Charter Oak Oil Company, Inc. v. Applied Underwriters, Inc. et al
ORDER setting forth reasons for denial of 13 Motion to Dismiss. Signed by Judge Stefan R. Underhill on 9/12/2017. (Schneider, K)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
CHARTER OAK OIL CO., INC. d/b/a
AIELLO HOME SERVICES,
No. 3:17-cv-00689 (SRU)
APPLIED UNDERWRITERS, INC., et al.,
RULING AND ORDER
In this diversity action, the plaintiff, Charter Oak Oil Co., d/b/a Aiello Home Services
(“Aiello”), alleges that its workers’ compensation insurer, Applied Underwriters, Inc.
(“Applied”) and its affiliates, are liable for multiple violations of Connecticut insurance, unfair
trade practice, and securities laws. The underlying dispute in this case involves a series of
insurance and reinsurance contracts between Aiello and the defendants. One of the disputed
contracts contains a mandatory forum selection clause requiring the parties to bring all suits in
the State of Nebraska. Applied and its co-defendants, which are corporations based in Nebraska,
Iowa, and California, have moved to enforce the forum selection clause by dismissing this case
or, in the alternative, by transferring it to the agreed forum, the United States District Court for
the District of Nebraska. Aiello opposes the motion, arguing that Nebraska law precludes the
enforcement of forum selection clauses that impose an unreasonable inconvenience on the
On August 7, 2017, I held oral argument on the defendants’ motion to dismiss or transfer.
For the reasons detailed below, that motion is denied.
Standard of Review
The defendants brought their original motion to dismiss for improper venue under Rule
12(b)(3) of the Federal Rules of Civil Procedure. Def.’s Mot. Dismiss, Doc. No. 13. Rule
12(b)(3) is an inappropriate method to enforce forum selection clauses when the plaintiff’s
chosen venue otherwise satisfies 28 U.S.C. § 1391. See Atl. Marine Const. Co. v. U.S. Dist. Ct.
for W. Dist. of Tex., 134 S. Ct. 568, 578 (2013). The defendants not make any arguments in
support of Rule 12(b)(3) dismissal in their brief; they appears to exclusively pursue transfer
under 28 U.S.C. § 1404(a) or dismissal under forum non conveniens in the alternative. See Def.’s
Br., Doc. No. 13-1.
A valid forum selection clause may be enforced through transfer to another federal
district court under section 1404(a) if the destination forum is another federal district, or by
dismissal under forum non conveniens if the movant seeks transfer to a state or foreign
jurisdiction. Atl. Marine, 134 S. Ct. at 579–80. The distinction between forum non conveniens
dismissal and section 1404(a) transfer is a procedural formality because the two mechanisms
share a common doctrinal foundation. See Atl. Marine, 134 S. Ct. at 580 (“Section 1404(a) is
merely a codification of the doctrine of forum non conveniens . . . [it] ‘did not change “the
relevant factors” which federal courts used to consider under the doctrine of forum non
conveniens’.” (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 37 (1988) (Scalia, J.
dissenting))). The legislative intent of section 1404(a), however, strongly weighs against outright
dismissal when there is an alternative federal forum to which the case could be transferred. See
Atl. Marine, 134 S. Ct. at 580 (“[When] the transferee forum is within the federal court
system . . . Congress has replaced the traditional remedy of outright dismissal with transfer.”);
Piper Aircraft Co. v. Reyno, 454 U.S. 235, 253–54 (1981) (Congress intended section 1404(a) as
a “housekeeping measure” with a “remedial purpose” to allow “easy change of venue within a
unified federal system”); Norwood v. Kirkpatrick, 349 U.S. 29, 32 (1955) (“Congress, in writing
[section] 1404(a) . . . was revising as well as codifying. The harshest result of the application of
the old doctrine of forum non conveniens, dismissal of the action, was eliminated by the
provision in [section] 1404(a) for transfer.”).
In evaluating motions to dismiss or transfer based on forum selection clauses, a district
court typically relies on pleadings and affidavits from the parties. Martinez v. Bloomberg LP,
740 F.3d 211, 216 (2d Cir. 2014) (citing Phillips v. Audio Active Ltd., 494 F.3d 378, 384 (2d Cir.
2007)). For reasons discussed infra, courts applying section 1404(a) generally give “controlling
weight” to any valid forum selection clauses that parties include in a written agreement. Atl.
Marine, 134 S. Ct. at 579.
The underlying dispute in this case concerns a novel insurance product known as
“EquityComp” provided by Applied and its affiliates: California Insurance Company (“CIC”),
Applied Risk Services (“ARS”), and Applied Underwriters Captive Risk Assurance Company,
Inc. (“AUCRAC”).1 Applied marketed the EquityComp program to businesses throughout
Connecticut as a workers’ compensation insurance plan that would deliver substantial cost
savings to insureds as long as workplace injury claims were minimized. Compl. at ¶ 10, Doc. No.
1-1; Notice of Removal at 8, Ex. C, Doc. No. 1-3. In November 2013, Aiello sought to purchase
workers’ compensation insurance through Sinclair Insurance Group, a Connecticut-based broker.
Pl.’s Br. at 3, Doc. No. 16. Applied provided Aiello with a proposal for the EquityComp
Applied is a Nebraska company with a principal place of business in Omaha, Nebraska. Compl. at ¶ 2, Doc. No. 11. AUCRAC is an Iowa company with a principal place of business in Cedar Rapids, Iowa. Id. at ¶ 4. ARS is a
Nebraska company with a principal place of business in Omaha, Nebraska. Id. at ¶ 6. CIC is a California company
with a principal place of business in Omaha, Nebraska. Id. at ¶ 8. Of all the defendants, only CIC was authorized by
the Connecticut Department of Insurance to issue workers’ compensation insurance policies in Connecticut. Id. at ¶
program. Id. After reviewing that proposal, Aiello requested that Sinclair issue a binder of
workers’ compensation insurance coverage through Applied. Id. Michael Jezouit, Aiello’s
president, executed a formal binder request November 14, 2013. Notice of Removal at 13, Ex. C,
Doc. No. 1-3. In that binder request, Jezouit acknowledged that the issuance of insurance by
Applied or its affiliates was contingent on Aiello’s execution of a supplemental “Reinsurance
Participation Agreement” (“RPA”). Id. Jezouit executed the RPA with AUCRAC on November
14, 2013. Def.’s Mot. Dismiss at 5, Ex. B, Doc. No. 13-4 (hereinafter “RPA Contract”). CIC
issued its first workers’ compensation policy to Aiello on November 15, 2013. Notice of
Removal at 2, Ex. D, Doc. No. 1-4.
Applied structured the EquityComp program as a traditional workers’ compensation
policy coupled with a reinsurance facility in which the policyholder was required to participate.
Notice of Removal at 8, Ex. C, Doc. No. 1-3. Aiello’s traditional workers’ compensation policy
was written by CIC, who was the only Applied affiliate that was licensed to sell and issue
insurance policies in the State of Connecticut. RPA Contract at 4, Doc. No. 13-4; see also
discussion supra note 1. AUCRAC, the administrator of the reinsurance facility, entered into a
treaty with CIC to reinsure losses under Aiello’s workers’ compensation policy. RPA Contract at
4, Doc. No. 13-4. AUCRAC, through the RPA, simultaneously entered into an agreement with
Aiello that obligated Aiello to provide funding for a “segregated protected cell” within
AUCRAC’s reinsurance facility. Id.
The network of agreements had the practical effect of making Aiello act as its own
reinsurer. Unlike traditional reinsurance mechanisms, the funds in Aiello’s segregated cell were
not pooled with those of similar cells funded by other EquityComp policyholders. Id. Aiello’s
basic obligation under the RPA was to apply the funds from its segregated cell toward the losses
accrued under its own CIC workers’ compensation policy, up to 128% of a predetermined annual
“Loss Pick Containment Amount.”2 Id. at 9. There were three primary ways in which the
segregated cell would be funded. First, Aiello was responsible for maintaining “capital deposits”
in the cell equal to 10% of the Loss Pick Containment Amount. Id. Second, AUCRAC would
help fund the segregated cell by periodically allocating a partial refund of “excess” premiums3
paid by Aiello to CIC; that amount was calculated quarterly according to a complex formula in
which the total collected premiums were adjusted by factors that reflected Aiello’s loss activity. 4
Id. at 9–10. Finally, if Aiello’s capital deposits and AUCRAC’s premium allocations were
insufficient to cover the policy’s aggregate losses (up to the 128% threshold), Aiello was
responsible for providing additional capital deposits into the segregated cell to make up the
difference. Id. The RPA designated ARS as the “billing agent” with responsibility for “tru[ing]
up” any amounts owed among the parties. Id. at 5. Applied acted as the overall administrator of
the EquityComp program, issuing monthly statements that documented Aiello’s current policy
costs and the estimated total costs to be incurred at the end of the three-year program. Compl. at
¶ 27, Doc. No. 1-1.
Aiello enrolled in the EquityComp program for a three-year term. Notice of Removal at
13, Ex. C, Doc. No. 1-3. During that period, CIC issued three one-year insurance policies; Aiello
For example, the first year estimated Loss Pick Containment Amount calculated by AUCRAC was $422,699. RPA
Contract at 12, Doc. No. 13-4. Therefore, Aiello would have been directly responsible for maintaining sufficient
funds in its segregated cell to satisfy claims against its own workers’ compensation policy up to 128% of that
amount — approximately $541,054. See id. at 9.
Applied marketed the refund mechanism as a “profit sharing program” that provided an opportunity for the
policyholder to achieve substantial cost savings over traditional workers’ compensation insurance premiums, as long
as the policyholder had few claims. See Notice of Removal at 10–12, Ex. C, Doc. No. 1-3.
One of the adjustment factors was a “Loss Development Factor” (“LDF”) that fluctuated according to the age of
the claim. See RPA Contract at 11, Doc. No. 13-4. In general, a higher LDF was assigned to claims that had been
recently opened. See id. Claims with high LDFs would result in a higher “Exposure Group Adjustment Factor,”
which would ultimately reduce the premium refund into Aiello’s segregated cell, requiring Aiello to make additional
capital deposits to meet its RPA obligations. See id. at 9–10.
renewed its coverage on November 15, 2014 and November 15, 2015. Jezouit Aff. at ¶¶ 7–8,
Doc. No. 16-1. During its three years of participation in EquityComp, Aiello paid all premiums
due through a monthly electronic funds transfer from its Connecticut bank account. Id. at ¶ 10.
For the first two years, Aiello appears to have had no disputes regarding its premium payment
obligations under the EquityComp program. See Compl. at ¶¶ 25–31, Doc. No. 1-1. In April
2016, Aiello received a statement from Applied assessing an additional premium charge of
$195,786.52, and reporting total estimated costs nearly $200,000 higher than the previous
month’s total cost estimate. Id. at ¶ 32. Aiello was “shocked” by the additional premium charge
and questioned the increased premium through its insurance advisor. Id. at ¶ 34. Applied
responded that the extra premium charge was due to the application of a LDF5 to a previously
closed claim that had been reopened. The LDF used by Applied was allegedly higher than any
figure that Aiello had contemplated, because it did not appear in any of the EquityComp quote
materials. Id. at ¶ 35. Aiello attempted to cancel its policy, but Applied informed the company
that there would be financial penalties for early cancellation. Id. at ¶¶ 37–38. Aiello decided to
complete the policy term and made arrangements with Applied to pay the outstanding premium
balance via an installment plan. Id. at ¶ 40–41. To implement the payment plan, Applied offered
Aiello a promissory note for $54,886.52, which Aiello executed. Id. at ¶ 41.
Aiello did not renew its EquityComp coverage following the expiration of the three-year
term on November 15, 2016. Jezouit Aff. at ¶ 15, Doc. No. 16-1. In December 2016, Aiello
received a statement from Applied demanding $264,277 in unpaid premiums. Id. On December
15, 2016, Applied attempted to electronically transfer funds from Aiello’s bank account in the
amount of $264,677.38. Id. at ¶ 16; Compl. at ¶ 50, Doc. No. 1-1. Aiello placed a hold on its
See discussion supra note 4 for a discussion of LDFs and their role in the RPA segregated cell formula.
bank account to prevent the transfer of the disputed funds. Jezouit Aff. at ¶ 16, Doc. No. 16-1. In
January 2017, Aiello received a letter from Applied claiming that Aiello owed an additional
$268,646.38 in unpaid premiums. Id. at ¶ 17. Applied sent another letter in February 2017
demanding that Aiello pay $236,352.71. Id. at ¶ 20. That amount was less than Applied
demanded in its January 2017 letter, and both the January and February letters sought a different
amount than Applied attempted to electronically transfer in December 2016. Id. With each letter,
Applied attached EquityComp statements that explained that the past-due amount under the
“Worker’s Compensation Program” was calculated “based upon [Aiello’s] actual claims
applying run-off Loss Development Factors (LDF’s) and an additional capital deposit of
$48,000.” See, e.g., Pl.’s Br. at 4, Ex. D, Doc. No. 16-5.
On March 28, 2017, Aiello filed suit in Connecticut Superior Court, Judicial District of
Hartford, alleging that Applied and its affiliates violated the Connecticut Unfair Insurance
Practices Act (CUIPA), Conn. Gen. Stat § 38a-816, the Connecticut Unfair Trade Practices Act
(CUTPA), Conn. Gen. Stat. § 42-110g, and the Connecticut Uniform Securities Act, Conn. Gen.
Stat. § 36b-29. See Compl. at ¶¶ 65–93, Doc. No. 1-1. Aiello also sought a declaratory judgment
that the unpaid premiums and capital deposit demanded by Applied were not based upon any
premium calculation factors on file with the Connecticut Department of Insurance, and the
disputed premiums were therefore unenforceable under Connecticut law. Id. at ¶¶ 55–64.
Applied and its affiliates filed a Notice of Removal with this court pursuant to 28 U.S.C. §§
1332, 1441, and 1446. Notice of Removal at 1, Doc. No. 1. This motion to dismiss followed.
The RPA Contract contains a choice-of-law provision specifying that the agreement is to
be construed exclusively under the laws of Nebraska:
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Nebraska without giving effect to any choice or
conflict of law provision . . . that would cause the application of Laws of
any jurisdiction other than those of the State of Nebraska.
RPA Contract at 6, Doc. No. 13-4. The agreement also contained a forum selection clause that
was one of only two clauses in the agreement printed in capital letters:
ANY LEGAL SUIT, ACTION, OR PROCEEDING ARISING OUT OF,
RELATED TO OR BASED UPON THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MUST
ONLY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED
STATES OF AMERICA OR THE COURTS OF THE STATE OF
NEBRASKA, IN EACH CASE LOCATED IN OMAHA AND THE
COUNTY OF DOUGLAS, AND EACH PARTY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS
IN ANY SUCH SUIT, ACTION, OR PROCEEDING. . . . THE PARTIES
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY
OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION,
OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY
WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH
COURT THAT ANY SUCH SUIT, ACTION, OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
Id. at 6–7. The CIC workers’ compensation insurance policy did not contain any similar forum
selection clause. Applied filed the current motion in an attempt to enforce that forum selection
clause by dismissing Aiello’s case, or in the alternate, transferring it to the United States District
Court for the District of Nebraska. Def.’s Br. at 1, Doc. No. 13-1.
When deciding a typical section 1404(a) or forum non conveniens motion not involving a
forum-selection clause, a district court must evaluate both the private interests of the parties and
various public-interest considerations to determine whether the transfer or dismissal is warranted.
Atl. Marine, 134 S. Ct. at 581.
Factors relating to the parties' private interests include “relative ease of
access to sources of proof; availability of compulsory process for attendance
of unwilling, and the cost of obtaining attendance of willing, witnesses . . .
and all other practical problems that make trial of a case easy, expeditious
and inexpensive.” . . . Public-interest factors may include “the
administrative difficulties flowing from court congestion; the local interest
in having localized controversies decided at home; [and] the interest in
having the trial of a diversity case in a forum that is at home with the law.”
Id. at 581 n.6 (quoting Piper, 454 U.S. at 241 n.6). Courts also consider the plaintiff’s choice of
forum. Id. (citing Norwood, 349 U.S. at 32). The presence of a valid forum selection clause
requires the court to adjust its section 1404(a) analysis by: (1) disregarding the plaintiff’s choice
of forum; (2) ignoring arguments about the parties’ private interests; and (3) following the
choice-of-law provisions of the transferee state, rather than the original forum state as is usually
the case when a district court sits in diversity. Atl. Marine, 134 S. Ct. at 581–82. Thus, courts
give a valid forum selection clause “controlling weight in all but the most exceptional cases.” Id.
at 581 (quoting Stewart, 487 U.S. at 33 (Kennedy, J., concurring)); see also Def.’s Br. at 4, Doc.
To determine whether a forum selection clause is enforceable, the court must evaluate: (i)
whether the clause was reasonably communicated to the party resisting enforcement; (ii) whether
the clause is mandatory or permissive; (iii) whether the claims and parties involved in the suit are
subject to the forum selection clause; and (iv) assuming that the preceding factors have been
satisfied, whether the resisting party can overcome the resultant presumption of enforceability by
“making a sufficiently strong showing that enforcement would be unreasonable or unjust, or that
the clause was invalid for such reasons as fraud or overreaching.” Martinez, 740 F.3d at 217
(citing Phillips, 494 F.3d at 383); accord M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15
(1972). “The overriding framework governing the effect of forum selection clauses in federal
courts . . . is drawn from federal law. . . . In answering the interpretive questions posed by parts
two and three of the four-part framework, . . . we normally apply the body of law selected in an
otherwise valid choice-of-law clause.” Martinez, 740 F.3d at 217–18. Thus, Nebraska law is
applicable to this court’s analysis of the second and third prongs of the Martinez framework.
Before addressing the enforceability of the forum selection clause, however, it is
necessary to determine whether the scope of the clause encompasses the claims brought in the
instant case. Therefore, to determine whether the defendants’ motion to dismiss is warranted, we
must evaluate: (1) which parties are contractually bound by the RPA forum selection clause; (2)
whether Aiello’s statutory claims arise out of the RPA contract such that the forum selection
clause is invoked; and (3) whether the forum selection clause is enforceable under Nebraska law.
A. Parties bound by the RPA forum selection clause
The forum selection clause is inapplicable to the bulk of the claims, because it only
appears in the RPA contract between Aiello and AUCRAC — nowhere is there any indication of
a forum selection clause in the contracts executed between Aiello and Applied, CIC or ARS.6
Thus, Aiello is free to litigate its claims against the remaining defendants without regard to any
forum agreement that it reached with AUCRAC. At the motion hearing, Applied argued that the
named defendants should be considered as a single entity for the purposes of applying the forum
selection clause. Applied could point to no authority for that proposition. Therefore, as a matter
of law, the clause only applies to Aiello and AUCRAC, the parties bound to the RPA.
The defendants argue in their reply brief that the promissory note executed by Aiello contained an additional forum
selection clause that bound Aiello to Nebraska in all disputes with Applied (not just AUCRAC). See Def.’s Reply
Br. at 7–8, Doc. No. 18. That is of no consequence for two reasons. First, the promissory note does not appear
anywhere in the record. Insofar as this is the defendants’ motion, they have the burden to produce relevant evidence
supporting the existence of forum clause agreements between Aiello and the named defendants. Second, assuming
arguendo that the promissory note contains forum clause language similar to that found in the RPA contract, there is
no indication that any breach occurred with respect to either parties’ obligations under that note. Rather, Aiello
alleges that the note itself was an illegal security under Connecticut law. See Compl. at ¶¶ 85–87, Doc. No. 1-1. For
reasons set forth later in this opinion, those claims are outside the scope of any forum selection clause that the
promissory note may have contained.
B. Scope of the forum selection clause
The fact that AUCRAC and Aiello are bound to the RPA’s forum selection clause does
not mean that all disputes between those parties are subject to the clause. Rather, if the rights
asserted in a claim originate in a statute, not a contractual provision, then that claim may be
outside the scope of any forum selection clause within the contract. See Phillips, 494 F.3d at 390
(holding that recording contract forum clause did not apply to Copyright Act and state unfair
trade practice claims because those statutes conferred rights independent of the contract); see
also Corcovado Music Corp. v. Hollis Music, Inc., 981 F.2d 679, 682 (2d Cir. 1993) (“[W]here a
plaintiff . . . asserts no rights under a contract with the defendant containing a forum-selection
clause, the forum-selection clause has no effect.” (citing Cheever v. Acad. Chi. Ltd., 685 F. Supp.
914, 917 (S.D.N.Y. 1988))).
In the instant case, the bulk of Aiello’s claims are allegations of illegal conduct during the
formation of the contractual relationship between Applied and Aiello. Rather than claiming a
breach of contract, Aiello alleges that Applied and its affiliates engaged in a range of misleading
and deceptive conduct during the insurance procurement process, in violation of Connecticut
law.7 See Compl. at ¶¶ 65-83, Doc. No. 1-1 (alleging that, inter alia, Applied misrepresented the
estimated costs of EquityComp prior to policy issuance, failed to disclose the actual premium
calculation factors in its quote materials, and engaged in the sale of illegal securities). Thus,
similar to the Copyright Act claims at issue in Phillips, Connecticut law, not the RPA contract,
provides the basis for the rights Aiello asserted in its action. See also Phillips, 494 F.3d at 392
Some of the elements of Aiello’s complaint allege conduct that took place during the performance of the contract.
See, e.g., Compl. at ¶ 67e (alleging that Applied provided misleading cost estimates throughout the course of the
insurance policy). Those claims can be considered a part of Applied’s pre-contractual misrepresentations insofar as
Aiello alleges that Applied provided the false estimates in furtherance of its initial misrepresentations that induced
the formation of the contract.
(“[S]tate law [unfair trade practice] claims do not originate from the recording contract and are
exempt from operation of the forum selection clause.”).
The defendants rely on the RPA contract as a defense to Aiello’s claims, arguing that the
rights and obligations in dispute are governed by the RPA. See Def.’s Br. at 7, Doc. No. 13-1.
Additionally, AUCRAC brought an action in Nebraska federal court alleging that Aiello
breached its obligations under the RPA by not paying the demanded premiums. Neb. Compl. at
2, Doc. No. 13-4. Although the provisions of the RPA contract may be relevant as a defense to
Aiello’s claims against AUCRAC, that is not sufficient to draw a relationship between a
contractually-mandated forum selection clause and statutory claims not dependent on that
contract.8 See Phillips, 494 F.3d at 392 (“The only nexus between the proceedings and the
contract arises when the defendants raise their defenses. Given this sequence of events, one
cannot say that the origins of the proceedings were in the . . . contract.”). Thus, the scope of the
forum selection clause does not reach the claims brought in the instant case.
C. Enforceability of the forum selection clause
Even if the forum selection clause did apply to Aiello’s claim, it would not be
enforceable under Nebraska law. The RPA contains a choice-of-law provision that states the
Aiello’s claims are so unrelated to the underlying RPA contract that they would not even be considered
compulsory counterclaims against an action for breach of that contract. See Jones v. Ford Motor Credit Co., 358
F.3d 205, 209 (2d Cir. 2004) (quoting United States v. Aquavella, 615 F.2d 12, 22 (2d Cir. 1979)) (when debtors
brought suit against creditors alleging violations of federal anti-discrimination laws, the defendant’s counterclaim
seeking to recoup the underlying debt bore no “logical relationship” to the discrimination claims, because the
plaintiff’s claims alleged discriminatory conduct during the formation of the contract, and the defendant’s
counterclaim concerned private debts owed under the contract itself); Betsey v. Nissan Motor Acceptance Corp.,
2009 WL 2925367, at *2 (D. Conn. Sep. 10, 2009) (“Defendant’s counterclaim for payment of an overdue debt is
distinct from, and not logically related to a plaintiff’s claim based on improper credit reporting practices under the
FCRA.”); Leatherwood v. Universal Bus. Serv. Co., 115 F.R.D. 48, 49 (W.D.N.Y. 1987) (creditor’s counterclaim for
underlying debt in action brought by debtor alleging violations of Fair Debt Collection Practices Act was not
compulsory because counterclaim arose out of private duty under state law, whereas plaintiff’s original claim arose
out of debt collector’s obligations under federal law). Aiello’s cause of action alleges that Applied and its affiliates
breached their duties under state law. Under Jones and related cases, those duties are distinct from and not logically
related to any private contractual duties between the parties.
agreement “shall be governed by and construed in accordance with the internal laws of the State
of Nebraska.” RPA Contract at 6, Doc. No. 13-4. Under the previously discussed Martinez
framework, courts look to the body of law chosen by the parties in a choice-of-law clause when
evaluating the enforceability of forum selection clauses. See Martinez, 740 F.3d at 217–18.
Therefore, contra the defendants’ argument that federal law provides the exclusive analytical
framework for evaluating the enforceability of the forum selection clause, see Def.’s Reply Br. at
2–3, Doc. No. 18, it is necessary to look to Nebraska law to determine whether the clause is valid
1. Nebraska law looks to the convenience of the parties to determine the validity of
forum selection clauses
Notwithstanding Atlantic Marine and related cases discussed previously, Nebraska law
requires a court to assess the convenience of the party resisting a forum selection clause if the
agreement is the sole basis of Nebraska’s jurisdiction, regardless of any previous written
agreements between the parties. Nebraska has adopted the Model Uniform Choice of Forum Act,
which provides that:
If the parties have agreed in writing that an action on a controversy may
be brought in this state and the agreement provides the only basis for the
exercise of jurisdiction, a court of this state will entertain the action if . . .
this state is a reasonably convenient place for the trial of the action . . . .
Neb. Rev. Stat. § 25-414 (1969) (emphasis added). “The law of [Nebraska] is an inherent part of
every contract . . . and every law affecting the contract is read into it and becomes a part
thereof.” Woodmen of World Life Ins. Soc. v. Puccio, 1 Neb. App. 478, 482 (1993), overruled on
other grounds by Woodmen of World Life Ins. Soc. v. Yelich, 250 Neb. 345 (1996). Therefore,
section 25-414 of the Choice of Forum Act is read into the RPA contract between AUCRAC and
Aiello. See Pl.’s Br. at 7–8, Doc. No. 16. Section 25-414 only applies when a Nebraska court
would have no jurisdiction but for the forum selection clause identifying Nebraska as the agreed
forum. Polk Cty. Recreational Ass'n v. Susquehanna Patriot Commercial Leasing Co., 273 Neb.
1026, 1033 (2007); Ameritas Inv. Corp. v. McKinney, 269 Neb. 564, 572 (2005). Therefore,
before applying section 25-414, it is necessary to analyze whether Nebraska would have
jurisdiction if Aiello had not consented to the forum selection clause.9 See Woodmen of World
Life Ins. Soc. v. Walker, 1 Neb. App. 882, 889 (1993) (declining to apply section 25-414 where
Nebraska had an independent basis for personal jurisdiction other than forum selection clause).
2. The forum selection clause is the only basis for bringing the action in Nebraska.
To determine whether a Nebraska court can exercise personal jurisdiction over a
nonresident,10 the court must look to the state’s long-arm statute. Brunkhardt v. Mountain W.
Farm Bureau Mut. Ins. Co., 269 Neb. 222, 225 (2005). If the long-arm statute permits the
exercise of personal jurisdiction over the nonresident party, the court must then determine
whether exercising jurisdiction would be proper under the U.S. Constitution. Id. Nebraska’s
long-arm statute extends jurisdiction over any nonresident “[w]ho has any . . . contact with or
maintains any . . . relation to [Nebraska] to afford a basis for the exercise of personal jurisdiction
consistent with the Constitution of the United States.” Neb. Rev. Stat. § 25-536 (1983).
Therefore, Nebraska will have specific personal jurisdiction over a nonresident so long as the
In cases where a party seeks enforcement of a forum selection clause, Nebraska courts generally assume that clause
is the only basis for bringing the action in Nebraska. See Ameritas, 269 Neb. at 573 (“[W]here a choice of forum
clause is a necessary component of the court’s exercise of personal jurisdiction, it is clear that ‘the court would have
no jurisdiction but for the fact that the parties have consented to its exercise by the choice-of-forum agreement.’”
(quoting HANDBOOK OF THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS, MODEL
CHOICE OF FORUM ACT § 2, cmt. at 220 (1968))). Notwithstanding the analytical shortcuts permitted by Ameritas,
Nebraska courts analyze the quality and nature of contacts between a nonresident party and Nebraska as a threshold
question before applying section 25-414. See, e.g., Walker, 1 Neb. App. at 889–90.
Although Aiello is the plaintiff in this action, it is also the party resisting Nebraska jurisdiction. Therefore, under
the hypothetical jurisdictional analysis required by section 25-414, Aiello is in a role traditionally played by
defendants in jurisdictional disputes, because Aiello has not consented to jurisdiction in Nebraska.
exercise of jurisdiction comports with federal principles of due process. See Brunkhardt, 269
Neb. at 225.
For a court’s exercise of personal jurisdiction to comport with due process principles, the
nonresident must have sufficient “minimum contacts” with the forum state “such that the
maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’”
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980) (quoting Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)). In the Eighth Circuit, courts consider five factors in
their basic minimum contacts analysis:
(1) the nature and quality of the contacts with the forum state; (2) the quantity
of the contacts with the forum state; (3) the relation of the cause of action to
the contacts; (4) the interest of the forum state in providing a forum for its
residents; and (5) the convenience of the parties.
Land-O-Nod Co. v. Bassett Furniture Indus., Inc., 708 F.2d 1338, 1340 (8th Cir. 1983) (quoting
Aaron Ferer & Sons Co. v. Diversified Metals Corp., 564 F.2d 1211, 1215 (8th Cir. 1977)). The
defendants correctly argue that, under the Land-O-Nod framework, the convenience of the
parties is of “secondary importance and not determinative.” See Def.’s Reply Br. at 5, Doc. No.
18 (quoting Land-O-Nod, 708 F.2d at 1340). However, that framework is not intended to be “a
slide rule by which fundamental fairness can be ascertained with mathematical precision” —
ultimately the central focus of the inquiry is “the relationship among the defendant, the forum,
and the litigation.” Land-O-Nod, 708 F.2d at 1340 (internal quotation marks omitted) (quoting
Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). Before a state may exercise jurisdiction, a
nonresident must take some act by which it “purposefully avails itself of the privilege of
conducting activities within the forum State, thus invoking the benefits and protections of its
laws.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).
The defendants argue that their agreements with Aiello established Aiello’s minimum
contacts with Nebraska because Aiello had a “clear expectation of substantial future contacts
with Nebraska, in order to administer their workers compensation claims and resolve billing
issues.” Def.’s Reply Br. at 7, Doc. No. 18. The defendants cite Burger King Corp as an
analogous case where a person who voluntarily accepted a contract with a Florida-based
company was subject to personal jurisdiction in Florida. Id. The current case, however, is
distinguishable from the contractual business relationship at issue in Burger King, because there
is a clear distinction between conventional commercial contracts and those that arise in the
business of insurance. See McGee v. Int’l Life Ins. Co., 355 U.S. 220, 223–24 (1957) (holding
that states have a “manifest interest in providing effective means of redress for [their] residents”
in disputes with insurers, so individual policyholders should not have to bring actions in foreign
forums); Gray v. Lewis & Clark Expeditions, Inc., 12 F. Supp. 2d 993, 998 (D. Neb. 1998)
(holding insurance contracts are “special cases where the state has an exceptional interest” unlike
standard commercial contracts (internal quotation marks omitted) (quoting Gendler v. Gendler
Growth Properties, 461 F. Supp. 434, 437 n.2 (D. Neb. 1978))).
The defendant in Burger King was an entrepreneur who had entered into a franchise
agreement with Florida-based Burger King Corporation to operate Burger King fast food
restaurants in Michigan. Burger King, 471 U.S. at 464–67. The franchise agreement was a
“carefully structured 20-year relationship that envisioned continuing and wide-reaching contacts
with Burger King in Florida.” Id. at 479–80. In evaluating the quality and nature of the
defendant’s contacts with Florida, the Court held that factors including the parties’ “prior
negotiations and contemplated future consequences, along with the terms of the contract and the
parties' actual course of dealing . . . must be evaluated in determining whether the defendant
purposefully established minimum contacts within the forum.” Id. The Court concluded that the
long term nature of the agreement, as well as the substance of the agreement itself, indicated that
the franchisee purposefully availed himself of the benefits and protections of Florida laws. Id.
Burger King is a useful case for analyzing jurisdictional issues that arise under general
business contracts, but Allied’s and its affiliates’ argument fails to account for the wellestablished law that governs the special circumstances of insurance contracts. See McGee, 355
U.S. at 223–24. An insurance company that markets and sells policies to residents of a given
state establishes minimum contacts with that state. Id.; accord Travelers Health Ass'n v. Virginia
ex rel. State Corp. Comm'n, 339 U.S. 643, 648 (1950). Minimum contacts, however, are not
established reciprocally – due process would be violated if policyholders had to travel to their
insurers’ home states to seek legal redress. See McGee, 355 U.S. at 223 (“[Insureds] would be at
a severe disadvantage if they were forced to follow the insurance company to a distant State in
order to hold it legally accountable.”); Travelers, 339 U.S. at 649 (affirming prior Supreme Court
decisions that “referred to the unwisdom, unfairness and injustice of permitting policy holders to
seek redress only in some distant state where the insurer is incorporated”). Thus, in the context of
insurance contracts, the law imputes the absence of a relationship between insurance
policyholders and the home states of their insurers.
Burger King did not abrogate the pro-policyholder philosophy underlying McGee. See
Burger King, 471 U.S. at 478 (quoting McGee, 355 U.S. at 223–24) (“[J]urisdictional rules may
not be employed in such a way as to make litigation ‘so gravely difficult and inconvenient’ that a
party unfairly is at a ‘severe disadvantage’ in comparison to his opponent.”). The Burger King
Court further acknowledged that a contract with an out-of-state party alone is generally not
sufficient to establish minimum contacts. Id. at 478. Courts in Nebraska and within the Eighth
Circuit have affirmed principles outlined in McGee by distinguishing insurance policies from
Burger King-style commercial contracts. See, e.g., Unimerica Ins. Co. v. GA Food Servs., Inc.,
2014 WL 12617469, at *3 (D. Minn. May 27, 2014) (citing Bell Paper Box, Inc. v. Trans W.
Polymers, Inc., 53 F.3d 920, 923 (8th Cir. 1995)) (holding that contacts between Minnesota and
out-of-state insurance policyholder, including sending information and premium payments to
insurer, were not of the “quantity or nature necessary [for Minnesota] to establish specific
personal jurisdiction”); Applied Underwriters, Inc. v. Dinyari, Inc., 2008 WL 2231114, at *6
(Neb. Ct. App. May 20, 2008) (workers’ compensation insurance policies did not establish
minimum contacts between policyholders and Nebraska where the policies were purchased from
California brokers, premiums were paid from a California bank account, and covered employees
located exclusively in California); Applied Underwriters, Inc. v. Emp’r Outsource Serv., Inc.,
2007 WL 1470454, at *5 (Neb. Ct. App. May 22, 2007) (Illinois policyholder who executed a
payment plan promissory note with Nebraska insurer did not establish minimum contacts with
Nebraska because he could not reasonably anticipate being haled into Nebraska court as a future
The facts of the instant case are analogous in key ways to Dinyari and Employer
Outsource Services, two cases in which Nebraska courts considered similar agreements between
Applied and nonresident policyholders. In Dinyari, a California-based policyholder accepted a
workers’ compensation insurance policy written by Applied. Dinyari, 2008 WL 2231114 at *1.
The policyholder conducted its business exclusively in California, had no employees or office
space in Nebraska, and did not purchase insurance for any person, property, or risk within
Nebraska. Id. at *6. The policyholder purchased its policy through a California based broker, and
paid premiums through its California bank account. Id. A Nebraska court held that the
policyholder’s interactions with Applied’s Nebraska-based personnel, including sending payroll
information to Applied’s Nebraska headquarters, were insufficient to establish minimum
contacts with Nebraska. Id. In Employer Outsource Services, an Illinois-based policy holder
executed a promissory note with Applied in order to satisfy a payment plan for unexpected
premium increases. Emp’r Outsource Servs., 2007 WL 1470454 at *1. That policyholder also
conducted no business in Nebraska, had never traveled to Nebraska, and did not insure any risks
in Nebraska under the policy written by Applied. Id. at *2. Similar to Dinyari, the Nebraska
court held that the mere execution of a promissory note was insufficient to establish minimum
contacts with Nebraska. Id. at *5.
The fact that some courts within the Eighth Circuit have come to opposite conclusions in
cases with similar facts does not impact the analysis of the current case. See, e.g., Applied
Underwriters, Inc. v. A&I Steel Fabricators, Inc., 2013 WL 12123891, at *4 (D. Neb. May 8,
2013) (finding insurance contract with Nebraska choice-of-law clause created a business
relationship analogous to Burger King, therefore the insured had established minimum contacts
with Nebraska); Aviva Life & Annuity Co. v. Goldstein, 722 F. Supp. 2d 1067, 1074 (S.D. Iowa
2010) (finding that life insurance policyholder “established a long-term, on-going contractual
relationship” with insurer supporting a “reasonable expectation that . . . he might be haled into
court in Iowa in the event of a dispute”). Those cases placed heavy reliance on Burger King,
which, for reasons outlined in McGee, is not appropriate in the insurance context.
In the current case, Aiello conducts business exclusively in Connecticut, and does not
employ any individuals in Nebraska. Jezouit Aff. at ¶ 4, Doc. No. 16-1. Similar to Dinyari, the
scope of Aiello’s insurance policy was limited to coverage of risks in Connecticut, and premiums
were paid out of Aiello’s Connecticut bank account. Id. at ¶¶ 9–10. Aiello used a Connecticut-
based broker to procure the insurance policy from Applied. Id. at ¶ 11. No employee or
representative of Aiello traveled to Nebraska at any time during the policy negotiation process.
Id. at ¶ 13. Like the policyholder in Employer Outsource Services, Aiello executed a single
promissory note to preserve its coverage under its original workers’ compensation policy.
Compl. at ¶ 41, Doc. No. 1-1. Aiello’s facts are therefore very similar to Dinyari and Employer
Outsource Services, where Nebraska courts found that the policyholders did not establish
minimum contacts with Nebraska.
The defendants argue that A&I Steel Fabricators is analogous because Aiello deliberately
targeted Nebraska in its interactions with Applied by submitting payments, claims, and payroll
information to Applied’s Nebraska-based representatives. Def.’s Reply Br. at 6, Doc. No. 18.
Those arguments are unpersuasive because, even without considering McGee and related cases,
the weight of authority indicates that those interactions were “fortuitous” connections to
Nebraska, because they arose only out of Applied’s unilateral decision to locate its headquarters
and employees there. See Walden v. Fiore, 134 S. Ct. 1115, 1122 (2014) (“[The] unilateral
activity of another party or a third person is not an appropriate consideration when determining
whether a defendant has sufficient contacts with a forum State to justify an assertion of
jurisdiction.” (alteration in original) (internal quotation marks omitted) (quoting Helicopteros
Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 417 (1984))); id. at 1123 (“Due process
requires that a defendant be haled into court in a forum State based on his own affiliation with
the State, not based on the ‘random, fortuitous, or attenuated’ contacts he makes by interacting
with other persons affiliated with the State.” (quoting Burger King, 471 U.S. at 475)). Because
Aiello’s only contacts with Nebraska occurred via its status as an insured who submitted
payments to a company that resided in the state, Aiello would not have been subject to personal
jurisdiction in Nebraska if there had been no forum selection clause in the RPA contract.
Accordingly, the forum selection clause will only be enforced if Nebraska is a reasonably
convenient forum for the action under Neb. Rev. Stat. § 25-414.
3. Nebraska is not a convenient forum for Aiello to pursue its action.
Under section 25-414, if Nebraska is not a “reasonably convenient” forum for a nonresident party, then a Nebraska court will not enforce the forum selection clause. Puccio, 1 Neb.
App. at 482. Nebraska courts do not consider a party to be in breach of a forum selection clause
that binds it to an inconvenient forum – such a clause would be effectively nullified by a judicial
finding of inconvenience. See id. (“Puccio breached the venue clause of his contract with the
Society only if Nebraska is a reasonably convenient place for Puccio to bring his action”).
Therefore, a forum selection clause that fails to meet the requirements of section 25-414 would
also fail the third prong of the Martinez test for enforceability of forum selection clauses,
because that prong requires that a party be “subject to” a forum selection clause before that
clause becomes enforceable. See Martinez, 740 F.3d at 217.
In the current case, the facts of Aiello’s case weigh against finding Nebraska to be a
reasonably convenient forum for his action. Whether Nebraska is a “reasonably convenient”
forum for the non-resident party is a question of law requiring the court to evaluate the
undisputed facts from the pleadings. Puccio, 1 Neb. App. at 482. The inquiry of reasonable
convenience under section 25-414 is not limited to the literal convenience of the nonresident
party. Instead, Nebraska courts apply standard forum non conveniens analysis:
The trial court should consider practical factors that make trial of the case
easy, expeditious, and inexpensive, such as the relative ease of access to
sources of proof, the cost of obtaining attendance of witnesses through
compulsory process. . . . It is also appropriate to consider the advantages of
having trial in a forum that is at home with the state law that must govern
the case, rather than having a court in some other forum untangle the
problems in conflict of laws, and in law foreign to itself.
Ameritas, 269 Neb. at 574; accord Piper, 454 U.S. at 241 n.6. The Ameritas court considered an
alleged breach of an employment contract by a Virginia employee of a Nebraska-based financial
services company. Id. at 566–67. The court, applying section 25-414, determined that Nebraska
was a reasonably convenient forum for the Virginia-based defendant, because the business
records regarding the contract were located in Nebraska, and the plaintiff brought the action
under Nebraska contract law, so there was no mismatch between the forum and the law
governing the underlying action. Id. at 575.
As previously discussed, McGee and related cases impute substantial inconvenience to
policyholder plaintiffs in insurance disputes. See McGee, 355 U.S. at 223. Even without
considering McGee, the Ameritas factors weigh in Aiello’s favor in the instant case. As a
practical matter, Aiello is a significantly smaller business than Applied, and is much less able to
bear the costs of litigation in a distant state. See Compl. at ¶ 36, Doc. No. 1-1 (unexpectedly high
workers’ compensation insurance premiums threatened solvency of Aiello’s business). Both
sides point to witnesses and documents that would be more convenient to access in their
respective states. See Pl.’s Br. at 9–10, Doc. No. 16; Def.’s Reply Br. at 5, Doc. No. 18. It is
therefore reasonable to accept Applied’s and its affiliates’ argument that the balance of
convenience factors with respect to the location of documents and witnesses is “flat.” See Def.’s
Reply Br. at 5, Doc. No. 18. Aside from matters regarding the private convenience of the parties,
Ameritas requires the court to evaluate whether the forum would be “at home” with the
substantive law governing the case. See Ameritas, 269 Neb. at 574. This factor weighs strongly
in Aiello’s favor. Aiello brought its action exclusively under Connecticut law. See Compl. at ¶¶
55-93, Doc. No. 1-1. Unlike the plaintiff in Ameritas, Aiello has not alleged any claims under
Nebraska law. See id. Although the RPA’s choice-of-law provision states that one must interpret
the contract using Nebraska law, there is no analogous choice-of-law provision regarding
disputes arising out of the parties’ relationship. Thus, Aiello’s claims, brought under various
Connecticut statutes, will require application of Connecticut law. A court applying the Ameritas
analytical framework would therefore find that it is not reasonably convenient for a Nebraska
court to try a case governed by the laws of a foreign state, because Connecticut courts are in the
best position to apply Connecticut law. See Ameritas, 296 Neb. at 574. As previously discussed,
a finding of inconvenience at this stage of the analysis renders the forum selection clause invalid
under section 25-414; therefore, the clause is not enforceable under the third prong of the
Martinez framework, and transfer is unwarranted.
4. The interest of justice requires Aiello’s case to remain in Connecticut.
Even if this court were to resolve all of the preceding arguments in the defendants’ favor,
the resulting circumstances would be so extraordinary that the interest of justice would compel
non-enforcement of the forum selection clause. As discussed previously, the fourth factor of the
Martinez framework permits courts to deny enforcement of a forum clause when there is “a
sufficiently strong showing that enforcement would be unreasonable or unjust.” Martinez, 740
F.3d at 217. In this case, the forum clause only applies to the RPA agreement between Aiello and
AUCRAC. Thus, if the motion is granted, Aiello would be required to pursue its claims against
AUCRAC in Nebraska, while litigating the remaining claims against Applied, CIC, and ARS in
Connecticut. Because the courts in both jurisdictions would be applying the same body of
Connecticut law to the same set of factual circumstances, those circumstances would create a
risk of inconsistent judgments. This is undoubtedly the type of unique situation contemplated by
the Atlantic Marine court when it explained that enforcement of a forum selection clause may be
denied in “exceptional cases.” See Atl. Marine, 134 S. Ct. at 581.
For the foregoing reasons, the defendants’ motion to transfer is denied and the case is
ordered to remain before this court in the District of Connecticut.
Dated at Bridgeport, Connecticut, this 12th day of September 2017.
/s/ STEFAN R. UNDERHILL
Stefan R. Underhill
United States District Judge
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