Kinder Morgan La. Pipeline Llc v. Welspun Gujarat Stahl Rohren Ltd.

752 F.Supp.2d 772

KINDER MORGAN LOUISIANA PIPELINE LLC, Plaintiff,

v.WELSPUN GUJARAT STAHL ROHREN LTD., Welspun Global Trade LLC, and Latex Construction Company, Defendants.

Civil Action No. H–10–2813.

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

Nov. 5, 2010.

Edmund Lee Haag, III, Jason Edward Williams, Fulbright Jaworski LLP, Houston, TX, for Plaintiff.Philip L. Blum, Richard S. Taffet, Bingham McCutchen LLP, New York, NY, Thomas E. Kuhnle, Bingham McCutchen LLP, East Palo Alto, CA, Richard Austin Schwartz, Schwartz Junell et al., Carl David Kulhanek, Jr., Scott G. Burdine, Hagans Burdine et al., Houston, TX, for Defendants.

MEMORANDUM OPINION AND ORDER OF REMAND

SIM LAKE, District Judge.

On August 6, 2010, Third–Party Defendant, LNM Marketing FZE removed this action from the 11th Judicial District Court of Harris County, Texas, where it was pending under No.2009–54103. Pending before the court are Welspun's Motion to Remand (Docket Entry No. 19), and Kinder Morgan Louisiana Pipeline LLC's Motion to Remand and Alternatively Motion to Sever and Remand (Docket Entry No. 20). For the reasons explained below, the motions to remand will be granted and this action will be remanded to state court for lack of subject matter jurisdiction.

I. Factual and Procedural Background

On August 24, 2009, plaintiff, Kinder Morgan Louisiana Pipeline LLC (“KMLP”), filed an action in state court against defendant, Welspun Gujarat Stahl Rohren Ltd. (“Welspun”), for breach of contract. KMLP alleged that pipe manufactured by Welspun in India used to construct a natural gas pipeline in Louisiana was defective. Welspun responded by filing counterclaims against KMLP, and a third-party petition seeking declaratory judgment that the entity or entities that supplied the steel used to manufacture the allegedly defective pipe were the proximate cause of KMLP's alleged injuries, and that the third-party defendants are contractually obligated to indemnify Welspun for any losses—including attorneys' fees—it incurs as a result of KMLP's claims.

On July 22, 2010, Welspun filed an Amended Third–Party Petition naming as defendants ArcelorMittal, LNM Marketing FZE, and ArcelorMittal Galati S.A. Welspun alleged that ArcelorMittal is a Luxembourg corporation with its principal place of business in Luxembourg, that LNM Marketing FZE (“LNM”) is a wholly-owned subsidiary of ArcelorMittal that maintains its home office in Dubai, United Arab Emirates, and that ArcelorMittal Galati S.A. is a wholly-owned subsidiary of ArcelorMittal that maintains its principal place of business in Galati County, Romania. Welspun alleged that all of the third-party defendants “have acted as a single entity and/or as agents or alter egos of each other, including in connection with the transaction of business in Texas and this jurisdiction, such that disregard of the corporate structure is necessary to avoid injustice and inequity.” ¹

On August 6, 2010, LNM filed its Notice of Removal (Docket Entry No. 1) pursuant to 9 U.S.C. § 205 and 28 U.S.C. § 1441(c). On September 3, 2010, Welspun filed a motion to remand (Docket Entry No. 19), and on September 7, 2010, KMLP filed a motion to remand and, alternatively, a motion to sever (Docket Entry No. 20), contending that neither 9 U.S.C. § 205 nor 28 U.S.C. § 1441(c) provides the court subject matter jurisdiction over this action.

II. Removal Standard

A defendant has the right to remove a case to federal court when federal jurisdiction exists and the removal procedure is properly followed. See Manguno v. Prudential Property and Casualty Insurance Co., 276 F.3d 720, 723 (5th Cir.2002) (citing 28 U.S.C. § 1441). The removing party bears the burden of establishing that a state court suit is removable to federal court. Id. (citing De Aguilar v. Boeing Co., 47 F.3d 1404, 1408 (5th Cir.), cert. denied, 516 U.S. 865, 116 S.Ct. 180, 133 L.Ed.2d 119 (1995). To determine whether there is removal jurisdiction, the claims in the state court petition are considered as they existed at the time of removal. Manguno, 276 F.3d at 723. Doubts about the propriety of removal are to be resolved in favor of remand. See In re Hot–Hed Inc., 477 F.3d 320, 323 (5th Cir.2007) (per curiam)).

III. Analysis

LNM contends that 9 U.S.C. § 205 and 28 U.S.C. § 1441(c) provide subject matter jurisdiction because the contract on which Welspun's claims are based contains a mandatory arbitration clause requiring that any dispute related to the contract be arbitrated by the London Court of International Arbitration in accordance with the UNCITRAL Arbitration Rules. LNM explains that

9. Section 205 of Title 9 authorizes the removal of any action or proceeding pending in state court to federal court if the subject matter of the action or proceeding “relates to an arbitration agreement” falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. An arbitration agreement falls under the Convention when it is not between citizens of the United States and it arises “out of a legal relationship, whether contractual or not, which is considered as commercial.” 9 U.S.C. § 202. Here, the arbitration agreement arises out of a commercial contract between Welspun, an Indian entity, and LNM Marketing FZE, an Emirati entity. Because this suit relates to an arbitration agreement that falls under the Convention, removal is authorized.

10. Under § 1441(c), a defendant may remove an entire case, including the otherwise non-removable claims or causes of action, if a “separate and independent claim or cause of action” within the Court's federal-question jurisdiction under 28 U.S.C. § 1331 has been asserted. Here, Welspun's claims against Third–Party Defendants are separate and independent claims from those asserted by Kinder Morgan. And those claims are subject to the Court's federal-question jurisdiction because they fall within the scope of the New York Convention, 9 U.S.C. § 201 et seq.²

A. Applicable Law

LNM contends that federal question and removal jurisdiction exist for the claims asserted in Welspun's third-party petition pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the Convention”). The Convention was negotiated in 1958 and entered into by the United States in 1970. 9 U.S.C. § 201 (note). The Fifth Circuit has explained that

Congress ratified the Convention in 1970 to provide United States citizens predictable enforcement of arbitral contracts in foreign courts. Signatories to the Convention agree that they will enforce written agreements to submit disputes to arbitration. Signatories also agree that they will enforce the judgments of arbitrators.

Beiser v. Weyler, 284 F.3d 665, 666 n. 2 (5th Cir.2002). The same year that the United States entered the Convention, Congress adopted enabling legislation for it, 9 U.S.C. §§ 201–208.

Section 203 grants federal courts jurisdiction over cases involving arbitration agreements that fall under the Convention. That section provides:

An action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States (including the courts enumerated in section 460 of title 28) shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.

9 U.S.C. § 203.

Section 202 sets forth the standards that courts apply in determining whether an arbitration agreement falls under the Convention. Section 202 provides:

An 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. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States.

9 U.S.C. § 202. See Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898, 903 (5th Cir.2005) (describing Fifth Circuit's four-part test for determining if an arbitration agreement falls under the Convention).

Section 205 permits removal of a state court case to federal court when the claims in the state court proceeding “relate to” an arbitration agreement “falling under the Convention.” Section 205 provides:

Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal. For the purposes of Chapter 1 of this title any action or proceeding removed under this section shall be deemed to have been brought in the district court to which its removed.

9 U.S.C. § 205 (emphasis added). To determine if removal has been properly effected under this section a court need only examine the face of the complaint or the removal notice, without an inquiry into the merits or substantive evidence. Beiser, 284 F.3d at 671–72.B. Application of the Law to the Facts

Welspun and KMLP both argue that remand is required because neither 9 U.S.C. § 205, nor 28 U.S.C. § 1441(c) provides jurisdiction for...