Ensco Intern. v. Certain Underwriters at Lloyd's

• Decision Date: 12 August 2009
• Docket Number: No. 08-10451.,08-10451.
• Citation: 579 F.3d 442
• Parties: ENSCO INTERNATIONAL, INCORPORATED, Plaintiff-Appellee, v. CERTAIN UNDERWRITERS AT LLOYD'S and Insurance Companies Subscribing to Policy Numbers and Cover Notes PE0500247, LDC070105(B), LCD070105(A), and B0621ELOEN0105; BC Johnson Associates, LLC; and Bryan Johnson, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

579 F.3d 442

ENSCO INTERNATIONAL, INCORPORATED, Plaintiff-Appellee, v. CERTAIN UNDERWRITERS AT LLOYD'S and Insurance Companies Subscribing to Policy Numbers and Cover Notes PE0500247, LDC070105(B), LCD070105(A), and B0621ELOEN0105; BC Johnson Associates, LLC; and Bryan Johnson, Defendants-Appellants.

No. 08-10451.

United States Court of Appeals, Fifth Circuit.

August 12, 2009.

David Wallace Holman (argued), Holman Law Firm, PC, Michael J. Maloney, Maloney, Martin & Associates, Houston, TX, for Plaintiff-Appellee.

Chester Joseph Makowski, Royston Rayzor, Harold K. Watson (argued), Christopher Benjamin Dove, Locke, Lord, Bissell & Liddell, L.L.P., Houston, TX, for Defendants-Appellants.

Appeal from the United States District Court for the Northern District of Texas.

Before JOLLY, SMITH and OWEN, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

This case arises from a dispute over insurance policies (the "Policies") issued by the defendants (collectively, the "Underwriters") to plaintiff ENSCO International, Inc. ("ENSCO"). The sole issue is whether the Policies contain a waiver of the right to remove the case to federal court. Concluding that there is a waiver, we affirm the district court's order of remand.

I. Background

During Hurricane Katrina, an offshore drilling rig owned by ENSCO and insured by the Underwriters sustained serious damage. The Underwriters paid for the constructive total loss of the rig but not for the removal of debris from the rig that fell to the sea floor near a platform owned by another company. ENSCO, asserting that the Policies covered that removal, sued the Underwriters in state court in Dallas County, consistent with the Policies' forum selection clause (titled "Choice of Law & Jurisdiction"), which provides, "The proper and exclusive law of this insurance shall be Texas law. Any disputes arising under or in connection with it shall be subject to the exclusive jurisdiction of the Courts of Dallas County, Texas."

The Underwriters removed the matter to federal court, asserting removal rights under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"). See 9 U.S.C. § 205.¹ ENSCO moved to remand, asserting that the forum selection clause, by establishing "exclusive" jurisdiction, effected a waiver of the right to remove. The district court granted the motion, and the Underwriters appeal.

II. Analysis.

This appeal hinges on construction of the Policies' forum selection clause. We consider first, the relevant standard for waiver, and second, the application of that standard.

A. The McDermott Standard.

"For a contractual clause to prevent a party from exercising its right to removal, the clause must give a `clear and unequivocal' waiver of that right." City of New Orleans v. Mun. Admin. Servs., Inc., 376 F.3d 501, 504 (5th Cir.2004). The New Orleans court cited McDermott International, Inc. v. Lloyds Underwriters, 944 F.2d 1199 (5th Cir.1991), one of very few federal cases addressing waiver of removal rights under the Convention, for the clear-and-unequivocal standard. Id.² There are three ways in which a party may clearly and unequivocally waive its removal rights: "[1] by explicitly stating that it is doing so [2] by allowing the other party the right to choose venue, or [3] by establishing an exclusive venue within the contract." New Orleans, 376 F.3d at 504.

The Underwriters claim, however, that under McDermott only the first of those methods is applicable in the Convention context. In effect, they propose a "magic words" approach to waiver. The McDermott court, however, never stated that it would reject purported waivers that do not incant the specific words that the Underwriters claim are required. The Underwriters rely instead on a literal reading of the McDermott court's use of the words "explicit" and "express" in explaining its waiver standard. Because all waivers that do not use the term "waive" or "remove" are by definition "implicit," the Underwriters say, there is no waiver here.³

The McDermott court's choice of terms does not bear the weight that the Underwriters apply. Contrary to the Underwriters' reading, the court actually formulated its waiver test in several ways, using a number of terms and phrases. In fact, the McDermott court used the terms "explicit," "express," "unambiguous," and "clear and unequivocal" almost interchangeably.⁴ These words, of course mean different things, and none of them demands the reading that the Underwriters urge.⁵ To understand the McDermott standard, we must therefore consider the McDermott court's actual reasoning, and a close reading of McDermott shows that the Underwriters misunderstand the standard it articulates. Although waiver must be clear and unequivocal, it may be implicit where necessary to give effect to all contractual provisions.

1. The McDermott Contract.

McDermott's precise holding is not that Convention removal waivers must contain magic words, as the Underwriters claim, but merely that the following language from the contract's "service of suit clause" was insufficient to waive the right of removal to federal court of the particular question being litigated:

It is agreed that in the event of the failure of Underwriters hereon to pay any amount claimed to be due hereunder, Underwriters hereon, at the request of the Assured will submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such court.

McDermott, 944 F.2d at 1200 (citations omitted). That provision — because it allowed one party to select a venue — superficially appears consistent with the second of the three New Orleans bases for waiver, but it is not explicit.

If the McDermott court had required actual reference to "waiver" and "removal," the analysis of the McDermott contract would have been straightforward: The court could merely have decided that because no such reference was present, there was no waiver. But the McDermott court did not do so; quite to the contrary, it began its analysis by observing that "[w]hen a policy's service-of-suit clause applies, its probable effect is to waive the insurer's removal rights." Id. at 1204-05 (citing Nutmeg, 931 F.2d at 15-16). The McDermott court, in other words, would have considered accepting a waiver based on the second ground used in New Orleans, notwithstanding the fact that such a waiver would have been implicit.

Other aspects of the contract, however, persuaded the McDermott court that the service-of-suit clause did not in fact constitute a waiver and that the contract's apparent consistency with the second New Orleans basis was illusory. The venue question in McDermott was venue for "disputes concerning the proper forum to decide arbitrability questions." Id. at 1205. That question, though, was covered not only by the service-of-suit clause but by a potentially "co-equal forum selection clause" governing venue for arbitration. The McDermott contract was therefore ambiguous, and the service-of-suit clause did not answer the venue question. Id.

The court also observed that the service-of-suit clause could be read as a waiver of personal jurisdiction only, therefore leaving open the possibility of subsequent removal.⁶ The court reasoned as follows:

Underwriters' exercise of its federal removal right is not necessarily inconsistent with any of its obligations under the service-of-suit clause. Underwriters may remove a case after submitting to the jurisdiction of Louisiana's courts and complying with all necessary requirements to give Louisiana's courts power over the suit. There would be no final decision in that court for Underwriters to abide by if it exercised its removal right. All matters would be determined in accordance with the practice and law of the court chosen by McDermott in the sense that all state courts follow the removal law established by Congress.

Id. at 1206. Not only was the McDermott contract's service-of-suit clause ambiguous with respect to venue, but the venue selected in accordance with it would not be exclusive.

In short, instead of merely relying on the contract's lack of explicit references to waiver and venue, the McDermott court showed, in great detail, that the contract did not plainly set a venue at all and could in fact permit invocation of federal removal from a state venue. The Underwriters' proposed rule would treat that discussion as redundant. It is evident, nonetheless, that the McDermott court found no waiver — not because the other bases for waiver later set out in New Orleans were inapplicable, but because they were not satisfied.⁷

2. McDermott and Nutmeg.

The McDermott court then considered and rejected an analogy to Nutmeg — a case not involving the Convention — in which a similar contractual provision was deemed to waive removal. The Nutmeg contract had only a single forum selection clause reading:

[W]e, at your request agree to submit to the jurisdiction of any Court of Competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such court.

Nutmeg, 931 F.2d at 14. That language, of course, also resembles the second of the three New Orleans bases for waiver of removal, but it is neither "explicit" nor "express." The McDermott court — if it had adopted the rule that the Underwriters urge — could easily have distinguished Nutmeg just by pointing this out and explaining that although an implied waiver was adequate in Nutmeg, it could never be enough in the context of the Convention. Instead, the court demonstrated that although the Nutmeg contract was unambiguous, the McDermott contract was not.

The McDermott court, 944 F.2d at...