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Hub dispute over kickbacks arbitration should go to trial: Court

Posted On: Dec. 5, 2019 1:39 PM CST


A trial must be held on the issue of whether a dispute between Hub International Ltd. and a South Carolina school district over a “massive” multiyear kickback scheme is subject to arbitration, said a federal appeals court in vacating a lower court’s order.

The basis of the litigation in Berkeley County School District v. Hub International Ltd. et al. is a “massive insurance contract steering and kickback fraud conspiracy that spanned the period from 2001 to 2016 and was perpetrated” by Hub International, Knauff Insurance Agency Inc., which Hub acquired in 2012, and the district’s former chief financial officer, Brantley Thomas, according to Wednesday’s ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia.

The operative complaint in the litigation alleges that beginning in 2005 and continuing into 2017, Mr. Thomas helped Hub and Knauff Insurance secure contracts to broker insurance policies for Moncks Corner, South Carolina-based Berkeley Schools and to conduct reviews of the schools’ existing insurance policies, said the ruling.

The complaint states that in exchange for Mr. Thomas’ assistance in steering those contracts to them, Hub and Knauff paid him kickbacks “in the form of cash, expensive trips, hotel rooms, dinners and spa services,” said the ruling.

It states Mr. Thomas secured “a series of excessive and unnecessary insurance policies” and those that were not duplicative “were entirely unnecessary for other reasons.”

From 2005 to 2012, when Knauff was acquired by Hub, Berkeley Schools paid it more than $3.3 million in insurance premiums and about $1.6 million in consulting and brokers fees; and from 2012 through 2017, Berkeley Schools paid Hub more than $3.4 million in insurance premiums and about $1.5 million in consulting and brokers fees, according to the ruling.

Berkeley Schools first learned of the steering and kickback fraud scheme and conspiracy in February 2017, according to the ruling. In January 2018, Mr. Thomas pleaded guilty to fraud and embezzlement, money laundering and “honest services” wire fraud charges.

Litigation then ensued over the issue of whether Berkeley Schools had agreed to arbitrate any claims against Hub and Knauff, with Berkeley Schools denying it had done so, and Hub maintaining the schools were obligated to submit the dispute for arbitration under its brokerage service agreements.

In January 2019, the U.S. District Court in Charleston, South Carolina, denied Hub’s motion to compel arbitration. In its ruling Tuesday, a unanimous three-judge appeals court panel vacated that ruling, stating there should be a trial on the issue.

“In sum, questions of material fact abound with respect to Thomas’s actual or apparent authority to assent — on Berkeley Schools’ behalf — to the fugitive documents that constitute the unsigned Brokerage Service Agreements and the Arbitration Clauses therein,” said the ruling.

“Those factual questions concern the formation of the Agreements and the Arbitration Clause and can only be resolved by proceedings conducted pursuant to the Trial Provision,” said the ruling, in vacating the lower court’s ruling and remanding the case.

Hub had no comment, while the school district’s attorneys did not respond to a request for comment.