Milmar Food Grp. II, LLC v. Applied Underwriters, Inc.

61 Misc.3d 812

85 N.Y.S.3d 347

MILMAR FOOD GROUP II, LLC, Milmar Food Group, LLC and Milmar LLC, Plaintiffs,

v.APPLIED UNDERWRITERS, INC., Applied Underwriters Captive Risk Assurance Company, Inc., Applied Risk Services, Inc., Applied Risk Services of New York, Inc., North American Casualty Company, Continental Indemnity Company, and California Insurance Company, Defendants.

EF003101-2017

Supreme Court, Orange County, New York.

Decided on September 24, 2018

For Plaintiffs: Andrew S. Lewner, Esq., Westerman Ball Ederer Miller Zucker & Sharfstein LLP, Uniondale, New York

For Defendants: Shand S. Stephens, Esq., Anthony P. Coles, Esq., Joseph Alonzo, Esq., DLA Piper LLP (US), New York, New York

Catherine M. Bartlett, J.

It is ORDERED that the motion is disposed of as follows: Plaintiffs (collectively, "Milmar") are affiliated New York companies, engaged in the production and distribution of food products, which are required by New York law to provide workers compensation insurance for their employees. Defendants provide products and services in connection with workers compensation insurance coverage. Beginning in 2013, Milmar was covered under a workers compensation program (the "EquityComp Program") created, patented and implemented by Defendants.

There are essentially three components to this Program:

(1) Standard workers compensation insurance policies issued to Milmar by defendants Continental Indemnity Company ("Continental") and California Insurance Company ("California"), with rates and forms approved by New York's Department of Financial Services or its predecessor, the New York Insurance Department;

(2) A reinsurance agreement (the "Reinsurance Treaty") between defendant Applied Underwriters Captive Risk Assurance Company, Inc. ("AUCRA") and affiliates of defendant Applied Underwriters, Inc. ("AU"), including Continental and California; and

(3) A "Reinsurance Participation Agreement " ("RPA") between AUCRA and Milmar.

Milmar commenced this action, complaining that the RPA is illegal and fraudulent, and seeking inter alia a declaratory judgment that the RPA is void and unenforceable under the New York Insurance Law, equitable rescission of the RPA and money damages for sums paid under the RPA in excess of premiums due under the Continental and California insurance policies.

Defendants move, inter alia , (1) to dismiss Milmar's claims against AUCRA on the ground that the RPA designates the courts of Nebraska as the exclusive forum for resolving "any matter concerning this Agreement that is not subject to the dispute resolution provisions of Paragraph 13 hereof,"¹ and (2) to dismiss Milmar's claims against all remaining Defendants on the ground that AUCRA is a necessary party who cannot be joined in this New York action.

I. THE NEBRASKA FORUM SELECTION CLAUSE

A. The Issues on Defendants' Motion

Defendants move pursuant to CPLR § 3211(a)(1) (i.e. , on the basis of documentary evidence) to dismiss Milmar's claims against AUCRA on the ground that the RPA designates the courts of Nebraska as the exclusive forum for resolving "any matter concerning this Agreement that is not subject to the dispute resolution provisions of Paragraph 13 hereof disputes concerning the Agreement."

Milmar, in opposition, contends that (1) Nebraska law, not New York law, governs the enforceability of the RPA's forum selection clause; (2) the forum selection clause is unenforceable under Nebraska's Choice of Forum Act, Neb.Rev.St. § 25-414 ; (3) Milmar's claims are not within the scope of the RPA's forum selection clause; (4) the forum selection clause should be set aside on the ground of fraudulent inducement; (5) due process concerns preclude enforcement of the Nebraska forum selection clause against Milmar; and (6) AUCRA is collaterally estopped from enforcing the Nebraska forum selection clause.

B. The Legal Standard Governing Defendant's CPLR 3211(a)(1) Motion

CPLR § 3211(a)(1) provides that "[a] party may move for judgment dismissing one or more causes of action asserted against him on the ground that a defense is founded upon documentary evidence." "A contractual forum selection clause is documentary evidence...that may provide a proper basis for dismissal pursuant to CPLR 3211(a)(1)." Lischinskaya v. Carnival Corp. , 56 A.D.3d 116, 123, 865 N.Y.S.2d 334 (2d Dept. 2008), lv denied 12 N.Y.3d 716, 2009 WL 1851758 (2009) ; Landmark Ventures, Inc. v. Birger , 147 A.D.3d 497, 48 N.Y.S.3d 315 (1st Dept. 2017). "[A] dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense as a matter of law." Leon v. Martinez , 84 N.Y.2d 83, 88, 614 N.Y.S.2d 972, 638 N.E.2d 511 (1994) ; Walker, Truesdell, Roth & Associates, Inc. v. Globeop Financial Services LLC , 43 Misc. 3d 1230(A), 2013 WL 8597474 at *4 (Sup. Ct. NY Co. 2013).

C. The RPA's Choice of Law and Forum Selection Provisions

The RPA provides in pertinent part as follows:

14. Participant hereby irrevocably and unconditionally submits to the exclusive jurisdiction of the Courts of Nebraska for the purpose of enforcing any arbitration award rendered hereunder and all other purposes related to this Agreement, and agrees to accept service of process in any case instituted in Nebraska related to this Agreement and further agrees not to challenge venue in Nebraska provided such process is delivered in accordance with the applicable rules for service of process then in effect in Nebraska........

16. This Agreement shall be exclusively governed by and construed in accordance with the laws of Nebraska and any matter concerning this Agreement that is not subjectto the dispute resolution provisions of Paragraph 13 hereof shall be resolved exclusively by the courts of Nebraska without reference to its conflict of laws.

D. Which State's Law Governs?

"It is well-settled policy of the courts of this State to enforce contractual provisions for choice of law and selection of a forum for litigation." Boss v. American Express Fin. Advisors, Inc. , 15 A.D.3d 306, 307, 791 N.Y.S.2d 12 (1st Dept. 2005), aff'd 6 N.Y.3d 242, 811 N.Y.S.2d 620, 844 N.E.2d 1142 (2006). See also , Culbert v. Rols Capital Co. , 184 A.D.2d 612, 613, 585 N.Y.S.2d 67 (2d Dept. 1992) (citing Freedman v. Chemical Constr. Corp., 43 N.Y.2d 260, 265, 401 N.Y.S.2d 176, 372 N.E.2d 12 (1977) ). New York courts will enforce a foreign choice of law provision so long as the chosen forum bears a reasonable relation to the agreement and the enforcement of a foreign rule of law does not violate a fundamental public policy of New York. See, Boss v. American Express Fin. Advisors, Inc., supra ; Culbert v. Rols Capital Co., supra ; Gambar Enterprises, Inc. v. Kelly Services, Inc. , 69 A.D.2d 297, 303, 418 N.Y.S.2d 818 (4th Dept. 1979). Nebraska, as the principal place of business of AUCRA, one of the contracting parties, clearly bears a reasonable relation to the RPA. Neither party has asserted, much less demonstrated, that Nebraska law violates this State's fundamental public policy. Hence, the RPA's Nebraska choice-of-law provision is enforceable in this action.

Nebraska law imported via the RPA's choice-of-law provision applies to "substantive" issues only:

"Under common law rules matters of procedure are governed by the law of the forum" ( Martin v. Julius Dierck Equip. Co. , 43 N.Y.2d 583, 588 [403 N.Y.S.2d 185, 374 N.E.2d 97 (1978) ]...). "On the other hand, matters of substantive law fall within the course chartered by choice of law analysis" ( Tanges v. Heidelberg N. Am. , 93 N.Y.2d 48, 53 [687 N.Y.S.2d 604, 710 N.E.2d 250 (1999) ]...). New York courts therefore apply contractual choice of law clauses only to substantive issues (see Sears Roebuck & Co. v. Enco Assoc. , 43 N.Y.2d 389, 397 [401 N.Y.S.2d 767, 372 N.E.2d 555 (1977) ]...).

Education Resources Institute, Inc. v. Piazza , 17 A.D.3d 513, 794 N.Y.S.2d 65 (2d Dept. 2005). See also , USA India Export Import, Inc. v. Coca-Cola Refreshments USA, Inc. , 46 Misc. 3d 1215(A), 2015 WL 442028 at *7 (Sup. Ct. Westchester 2015).

As the Court in USA India Export Import, Inc., supra , observed, "[t]here is a division in authority as to whether the law of the forum chosen pursuant to a choice of law clause governs the enforceability of the forum selection clause." Id. , 46 Misc. 3d 1215(A) at *7. It "appeared" to that Court on the basis of federal caselaw that "the rule is that ‘questions of venue and the enforcement of forum selection clauses are essentially procedural, rather than substantive, in nature,’ " wherefore it applied New York law in determining the enforceability of a Georgia forum selection clause in a contract with a Georgia choice-of-law provision. Id. , at *7-8.² See also, New York Trans Harbor LLC v. Derektor Shipyards Conn., LLC , 19 Misc. 3d 1134(A), 2008 WL 2097566 at *2-3 (Sup. Ct. Kings Co. 2008) (per the same federal caselaw, applying New York law to determine enforceability of English forum selection clause in contract with English choice-of-law provision). Another New York court, addressing a contract with New Jersey choice-of-law and forum selection provisions, held to the contrary that New Jersey law, not New York law, must be used to determine the meaning and enforceability of the contract's forum selection clause. See , Compunnel Software Group, Inc. v. Spectrasoft Technologies, Inc. , 21 Misc. 3d 1129(A), 2008 WL 4900618 at *1-2 (Civ. Ct. City of NY 2008).

The case at bar is only further complicated by the fact that the parties' agreement to a Nebraska choice-of-law provision effectively incorporated in the RPA Neb.Rev.Stat. § 25-414, a Nebraska statute which specifically concerns the enforcement of forum selection clauses. See , Woodmen of the World Life Ins. Society v. Puccio , 1 Neb. App. 478, 482, 499 N.W.2d 85 (Ct. App. 1993), overruled on other grounds by Woodmen of the World Life Ins. Society v. Yelich , 250 Neb. 345, 351, 549 N.W.2d 172 (1996). However, Nebraska courts have not definitively determined whether the law of the forum or the law...