Opinion
2:24-CV-00342
04-09-2024
CALCASIEU PARISH POLICE JURY v. CERTAIN UNDERWRITERS AT LLOYDS, LONDON; INDIAN HARBOR INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; QBE SPECIALTY INSURANCE COMPANY; STEADFAST INSURANCE COMPANY; UNITED SPECIALTY INSURANCE COMPANY; GENERAL SECURITY INDEMNITY COMPANY OF ARIZONA; HDI GLOBAL SPECIALTY SE; OLD REPUBLIC UNION INSURANCE COMPANY; AND SAFETY SPECIALTY INSURANCE COMPANY
STUTES & LAVERGNE, LLC Russell J. Stutes, Jr. (#21147) P. Jody Lavergne (#27546) Jeanette Dewitt-Kyle (33801) Russell J. Stutes, III (#38420) Attorneys for Plaintiff, Calcasieu Parish Police Jury
STUTES & LAVERGNE, LLC Russell J. Stutes, Jr. (#21147) P. Jody Lavergne (#27546) Jeanette Dewitt-Kyle (33801) Russell J. Stutes, III (#38420) Attorneys for Plaintiff, Calcasieu Parish Police Jury
OYO, MAGISTRATE JUDGE
PLAINTIFF'S CONSOLIDATED MEMORANDUM IN SUPPORT OF MOTION TO REMAND AND OPPOSITION TO MOTION TO COMPEL ARBITRATION
JAMES D. CAIN, JR., JUDGE
TABLE OF CONTENTS ....................................................................................................................... Page
Table of Authorities.......................................................................................................................iii
Preliminary Statement......................................................................................................................1
Facts.................................................................................................................................................5
Law and Argument..........................................................................................................................7
(A) La. R.S. 22:868 prohibits arbitration in insurance contracts........................................7
(B) The Convention is inapplicable; the agreements here involve only American citizens................................................................................................9
(C) Louisiana's anti-arbitration law is shielded from the Federal Arbitration Act...........12
(D) The arbitration provision contains an unlawful choice-of-law clause.......................16
(E) Equitable estoppel cannot apply here to force arbitration...........................................17
Conclusion.....................................................................................................................................19
Certificate of Service.....................................................................................................................20
Am. Bankers Ins. Co. of Fla. v. Inman 436 F.3d 490 (5th Cir. 2006).....................................................................................................13
Arthur Anderson LLP v. Carlile, 556 U.S. 624, 631 (2009)..........................................................................................................18
Beiserv. Weyler, 284 F.3d 665, 674 (5th Cir. 2002).............................................................................................10
Bufkin Enters, v. Indian Harbor Ins. Co., No. 23-30171, 2024 WL 909600 (5 Cir. 3/4/24)....................................................1, 2, 7, 17, 18
Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La. 2003)...................................................................................................9
City of Kenner v. Certain Underwriters at Lloyd's, London, 2022 WL 307925, p. 1 (E.D. La. 2022)..................................................................................7, 9
Courville v. Allied Professionals Ins. Co., 2016-1354 (La.App. 1 Cir. 4/12/17), 218 So.3d 144, 148................................................3, 8, 13
Crawford Professional Drugs Inc. v. CVS Caremark Corp., 748 F.3d 249, 261-62, n. 9 (5th Cir. 2014)..........................................................................17, 18
Creekstone Juban I, L.L.C. v. Ins. of Amer., Inc., 2018-0748 (La. 5/8/19), 282 So. 23d 1042, 1051 (Weimer, Concurring)..................4, 8, 13, 14
Doucet v. Dental Health Plans Mgmt. Corp., 412 So.2d 1383, 1384 (La. 1982)............................................................................................13
Freudensprung v. Offshore Technical Servs., Inc., 379 F.3d 327, 339 (5th Cir. 2004)...............................................................................................9
GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA LLC, 140 S.Ct. 1637, 1643 (2020).....................................................................................................18
Glad Tidings v. Indian Harbor Ins. Co., No. 2:21-cv-01009, (W.D. La. 2021)................................................................................7, 9, 13
Grigson v. Creative Artists Agency, LLC, 210 F.3d 524, 527 (5th Cir. 2000).............................................................................................18
Hobbs v. IGF Ins. Co. 02-26 (La.App. 3 Cir. 10/23/02), 834 So.2d 1069, 1071..................................................3, 8, 13
Hodges v. Reasonover, 103 So.3d 1069,1074 (La. 2012)............................................................................................15
Howard Trucking Co. Inc. v. Stassi, 485 So.2d 915, 918 (La. 1986)................................................................................................19
Huntington Alloys, Inc. v. United Steelworkers of America, 623 F.2d 335 (4th Cir. 1980).............................................................................................3, 8, 13
In re Katrina Canal Breaches Litigation, 495 F.3d 191, 206 (5th Cir. 2007)...............................................................................................9
Indian Harbor Insurance Company v Belmont Commons, LLC 2024 WL 962376 (5th Cir. 2024)..............................................................................................13
Lawson v. Life of the South Ins. Co., 648 F.3d 1166,1171 (1th Cir. 2011).........................................................................................18
Manuel vs. La. Sheriff's Risk Mgmt. Fund, 95-0406 (La. 11/27/95), 664 So.2d 81, 85................................................................................16
May v. Harris Management Corp., 928 So.2d 140,145 (La.App. 1 Cir. 12/22/05).......................................................................19
MB Industries LLC v. CNA Ins. Co., 2011-0303 (La. 10/25/11).........................................................................................................19
McGlothlinv. Christus St. Patrick Hosp., 10-2775, p. 11 (La. 7/1/11), 65 So.3d 1218, 1228....................................................................14
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985)..........................................................................................................12
Moroux v. Toce, 2006-831 (La.App. 3 Cir. 11/2/06), 943 So.2d 1263, 1272 (La.App. 3 Cir. 11/2/06)...........19
Nucor Steel Louisiana, LLC v. St. James Parish School Board, 2021-01814, pp. 5-6 (La. 6/29/22), 346 So.3d 272, 274.......................................................2, 17
Oak Haven Management, LLC v. Starr Surplus Lines Ins. Co., 2021 WL 4134033, p.l (W.D. La. 2021)..................................................................................15
Port Cargo Service, LLC v. Certain Underwriters at Lloyd's London, 2018 WL 4042874, p. 6 (E.D. La. 2018)..................................................................5, 10, 11,12
Preston v. Ferrer, 552 U.S. 346, 359, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008).................................................4, 15
Safety Nat. Cas. Corp. v. Certain Underwriters at Lloyd's London, 587 F.3d 714, 719 (5th Cir. 2009), cert, denied, 562 U.S. 827, 131 S.Ct. 65,178 L.Ed.2d22(2010).............................................................................................................4,7,15
Saloom v. Department of Transportation and Development, 2022-00596, p. 6 (La. 12/9/22), 354 So.3d 1179, 1183...........................................................18
Scherk v. Alberto-Culver, 94 S.Ct. 2449,2457 n. 15 (1974)..............................................................................................12
Sevier v. United States Fidelity & Guaranty Co., 497 So.2d 1380, 1385 (La. 1986)......................................................................................3, 8,13
Showboat Star Partnership v. Slaughter, 2000-1227 (La. 4/3/01), 789 So.2d 554, 562.......................................................................2, 17
Tri-Union Seafoods LLC v. Starr Surplus Lines Ins. Co., 88 F.Supp.3d 1156, 1168 (S.D. Calif. Feb. 5, 2015)..............................................................16
Viking River Cruises v. Montana, 596 U.S. 639, 653 (2022)......................................................................................................4,15
Statutes and Other Authorities
9U.S.C. §2................................................................................................................................9,11
9U.S.C.§201..................................................................................................................................7
9 U.S.C. § 202........................................................................................................................2, 9, 11
9 U.S.C. § 205........................................................................................................................7, 9, 17
15 U.S.C. §1011.............................................................................................................................13
15 U.S.C. §1012.............................................................................................................................13
28 U.S.C. §1331..............................................................................................................................7
28 U.S.C. § 1332..............................................................................................................................7
28 U.S.C. §1441...............................................................................................................................7
28U.S.C. §1446...............................................................................................................................7
28 U.S.C. § 1446(b)..........................................................................................................................6
La. Civ. Code art. 1906..................................................................................................................11
La. Civ. Code art. 2047....................................................................................................................9
La. Code Civ. P. art. 1673..............................................................................................................11
La. R.S. 9:2778........................................................................................1, 3, 4, 7, 8,15, 16,17,19
La. R.S. 22:12................................................................................................................................16
La. R.S. 22:436................................................................................................................................8
La. R.S. 22:442................................................................................................................................6
La. R.S. 22:629..............................................................................................................................13
La. R.S. 22:868..............................................................................................................7, 13, 14, 15
La. R.S. 22:868(A).....................................................................................................4, 6, 14, 15, 19
La. R.S. 22:868(A)(1)..................................................................................................1, 3, 4, 15, 16
La. R.S. 22:868(A)(2)......................................................................................1, 7, 8, 13, 14, 15, 17
La. R.S. 22:868(D)...............................................................................................3, 4, 13, 14, 15, 16
La. R.S. 22:1892................................................................................................................3, 4, 6, 16
La. R.S. 22:1973............................................................................................................................16
La.R.S.44:l....................................................................................................................................8
La. R.S.44:2....................................................................................................................................8
MAY IT PLEASE THE COURT:
I.PRELIMINARY STATEMENT
This matter should be remanded to state court because this Court lacks subject matter jurisdiction. Based upon the recent ruling in Bufkin, Defendants seek enforcement of an arbitration provision under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention") through equitable estoppel. That arbitration provision, however, does not fall under the Convention and is otherwise unenforceable, as the criteria for estoppel has not been satisfied and cannot be met.
Bufkin Enters, v. Indian Harbor Ins. Co., No. 23-30171, 2024 WL 909600 (5 Cir. 3/4/24).
These are domestic insurance companies trying to force their policyholder, a Louisiana political subdivision, into arbitration. They have no right to put arbitration clauses in their contracts, At the time this policy was issued, La. R.S. 22:868(A)(2) expressly and unequivocally forbid arbitration agreements in insurance policies between domestic carriers and Louisiana insureds. And, they have no right to opt out of Louisiana law. Worse still, the facts are undisputed that an arbitration or choice of law clause in the policy was never negotiated or even mentioned before the policy was issued. Slipping an arbitration into an insurance policy after the binder is provided to the insured and without any negotiation, consent to or discussion of same is not a meeting of the minds agreeing to arbitration.
In June of 2020, the statute was amended by Act 307, §1 of the 2020 Regular Session to allow venue and forum clauses in surplus lines policies.
La. R.S. 22:868(A)(1) and 9:2778.
Doc, 17-2 (Declaration of Laura Bolton).
Defendants seek application of the Bufkin decision as foundation for its removal here. However, Bufkin was predicated on the application of equitable estoppel under Louisiana law in the context of private parties. Louisiana law requires heightened proof of four factors to apply estoppel to a governmental body:
(1) Unequivocal advice from an unusually authoritative source;
(2) Reasonable reliance on that advice by an individual;
(3) Extreme harm must result from that reliance; and
(4) Gross injustice must occur in the absence of estoppel.
Showboat Star Partnership v. Slaughter, 2000-1227, pp. 12-13 (La. 4/3/01),789 So.2d 554, 561-562. See also, Nucor Steel Louisiana, LLC v. St. James Parish School Board, 2021-01814, pp. 5-6 (La. 6/29/22), 346 So.3d 272, 274.
No such factors are proven or even alleged here. So, Buflcin is distinguishable and wholly inapplicable for lack of proof sufficient to estop a governmental body.
Defendants are so determined to avoid public and local accountability that they filed a second Motion to Compel Arbitration anyway. Their motion depends on an assemblage of alternative legal arguments where the insurers either assume a fictional legal identity or try to graft provisions from separate contracts, applying an invalid estoppel argument against the Calcasieu Parish Police Jury ("Calcasieu"), a governmental body. Here are their theories:
(1) Convention status. Defendants are trying to preempt Louisiana's anti-arbitration laws by assuming the identity of an insurer with rights under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"). To begin with, Defendants are not foreign. They are garden-variety domestic insurers whose policies are "entirely between citizens of the United States," which excludes them from the Convention. There are not even any foreign insurers who are or will be part of this case. Calcasieu's foreign insurers are dismissed with prejudice. The domestic insurers should not maintain arbitration is necessary for the benefit of insurers whose liability has already been decided by res judicata. The domestic insurers do not have an arbitration agreement with Calcasieu anyway, which is required for the Convention to apply.
(2) Equitable estoppel. Defendants believe this theory of last resort would give them an entry to arbitration where their domestic-insurer status and contracts provide none. But state law, which governs this equitable remedy, has already found it "inequitable" to force Louisiana political subdivisions into arbitration in another state. La. R.S. 9:2778. And, political subdivisions benefit from a heightened and near impossible estoppel test designed to protect their sovereignty. Defendants cannot meet it.
(3) Distortion and disregard for state law. To evade the anti-arbitration law in Louisiana's Insurance Code, the insurers argue that the law is pre-empted by the Federal Arbitration Act. It is not. It is well known that the McCarran-Ferguson Act shields Louisiana's anti-arbitration law from preemption. Defendants even argued that Louisiana's anti-arbitration law allows arbitration because arbitration could be thought of as mere "forum or venue selection." La. R.S. 22:868(D). That is incorrect. Arbitration provisions "deprive Louisiana courts of jurisdiction of the action against the insurer."
Courville v. Allied Professionals Ins. Co., 2016-1354 (La.App. 1 Cir. 4/12/17), 218 So.3d 144, 148, citing, in part, Hobbs v. IGF Ins. Co., 02-26 (La.App. 3 Cir. 10/23/02), 834 So.2d 1069, 1071; See also Sevier v. United States Fidelity & Guaranty Co., 497 So.2dl380,1385 (La. 1986); Huntington Alloys, Inc. v. United Steelworkers of America, 623 F.2d 335 (4lh Cir. 1980).
(4) Not just a Forum or Venue Clause. The alleged "arbitration" clause also purports to violate La. R.S, 22:868(A)(1) and 9:2778 by forcing application of New York law and allegedly eliminating potential claims under La. R.S. 22:1892. Conflating an arbitration clause with further provisions stripping Calcasieu of substantive rights granted insureds under Louisiana insurance laws renders the "arbitration" clause different from a simple forum or venue clause. Only forum or venue clauses are permitted in certain policies under La. R.S. 22:868(D), not arbitration clauses which deprive an insured from asserting statutory rights. The "arbitration" clause here:
Safety Nat V Cos. Corp. v, Certain Underwriters, 587 F.3d 714, 720, n. 21 (en banc).
■ Compels arbitration;
■ Compels arbitration in the State of New York;
■ Forces application of New York law;
■ Commands that only insurance personnel may serve as arbitrators; and
■ Forecloses statutory rights of Calcasieu, including those set forth in La. R.S. 22:1892.
It is not a mere arbitration, forum, or venue clause. Under La. R.S. 22:868(D), only forum or venue clauses are carved out of the prohibitions set forth in La. R.S. 22:868(A). This is not just a forum or venue clause; it's much more. It deprives this Court and the Louisiana courts of jurisdiction, applies foreign state law, and invalidates Louisiana statutory remedies. The clause is invalid under La. R.S. 22:868(A).
Id; See also, Viking River Cruises v. Moriana, 596 U.S. 639, 653 (2022); '[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral... forum.'" Preston v. Ferrer, 552 U.S. 346, 359, 128 S.Ct. 978, 169 L.Ed.2d 917 (2008).
Creehtone Juban I L.L.C. v. XL Ins. of Amer., Inc., 2018-0748 (La. 5/8/19), 282 So.23d 1042, 1051(Weimer, Concurring).
Even if all these barriers to arbitration could be set aside, the arbitration provision itself has unresolved problems. It is premised on an illegal choice-of-law provision. It also tries to negate the insurers' duties of good faith and fair dealing by eliminating their responsibility for violating them. There is nothing about these insurers' status or contracts that would justify depriving Calcasieu of its right to be in court in its home state. Despite their plain illegality under Louisiana law, there is no clause within the policy to sever these offending clauses from the arbitration clause itself. In sum, the jurisprudence relied upon by Defendants is easily distinguished because the insureds were not public bodies. This matter should be remanded to the 14th Judicial District Court, for the Parish of Calcasieu, State of Louisiana. II. FACTS
This is a first-party insurance claim arising out of catastrophic damage caused by Hurricanes Laura and Delta in August and October 2020 to hundreds of properties owned by Calcasieu. Calcasieu procured a commercial insurance policy ("the policy") with a syndicate of insurers, insuring approximately 300 locations in Calcasieu Parish, Louisiana, with a named windstorm limit of $100,000,000 per occurrence. This policy was in effect at the time of Hurricanes Laura and Delta. The policy expressly states, in detail, that each insurer in the syndicate has its own separate contract with Calcasieu, each with a separate policy number. The policy dictates that each insurer is separately responsible and never jointly responsible with any other insurer in the syndicate. The policy also states that each insurer's several liability for loss amounts to the insured shall not exceed its allocated participation percentage.
Doc. 1-3 (Policy) at Pages 12-15 of 104 (Contract Allocation Endorsement and Declaration Page) and Page 22 of 104 (Named Storm Limit).
Doc. 1-3 (Policy) at Page 15 of 104 (Declaration Page).
Doc. 1-3 (Policy) at Pages 12-15 of 104 (Contract Allocation Endorsement and Declaration Page); Port Cargo Services v. Certain Underwriters at Lloyd's London, 2018 WL 4042874, pp. 2, S (E.D. La. Aug. 24, 2018).
Doc. 1-3 (Policy) at Pages 12-20 of 104 (Contract Allocation Endorsement) and Page 57 of 104, Paragraph W (Section VII - Conditions).
Id. at Page 7 of 104 (Contract Allocation Endorsement).
After the policy was negotiated and bound, and without a single mention of same in any of the parties' pre-policy discussions or any evidence of Calcasieu signing or agreeing to same, Defendants slipped an arbitration, choice-of-law and a substantive waiver of Louisiana statutory rights clause into the policy. In fact, when Defendants issued the offending clauses in the policy to Calcasieu, Louisiana law expressly and undeniably forbid all arbitration clauses between domestic insurers and Louisiana insureds.
Doc. 17-2 (Declaration of Laura Bolton),
See La. R. S. 22:8 6 8(A), prior to Act 307 of 2020 Regular Session amendment.
The insurers have paid only some of Calcasieu's damages under the policy for Hurricanes Laura and Delta. Virtually every dollar paid has been paid many months and years after the insurer received proof of Calcasieu's loss. Insurers have not complied or even made an effort to comply with the deadlines set forth in La. R.S. 22:1892.
Tens of millions of dollars are still owed under the policy, plus penalties and attorney fees for late payments. So, Calcasieu filed suit on August 22, 2022, against each of the insurers, individually, on this collective policy. The policy designates Defendants as unauthorized insurers under the Louisiana Insurance Code, so Calcasieu filed suit in Calcasieu Parish, as required by La. R.S. 22:442, because this is where the cause of action arose. Calcasieu's petition meticulously identifies, separately, each insurer and its policy number, alleging individual breach of contract claims separately against each insurer. Shortly after filing suit, on August 26, 2022, Calcasieu dismissed, with prejudice, the only two foreign insurers, Certain Underwriters at Lloyd's, London and HDI Global Specialty SE. The remaining Defendants (domestic insurers) were served with the suit on November 17, 2022.
Doc. 1-2 (Petition).
Doc. 1-3 (Policy) at Page 102 of 104.
On January 6, 2023, nearly three weeks after the removal deadline under 28 U.S.C. § 1446(b), Defendants removed the suit to this Court under Docket No. 2:23-cv-00020, claiming that there was federal question jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards under 9 U.S.C. §201 et seq., which allows removal any time before trial under 9 U.S.C. §205. In response, Calcasieu filed a Motion for Remand, which was granted by this Court on January 24,2024, as there was no federal jurisdiction under 28 U.S.C. §1332, and, thus, Defendants' removal was untimely.
On March 6, 2024, Defendants, under the above-entitled matter, filed another Notice of Removal, alleging that removal is proper under 9 U.S.C. § 205 in light of the intervening precedent in Bufkin and under 28 U.S.C. §§ 1441 and 1446 pursuant to this Court's federal question jurisdiction vested by 28 U.S.C. § 1331. For the reasons set forth herein, Calcasieu's Motion to Remand must be granted.
Bufkin Enters, v. Indian Harbor Ins. Co., No. 23-30171, 2024 WL 909600 (5 Cir. 3/4/24).
III. LAW AND ARGUMENT
A. La. R.S. 22:868 prohibits arbitration in insurance contracts.
Louisiana law prohibits arbitration agreements in insurance policies. Louisiana's anti-arbitration law is contained in La. R.S. 22:868(A)(2):
La. R.S. 22:868(A)(2); See, City of Kenner v. Certain Underwriters at Lloyd's, London, 2022 WL 307925, (E.D. La. 2022); Glad Tidings v. Indian Harbor Ins. Co., No. 2:2 l-cv-01009, (W.D. La. 2021); Safety Nat Cas. Corp. v. Certain Underwriters at Lloyd's London, 587F.3d 714, 719 (5lh Cir. 2009), cert, denied, 562 U.S. 827, 131 S.Ct.65, 178L.Ed.2d22(2010).
A. No insurance contract ... shall contain any condition, stipulation, or agreement...:
(2) Depriving the courts of this state of the jurisdiction or venue of action against the insurer.
Moreover, La. R.S. 9:2778 prohibits provisions in a contract with a political subdivision of the state that requires an arbitration proceeding to be brought outside of Louisiana:
A. The legislature finds that with respect to public contracts involving ... a political subdivision of the state, provisions in such agreements requiring disputes arising thereunder to be resolved in a forum outside of this state ... are inequitable and against the public policy of this state.
B. The legislature hereby declares null, void, unenforceable, and against public policy, any provision in a contract... as described in Subsection A, which
(1) Requires a suit or arbitration proceeding to be brought in a forum or jurisdiction outside of this state.
Calcasieu is a local governmental subdivision (hereinafter sometimes a "political subdivision") of Louisiana, and Defendants are trying to enforce an arbitration provision to require arbitration in New York. This provision is clearly null and unenforceable under Section 2778.
La. R.S. 44:1 and 2.
The Louisiana Department of Insurance publicly reminded insurers just one month before Hurricane Laura that their policies must comply with all laws and public policy of Louisiana:
While insurers are free to include whatever provisions they choose in their policies, the provisions must be consistent with the laws and public policy of Louisiana. ...
Surplus lines insurers are hereby reminded that the use of policy provisions that are contrary to the public policy of this state constitutes sufficient grounds for removal from the list of approved unauthorized insurers pursuant to La. R.S. 22:436.
Doc. 17-3 (Louisiana Department of Insurance Directive 175 dated July 28, 2020).
Arbitration clauses in contracts are unenforceable because they operate to "deprive Louisiana courts of jurisdiction of the action against the insurer." Arbitration clauses are prohibited in Louisiana as a matter of public policy because, if enforced, they deny Louisiana citizens free access to its courts-a right guaranteed by the Louisiana constitution.
La. R.S. 22:868(A)(2); Creekstone Juban I, L.L.C. v. XL Ins. of Amer., Inc., 2018-0748 (La. 5/8/19), 282 So.23d 1042,1051(Weimer, Concurring); Courville v. Allied Professionals Ins. Co., 2016-1354 (La.App. 1 Cir. 4/12/17), 218 So.3d 144, 148, citing, in part, Hobbs v, IGF Ins. Co., 02-26 (La.App. 3 Cir. 10/23/02), 834 So.2d 1069, 1071; See also Sevier v. United States Fidelity & Guaranty Co., 497 So.2d 1380, 1385 (La. 1986); Huntington Alloys, Inc. v. United Steelworkers of America, 623 F.2d 335 (4lh Cir. 1980).
Courville, supra at 148.
City of Kenner v. Certain Underwriters at Lloyd's, London involved a Louisiana first-party insurance claim for Hurricane Zeta damage. The policy in Kenner had an arbitration provision identical to the provision here and involved the same insurers here (plus the foreign insurers who were dismissed in this case). The defendants there filed a Motion to Compel Arbitration. The court in Kenner noted, "Because Louisiana law would prohibit enforcement of this arbitration provision, Defendants must rely on some preemptory law if this motion is to be granted." The same is true here. The alleged preemptory law Defendants rely on here is the Convention.
Kenner, supra at p. 1. The court in Kenner found that the Convention applied because there were contracts at issue there with foreign-insurer citizens who were still defendants.
B. The Convention is inapplicable; the agreements here involve only American citizens.
Louisiana law interprets insurance policies under "the general rules of interpretation of contracts set forth in the Louisiana Civil Code" in conjunction with "a heavy dose of public policy considerations at every turn." Words are given their plain, ordinary meaning unless provided otherwise." Any ambiguity in the policy provisions is interpreted "against the insurer."
In re Kalrina Canal Breaches Litigation, 495 F.3d 191, 206 (5th Cir. 2007) (citing Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La. 2003); La. Law. Civ. Treat., § 15:3 (4'h ed. 2022).
Id.; La. Civ. Code art. 2047.
Cadwallader, at 580.
Defendants claim there is federal question jurisdiction because they alleged the policy has an agreement to arbitrate that falls under the Convention, which allows removal any time before trial. Two of the mandatory four elements for an agreement to fall under the Convention are: (1) a foreign citizen must be a party to the subject contract; and (2) the subject contract must have an agreement to arbitrate disputes. Defendants cannot satisfy either of the elements. "If the district court decides that [the Convention does not apply], and no other ground for federal jurisdiction exists, the court must ordinarily remand the case back to state court."
9 U.S.C. § 2, § 202; See also, Freudensprungv. Offshore TechnicalServs., Inc. 379 F.3d 327, 339 (5th Cir. 2004); Glad Tidings v. Indian Harbor Ins. Co., No. 2: 21-cv-01009, (W.D. La. 2021).
Beiser v. Weyler, 284 F.3d 665, 674 (5th Cir. 2002).
There are no foreign defendants and no foreign insurers who could ever be held liable to Calcasieu to pay any amounts on this policy. There are only domestic-insurer defendants, each with a separate contractual agreement with Calcasieu that does not include the foreign insurers.The policy contains a Notice that declares it is "delivered" "under die Louisiana Insurance Code."There is one collective insurance policy document as to all of the insurers identified by an "Account" number. Ten individual insurance companies share the risk on the policy. Each insurer receives a portion of the premium in accordance with its proportion of the risk. Two of the insurance companies, Certain Underwriters at Lloyd's, London and HDI Global Specialty SE, are citizens of foreign countries. As such, they are foreign insurers. The remaining eight insurance companies-the only defendants-are citizens of the United States of America and are domestic insurers.
Doc. 1-3 (Policy) at Pages 12-15 of 104 (Contract Allocation Endorsement and Declaration Page); Port Cargo, supra at p. 6.
Doc. 1-3 (Policy) at Page 102 of 104 (Surplus Notice).
Doc. 1-3 (Policy) at Page 15 pf 104 (Declaration Page).
Id.
Id.
Doc. 1 (Notice of Removal) at Pages 8-9 of 11, Paragraph 15.
Id.
The policy lists individual policy numbers as to each insurer. The Contract Allocation Endorsement provides that the "contract shall be constructed as a separate contract between the insured and each of the Underwriters." The policy continues to explain that the evidence of coverage consists of "separate policies issued by the insurance company(ies)." The policy also: (1) limits the liability of each insurer to its allocated percentage; (2) makes the liability of each "separate contract" "several with "no joint liability"; (3) protects each insurer from liability for another insurer's "failure or delay"; and (4) expressly states that the evidence of coverage is not "in any manner or form" a joint certificate of coverage with Lloyd's.
Doc. 1-3 (Policy) at Page 15 of 104 (Declaration Page).
Doc. 1-3 (Policy) at Pages 12-14 of 104 (Contract Allocation Endorsement).
Id.
Id.; See also, Doc 1-3 (Policy) at Page 57 of 104, Paragraph W (Section VII - General Conditions).
Calcasieu has a separate contract with each insurer as a matter of fact and law. Calcasieu dismissed its claims, with prejudice, against each foreign insurer with which it had a contractual agreement. "A judgment of dismissal with prejudice shall have the effect of a final judgment of absolute dismissal after trial." Accordingly, the foreign insurers on this policy do not have any dispute of any kind with Calcasieu, are not a party to this suit, and can never be responsible for payment of any amount whatsoever to Calcasieu on this policy. The two foreign insurers-Lloyd's and HDI-are collectively allocated 21.6% of the syndicate, so Calcasieu has forfeited 21.6% of its claim.
Port Cargo, supra; La. Civ. Code art. 1906.
La. Code Civ. P. art. 1673.
Doc. 1-3 (Policy) at Page 12 of 104 (Contract Allocation Endorsement); La. Code Civ. P. art. 1673.
The dismissal of the foreign insurers with prejudice necessarily means the separate contractual agreements with the domestic insurers before this court do not fall under the Convention. Any alleged agreement to submit to arbitration arising out of an insurance policy that "is entirely between citizens of the United States shall be deemed not to fall under the Convention... ." There is no such contract with a foreign citizen before this court or that can be enforced.
9 U.S.C. § 2; 9 U.S.C. § 202; Port Cargo, supra. The court in Port Cargo ultimately reached a different outcome and ordered arbitration, not because it was required by law, but under the court's discretionary authority through equitable estoppel principles. There are dispositive differences between Port Cargo and this matter, which include: (1) the foreign insurers had not been dismissed with prejudice, and those contracts with a foreign citizen were before the court; (2) the insurers claimed the insured made its own written demand for arbitration; and (3) the insured was attempting to split the case such that it would proceed against the domestic insurers in state court while simultaneously proceeding in arbitration against the foreign insurers. None of this is true in this case.
This is all consistent with the policy behind the Convention as well. "The Convention is an international treaty that provides citizens of the signatory countries with the right to enforce arbitration agreements. The Supreme Court of the United States has explained that 'the goal of the Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standard by which the agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries.'" The Convention is meant to address "concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes."
Port Cargo, supra, p. 3, citing Scherk v, Alberto-Culver, 94 S.Ct. 2449, 2457 n. 15 (1974).
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985).
The policy was delivered in Louisiana under the Louisiana Insurance Code. The producer of the policy is AmWTNS Brokerage of Florida, Inc. in Florida. The program manager for the insurance companies is AmRisc, LLC in Texas. And the arbitration provision attempts to compel arbitration in New York. There are no international concerns to protect in this matter. In the end, Defendants are simply United States insurance companies trying to use an international treaty meant for non-U.S. citizens to fabricate federal subject matter jurisdiction where none exists.
Doc. 1-3 (Policy) at Page 102 of 104 (Surplus Notice); Doc. 17-2 (Laura Bolton Declaration).
Doc. 1-3 (Policy) at Page 15 of 104 (Declaration Page).
Id.
C. Louisiana's anti-arbitration law is shielded from the Federal Arbitration Act.
Defendants assert, regardless of whether the Convention applies, the Federal Arbitration Act (the "FAA") preempts Louisiana's anti-arbitration law. Under the McCarran-Ferguson Act, however, state laws regulating insurance are exempted from FAA preemption if, among other things, the FAA would invalidate, impair, or supersede state law. Application of the FAA to enforce an arbitration provision in an insurance contract would undoubtedly invalidate Louisiana's anti-arbitration law in La. R.S. 22:868(A)(2). Therefore, McCarran-Ferguson allows La. R.S. 22:868(A)(2) to "reverse-preempt" the FAA's provisions on the enforceability of arbitration agreements in insurance contracts.
15U.S.C. §§ 1011,1012.
Glad Tidings, supra; See, e.g., Am. Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490 (5th Cir. 2006).
Recently, the U.S. Fifth Circuit, in a per curiam decision, ruled that La. R.S. 22:868(D) allows arbitration clauses in surplus lines policy, like the policy issued to Calcasieu. A petition for rehearing is pending in the Belmont matter. Further, the decision does not address the plenary jurisprudence in Louisiana finding that La. R.S. 22:868(A)(2)'s prohibition of insurance clauses depriving Louisiana court of jurisdiction is an anti-arbitration statute. With all respect, the Belmont court also did not discuss the statutory amendment to 22:868 in response to the Creekstone Juban decision.
Indian Harbor Insurance Company v. Belmont Commons, LLC, 2024 WL 962376 (5lh Cir. 2024).
Hobbs v. IGF Ins. Co., 2002-26 (La.App. 3 Cir. 10/23/02), 834 So.2d 1069, 1071; see also Doucet v. Dental Health Plans Mgmt. Corp., 412 So.2d 1383, 1384 (La. 1982) ("Classification of the contract at issue as an insurance contract renders the arbitration provisions of that contract unenforceable under R.S. 22:629 [now, La. R.S. 22:868]".
Creekstone Juban I, L.L.C. v. XL Ins. of Amer., Inc., 2018-0748 (La. 5/8/19), 282 So.23d 1042, 1051(Weimer, Concurring); Courville v. Allied Professionals Ins. Co., 2016-1354 (La.App. 1 Cir. 4/12/17), 218 So.3d 144, 148, citing, in part, Hobbs v. IGF Ins. Co., 02-26 (La.App. 3 Cir. 10/23/02), 834 So .2d 1069,1071; See also Sevier v. United States Fidelity & Guaranty Co., 497 So.2d 1380, 1385 (La. 1986); Huntington Alloys, Inc. v. United Steelworkers of America, 623 F.2d 335 (4th Cir. 1980).
In Creekstone Juban, the Louisiana Supreme Court found that 22:868(2)'s prohibition against depriving Louisiana court of jurisdiction of insurance disputes did not prohibit venue or forum clauses. The Court affirmed a New York forum/venue clause in an insurance policy; there was no arbitration clause at issue in that case. In response, Act 307 of the 2020 Regular Session amended 22:868(A)(2) to prohibit jurisdiction and venue clauses. On the Senate Floor, an amendment, subsection D, was added to allow forum/venue clauses in surplus lines policies. However, the newly added subsection D in no manner amends or addresses 22:868(A)(2)'s prohibition of jurisdiction clauses, which Louisiana law has made plain is an anti-arbitration clause.
Since the legislature specifically amended 22:868(A)(2) to forbid jurisdiction and venue clauses and added subsection D to allow forum and venue clauses, but not jurisdiction clauses in surplus lines policies, it is plain that jurisdiction, forum and venue all have separate meaning. In fact, that jurisdiction, forum and venue are different is a cornerstone of Creekstone Juban. If the Louisiana legislature thought jurisdiction and venue were synonymous, it would not have superfluously amended 22:868(A)(2) to prohibit jurisdiction and venue clause. Further, if it wanted to allow arbitration/jurisdiction clauses in surplus lines policies, it would have worded 22:868(D) to permit jurisdiction, forum and venue clauses.
And if requiring arbitration in New York doesn't oust the state courts of jurisdiction, what would? An interpretation of jurisdiction under which no provision denying Louisiana courts the chance to adjudicate cases is invalid renders the 22:868(A) meaningless.
But, it did not.
Louisiana law "presume[s] every word, sentence, or provision in a law is intended to serve some useful purpose, some effect is given to each such provision, and no unnecessary words or provisions were employed." The 2020 amendment to 22:868 readily demonstrates the Louisiana legislature treats jurisdiction, forum and venue clauses as distinct concepts. The Court, in Creekstone Juban, found the same.
McGlothlin v. Christus St, PatrickHosp., 10-2775, p. 11 (La.7/1/11), 65 So.3d 1218, 1228.
In summary, Paragraph D states only that a forum or venue selection clause is allowed in a surplus lines policy. Forum and venue selection clauses allow the preference of one court over another court. Unlike arbitration provisions, forum and venue selection clauses do not deprive courts of jurisdiction. Forum and venue selection clauses are essentially the same thing. To that end, courts and the procedural rules treat forum the same as venue as well. This court recently noted that although "forum" selection clauses were once enforced through motions to dismiss for improper "venue," they are now enforced through motions to transfer "venue." This court further elaborated on the specific meaning of "forum" in La. R.S. 22:868, explaining that "venue" was added to Paragraph A of §868 to impose a clear limitation on "forum" selection clauses.Accordingly, Paragraph D does not create some new, unstated law to give immunity for arbitration provisions in surplus policies.
Oak Haven Management, LLC v. Starr Surplus Lines Ins. Co., 2021 WL 4134033, p. 1 (W.D. La. 2021).
Id., p. 2.
Calcasieu has asked this Court to certify this issue to the Louisiana Supreme Court for confirmation as to the meaning of 22:868(A)(2) and the more limited reach of 22:868(D). If the Louisiana Supreme Court accepts certification and holds that 22:868(A)(2) prohibits arbitration clauses in all insurance policies and subsection D does not allow them, then Defendants can only compel arbitration if the Convention can apply to Calcasieu through estoppel. Section E below explains how estoppel cannot apply to a governmental body like Calcasieu under Louisiana law.
Finally, the United States Supreme Court, the Louisiana Supreme Court and this Courtall treat simple arbitration clauses differently from arbitration clauses that also purport to invalidate or deprive litigants of substantive rights. The "arbitration" clause in this case goes well beyond what 22:868(D) would permit even if venue/forum clauses were synonymous with a jurisdiction clause. The "arbitration" clause requires application of New York law in violation of La. R.S. 22:868(A)(1) and 9:2778. It also deprives Calcasieu from claiming attorney's fees or penalties authorized by 22:1892. By requiring use of New York law and invalidating substantive rights, the "arbitration" clause here falls well outside the permissible boundaries of 22:868(D), assuming it did, in fact, allow arbitration clauses in surplus lines policies.
Viking River Cruises v. Mariana, 596 U.S. 639, 653 (2022); '[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral... forum'" Preston v. Ferrer, 552 U.S. 346, 359,128 S.Ct. 978, 169 L.Ed.2d 917 (2008).
Hodges v. Reasonover, 103 So.3d 1069, 1074 (La. 2012).
Safety Nat 7 Cas. Corp. v. Certain Underwriters, 587 F.3d 714, 720, n. 21 (en banc).
D. The arbitration provision contains an unlawful choice-of-law clause,
All insurers doing business in Louisiana must comply with its Insurance Code. La. R.S. 22:868(A)(1) prohibits any "condition, stipulation, or agreement" in an insurance contract "requiring it to be construed according to the laws of any other state." In addition, La. R.S. 9:2778 prohibits "any provision in a contract" "involving ...a political subdivision of the state" that "requires interpretation of the agreement according to the laws of another jurisdiction." The arbitration provision contains a New York choice-of-law clause: "The seat of the Arbitration shall be in New York and the Arbitration Tribunal shall apply the law of New York as the proper law of this insurance." The choice-of-law clause goes further by legislating its own law to choose: "The Arbitration Tribunal may not award exemplary, punitive, multiple, consequential, or other damages of a similar nature." Under the policy's language, this law would be mandated regardless of whether it is allowed or required under New York or any other law. This, of course, would allow Defendants to unlawfully contract around Louisiana's laws regulating how insurance companies handle first-party claims and allowing penalties, damages, and attorney fees for certain misconduct.
La. R.S. 22:1892, 1973. New York has no corollary to La. R.S. 22:1892 and 1973. It does not recognize a cause of action for first-party insurer bad faith or impose the same process for first-party claims. See N.Y. Ins. Law § 2601 (McKinney); Tri-Union Seafoods LLC v. Starr Surplus Lines Ins. Co., 88 F.Supp.3d 1156, 1168 (S.D. Calif. Feb. 5, 2015) (finding Starr's New York choice-of-law provision unenforceable because it was contrary to the "fundamental policy" of the insured's home state.) See also, Manuel v. La. Sheriff's Risk Mgml. Fund, 95-0406 (La. 11/27/95), 664 So.2d 81,85 ("public policy" statutes of this type are invulnerable to charges.. .that they impair the obligations of contracts.")
E. Equitable estoppel does not apply against a Governmental Body.
Defendants suggest removal of this matter is proper under 9 U.S.C. § 205 in light of the Fifth Circuit's recent decision in Bufkin, wherein the court found that "the arbitration agreement between the parties is subject to the Convention through equitable estoppel." However, the proof required to apply equitable estoppel to a governmental body is quite different than the proof required to apply it to a private party under Louisiana law. Here, the insured, Calcasieu, is a Louisiana political subdivision, and the United States Fifth Circuit Court of Appeal made it clear in Crawford Professional Drugs, Inc. v. CVS Caremark Corp,that Louisiana state law must be applied to determine if estoppel can apply against a public body. This state's Insurance Code already strips Defendants of a direct right to arbitrate. And, when it comes to matters of contract with a political subdivision, the Legislature also strips them of any "equity" claim. All contracts with a political subdivision like Calcasieu are subject to La. R.S. 9:2778, which declares arbitration with a public body in another state to be "inequitable and against the public policy of this state."
Bufkin Enters. v. Indian Harbor Ins. Co., No. 23-30171, 2024 WL 909600 (5 Cir. 3/4/24).
Crawford Professional Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249, 257 (2014); See also, Bufkin, supra at p. 3.
The Louisiana Supreme Court, in Showboat, based on principles rooted in sovereign immunity, set forth a heightened standard for invoking equitable estoppel against a governmental agency. Here, Defendants must show: (1) unequivocal advice from an unusually authoritative source; (2) reasonable reliance on that advice by an individual; (3) extreme harm must result from that reliance; and (4) gross injustice must occur in the absence of estoppel. There is no evidence establishing this heightened standard for estoppel here; it isn't even alleged.
Showboat Star Partnership v. Slaughter, 2000-1227, pp. 12-13 (La. 4/3/01), 789 So.2d 554, 561-562. See also, Nucor Steel Louisiana, LLC v. St. James Parish School Board, 2021-01814, pp. 5-6 (La. 6/29/22), 346 So.3d 272, 274.
Louisiana also refuses to apply estoppel which contradicts positive statutory law. As set forth in Section 111(A), supra, Louisiana forbids arbitration agreements in insurance policies. Under settled Louisiana Supreme Court jurisprudence, estoppel cannot apply in opposition to this positive law prohibiting such arbitration agreements.
Saloom v. Department of Transportation and Development, 2022-00596, p. 6 (La. 12/9/22), 354 So.3d 1179, 1183.
The predicate for the Fifth Circuit's holding in Bufkin, supra, is the estoppel analysis utilized in Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 528 (5th Cir. 2000).However, Grigson's analysis was federal common law borrowed from another circuit. It forced arbitration on signatories and nonsignatories to an arbitration agreement when allegations against them were "interdependent." Judge Dennis dissented in Grigson, complaining that "ordinary state law" contract principles should govern the interpretation of arbitration provisions and who is bound by them. Later, he was proven right. Since Grigson, the Supreme Court has twice held that state law, not federal common law, governs the scope of arbitration agreements in FAA cases. Justice Dennis noted Grigson's demise in 2014, collecting a string cite of courts from across the country that used state law in accordance with the Supreme Court's instructions. One of them was the Eleventh Circuit, the source of Grigson's test. It found that to the extent any of its earlier decisions, including the ones Grigson cited, had been using federal common law rather than state law for estoppel, "those indications are overruled or at least undermined to the point of abrogation" by the Supreme Court.
Bufkin, 2024 WL 909600 at p. 4.
Id.
Id. at 537.
Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009); GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA LLC, 140 S.Ct. 1637, 1643 (2020).
Crawford Professional Drugs Inc. v. CVS Caremark Corp., 748 F.3d 249, 261-62, n. 9 (5th Cir. 2014).
Id., quoting Lawson v. Life of the South Ins. Co., 648 F.3d 1166,1171 (11th Cir. 2011).
As noted above, choice of law in this case points directly to Louisiana. The law requires it, and so do the pertinent contacts that Louisiana has to this case. Louisiana has already found it "inequitable" to force one of its political subdivisions into litigation out of state or for domestic insurers to put arbitration clauses in insurance policies. In any event, Louisiana's regard for the theory of estoppel is low. Here, equitable estoppel is a disfavored doctrine of "last resort." It is narrowly construed.
La. R.S. 9:2778 and 22:868(A), respectively.
MB Industries LLC v. CNA Ins. Co., 2011-0303 (La. 10/25/11), 74 So.3d 1173, 1180; Howard Trucking Co. Inc. v. Stassi, 485 So.2d 915, 918 (La. 1986); see also Moroux v. Toce, 2006-831 (La.App. 3 Cir. 11/2/06), 943 So.2d 1263,1272 (La.App. 3 Cir. 11/2/06); May v. Harris Management Corp., 928 So.2d 140,145 (La.App. 1 Cir. 12/22/05).
MB Industries LLC, 74 So.3d 1173 at 1181.
Calcasieu has also petitioned this Court to certify to the Louisiana Supreme Court the application of estoppel under Louisiana law in an insurance contract to a governmental body. If accepted, the Louisiana Supreme Court will dispositively determine whether estoppel can apply here under Louisiana law. The certification should determine Louisiana law in this case and many other pending arbitration, choice-of-law and forum/venue transfer matters pending in the federal and state district courts throughout Louisiana.
CONCLUSION
For the reasons set forth herein, Plaintiff, Calcasieu Parish Police Jury, respectfully asks this Honorable Court to grant its' motion to remand for lack of subject matter jurisdiction. Solely in the alternative, the Court should deny the motion to compel arbitration.