Shivkov v Artex Risk Solutions Arises From Tax Shelter Gone Sideways . . .
The numerous Plaintiffs in Shivkov, et al v. Artex Risk Solutions, Inc., et al, No. 19-16746 (9th Cir. 9/9/20) (Smith, Fisher, Hawkins), probably felt that the Artex Risk Solutions was a misnomer by the time they brought suit. Defendants allegedly set up and managed "captive" insurance companies owned by Plaintiffs, to which Plaintiffs paid insurance premiums, claiming the insurance premiums as tax-deductible business expenses without recognizing them as income. Evidently the IRS had other ideas, for as the Court of Appeals wryly observes, "Although this arrangement offered the prospect of tax benefits, that prospect proved fleeting." After having to deal with an audit, delinquency notices, and threatened penalties, Plaintiffs brought suit against Defendants, alleging that the captive insurance companies "were illegal and abusive tax shelters, about which Defendants failed to inform or advise Plaintiffs." Risk solutions too good to be true?
Defendants, including some non-signatories, moved to compel arbitration, the trial court granted Defendants' motion to compel, and Plaintiffs appealed.
The most interesting part of the opinion is "an issue of first impression in our circuit concerning the survival of arbitration obligations following contract termination," as to which the Court of Appeals holds: "the Agreements do not expressly negate the presumption in favor of post-termination arbitration or clearly imply that the parties did not intend for their arbitration obligations to survive termination." So the arbitration obligations survived. If arbitration obligations did not regularly survive contract termination, a party could always avoid arbitration by terminating a contract.
The Court also held that Arizona state law recognized no fiduciary duty to point out and fully explain an arbitration clause. The arbitration clause encompassed all Plaintiffs' claims here. The availability of class arbitration was a gateway issue to be decided by the court, because there was no "clear and unmistakable" delegation of that issue to the arbitrator. And because the agreements were silent about class arbitration, they did not permit class arbitration. Finally, non-signatories, who were sued for alleged wrongs that arose from the contracts between the parties that Plaintiffs relied upon to bring suit, could invoke the arbitration clause.
Affirmed.
COMMENT: The slip opinion is 36 pages long. I appreciate the Court's concise enumeration of its resolution of the issues at the beginning of the opinion.
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