U.S. Court of Appeals for the Ninth Circuit, Infanzon v. Allstate Insurance Company, Docket No. 22-56070

Insurance Law

Insurance Agent’s Liability

Joinder

Diversity

California Law

 

 

Appeal from the United States District Court for the Central District of California.

 

The district court correctly found that Leticia Pomes, the Allstate Insurance Sales Agent who was named as a codefendant in Infanzon’s state court complaint, was fraudulently joined. See Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). “Joinder of a non-diverse defendant is deemed fraudulent, and the defendant’s presence in the lawsuit is ignored for purposes of determining diversity, ‘if the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state.’” Id. (quoting McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)). Under California law, an insurance agent acting in the name of a disclosed principal is not personally liable for acts committed within the scope of his or her employment, Lippert v. Bailey, 241 Cal. App. 2d 376, 382 (1966), “unless an agent or employee acts as a dual agent.” Mercado v. Allstate Ins. Co., 340 F.3d 824, 826 (9th Cir. 2003). Here, there is no dispute that Pomes acted on behalf of Allstate, her disclosed principal; that she always held herself out as Allstate’s agent to Infanzon and to others; and that she acted within the scope of her employment. Therefore, because Pomes acted as Allstate’s exclusive agent, Infanzon has no cognizable claim against her under California law, and complete diversity exists.

 

 

(U.S. Court of Appeals for the Ninth Circuit, Aug. 2, 2024, Infanzon v. Allstate Insurance Company, Docket No. 22-56070, Not for Publication)

 

 

U.S. Supreme Court, Macquarie Infrastructure Corp. v. Moab Partners, L.P., Docket No. 22-1165

Securities

 

Securities Fraud Claim

 

Duty to Disclose

 

Pure Omissions

 

Private Action Under Rule 10b–5(b)

 

Section 10(b) of the Securities Exchange Act of 1934

 

Circuit Split

 

 

 

 

Securities and Exchange Commission (SEC) Rule 10b–5(b) makes it unlawful to omit material facts in connection with buying or selling securities when that omission renders “statements made” misleading. Separately, Item 303 of SEC Regulation S–K requires companies to disclose certain information in periodic filings with the SEC. The question in this case is whether the failure to disclose information required by Item 303 can support a private action under Rule 10b–5(b), even if the failure does not render any “statements made” misleading. The Court holds that it cannot. Pure omissions are not actionable under Rule 10b–5(b).

 

 

Section 10(b) of the Securities Exchange Act of 1934 makes it “unlawful for any person . . . to use or employ, in connection with the purchase or sale of any security . . ., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the SEC may prescribe.” 48 Stat. 891, 15 U. S. C. §78j(b). Rule 10b–5 implements this prohibition and makes it unlawful for issuers of registered securities to “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 CFR §240.10b–5(b) (2022). This Court “has found a right of action implied in the words of §10(b) and its implementing regulation.” Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008).

 

 

Section 13(a) of the Exchange Act requires issuers to file periodic informational statements. See 15 U. S. C. §§78m(a)(1), 78l(b)(1). These statements include the “Management’s Discussion and Analysis of Financial Conditions and Results of Operation” (MD&A), in which companies must “furnish the information required by Item 303 of Regulation S–K.” See SEC Form 10–K; SEC Form 10–Q. Item 303, in turn, requires companies to “describe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” 17 CFR §229.303(b)(2)(ii) (2022).

 

 

(…) The courts of appeals disagree on whether a failure to make a disclosure required by Item 303 can support a private claim under §10(b) and Rule 10b–5(b) in the absence of an otherwise-misleading statement.1 This Court granted certiorari to resolve that disagreement. 600 U. S. ___ (2023).

 

 

1 Compare Stratte-McClure v. Morgan Stanley, 776 F. 3d 94, 101 (CA2 2015) (“Item 303’s affirmative duty to disclose in Form 10–Qs can serve as the basis for a securities fraud claim under Section 10(b)”), with In re Nvidia, 768 F. 3d 1046, 1056 (CA9 2014) (“Item 303 does not create a duty to disclose for purposes of Section 10(b) and Rule 10b–5”); see also Oran v. Stafford, 226 F. 3d 275, 288 (CA3 2000) (“The ‘demonstration of a violation of the disclosure requirements of Item 303 does not lead inevitably to the conclusion that such disclosure would be required under Rule 10b–5. Such a duty to disclose must be separately shown’”).

 

 

Rule 10b–5(b) makes it unlawful “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 CFR §240.10b–5(b). This Rule accomplishes two things. It prohibits “any untrue statement of a material fact”—i.e., false statements or lies. Ibid. It also prohibits omitting a material fact necessary “to make the statements made . . . not misleading.” Ibid. This case turns on whether this second prohibition bars only half-truths or instead extends to pure omissions.

A pure omission occurs when a speaker says nothing, in circumstances that do not give any particular meaning to that silence.

 

 

Rule 10b–5(b) does not proscribe pure omissions. The Rule prohibits omitting material facts necessary to make the “statements made . . . not misleading.” Put differently, it requires disclosure of information necessary to ensure that statements already made are clear and complete (…). This Rule therefore covers half-truths, not pure omissions. Logically and by its plain text, the Rule requires identifying affirmative assertions (i.e., “statements made”) before determining if other facts are needed to make those statements “not misleading.”

 

 

(…) It once again “bears emphasis that §10(b) and Rule 10b–5(b) do not create an affirmative duty to disclose any and all material information.

Disclosure is required under these provisions only when necessary ‘to make . . . statements made, in the light of the circumstances under which they were made, not misleading.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U. S. 27, 44 (2011) (quoting Rule 10b–5(b)).

 

 

Statutory context confirms what the text plainly provides. Congress imposed liability for pure omissions in §11(a) of the Securities Act of 1933. Section 11(a) prohibits any registration statement that “contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” 15 U. S. C. §77k(a). By its terms, in addition to proscribing lies and half-truths, this section also creates liability for failure to speak on a subject at all. See Omnicare, 575 U. S., at 186, n. 3 (“Section 11’s omissions clause also applies when an issuer fails to make mandated disclosures—those ‘required to be stated’—in a registration statement”). There is no similar language in §10(b) or Rule 10b–5(b). Cf. Ernst & Ernst v. Hochfelder, 425 U. S. 185, 208 (1976).

 

 

“Silence, absent a duty to disclose, is not misleading under Rule 10b–5.” Basic Inc. v. Levinson, 485 U. S. 224, 239, n. 17 (1988). Even a duty to disclose, however, does not automatically render silence misleading under Rule 10b–5(b). Today, this Court confirms that the failure to disclose information required by Item 303 can support a Rule 10b–5(b) claim only if the omission renders affirmative statements made misleading.

(Fn. 2: Moab and the United States spill much ink fighting the question presented, insisting that this case is about half-truths rather than pure omissions. The Court granted certiorari to address the Second Circuit’s pure omission analysis, not its half-truth analysis. See Pet. for Cert. I (“Whether . . . a failure to make a disclosure required under Item 303 can support a private claim under Section 10(b), even in the absence of an otherwise-misleading statement”); see also 2022 WL 17815767, *1 (Dec. 20, 2022) (distinguishing between these “two circumstances”). The Court does not opine on issues that are either tangential to the question presented or were not passed upon below, including what constitutes “statements made,” when a statement is misleading as a half-truth, or whether Rules 10b–5(a) and 10b–5(c) support liability for pure omissions.) 

 

 

 

 

 

(U.S. Supreme Court, April 12, 2024, Macquarie Infrastructure Corp. v. Moab Partners, L.P., Docket No. 22-1165, J. Sotomayor, Unanimous)

U.S. Court of Appeals for the Second Circuit, Indemnity Insurance Company of North America v. Unitrans International Corporation, Docket No. 21-2132

 

Subrogated Claims for Damage to Cargo

 

Contracting Carrier under the Montreal Convention

 

Contracting Carrier and Actual Carrier

 

Freight Forwarder

 

Principal and Agent

 

Carriage by Air

 

Air Waybill and House Waybill

 

Insurance Law

 

Transportation Law

 

Export

 

 

 

Indemnity Insurance Company of North America (“Indemnity”) appeals from the district court’s grant of summary judgment in favor of Unitrans International Corporation (“Unitrans”) on Indemnity’s subrogated claims for damage to cargo that occurred while the cargo was being unloaded from a truck at an airport. The district court (Pollak, M.J.) granted Unitrans’s motion for summary judgment on the grounds that Unitrans – a logistics company – qualified as a contracting carrier under the Montreal Convention and that Indemnity’s action was therefore time-barred by the Convention’s statute of limitations. Although we agree that contracting carriers are subject to the Montreal Convention, we find that there is a genuine dispute of material fact as to whether Unitrans was a contracting carrier. Accordingly, we vacate the judgment and remand the case for further proceedings.

 

 

In July 2014, Amgen, Inc. (“Amgen”), subrogor of plaintiff-appellant Indemnity Insurance Company of North America (“Indemnity”), engaged defendant-appellee Unitrans International Corporation (“Unitrans”) to arrange for the transportation of three pallets of Enbrel, a pharmaceutical drug (the “Cargo”), by motor and air carriage from Amgen’s facility in Dublin, Ireland to Philadelphia. On July 28, 2014, while Unitrans’s agent was delivering the Cargo to the air carrier at the airport, one of the pallets fell and was damaged. As a consequence, the entire shipment was returned to Amgen’s facility in Dublin, and the damaged pallet was declared a total loss.

 

 

Indemnity, as Amgen’s insurer, paid Amgen’s claim for the loss of the pallet and, as subrogee to Amgen’s rights, sued Unitrans for breach of contract, negligence, and breach of bailment. Unitrans moved for summary judgment, arguing that the Montreal Convention – which preempts all state law claims within its scope – governed Amgen’s claim. See Convention for the Unification of Certain Rules for International Carriage by Air, May 28, 1999, T.I.A.S. 13038, 2242 U.N.T.S. 309 (entered into force Nov. 4, 2003) (“Montreal Convention”). The United States District Court for the Eastern District of New York (Pollak, M.J.) granted summary judgment in Unitrans’s favor, concluding that the Montreal Convention applied and that the action was therefore barred by its two-year limitations period. This appeal followed.

 

 

Though we hold that the Montreal Convention applies to contracting carriers, we find that there remains a genuine factual dispute as to whether Unitrans qualifies as a contracting carrier. Accordingly, we vacate the judgment of the district court and remand the case for further proceedings.

 

 

(…) At Dublin Airport, while the TLC driver was removing the Cargo from the truck to deliver it to US Airways’s ground handling agent, one pallet fell off the truck and was damaged. The Cargo was returned to Amgen’s facility, and the damaged pallet was declared a total loss of over $1.8 million. Indemnity paid Amgen’s claim for the total loss and became fully subrogated to Amgen’s rights.

 

 

(…) The principal legal issue presented is whether the Montreal Convention applies only to damage that occurs while cargo is in the charge of an actual carrier. Indemnity urges us to adopt this narrow construction of the Montreal Convention, which would place its claims outside of the Convention given that Unitrans merely arranged for the Cargo’s transportation through third-party carriers and was not itself an actual carrier. We reject Indemnity’s legal argument and hold that the Montreal Convention extends to “contracting carriers” when cargo is damaged in international carriage while in their charge. Nevertheless, because there remains a genuine factual dispute over whether Unitrans qualifies as a “contracting carrier,” we conclude that the district court should not have granted Unitrans’s motion for summary judgment.

 

 

(…) As relevant here, Article 18 of the Convention, which covers damage to cargo, provides that a carrier is liable for damage to cargo if “the event which caused the damage . . . took place during the carriage by air.” Montreal Convention art. 18(1). “Carriage by air . . . comprises the period during which the cargo is in the charge of the carrier.” Id. art. 18(3). Significantly, “carriage by air” can encompass periods when the cargo is not “actually aboard an airplane,” Underwriters at Lloyds Subscribing to Cover Note B0753PC1308275000 v. Expeditors Korea Ltd., 882 F.3d 1033, 1040 (11th Cir. 2018), but does not cover “carriage by land . . . performed outside an airport,” Montreal Convention art. 18(4); see also Underwriters at Lloyds, 882 F.3d at 1040.

 

 

(…) Taken together, these provisions make clear that a “contracting carrier” – that is, a company that arranges for the international transportation of cargo by engaging third-party carriers such as airlines and truckers to perform the actual carriage – is a “carrier” for purposes of the Montreal Convention if, as a principal, it enters into the contract of carriage with a consignor.

 

 

(…) Article 40 plainly provides that when an actual carrier performs the whole or part of carriage, both the contracting carrier and the actual carrier are subject to the Montreal Convention – the actual carrier solely for the carriage it performs and the contracting carrier for “the whole of the carriage contemplated in the contract.” Montreal Convention art. 40; see also id. art. 1(4). Thus, a contracting carrier, as defined by Article 39, is subject to the rules of the Montreal Convention, including Article 18. See A.S.A.P. Logistics, Ltd. v. UPS Supply Chain Sols., Inc., 629 F. Supp. 3d 42, 46 n.3 (E.D.N.Y. 2022).

 

 

(…) We likewise reject Unitrans’s contention that carriage by air is a “term of art” applying to all damage occurring within the premises of the airport and that, therefore, the Montreal Convention applies here because the Cargo was damaged while it was at the airport. Unitrans Br. at 12, 14. The text of the Montreal Convention does not support the contention that any damage that occurs at an airport occurs during carriage by air, regardless of whether the cargo is in the charge of the carrier. As the Eleventh Circuit has explained, the Montreal Convention provides that a carrier is liable only for damage sustained during “carriage by air,” which is “the period during which the cargo is in the charge of the carrier,” except when the cargo is transported on the ground outside an airport. See Underwriters at Lloyds, 882 F.3d at 1040–42 (quoting Montreal Convention arts. 18(1), (3)–(4)). None of our precedent, even under the Warsaw Convention, is to the contrary. See Victoria Sales Corp. v. Emery Air Freight, Inc., 917 F.2d 705, 706–08 (2d Cir. 1990) (holding that damage to cargo in the charge of a carrier that occurs outside of an airport does not occur during carriage by air, but not holding that all damage that occurs inside an airport occurs during carriage by air, regardless of whether the cargo is in the charge of the carrier); Com. Union Ins. Co., 347 F.3d at 464–68 (holding that, under Article 18(4), when the point of damage is unknown, carrier control over all portions of the journey is presumed, but not holding that, even if the point of damage is known, the cargo need not be in the charge of the carrier). Here, there is no question that the Cargo was damaged inside the airport, but there remains the issue of whether the Cargo was damaged while “in the charge of the carrier.”

 

 

There is no dispute that Unitrans was not the actual carrier because it did not perform and was not intending to perform any part of the carriage itself. Therefore, the Montreal Convention applies only if Unitrans was a contracting carrier under Articles 39 and 40. As discussed above and as relevant here, the Montreal Convention provides that a contracting carrier is a person that (1) as a principal (2) makes a contract of carriage governed by the Montreal Convention (3) with a consignor, and (4) an actual carrier performs the whole or part of the carriage by virtue of authority from the contracting carrier. See Montreal Convention art. 39. In general, a principal is “someone who authorizes another to act on his or her behalf as an agent” or “someone who has primary responsibility on an obligation.” Principal, Black’s Law Dictionary (11th ed. 2019).

 

 

Given the current factual record, we find that there remains a genuine dispute as to whether Unitrans was acting as a principal and, by extension, whether it qualifies as a contracting carrier. On the one hand, there is evidence indicating that Unitrans was acting as a principal because it took primary responsibility in making and executing the carriage contracts. Indeed, in Unitrans’s interrogatory responses, it stated that it “acted as a freight forwarder and an indirect air carrier with regard to the Cargo,” taking “responsibility for the care, custody, and control of the Cargo” “from the receipt of the Cargo at the Amgen facility.” J. App’x at 248; see also, e.g., id. at 81 (Unitrans employee stating that “air waybill 037-49058936 was issued for the door-to-door carriage of the Cargo on July 28, 2014”); id. at 225 (parties agreeing that Unitrans “entered into a contract with . . . Amgen . . . to transport the Cargo from Amgen’s facility in Dun Laoghaire, Dublin, Ireland to Philadelphia, Pennsylvania”); id. at 268 (Amgen listing Unitrans as a “carrier” in its internal invoices). A reasonable juror could take these statements to mean that Unitrans – acting as a principal with ultimate “responsibility” for the Cargo – made a contract with consignor Amgen to transport the Cargo internationally, and that Unitrans then subcontracted with US Airways. In this circumstance, Unitrans would have assumed the responsibility of a contracting carrier, while US Airways was set to perform the air carriage – as the “actual carrier” – by virtue of authority from Unitrans.

 

 

On the other hand, the record also contains evidence that paints Unitrans as an agent that merely set up an air-carriage contract between Amgen and US Airways. In this circumstance, Unitrans would not have been acting as a principal because it merely brokered the agreement while US Airways was obliged to perform the air carriage by virtue of its own authority. This view is supported by the fact that Unitrans presents itself as a “logistics company that arranges carriage of cargo on behalf of its customers,” which suggests that it acts as an “intermediary” that merely makes travel arrangements in the manner of a travel agent. Id. at 63, 70.

 

 

It remains unclear whether Unitrans (or MCL as its agent) ever issued a “house waybill” – which could further shed light on Unitrans’s role and responsibilities – and if so, what happened to it. See J. App’x at 80 (explaining that an “air waybill” is the waybill issued by the actual carrier while the “house waybill” is issued by the forwarder). (Fn. 9).

 

 

 

 

(U.S. Court of Appeals for the Second Circuit, April 4, 2024, Indemnity Insurance Company of North America v. Unitrans International Corporation, Docket No. 21-2132)

 

U.S. Supreme Court, Great Lakes Insurance SE v. Raiders Retreat Realty CO., LLC, Docket No. 22-500

Maritime Insurance Contract

 

Maritime Law

 

Choice-of-Law Provisions in Maritime Contracts

 

Federal Common Law Court

 

Circuit Split

 

 

 

“Federalism in admiralty and the scope of application of state law in maritime cases is one of the most perplexing issues in the law”.

 

 

 

 

 

This Court granted certiorari to resolve a split in the Courts of Appeals regarding the enforceability of choice-of law provisions in maritime contracts.

 

 

Maritime contracts often contain choice-of-law provisions that designate the law of a particular jurisdiction to control future disputes. The enforceability of those choice-of-law provisions is governed by federal maritime law. Applying federal maritime law in this case, we conclude that choice-of-law provisions in maritime contracts are presumptively enforceable, with certain narrow exceptions not applicable here.

 

 

Under the Constitution, federal courts possess authority to create and apply maritime law. Article III of the Constitution extends the federal judicial power to “all Cases of admiralty and maritime Jurisdiction.” U. S. Const., Art. III, § 2, cl. 1. That grant of jurisdiction contemplates a system of maritime law “‘coextensive with, and operating uniformly in, the whole country.’” Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., 543 U. S. 14, 28 (2004) (quoting American Dredging Co. v. Miller, 510 U. S. 443, 451 (1994)). The purposes of that uniform system include promoting “the great interests of navigation and commerce” and maintaining the United States’ “diplomatic relations.” 3 J. Story, Commentaries on the Constitution of the United States §1666, p. 533 (1st ed. 1833); see also Norfolk Southern, 543 U. S., at 28; Exxon Corp. v. Central Gulf Lines, Inc., 500 U. S. 603, 608 (1991). To maintain that uniform system, federal courts “make decisional law” for maritime cases. Norfolk Southern, 543 U. S., at 23. When a federal court decides a maritime case, it acts as a “federal common law court, much as state courts do in state common-law cases.” Air & Liquid Systems Corp. v. DeVries, 586 U. S. 446, 452 (2019) (internal quotation marks omitted); see Dutra Group v. Batterton, 588 U. S. 358, 360 (2019). “Subject to direction from Congress,” the federal courts fashion maritime rules based on, among other sources, “judicial opinions, legislation, treatises, and scholarly writings.” Air & Liquid Systems, 586 U. S., at 452; see also Exxon Co., U. S. A. v. Sofec, Inc., 517 U. S. 830, 839 (1996); East River S. S. Corp. v. Transamerica Delaval Inc., 476 U. S. 858, 864 (1986). Exercising that authority, federal courts follow previously “established” maritime rules. Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U. S. 310, 314 (1955).

 

 

No bright line exists for determining when a federal maritime rule is “established,” but a body of judicial decisions can suffice. See Bisso v. Inland Waterways Corp., 349 U. S. 85, 89–90 (1955). In the absence of an established rule, federal courts may create uniform maritime rules. See, e.g., Norfolk Southern, 543 U. S., at 23. When no established rule exists, and when the federal courts decline to create a new rule, federal courts apply state law. See Wilburn Boat, 348 U. S., at 320–321. For purposes of this general overview, we will stop there, as the “issue of federalism in admiralty and the scope of application of state law in maritime cases is one of the most perplexing issues in the law.” 1 T. Schoenbaum, Admiralty and Maritime Law §4:4, p. 268 (6th ed. 2018).

 

 

The initial question here is whether there is an established federal maritime rule regarding the enforceability of choice-of-law provisions. The answer is yes. Longstanding precedent establishes a federal maritime rule: Choice-of-law provisions in maritime contracts are presumptively enforceable. As a leading treatise says, it is “well established in admiralty that choice of law clauses” will “normally be enforced.” 1 Schoenbaum, Admiralty and Maritime Law §5:19, at 427; see also id., §4:4, at 275; 2 id., §19:6, at 431–432 (similar).

 

 

The Court has pronounced that forum-selection clauses in maritime contracts are “prima facie valid” under federal maritime law and “should be enforced unless” doing so would be “‘unreasonable’ under the circumstances.” The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 10 (1972); see also Carnival Cruise Lines, Inc. v. Shute, 499 U. S. 585, 593–594 (1991).

 

 

(…) Moreover, by supplying some advance assurance about the governing law, choice-of-law provisions help maritime shippers decide on the front end “what precautions to take” on their boats, American Dredging, 510 U. S., at 454, and enable marine insurers to better assess risk, see Brief for American Institute of Marine Underwriters et al. as Amici Curiae 12–13. Choice-of-law provisions therefore can lower the price and expand the availability of marine insurance. In those ways, choice-of-law provisions advance a fundamental purpose of federal maritime law: the “‘protection of maritime commerce.’” Exxon Corp., 500 U. S., at 608 (quoting Sisson v. Ruby, 497 U. S. 358, 367 (1990)).

 

 

Rather, the Wilburn Boat Court simply determined what substantive rule applied when a party breached a warranty in a marine insurance contract. See id., at 311–316. The Court concluded that no “established federal admiralty rule” governed the warranty issue. Id., at 314; see also id., at 314–316. And the Court declined to create a federal maritime rule on that question, both because States historically regulated insurance and because federal courts were poorly positioned to “unify insurance law on a nationwide basis.” Id., at 319; see also id., at 316–320. The Court therefore ordered that the warranty issue be tried “under appropriate state law.” Id., at 321.

 

 

(…) Moreover, Wilburn Boat held only that state law applied as a gap-filler in the absence of a uniform federal maritime rule on a warranty issue. 348 U. S., at 314–316. Here, however, no gap exists because a uniform federal rule governs the enforceability of choice-of-law clauses in maritime contracts.

 

 

After Wilburn Boat, maritime actors realized that a lot would depend on which State’s law governed each individual maritime dispute—a question that would be unclear in advance. See 2 Schoenbaum, Admiralty and Maritime Law §19:9. Choice-of-law provisions soon emerged as a ready answer to that problem. See W. von Bittner, The Validity and Effect of Choice of Law Clauses in Marine Insurance Contracts, 53 Ins. Counsel J. 573, 573, 578–579 (1986).

 

 

(…) The bottom line: As a matter of federal maritime law, choice-of-law provisions in maritime contracts are presumptively enforceable.

 

Of course, to say that choice-of-law clauses are presumptively enforceable as a matter of federal maritime law means that there are exceptions when the clauses are not enforceable. The parties agree that the exceptions are narrow—indeed, Raiders “freely concedes that in most every instance, a choice-of-law provision contained in a maritime insurance contract will be effective.” Tr. of Oral Arg. 54. In particular, the parties agree that courts should disregard choice-of-law clauses in otherwise valid maritime contracts when the chosen law would contravene a controlling federal statute, see Knott v. Botany Mills, 179 U. S. 69, 77 (1900), or conflict with an established federal maritime policy, see The Kensington, 183 U. S. 263, 269–271 (1902). For example, The Kensington declined to enforce a choice-of-law clause because the chosen law would have released a carrier from liability for negligence—a result that federal maritime law forbids. See ibid. The parties further agree that, as a matter of federal maritime law, courts may disregard choice-of-law clauses when parties can furnish no reasonable basis for the chosen jurisdiction. Cf. Carnival Cruise, 499 U. S., at 594–595; The Bremen, 407 U. S., at 10, 16–17. For example, it would be unreasonable to pick the law of a distant foreign country without some rational basis for doing so. That said, the “no reasonable basis” exception must be applied with substantial deference to the contracting parties, recognizing that maritime actors may sometimes choose the law of a specific jurisdiction because, for example, that jurisdiction’s law is “well developed, well known, and well regarded.” Brief for American Institute of Marine Underwriters et al. as Amici Curiae 17.

 

 

Unable to successfully invoke those exceptions, Raiders says that federal maritime law should recognize an additional exception when enforcing the law of the State designated by the contract would contravene the fundamental public policy of the State with the greatest interest in the dispute. We disagree with that argument. Indeed, Raiders’ request for that novel maritime exception is essentially a repackaged version of its initial argument that the enforceability of choice-of-law provisions in maritime contracts should be determined by state law. The argument fares no better here, for essentially the same reasons.

 

 

(…) We disagree with Raiders’ related suggestion that we adopt the choice-of-law approach set forth in §187(2)(b) of the Second Restatement of Conflict of Laws. In relevant part, that subsection says that choice-of-law provisions are enforceable unless they conflict with “a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue.” Restatement (Second) of Conflict of Laws §187(2)(b). As the commentary to the Restatement carefully explains, however, that rule arose out of interstate cases and does not deal directly with federal-state conflicts, including those that arise in federal enclaves like maritime law. See id. §2, Comment c; §3, Comment d; §10, Comment a.

 

 

 

 

Secondary sources: T. Schoenbaum, Admiralty and Maritime Law §4:4, p. 268 (6th ed. 2018); J. Coyle, The Canons of Construction for Choice-of-Law Clauses, 92 Wash. L. Rev. 631, 633, n. 6 (2017); M. Sturley, Restating the Law of Marine Insurance: A Workable Solution to the Wilburn Boat Problem, 29 J. Mar. L. & Com. 41, 45 (1998); G. Gilmore & C. Black, Law of Admiralty §§1–17, 2–8 (2d ed. 1975); W. von Bittner, The Validity and Effect of Choice of Law Clauses in Marine Insurance Contracts, 53 Ins. Counsel J. 573, 573, 578–579 (1986); Restatement (Second) of Conflict of Laws §187, Comment f, p. 567 (1969).

 

 

 

 

(U.S. Supreme Court, Great Lakes Insurance SE v. Raiders Retreat Realty CO., LLC, Feb. 21, 2024, Docket No. 22-500, J. Kavanaugh, Unanimous)

 

U.S. Court of Appeals for the Fifth Circuit, Conti 11. Container Schiffarts-GMBH & Co. KG M.S., MSC Flaminia v. MSC Mediterranean Shipping Company S.A., Docket No. 22-30808

Insurance Law

 

Arbitration Award

 

International Maritime Dangerous Goods Code

 

Confirmation of the Arbitration Award in the Federal District Court

 

Personal Jurisdiction

 

Specific Personal Jurisdiction

 

Purposeful Availment

 

Waiver of Personal Jurisdiction Defense Through Insurer’s Issuance of a Letter of Understanding (or Undertaking)?

 

Louisiana Law

 

 

 

 

 

Appeal from the United States District Court for the Eastern District of Louisiana USDC No. 2:22-CV-1114.

 

 

Conti chartered its cargo vessel, the M/V FLAMINIA, to the Mediterranean Shipping Company (“MSC”). During one voyage, the FLAMINIA received three chemical tanks from the Port of New Orleans. The tanks exploded during Atlantic transit, causing extensive damage and three deaths. After a London arbitration panel awarded Conti $200 million, Conti sued to confirm the award in the Eastern District of Louisiana. The district court, ruling it had personal jurisdiction over MSC because the tanks had been loaded in New Orleans, confirmed the award. MSC appealed, arguing the court lacked personal jurisdiction. While agreeing with much of the district court’s well-stated decision, we must reverse because we conclude the court lacked personal jurisdiction over MSC. We agree with the district court that, when assessing personal jurisdiction to confirm an award under the New York Convention, a court should consider contacts related to the underlying dispute—not only contacts related to the arbitration itself. That holding aligns us with every other circuit to have considered the issue. But we disagree with the district court that MSC waived its personal jurisdiction defense through its insurer’s issuance of a letter of understanding that was expressly conditioned on MSC’s reserving all litigation defenses. We also disagree that the sole forum contact, the loading of the tanks in New Orleans, conferred specific personal jurisdiction over MSC. That contact arose from the unilateral activities of other parties whose actions are not attributable to MSC.

 

 

Accordingly, we REVERSE and REMAND with instructions to dismiss the case for lack of personal jurisdiction.

 

 

Conti, a German corporation based in Hamburg, owns the FLAMINIA. In November 2000, Conti chartered the FLAMINIA to MSC, a Swiss corporation based in Geneva. The charterparty required all disputes arising out of the agreement to be arbitrated in London. For the next 12 years, the FLAMINIA carried thousands of cargo containers to and from ports around the world, including the Port of New Orleans.

 

 

Conti brought an arbitration proceeding against MSC in London as required by the charterparty. The arbitration panel ruled that MSC breached the charterparty by failing to comply with the International Maritime Dangerous Goods Code. It awarded Conti about $200 million in total damages. Conti then sued MSC in the Eastern District of Louisiana seeking to confirm the award pursuant to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). See 9 U.S.C. §207. MSC moved to dismiss for lack of personal jurisdiction.

 

 

(…) While that motion was pending, MSC’s insurer issued a letter of undertaking (“LOU”) to Conti. The LOU promised to pay Conti up to $220 million on any final judgment entered by the Eastern District of Louisiana, provided that Conti did not interfere with MSC’s property or bring a separate action in another jurisdiction. The LOU was “given without prejudice to any and all rights or defenses MSC, its agents or affiliates have or may have” in the Eastern District of Louisiana proceedings. It also permitted Conti to return the LOU if Conti decided to discontinue those proceedings or if the court concluded Conti was not entitled to enforce the award in full.

 

 

(…) The court (…) granted Conti’s motion for judgment on the pleadings and confirmed the arbitral award. MSC now appeals, arguing the court lacked personal jurisdiction over it.

 

 

To confirm the arbitral award, the district court needed personal jurisdiction over MSC. See First Inv. Corp. of Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742, 748 (5th Cir. 2012) (due process requires personal jurisdiction to confirm award under the New York Convention). Only specific personal jurisdiction is at issue. See, e.g., Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915,919 (2011) (distinguishing “general or all-purpose jurisdiction, and specific or case-linked jurisdiction”. Conti, then, had to show that MSC “purposefully availed itself of the privilege of conducting activities within the forum State.” Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct., 141 S. Ct. 1017, 1024 (2021) (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)). MSC’s forum contacts must be its “own choice and not ‘random, isolated, or fortuitous.’” Id. at 1025 (quoting Keeton v. Hustler Mag., Inc., 465 U.S. 770, 774 (1984)). And, crucially, Conti’s claim against MSC “must arise out of or relate to” those contacts. Ibid. In other words, for specific personal jurisdiction to exist over MSC, “there must be ‘an affiliation between the forum and the underlying controversy.’” Ibid. (quoting Bristol-Myers Squibb Co. v. Superior Ct. of Cal., San Francisco Cnty., 582 U.S. 255, 262 (2017)).

 

 

Also instructive is the Second Circuit’s decision in SoléResort, which involved a petition asking a New York federal court to vacate a Florida arbitral award involving two foreign companies. 450 F.3d at 101–02. The defendant resisted personal jurisdiction on the ground that the plaintiff’s claim was only “about the actions of the arbitrators, not about the facts underlying the dispute that led to the arbitration.” Id. at 105. The Second Circuit disagreed. “Any arbitration proceeding,” the court reasoned, “is...an extension of the parties’ contract with one another,” and “without the contract, the arbitration, and its resultant judgment, a subsequent challenge to that judgment never could exist.” Id. at 104. Accordingly, the court found “a substantial relationship between a challenge to the arbitrators’ decision and the contract that provided for the arbitration.” Ibid. “While the arbitrators’ actions themselves took place outside New York,” the court concluded, “those actions necessarily bear a substantial relationship to the events underlying the contract that created the arbitration.” Id. at 105 (cf. Fn. 4 below).

 

 

4The SoléResort analysis has been adopted by the pertinent Restatement. The authors explain that “in determining whether the requirement of minimum contacts is met, account is not taken only of the arbitration but also of the underlying transaction.” Restatement (Third) of U.S. Law of Int’l Com.  Arb. §4.25 note (a)(ii) (citing SoléResort, 450 F.3d 100). Accordingly, “actions to enforce international arbitral awards do not call for any special personal jurisdictional rules. The adequacy of any particular exercise of personal jurisdiction is determined according to the generally applicable statutory and constitutional standards for the exercise of personal jurisdiction.” Id. at § 5.19 cmt. (a) (fn. 4).

 

 

Six other circuits follow an approach similar to the Tenth and Second Circuits with respect to evaluating personal jurisdiction over actions to confirm arbitral awards. That is, they consider a defendant’s contacts related to the underlying dispute that led to the arbitral award, and not only contacts related to the arbitration proceeding itself (cf. Fn. 5 below).

 

 

See Telcordia Tech, 458 F.3d at 178 (analyzing contacts between defendant and forum relevant to underlying dispute before finding personal jurisdiction to confirm a foreign arbitral award); Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory”, 283 F.3d 208, 215–16 (4th Cir. 2002) (considering lack of regular shipments between the two companies and contact with the United States to deny personal jurisdiction to confirm foreign arbitral award); Reynolds v. Int’l Amateur Athletic Fed’n, 23 F.3d 1110, 1116–17 (6th Cir. 1994) (considering state law tort and contract claims when determining personal jurisdiction to confirm a domestic arbitral award); Glencore Grain, 284 F.3d at 1123–24 (analyzing the sale of rice to California distributors in evaluating personal jurisdiction to confirm a foreign arbitral award); Greenfield Advisors LLC v. Salas, 733 F. App’x 364, 366–67 (9th Cir. 2018) (considering personal contacts between the appellant and state of Washington to find personal jurisdiction to enforce a foreign arbitral award); S & Davis Int’l, Inc. v. Republic of Yemen, 218 F.3d 1292, 1304–05 (11th Cir. 2000) (considering contacts regarding contractual breach to find personal jurisdiction to enforce a foreign arbitral award); Creighton, Ltd. v. Gov’t of Qatar, 181 F.3d 118, 127–28 (D.C. Cir. 1999) (considering phone calls, ongoing business, and other communications between Qatar and Tennessee in the underlying dispute to find no personal jurisdiction to confirm foreign arbitral award); GSS Grp. Ltd. v. Nat’l Port Auth., 680 F.3d 805, 817 (D.C. Cir. 2012) (finding no contacts between defendant and forum as to underlying dispute and thus dismissing for lack of personal jurisdiction). (Fn. 5).

 

Badgerow involved domestic arbitration governed by FAA Chapter One, see 9 U.S.C. §§1–16, whereas this case involves foreign arbitration under the New York Convention, governed by FAA Chapter Two, see id. §§201–208. As the district court carefully explained, Chapter Two lacks any textual indication that forbids looking to the underlying dispute in assessing personal jurisdiction to confirm an award under the Convention.

 

 

Even more telling is Chapter Two’s venue provision. An action to confirm a Convention-related award may be brought in any district court in which save for the arbitration agreement an action or proceeding with respect to the controversy between the parties could be brought, or in such court for the district and division which embraces the place designated in the agreement as the place of arbitration if such place is within the United States. Id. §204. This provision contains the same “save for” language as the analogous domestic provision addressed in Vaden (§4), which the Supreme Court held requires looking to the underlying dispute. See Vaden, 556 U.S. at 62–63. True, §204 addresses venue, not personal jurisdiction. But, as the district court pointed out, “it would only make sense for the personal jurisdiction analysis under the Convention to follow that of venue because otherwise it would lead to irrational results”—namely, being able to consider the underlying dispute for venue purposes but not for personal jurisdiction. This is another strong clue that Chapter Two, unlike the Chapter One provisions in Badgerow, does not forbid considering the parties’ dispute for purposes of assessing jurisdiction.

 

 

Next, we turn to the district court’s ruling that MSC waived any challenge to personal jurisdiction when its insurer issued the LOU. Recall that the LOU promised to pay Conti up to $220 million on any final judgment and was “given without prejudice to any and all rights or defenses MSC, its agents or affiliates have or may have.” MSC argues the district court erred because the LOU plainly reserved its defenses to Conti’s suit, including lack of personal jurisdiction. We agree.

 

 

“Louisiana law recognizes broad freedom to contract” and “contractual intent is determined by the words of the contract.” Luv N’ Care, Ltd. v. Groupo Rimar, 844 F.3d 442, 447 (5th Cir. 2016); see also La. Civ. Code art. 1971 (“Parties are free to contract for any object that is lawful, possible, and determined or determinable.”). Contractual provisions like the ones here may be “relevant” to a personal jurisdiction analysis, “but they are not dispositive.” See Haliburton Energy Servs., Inc. v. Ironshore Specialty Ins. Co., 921 F.3d 522, 542 (5th Cir. 2019) (considering relevance of “choice-of-law provisions and forum-selection clauses” to personal jurisdiction analysis). When a party contractually submits to the court’s power for a “limited purpose,” it does “not waive its personal jurisdiction defense” for issues falling outside that purpose. Id. at 541.

 

 

Finally, MSC argues that, even if it is proper to consider contacts related to the underlying dispute, the district court erred in finding personal jurisdiction based only on the fact that the DVB shipped from the Port of New Orleans. We agree with MSC because that contact with New Orleans resulted not from MSC’s activity but rather that of its subsidiary, MSC (USA), and third parties. “Generally, a foreign parent corporation is not subject to the jurisdiction of a forum state merely because its subsidiary is present or doing business there.” Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1159 (5th Cir. 1983) (citing 2 J. Moore & J. Lucas, Moore’s Federal Practice ¶4.25[6], at 4–272 (2d ed. 1982)). “This presumption of institutional independence...may be rebutted, however, by clear evidence” that the two corporations are “fused...for jurisdictional purposes.” Diece-Lisa, 943 F.3d at 251 (quoting Freudensprung, 379 F.3d at 346).

 

 

(…) Furthermore, the record suggests MSC and MSC (USA) are in fact distinct entities. While MSC (USA) is wholly owned by MSC, the two corporations have different headquarters—MSC (USA) in New York and MSC in Geneva. They have different officers and directors. And the record does not show that MSC and MSC (USA) failed to observe corporate formalities. To the contrary, the only evidence on that score is the arbitration panel’s finding that MSC (USA) followed corporate formalities with its own subsidiary, the New Orleans Terminal LLC. Nor does any evidence show MSC’s exercising complete authority over MSC (USA)’s operations. This evidence cannot overcome the presumption of separateness between MSC (USA) and MSC for personal jurisdiction purposes.

 

 

(…) See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (explaining the “‘purposeful availment’ requirement ensures that a defendant will not be haled into a jurisdiction solely as a result...of the ‘unilateral activity of another party or a third person’” (quoting Hanson, 357 U.S. at 253; Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 417 (1984))). The district court thus lacked personal jurisdiction to confirm the London award.

 

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, Jan. 29, 2024, Conti 11. Container Schiffarts-GMBH & Co. KG M.S., MSC Flaminia v. MSC Mediterranean Shipping Company S.A., Docket No. 22-30808)

U.S. Court of Appeals for the Fifth Circuit, Conti 11. Container Schiffarts-GMBH & Co. KG M.S., MSC Flaminia v. MSC Mediterranean Shipping Company S.A., Docket No. 22-30808

Personal Jurisdiction

 

Of a Parent Corporation? Of its Subsidiary?

 

Nonresident Corporation

 

Purposeful Availment

 

Presumption of Institutional Independence

 

 

 

 

 

“Generally, a foreign parent corporation is not subject to the jurisdiction of a forum state merely because its subsidiary is present or doing business there.” Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1159 (5th Cir. 1983) (citing 2 J. Moore & J. Lucas, Moore’s Federal Practice ¶4.25[6], at 4–272 (2d ed. 1982)). “This presumption of institutional independence...may be rebutted, however, by clear evidence” that the two corporations are “fused...for jurisdictional purposes.” Diece-Lisa, 943 F.3d at 251 (quoting Freudensprung, 379 F.3d at 346); see also Hargrave, 710 F.2d at 116 (explaining, “so long as a parent and subsidiary maintain separate and distinct corporate entities, the presence of one in a forum state may not be attributed to the other”). In this inquiry, we consider the following factors: “(1) the amount of stock owned by the parent of the subsidiary; (2) whether the entities have separate headquarters, directors, and officers; (3) whether corporate formalities are observed; (4) whether the entities maintain separate accounting systems; and (5) whether the parent exercises complete control over the subsidiary’s general policies or daily activities.” Diece-Lisa, 943 F.3d at 251; see also Hargrave, 710 F.2d at 1160 (discussing factors).

 

 

See also, e.g., Diece-Lisa Indus., Inc. v. Disney Enters., Inc., 943 F.3d 239, 251 (5th Cir. 2019) (“Generally, ‘the proper exercise of personal jurisdiction over a nonresident corporation may not be based solely upon the contacts with the forum state of another corporate entity with which the defendant may be affiliated.’” (quoting Freudensprung v. Offshore Tech. Servs., Inc., 379 F.3d 327, 346 (5th Cir. 2004))); Access Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 717 (5th Cir. 1999) (“Typically, the corporate independence of companies defeats the assertion of jurisdiction over one by using contacts with the other.”); Dickson Marine, Inc. v. Panalpina, Inc., 179 F.3d 331, 338 (5th Cir. 1999) (“Courts have long presumed the institutional independence of related corporations, such as parent and subsidiary, when determining if one corporation’s contacts with a forum can be the basis of a related corporation’s contacts.” (citing Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333 (1925))); Southmark Corp. v. Life Invs., Inc., 851 F.2d 763, 773–74 (5th Cir. 1988) (“It is well-settled that where...a wholly owned subsidiary is operated as a distinct corporation, its contacts with the forum cannot be imputed to the parent.”). (Fn. 12).

 

 

(…) Furthermore, based on uncontroverted record evidence MSC has never had a registered agent for service of process in Louisiana. (Fn. 13 in fine).

 

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, Jan. 29, 2024, Conti 11. Container Schiffarts-GMBH & Co. KG M.S., MSC Flaminia v. MSC Mediterranean Shipping Company S.A., Docket No. 22-30808)