U.S. Court of Appeals for the Second Circuit, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv

Insurance Law

 

Surplus Lines Insurers

 

Arbitration

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards

 

Supremacy Clause of the United States Constitution

 

McCarran-Ferguson Act (“MFA”), 15 U.S.C. § 1012(b)

 

Self-Executing Treaty Provisions

 

Reverse Preemption

 

Assignation of Rights

 

Louisiana Law

 

 

 

 

 

This opinion addresses two cases, each of which involves an insurance policy issued by certain surplus lines insurers at Lloyd’s, London (“the Insurers”). Both policies contain an identical arbitration clause, which the Insurers argue is enforceable under Article II Section 3 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), adopted June 10, 1958, 21 U.S.T. 2517. The defendants-appellees argue that the clauses are unenforceable because (1) Louisiana law prohibits arbitration clauses in insurance contracts, (2) the McCarren Ferguson Act (“MFA”), 15 U.S.C. § 1012(b), allows state insurance laws to “reverse preempt” any treaty provisions that are not “self-executing,” and (3) we previously held that Article II Section 3 of the New York Convention was not “self-executing” in Stephens v. American International Insurance (“Stephens I”), 66 F.3d 41, 45 (2d Cir.1995). We conclude, however, that our reasoning in Stephens I has been fatally undermined by the Supreme Court’s subsequent decision in Medellín v. Texas, 552 U.S. 491 (2008). Medellín established an entirely different test for determining whether a treaty provision should be considered “self-executing” than the one we applied in Stephens I, and under the new Medellín test, Article II Section 3 is clearly self-executing. As a result, we abrogate Stephens I to the extent that it holds that Article II Section 3 of the New York Convention is not self-executing, reverse the underlying district court decisions to the extent they relied on that holding in Stephens I, and remand the matters to their respective district courts for further proceedings consistent with this opinion.

 

 

(…) Surplus lines insurers “fill an important niche in the insurance market by covering otherwise uninsurable risks.” James River Ins. Co. v. Blue Ox Dance Hall, LLC, No. 16 Civ. 151, 2017 WL 5195877, at *3 (N.D. Okla. Nov. 9, 2017). One common use for their policies is to insure against the cost of hurricane damage in high-risk zones, including areas of Louisiana.

 

 

(…) The sellers, who were the named insureds under the policies, assigned their rights under the policies to 3131 Veterans and Mpire.

 

 

Louisiana state insurance law is unfriendly to arbitration clauses. It provides that “no insurance contract delivered or issued for delivery in this state . . . shall contain any condition, stipulation, or agreement . . . depriving the courts of this state of the jurisdiction or venue of action against the insurer.” La. R.S. § 22:868(A)(2). In 2015, the Louisiana Supreme Court observed that this provision “effectively prohibits the enforcement of arbitration provisions in the context of insurance disputes.” Courville v. Allied Professionals Ins. Co., 174 So.3d 659, 666. (La. Ct. App. 2015).

 

 

In contrast with Louisiana law, arbitration clauses are generally enforceable under federal law, because the FAA puts arbitration clauses “on an equal footing with other contracts.” Coinbase, Inc. v. Suski, 602 U.S. 143, 148 (2024); see also 9 U.S.C. § 2. Ordinarily under the Supremacy Clause of the United States Constitution, a federal statute like the FAA would “preempt a state law that withdraws the power to enforce arbitration agreements.” Southland Corp. v. Keating, 465 U.S. 1,16 n.10 (1984). Thus, an arbitration clause could generally be expected to prevail even in the face of state laws – like Louisiana’s – that purport to prohibit or void such clauses. See Stephens I, 66 F.3d at 43. “However, Congress created an exception to the usual rules of preemption when it enacted the McCarran–Ferguson Act.” Id. Under the MFA, state laws enacted “for the purpose of regulating the business of insurance” are generally exempt from preemption. Id. Specifically, the MFA provides that no Act of Congress shall be construed to invalidate, impair or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance. 5 U.S.C. § 1012(b). Under the MFA, the normal rules of preemption apply to a state insurance law only when an incompatible federal law exists that also relates to insurance. Humana Inc. v. Forsyth, 525 U.S. 299, 307–08 (1999).

 

 

Because the MFA’s reverse-preemption rule applies not to federal policies generally but to “Acts of Congress” specifically, 15 U.S.C. § 1012(b), we have held that state law can reverse-preempt a treaty provision under the MFA only when that treaty provision relies on an “Act of Congress” to take effect – in other words, when the provision is not “self-executing.” Stephens I, 66 F.3d at 45. Where a treaty provision is self-executing and requires no implementing Act of Congress, the MFA by its own terms does not apply. Accordingly, the principal disagreement in this case is whether Article II Section 3 of the New York Convention is “self-executing,” making it exempt from reverse-preemption under the MFA, or whether it relies on an Act of Congress for its effect, such that it can be reverse-preempted by Louisiana law.

 

 

In Medellín, the Supreme Court did not confine its analysis to the narrow question of whether Congress enacted legislation purporting to implement the treaty at issue (there, the United Nations Charter). 552 U.S. at 508. Instead, the Court identified several hallmarks of a “self-executing” treaty provision within a larger treaty – namely: (1) that it provides “a directive to domestic courts” of the contracting nation, id.; (2) that it “provides that the United States ‘shall’ or ‘must’” take a particular action, id., and (3) that the “text, background, negotiating and drafting history” regarding the provision indicate the Senate and/or the President’s intention, id. at 523, that the ratified treaty take “immediate legal effect in domestic courts,” id. at 508. A non-self-executing treaty provision, in contrast, would merely “call upon [member] governments to take certain action.” Id. (quotation marks omitted). Because Article 94 of the U.N. Charter, the specific provision at issue, lacked those hallmarks of a “self-executing” treaty provision, the court held that it was not self-executing. Id. at 508–09.

 

 

Since Medellín, other circuits addressing the New York Convention have reasoned persuasively that under the test announced in that case, Article II Section 3 of the Convention is in fact self-executing. The First Circuit held that “the text of that provision manifests precisely the type of directive to United States courts that is a hallmark of a self-executing treaty provision.” Green Enterprises, LLC v. Hiscox Syndicates Ltd. at Lloyd’s of London, 68 F.4th 662, 668 (1^st Cir. 2023).

 

 

Under the Medellín factors, Article II Section 3 of the New York Convention is self-executing. As the First and Ninth Circuits have observed, the text of Article II Section 3 readily appears “self-executing” under the first two Medellín factors. CLMS Mgmt. Servs., 8 F.4th at 1013; Green Enterprises, 68 F.4th at 667-68. The text expressly provides that when a party before a contracting nation’s court seeks to enforce the type of arbitration agreement contemplated by the New York Convention, that court “shall . . . refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” New York Convention, art. II § 3. That instruction serves as “a directive to domestic courts” of the member state, and it “provides that the United States ‘shall’ or ‘must’” take a particular action. Medellín, 552 U.S. at 508. Thus, both the first and second factors strongly suggest that the provision is self-executing.

 

 

(…) Under the Medellín test, Article II Section 3 of the New York Convention is self-executing, with the result that it cannot be reverse preempted by Louisiana law under the MFA.

 

 

For the foregoing reasons, we ABROGATE Stephens v. American International Insurance, 66 F.3d 41 (2d Cir. 1995) to the extent that it holds that Article II Section 3 of the New York Convention is not self-executing, REVERSE the district courts’ decisions to the extent that they relied on that holding in Stephens I, and REMAND the matters to their respective district courts for further proceedings consistent with this opinion.

 

 

 

 

(U.S. Court of Appeals for the Second Circuit, May 8, 2025, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv)

 

 

U.S. Court of Appeals for the Second Circuit, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv

Arbitration

 

Arbitrability

 

Delegation of “Gateway” Issues of Arbitrability to Arbitrators

 

 

 

 

It is “under the Federal Arbitration Act” that the Supreme Court has held that parties may delegate “gateway” issues of arbitrability to arbitrators. Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 67–68 (2019).

 

 

 

(U.S. Court of Appeals for the Second Circuit, May 8, 2025, Certain Underwriters at Lloyds, London, v. 3131 Veterans Blvd LLC; MPIRE Properties LLC, Docket Nos. 23-1268-cv, 23-7613-cv)

 

 

 

 

Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, Docket No. 2023-335

Statute of Frauds

 

Arbitration Process

 

Right to Waive

 

Rhode Island Law

 

 

 

There are some instances where parties are free to contract in ways that effectively waive protective provisions that are contained within a relevant civil statute. For example, under some circumstances, competent parties might be deemed to have waived the protective provisions of the Statute of Frauds if they did so knowingly and voluntarily. Nevertheless, there are some public policies that are so important that statutes relating to those policies should be understood to preclude the right to waive a protective statutory provision. One of those overarching public policies is the need to maintain the integrity of the alternative dispute resolution process as well as the public’s appreciation of that integrity. We are of the same mind as our predecessors on this Court, who expressly noted that they were “cognizant of the need for public confidence and integrity in the arbitration process.” Grabbert, 590 A.2d at 92. This Court has encouraged parties to “contract to use arbitration as an expeditious and informal means of private dispute resolution, thereby avoiding litigation in the courts.” Id. And we are keenly aware that the existence of evident partiality undermines these crucial aspects of arbitration. Id. (“Any impropriety that undermines public confidence in and the integrity of the arbitration process detracts from its legitimacy as an alternative method of private dispute resolution.”).

 

 

 

 

 

(Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, March 20, 2025, Docket No. 2023-335-Appeal)

 

Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, Docket No. 2023-335

Appraisal

 

Arbitration

 

Partiality

 

Petition to Vacate the Appraisal Award

 

Assignment of Insurance Claim

 

Insurance Law

 

Rhode Island Law

 

 

 

The plaintiff, Vermont Mutual Insurance Company (Vermont Mutual), appeals from a July 27, 2023 Superior Court order denying its petition to vacate an appraisal award and granting the cross-petition of the defendant, New England Property Services Group, LLC (NEPSG), to confirm said appraisal award. Vermont Mutual contends on appeal that the hearing justice erred in failing to vacate the award because, in its view, there was evident partiality on the part of the defendant’s appraiser. For the reasons set forth in this opinion, we vacate the order of the Superior Court, and we remand this case for further proceedings consistent with this opinion.

 

 

Vermont Mutual received a claim by or on behalf of Ms. St. Vil for windstorm damage to the Rumford property that was alleged to have occurred on December 25, 2020.

 

 

At some point, Ms. St. Vil executed an assignment of her insurance claim to NEPSG in exchange for its work on the property.

 

 

Significantly, Mr. Ceceri is the sole owner and operator of NEPSG.

 

 

On April 13, 2022, counsel for NEPSG directed correspondence to Vermont Mutual, indicating that NEPSG “demanded appraisal concerning the underlying claim.” The Vermont Mutual insurance policy at issue provides that, in the event an insured demands an appraisal of the loss, each party will choose “a competent appraiser within 20 days after receiving a written request from the other,” and it also provides that “the two appraisers will choose an umpire.” The policy further requires that the appraisers separately “set the amount of loss.” If the appraisers do not agree as to the amount, they are to submit their differences to the umpire, and a “decision agreed to by any two will set the amount of loss.” According to Vermont Mutual, Mr. Ceceri was named as the appraiser on behalf of NEPSG despite “his clear and undisputed financial interest in the outcome of the appraisal.” In its petition to vacate the appraisal award, Vermont Mutual asserted that it had objected to Mr. Ceceri acting as an appraiser because he was not “disinterested;” however, Vermont Mutual further asserted that it had “agreed to go forward with the appraisal and reserved any and all rights to dispute the award.” The appraisal ultimately went forward with Mr. Ceceri serving as the appraiser for NEPSG, Vincent Cicci serving as the appraiser for Vermont Mutual, and Felix Carlone serving as the appraisal umpire. According to an exhibit attached to NEPSG’s cross-petition, Mr. Ceceri’s appraisal was $207,053.11, while Mr. Cicci’s appraisal was $67,645.99. The final award appraised the loss at $144,855.37. (With interest, the total amount of the award was $185,797.02.) The “Agreement Award” indicates that Mr. Ceceri and Mr. Carlone signed the award, but Mr. Cicci did not sign on behalf of Vermont Mutual.

 

 

In due course, Vermont Mutual filed a petition to vacate the appraisal award, noting that, pursuant to G.L.1956 chapter 3 of title 10 (the Arbitration Act), the Superior Court has “jurisdiction to vacate, modify, or correct an award.” Vermont Mutual asserted that, as a result of what it alleged to be Mr. Ceceri’s evident partiality, the appraisal award should have been vacated in accordance with §10-3-12. NEPSG then filed its response and cross-petition to confirm the appraisal award, in which it admitted that the Superior Court had jurisdiction pursuant to the Arbitration Act and requested that the court grant its cross-petition “and order that the appraisal award issued in this matter be confirmed pursuant to” the Arbitration Act.

 

(General Laws 1956 § 10-3-12(2) provides in pertinent part that a court “must make an order vacating the award upon the application of any party to the arbitration” in the event of “evident partiality or corruption on the part of the arbitrators, or either of them.” (Emphasis added.) (Fn. 2)).

 

 

On appeal, Vermont Mutual contends that, in denying its petition to vacate the appraisal award and granting NEPSG’s cross-petition, the hearing justice erred “by failing to apply the relevant standard in determining whether the appraisal award should have been vacated pursuant to * * * § 10-3-12(2) due to the presence of evident partiality on the part of Mr. Ceceri.”

 

 

Section10-3-11 of the Arbitration Act provides that a party to arbitration “may apply to the court for an order confirming the award” within one year after the award is made. The court must vacate an award if one of the circumstances listed in §10-3-12 is present. In view of the fact that the General Assembly has authorized the Superior Court to either confirm or vacate an award, it logically follows that the Superior Court has subject matter jurisdiction over petitions filed pursuant to the Arbitration Act. In the instant case, this Court is left with no doubt that the Superior Court had jurisdiction over Vermont Mutual’s petition to vacate the award and NEPSG’s cross-petition to confirm the award; and we are also of the view that the court acted properly in exercising its jurisdictional power. See Pollard, 870 A.2d at 433.

 

 

Having established that the Superior Court had subject matter jurisdiction over this case, we next proceed to address whether the appraisal process in this case can be equated with arbitration.

 

 

Turning to the specific language of the appraisal provision in Vermont Mutual’s policy, which sets forth its appraisal procedure, we are of the opinion that the process at issue in the instant case can be equated with arbitration. Vermont Mutual’s policy includes the following pertinent language: “If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the ‘residence premises’ is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss.” This language can reasonably be interpreted as providing for a dispute resolution process that, for all intents and purposes, is an arbitration. Significantly, the policy appraisal language at issue here comes tantalizingly close to mirroring the policy appraisal language at issue in Waradzin as well as the policy appraisal language at issue in the Grady case. See Waradzin, 570 A.2d at 649-50; Grady, 27 R.I. at 436-37, 63 A. at 173.

 

 

(…) We are not persuaded by the argument that the absence of the term “disinterested” from Vermont Mutual’s policy somehow materially differentiates it from the appraisal processes that this Court in Waradzin and Grady has held to be an arbitration.

 

 

(…) We hold that the appraisal procedure outlined in Vermont Mutual’s policy can be equated with arbitration and that the Arbitration Act is therefore applicable.

 

 

(…) While we have acknowledged that arbitrators are not expected to be totally impartial or disinterested and that there is an expectation that party-appointed arbitrators will serve as nonneutrals, flagrant partiality serves to undermine the integrity of the arbitration process. See Aetna Casualty & Surety Company v. Grabbert, 590 A.2d 88, 92-95 (R.I. 1991).

 

 

Pursuant to § 10-3-12(2), a court must vacate an award upon the application of any party to the arbitration “where there was evident partiality or corruption on the part of the arbitrators, or either of them.”  This Court has acknowledged that evident partiality “will be found ‘where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.’”Grabbert, 590 A.2d at 96 (quoting Morelite Construction Corp. v. New York City District Council Carpenters Benefit Funds, 748 F.2d 79, 84 (2d Cir. 1984)). In Grabbert, this Court established a two-step test for determining whether there is evident partiality on the part of a party-appointed appraiser. First, a party seeking to vacate an award must establish an improper interest on the part of the appraiser. Grabbert, 590 A.2d at 92. Secondly, there must be a “causal nexus” between the party-appointed appraiser’s conduct and the appraisal award. Id. In Grabbert, the arbitrator appointed by the insured was working on a contingent fee basis (ten percent of the ultimate award would be his fee), which this Court stated “gave him a direct financial interest in the award that was absolutely improper * * *.” Grabbert, 590 A.2d at 90, 92. Nonetheless, this Court went on to state that the defendant had “failed to demonstrate the required causal nexus between the party-appointed arbitrator’s improper conduct and the award ultimately decided upon.” Id. at 96. In arriving at that conclusion, this Court emphasized inter alia that the award in that case “was a unanimous decision of three experienced arbitrators.” Id.

 

 

In McGinity v. Pawtucket Mutual Insurance Co., 899 A.2d 504 (R.I. 2006), this Court was again faced with the question of whether an arbitration award should be vacated due to the existence of evident partiality. McGinity, 899 A.2d at 505. This Court determined that the failure on the part of the arbitrator to disclose to the opposing party and to the other two arbitrators his position as an attorney for the defendant satisfied the first step of the test articulated in Grabbert. Id. at 507. In addressing the question of causal nexus, this Court in McGinity pointed out that, unlike the award in Grabbert, the award at issue in the case then on appeal was not unanimous. Id. at 508. The Court also noted that the “plaintiff’s party-appointed arbitrator not only declined to agree with the other two arbitrators, but also arrived at a drastically different amount as evidenced by his minority opinion.” Id. The Court further emphasized that the “fact that the neutral arbitrator voted for the arbitration award does not disprove a causal nexus between the *  *  * arbitrator’s relationship to defendant and the arbitration award that two of the panel members reached.” Id. The Court in McGinity ultimately held that an attorney-client relationship between the arbitrator and the insurer was sufficient to supply the causal nexus between the improper conduct and the award. Id. In the instant case, it is quite evident that Mr. Ceceri had a direct financial interest in the award. Mr. Ceceri is the sole owner and operator of NEPSG as well as the assignee of Ms. St. Vil’s insurance claim. Therefore, NEPSG in this case acted as its own appraiser with the entire appraisal award ultimately being payable to Mr. Ceceri. In other words, Mr. Ceceri stood to benefit solely on the basis of his being the party-appointed appraiser, thereby standing to exclusively benefit from the award. To that end, NEPSG’s emphasis on the fact that Vermont Mutual continued to partake in the appraisal process in spite of the disclosure of Mr. Ceceri as NEPSG’s appraiser is unavailing. In its petition to vacate the appraisal award, Vermont Mutual asserted that it objected to Mr. Ceceri acting as an appraiser because he was not “disinterested.” These largely undisputed facts establish an improper interest on the part of Mr. Ceceri, and the first step of the test articulated in Grabbert has therefore been satisfied.

 

 

As for the second step of the Grabbert test, it is quite clear that there was a causal nexus between Mr. Ceceri’s conduct and the final appraisal award. As was the case in McGinity, the award at issue here was not unanimous. In the instant case, Mr. Ceceri’s appraisal was $207,053.11, while Mr. Cicci’s appraisal was $67,645.99. The final award appraised the loss at $144,855.37, exclusive of interest.

 

 

It is clear from these numbers that Mr. Ceceri and Mr. Cicci arrived at drastically different amounts. We do not believe it to beat all irrational to suggest that Mr. Ceceri’s inflated amount was potentially motivated by his direct financial interest in the award. Moreover, the “Agreement Award” indicates that Mr. Ceceri and Mr. Carlone signed the award, whereas Mr. Cicci declined to sign on behalf of the insurer. In our view, these uncontroverted facts thus establish a causal nexus similar to the one identified in McGinity. See McGinity, 899 A.2d at 508. Accordingly, we hold that the award should have been vacated due to the presence of evident partiality and that the hearing justice erred in failing to conduct this necessary analysis. See generally Morelite Construction Corp., 748 F.2d at 85.

 

 

Bearing in mind the authorities that we have cited and our convictions about the integrity of the alternative dispute resolution process, we have concluded that the appraisal award at issue in this case must be vacated due to the evident partiality of the appraiser for NEPSG.

 

 

We vacate the order of the Superior Court, and we remand this case to that tribunal with the direction that it order a new appraisal.

 

 

 

(Rhode Island Supreme Court, Vermont Mutual Insurance Comp. v. New England Property Services Group, LLC, March 20, 2025, Docket No. 2023-335-Appeal)

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 First Circuit, Green Enterprises, LLC v. Hiscox Syndicates Limited at Lloyd’s of London; XL Catlin Lloyd’s Syndicate 2003; Amlin Lloyd’s Syndicate 2001; Canopius Lloyd’s Syndicate 4444; Noa Lloyd’s Syndicate 3902; Blenheim Lloyd’s Syndicate 5886; Brit Lloyd’s Syndicate 2987/2988, Docket No. 21-1542

Insurance Law

 

Motion to Compel Arbitration

 

Question of First Impression (First Circuit)

 

Conflicts Between State Laws Regulating Insurance and Acts of Congress

 

Preemption

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. (A Self-Executing Treaty)

 

Comity

 

 

 

 

Green Enterprises, LLC ("Green"), a Puerto Rican recycling company, filed an insurance claim after a fire destroyed one of its plants. The underwriters of Green's insurance policy, all syndicates at Lloyd's of London ("Underwriters"), denied the claim, prompting Green to initiate this lawsuit. Pointing to an arbitration clause in the insurance policy, the district court declined to decide the parties' coverage dispute and granted Underwriters' motion to compel arbitration. Green then timely filed this appeal. As we will explain, this appeal presents a question of first impression in this circuit that turns on the interactions among Puerto Rico law, two federal statutes, and a multilateral treaty to which the United States is a party. For the following reasons, we affirm the judgment of the district court granting Underwriters' motion to compel arbitration and dismissing Green's claims without prejudice.

 

 

The arbitration clause provides: If the Insured and the Underwriters fail to agree in whole or in part regarding any aspect of this Policy, each party shall, within ten (10) days after the demand in writing by either party, appoint a competent and disinterested arbitrator and the two chosen shall before commencing the arbitration select a competent and disinterested umpire. The arbitrators together shall determine such matters in which the Insured and the Underwriters shall so fail to agree and shall make an award thereon, and if they fail to agree, they will submit their differences to the umpire and the award in writing of any two, duly verified, shall determine the same. The Parties to such arbitration shall pay the arbitrators respectively appointed by them and bear equally the expenses of the arbitration and the charges of the umpire.

 

 

Our analysis begins with the McCarran-Ferguson Act, Pub. L. No. 79-15, 59 Stat. 33 (1945) (codified at 15 U.S.C. §§1011–1015). Generally, a federal statute preempts any state law with which the federal statute directly conflicts. See PLIVA, Inc. v. Mensing, 564 U.S. 604, 617–18 (2011). The McCarran-Ferguson Act largely flips this general rule on its head as applied to conflicts between state laws regulating insurance and most acts of Congress. It states: "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance... unless such Act specifically relates to the business of insurance." 15 U.S.C. §1012(b).

 

 

The McCarran-Ferguson Act specifically defines "State" to include Puerto Rico. 15 U.S.C. §1015. (Fn. 2).

 

 

The Supreme Court "has long recognized the distinction between self-executing treaties that automatically have effect as domestic law, and non-self-executing treaties that--while they constitute international law commitments--do not by themselves function as binding federal law." Medellín, 552 U.S. at 504.

 

 

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 (the "Convention")—the multilateral treaty that Chapter II of the FAA "implements." See GE Energy Power Conversion Fr. SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637, 1644 (2020); 9 U.S.C. §201 ("The Convention shall be enforced in United States courts in accordance with this chapter.").

 

 

The text of the Convention makes plain that Article II (3) provides a clear "directive to domestic courts." Medellín, 552 U.S. at 508. Article II (3) by its express terms directly commands courts to channel arbitrable disputes to arbitration: "The court... shall... refer the parties to arbitration...."As the Ninth Circuit described, "This provision is addressed directly to domestic courts, mandates that domestic courts 'shall' enforce arbitration agreements, and 'leaves no discretion to the political branches of the federal government whether to make enforceable the agreement-enforcing rule it prescribes.'" CLMS Mgmt. Servs. Ltd. P'shipv. Amwins Brokerage of Ga., LLC, 8 F.4th 1007, 1013 (9th Cir. 2021) (quoting Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd's, London, 587 F.3d 714, 735 (5th Cir. 2009) (en banc) (Clement, J., concurring)), cert. denied, 142 S.Ct. 862 (2022). Based on this characterization, that court then concluded, "A straightforward application of the textual analysis outlined in Medellín compels the conclusion that Article II, Section 3 is self-executing...." Id.

 

 

(…) Green does not argue that insurance disputes generally constitute a subject that is not "capable of settlement by arbitration" under the Convention, and any such argument would be meritless. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 639 n. 21 (1985) ("Congress may specify categories of claims it wishes to reserve for decision by our own courts without contravening this Nation's obligations under the Convention. But we decline to subvert the spirit of the United States' accession to the Convention by recognizing subject-matter exceptions where Congress has not expressly directed the courts to do so."). (Fn. 7).

 

 

In sum, none of Green's arguments can overcome the self-executing nature of the plain text of Article II (3). That article, which is not an act of Congress, has the force of law and applies directly to preempt Puerto Rico law. We need not address whether Puerto Rico insurance law would reverse-preempt Chapter II of the FAA were Article II (3) non-self-executing.

 

 

The McCarran-Ferguson Act calls for reverse-preemption only of "Acts of Congress"; any policy preference expressed within it regarding state regulation of insurance does not bear on the relationship between state law and a self-executing treaty provision. And the policy considerations weigh strongly in favor of enforcement here, as "the emphatic federal policy in favor of arbitral dispute resolution... applies with special force in the field of international commerce." Mitsubishi Motors Corp., 473 U.S. at 631; see also id. at 629 ("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 require that we enforce the parties' arbitration agreement, even assuming that a contrary result would be forthcoming in a domestic context.").

 

 

For the foregoing reasons, the judgment of the district court is affirmed.

 

 

 

 

(U.S. Court of Appeals for the First Circuit, May 19, 2023, Green Enterprises, LLC v. Hiscox Syndicates Limited at Lloyd’s of London; XL Catlin Lloyd’s Syndicate 2003; Amlin Lloyd’s Syndicate 2001; Canopius Lloyd’s Syndicate 4444; Noa Lloyd’s Syndicate 3902; Blenheim Lloyd’s Syndicate 5886; Brit Lloyd’s Syndicate 2987/2988, Docket No. 21-1542)