Green Enters. v. Dual Corp. Risks
| Decision Date | 15 June 2021 |
| Docket Number | CIVIL NO. 20-1243 (JAG) |
| Parties | GREEN ENTERPRISES, LLC, Plaintiff, v. DUAL CORPORATE RISKS LIMITED, et al., Defendants. |
| Court | U.S. District Court — District of Puerto Rico |
GARCIA-GREGORY, D.J.
After removal from state court, Co-defendants—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; and Brit Lloyd's Syndicate 2987/2988 (collectively, "Underwriters")—moved to compel arbitration and dismiss Count I of the Complaint. See Docket Nos. 1; 2; 3. Plaintiff Green Enterprises, LLC ("Plaintiff") opposed both motions and moved to remand for lack of subject matter jurisdiction. Docket No. 7. Underwriters replied and Plaintiff sur-replied. Docket Nos. 9; 11.
The issue before the Court is two-sided. On one end, the Court must determine whether it has federal subject matter jurisdiction to compel arbitration of Plaintiff's claims, despite the current dispute relating to the business of insurance, which is generally "reverse-preempted" by state laws in light of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-15 ("MFA"). On the other, the Court must determine if the 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"), and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. §§ 201-208 ("FAA"), trump the MFA, thus making the arbitration clause at issue enforceable. To both inquiries, the Court concludes in the affirmative. This is because the MFA cannot enable Puerto Rico's Insurance Code to reverse-preempt a treaty like the Convention, or the FAA itself. Further, the Court concludes that the arbitration provision invoked by Underwriters is valid and applicable.
As such, Underwriters' Motion to Compel Arbitration is GRANTED, Plaintiff's claims against Underwriters are DISMISSED WITHOUT PREJUDICE, and Plaintiff's Motion to Remand is DENIED. Underwriter's Motion to Dismiss Count 1 is also DENIED as moot since all claims have been dismissed.1
On April 23, 2020, Plaintiff commenced a state court action against Underwriters, who are Insurer Syndicates of Lloyd's of London, as well as their local coverholder and representatives in Puerto Rico, alleging breach of an insurance contract and requesting declaratory judgment. Docket No. 1-3. Plaintiff alleges it obtained an international insurance policy (the "Policy") from Underwriters that covered the loss of or damage to its property in Puerto Rico, and additional expenses incurred in such a case. Id. at 5; see Docket No. 1-4. The Policy covered the period betweenOctober 22, 2019 and October 22, 2020. Id. at 1. On November 14, 2019, a fire destroyed the insured property and, consequently, Plaintiff submitted a coverage claim to Underwriters. Id. at 6. On April 20, 2020, Underwriters denied the claim alleging that Plaintiff misrepresented facts when negotiating the Policy. Docket No. 1-5. Underwriters also invoked the Policy's arbitration clause if Plaintiff elected to challenge the denial. Id.3
Plaintiff now seeks (1) to declare the Policy applicable and the arbitration clause null in light of Puerto Rico's Insurance Code, which proscribes arbitration provisions in insurance policies (Count I); (2) for Underwriters to pay the amount covered by the Policy (Count II); and (3) for Underwriters to pay the damages arising from the negligent and fraudulent breach of the Policy (Count III). Docket No. 1-3 at 9-11.
On May 26, 2020, Underwriters removed the state action to this Court pursuant to the Convention and the FAA, alleging that the case involves, inter alia, the enforcement of an arbitration clause between a foreign and an American citizen. Docket No. 1. Underwriters also filed a Motion to Compel Arbitration, contending that the Convention and the FAA both mandate arbitration of this dispute under the Policy's arbitration clause. Docket No. 2 at 5-8. Likewise,they moved for dismissal of Count I, arguing that both the Convention and the FAA preempt Puerto Rico's Insurance Code. Id. at 9-11; see also Docket No. 3 at 5.
On June 11, 2020, Plaintiff filed an omnibus opposition and motion to remand. Docket No. 7. Plaintiff argues that this Court lacks subject matter jurisdiction to compel arbitration because the MFA carves out "an exception to the general rule of federal preemption when a state law at conflict with federal law regulates the business of insurance." Id. at 3. It also argues that "because the Convention [and the FAA] does not specifically relate to the business of insurance, it is reverse preempted by the Puerto Rico Insurance Code," which contains an anti-arbitration provision.4 Id. at 4. Underwriters replied by citing case law finding that the MFA does not permit state insurance laws to reverse-preempt the Convention and the FAA because these (1) stem from an international treaty which trumps conflicting state or federal laws, and (2) fall outside of the MFA's applicability. Docket No. 9 at 9-12.
Pursuant to 28 U.S.C. § 1441(a), "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." See also City of Chi. v. Int'l. Coll. of Surgeons, 522 U.S. 156, 163-64 (1997) (citation omitted). The removing party bears the burden of showing that removal is proper. See Danca v. Private Health Care Sys., 185 F.3d 1, 4 (1st Cir. 1999) (citation omitted).
Federal law establishes a strong policy favoring arbitration. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006). Congress passed the FAA "[t]o overcome judicial resistance to arbitration . . . and place[] arbitration agreements on equal footing with all other contracts." Id. at 443; see also Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 551 (1st Cir. 2005) (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)). Ordinarily, a written agreement to arbitrate in "a contract evidencing a transaction involving commerce . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. As written, "the [FAA] leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (citing 9 U.S.C. §§ 3, 4). The federal policy favoring arbitration is so strong that the Supreme Court has interpreted the FAA to preempt contrary state law since it "withdrew the power of the States to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." Southland Corp. v. Keating, 465 U.S. 1, 10 (1984).
A party seeking to compel arbitration must establish "that a valid agreement to arbitrate exists, that the movant is entitled to invoke the arbitration clause, that the other party is bound by that clause, and that the claim asserted comes within the clause's scope." InterGen N.V. v. Grina, 344 F.3d 134, 142 (1st Cir. 2003).
Chapter 2 of the FAA, 9 U.S.C. §§ 201-08, implements and enforces the Convention, which was established "to provide standard procedures for the recognition and enforcement of private arbitration agreements entered into in fellow contracting states, and to recognize and enforce arbitral awards issued in such states." Brian A. Britz and César Mejía-Dueñas, Which Law Is Supreme? The Interplay Between the New York Convention and The McCarran-Ferguson Act, 74 U. MIAMI L. REV. 1124, 1128 (2020). In other words, the Convention, in its Articles II and III, requires signatories to "(1) recognize and enforce written agreements to submit disputes to non-domestic arbitration, and (2) enforce non-domestic arbitral awards entered in contracting states." Id.
Contrary to Chapter 1 of the FAA, which does not contain an independent grant of subject matter jurisdiction for domestic arbitration, Chapters 2 confers federal question jurisdiction upon district courts regardless of the amount in controversy. See 9 U.S.C. § 203. "An action or proceeding falling under the Convention shall be deemed to arise under the Constitution, laws or treatises of the United States." Ledee v. Ceramiche Ragno, 528 F. Supp. 243, 245 (D.P.R. 1981), aff'd, 684 F.2d 184 (1st Cir. 1982) (quoting 9 U.S.C. § 203). Like here, such arbitration-related action may be removed to federal court pursuant to 9 U.S.C. § 205. Chapter 2 also provides that a court "may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States." Id. § 206. Furthermore, "[a]n arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention." Id. § 202 (emphasis added).
To determine if a dispute "falls under the Convention," the First Circuit requires considering the following: (1) Is there a written arbitration agreement?; (2) Does it provide for arbitration in the territory of a Convention signatory?; (3)...
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