Opinion
NO. IP00-1020-C-B/S.
March 31, 2001.
ENTRY DENYING PLAINTIFFS' MOTION TO REMAND
On May 22, 2000, Plaintiffs, International Medical Group, Inc. ("IMG") and Sirius International Insurance Corporation ("Sirius"), filed suit in Indiana state court requesting that the court issue an ex parte temporary restraining order ("TRO") with regard to an arbitration proceeding entitled Michael D. Ogdon, Claimant v. International Medical Group, Inc., Respondent; American Arbitration
Association Case No. 32-193-00084-00 (the "Arbitration Proceeding"). In addition, Plaintiffs sought a preliminary and permanent injunction preventing Defendants, American Arbitration Association ("AAA"), Janella Brown ("Brown"), John Germani ("Germani") (collectively the "AAA Defendants"), Juan J. Rodriguez ("Rodriguez"), Hilda Piloto ("Piloto"), Rodriguez Machado, P.A. ("RM"), and Michael Ogdon ("Ogdon") (collectively the "Non-AAA Defendants"), from proceeding with the Arbitration Proceeding, requested declaratory relief with respect to the Arbitration Proceeding and the insurance policy at issue herein, and alleged abuse of process, malicious prosecution, and bad faith arbitration. After the state court granted all of Plaintiffs' requests for injunctive relief, the Non-AAA Defendants removed this action to federal court on June 20, 2000, alleging that we have original jurisdiction, pursuant to 28 U.S.C. § 1331 and 9 U.S.C. § 205, or alternatively, that diversity jurisdiction exists, pursuant to 28 U.S.C. § 1332, 1441, 1446(b). Plaintiffs have filed a motion to remand the matter back to state court. For the reasons explicated below, we DENY Plaintiffs' motion to remand.
There is also pending a motion to dismiss the claims against the AAA Defendants. We do not consider the merits of this motion herein.
Factual and Procedural Background
Defendant, Michael Ogdon ("Ogdon") (a citizen of Great Britain and an alien admitted to the United States for permanent residence, residing in Florida), purchased a global health insurance policy on or about November 14, 1998, issued by Plaintiff, Sirius (a Swedish Corporation, with offices in Stockholm, Sweden, and London, England), and designating Plaintiff, IMG (an Indiana corporation, with offices in Indianapolis), as the policy administrator and general underwriter. See Compl. in Int'l Med. Group, Inc. v. American Arbitration Ass'n, No. 49D02-0005-CP-736, Marion County, Indiana Superior Court ("State Complaint") ¶¶ 13, 14; id., Exs. A, Global Medical Insurance contract, signed by Michael Ogdon, and dated Sept. 4, 1998 ("Ins. Policy"), and B, Declaration of Insurance for Michael D. Ogdon, effective Nov. 4, 1998, Certificate No. 1B98-70484 ("Ins. Dec.") at 1, ¶ A; Notice of Removal ¶ 7(d). "The policy provided coverage for all charges for services, supplies, treatments or conditions resulting from an illness or injury[,]" (see Defs. § Juan J. Rodriguez, Hilda Piloto, Rodriguez Machado, P.A., and Michael Ogdon's Reply to Pl.'s Supplemental Br. in Supp. of Pl.'s Previous Resp. to Defs.' Notice of Removal and Mot. for Remand of Action to State Court ("Non-AAA Defs.' Reply in Supp. of Removal") at 2) except that it excluded from coverage any pre-existing medical conditions for the first two years and limited coverage of such conditions thereafter. Ins. Policy at 3; Ins. Dec. ¶ K(1); State Complaint ¶¶ 16, 17.
Under the terms of the Insurance Policy, any "misstatement, concealment, or fraud, either in the Application [for insurance] ... or in connection with the making of any claim hereunder shall render this insurance null and void and all claims hereunder shall be forfeited." Ins. Dec. ¶ B(7). Moreover, the policy states that "[i]f any claim under this insurance shall be in any respect fraudulent or if any fraudulent means or devices are used by the ... Insured Person ..., all benefits hereunder shall be forfeited." Id. ¶ B(15).
With respect to legal proceedings concerning the policy, it provides that:
(6) SERVICE OF SUIT — It is agreed that in the event of the failure of the Company to pay any amount claimed to be due hereunder, the Company, at the request of the Insured Person, will submit to the jurisdiction of a Court of competent jurisdiction with the United States. Nothing in this clause constitutes or should be understood to constitute a waiver of the Company's rights to commence an action in any Court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another Court as permitted by the laws of the United States or of any state in the United States. In any suit instituted against the Company upon this agreement, the Company will abide by the final decision of such Court or of any Appellate Court in the event of an appeal. ...
(16) If any dispute shall arise as to the amount to be paid under this insurance (liability being otherwise admitted), such dispute shall be referred to arbitration in accordance with procedures of the American Arbitration Association. Where any dispute is by this provision referred to arbitration, the making of an award shall be a condition precedent to any right of action against the Company.
Sirius is defined as the Company while IMG is defined as the Plan Administrator. Ins. Dec. ¶ A.
Ins. Dec. ¶¶ B(6), (16).
On or about January 18, 1999, Ogdon allegedly received "emergency medical treatment" at a hospital in Florida and pursuant to the terms of his policy, submitted bills approximating $10,000 to Sirius, through IMG as plan administrator, requesting payment. State Compl. ¶¶ 18-19. After conducting an investigation and examination of Ogdon's medical bills, IMG, for and on behalf of Sirius, denied the claim and refused to issue any payment alleging that all bills related to this treatment resulted from a pre-existing condition. Id. ¶ 20.
Plaintiffs contend that Ogdon's failure to acknowledge this "pre-existing condition" in his insurance application amounts to fraudulent misrepresentation and material omissions and that under the terms of the policy, Ogdon forfeited any and all rights and benefits under the policy. State Compl. ¶ 41(d). Despite this contention, Plaintiffs made no affirmative effort to cancel or rescind the policy and did not return any premium to Ogdon upon determining that Ogdon had allegedly made the misrepresentations or omissions. Defs.' Reply in Supp. of Removal at 2 n. 1.
On or about January 31, 1999, Ogdon, through his attorneys (Defendants, RM, through Rodriguez and Piloto), filed a complaint with the Indiana Department of Insurance, Consumer Services Division, in Indianapolis, alleging in relevant part that the January 1999, illness was not a pre-existing condition at the time of entering the Insurance Policy, and further that Plaintiffs' denial of said claim was improper, pretextual, and in bad faith. State Compl. ¶ 21, Ex. C. IMG replied to this charge on February 17, 2000, denying it in full. Id. ¶ 23. Neither Sirius nor IMG ever admitted any liability under the Insurance Policy for these claims. Id. ¶ 20.
On February 25, 2000, Ogdon requested that IMG cancel the Insurance Policy, both verbally and in writing, and that he be refunded for the prorated premium. Id. ¶ 25, Ex. D. The policy provided that cancellation occurred at the option of IMG; IMG exercised this option on March 12, 2000, effective February 25, 2000, credited Ogdon's credit card account in the amount of $602.57, and informed Ogdon in writing that "[a]ll rights under this Certificate have been forfeited." Id. ¶ 26, Exs. E, F.
After notifying Plaintiffs of his desire to cancel the policy, but before Plaintiffs consented to its cancellation, on or about March 6, 2000, Ogdon's attorneys prepared a Statement of Claim and a Demand for Arbitration which were filed with Defendant, the American Arbitration Association ("AAA"). State Compl. ¶ 27, Ex. G. Defendants contend that this demand was premised upon the arbitration provision contained in Section B(16) of the Insurance Declaration. Non-AAA Defs.' Reply in Supp. of Removal at 3. Upon being notified by the AAA that Ogdon had filed for arbitration,
Plaintiffs responded that:
Although section B(16) of the insurance agreement makes reference to a contemplated referral of a dispute to arbitration in accordance with the procedures of the AAA, that provision of the contract is expressly conditioned upon `liability being otherwise admitted' by the Company and/or IMG. In the present controversy, liability has not been admitted and has in fact been denied and disputed in total ....
Accordingly, IMG and the Company not only deny and dispute Mr. Ogdon's claim in full and any liability therefor, but also deny and dispute his entitlement or authority, by contract or otherwise, to proceed with the arbitration and/or administration of the controversy by the AAA. Accordingly, neither the Company or [sic] IMG is under any obligation to prepare or file with the AAA any answering statement under your Rules.
State Compl., Ex. I.
On May 22, 2000, Plaintiffs filed a claim in Indiana state court, requesting a temporary restraining order and both preliminary and permanent injunctive relief directed at stopping the arbitration proceedings, seeking a declaratory judgment clarifying the rights and obligations contained in the insurance policy, and claiming damages resulting from the Defendants' alleged abuse of process, malicious prosecution and bad faith arbitration. See State Compl. That same day, Plaintiffs' ex parte request for a temporary restraining order was granted and on May 31, 2000, the Marion County Superior Court granted Plaintiffs' request for preliminary injunctive relief and granted certain of Plaintiffs' requests for declaratory relief with respect to the Arbitration Proceedings and the subject insurance policy. Supplemental Br. in Supp. of Pls. § Previous Resp. to Defs.' Notice of Removal and Mot. for Remand of Action to State Ct. ("Pls.' Remand Br.") at 2.
The Non-AAA Defendants removed the action to us on June 20, 2000. See Notice of Removal. In the petition for removal, the Non-AAA Defendants alleged both that we have original jurisdiction, pursuant to Chapter 2 of the Federal Arbitration Act, implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"), 9 U.S.C. § 201, et seq., and 28 U.S.C. § 1331, and, alternatively, that removal is proper because of diversity of citizenship and an amount in controversy greater than $75,000, pursuant to 28 U.S.C. § 1332, 1441, 1446(b).
The Non-AAA Defendants contend that the AAA Defendants are "nominal parties" and as such their consent is not required for removal of this action; regardless, the AAA Defendants did not object to removal. See Notice of Removal ¶ 6, Ex. B, Letter from Counsel for AAA Defendants expressing no objection to removal. While the general rule is that all defendants must join in a removal petition in order to effect removal, "nominal parties are disregarded for removal purposes and need not join the petition." Northern Ill. Gas Co. v. Airco Indus. Gases, 676 F.2d 270, 272 (7th Cir. 1982) (considering removal under 28 U.S.C. § 1446(a) and concluding that the American Arbitration Association was a nominal party); see also In re Amoco Petroleum Additives Co., 964 F.2d 706, 712 (7th Cir. 1992) (approving of lower court's holding that 9 U.S.C. § 205 [codifying removal procedures under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. § 201, et seq.] incorporates the removal procedures found in Title 28). Plaintiffs do not object to the Defendants' characterization of the AAA Defendants as "nominal defendants," so we hold that their failure to join the petition for removal does not render it procedurally defective. Cf. York Hanover Holding A.G. v. American Arbitration Ass'n, 794 F. Supp. 118, 121 (S.D.N.Y. 1992) (concluding that the American Arbitration Association's statement that it "ha[d] no objection to" removal was sufficient as it was a nominal party to suit over composition of arbitration panel).
Plaintiffs respond first that the Convention is not applicable to this dispute because the arbitration agreement at issue does not fall under the Convention and that even if it is applicable, the agreement has been rendered null and void, inoperative or incapable of being performed, and that Ogdon has waived, relinquished and forfeited all rights to arbitrate. See Pls.' Remand Br. 9-15. Plaintiffs also contend that the amount in controversy in the case at bar does not exceed $75,000 and therefore that diversity jurisdiction is lacking. As outlined below, we hold that the Convention does apply to the insurance contract at issue herein and that we have original jurisdiction over this matter.
With respect to the allegation that federal jurisdiction is appropriate based upon diversity of citizenship, we note that Indiana Trial Court Rule 8(A)(2) bars Plaintiffs from stating a specific dollar amount or figure for damages or punitive damages in the state law complaint. In this absence, the defendants are required to provide us with "competent proof" of a reasonable probability that federal jurisdiction exists. NLFC, Inc. v. Devcom Mid-America, Inc., 45 F.3d 231, 237 (7th Cir. 1995); Shaw v. Dow Brands, Inc., 994 F.2d 364, 366 n. 2 (7th Cir. 1993). Defendants' contention that the Plaintiffs' late declaration that the amount in controversy is not met misconstrues the burden of this inquiry. It is the burden of the party seeking removal to provide us with competent proof of the amount in controversy, not Plaintiffs' burden to disavow the amount. Defendants only "proof" is the statement that the state complaint "seek[s] recovery for compensatory and punitive damages against all defendants, jointly and severally." Non-AAA Defs.' Reply in Supp. of Removal at 8-9. The fact that punitive damages are sought does not, by itself, indicate that more than $75,000 is at stake in this matter. However, since we conclude that we have original jurisdiction over this matter, the Non-AAA Defendants' failure in this regard is of no consequence.
Discussion
The petitioners' primary argument in support of removal is that this case is governed by the Convention, implemented by Chapter 2 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1, et seq., §§ 201, et seq.. The Convention controls arbitration disputes in the international context, whether such disputes arise in state courts or federal courts. Jain v. de Mere, 51 F.3d 686, 688 (7th Cir. 1995). The FAA creates a strong presumption in favor of arbitration, especially in international commercial agreements. Id. at 688-89 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638-40 (1985); Scherk v. Alberto Culver Co., 417 U.S. 506, 519-20 (1974)). The United States enacted the Convention with the caveat that it would apply "only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the United States." 9 U.S.C. § 201 n. 29; see also Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 538 (1995) (quoting Scherk, 417 U.S. at 520 n. 15) (stating that the convention was "intended `to encourage the recognition and enforcement of commercial arbitration agreements in international contracts'"). Section 202 of the Convention "mandates that any commercial arbitral agreement, unless it is between two United States citizens, involves property located in the United States, and has no reasonable relationship with one or more foreign states, falls under the Convention." Jain, 51 F.3d at 689 (citing 9 U.S.C. § 202). A controversy concerning an agreement covered by the Convention is deemed to arise under the laws of the United States, granting us original jurisdiction over such an action, regardless of the amount in controversy. 9 U.S.C. § 203.
Where an action which is alleged to be covered by the Convention has been filed in state court, Section 205 sets out the procedures for removal. This Section provides that:
Where the subject matter of an action or proceeding pending in a State Court relates to an arbitration agreement or award falling under the Convention, the defendant or defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal.9 U.S.C. § 205. Thus, the threshold issue before us is whether the contract entered into between Sirius (by and through IMG) and Ogdon "fall[s] under the Convention."
In order for an agreement to arbitrate to exist within the meaning of the Convention and the FAA it must be "commercial" in nature. Section 202 provides that legal relationships considered as commercial under the Convention include "a transaction, contract, or agreement described in [ 9 U.S.C. § 2]." 9 U.S.C. § 202; see also Prograph Int'l Inc. v. Barhydt, 928 F. Supp. 983, 988 (N.D. Cal. 1996). In turn, Section 2 provides that a written arbitration provision is enforceable if it is in "a contract evidencing a transaction involving commerce." 9 U.S.C. § 2. The Supreme Court has interpreted this Section to apply to all contracts that Congress could regulate under the full reach of the Commerce Clause. Allied-Bruce Terminex Cos. v. Dobson, 513 U.S. 265, 273-74 (1995); Perry v. Thomas, 482 U.S. 483, 490 (1987); see also Circuit City Stores, Inc. v. Adams, No. 99-1379, ~ S. Ct. ~, 2001 WL 273205, at *6 (U.S. Mar. 21, 2001) (citing Allied-Bruce's expansive reading of Section 2 with approval).
Plaintiffs contend that the contract at issue is not "commercial" in nature and not within the reach of the Commerce Clause because it is a contract for the provision of insurance. Pls.' Remand Br. at 9-10 (citing United States v. S.-Eastern Underwriters Ass'n, 322 U.S. 533, 546-47 (1944)). In fact, South-Eastern Underwriters Association recognized that "[t]he modern insurance business holds a commanding position in the trade and commerce of our Nation ..., it has become one of the largest and most important branches of commerce." Id. at 539-40. Plaintiffs correctly cite Supreme Court precedent as stating that "a contract of insurance, considered as a thing apart from negotiation and execution, does not itself constitute interstate commerce." Id. at 546-47. However, it counsels that "it does not follow from this that the Court is powerless to examine the entire transaction, of which that contract is but a part, in order to determine whether there may be a chain of events which becomes interstate commerce." Id. at 547. Moreover, while Plaintiffs cite a 1968 District of Nebraska case to support the position that the FAA does not apply to insurance contracts, see Booth v. Seaboard Fire Marine Insurance Co., 285 F. Supp. 920, 925 (D. Neb. 1968), rev'd on other grounds, 431 F.2d 212 (8th Cir. 1970), the FAA has since been so applied. See Conn. Gen. Life Ins. Co. v. Sun Life Assurance. Co. of Canada, 210 F.3d 771, 774 (7th Cir. 2000) (applying FAA to dispute over reinsurance contracts); DiMercurio v. Sphere Drake Ins., PLC, 202 F.3d 71 (1st Cir. 2000) (holding that Convention is not precluded from applying to dispute over arbitration clause contained in insurance policy); In re U.S. Lines, Inc., 197 F.3d 631, 639 (2d Cir. 1999), cert denied sub nom., American S.S. Owners Mut. Prot. and Indemn. Ass'n, v. U.S. Lines, Inc., 529 U.S. 1038 (2000) (discussing Convention's applicability to arbitration clauses contained in insurance contracts).
We see no reason why the simple fact that the arbitration clause in question is contained in an insurance policy should preclude the application of the FAA and the Convention. Sirius (by and through IMG) offers its services nationally and has engaged in interstate commerce in forming the contractual relationship with Ogdon. Thus, we conclude that the insurance contract is a "commercial arbitral agreement" and subject to the Convention's provisions, including removal.
The Plaintiffs' other arguments in opposition to the Non-AAA Defendants reliance on the Convention are not truly jurisdictional in nature. Plaintiffs' contentions that the arbitration agreement is "inoperative" and "incapable of being performed," and that Ogdon has either waived, relinquished or forfeited his rights to arbitration are both merits-based arguments. These inquiries are plainly distinguishable from the jurisdictional issue we confront ~ i.e., did the state court action relate to a contract containing an arbitration agreement that falls under the terms of the Convention? Having answered that question in the affirmative, and there being no other objections to the removal, we DENY Plaintiffs' motion to remand this action to state court.
Conclusion
For the reasons stated herein, we hold that we have original jurisdiction over this matter, pursuant to 9 U.S.C. § 201-205, and that removal was appropriate thereunder. Plaintiffs' motion to remand this matter to state court is accordingly DENIED.