5556 Gasmer Mgmt. LLC v. Underwriters at Lloyd's

• Decision Date: 29 May 2020
• Docket Number: Civil Action No. 19-cv-00974
• Citation: 463 F.Supp.3d 785
• Parties: 5556 GASMER MANAGEMENT LLC, Plaintiff, v. UNDERWRITERS AT LLOYD'S, LONDON, et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

463 F.Supp.3d 785

5556 GASMER MANAGEMENT LLC, Plaintiff,

v.UNDERWRITERS AT LLOYD'S, LONDON, et al., Defendants.

Civil Action No. 19-cv-00974

United States District Court, S.D. Texas, Houston Division.

Signed May 29, 2020

Matthew R. Pearson, Gravely Pearson LLP, San Antonio, TX, for Plaintiff.

Jeremy Heath Coffman, Carter L. Ferguson, Backett and Ellis PC, Fort Worth, TX, for Defendants Certain Underwriters at Lloyd's London Subscribing Severally to Certificate No. AMR-54038-02, Indian Harbor Insurance Company, QBE Specialty Insurance Company, Steadfast Insurance Company, General Security Indemnity Company of Arizona, United Specialty Insurance Company, Lexington Insurance Company, Old Republic Union Insurance Company.

Scott Allen Shanes, Sarah Nichols Wariner, Strasburger Price LLP, Jennifer Ann Justice, Jeremy Robert Wallace, Clark Hill Strasburger, Frisco, TX, for Defendant AmRisc, LLC.

Thomas B. Alleman, Kyle Allen Owens, Dykema Cox Smith, Dallas, TX, for Defendant US Risk, LLC.

MEMORANDUM AND ORDER COMPELLING ARBITRATION AND STAYING LITIGATION

Charles Eskridge, United States District Judge This is an insurance coverage dispute. The subject policy contains an arbitration agreement. Before the Court are three motions to compel arbitration by two categories of defendants. The Insurer Defendants are signatories to the policy, and their motion is granted. Dkt. 12. The Broker Defendants are not, and their motions are denied. Dkts. 14, 18.

All claims in this litigation are stayed until the arbitral proceedings conclude in their entirety.

1. Background

This case arises out of damage caused by Hurricane Harvey to a property located in Houston, Texas. Plaintiff 5556 Gasmer Management LLC takes its name from the address and sought coverage under its commercial insurance policy.

The Insurer Defendants are Certain Underwriters at Lloyd's, London Subscribing Severally to Certificate No AMR-54038-02, Indian Harbor Insurance Co., QBE Specialty Insurance Co., Steadfast Insurance Co., General Security Indemnity Co. of Arizona, United Specialty Insurance Co., Lexington Insurance Co., and Old Republic Union Insurance Co. They issued the subject policy and are signatories to it along with Plaintiff.

The Broker Defendants are AmRisc LLC and US Risk LLC. The developed and placed the policy and are not signatories to it.

Plaintiff's insurance policy contains an arbitration agreement with the following delegation clause:

All matters in difference between the Insured and the Companies (hereinafter referred to as "the parties") in relation to this insurance, including its formation and validity, and whether arising during or after the period of this insurance, shall be referred to an Arbitration Tribunal in the manner hereinafter set out.

Dkt. 1-1 at 37. The agreement elsewhere provides that the arbitration tribunal will consist of persons "employed or engaged in a senior position in Insurance underwriting or claims." Ibid. Such arbitration is to occur in New York applying New York law. Id. at 38.

Plaintiff commenced this action in February 2019, alleging that the Insurer Defendants wrongfully denied coverage after failing to reasonably investigate its claim. They face claims for declaratory judgment, breach of contract, violations of the Texas Insurance Code, and bad faith.

Plaintiff also alleges that the Broker Defendants deceived it when placing the insurance policy. Plaintiff asserts that when they "prepared a proposal" for the policy now at issue, they "failed to disclose and/or intentionally omitted" disclosure that the policy "includes a unique and extremely onerous Arbitration Clause." Dkt. 1-11 at 9. It pursues claims under Texas Insurance Code §§ 541.051 and 541.061 for "misrepresenting by omission." Ibid.

This matter was transferred to this Court in November 2019. Dkt. 29.

2. Analysis

The motions to compel arbitration are brought by both signatories and nonsignatories to the insurance policy. Legal standards as pertinent to each category are set out within the analysis that follows.

a. Arbitrability of claims against the signatory Insurer Defendants

Plaintiff does not dispute that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards governs this arbitration agreement. Congress implemented the Convention via the Convention Act. 9 USC § 201 et seq. The Convention Act incorporates the Federal Arbitration Act to the extent that the FAA does not conflict with the Convention Act or the Convention as ratified by the United States. See 9 USC § 208 ; see also Freudensprung v. Offshore Technical Services, Inc. , 379 F.3d 327, 339 (5th Cir. 2004) (citations omitted).

Review of arbitration agreements governed by the Convention is quite limited, and the Fifth Circuit has established a rather straightforward framework for analysis. A court must compel arbitration if:

• There is a written agreement to arbitrate the matter;

• The agreement provides for arbitration in a Convention signatory nation;

• The agreement arises out of a commercial legal relationship; and

• A party to the agreement is either not an American citizen or a reasonable connection exists between the parties’ commercial relationship and a foreign state that is independent of the arbitration clause itself.

Id. at 339, 341 (citations omitted).

No party disputes that each of these is present here. The pertinent insurance policy establishes a commercial legal relationship and contains an expansive arbitration agreement. Arbitration is to be seated in the United States in New York. And some of the Insurer Defendants are foreign entities.

The Convention and Convention Act almost uniformly require the district court to order arbitration once it determines that these requirements are met. Freudensprung , 379 F.3d at 339. The only exceptions are provided in the Convention itself—where the arbitration agreement is found to be "null and void, inoperative or incapable of being performed." Convention, Article II(3); see also Freudensprung , 379 F.3d at 339, citing Sedco, Inc. v. Petroleos Mexicanos Mexican National Oil Co. (Pemex) , 767 F.2d 1140, 1146 (5th Cir. 1985).

Plaintiff's argument isn't exactly clear, initially lumping all three exceptions together after assertion that the arbitration agreement is "unconscionable." Dkt. 16 at 2. But later argument focuses on the null and void clause, by which Plaintiff seeks to strike the arbitration agreement from the policy as "unconscionable and null and void as to public policy and thus, unenforceable under Texas law." Id. at 6. This is so, says Plaintiff, because the agreement specifies that the arbitration tribunal must be composed of persons employed in senior positions in insurance underwriting or claims, seated in New York and applying New York law, with strict limitations set as to the available categories of damages and recoverable costs. Id. at 2–3 (summary of arguments appearing at 7–18). Contrary to those express terms in its insurance policy, Plaintiff argues that it is entitled to trial before a jury in Texas applying Texas law, with the ability to seek punitive, multiple, and consequential damages.

The Southern District of Texas rejected a similar line of argument in Simon v. Princess Cruise Lines, Ltd. with respect to arbitral limitations on that plaintiff's claims and remedies under the Jones Act. 2014 WL 12617820 (S.D. Tex.). Judge Atlas there determined that the null and void clause is limited to standard breach-of-contract defenses capable of being applied neutrally on an international scale—such as fraud, mistake, duress, waiver, and the like. 2014 WL 12617820, *3 (S.D. Tex.), citing Bautista v. Star Cruises , 396 F.3d 1289, 1302 (11th Cir. 2005), and DiMercurio v. Sphere Drake Insurance, PLC , 202 F.3d 71, 79 (1st Cir. 2000) ; see also Freudensprung , 379 F.3d at 341. Plaintiff does not allege that the arbitration agreement or its delegation provision was obtained through any of these means. The exceptions set out in the Convention thus do not apply.

As to the merits of Plaintiff's public policy arguments, their resolution does not precede the reference to arbitration but instead follows as a permissible challenge to the tribunal's award at the conclusion of those proceedings. See Simon , 2014 WL 12617820 at *3, citing Lindo v. NCL (Bahamas), Ltd. , 652 F.3d 1257, 1262 (11th Cir. 2011). The Convention Act textually provides for assertion of challenges to an arbitral award after those proceedings conclude. It states, "The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention." 9 USC § 207. Article V of the Convention in turn lists seven defenses that courts may consider on proceedings to recognize and enforce an arbitral award, with one concerning situations where "recognition and enforcement of the award would be contrary to the public policy" of the country in which recognition and enforcement are sought. Convention, Article V(2). As such, the Court declines to provide any view now on the merits of Plaintiff's assertions about the requirements of Texas law. The tribunal should instead make its own independent review of any issues presented without prior influence.

To the extent Plaintiff calls into question the breadth of the delegation clause in the parties’ arbitration agreement, the Southern District of Texas earlier this year considered this exact clause and determined that it submits all disputes including validity to arbitration. See Bhandara Family Living Trust v. Underwriters at Lloyd's, London , 2020 WL 1482559, *4 (S.D. Tex.). And two district courts from outside this circuit have also recently examined this clause and reached the same conclusion. See Ytech 180 Units Miami Beach Investments LLC v. Certain Underwriters at Lloyd's, London , 359 F. Supp. 3d 1253, 1266 (S.D. Fla. 2019) ; Corpus Christi ISD v. Amrisc, LLC , 2019 WL 2051696, *3 (E.D.N.Y.).

This Court agrees that all means just that—a...