IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA

No. 17-0486

THE WEST VIRGINIA INVESTMENT MANAGEMENT BOARD, a public body corporate; and THE WEST VIRGINIA CONSOLIDATED PUBLIC RETIREMENT BOARD, a public agency,

Plaintiffs Below, Petitioners,

v.

THE VARIABLE ANNUITY LIFE INSURANCE COMPANY,

Defendant Below, Respondent.

PETITIONERS' BRIEF

Benjamin L. Bailey (WVSB #200) bbailey@baileyglasse~.com Jonathan R. Marshall (WVSB #10580) jmarshall@baileyglasser.coJ,11 Thomas B. Bennett (WVSB #311) tbennett@baileyglasser·som Raymond S. Franks II (WVSB #6523) rfranks@baileyglasser.com BAILEY & GLASSER LLP 209 Capitol Street Charleston, WV 25301 T: 304-345-6555 F: 304-342-1110 Counsel for Petitioner The West Virginia Investment Management Board

Gerard R. Stowers (WVSB #3633) g~towers@bowlesrice.com

J. Mark Adkins (WVSB #7414) madkins@bowlesrice.com S. Andrew Stonestreet (WVSB #11966) astonestreet@bowlesrice:cm BOWLES RICE LLP Post Office Box 1386 Charleston, WV 25325-1386 T: 304-347-1112 F: 304-347-1756 Counselfor Petitioners

TABLE OF CONTENTS

Page

INTRODUCTION ........................................................................................................................... 1

ASSIGNMENTS OF ERROR ......................................................................................................... 2

STATEMENT OF THE CASE .......................................................................................................2

The Creation of the TRS and the TDC, and the .......................................................................... 2

Four Documents Comprise the Disputed Contract.. .................................................................... 3

Material Terms of the Request for Proposal.. .............................................................................. 3

Material Terms of V ALIC's Submitted ProposaL ......................................................................4

Material Terms of the 1991 LOU ................................................................................................ 5

Interplay of the Four Documents ................................................................................................. 6

What is a Withdrawal for Transfer to Another Funding Entity? .................................................6

What is a Surrender? ................................................................................................................... 7

The Parties' Course of Performance............................................................................................ 8

VALIC's2008 U-Turn ................................................................................................................9

The CPRB Tries to Flank V ALIC's Arbitrary Line in the Sand ............................................... 1 0

The 2008 Contract ..................................................................................................................... 11

The 2008 Contract Did Not Alter the Material Terms of the 1991 Contract ............................ 12

The 1MB Seeks a Surrender. ...................................................................................................... 13

Enough is Enough ...................................................................................................................... 14

This Court's Decision in 1MB I Sets the Stage ......................................................................... 15

The Proceedings on Remand ..................................................................................................... 16

SUMMARY OF ARGUMENT ..................................................................................................... 18

STATEMENT REGARDING ORAL ARGUMENT AND DECISION ...................................... 19

ARGUMENT................................................................................................................................. 19

Standard of Review ................................................................................................................... 19

I. THE FINDINGS OF FACT ON WHICH THE ·FINAL DECISION RELIED WERE ERRONEOUS, AND ITS CONCLUSION THAT V ALIC DID NOT BREACH THE 1991 AND 2008 CONTRACTS WAS INCORRECT AS A MA TIER OF LA W ........... 19

A. The Final Decision Cannot Withstand Inquiry and is Inconsistent with 1MB I. ......... 19

1. THE CPRB NEVER CAPITULATED TO V ALIC'S INTERPRETATION OF THE CONTRACT ................................................................................................. 19

2. THE 2008 MIRROR CONTRACT CONFERRED STANDING ON THE 1MB, BUT IS OF SCANT SIGNIFICANCE IN UNDERSTANDING THE INTENT OF THE PARTIES ................................................................................................ 21

3. THE FINAL DECISION RESTS ITS FOUNDATION ON AN INAPPOSITE FORTHRIGHT NEGOTIATOR PRINCIPLE ...................................................... 22

4. THE FOUNDATION LAID BY THE FINAL DECISION CANNOT SUPPORT ITS ULTIMATE CONCLUSION ......................................................................... 22

5. V ALIC'S ASSERTED "RISK" AND THE UNSOLICITED OPINIONS OF NONPARTIES ARE NOT RELEVANT TO THE ANALYSIS ..........................24

B. A Rigorous Legal Analysis under the Applicable Canons of Construction Leads to the Correct Interpretation of the 1991 and 2008 Contracts ............................................... 26

1. STEP ONE: SURRENDER? WITHDRAWAL FOR TRANSFER TO ANOTHER FUNDING ENTITY? ............................................................................................ 26

2. STEP TWO: WHAT DOES THE EXTRINSIC EVIDENCE INDICATE? .........28

3. STEP THREE: WHAT WAS THE PARTIES' COURSE OF PERFORMANCE? 29

4. STEP FOUR: HOW DOES ONE DEAL WITH THE REDDEST OF HERRINGS - THE 2008 NEGOTIATIONS AND CONTRACT? .........................................29

5. STEP FIVE: WHAT DO THE FIRST FOUR STEPS TELL US? .......................30

II. THE THREE-JUDGE PANEL EXCEEDED OR IMPERFECTLY EXECUTED ITS JURISDICTIONAL POWERS BECAUSE THE FINAL DECISION FAILED TO APPLY WEST VIRGINIA LAW, AND BECAUSE THE FINAL DECISION DID NOT MAKE A FINAL AND DEFINITE AWARD ON ALL ISSUES SUBMITTEO ............30

A. THE THREE-JUDGE PANEL EXCEEDED ITS POWERS BY NOT APPLYING WEST VIRGINIA LAW AS REQUIREO BY THE JOINT STIPULATION .................31

1. THE PANEL IGNORED THIS COURT'S INSTRUCTIONS IN 1MB 1.............31

2. BECAUSE THE PANEL DID NOT APPLY WEST VIRGINIA LAW, THE A WARD SHOULD BE SET ASIDE ....................................................................32

B. The Panel Failed to Address All the Issues Before It. ................................................. 33

III. The Three-Judge Panel lacked jurisdiction to render its Final Decision because it was formed in violation of the laws of West Virginia, the Rules of Civil Procedure, and the Code of Judicial Conduct ....................................................................................... 34

A. The State Constitution, Enabling Act, and Rule 29 Do Not Authorize a Presiding Judge to Serve as Judge, Mediator, and Arbitrator ...................................................... 34

B. A Judge May Not Perform Other Judicial Functions Apart from the Judge's Official Duties........................................................................................................................... 35

IV. THE THREE-JUDGE PANEL LACKED JURISDICTION TO RENDER ITS FINAL DECISION BECAUSE IT CONDUCTED A CONFIDENTIAL ARBITRATION THAT

11

VIOLA TED THE PUBLIC'S FIRST AMENDMENT RIGHT OF OPEN ACCESS TO THE COURTS ...................................................................................................................36

A. The Third Circuit Decision in Strine ........................................................................... 36

B. The Business Court Division was Designed to Emulate the Chancery Court System Developed in Delaware ............................................................................................... 38

C. The Process Used to Resolve the Instant Dispute is Unconstitutional for the Same Reasons as Set Forth in Strine ..................................................................................... 39

CONCLUSION .............................................................................................................................40

111

TABLE OF AUTHORITIES

Page(s)

Cases

Cyber Holding LLC v. CyberCore Holding, Inc., No. C.A.-7369, 2016 WL 791069 (Del. Ch. Feb. 26, 2016) ................................................... 23

Del. Coalition for Open Gov't, Inc. v. Strine, 733 F.3d 510 (3d Cir. 2013) .................................................................................. 36, 37, 38, 39

Elliott & Ten Eyck P 'ship v. City ofLong Beach, 67 Cal. Rptr. 2d 140 (Cal. Ct. App. 1997) ............................................................................... 33

Faith United Methodist Church & Cemetery ofTerra Alta v. Morgan, 231 W. Va. 423, 745 S.E.2d 461 ............................................................................................. 27

Messer v. Huntington Anesthesia Group, Inc., 222 W. Va. 410, 664 S.E.2d 751 (2008) ................................................................................. 19

Payne v. Weston, 195 W. Va. 502,466 S.E.2d 161 (1995) ................................................................................. 26

Poling v. Pre-Paid Legal Servs., Inc., 212 W. Va. 589, 575 S.E.2d 199 (2002) ........................................................................... 27, 28

Shamblin v. Nationwide Mut. Ins. Co., 175 W. Va. 337, 332 S.E.2d 639 (1985) ................................................................................. 26

State ex reI. Deputy Sheriff's Ass 'n v. Sims, 204 W. Va. 442, 513 S.E.2d 669 (1998) ................................................................................. 11

State ex rei. Orlofske v. City ofWheeling, 212 W. Va. 538, 575 S.E.2d 148 (2002) ................................................................................. 19

Stolt-Nielsen S.A. v. AnimalFeeds Int'l Group, 559 U.S. 662 (2010) ................................................................................................................ 31

United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810 (Del. Ch. 2007) ................................................................................................. 22

West Virginia Investment Management Board v. Variable Annuity Life Insurance Co., 234 W. Va. 469, 766 S.E.2d 416 (2014) .......................................................................... passim

IV

Statutes

W. Va. Code § 12-6-9a(a)(1) ......................................................................................................... 11

W. Va. Code § 18-7A-l, et seq ........................................................................................................ 2

W. Va. Code § 18-7B-l, et seq ........................................................................................................ 3

W. Va. Code § 18-7B-7 (1995) ....................................................................................................... 9

W. Va. Code § 46-1-303(a), (a)(l)-(2) (2006) .............................................................................. 29

W. Va. Code § 5-10D-l(a), -l(g) .................................................................................................. 11

W. Va. Code § 55-10-1, et seq. (2015) .......................................................................................... 31

W. Va. Code § 51-2-15 .................................................................................................................. 35

Other Authorities

Ct. R. 97(a)(I) (2010) .............................................................................................................. 36, 37

House Bill 101 ........................................................................................................................ passim

Report 114 (Nov. 2006) ................................................................................................................. 36

Rule 3.9 .......................................................................................................................................... 35

T.C.R. 29.04(d) .............................................................................................................................. 34

W. Va. Const. art 8, § 7 ................................................................................................................. 35

v

INTRODUCTION

As the Court is aware, The West Virginia Investment Management Board ("1MB") and

The West Virginia Consolidated Public Retirement Board ("CPRB" or "Board") (collectively,

"Petitioners") instituted this action years ago, seeking a declaration that they were entitled to a full

surrender of two annuity contracts, then worth $248 million, without delays or charges. In West

Virginia Investment Management Board v. Variable Annuity Life Insurance Co., 234 W. Va. 469,

766 S.E.2d 416 (2014) ("1MB 1'), this Court vacated two summary judgment orders and transferred

the case to the Business Court Division. The Court set forth a methodology for interpreting the

threshold 1991 Contract with Respondent Variable Annuity Life Insurance Co. ("VALlC"),

pursuant to which Petitioners requested a "surrender" - a permitted final termination of the

parties' business relationship - and not a reversible "withdrawal for transfer to another funding

entity." The distinction between a "surrender" and a "transfer" makes all the difference. VALlC's

unilateral decision to treat the surrender request as an intra-plan transfer enabled it to unlawfully

retain nearly one quarter billion ~ollars of public money, depriving State employees over a five­

year period of close to $100 million in investment income.

This appeal asks the Court to review and reverse the Final Decision rendered below by a

Business Court arbitration panel. That Decision refused to construe the 1991 Contract and failed

to apply West Virginia law, despite this Court's express directions to do so, resting its foundation

on the "forthright negotiator principle" - an arcane rule of contract interpretation that has no

support in the law of West Virginia or in the facts of this case. Together with the Petition for

extraordinary relief filed in No. 17-0682, this appeal also asks the Court to reverse the Final

Decision because of constitutional and procedural flaws arising from the Business Court's novel

efforts to prepare the case for trial, to mediate it, and then to arbitrate it with a three-judge panel

including the original Presiding Judge, who had also attempted the mediation. Moreover, the

1

arbitration was conducted in secret, in violation of the public's First Amendment right of access,

and it sought to foreclose appellate review. The Business Court Division's creative efforts to

accomplish its mandate deserve esteem, but when its efforts ventured here beyond the bounds of

the applicable constitutional, statutory, and regulatory provisions, Petitioners have a duty to those

they serve and to this Court to call attention to those fundamental jurisdictional infirmities.

This appeal is intended to complement the writ Petition in recognition of the unusual

procedural posture posed by the instant matter. Whereas this appeal focuses on the substantive

errors in the Final Decision, the writ Petition highlights the Decision's jurisdictional and

constitutional defects. Admittedly, they overlap. But Petitioners nonetheless believe that the

issues raised in the writ Petition transcend the essential dispute and merit especial consideration

for correction through extraordinary intervention.

ASSIGNMENTS OF ERROR

I. The findings of fact on which the Final Decision relied were erroneous, and its conclusion that VALl C did not breach the 1991 and 2008 Contracts was incorrect as a matter of law.

II. The Three-Judge Panel exceeded or imperfectly executed its jurisdictional powers because the Final Decision failed to apply West Virginia law, and because the Final Decision did not make a final and definite award on all issues submitted.

III. The Three-Judge Panel lacked jurisdiction to render its Final Decision because it was formed in violation of the laws of West Virginia, the Rules of Civil Procedure, and the Code of Judicial Conduct.

IV. . The Three-Judge Panel lacked jurisdiction to render its Final Decision because it conducted a confidential arbitration that violated the public's First Amendment right of open access to the courts.

STATEMENT OF THE CASE

The Creation ofthe TRS ant! the TDC, and the Duties ofthe 1MB and the CPRB

Petitioners serve as co-trustees and fiduciaries of a retirement plan called the Teachers

Retirement System ("TRS"), created by the West Virginia Legislature in 1941. See W. Va. Code

2

§ 18-7A-I, et seq. For fifty years, State public school employees were required to participate in

the TRS. See id. § 18-7A-13.

In 1990, however, in response to funding concerns, the Legislature created a second

retirement plan for school employees, known as the Teachers' Defined Contribution Retirement

System ("TDC"). See W. Va. Code § 18-7B-I, et seq. Participation in the TOC was compulsory

for all public-school employees hired after July 1, 1991, and the TRS was closed to new hires.

See id. § 18-7B-7(a). The 1MB handles all investment decisions for the TRS, but in the TDC, each

participant directs his or her contributions to one or more available investment options, similar in

operation to a 401 (k) plan. See id § 18-7B-6. Insofar as investment options are made available

to TOC participants, the CPRB is responsible for pre-approving those options. See id. § § 18-7B­

6, -7B-9, 7B-10. After the TDC was created, the CPRB selected the Merrill Lynch Bond Fund,

the Federated Common Stock Fund, and the Vanguard Money Market Fund as the sponsors of the

initial investment choices for the plan participants. See Joint Appendix ("JA") 3299.

Four Documents Comprise the Disputed Contract

In 1991, the CPRB contracted with VALIC to add a fourth option, offering a guaranteed,

fixed annuity product. The CPRB's "1991 Contract" with VALIC is "comprised of four

documents: the Request for Proposal issued by the Board, VALlC's submitted proposal, the

October 15, 1991, Letter of Understanding (' 1991 [LOU],), and the annuity policy issued to the

Board as amended by the endorsement." 1MB I at 483, 766 S.E.2d at 430 (footnote omitted).

Material Terms o/the Request/or Proposal

The Request for Proposal ("RFP") dated July 17, 1991, conditioned sponsor submissions

on the IDe participants being able to apportion their investments among the available options,

"and they may change options at the end ofeach quarter." 1MB I at 483; see JA 3299 (noting also

3

that the CPRB "may offer a [Guaranteed Investment Contract] fund and also reserves the right to

offer additional investment options"). The RFP further stipulated that "[t]here shall be no charge

or surrender charge of any transfer from one account to another." Id The RFP made clear that it

"and the accepted proposal will be incorporated into the contract." See 1MB I at 483 n.46; JA

3300.

Material Terms of VALIC's Submitted Proposal

In its proposal submitted on August 12, 1991, V ALlC agreed that

[a]n employee may reallocate any percentage of his/her contribution to another option without restriction. Additionally, a participant may transfer 100% of hislher V-PLAN account balance to the Common Stock Fund or the Bond Fund at the end of each quarter. 20% of the participant's accumulated account balance can be transferred to either the Money Market Fund or the [prospective Guaranteed] Investment Contract once per year. This condition is necessary in order for V ALlC to invest in a manner to support the interest rates offered under the V -PLAN contract.

1MB I at 483 (emphasis added); JA 3331.1

Material Terms ofthe Annuity Policy as Amended by the Endorsement

The Annuity Policy, issued on October 8, 1991, provided in Section 3.02 that "[a] partial

or total surrender of the Annuity Value of a Participant's Account will be s.ubject to a surrender

charge." JA 3362. But the accompanying Endorsement, drafted by VALlC, clarified that "Section

3.02 is deleted. There will be no surrender charges under this Contract. The account Surrender

Value is equal to the Annuity Value." Id 3367; see also id. 3366.

The Endorsement expressed a restriction on infra-plan transfers, amending Section 2.03 of

the Policy with the following:

1 This portion of the proposal foreshadowed the Endorsement's 20% Rule, discussed infra. The proposal's recitation of "[t]his condition" was the only restriction VALle requested regarding the movement of the participants' monies.

4

A) Except as provided in (B) below, in the case of a withdrawal for transfer to another funding entity only 20% of the Surrender Value may be withdrawn once a year.

* * * B) The 20% a year restriction of this section does not apply if:

* * * (2) The withdrawal is for transfer to the funding entity for West Virginia

ORP Common Stock Fund or the West Virginia ORP Bond Fund.

JA 3367 (emphasis added). The Endorsement was silent regarding Section 6.08 of the Policy,

which specified that "VALIC may defer payment of any partial or total surrender. Any such

deferral shall not exceed six months from the receipt ... of the surrender form." Id 3366. The

six-month deferral was the only temporal restriction on a surrender.

Material Terms ofthe 1991 LOU

The 1991 LOU confirmed the proposal's and the Policy's overarching permissive approach

that "VALIC will allow a participant to withdraw his or her investments at any time without

penalty," the only temporal restriction being that withdrawals were "subject to the twenty percent

annual limitation if funds withdrawn are to be deposited into money market fund or income fund

which consist of guaranteed investment contracts." 1MB 1 at 483, 766 S.E.2d at 430; JA 3374.

The identified funds were other investment options offered, or anticipated to be offered, by the

TDC. The restrictions associated with a transfer to the Money Market Fund and any Guaranteed

Investment Contract Fund are hereinafter referred to as the "20% Rule."

The principals for the CPRB and V ALIC signed the 1991 LOU one week after the issuance

of the Policy and Endorsement. The 1991 LOU clarifies that the 20% Rule limited restrictions on

transfers only to the Money Market Fund and to any Guaranteed Investment Contract; surrenders

and other intra-plan transfers entailed no such limitation. The 1991 LOU is thus consistent with

the RFP and with VALlC's response, as confirmed years later by James Costello, who was

VALlC's signatory to the 1991 Contract. In 1998, Mr. Costello advised several VALle officers

5

by email that, regarding the CPRB Policy, "there is no fee in or out other than a 20% restriction to

the money market fund." JA 3973.

Interplay ofthe Four Documents

The RFP, VALlC's response, and the 1991 LOU comprise three components of the 1991

Contract, and they speak respectively of "surrender" charges (there were to be none - only a

maximum six-month deferral), "transfer[s]" between Funds, and "withdraw[als]" for deposits into

other Funds. Any distinction involving the latter two is purely semantical, as they both plainly

reference movement of investments between or among Funds within the TDC. A "surrender," by

contrast, is nowhere so constrained, and although the Policy with Endorsement - the fourth

component - parrots the RFP's reference to "surrender charges," there is no mention anywhere

of "transfer charges" or "withdrawal charges."

What is a Withdrawal for Transfer to Another Funding Entity?

As the respective components of the 1991 Contract indicate, a "transfer" or a "withdrawal

for transfer" involves movement of investments among the TDC Funds. The specific use of the

term "surrender" in the RFP, Policy, and Endorsement make plain that a surrender is not the same

thing as an intra-plan transfer.

"Funding entity" is not a defined term in the Policy, but as recounted above, the

Endorsement excepts operation of the transfer restriction where "[t]he withdrawal is for transfer

to the funding entity for" either the Bond Fund or the Common Stock Fund. JA 3367. Those

specific exceptions are instructive in that they clearly reference solely intra-plan transfers, that is,

transfers to other "funding entity" options within the TDC. Evidence of the parties'

contemporaneous intent leading to implementation of the 20% Rule also informs the meaning of

"funding entity." The 20% Rule's restriction on transfers to the Money Market Fund or

6

Guaranteed Investment Contract Fund options within the TDC arose because, according to the

testimony ofJames Sims, the Executive Director ofthe CPRB upon its creation in 1991, "[VALlC]

thought it competed with their product." Id 5845.

Viewed within the specific context of Section 2.03 of the Policy and its modifying

Endorsement, the term "funding entity" refers to the TDC sponsor-vendors, such as American

Funds, or Vanguard, or V ALlC itself. Craig Slaughter, the Executive Director ofthe 1MB, testified

consistently with that understanding:

I don't think that the rights to surrender fall under this provision. I tend to read it that this is applicable to individual retail-type participants who want to move money between various funds or various investments provided by the TDC. Vis-a-vis the reference to the stock fund or the bond fund. My best reading of this is it's referring to internal transfers within the TDC plan. What we wanted would be a full surrender of the account.

JA 2079; 6126-28. VALlC's own expert, Steven Rosen, confirmed that "the stock fund was a

funding entity," and "[t]he bond fund was a funding entity." Id 2103,6806; see 1MB I at 484, 766

S.E.2d at 431 (recounting Petitioners' position that "endorsement's withdrawal restrictions were

solely intended to apply to transfers that were made to other investments included with the [TDC]

plan"); see also JA 2016 (reciting Mr. Sims's understanding at time offormation).2

What is a Surrender?

"Surrender" is also not defined in the Policy, but the Endorsement expressly provides that

the "Surrender Value ... shall be equal to the Annuity Value." JA 3367. The "Annuity Value,"

under Section 2.02, is "the Net Purchase Payments received for the Participant, plus any interest

credited to the Participant's account," or, in other words, the entire value of a participant's account

at a given time. Id. 3361 (emphasis deleted). A "surrender," then, is necessarily an act that severs

2 In contrast to intra-plan transfers out to the Money Market and Guaranteed Investment Contract Funds, V ALIC perceives no restrictions imposed by the 20% Rule, discussed infra, or otherwise with respect to intra-plan transfers to its own, Annuity Fund option.

7

the contractual relationship between the participant and the annuity. VALlC's expert, Mr. Rosen,

conceded on behalf ofVALlC that "[a] surrender ... is not the same terminology" as a withdrawal.

Id. 2103,6813. According to Mr. Rosen, "[a] surrender would have to do if a contract is going to

be terminated or partially terminated[,] whereas a withdrawal would be monies that are physically

coming out of somebody's individual account." Id. Hence, a "surrender charge" is understood to

be one imposed "by insurance companies to terminate a contract." Id. 5844. Throughout the

opinion in 1MB I, this Court repeatedly and consistently referred to the CPRB's 2008 request as a

surrender. See, e.g., 1MB I at 472, 766 S.E.2d at 419 ("The petitioners initiated the underlying

action to obtain a declaratory judgment regarding their entitlement to a full surrender of two

annuity contracts without delays in payment or surrender charges.").

VALlC's general counsel, Jim Coppedge, admitted that the CPRB's request was one for

partial surrender within the contemplation of Section 6.07 of the Policy. See JA 2056,5356. The

surrender request was "partial" only in the sense that about twenty-two percent of the TDC

participants had voted to remain there and permit VALIC to retain a portion of their portfolios. It

a was full surrender in the sense that the request was to move the entirety of the departing

participants' VALIC investments. See id. 3400 (December 2008 Letter of Understanding signed

by Mr. Slaughter and Mr. Coppedge memorializing, inter alia, the parties' endeavor to

"accomplish the transfer to the TRS Plan of TDC Plan assets of electing members currently

invested" with V ALlC, and that the transferring "individual participants in the TRS Plan will have

no rights under the Annuity Contract").

The Parties' Course ofPerformance

For seventeen years, the parties' course of performance under the 1991 Contract tracked

the surrender/transfer distinction. The 20% Rule was never asserted to apply to full surrenders

8

made upon a participant leaving the TOC. On March 10, 1995, the Legislature passed H.B. 2600,

affecting school employees who had accrued at least five years' TRS participation prior to leaving

employment before July 1, 1991, and were thereafter reemployed and assigned to the TDC, though

their TRS credit remained intact. The legislation afforded those participants until January 1, 1996,

to be readmitted to the TRS, pursuant to which the entirety of their TOC portfolios - including

"all member and employer contributions and investment earnings" held by V ALIC - would

become TRS assets. W. Va. Code § 18-7B-7 (1995); JA 3414-19. The CPRB's Deputy Director,

Terasa Miller, confirmed that V ALIC complied. See JA 5705. V ALIC relinquished the funds of

readmitted TRS participants with no surrender charge and no contention that the 20% Rule

required piecemeal execution. See id. 2022-27,5705-06.

About six years later, on April 12, 2001, the Legislature passed S.B. 711, which again

provided TRS readmission to reemployed, eligible TDC participants who, no later than June 30,

2002, agreed to move "his or her total account balance in the defined contribution system ... to the

existing teachers retirement system." W. Va. Code § 18-7B-7 (2001); JA 3708-09. Again, VALIC

relinquished the subject funds without charge and without any suggestion that the 20% Rule

governed the transaction. See JA 5705-06.

VALIC's 2008 U-Turn

As of December 31, 2007, the TOC participants had invested more than $275 million in

the V ALIC annuity. See JA 341Oa. In March 2008, the Legislature passed House Bill 10 l,

affording TDC participants the opportunity to switch their investments to the TRS. See generally

id. 3710-25. Provided that more than sixty-five percent of the participants approved the switch by

fonnal election, the legislation required the electing participants' portfolios to be moved to the

TRS by July 1, 2008. See id. 3719. More than fifteen thousand participants elected transfer,

9

exceeding 78% of the composite TOC membership. See id. 3404. In June 2008, after the election

results were certified, the CPRB requested that each ofthe TOC Fund providers, including V ALlC,

liquidate the investments of the transferring members so that those funds could be deposited with

the TRS. By the July 1, 2008 transfer date, each TOC investment provider - save one - had

complied and liquidated the subject assets. See id 2044.

VALIC alone refused to adhere to its course of performance and the 1991 Contract,

asserting for the first time that "transfers of amounts in the Annuity Contract are subject to

withdrawal restrictions." See JA 3375 (the June 25,2008 "Gutierrez Letter"). The Gutierrez Letter

specifically invoked the Endorsement's statement ofthe 20% Rule pertaining to a "withdrawalfor

transfer to another funding entity," and did not acknowledge that the CPRB's request constituted

a "surrender," which the 1991 Contract provided was not subject to any restrictions. The Gutierrez

Letter likewise failed to appreciate that the Endorsement was merely a component part ofthe entire

agreement, and that in view of the context supplied by the 1991 LOU and by VALlC's response

to the RFP, the 1991 Contract generally permitted the participants' assets to be freely moved.

The CPRB Tries to Flank VALlC's Arbitrary Line in the Sand

By 2008, American Funds had supplanted Merrill Lynch as the Bond Fund sponsor, and

the Common Stock Fund - unitary in 1991 under the auspices ofFederated - had been split into

six Funds sponsored by several entities. See JA 3410a. Following its receipt ofthe Gutierrez letter

declining to deliver the full V ALIC cash surrender amount, the CPRB was left with less than one

week to figure out how to effectuate the Legislature's mandate that the entire value of the former

TOe participants' assets be moved to the TRS by July 1,2008. That deadline expired with no

action on the VALle-held funds as the TOe's third-party administrator, Great West Retirement

Services, was unable to collect the participants' aggregate cash surrender. See id 3454.

10

Though the July I deadline had come and gone, the CPRB, on behalf of thousands of

teachers and service personnel, was nonetheless bound to pursue those participants' VALIC assets

whose surrender to the TRS had yet to occur as required by law.3 The CPRB's Executive Director,

Anne Lambright, therefore looked for an alternative way to receive the entire value of the

transferring members' funds. As Ms. Lambright put it, "they are TRS funds," and TRS funds are

managed by the 1MB. JA 3462; see 1MB I at 481,766 S.E.2d at 428 ("Once the transfer legislation

was enacted, as VALIC acknowledges, the transferring teacher's funds belonged to the TRS."

(internal quotation marks and alteration omitted».

Because V ALIC relied on the Endorsement, Ms. Lambright strove to avail the CPRB of

VALlC's interpretation ofthe 20% Rule by attempting to withdraw the funds for intra-plan transfer

to the American Bond Fund, and then moving them to the TRS. See JA 3454. American agreed,

but then withdrew its consent to the transfer. See id 3458 (noting American's new condition as

of July 10, 2008, that the monies "be re-registered as TRS Trust Fund money and be under the

control of [the 1MB]"). Negotiations continued for a while longer, until American decided

definitively that it would refuse the transfer. See id 3459.

The 2008 Contract

VALIC finally agreed to assist the CPRB in complying with House BilllOl by permitting

equitable title to the disputed funds to be formally transferred to the TRS for oversight and

3 The CPRB is a trustee of the TRS as its administrator, charged with ensuring that the plan contributions and assets are properly conserved and maintained. See W. Va. Code § 5-IOD-I(a), -I(g); syl. pt. 2, State ex rei. DeputySherif.!'s Ass'n v. Sims, 204 W. Va. 442, 513 S.E.2d 669 (1998) (noting CPRB's fiduciary duty "to take all necessary actions ... to protect the fiscal and actuarial solvency of [the] funds and assets" entrusted to it). But the CPRB has no say over how those funds are invested; that is the 1MB's job. See W. Va. Code § 12-6-9a(a)(I). However, for the approximately 3,200 TDC members who did not elect transfer to the TRS, see JA 5708, the CPRB continues as sole administrator and fiduciary.

11

management by the 1MB. The terms of the arrangement were set forth in an email sent by

VALlC's Deputy General Counsel on September 19,2008:

The CPRB and 1MB have asked that, on or before September 30, whether a transfer (trustee to trustee) of assets in the existing fixed annuity contract attributable to those TDC[Plan] participants who transferred from the TDCP to the TRS can have those assets invested in an [ sic] similar V ALIC fixed annuity contract (same form, endorsements, rates, terms, etc.). 1MB would then hold those assets in the new annuity for the benefit of the TRS. This is not an attempt by the CPRB or 1MB to liquidate the assets in the new fixed annuity contract. 1MB does not intend to make further deposits in the new contract for TRS participants. . .. The existing fixed annuity contract would continue to operate as it has in the past for the remaining TDCP participants.

JA 3462 (emphasis added).

The 2008 Contract Did Not Alter the Material Terms ofthe 1991 Contract

On September 25, 2008, Mr. Coppedge verified that his company could accommodate

Petitioners' request to accomplish the substitution of the 1MB for the CPRB by issuing "a new

fixed annuity contract to CPRB [ sic] for purposes of the TRS plan that is materially similar (i. e.

form, endorsement, rates, and terms) to the contract issued to the CPRB for the TDC[Plan]." JA

3475 (emphasis added). Mr. Coppedge expressed VALlC's understanding that the transaction "is

not an attempt by the CPRB or any State party to liquidate the assets in the existing fixed annuity

contract contrary to its terms and conditions." Id. (emphasis added). Finally, Mr. Coppedge

confirmed that "[t]he existing fixed annuity contract would continue to operate as it has in the past

for the remaining TDCP participants[,] and the new fixed annuity contract would be used as a

funding vehicle for the TRS plan. Id. (emphasis added).

The parties completed the necessary paperwork, and, on November 6, 2008, V ALIC issued

an annuity contract to the 1MB containing a Policy and Endorsement that was materially the same

as the corresponding parts of the 1991 Contract. JA 3380-99; see 1MB I at 473, 766 S.E.2d at 420

(noting that "[b]oth of the annuity contracts issued by VALIC contain an identically-worded

12

endorsement"). On December 10, 2008, the transfer of the investment monies from the CPRB to

the 1MB was completed. That same date, Mr. Slaughter and Mr. Coppedge executed a Letter of

Understanding (the "2008 LOU"), see JA 3400-02, which, together with the annuity contract,

comprised the parties' entire agreement (the "2008 Contract"). The 2008 LOU specified three

times that the annuity contract was "an investment and funding vehicle for the TRS Plan." See id

3400-01; 1MB I at 474, 766 S.E.2d at 421 (recognizing that 2008 Contract was "purposefully

designed" as vehicle to consummate the transfer of assets from the TDC to the TRS).

The 2008 Contract permitted Petitioners to achieve technical compliance with House Bill

101, but it did nothing to resolve or clarify the practical dispute centering on the surrender/transfer

dichotomy. Indeed, the TDC participants' cash surrender value continued to remain in VALlC's

possession. Essentially, the 2008 Contract served only to ring the bell signifying the end ofRound

One, sending the 1MB and VALIC back to their respective corners.

The 1MB Seeks a Surrender

The 1MB then conducted a due-diligence evaluation of the risks associated with holding

the 2008 VALIC annuity contract. JA 2083,2085-86. The financial health ofVALlC, a wholly­

owned subsidiary of AIG, was of paramount concern in 2008. The major triggers leading to the

Great Recession had become apparent by that autumn, when AIG required a huge, controversial,

and high-profile government bailout. Publicly available government reports and studies reveal

that, absent that bailout, without billions of dollars in public funds transferred forthwith to AIG's

insurance subsidiaries in September 2008, V ALIC would have failed to maintain the level of

capital required by insurance regulators and could have been subject to a state takeover and

potential failure.4

4 See ROBERT McDONALD & ANNA PAULSON, FEDERAL RESERVE BANK OF CHICAGO, WP 2014­07, AIG IN HINDSIGHT 15-16,45 (Oct. 2014) (copy attached hereto as Exhibit A); HESTER PEIRCE, WPNo.

13

In light of the 1MB staffs overall concerns about AlG's solvency, Mr. Slaughter concluded

that having the TRS continue to invest in the annuity was not in the plan's best fiscal interests. See

JA 3500 (Dec. 30, 2008 Slaughter Memo to 1MB Investment Committee), 3976 (Oct. 1, 2008

Kristy Watson email to Slaughter opining, "Given what we know about AIG and their subs at this

point, I feel like we just purchased first-class tickets on the Titanic."). Thus, on December 18,

2008, Mr. Slaughter wrote Mr. Coppedge to "request[] the withdrawal of all funds," i.e., a full

surrender of the disputed monies, "on or before December 31, 2008." Id 3403. VALIC was then

holding approximately $248 million that belonged to the TRS. See id 2087.

Mr. Slaughter followed up his letter with a phone call to Mr. Coppedge, pointing out that

the 1MB had "no financials on VALlC." JA 2087. Mr. Slaughter indicated in his deposition

testimony that VALlC's credit was "of utmost importance. This is because the investment in the

V ALlC annuity is secured only by V ALlC's general assets. If V ALlC became insolvent, we

would be a general creditor and the worst case scenario is the complete loss of the TRS $248

million." Id VALlC again refused the surrender request, compelling the 1MB to withdraw the

funds on VALlC's terms. See id 2090; 1MB I at 474, 766 S.E.2d at 421 ("Due to VALlC's

unalterable position that the funds were subject to withdrawal restrictions which limited the

petitioners to removing twenty percent of the surrender amount per year, the 1MB was forced to

remove funds from the 2008 Contract in accord with this five-year installment method.").

Enough is Enough

Petitioners filed suit on November 12, 2009, in the Circuit Court of Kanawha County,

seeking a declaration that V ALIC was bound to comply with the surrender provisions of the 1991

14-12, SECURITIES LENDING AND THE UNTOLD STORY IN THE COLLAPSE OF AIG 45-54 (May 2014) (copy attached hereto as Exhibit B); JA 3703a-03t (2008 VALIC Annual Financial Statement), 3698-3703 (2009 VALiC Annual Financial Statement).

14

and 2008 Contracts. See JA 2-53. From the outset of the parties' dispute and continuing until the

end of the five-year extraction process, the 1MB could not invest the monies retained by V ALlC

as it did the transferred TDC funds and the remainder of its TRS portfolio. The TRS thus lost

substantial investment income. See id. 62. On February 8, 2012, Petitioners amended their

Complaint to seek money damages for this lost investment opportunity. See id. 54-64.

Following removal, remand, and discovery, the circuit court granted separate summary

judgments to VALlC on October 21,2013. See JA 474,485. In so ruling, the court concluded

that "[t]here is no actual, justiciable controversy ... related to the 1991 Contract." Jd. 481; see

1MB J at 475, 766 S.E.2d at 422. As to the 2008 Contract, the circuit court found it determinative

that the CPRB was a non-signatory, and that the agreement on its merits required adoption of

VALlC's position and rejection of the 1MB's view that it was entitled to wholesale surrender of

the funds in obedience to its December 2008 demand. See JA 482-83, 491-92.

This Court's Decision in 1MB I Sets the Stage

On November 14,2014, in 1MB J, this Court reversed the summary judgments and rejected

the circuit court's reasoning in its entirety. In so doing, the Court's published decision rendered

several conclusions and holdings that became the law of the case:

• "The 1991 Contract is comprised of . . . the Request for Proposal issued by the [CPRB], VALlC's submitted proposal, the October 15, 1991, Letter of Understanding ... , and the annuity policy issued to the [CPRB] as amended by the [1991] endorsement," 1MB Jat 483, 766 S.E.2d at 430;

• The 1991 Contract ... "is critical to a proper understanding of the meaning of the disputed [2008] endorsement language," id. at 482, 766 S.E.2d at 429;

• "[T]he endorsement to the 2008 Contract impels a discussion of the 1991 Contract and its fonnation," id. at 482-83, 766 S.E.2d at 429-30;

• "[T]he 2008 Contract came into existence ... as an investment vehicle for funds invested in the 1991 Contract upon VALlC's disallowance of the aggregate removal of those funds," id at 484, 766 S.E.2d at 431;

15

• V ALIC represented the 2008 Contract as "materially similar' to the 1991 Contract," id. ;

• "[T]he language in the [2008] endorsement pertaining to 'a withdrawal for transfer to another funding entity' is decidedly ambiguous," id. at 485, 766 S.E.2d at 432;

• The [2008] endorsement terms are not "unambiguous or capable of application without reference to the documents that were included as part of the 1991 Contract," id. at 483, 766 S.E.2d at 430; and

• "[A]ny ambiguities in that document are required to be construed against VALIC and in [Petitioners'] favor," id. at 484-85, 766 S.E.2d at 431-32.

Because the circuit court's analysis "intentionally omitted any consideration of documents that

were incorporated as part of the 1991 Contract," id. at 482, 766 S.E.2d at 429, this Court remanded

for further development of that point as it bore on the parties' agreement. The matter was

transferred to the Business Court Division "for further proceedings consistent with this opinion."

Id. at 485, 766 S.E.2d at 432.

The Proceedings on Remand

After a period of additional discovery, trial was set to begin on September 20,2016. At

the pretrial conference the day before, however, the Presiding Judge expressed concern that the

issues were too complex to be readily understood by a lay jury. The court thus prompted both

sides to forgo jury resolution and, that evening, drafted a "Joint Stipulation and [Proposed] Order

to Stay Action and Submit to Binding Arbitration" ("Joint Stipulation"), which the parties executed

the following morning. See JA 1478-82.

In accordance with the Joint Stipulation ("JS"), the parties agreed to mediation by the

Presiding Judge. See JS 1 3. Ifmediation proved unsuccessful, then the dispute would be arbitrated

before a Panel of three judges of the Business Court Division, including the Presiding Judge. See

id 14. The Joint Stipulation further specified that, within thirty days following the conclusion of

16

the arbitration hearing, the Three-Judge Panel "shall issue a reasoned decision applying West

Virginia law." Id. 19. In addition, according to the Joint Stipulation, "[t]he arbitration proceedings

shall be confidential, except to the extent disclosure is required by law," id. 1 10, the Panel's

decision would be "final and non-appealable," id. 111, and, after the Panel had issued its "reasoned

decision, the above-captioned action shall be dismissed with prejudice, id. 1 12.

On April 28, 2017, the Panel entered its Final Decision. See JA 3234-45. Unfortunately,

the Panel committed the same misstep as the circuit court had several years before: it did not

consider the 1991 Contract. By its error, the Panel failed to apply the law of the case announced

by this Court in 1MB I, the application of which was required to fulfill the jurisdictional predicate

in the Joint Stipulation commanding the Panel to "issue a reasoned decision applying West

Virginia law." Instead, the Panel concluded, contrary to 1MB I, ''that the legal conclusion of this

case rests upon the formation of the December 2008 replacement contract." See JA 3238. The

Panel decided in favor of V ALlC, premising its ruling on the untenable ground that because

Petitioners were aware that V ALlC had taken the position that the 1991 Contract did not permit

unrestricted surrender of the funds subject to transfer, the 2008 Contract incorporated that position

and bound the 1MB to it as a matter of law, regardless ofwhether an objective interpretation of

the 1991 Contract revealed VALIC's position to be incorrect. See id.

By confining the scope of its Final Decision strictly to the 2008 Contract, the Panel did not

address the threshold breach of the 1991 Contract occasioned by VALle's refusal to deliver the

full surrender value of the transferring members' annuity contracts. Yet, the CPRB's efforts to

comply with House Bill 101 following VALlC's breach, culminating in the 2008 Contract, were

intrinsic to the parties' obligations under the 1991 Contract. Moreover, the Panel neither discussed

nor disposed of the CPRB's claim for declaratory relief under the 1991 Contract. The Panel

17

therefore ignored the transfer and surrender rights reposed in the individual TDC participants who

did not elect transfer to the TRS in 2008 and, as a result, still have retirement funds invested with

V ALIC. Nevertheless, on May 10, 2017, the circuit court entered a "Final Order" signed by the

Presiding Judge, enforcing the Final Decision and directing the Clerk to "retire the ... matter from

the docket and place it among the causes ended." See JA 3246. On May 26, 2017, Petitioners

timely noticed their appeal from the Final Decision. See id 3261-80.

SUMMARY OF ARGUMENT

The arbitration award and its derivative Final Order should, for four independently

sufficient reasons, be vacated as invalid and of no legal effect. First, the award as manifested in

the Final Decision was founded on erroneous findings of fact, resorted to and relied on legal

precedent heretofore not adopted within the borders of this State, and misapplied that precedent in

any event. Second, and relatedly, the Panel ignored, and did not apply, the law of West Virginia

as instructed by this Court and provided in the Joint Stipulation, thereby declining to fulfill its

contractual mandate to decide the entire case submitted by the parties. Third, the Panel was

unlawfully constituted because it consisted of more than one Business Court judge, and because

one member was ineligible to participate at all, having previously been a mediator and the

presiding judicial officer in the same case. Fourth and finally, the arbitration - involving key

issues affecting public employees and their pensions - was conducted in a shroud of secrecy by

State judges on State time in government facilities, without any justification in law and in violation

of the open, transparent proceedings secured to the public by the First Amendment. Each of the

foregoing reasons individually, and all of them collectively, are sufficient justification to set aside

the award.

18

STATEMENT REGARDING ORAL ARGUMENT AND DECISION

This matter is of fundamental public importance, and the questions presented by this appeal

are appropriate for oral argument in accordance with Rule 20(a) of the West Virginia Rules of

Appellate Procedure. As such, none of the criteria for deciding this appeal without oral argument,

set forth in Rule 18(a), are applicable.

ARGUMENT

Standard ofReview

With respect to the merits challenge to the Final Decision embodied in the first Assignment

of Error, this Court reviews the lower tribunal's findings of fact for clear error. See syl. pt. 1,

Messer v. Huntington Anesthesia Group, Inc., 222 W. Va. 410, 664 S.E.2d 751 (2008) (citation

omitted). "Questions oflaw," on the other hand, "are subject to a de novo review." Id. (citation

and internal quotation marks omitted).

In relation to the jurisdictional challenges posed in the second through the fourth

Assignments ofError, the inquiry is one oflaw. See State ex reI. Orlofske v. City ofWheeling, 212

W. Va. 538, 542, 575 S.E.2d 148, 152 (2002) ("Whether a court has subject matter jurisdiction

over an issue is a question oflaw." (citations omitted». In deciding questions of law, this Court

applies a de novo standard of review. See syl. pt. 2, id. (citing Chrystal R.M v. Charlie A.L., 194

W. Va. 138,459 S.E.2d 415 (1995».

I. THE FINDINGS OF FACT ON WHICH THE FINAL DECISION RELIED WERE ERRONEOUS, AND ITS CONCLUSION THAT VALle DID NOT BREACH THE 1991 AND 2008 CONTRACTS WAS INCORRECT AS A MATTER OF LAW.

A. The Final Decision Cannot Withstand Inquiry and is Inconsistent with 1MB l.

1. The CPRB Never Capitulated to VALIC's Interpretation ofthe Contract.

The Final Decision, JA 3234-45, merits an exhaustive deconstruction. The Panel recounts

the historical facts leading up to the passage of House Bill 101, see id 3235-36, quoting the

19

Endorsement's embodiment of the 20% Rule. See id. 3236. But then the Final Decision proceeds

directly to "CPRB's plan to comply with the endorsement" by using the Bond Fund as an

intermediary, see id., without mentioning Petitioners' position that the Endorsement did not apply

at all to the surrender request, and that the CPRB was merely attempting as a practical matter to

effect the surrender on VALlC's terms. Cj 1MB 1 at 476, 766 S.E.2d at 423 (noting VALlC's

"vacillating position that such a release of funds would either cost $11.2 million or be subject to

specified per annum limits"); id. at 477, 766 S.E.2d at 424 (expressing "little doubt" that VALIC

was "fully apprised of the petitioners' objective to acquire those funds in aggregate fashion"); id.

(recognizing that the CPRB refused to take any action that could be interpreted as an acquiescence,

because it "was simply unwilling to act in accordance with VALlC's interpretation of the 1991

Contract").

This Court specifically rejected VALlC's contention that the CPRB "was tacitly agreeing

that the withdrawal restriction applied to the transfer," finding that assertion "to be self-serving

and unsupported by the record." 1MB I at 477 n.31, 766 S.E.2d at 424 n.31 (internal quotation

marks omitted). The Panel failed to apprise itself of this Court's findings concerning the CPRB's

resistance to VALlC's interpretation, laboring under the misimpression that the CPRB believed

VALIC to be "honor[ing] the agreement" by insisting that the 20% Rule applied. JA 3236. V ALIC

prominently featured the CPRB's "honor the agreement" statement in its Opening Arbitration

Statement to the Panel, but the quote's source is Ms. Lambright's internal email to CPRB members

relating the characterization of VAL1C's General Counsel, Mr. Coppedge, that his company would

"honor the agreement" by imposing the 20% Rule. See JA 1475. As this Court aptly put it:

Only by turning a blind eye to the events that transpired in this case can it even be suggested that the Board failed to assert its claimed right to an aggregate payout of the subject funds. V ALIC cannot expect this Court, or any court for that matter, to believe that the statutory objective of gaining access to the funds of the electing

20

[TDC] members was not adequately articulated by the Board in a manner that VALIC fully comprehended.

1MB I at 424, 766 S.E.2d at 477.

2. The 2008 Mirror Contract Conferred Standing on the 1MB, but is ofScant Significance in Understanding the Intent ofthe Parties.

The Final Decision moves on to relate in summary form the circumstances surrounding the

formation of the 2008 Contract, pausing to point out that V ALIC consented "only after seeking

and receiving mUltiple assurances from CPRB and 1MB that this second contract was" - as Mr.

Coppedge had put it in his September 25, 2008 email- "'not an attempt ... to liquidate the assets

in the new fixed annuity contract, '" reiterating that V ALIC had relied on those assurances, then

intimating, perhaps, that Petitioners reneged "[w]ithin days" after transfer of the $248 million by

virtue of Mr. Slaughter's "demand[ for] full withdrawal." JA 3237. The suggestion is troubling

on two fronts, as the mirror 2008 Contract afforded the 1MB no rights the CPRB did not already

have under the 1991 Contract, but also because the 1MB sought to exercise no right except the one

that the CPRB had already unsuccessfully attempted to assert.

Indisputably, the material terms of the 2008 Contract were, in strict adherence to the

parties' negotiations, the same as the 1991 Contract, and it indeed served its intended purpose as

a funding vehicle facilitating the transfer of equitable title in the disputed monies from the CPRB

to the 1MB for the benefit of the TRS as required by House Bill 101. The substitution ofthe 1MB

for the CPRB was scarcely more than nominal; it did not resolve any underlying ambiguities that

were created by the 1991 Contract, and it did not resolve the surrender/transfer dispute. The 2008

Contract adds nothing of substance to this case from the standpoint of contracting intent; it is the

reddest of herrings that has repeatedly and confoundingly detracted from the ''justiciable

21

controversy ... between the Board and VALIC with regard to the 1991 Contract." 1MB I at 478,

766 S.E.2d at 425.

3. The Final Decision Rests its Foundation on an Inapposite Forthright Negotiator Principle.

The Final Decision surmised "that the legal conclusion ofthis case rests upon the formation

ofthe December 2008 replacement contract." JA 3238. Rather than determine what the applicable

terms of the 1991 Contract legally required of the parties and indeed what the parties intended in

this regard, the Panel resorted to "the rules of ... equity" as it imagined applied to the formation

of the 2008 Contract. The Panel thus adopted, at VALlC's urging, the "forthright negotiator"

principle, a methodology ofcontract interpretation that has never been applied or considered in the

courts of West Virginia. The principle is expressed: "in cases where the extrinsic evidence does

not lead to a single, commonly held understanding of a contract's meaning, a court may consider

the subjective understanding of one party that has been objectively manifested and is known or

should be known by the other party." United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810,

836 (Del. Ch. 2007). The Final Decision reasoned that the forthright negotiator principle applies

because, "at the time of [the 2008] contracting, everyone shared VALlC's interpretation" that the

20% Rule applied to requests for surrender, and that Mr. Slaughter "never disclosed a contrary

interpretation." JA 3238-39.

4. The Foundation Laid by the Final Decision Cannot Support its Ultimate Conclusion.

Quite simply, not "everyone" agreed with VALIC that the disputed monies had to be

withdrawn piecemeal. Petitioners filed this very suit seeking a declaration exactly to the opposite

after VALIC denied the CPRB's request for a full surrender almost six months before pen was put

to paper on the 2008 Contract. It indeed requires turning a "blind eye" to say that the CPRB

22

attempted in June 2008 to exercise on its own behalf and for the benefit of the 1MB the contractual

rights it believed it then had, abdicated those beliefs by December 2008 in time for the 1MB to

ostensibly sign those rights away, then reversed course yet again to the point where it felt a lawsuit

was necessary to vindicate those same rights.

Assuming for argument's sake that Mr. Slaughter never warned VALIC of his intent to

request a full surrender, his silence is of no legal relevance. Mr. Slaughter lacked the authority to

make such a request until eight days beforehand, when the 1MB took equitable title to the disputed

monies, and indeed did so only after conducting due diligence demonstrating that the entire

investment was at risk. The parties agreed that the 2008 Contract would impose the same

obligations and confer the same benefits on the 1MB as the 1991 Contract had on the CPRB, but

no greater ones. Nothing about the 2008 Contract remotely suggests that its sole purpose of

transferring title somehow also afforded the 1MB more ofa mandate to demand surrender than that

previously enjoyed by the CPRB. On the other hand, if the CPRB could make a valid request for

surrender of the disputed monies prior to the transfer of title, then the 1MB certainly could

afterward, consistently with - and not "contrary to" - the agreement's terms and conditions as

insisted upon in Mr. Coppedge's September 25,2008 email.

The Final Decision ascribes Machiavellian motives to the 2008 Contract, the negotiations

leading to its execution, and the ultimate surrender request by 1MB. Such motives would indeed

have to exist for the forthright negotiator principle to be germane in the first place. See Cyber

Holding LLC v. CyberCore Holding, Inc., No. C.A.-7369, 2016 WL 791069, at *4 (Del. Ch. Feb.

26, 2016), (noting that concept of contract interpretation based on examination of one party's

forthrightness is necessarily founded on "disingenuous (or worse) conduct"). But this view raises

more questions than it answers: If Petitioners' intent were to make a unilateral surrender

23

impossible, and everyone was on board with that construction, the parties would not have used the

same contractual language. The 2008 contract represented a detente to resolve issues associated

with House Bill 101 - nothing more, nothing less. No one was acting in bad faith. To be sure,

VALIC did not want the money to be surrendered, but, by the same token, Petitioners were not

agreeing to never make that request, and they certainly did not obligate themselves to more onerous

surrender terms than those already in the 1991 Contract.

5. VALlC's Asserted "Risk" and the Unsolicited Opinions ofNonparties Are Not Relevant to the Analysis.

The pertinent balance of the Final Decision articulates VALlC's position that an expansive

application of the 20% Rule is warranted by its contractual obligation to guarantee a specific rate

of return on the annuity investments. In ostensible support, the Final Decision anecdotally

recounts three instances in which third-party contacts - two of them consultants retained in 1994

and 2004 to review investment options, and the third Great West in June 2008 - proffered

observations to the CPRB concerning the potential meaning of the Endorsement language. See JA

3239-40. Ms. Lambright's relaying ofVALlC's characterization of the Endorsement through Mr.

Coppedge is again prominently featured, alongside a similar email message in which Ms.

Lambright repeats what "VALIC permits" under the 1991 Contract. ld. at 3240. Possession is

famously said to be nine-tenths ofthe law, but VALlC's possession in this instance of the disputed

monies was 100% of the leverage. Petitioners were virtually powerless to effectively enforce

VALlC's contractual obligations, and that is the essential context in which the parties' actions

must be evaluated. A fair reading of the record leads inevitably to the conclusion that Petitioners

did not acquiesce to VALlC's interpretation of the 1991 and 2008 Contracts. Petitioners simply

tried to make the best of the practical reality that VAlle held the purse strings, and so attempted

to achieve a detente.

24

A word or two is warranted regarding the rate-of-return guarantee that the Final Decision

perceived to justify VALlC's hardline position on surrenders. At the outset, insofar as the parties

agreed to application ofthe 20% Rule strictly to intra-plan transfers to the Money Market Fund or

to any Guaranteed Investment Contract, V ALIC received precisely what it bargained for. V ALIC

also had the benefit of the six-month payment deferral provision of Section 6.08 of the Policy, as

needed, to help fund a surrender. As amply supported by the record below, the 20% Rule, as

proposed by V ALIC and properly construed, was instead geared toward discouraging active

participants from reallocating their CPRB portfolios from the fixed annuity to other TOC

investments that V ALIC viewed as competitors.

An assessment of risk is indeed essential to an accurate understanding of the parties'

agreement, but not in the way the Panel perceived. The proper focus instead is on how the 1991

Contract allocated the risk between the parties that intervening legislation would increase the

portfolio surrender rate, reducing the number of TOC participants and their proportionate

investment volume. V ALIC drafted the Policy and Endorsement, and it could have specifically

provided for exits from the TOC had it chosen to. But V ALIC did not so provide, and it did not

seek to amend the 1991 Contract after either the 1995 or the 2001 legislation, though it had ample

opportunities to do so. Section 6.04 of the Policy expressly provides that "On the first day of the

second or any subsequent Contract Year, VALIC may, upon 90 days written notice to the Contract

Owner, change any or all of the terms of the Contract." JA 3366.

To the contrary, VALIC established a course of performance under the 1991 Contract

whereby, twice during a six-year period, it permitted wholesale surrender of portfolios by entire

groups of participants, without charge or delay. Other TDC sponsors, including VALlC's

competitors, did the same. VALlC's performance did not escape the notice of the CPRB, which

25

had every right to expect no different treatment in 2008. The Panel concluded that adopting the

"unexpressed" construction accorded by Petitioners to the 2008 Contract (and, by necessity, to the

materially identical 1991 Contract) "would be both inequitable and contrary to first principles of

contract law," JA 3242, but it is resort to equity in the first place that is misplaced and legally

erroneous. A straightforward application of traditional contract principles, established in

accordance with West Virginia law, is all that is needed to ascertain the correct result in this case.

B. A Rigorous Legal Analysis under the Applicable Canons of Construction Leads to the Correct Interpretation of the 1991 and 2008 Contracts.

I. Step One: Surrender? Withdrawal for Transfer to Another Funding Entity?

Under West Virginia law, the first step in analyzing any contractual provision is to

determine whether its language is ambiguous. It is a "well-settled principle of law" that the "plain

and ordinary meaning" of contract language is to be applied, and not interpreted, "in the absence

of ambiguity or some other compelling reason." Payne v. Weston, 195 W. Va. 502, 507,466

S.E.2d 161, 166 (1995). A provision is ambiguous when it is "reasonably susceptible of two

different meanings," or is so unclear "that reasonable minds might be uncertain or disagree as to

its meaning." Syl. pt. 1, in part, Shamblin v. Nationwide Mut. Ins. Co., 175 W. Va. 337, 332 S.E.2d

639 (1985). Here, the parties differ on the meaning of the Endorsement language in the 1991

Contract (and in its 2008 mirror) imposing the 20% Rule "in the case of a withdrawal for transfer

to another funding entity." Although it seems to be agreed that VALIC is a funding entity, and

that other TDC sponsors are also funding entities within the scope of the Endorsement, there is

disagreement as to whether bodies outside the TDC, namely the 1MB and the TRS, are

contemplated "funding entities." Even if the 1MB and TRS are funding entities, the Rule does not

apply if a surrender or a partial surrender is not "a withdrawal for transfer."

26

This Court previously observed that "a proper understanding ofthe meaning of the disputed

endorsement language" in the 2008 Contract requires examination of its 1991 predecessor, which

is comprised of the "documents expressly incorporated into the initial annuity contract," and could

"arguably address the parties' intentions." 1MB I at 482-83, 766 S.E.2d at 429-30. The opinion

expressed skepticism that the endorsement as set forth in the 2008 Contract is "either unambiguous

or capable ofapplication without reference to the documents that were included as part of the 1991

Contract." Id at 483, 766 S.E.2d at 430. Indeed, it is more than plausible that the 1991 Contract

unambiguously precludes VALlC's reliance on its interpretation of the 20% Rule, which, in tum,

renders the "materially similar" 2008 Contract unambiguous on the same point. 5 Should the Court

conclude, however, that the Endorsement language is ambiguous, resort to extrinsic evidence of

the parties' intent is permitted, "and the court may consider parol evidence in connection

therewith." Syl. pt. 9, in part, Poling v. Pre-Paid Legal Servs., inc., 212 W. Va. 589,575 S.E.2d

199 (2002) (citation and internal quotation marks omitted). The relevant extrinsic evidence in this

case is all on the side of Petitioners.

S In a nutshell, the extrinsic evidence of the structure and intent of the 1991 Contract is wholly consistent with the plain meaning of its language. Further, the creation of the TDC in 1991 was contemporaneous with the close of the TRS to new hires, so a withdrawal for transfer of anything to the TRS or the 1MB could not have been within the contemplation of either party to the 1991 Contract. See Faith United Methodist Church & Cemetery a/Terra Alta v. Morgan, 231 W. Va. 423, 428 n.ll, 745 S.E.2d 461,466 n.ll ('''It goes without saying that the intent of the parties sought to be reached is intent existing at the time the contract was made. '" (quoting Bruen v. Thaxton, 126 W. Va. 330, 340,28 S.E.2d 59, 64 (1943))). The likelihood is almost as remote that V ALIC and the CPRB anticipated at the time ofcontracting that the 20% Rule could apply to a transfer to any "funding entity" - or to any entity at all- beyond the TDC, because legislation enabling any such outside transfer remained years away. Taking both circumstances into consideration, the Endorsement could not have affirmatively authorized V ALIC to retain any of the disputed monies in the face of a legislative command they be relinquished. Prior to the scheduled trial, the CPRB moved the Business Court for summary judgment, maintaining that V ALIC had breached the 1991 Contract as a matter of law. The argument was preserved in the pretrial order and presented once more before the Panel during the arbitration hearing, but it was never ruled upon.

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2. Step Two: What Does the Extrinsic Evidence Indicate?

Mr. Sims, who negotiated the 1991 Contract on behalf of the CPRB as its Executive

Director, testified that he crafted the RFP with the purpose of avoiding charges to participants "for

transfers within the Defined Contribution Plan," JA 5844, that "the V ALIC annuity contract

pennitted money to be taken out up to 100 percent at any time," id. at 5845, and that the "one

limitation" on withdrawals was "transfer to the money market fund because [VALlC] thought it

competed with their product, and they wanted a 20 percent restriction on that transfer," id. Ms.

Miller confinned that, in practice, surrenders were treated differently from intra-plan transfers, see

id. 5705-06, 5774, and that the 20% ceiling was only enforced on transfers to the TOC Money

Market Fund, see id. at 5705, 5765. V ALIC has no fact-witness testimony to the contrary.

Mr. Rosen, proffering expert testimony on behalf of V ALlC, conceded that a surrender is

not the equivalent of a withdrawal: "It is not the same tenninology. A surrender would have to do

if a contract is going to be tenninated or partially tenninated[,] whereas a withdrawal would be

monies that are physically coming out of somebody's individual account." JA 6813. Finally, Dr.

O'Neal testified to his expert understanding that the 1991 Contract placed no restrictions on

transfers outside of the TOC, and that the sole purpose of the 20% Rule was "to limit people from

moving into those other fixed return vehicles because [VALlC] didn't want people to be able to

move into those when perhaps the yield was higher on those than they were on the VALIC

annuity." See id. at 6593. In stark contrast to all the foregoing, VALIC offered no testimony of

its contemporaneous understanding in 1991 contrary to that expressed by the CPRB witnesses, and

in particular Mr. Sims.

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3. Step Three: What Was the Parties' Course ofPerformance?

Ms. Miller also testified, and it is undisputed, that, on at least two occasions prior to 2008,

VALIC complied with legislation authorizing TDC liquidations without invoking the purported

ceiling requirement. See JA 5705-06. VALIC thus engaged in a course ofperformance illustrative

of its agreement with the CPRB, that is, "a sequence ofconduct between the parties to a particular

transaction" arising when the "agreement of the parties with respect to the transaction involves

repeated occasions for performance by a party," and the other party having knowledge thereof

"accepts the performance or acquiesces in it without objection." W. Va. Code § 46-1-303(a),

(a)(l)-(2) (2006). As might be expected, "[aJ course of performance ... is relevant in ascertaining

the meaning of the parties' agreement, may give particular meaning to specific terms of the

agreement, and may supplement or qualify the terms of the agreement." Id. § 46-1-303(d).

4. Step Four: How Does One Deal with the Reddest ofHerrings - the 2008 Negotiations and Contract?

Viewed in its proper context, the negotiations in the autumn of2008 manifested a cooling­

off period in the controversy, culminating in the 2008 Contract whose lone significance was to

permit the CPRB to extricate itself from the day-to-day oversight of and responsibility for the

V ALIC-retained funds, substituting the 1MB in that role. The 2008 Contract did not otherwise

change the 1991 Contract and afforded no new opportunity for Petitioners to "liquidate" the

VALlC-held assets. The 1MB simply took over for the CPRB in pressing Petitioners' position

that, under the 1991 Contract, V ALIC was bound to honor the request for a full surrender. By

conducting due diligence and lending the 1MB's support to the CPRB's initial demand, Mr.

Slaughter was merely performing, to the best of his ability, his professional obligation to advance

the best interests of the 1MB, the TRS, and the thousands of State teachers and other employees

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who rely on the fiscal health of the TRS to assure themselves of a dependable source of retirement

income.

5. Step Five: What Do the First Four Steps Tell Us?

Given the textual clues from the language of the agreement itself, the uncontradicted

extrinsic evidence of the parties' understanding at the time of contracting, their course of

performance consistent therewith, and the lack of substantive amendment through the 2008

Contract, it is plain that VALIC breached the 1991 and 2008 Contracts by refusing to comply with

the surrender requests. To the extent that any doubt remains concerning the meaning of the

pertinent Endorsement provisions, that doubt must be resolved in favor of Petitioners and against

VALle. See 1MB I at 484-85, 766 S.E.2d at 431-32 ("Because VALIC prepared the endorsement

at issue, the petitioners correctly observe that any ambiguities in that document are required to be

construed against VALIC and in their favor." (citing syl. pt. 4, Nat '[ Mut. Ins. Co. v. McMahon &

Sons, Inc., 177 W. Va. 734,356 S.E.2d 488 (1987». VALlC's breach began on July 1,2008, at

least insofar as the parties' course of performance had given rise to an ongoing waiver of the

deferral provisions of Section 6.08 of the Policy. The breach was firmly established in any event

no later than six months thereafter, once VALlC's deferral rights, if any, had expired. The 1MB

is thus legally authorized to recover its damages from the breach, and the CPRB is entitled to its

requested declaration, long deferred, that the 3,200 participants remaining in the TDC are not

bound for future purposes by VALlC's interpretation of the 20% Rule.

II. THE THREE-JUDGE PANEL EXCEEDED OR IMPERFECTLY EXECUTED ITS JURISDICTIONAL POWERS BECAUSE THE FINAL DECISION FAILED TO APPLY WEST VIRGINIA LAW, AND BECAUSE THE FINAL DECISION DID NOT MAKE A FINAL AND DEFINITE A WARD ON ALL ISSUES SUBMITTED.

Apart from the Final Decision's misapplication of the law in reliance on clearly erroneous

findings, the award itself evidences two substantive defects providing independent bases for

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vacation. First, Paragraph 9 of the Joint StipUlation bound the Panel to "issue a reasoned decision

applying West Virginia law." JA 1480 (emphasis added). The Panel, however, neglected to apply

the law of the case as settled by this Court in 1MB 1. By not applying the settled decision

parameters, the Panel did not conform its actions to the expectations of the parties under their

arbitration agreement and therefore exceeded its powers. Second, the Panel did not decide the

continuing rights of the non-electing TDC members, for which Petitioners sought a declaratory

judgment in both the initial and Amended Complaint. The Panel thus did not make a final and

definite award.

A. The Thee-Judge Panel Exceeded Its Powers By Not Applying West Virginia Law As Required By the Joint Stipulation.

The Revised Uniform Arbitration Act (the "Act"), as adopted by West Virginia, W. Va.

Code § 55-10-1, et seq. (2015), requires that a "final and definite award" be made as to all claims

submitted in the arbitration proceeding. See id. § 55-1O-22(a)(2), -22(d)(2). The Act instructs that

a "court shall vacate an award made in the arbitration proceeding if ... [a]n arbitrator exceeded

the arbitrator's powers." Id. §§ 55-10-25(a), -25(a)(4). Inasmuch as the parties' agreement is the

sole source of arbitral powers, arbitrators must "give effect to the contractual rights and

expectations of the parties," such that "the parties' intentions control." Stolt-Nielsen S.A. v.

AnimalFeeds Int'l Group, 559 U.S. 662, 682 (2010) (citations and internal quotation marks

omitted). Put differently, "when an arbitrator strays from interpretation and application of the

agreement and effectively dispenses his own brand of industrial justice ... [,] his decision may be

unenforceable." Id. at 671 (citations, alteration, and internal quotation marks omitted).

1. The Panel ignored this Court's instructions in 1MB L

The opinion in 1MB I, being the law of the case, was dispositive, but not applied by the

Panel. Indeed, several of the key issues in dispute were already determined in favor ofPetitioners

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in 1MB I. In fact, no West Virginia case authorities, including the opinion in 1MB I, were cited in

the Final Decision. The Panel simply did not follow this Court's directives, as a juxtaposition of

its Final Decision with 1MB I makes abundantly clear.

1MB I Ruling

"[T]he trial court ... omitted any consideration of documents that were incorporated as part of the 1991 Contract. That omission is critical to a proper understanding of the meaning of the disQuted endorsement language." (Op. 482) "[O]ur review of the trial court's ruling pertaining to the endorsement to the 2008 Contract impels a discussion of the 1991 Contract and its formation." (Op. 482-83). "Given the manner in which the 2008 Contract came into existence - as an investment vehicle for funds invested in the 1991 Contract ... ­and the representation by [VALlC] that the 2008 Contract would be "materially similar" to the 1991 Contract with express reference to 'form, endorsements, rates, and terms,' we would be hard pressed to wholly disregard evidence that may relate to the meaning of the endorsement language in dispute." (Op. 484). "[W]e are convinced that the language in the [2008] endorsement pertaining to 'a withdrawal for transfer to another funding entity' is decidedly ambiguous." (Op. 485) "Because VALIC prepared the [2008] endorsement at issue, the petitioners correctly observe that any ambiguities in that document are required to be construed against VALIC and in their favor." (Op. 484-85).

Panel Final Decision

"The Arbitration Panel declines to weigh the merits of Plaintiffs' reliance on section 6.08 of the [1991] annuities contract or damages arguments, for these remaining arguments are moot." JA 3244. "[T]he panel finds that the legal conclusion of this case rests upon the formation of the December [sic] 2008 replacement contract." JA 3238 "Imposing 1MB's unexpressed interpretation upon V ALIC would be both inequitable and contrary to first principles of contract law. 1MB is bound by the interpretation that it knew or had reason to know and cannot be permitted to advance an undisclosed, contrary interpretation." JA 3242.

"Even ifthe 1991 contract had been ambiguous, 1MB entered into the materially similar 2008 terms with an understanding of how V ALIC interpreted the endorsement." JA 3243. "As a matter of law, the 2008 Contract must be interpreted in V ALlC's favor." JA 3238.

2. Because the Panel did not apply West Virginia law, the award should be set aside.

In the matter at bar, the Panel did not apply the controlling law and grounded its entire

decision on legal principles applicable solely to the 2008 Contract - the precise methodology

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condemned by this Court in 1MB I. The Panel's failure to apply the governing law requires vacatur

of the arbitration award.

B. The Panel Failed to Address All the Issues Before It.

An arbitrator's raison d'efre is to make a final and definite award upon the claims submitted

by the parties. That did not happen in this instance. Petitioners expressly sought a declaratory

judgment after VALIC refused to accede to the 1MB's surrender demand pursuant to the 1991

Contract executed by the CPRB. See JA 9-10. Though Petitioners later filed an Amended

Complaint for damages, they nonetheless realleged their claim for declaratory relief with respect

to the non-electing TDC participants who remained invested with VALIC. See id 63.

The Panel did not address the requested declaration, and it did not determine the parties'

ongoing rights and obligations under section 6.08 of the 1991 Policy, which governs the rights of

some 3,200 participants who remained invested with V ALIC. Specifically, the Panel pointedly

"decline[d] to weigh the merits of [Petitioners'] reliance on section 6.08 of the [1991] annuities

contract or damages argument (the section of the contract applicable to these participants), for

these remaining arguments are moot." Id 3244. Consequently, the Panel did not fulfill its charge

to make a final and definite award, and its Final Decision lived up to neither descriptor. By not

deciding all of the issues submitted to it; the Panel ceded jurisdiction over the entire dispute. See

Elliott & Ten Eyck P 'ship v. City ofLong Beach, 67 Cal. Rptr. 2d 140, 143-44 (Cal. Ct. App. 1997)

("[I]t is the duty of the arbitrators to pass upon the whole subject in controversy, and if it appears

upon the face of the award that they have not disposed of the whole matter but have left a part

open ... it is void and will be set aside." (citation and internal quotation marks omitted».

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III. THE THREE-JUDGE PANEL LACKED JURISDICTION TO RENDER ITS FINAL DECISION BECAUSE IT WAS FORMED IN VIOLATION OF THE LAWS OF WEST VIRGINIA, THE RULES OF CIVIL PROCEDURE, AND THE CODE OF JUDICIAL CONDUCT.

The laws governing the Business Court Division allow court-annexed arbitration only

insofar as it may be conducted by the single Resolution Judge assigned to the case. There is no

authorization for multiple Resolution Judges, no provision for three-judge arbitration panels, and

neither the Court's rules nor the Code of Judicial Conduct permit the designated Presiding Judge

to actively participate in any attempt to resolve the dispute by alternative means. All the foregoing

acts occurred in the instant matter, however, and consequently the Three-Judge Panel was without

subject matter jurisdiction to enter an enforceable Final Decision.

A. The State Constitution, Enabling Act, and Rule 29 Do Not Authorize a Presiding Judge to Serve as Judge. Mediator, and Arbitrator.

Upon referral of litigation to the Business Court by order of the Chief Justice, Rule 29

specifies that the Division Chair assign a Presiding Judge and a Resolution Judge. See T.C.R.

29.04(d), -(e). Both offices are referred to in the singular throughout Rule 29. For example, the

Rule sets forth the various powers and duties of "the" Presiding Judge, such as consolidating

separate matters, managing the case, scheduling and conducting proceedings, and supervising the

jury selection process. See id. 29.08. Likewise, "the" Resolution Judge is generally empowered

"to schedule and conduct mediation of the case or any Alternative Dispute Resolution ["ADR"] as

agreed to by the parties and the Resolution Judge." Id. 29.08(h).

The Rule accommodates a certain degree of flexibility in achieving its goal of resolving

litigation efficiently and expeditiously. But the Rule by no means contemplates what occurred

here: where not one but multiple Resolution Judges were assigned at once; where the Presiding

Judge served as a Resolution Judge by initiating an alternative dispute process; and where the

34

Presiding Judge actively assumed the tripartite roles of judge, mediator, and - ultimately ­

arbitrator. Nothing in Article 8, section 6 of the State Constitution, West Virginia Code § 51-2­

15, or Rule 29 remotely confers upon the Business Court the jurisdiction to resolve disputes as

done here, by conscripting a three-judge arbitration panel that included the Presiding Judge. The

West Virginia Constitution, the statute, and the Rule are the sole sources of the Division's

legitimate authority.

B. A Judge May Not Perform Other Judicial Functions Apart from the Judge's Official Duties.

Rule 3.9 of the West Virginia Code of Judicial Conduct unequivocally directs that "[aJ

judge shall not act as an arbitrator or a mediator," nor may ajudge "perfonn other judicial functions

apart from the judge's official duties." See also W. Va. Const. art 8, § 7 ("No justice, judge or

magistrate shall hold any other office, or accept any appointment or public trust, under this or any

other government."). The official commentary to the Rule clarifies that ajudge may perfonn ADR

or settlement functions "as part of assigned judicial duties," id. cmt. 1, arguably a recognition and

approval of the tasks typically assigned to Resolution Judges.6 That narrow exception to the

general prohibition, however, is not intended to penn it a judge to act as a judge and a mediator

and an arbitrator all in the same case.

Absent an enabling provision in § 51-2-15 or T.C.R. 29, the official duties of a Business

Court judge cannot include the assumption of multiple, conflicting roles in a single dispute, nor

can a judge within the Division participate with his or her peers as part of a panel of arbitrators

when the law provides that only one Resolution Judge be assigned to the case at any time. Rule

6 The Clerk's Notes recite that the language of Rule 3.9 deviates slightly from that of the 2007 Model Code, which bars a judge from acting as an arbitrator or mediator "unless expressly authorized by law." The Notes explain that the Model language was deleted because ''there is no such authorization in West Virginia."

35

3.9's prohibition generally "extends to judges going outside their regular judicial duties to assist

in dispute resolution, whether or not for pecuniary gain, unless doing so is expressly authorized by

law, such as by court rule." ABA Joint Commission to Evaluate the Model Code of Judicial

Conduct, Report 114 (Nov. 2006) (documenting concerns that routine performance ofextrajudicial

services "would create public confusion about the true role of the judiciary as an independent

branch of the government, thus diminishing respect for the judicial system"). Consequently, the

Panel was a legal nullity precluded from existing in its assumed form.

IV. THE THREE-JUDGE PANEL LACKED JURISDICTION TO RENDER ITS FINAL DECISION BECAUSE IT CONDUCTED A CONFIDENTIAL ARBITRATION THAT VIOLATED THE PUBLIC'S FIRST AMENDMENT RIGHT OF OPEN ACCESS TO THE COURTS.

The public has an established First Amendment right of access to proceedings conducted

by public judges in public facilities using public resources. The Three-Judge Panel's closure of

the arbitration proceedings and its maintenance of key case filings - including the Final Decision

- as confidential violated the Constitution, as a federal court of appeals has held. See Del.

Coalition/or Open Gov't, Inc. v. Strine, 733 F.3d 510 (3d Cir. 2013). The shroud of secrecy also

ran afoul of the open-courts mandate of the West Virginia Constitution. An arbitration award

forged under such circumstances cannot stand.

A. The Third Circuit Decision in Strine.

The plaintiff in Strine challenged the confidentiality provisions of Delaware's state­

sponsored arbitration program, authorized by statute in 2009 and fleshed out the following year

through rulemaking under the auspices of the Delaware Chancery Court. The 20 I 0 rules provided

for the initiation of arbitration by petition to the Register in Chancery. See Del. Chan. Ct. R.

97(a)(1) (2010). The rules stipulated that the Register "will not include the petition as part of the

public docketing system. The petition and any supporting documents are considered confidential

36

and not of public record." Id. 97(a)(4). With respect to the hearing on the petition, the rules

explained: "Arbitration hearings are private proceedings such that only parties and their

representatives may attend, unless all parties agree otherwise." Id. 98(b). The cloak of

confidentiality extended to the arbitrator's file, and to any communication made at the hearing or

relating to the arbitration. See id. Except for non-privileged non-work product, "[s]uch

confidential materials and communications" were, absent the parties' consent, "not subject to

disclosure in any judicial or administrative proceeding," id., including, presumably, any

proceeding litigating a FOrA request. As a matter of course, the arbitration proceedings were

"conducted in a Delaware courthouse during normal business hours." Strine, 733 F.3d at 513.

The court of appeals applied the Supreme Court's "experience and logic" test to conclude

that a presumption of public access applied to the Delaware arbitration scheme that could not "be

overridden by a compelling government interest." Strine, 733 F.3d at 514 (citation omitted). With

respect to the experience prong, the court observed:

When we properly account for the type ofproceedings that Delaware has instituted - a binding arbitration before ajudge that takes place in a courtroom - the history of openness is comparable to the history that . . . the Supreme Court found in Richmond Newspapers. Thus ... the right of access to government-sponsored arbitrations is deeply rooted in the way the judiciary functions in a democratic society.

Id. at 518. The court, simply put, stated the obvious: "[p]roceedings in front of judges in

courthouses have been presumptively open to the public for centuries." Id On the logic prong,

the court noted that public access to judicial proceedings is rife with advantages, including

(1) promotion of informed discussion of governmental affairs by providing the public with the more complete understanding of the proceeding; (2) promotion of the public perception of fairness which can be achieved only by permitting full public view of the proceedings; (3) providing a significant community therapeutic value as an outlet for community concern, hostility and emotion; (4) serving as a check on corrupt practices by exposing the proceeding to public scrutiny; (5) enhancement of the performance ofall involved; and (6) discouragement of fraud.

37

Id. at 519 (citations, internal quotation marks, and alterations omitted). Regarding the latter

benefit, the court elaborated that "public access would discourage perjury and ensure that

companies could not misrepresent their activities to competitors and the public." Id.; cf Daily

Gazette Co., 174 W. Va. at 365,326 S.E.2d at 711 ("We cannot simply expect the public to blindly

accept that justice is being done."). All the more so when the proceedings, as here, involve

quintessentially public entities undertaking critically significant and ambitious governmental acts.

B. The Business Court Division was Designed to Emulate the Chancery Court System Developed in Delaware.

West Virginia's Business Court Division is based on Delaware's model. Sharply contrary

to the means employed by the Chancery Court, however, the Business Court Division attempted

to animate its arbitration program in an ad hoc fashion, without the benefit of formal rulemaking,

which, at a minimum, requires this Court's approval. The Presiding Judge's vision manifested

itself initially in the parties' Joint StipUlation, which provided that "[t]he arbitration proceedings

shall be confidential," adding, in response to Petitioners' objections, the proviso "except to the

extent disclosure is required by law.,,7

At the outset of the arbitration hearing, the Presiding Judge recalled that "[w]e put in [the

Joint Stipulation] that it was confidential as allowed by law," but that in the meantime, he had

"followed the case in Delaware[,] which has a similar open courts requirement that West Virginia

has.... So I think we're not going to be able to blanket much, ifanything, in confidentiality." JA

1998. The following colloquy ensued:

7 In its August 14, 2017 Response to Petitioners' Motion to Unseal the Case Record ("Motion Response"), VALIC neglects to mention Petitioners' unrecorded objections to the court's initial suggestion of blanket confidentiality, contending that Petitioners "affirmatively sought" the same. Motion Response at 1-2. VALIC seeks to take untoward advantage of the circumstance that the prefatory discussions among the parties and the Presiding Judge relating to the proposed arbitration in general, and confidentiality in particular, were not conducted in the presence ofthe court reporter.

38

[RESPONDENT'S COUNSEL]: I understand the Court's comments as they would apply to the proceeding here over the next three days. What about the Court's ruling, will that be a matter of public record or will that be confidential?

[PRESIDING JUDGE]: That's a lot easier for us to do because if the parties can agree that it's confidential, we can say it's confidential and let someone file a lawsuit to determine if they can get to it. It's just the day-to-~ay aspects of it. ... If I were a betting man, I would say chances are it would have to be disclosed, but ... I'm not willing to give up the argument ... that that could be similar to jury deliberations or the thought[s] by judges, which are not susceptible to FOIA.

Id. at 1998-99. The hearing was held in the Kanawha County Courthouse, but it was not publicized

and it was not attended by the public or press, though the transcript of the three-day proceeding

has been placed on the public docket. The Joint Stipulation remained sealed until this Court's

unsealing Order of August 28, 2017. None of the parties' briefs submitted either before or after

the hearing are publicly accessible. At the conclusion of the case, the circuit clerk was directed

"to retire the ... matter from the docket and place it among the causes ended." Id. at 1998. The

clerk was further instructed to "SEAL this Final Decision and release the same only by order of

the Court." Id. at 840. The Panel's instructions as to sealing were memorialized by the Presiding

Judge's conforming Final Order entered under the Business Court's authority on May 10,2017.

C. The Process Used to Resolve the Instant Dispute is Unconstitutional for the Same Reasons as Set Forth in Strine.

The practical effects of the Panel's actions were nearly identical to those declared

unconstitutional in Strine. The Joint Stipulation giving rise to the arbitration is intended to stay

private, like the initiating petition in Delaware. As the Delaware arbitration rules contemplated

with respect to proceedings conducted by the Chancery Court, no one other than the parties and

their representatives were present at the hearing. None of the hundreds of exhibits presented at

the hearing, i.e., "materials and communications" kept confidential by the Chancery Court

provisions, can be readily accessed. And, of course, the Final Decision itself - the product of

39

proceedings conducted in a West Virginia courthouse in the course of State business - was a

mystery to the public at large until this Court ordered it unsealed on August 28, 2017.

CONCLUSION

The Final Decision was a misnomer insofar as it neglected to fulfill the decisional

requirements imposed by the Joint Stipulation. With regard to the merits of the underlying breach

action, the Final Decision embodied clearly erroneous findings of fact and misapplied legal

principles. On a jurisdictional level, the same fundamental Constitutional defects that contributed

to the failure of Delaware's experiment with judicial arbitration likewise plagues the Business

Court's creation ofthe three-judge arbitration Panel. In several important respects, the proceeding

now before the Court fell short ofeven Delaware's effort, having been devised in the middle of an

important case, on an ad hoc basis, with no statutes or rules for guidance. For those reasons and

all the ones foregoing, Petitioners respectfully request that this Court reverse the Final Order and

its predicate Final Decision.

THE WEST VIRGINIA INVESTMENT MANAGEMENT BOARD and THE WEST VIRGINIA CONSOLIDATED RETIREMENT BOARD

Be amin L. Bailey (WVSB #200) Gerard R. Stowers (WVSB #3633) bbailey@baileyglasser.com gstowers@bowlesrice.com Jonathan R. Marshall (WVSB #10580) J. Mark Adkins (WVSB #7414) jmarshall@baileyglasser.com madkins@bowlesrice.com Thomas B. Bennett (WVSB #311) S. Andrew Stonestreet (WVSB #11966) tbennett@baileyglasser.com astonestreet@bowlesrice.cm Raymond S. Franks II (WVSB #6523) BOWLES RICE LLP rfranks@baileyglasser.com Post Office Box 1386 Bailey & Glasser LLP Charleston, WV 25325-1386 209 Capitol Street T: 304-347-1112 Charleston, WV 25301 F: 304-347-1756 T: 304-345-6555 Counsel for Petitioners F: 304-342-1110 Counselfor Petitioner The West Virginia Investment Management Board

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Exhibits on File in Supreme Court Clerk's Office