Perini Corporation v. Orion Insurance Co., Civ. No. S-2023.

• Decision Date: 14 September 1971
• Docket Number: Civ. No. S-2023.
• Citation: 331 F. Supp. 453
• Court: U.S. District Court — Eastern District of California
• Parties: PERINI CORPORATION et al., Plaintiffs, v. ORION INSURANCE CO. Ltd., et al., Defendants.

331 F. Supp. 453

PERINI CORPORATION et al., Plaintiffs, v. ORION INSURANCE CO. Ltd., et al., Defendants.

Civ. No. S-2023.

United States District Court, E. D. California.

September 14, 1971.

Changaris, Trezza, Ithurburn, Keeley & Steidlmayer, Yuba City, Cal., Frank McDowell, Thelen, Marrin, Johnson & Bridges, San Francisco, Cal., for plaintiffs.

John F. Downey, Joseph S. Genshlea, Downey, Brand, Seymour & Rohwer, Sacramento, Cal., for defendants.

MEMORANDUM AND ORDER

MacBRIDE, Chief Judge.

This is an action for breach of an insurance contract brought by the insureds to recover damages in excess of $9 million. Although originally commenced in a state tribunal, it was removed to this Court on the basis of diversity of citizenship. See 28 U.S.C. §§ 1332, 1441. The question now to be decided is whether the following "service of suit" clause in the policy requires the action to be remanded to the Yuba County Superior Court, where it was first filed:

"It is agreed that in the event of the failure of the Insurers hereon to pay any amount claimed to be hereunder, the Insurers hereon, at the request of the Assured, will submit to the jurisdiction of any Court of competent jurisdiction within the United States of America and will comply with all the 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.

It is further agreed that service of process in such suit may be made upon:

SYMMERS, FISH and WARNER Attorneys 37 WALL STREET NEW YORK

and that in any suit instituted against any one of them upon this contract, the Insurers will abide by the final decision of such Court or of any Appellate Court, in the event of an appeal."

For several reasons to be discussed, the insurers contend that their obligation under the clause to "submit" to the jurisdiction of any court selected by the insured does not foreclose their right of removal.

THE ISSUE DEFINED

The meaning of the service of suit clause is generally clear. It purports to compel the insurer to submit to the forum chosen by a dissatisfied policy holder who sues to recover proceeds owing under the policy. While it does not in terms waive the insurer's right to remove to a federal forum, most courts have nonetheless determined that "submission" to a state forum is a waiver of the insurer's right to defend in federal court.¹ General Phoenix Corp. v. Malyon, 88 F.Supp. 502, 503 (S.D.N.Y. 1949); Euzzino v. London & Edinburgh Ins. Co., 228 F.Supp. 431 (N.D.No.Car. 1969). See also Wilson v. Continental Casualty Co., 255 F.Supp. 622 (Mont. 1966) and Oil Well Service Co. v. Underwriters at Lloyd's London, 302 F.Supp. 384, 385 (C.D.Cal.1969). With the conviction that it should prevail, I adhere to this accepted interpretation.

The author of this policy, Lloyd's of London, has known at least as early as the General Phoenix decision in 1949 that the clause prevents removal of state-initiated actions. Confronted wih repeated decisions following General Phoenix, Lloyd's and its associated underwriters can hardly claim that this interpretation comes as a surprise. If the courts have misconstrued the clause, Lloyd's has had ample opportunity to invoke the ultimate remedy, the drafter's pen. Until the clause is changed, therefore, the parties are entitled to expect that the clause now means what it has always meant — that "submission" to a state tribunal precludes removal to a federal court.

Although construed to prevent removal, the service of suit clause does not "oust" the Court of its jurisdiction, as the insurers apparently contend. No individual, whether by contract or otherwise, can deprive the Court of the jurisdiction which Congress confers upon it. So fundamental is this concept, in fact, that I am convinced of the Court's authority to hear this very action, despite an agreement apparently forbidding removal. The precept that individuals are powerless to control the Court's jurisdiction, however, should not obscure a competing consideration: whether the Court, by declining to exercise its jurisdiction, should enforce the agreement to litigate in a forum chosen by the insured. To this issue, not always clearly distinguished from the "ouster" concept, I now turn.

THE CLAUSE'S LEGALITY

With one exception, most federal courts have enforced service of suit clauses found to be fair and reasonable, thus remanding removed actions to the original state forums. General Phoenix Corp. v. Malyon, Euzzino v. London & Edinburgh Ins. Co., Wilson v. Continental Casualty Co., and Oil Well Service Co. v. Underwriters at Lloyd's London, supra; General Electric Co. v. City of Tacoma, 250 F.Supp. 125 (W.D.Wash. 1966). The case of Roberts v. Lexington Ins. Co., 305 F.Supp. 47 (E.D.No. Car.1969), a maverick decision voiding the clause as an "ouster" of jurisdiction, rests upon an unpersuasive rationale. The Roberts Court fails to perceive that the service of suit clause, far from ousting it of jurisdiction, merely presents it with a choice: to exercise its power or enforce the agreement, if fair and reasonable, to submit to the state forum. Based on what I believe to be an erroneous premise, Roberts does not convince me to reject the accepted rule.

In an effort to discredit decisions enforcing service of suit clauses, defendants observe that Muller & Co. v. Swedish American Line, 224 F.2d 806 (2nd Cir. 1955), upon which some of the opinions rely, has been overruled by Indussa Corp. v. S.S. Ranborg, 377 F.2d 200 (2nd Cir. 1967). For at least two reasons, the argument fails to score. First, Indussa overruled Muller on a narrow ground, that a clause in a maritime contract requiring suit to be brought in a particular foreign country conflicts with an overriding provision of the Carriage of Goods by Sea Act which forbids agreements "lessening a carrier's liability."² It did not review or disturb the alternate ground in Muller that contracts limiting lawsuits to particular courts are valid if reasonable. Muller's overruling, therefore, is not a revulsion of the principle that reasonable forum selection clauses are enforceable. Geiger v. Keilani, 270 F.Supp. 761 (E.D. Mich.1967). Furthermore, the first link in the chain of decisions upholding service of suit clauses, General Phoenix Corp. v. Malyon, was forged long before the Muller decision and thus stands independently of it.

The decision that service of suit clauses are enforceable falls somewhat within the shadow of Home Ins. Co. v. Morse, 20 Wall. 445, 87 U.S. 445, 22 L.Ed. 365 (1874), a century-old opinion of the Supreme Court declaring in dictum that agreements prohibiting removal are void. The Court's conclusion that such agreements are illegal ousters of federal jurisdiction, however, is unpersuasive under modern removal procedure. In those days, a party wishing to remove an action to a federal court had to present his removal petition to the state tribunal, which thus determined whether the agreement deprived the federal court of jurisdiction. If the state court denied removal, the only realistic option was to submit to the state court and hope for a reversal on appeal. Ignoring the state action or litigating in both state and federal courts at the same time, although potential alternatives, were in practice unavailable. See Wright, Law of Federal Courts ¶ 40.

Notable in the old procedure are two features which perhaps explain the Court's concern with the agreement: (1) the question of the contract's validity lay in the first instance not with the federal court whose jurisdiction was challenged, but with the state tribunal, and (2) the practical effect of a decision upholding the agreement forced the potential federal litigant into state court. Combined with the explicit language of the clause preventing removal, these two features closely approached a true ouster of federal jurisdiction which the Supreme Court naturally condemned. Under...