United States District Court, D. South Dakota, Southern Division
RAYMOND J. ERICKSON, Plaintiff,
THRIVENT INSURANCE AGENCY INC., d/b/a THRTVENT FINANCIAL FOR LUTHERANS, Defendant.
OPINION AND ORDER GRANTING MOTION TO STAY CASE AND
ROBERTO A. LANOE UNITED STATES DISTRICT JUDGE
case involves an insurance contract between Plaintiff Raymond
Erickson and a fraternal benefit society. Insurance contracts
issued by a fraternal benefit society generally include the
society's bylaws, as well as any subsequent amendments to
the bylaws, provided that the amendments do not reduce the
benefits promised in the original contract. This Court must
decide whether Erickson is bound by an arbitration clause
that was not in his original insurance contract but was later
added to the fraternal benefit society's bylaws. Because
the arbitration clause does not reduce Erickson's
benefits under the contract, this Court finds that the clause
applies to him and requires him to arbitrate his claims.
is a South Dakota resident. Doc. 1 at ¶ 1. In 1994,
Erickson and his wife purchased a long-term care insurance
policy from Lutheran Brotherhood, a Minnesota fraternal
benefit society. Doc. 1 at ¶ 7; Doc. 16 at ¶ 3.
Erickson's entire insurance contract consists of the
insurance certificate, including any riders or amendments;
the application; and Lutheran Brotherhood's Articles of
Incorporation and Bylaws. Doc. 19-1 at 11. Unlike a typical
insurance policy that has fixed terms, some portions of
Erickson's contract are subject to change. Specifically,
Section 8.1 of the insurance certificate states that the
contract includes the "Articles of Incorporation and
Bylaws of the Society and all amendments made to them after
the Date of Issue, " provided that the amendments do not
reduce the benefits promised in the contract. Doc. 19-1 at
11. The contract did not contain an arbitration provision
when Lutheran Brotherhood issued it to Erickson.
early 2002, Lutheran Brotherhood merged into a Wisconsin
fraternal benefit society called Aid Association for
Lutherans (AAL), with AAL continuing on as the surviving
entity. Doc. 16 at ¶ 3. AAL changed its name to Thrivent
following the merger but retained its Articles of
Incorporation and Bylaws. Doc. 16 at ¶¶ 3, 6. These
Bylaws include a Dispute Resolution Bylaw that AAL's
board of directors adopted in 1999. Doc. 16 at ¶¶
6, 7. Initially adopted as Section 12 of the bylaws, the
Dispute Resolution Bylaw requires mediation and, if that
fails, binding arbitration. Doc. 16 at ¶¶ 6, 7;
Doc. 16-1 at 4-5; Doc. 16-2 at 6-7. The purpose of the Bylaw
is to provide the "sole means" to resolve disputes
between Thrivent and its members and insureds. Doc. 16-1 at
4-5; Doc. 16-2 at 6-7. It applies "to all claims,
actions, disputes and grievances of any kind or nature
whatsoever." Doc. 16-1 at 4; Doc. 16-2 at 6. AAL filed
the Dispute Resolution Bylaw with the Wisconsin Office of the
Commissioner of Insurance. Doc. 16 at ¶ 11. In December
2008, Thrivent amended its Bylaws by, among other things,
renumbering the Dispute Resolution Bylaw as Section 11. Doc.
16 at ¶ 7; Doc. 16-1 at 4-5. Thrivent filed the December
2008 amendments with the Wisconsin Office of the Commissioner
of Insurance and gave notice of the amendments to all state
insurance departments, including the South Dakota Division of
Insurance. Doc. 16 at ¶¶ 9, 12; Docs. 16-3, 16-4.
Thrivent notified its members of the amendments through the
Winter 2009 edition of its official
publication. Doc. 16 at ¶10.
made a claim for benefits under the contract, in December
2014 after he moved into a long-term care facility. Doc. 1 at
¶ 13. Thrivent paid Erickson benefits for some time, but
terminated them in November 2015. Doc. 1 at ¶¶ 16,
18. Erickson then sued Thrivent in this Court, asserting
claims for breach of contract, bad faith, breach of fiduciary
duty, punitive damages, and attorney's fees. Doc. 1. The
parties mediated before Magistrate Judge Veronica Duffy, but
were unable to resolve their dispute. Doc. 11. Thereafter,
Thrivent filed a Motion to Compel Arbitration and argued that
the Federal Arbitration Act (FAA), 9 U.S.C. §§
1-14, and the Dispute Resolution Bylaw require this Court to
stay the case and compel arbitration. Docs. 14, 15, 21.
Erickson opposed the motion, contending that the Dispute
Resolution Bylaw is unenforceable for several reasons.
enacted the FAA to counter judicial aversion to arbitration
and ensure that courts treat arbitration agreements just like
any other contract. Volt Info. Scis., Inc. v. Bd. of
Leland Stanford Junior Univ.. 489 U.S. 468, 478
(1989). The key language of the FAA states that a written
agreement to arbitrate in a contract involving interstate
commerce "shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the
revocation of any contract." 9 U.S.C. § 2. The FAA
provides two mechanisms for enforcing an arbitration
agreement: a stay of proceedings under § 3 when an issue
in the case is "referable to arbitration" and an
order compelling arbitration under § 4 when a party has
refused to adhere to an arbitration agreement. 9 U.S.C.
§§ 3, 4.
contract is subject to the FAA, courts ordinarily engage in a
two-part inquiry to determine whether to stay the case and
compel arbitration. See Faber v. Menard, Inc., 367
F.3d 1048, 1052 (8th Cir. 2004); Daisy Mfg. Co. v. NCR
Corp.. 29 F.3d 389, 392 (8th Cir. 1994). First, the
court determines whether a valid arbitration agreement exists
between the parties. Faber, 367 F.3d at 1052.
Second, the court must determine whether the dispute falls
within the scope of the arbitration agreement. Id.
These two issues, sometimes referred to together as the
"question of arbitr•ability, " are
for the court to decide "[u]nless the parties clearly
and unmistakably provide otherwise." Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79, 83-84 (2002)
(alteration in original) (quoting AT&T Techs.. Inc.
v. Commc'ns Workers. 475 U.S. 643, 649 (1986)).
'"If there is an issue of fact as to the making of
the agreement for arbitration, then a trial is necessary'
on the issue of arbitrability." Dakota Foundry, Inc.
v. Tromley Indus-Holdings. 891 F.Supp.2d 1088, 1095
(D.S.D. 2012) (quoting Bensadoun v. Jobe-Riat. 316
F.3d 171, 175 (2d Cir. 2003)). When the parties agreed to
arbitrate and the particular dispute falls within the
agreement, the FAA allows courts to stay the case and compel
applies here because the contract, including the Dispute
Resolution Bylaw, is in writing and because Erickson's
purchase of insurance from an out-of-state company that does
business nationwide meets the FAA's interstate commerce
requirement. See Clayton v. Woodmen of The World Life
Ins. Soc'v. 981 F.Supp. 1447, 1450 (M.D. Ala. 1997)
("[A]n insurance agreement between a fraternal benefit
society and its member[s] . . . evidences a transaction in
commerce."); In re 2000 Sugar Beet Crop Ins.
Litig., 228 F.Supp.2d 992, 995 (D. Minn. 2002) (stating
that "insurance policies are contracts 'involving
commerce'" and are therefore subject to the FAA);
see also Allied-Bruce Terminix Cos. v. Dobson, 513
U.S. 265, 273-74 (1995) (adopting a broad reading of the
phrase "involving commerce" in 9 U.S.C. § 2).
The parties agree that this Court should decide the question
of arbitrability and nothing in the contract clearly and
unmistakably provides otherwise. Thus, this Court turns to
the first question, whether a valid arbitration agreement
exists between Erickson and Thrivent.
Validity of Arbitration Agreement
contract law governs whether a valid arbitration agreement
exists between Erickson and Thrivent. First Options of
Chi.. Inc. v. Kaplan. 514 U.S. 938, 944 (1995). This
Court is sitting in diversity jurisdiction, so it applies
South Dakota's choice-of-law rules to determine which
state's laws govern whether a valid arbitration agreement
exists. Dakota Foundry, 891 F.Supp.2d at 1095. The
parties disagree on which state's law should apply, with
Thrivent arguing for Wisconsin law and Erickson arguing for
South Dakota law.
argues that Wisconsin law governs because Thrivent is a
fraternal benefit society domiciled in Wisconsin and
organized under Wisconsin law. Chapter 614 of Wisconsin's
statutes generally requires that fraternal benefit societies
have a lodge system, a representative form of government, and
provide insurance and other benefits to their members.
Wis.Stat. § 614.01. Consistent with Wisconsin law,
Thrivent is a nonprofit organization governed by a
member-elected board of directors. Id. §§
614.01, 614.42; Doc. 16 at ¶ 4. Each Thrivent benefit
member is entitled to one vote in the board of directors'
election, and every member of the board of directors must
also be a benefit member of Thrivent. Doc. 16 at ¶ 4;
Doc. 16-1 at 2. Thrivent is organized under the lodge system,
with nearly seven hundred local lodges across the United
States. Doc. 16 at ¶ 5. Thrivent provides insurance and
several other benefits to its members. Doc. 16 at ¶ 5.
Thrivent notes, the Supreme Court of the United States has
held that me Constitution's Full Faith and Credit Clause
requires courts to apply the law of a fraternal benefit
society's domicile when considering the validity of the
society's bylaws. Order of United Commercial
Travelers v. Wolfe,331 U.S. 586, 624-25 (1947);
Sovereign Camp. W.O.W. v. - Bolin, 305 U.S. 66, 75
(1938); Modern Woodmen of Am. v. Mixer. 267 U.S.
544, 551 (1925). Several state courts have relied on
Wolfe. Bolin. and Mixer to hold that the
validity of a fraternal benefit society's arbitration
bylaw must be determined under the law of the society's
domicile. Russell v. Lutheran Bhd.. No. 03 CV 6810,
2004 WL 316383, at *l-2 (Colo. Dist. Ct. Feb. 2, 2004)
(holding that the Full Faith and Credit clause required the
court to apply Wisconsin law in suit against Thrivent brought
by a plaintiff who had purchased insurance from Lutheran
Brotherhood); Crosby v. Aid Ass'n for Lutherans.
No. MC 00-11088, 2004 WL 2584847, at *1 (Minn. Dist. Ct. Oct.
21, 2004) ("The United States Supreme Court's Full
Faith and Credit Clause jurisprudence relating to fraternal
benefit societies requires the court to apply Wisconsin law
to this matter because AAL is incorporated ...