Lexington Insurance Company v. Centex Homes et al

Filing 29

ORDER TO SHOW CAUSE WHY VENUE SHOULD NOT BE TRANSFERRED TO THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 4/21/11. (The Court orders Lexington to SHOW CAUSE, by May 11, 20 11, why this case should not be transferred to the Northern District of Texas. Centex may address Lexington's response no later than May 25, 2011.) (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
LEXINGTON INSURANCE COMPANY,

)
)
Plaintiff,
)
)
vs.
)
)
CENTEX HOMES and DOES 1-50,
)
)
Defendants.
)
_____________________________ )

CIVIL NO. 10-00655 SOM/KSC
ORDER TO SHOW CAUSE WHY VENUE
SHOULD NOT BE TRANSFERRED TO
THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN
DISTRICT OF TEXAS

ORDER TO SHOW CAUSE WHY VENUE SHOULD NOT BE TRANSFERRED TO THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS
On November 10, 2010, Plaintiff Lexington Insurance
Company (“Lexington”) filed its Complaint for Declaratory Relief,
asking the court to rule that Lexington is not obligated to
defend or indemnify its insured, Defendant Centex Homes
(“Centex”), for certain losses allegedly suffered by homeowners
in Centex’s Kolea development on the Big Island of Hawaii.
ECF No. 1.

See

In response, on February 18, 2011, Centex moved to

compel arbitration and to dismiss or, in the alternative, to stay
the lawsuit, pursuant to an arbitration provision in the parties’
insurance agreement.

See ECF No. 9.

Centex sought to compel arbitration in Dallas, Texas,
the forum specified by the parties’ arbitration agreement.

See

Mem. Supp. Centex’s Mot. Dismiss or Stay Pl.’s Compl. & Compel
Arbitration at 2-3, 5, 23; Residential Wrap-Up Commc’l Gen. Liab.
Policy Claims Made Form (“Policy”), Section V, ¶ 18 (“The
arbitration proceeding shall take place in the vicinity of the

Named Insured’s address as shown in the Declarations or such
other place as may be mutually agreed by the Named Insured and
us.”); Commc’l Gen. Liab. Policy - Claims Made Form Declarations
(“Policy Declarations”) at 1 (listing Centex’s address as “P.O.
Box 199000, Dallas, TX 75219”).

While not disputing the validity

of the arbitration provision, Lexington opposed the motion on the
ground that the disputed issues fell outside the scope of the
arbitration provision.

See Lexington’s Opp. Centex’s Mot.

Dismiss or Stay Pl.’s Compl. & Compel Arbitration at 9-20.
On April 11, 2011, the court held a hearing on Centex’s
motion.

See Minutes, Apr. 11, 2011, ECF No. 20.

The court

indicated that it was inclined to conclude that the disputed
issues were arbitrable, but it was uncertain as to the scope of
the arbitration order the court was empowered to enter.

The

court discussed with the parties the question of whether the
Federal Arbitration Act (“FAA”) permits a district court in
Hawaii to order arbitration in Texas.

See 9 U.S.C. § 4

(requiring that “[t]he hearing and proceedings, under such
[arbitration] agreement, shall be within the district in which
the petition for an order directing such arbitration is filed”).
The court ordered the parties to submit simultaneous supplemental
briefs on this issue.

See Minutes, Apr. 11, 2011; see also ECF

No. 21.
Lexington’s supplemental brief, primarily relying on
Continental Grain Co. v. Dant & Russell, Inc., 118 F.2d 967 (9th
Cir. 1941), argued that the Federal Arbitration Act grants the
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court authority to compel arbitration only in Hawaii, the
judicial district in which Centex’s motion to compel was filed.
See Lexington Supp. Br. at 4-7, ECF No. 25.

Centex argued that

Continental Grain does not control the outcome of this case
because, in Continental Grain, the plaintiff seeking to arbitrate
in New York had voluntarily filed suit in Oregon, and the Ninth
Circuit had therefore concluded that it was fair to bind the
plaintiff to suit in Oregon, notwithstanding a forum selection
clause designating New York.

By contrast, Centex argued, Centex,

which is seeking an order compelling arbitration, is the
defendant in this case and so has not sought out Hawaii as a
forum.

See id. at 4-6.

Centex argued that the court was

therefore free to order arbitration in Texas.

See id. at 5-6.

In the alternative, Centex argued that the court should transfer
the case sua sponte to the United States District Court for the
Northern District of Texas.

Id. at 6-7.

As it indicated during the hearing, the court is
inclined to conclude that the disputed issues in this case are
all subject to arbitration.

However, the court agrees with

Lexington that the court is precluded from ordering the parties
to arbitrate outside of its jurisdiction.
plain:

The language of § 4 is

“The hearing and proceedings . . . shall be within the

district in which the petition for an order directing such
arbitration is filed.”

9 U.S.C. § 4; see Chevron U.S.A. Inc. v.

Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984)

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(explaining that the court’s duty is to “give effect to the
unambiguously expressed intent of Congress,” when possible).
As noted above, in Continental Grain, the Ninth Circuit
considered a petition filed in Oregon seeking to compel
arbitration in New York, under a contract’s forum selection
clause.

118 F.2d at 968.

Relying on the plain language of § 4,

the Ninth Circuit affirmed the district court’s order compelling
arbitration in Oregon despite the designation of New York in the
parties’ agreement.

See id. at 968-69.

The court reasoned that

“[p]rior to the enactment of the United States arbitration act
(1925) such agreements could not be enforced in the courts of the
United States,” and so “Congress could attach any limitation it
desired to the right to enforce arbitration in the federal
courts.”

Id. at 969; see also Textile Unlimited, Inc. v. A..BMH

& Co., Inc., 240 F.3d 781, 785 (9th Cir. 2001) (stating that
§ 4’s “plain language” “confines the arbitration to the district
in which the petition to compel is filed”) (emphasis omitted).
The Ninth Circuit has not addressed the situation in which the
party seeking to compel arbitration is not the party that
originally filed suit in a jurisdiction other than that agreed to
by the parties.

Nevertheless, if this court enters an order

compelling arbitration, circuit precedent likely requires the
court to order such arbitration within the District of Hawaii.
In the court’s view, such an order, which contradicts
the terms of a valid arbitration agreement, runs afoul of the
FAA.

“[P]assage of the Act was motivated, first and foremost, by
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a congressional desire to enforce agreements into which parties
had entered.”

Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213,

220 (1985); see also Volt Info. Sciences, Inc. v. Bd. of Trs. of
Leland Stanford Jr. Univ., 489 U.S. 468, 474 (1989) (FAA’s
purpose was to place arbitration agreements “upon the same
footing as other contracts”) (quoting H.R. Rep. No. 96, 68th
Cong., 1st Sess., 1, 2 (1924)).

In determining whether to compel

a party to arbitration, the FAA limits the district court’s role
“to determining (1) whether a valid agreement to arbitrate exists
and, if it does, (2) whether the agreement encompasses the
dispute at issue.”

Cox v. Ocean View Hotel Corp., 533 F.3d 1114,

1119 (9th Cir. 2008) (citation and quotation marks omitted).
Furthermore, if the court determines that a valid arbitration
agreement encompasses the parties’ dispute, the FAA requires the
court to enforce the arbitration agreement according to its
terms.

See Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363

F.3d 1010, 1012 (9th Cir. 2004).

Indeed, § 4 confers upon

parties--no less than twice--the right to obtain arbitration on
the terms provided for in the parties’ agreement.

See 9 U.S.C.

§ 4 (permitting aggrieved parties to petition the court “for an
order directing that such arbitration proceed in the manner
provided for in such agreement” and directing that, upon proper
motion, “the court shall make an order directing the parties to

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proceed to arbitration in accordance with the terms of the
agreement”) (emphasis added).
As Centex points out, the parties’ signed arbitration
agreement contains a forum selection clause that selects Texas,
not Hawaii, as the forum for arbitration.

This strongly suggests

to the court that Hawaii is not the proper venue to adjudicate a
motion to compel arbitration under the parties’ agreement.

The

Northern District of Texas, by contrast, would have the power to
grant or deny such a motion in accordance with the parties’
agreement.
Transfer of a case to cure improper venue is proper
when the transfer would be “[f]or the convenience of parties and
witnesses,” and would also be “in the interest of justice.”
U.S.C. § 1404(a).
Hawaii.

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The events underlying this case occurred in

Thus, Hawaii would undoubtedly be a convenient forum to

resolve the parties’ dispute.

Nevertheless, the court finds it

significant that the parties chose “the vicinity of the Named
Insured’s address” as the location of their putative arbitration.
Lexington does not challenge the validity of the arbitration
clause in any manner.

The court therefore concludes that Dallas,

Texas, has been deemed a convenient forum for arbitration by the
parties.

Moreover, given the freely negotiated forum selection

clause in the insurance agreement, transferring the case to the
agreed-upon location would be in the interest of justice.

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See

Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (“[t]he
presence of a forum-selection clause such as the parties entered
into in this case will be a significant factor that figures
centrally in . . . resolution of the § 1404(a) motion in this
case”); see also E.C. Ernst, Inc. v. Potlatch Corp., 462 F. Supp.
694 (S.D.N.Y. 1978)

(stating that the Senate Committee on the

Judiciary indicated that 9 U.S.C. § 4 was intended to require a
party seeking to compel arbitration to apply to the proper court)
(citing S. Rep. No. 536, 68th Cong., 1st Sess. 3 (1924)).
Therefore, the court is inclined to order that this case be
transferred to the Northern District of Texas for further
proceedings.

This transfer would cure the improper venue and

would allow the receiving court to decide the issues raised by
the pending motion without concern about overriding the parties’
agreed-upon forum selection.
The court may transfer venue sua sponte.
v. Weeks, 790 F.2d 1486, 1488 (9th Cir. 1986).

See Costlow

However,

recognizing that Lexington has not yet had an opportunity to
present its views on such a transfer, the court orders Lexington
to SHOW CAUSE, by May 11, 2011, why this case should not be
transferred to the Northern District of Texas.

If Lexington

chooses not to respond to this Order to Show Cause, the court
will enter an order transferring the case, based on the analysis
above.

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Centex may address Lexington’s response no later than
May 25, 2011.

The court does not intend to hold further hearings

on this matter.
These briefs are limited to a maximum of 2000 words
each.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, April 21, 2011.

/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge

Lexington Ins. Co. v. Centex Homes, Civ. No. 10-00655 SOM/KSC; ORDER TO SHOW CAUSE WHY
VENUE SHOULD NOT BE TRANSFERRED TO THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS

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