Next Level Hosp. LLC v. Indep. Specialty Ins. Co.

666 F.Supp.3d 604

NEXT LEVEL HOSPITALITY LLC v. INDEPENDENT SPECIALTY INSURANCE CO.

CASE NO. 2:21-CV-04240

United States District Court, W.D. Louisiana, Lake Charles Division

Signed March 31, 2023

Matthew Martin Mize, Robichaux Mize et al., Lake Charles, LA, Matthew Bond Pettaway, Taylor Porter et al., Lake Charles, LA, Jessie Braud Callahan, John Mark Fezio, Rajan Pandit, Pandit Law Firm, New Orleans, LA, for Next Level Hospitality LLC.

Rebecca Mansell, Pro Hac Vice, Adrien Rafael Lorrain, Rolfes Henry, Biloxi, MS, for Independent Specialty Insurance Co.

MEMORANDUM ORDER

JAMES D. CAIN, JR., UNITED STATES DISTRICT JUDGE

Before the Court is "Defendant's Motion to Compel Arbitration" (Doc. 30) filed by Independent Specialty Insurance Company ("ISIC"). ISIC moves to stay the instant litigation in order to arbitrate the parties' dispute in Nashville, Tennessee.¹

INTRODUCTION

The suit involves an insurance dispute between a domestic insured and a single domestic surplus insurer for damages caused by Hurricanes Laura and Delta. Plaintiff, Next Level Hospitality, LLC owns a multi-purpose commercial property located in Lake Charles, Louisiana.² On or about August 27, 2020, Hurricane Laura made landfall near Lake Charles. On or about October 9, 2020, Hurricane Delta made landfall near Lake Charles.³ During the relevant time period, ISIC insured Next Level's property; the policy was a surplus line coverage under the Insurance Code of the State of Louisiana.⁴

LAW AND ANALYSIS

Next Level filed its original Complaint for Damages on December 9, 2021.⁵ The case is set for trial on October 2, 2023. ISIC filed the instant Motion for Arbitration on March 10, 2023.

ISIC relies on the following Arbitration Clause in the subject policy:

All matters in dispute between you and us (referred to in this policy as "the parties") in relation to this insurance, including this policy's formation and validity, and whether arising during or after the period of this insurance, shall be referred to an Arbitration Tribunal in the manner described below.⁶

ISIC also relies on the what it suggests is a similar case involving a surplus lines insurer and policy, Certain Underwriters at Lloyd's v. Belmont Commons L.L.C., No. 2:22-cv-3874, 2023 WL 105337, 2023 U.S. Dist. LEXIS 1521 (E.D. La. January 3, 2023), In Belmont, the court compelled arbitration of a Hurricane Ida claim even though the Plaintiff attempted to avoid the policy's arbitration provision. As noted by Next Level, the Belmont case as well as the majority of the cases cited by ISIC involved foreign insurers.⁷ Such is not the cases here; ISIC is a domestic insurer.

ISIC argues that the Arbitration Clause must be enforced under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention") because ISIC, as a surplus lines carrier, is specifically exempted from the prohibitions of Louisiana Revised Statute § 22:868. Conversely, Next Level relies on a very recent ruling in Bufkin Enterprises, LLC v. Indian Harbor Insurance Co., et al., Civil action 2:21-4017, 2023 WL 2393700 (W.D. La. Mar. 7, 2023), wherein this Court denied defendant's motion to compel arbitration, concluding that the arbitration clause at issue is reverse-preempted by Louisiana Revised Statute § 22:868(A)(2).

The Court herein recites, in relevant part, that analysis as follows:

Louisiana law prohibits arbitration agreements in insurance policies covering property within the state. La. R.S. § 22:868(A)(2). Under the McCarran-Ferguson Act, state laws regulating insurance are shielded from the preemptive effect of federal law. 15 U.S.C. §§ 1011, 1012. Accordingly, McCarran-Ferguson allows state laws like Louisiana Revised Statute section 22:868(A)(2) to "reverse-preempt" the Federal Arbitration Act's provisions on the enforceability of insurance agreements. See, e.g., Am. Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490 (5th Cir. 2006). However, this "reverse preemption" applies only to "Acts of Congress" and not to treaties. Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd's, London, 587 F.3d 714, 723 (5th Cir. 2009). The [Convention] is one such treaty and requires signatory nations to " 'recognize an agreement in writing under which the parties undertake to submit to arbitration' their dispute 'concerning a subject matter capable of settlement by arbitration.' " Id. at 719 (quoting Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. II(1), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3). State insurance law thus has no impact on arbitration agreements arising under the Convention. Id. at 723-24; see also McDonnel Group, LLC v. Great Lakes Ins. Branch SE, UK Branch, 923 F.3d 427 (5th Cir. 2019).

The Convention

Here, ISIC argues that the Convention applies because the Delegation Clause of the Arbitration Clause requires an Arbitration Panel, specifically referring to the above quoted provision of the Arbitration Clause.

ISIC argues that the delegation clauses are enforceable and transfer the court's power to decide arbitrability questions to the arbitrator. ISIC also relies on the 1983 Supreme Court case of Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) for the proposition that the United States, as evidenced by the FAA, has a strong, liberal policy favoring arbitration agreements. In 2022, the Supreme Court clipped the wings of the oft quoted "strong federal policy favoring arbitration" created by the FAA, explaining that the FAA's policy only makes arbitration agreements as enforceable as other contracts, but not more so, and does not permit federal courts to devise novel rules to favor arbitration over litigation. Morgan v. Sundance, Inc., 596 U.S. 411, 142 S. Ct. 1708, 1712-13, 212 L.Ed.2d 753 (2022) ("Nine circuits, including the Eighth, have invoked "the strong federal policy favoring arbitration" in support of an arbitration-specific waiver rule demanding a showing of prejudice. Two circuits have rejected that rule. We do too."). Accordingly, arbitration provisions within a contract are on equal footing with other provisions and obtain no talismanic effect from the FAA.

In the Fifth Circuit, "a court should compel arbitration if (1) there is a written agreement to arbitrate the matter; (2) the agreement provides for arbitration in a Convention signatory nation; (3) the agreement arises out of a commercial legal relationship; and (4) a party to the agreement is not an American citizen." Freudensprung v. Offshore Tech. Servs., Inc., 379 F.3d 327, 339 (5th Cir. 2004) (collecting cases) (internal quotations omitted).

ISIC also briefly raises the theory of equitable estoppel. In Bufkin, this Court determined that equitable estoppel was not warranted. The Court discussed the reasoning in the Fifth Circuit's holding in Grigson v. Creative Artists Agency L.L.C., which adopted the Eleventh Circuit's intertwined-claims test allowing a nonsignatory to compel arbitration under equitable estoppel in situations. 210 F.3d 524, 527 (5th Cir. 2000). The first situation when equitable estoppel applies is

when the signatory to a written agreement containing an arbitration clause must rely on the terms of the written agreement in asserting its claims against the nonsignatory. When each of a signatory's claims against a nonsignatory makes reference to or presumes the existence of the written agreement, the signatory's claims arise out of and relate directly to the written agreement, and arbitration is appropriate.

Id. As to the second [estoppel] Grigson situation,

equitable estoppel is warranted when the signatory to the contract containing an arbitration clause raises allegations of substantially interdependent and concerted misconduct by both the nonsignatory and one or more of the signatories to the contract. Otherwise the arbitration proceedings between the two signatories would be rendered meaningless and the federal policy in favor of arbitration effectively thwarted.

Grigson, 210 F.3d at 527. In Grigson, a non-insurance, non-Convention case, the Fifth Circuit determined that the plaintiffs' claims in two actions "are intertwined with, and dependent upon, the distribution agreement, including, but not limited to, Defendants (non-signatories) and TriStar (non-defendant signatory) being charged with interdependent and concerted misconduct." Id. at 531. The Court pointed out that although the signatory was no longer a defendant, having been dismissed without prejudice from an earlier action, the current action and the earlier action "are the same. In essence, [the signatory] is a defendant." Id. at 530. Here, however there is no foreign signatory.

Likewise, in Port Cargo, under the second Grigson situation, the court compelled arbitration holding that "[a]llowing plaintiffs to proceed in court against the domestic insurers while simultaneously proceeding in arbitration against the foreign insurers would render meaningless the arbitration clause and thwart the intentions of the Convention and the federal policy in favor of arbitration." Port Cargo Service, LLC v. Certain Underwriters at Lloyd's London, 2018 WL 4042874, at *7 (E.D. La. Aug. 24, 2018). There the plaintiffs "allege[d] that the[ ] insurers all breached the terms of the policy together through the shared adjustor" and those insurer defendants included both nonsignatory domestic insurers and signatory foreign insurers. 2018 WL 4042874, at *7. Again, there is no foreign signatory here.

Accordingly, the Court is not inclined to apply the doctrine of equitable estoppel, and arbitration can only be compelled through the FAA. The Court thus considers whether clauses are reverse preempted by Louisiana Revised Statutes § 22:868.

Reverse-preemption

Louisiana Revised Statutes § 22:868 states:

A. No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state, or any group health and

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