-1 at 20). The Engagement Letter lists as enclosures an Engagement Retainer Invoice, Guidelines on Firm Administration and Billing, Exhibit A - Duties and Responsibilities of Capstone and The Feldman Law Firm, Exhibit B -- the Capstone Services Agreement, Exhibit C -- Tax Risks, and Exhibit
D -- Comparison of Types of Captives. Only the Engagement Letter is executed. The parties, however, agree that the Engagement Letter and Services Agreement are part ...