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 Fifth Circuit, A&T Maritime Logistics v. RLI Insurance Co., Docket No. 23-30078

 

Insurance Law

 

Admiralty & Maritime Law

 

Breach of the Prompt Notice Requirement

 

Louisiana Law

 

 

 

RLI was actually prejudiced by the delayed notice from both A&T Maritime and Alexis Marine, as the damage worsened over time and the opportunity to settle for a lower amount was lost.

 

 

 

Appeal from the United States District Court for the Eastern District of Louisiana - USDC No. 2:21-CV-476.

 

 

 

A&T Maritime Logistics, Inc. had an insurance contract with RLI Insurance Company and a bareboat charter agreement with Alexis Marine, L.L.C. While A&T Maritime was operating the M/V Uncle John (a vessel owned by Alexis Marine), the ship allided with an embankment. Thinking the damage to be minimal, A&T Maritime did not remedy the situation. After a lawsuit was filed, RLI was notified of the claim. A&T Maritime and Alexis Marine filed claims against RLI requesting defense and ongoing indemnification for defense costs. RLI denied coverage under the insurance contract. On summary judgment, the district court upheld the denial. Because RLI was actually prejudiced by the delayed notice of a possible claim, we affirm.

 

 

(“An allision is defined as the ‘running of one ship upon another that is stationary—distinguished from collision.’ A collision is defined as ‘the action or an instance of colliding, violent encounter, or forceful striking together typically by accident and so as to harm or impede.’ Therefore, an allision occurs when a ship strikes a stationary object while a collision involves two moving vessels or objects.” Trico Marine Assets Inc. v. Diamond B Marine Servs. Inc., 332 F.3d 779, 786 n.1 (5th Cir. 2003). Fn. 1).

 

 

On March 10, 2020, while A&T Maritime was operating the Uncle John in the course of its work for Russell Marine, the Uncle John struck an embankment. The embankment fronts Bayou Black and the Gulf Intracoastal Waterway in Houma, Louisiana. At the time of the allision, the embankment was a portion of property belonging to Mildred Dampeer. A&T Maritime took some pictures of the resulting damage, but A&T Maritime “did not consider the allision to be significant.” A&T Maritime’s owner, Tayhika Manuel, engaged in discussions with Dampeer about resolving the issue. As part of these talks, A&T Maritime offered to send a repairman and offered payment of $3,500. According to Manuel’s deposition, the $3,500 was an agreed-upon amount. Dampeer later testified that she did not and would not have agreed to accept $3,500. Regardless, no payment was actually made, and the matter was “forgotten about more or less over a period of time.” On August 30, 2020 (over five months after the allision), Dampeer sent a letter to Manuel and attached an inspection of the embankment. In the letter, Dampeer expressed her concern that the damage resulting from the allision was worsening. Further, she stated, “I know you said you didn’t want to involve your insurance company. So please respond so we can keep the damage from getting worse.” Still, no settlement was reached, and A&T Maritime states that “the matter dropped for [sic] A&T’s radar until A&T was served with a lawsuit.”

 

 

Robert Champagne III and Elizabeth Champagne bought the property at issue from Dampeer. Based on an assignment in the purchase agreement, the Champagnes filed a lawsuit against A&T Maritime and Alexis Marine in personam and against the Uncle John in rem on March 8, 2021. The Champagnes also successfully moved for the arrest of the Uncle John. Alexis Marine filed a crossclaim against A&T Maritime and a third-party demand against RLI. A&T Maritime similarly filed a crossclaim against RLI requesting defense, indemnity, and ongoing reimbursement for defense costs. RLI was not notified about the allision until the lawsuit had been filed by the Champagnes. Once notified of the lawsuit, RLI filed counterclaims against A&T Maritime, Alexis Marine, and the Uncle John, seeking a declaration that, under the insurance policy, RLI had no duties to those parties for the incident at issue in the case.

 

 

The Champagnes’ claims were settled on November 18, 2021, for a settlement amount of $200,000. Alexis Marine was the sole party in this lawsuit to fund the settlement agreement with the Champagnes. 

 

 

This is likely because Alexis Marine had the strongest incentive to settle the case. As the owner of the Uncle John, Alexis Marine was losing potential revenue while the vessel was under arrest (Fn. 4).

 

 

(…) RLI argued, among other things, that the Uncle John was not a covered vessel under the insurance policy because only the Uncle Blue was listed on the policy. The district court disagreed and concluded that A&T Maritime and Alexis Marine correctly relied on the policy’s automatic attachment clause for coverage of the Uncle John.

 

 

Federal law generally “governs the interpretation of a policy of marine insurance.” Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 766 F.2d 195, 198 (5th Cir. 1985). If there is no federal statute or general maritime law on an issue, “the law of the state where the marine insurance contract was issued and delivered is the governing law.” Id. The parties agree that Louisiana law, which requires an insurer to demonstrate actual prejudice resulting from delayed notice before it can deny coverage on that ground, provides supplemental rules of decision here. See id. (applying the Louisiana rule).

“Where the requirement of timely notice is not an express condition precedent,” to deny coverage based on late notice, “the insurer must demonstrate that it was sufficiently prejudiced by the insured’s late notice.” Peavey Co. v. M/V ANPA 971 F.2d 1168, 1173 (5th Cir. 1992); see also Elevating Boats, 766 F.2d at 198 (stating that under Louisiana law, “an insurer must demonstrate that an insured's failure to comply with a notice of claim or proof of loss provision actually prejudiced its interest" before it can deny coverage under the policy).

(…) Elevating Boats, 766 F.2d 195. In that case, the insurer was not notified of the potential claim until two weeks before trial. Id. at 198. We held that this delay was prejudicial for three independent reasons. Id. at 199–200. First, the insurer lost the opportunity to negotiate a settlement.  Id. at 199. Second, the insurer was deprived of the chance to make a third-party demand. Id. at 199–200. Third, the insurer was denied “the basic opportunity to investigate adequately the facts and circumstances surrounding the accident.” Id. at 200.

 

The reasoning of Elevating Boats does not turn on the stage of litigation at which notice is given to the insurer. Instead, we simply evaluated whether the delay in notice prejudiced the insurer. Thus, A&T Maritime cannot merely point to earlier notice than that in Elevating Boats to make a successful argument.

(U.S. Court of Appeals for the Fifth Circuit, Feb. 4, 2025, A&T Maritime Logistics v. RLI Insurance Co., Docket No. 23-30078)

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, Camellia Grill Holdings, Inc. v. Upton Grill, L.L.C., Docket No. 18-30515

Sale of a Business, then

License Agreement

Trademark

Goodwill

Geographically Bounded Rights to Trademarks

Trade Dress

Breach of Contract

Louisiana Law

An attempt to simultaneously sell a restaurant and license associated intellectual property has led to ten years of litigation in state and federal court.

The Bill of Sale has a choice of law provision stating it is “governed by and construed in accordance with the laws of the State of Louisiana.”

Michael Shwartz and his family owned and operated the Camellia Grill restaurant on Carrollton Avenue (the “Carrollton restaurant”) for decades. He operated the business—the single restaurant—through a wholly owned corporation, Camellia Grill, Inc. In 1999, Shwartz formed CGH for the sole purpose of owning federally registered Camellia Grill trademarks.

In 2006, Shwartz agreed to sell the Carrollton restaurant to Hicham Khodr. On August 11, in the “Bill of Sale,” Shwartz sold to Uptown Grill, L.L.C. all his “right, title and interest in and to the . . . tangible property located within or upon” the Carrollton restaurant, including “all furniture, fixtures and equipment, cooking equipment, kitchen equipment, counters, stools, tables, benches, appliances, recipes, trademarks, names, logos, likenesses, etc., and all other personal and/or movable property . . . located within or upon the property.” On August 27, in the “License Agreement,” CGH licensed to The Grill Holdings, L.L.C. (“TGH”) the right to use certain defined “Marks.” These “Marks” included “all ‘Camellia Grill’ marks on file with the United States Patent and Trademark Office” and “all ‘trade dress’ associated with the ‘Camellia Grill’ Restaurant,” as well as blueprints, menus, and recipes. Section 5 of the License Agreement provides that the “Licensee acknowledges and agrees that all of the Licensor’s right, title and interest in and to the Marks shall remain the property of the Licensor.” The License Agreement also bound TGH’s affiliates and related companies.

(The marks are registered pursuant to the Lanham Act, 15 U.S.C. § 1051 et seq., which provides for federal trademark protection.)

Following state court litigation that ended in the termination of the License Agreement, Khodr filed a declaratory action to determine the parties’ respective rights in the Camellia Grill trademarks within or upon the Carrollton restaurant. Shwartz filed a separate action asserting trademark and trade dress infringement claims and breach of contract claims based on the continued use of Camellia Grill-related intellectual property following the termination of the License Agreement. The cases were consolidated.

(Shwartz and Khodr had previously signed a contract selling the Carrollton restaurant’s immovable property, which is not at issue.)
(The state court found that Khodr had breached the License Agreement and terminated that contract effective June 1, 2011. The Grill Holdings, L.L.C. v. Camellia Grill Holdings, Inc., 120 So. 3d 294 (La. Ct. App. 2013).)

The Bill of Sale conveyed all Shwartz’s “right, title and interest” to the “trademarks, names, logos, likenesses, etc. . . . located within or upon” the Carrollton restaurant. This court previously held that the Bill of Sale clearly “transfers to Uptown Grill the trademarks within or upon the Carrollton Avenue location.” Shwartz, 817 F.3d at 258. The question now is whether Shwartz retained any interest in the trademarks. He did not.

When interpreting a contract, “words of art and technical terms must be given their technical meaning.” LA. CIV. CODE ANN. art. 2047. “Trademark” is a technical term that must be given its technical meaning absent any other definition in the Bill of Sale. A trademark is a designation that identifies the source of goods and services and that has no independent significance separate from the goodwill of the business it symbolizes. As a technical matter, a trademark cannot be separated from the goodwill of a business. So, when an entire business is sold, as here, the goodwill and associated trademarks are necessarily transferred absent certain conditions not present here. Thus, the Bill of Sale unambiguously sold all rights to the Camellia Grill trademarks, and we cannot look to parol evidence to find otherwise.

“A trademark is merely a symbol of goodwill and has no independent significance apart from the goodwill that it symbolizes.” Sugar Busters LLC v. Brennan, 177 F.3d 258, 265 (5th Cir. 1999). A trademark “only gives the right to prohibit the use of it so far as to protect the owner’s good will” and so “cannot be sold or assigned apart from the goodwill it symbolizes.” Id.  So, trademarks are “incidents and appurtenances to businesses and trades. They have no independent existence . . . .” Holly Hill Citrus Growers’ Ass’n v. Holly Hill Fruit Prods., 75 F.2d 13, 15 (5th Cir. 1935); see United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 97 (1918) (holding that it is a “fundamental error to suppose that a trademark right is a right in gross or at large” and that there is “no such thing as property in a trademark except as a right appurtenant to an established business or trade in connection with which the mark is employed”). Put another way, “trademark rights do not exist in the abstract, to be bought and sold as a distinct asset.” Berni v. Int’l Gourmet Rest. of Am., Inc., 838 F.2d 642, 646 (2d Cir. 1988); see also Mister Donut of Am., Inc. v. Mr. Donut, Inc., 418 F.2d 838, 842 (9th Cir. 1969) (“The law is well settled that there are no rights in a trademark alone and that no rights can be transferred apart from the business with which the mark has been associated.”). “If an assignee of a trademark also buys the total associated business, including physical assets and such intangibles as trade secrets, formulas and customer lists, then there is no doubt that the assignee has acquired the ‘good will’ associated with the trademark it has purchased.” MCCARTHY ON TRADEMARKS & UNFAIR COMPETITION § 18:23 (5th ed. 2019). When a business is sold as a “going concern, trademarks and the good will of the business . . . are presumed to pass with the sale of the business.” Id. § 18:37 (calling this an “old and clear rule”).

Thus, trademark ownership and the related goodwill “impliedly pass with ownership of a business, without express language to the contrary.” Yellowbook Inc. v. Brandeberry, 708 F.3d 837, 844 (6th Cir. 2013). Moreover, to retain ownership after the sale of the business associated with the trademark, “the owner’s intent to resume producing substantially the same product or service must be manifest, some portion of the goodwill of the previous business must remain with the owner, and resumption of operations must occur within a reasonable time.” Berni, 838 F.2d at 647. When selling an entire business, the rights to associated trademarks are necessarily sold unless at least two conditions are met: (1) the contract expressly reserves some right and interest in the trademark, and (2) the seller retains some of the business’s goodwill. The latter condition is the most important, as no rights to trademarks can exist without the related goodwill.

No goodwill was expressly retained or remained to which otherwise free-floating trademark rights could attach, and Shwartz has never argued that he retained some part of the business’s goodwill. Without looking outside the four corners of the Bill of Sale, and given the technical understanding of the term “trademark,” the contract unambiguously transfers “all of Shwartz’s right, title, and interest” in the Camellia Grill trademarks.

It is of course possible to assign geographically bounded rights to trademarks. See MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 18:21 (5th ed. 2018) (“The sale of a geographically separate portion of a marketing business may be valid as a transfer of a separate and distinct goodwill.”). However, the validity of such an assignment relies on the premise that there exists another portion of the business with separate and distinct goodwill retained by the seller. See id. (citing Ky. Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 268 (5th Cir. 1977); Greenlon, Inc. of Cincinnati v. Greenlawn, Inc., 542 F. Supp. 890 (S.D. Ohio 1982); Cal. Wine & Liquor Corp. v. William Zakon & Sons, 8 N.E.2d 812 (Mass. 1937)). We have not been able to locate a case, and Shwartz points to none, where a trademark owner sells his sole business, assigns a related trademark only as to that single business location, and retains a right to use the trademark when no other business or portion of the business with goodwill symbolized by that trademark exists. The point is not that a geographically bounded right to a trademark can never be assigned. The point is that in the context of this transaction it could not.

Finding Khodr to be the owner of all trademark rights associated with Camellia Grill also comports with the policy of avoiding the fragmentation of trademark ownership. See  MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 16:40 (5th ed. 2018) (“When there is a dispute over who owns a trademark, the worst possible solution is to allow mark ownership to be shared among the warring parties.”). Finding that Shwartz retained some rights in the Camellia Grill trademarks would be contrary to a fundamental purpose of trademarks: identifying a single source of a product or service. This policy seems particularly applicable given the parties’ acrimonious and litigious history.

Shwartz argues that finding the Bill of Sale to have assigned all trademark rights to Khodr is in direct tension with the License Agreement. If Shwartz sold all trademark rights to Khodr in the Bill of Sale, then Shwartz could not turn around and license these rights in the License Agreement.

(…) Given that all parties have always treated it as valid. The parties appear to have made a mutual mistake as to a material, basic assumption upon which the License Agreement was made: that Shwartz had rights to license. Under Louisiana law, this would render the License Agreement “relatively null.” LA. CIV. CODE ANN. art. 2031. Such a contract may be enforced. And relative nullity “may be invoked only by those persons for whose interest the ground for nullity [such as mutual mistake] was established, and may not be declared by the court on its own initiative.” Because Khodr is not attempting to nullify the License Agreement, we will enforce it as far as possible. However, as this court previously held, the License Agreement does not supersede or modify the Bill of Sale. Shwartz, 817 F.3d at 258 n.2. Therefore, Shwartz cannot sustain his claims of trademark ownership on the basis of the License Agreement.

We affirm the district court’s ruling that the Bill of Sale assigned all Camellia Grill trademark rights to Khodr.


Trade Dress

Trade dress “refers to the total image and overall appearance of a product and may include features such as the size, shape, color, color combinations, textures, graphics, and even sales techniques that characterize a particular product.” Test Masters Educ. Svcs., Inc. v. State Farm Lloyds, 791 F.3d 561, 565 (5th Cir. 2015). It is “distinct from a ‘trademark’ or a ‘service mark,’” and has been extended to the “overall ‘motif’ of a restaurant.” Id. at 564–65. The Bill of Sale unambiguously transferred “all furniture and equipment Shwartz contends constitutes trade dress, . . . trademarks, names, logos, and likenesses, etc.” at the Carrollton restaurant. Shwartz necessarily transferred the right to use any trade dress that existed there.

We affirm the district court’s ruling that the Bill of Sale assigned the trade dress associated with the Carrollton restaurant. Moreover, no abstract rights to trade dress could remain following the sale of the entire business. It follows that the Bill of Sale assigned all Camellia Grill trade dress rights to Khodr, much as all the trademark rights were assigned.

(The district court found that the alleged elements of the trade dress include: (1) the “straw popping” routine, (2) U-shaped counters, (3) audible order calling routine, (4) pink and green wall scheme, (5) separate pie cases on the rear wall at both ends of the cooking line, (6) stainless steel stemmed stools with green cushions, (7) individual counter checks handed to each customer, and (8) fluted metal design under the counters and above the cooking line.)

Even though we find all putative trade dress rights were assigned to Khodr in the Bill of Sale, we must still determine whether the License Agreement afforded Shwartz any enforceable contract rights (question remanded).

Breach of Contract (Louisiana law)

Under Louisiana law, damages for a breach of contract “are measured by the loss sustained by the obligee and the profit of which he has been deprived.” LA. CIV. CODE ANN. art. 1995.

Secondary Sources: 
MCCARTHY ON TRADEMARKS & UNFAIR COMPETITION § 18:23 (5th ed. 2019)


(U.S. Court of Appeals for the Fifth Circuit, March 29, 2019, Camellia Grill Holdings, Inc. v. Upton Grill, L.L.C., Docket No. 18-30515)