McDonnel Group, LLC V. Certain Underwriters at LLoyd's, London

Filing 21

ORDER AND REASONS granting 6 Motion to Dismiss for Lack of Jurisdiction; all claims asserted by McDonnel are DISMISSED WITHOUT PREJUDICE. Signed by Judge Lance M Africk on 6/28/2018. (blg)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
THE MCDONNEL GROUP LLC

CIVIL ACTION

VERSUS

No. 18-2804

CERTAIN UNDERWRITERS
AT LLOYD’S LONDON

SECTION I

ORDER & REASONS
The McDonnel Group LLC (“McDonnel”) is the general contractor for a
development project in New Orleans aimed at converting the Maison Blanche Annex
building at 939 Iberville Street into residential apartments. The project is owned by
French Quarter Apartments Limited Partnership (“French Quarter”) and was
insured for the period of November 30, 2015 to August 30, 2017 under a policy issued
by Great Lakes Insurance SE, UK Branch, Lloyd’s Syndicates CNP 4444 and 958,
and Inter Hannover (collectively, “the Underwriters”).
Between March 30 and April 1, 2017, water intrusion caused significant
damage to the project. McDonnel subsequently submitted a claim for the damage to
the Underwriters, and a claims adjustment process ensued, the facts of which are in
dispute. On March 15, 2018, McDonnel initiated this lawsuit seeking a declaratory
judgment that it is entitled to coverage under the policy issued by the Underwriters.
McDonnel also alleges breach of contract and insurer bad faith.
The Underwriters now move to dismiss pursuant to Federal Rules of Civil
Procedure 12(b)(1) and 12(b)(3), arguing that the policy contains a valid arbitration

agreement between the parties.1 For the following reasons, the Underwriters’ motion
is granted.
I.
The Fifth Circuit “has not [] definitively decided whether Rule 12(b)(1) or Rule
12(b)(3) is the proper rule for motions to dismiss based on an arbitration or forumselection clause.” Noble Drilling Servs., Inc. v. Certex USA, Inc., 620 F.3d 469, 472
n.3 (5th Cir. 2010). It has “held that a district court lacks subject matter jurisdiction
over a case and should dismiss it pursuant to Federal Rule of Civil Procedure 12(b)(1)
when the parties’ dispute is subject to binding arbitration.” Gilbert v. Donahoe, 751
F.3d 303, 306 (5th Cir. 2014); see also Omni Pinnacle, LLC v. ECC Operating Servs.,
Inc., 255 Fed. App’x. 24, 26 (5th Cir. 2007) (affirming district court order dismissing
case pursuant to Rule 12(b)(1) based on an agreement between the parties requiring
arbitration of dispute). However, it has also “accepted Rule 12(b)(3) as a proper

The Underwriters also moved to dismiss for insufficient process and insufficient
service of process under Rules 12(b)(4) and 12(b)(5) and for failure to join an
indispensable party under Rule 12(b)(7).
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The Underwriters’ Rule 12(b)(4) and 12(b)(5) motion was based on McDonnel’s alleged
improper naming of the defendants. McDonnel’s original complaint referred to
“Certain Underwriters at Lloyd’s London.” The Underwriters argued that such an
entity is not subject to suit and, therefore, proper service could not be effected. While
the Underwriters’ motion to dismiss was pending, however, McDonnel filed an
amended complaint pleading the specific names and business information for each of
the insurer defendants. The Underwriters concede that this moots their Rule 12(b)(4)
and 12(b)(5) arguments.
With respect to Rule 12(b)(7), the Underwriters argue that dismissal is appropriate
because McDonnel failed to join French Quarter, a purportedly necessary and
indispensable party under Rule 19. Because the Court dismisses in favor of
arbitration, it does not address this issue.
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method for dismissal based on an arbitration clause.” Gupta v. Lynch, No. 12-1787,
2013 WL 3187273, at *2 (E.D. La. June 20, 2013) (Milazzo, J.) (citing Lim v. Offshore
Specialty Fabricators, Inc., 404 F.3d 898, 902 (5th Cir. 2005) (analyzing motion to
dismiss based on an arbitration clause under Rule 12(b)(3) and observing that “other
circuits agree that a motion to dismiss based on an arbitration or forum selection
clause is proper under Rule 12(b)(3)”)).
On a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, the
burden of proof is on the party asserting jurisdiction. Ramming v. United States, 281
F.3d 158, 161 (5th Cir. 2001). “Accordingly, the plaintiff constantly bears the burden
of proof that jurisdiction does in fact exist.” Id. “In order to bear that burden, the
party must prove by a preponderance of the evidence that the court has jurisdiction
based on the complaint and evidence.” Gilbert, 751 F.3d at 307. “However, a motion
to dismiss for lack of subject matter jurisdiction should be granted only if it appears
certain that the plaintiff cannot prove any set of facts in support of his claim that
would entitle plaintiff to relief.” Id.
Similarly, on a Rule 12(b)(3) motion to dismiss for improper venue, the burden
is on the plaintiff to show that venue is proper. Summers v. Kenton, OH Police, No.
11-3162, 2012 WL 1565363, at *4 (E.D. La. May 2, 2012) (Africk, J.). The court may
consider, in addition to the complaint and its proper attachments, other evidence in
the record. Ambraco, Inc. v. Bossclip B.V., 570 F.3d 233, 238 (5th Cir. 2009) (citations
omitted). Further, “the court must accept as true all allegations in the complaint and

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resolve all conflicts in favor of the plaintiff.” Braspetro Oil Servs. Co. v. Modec (USA),
Inc., 240 Fed. App’x. 612, 615 (5th Cir. 2007).
The Court need not decide here whether Rule 12(b)(1) or 12(b)(3) is the more
appropriate vehicle for analyzing the Underwriters’ motion to dismiss.2 As explained
herein, McDonnel’s claims are properly dismissed in favor of arbitration under either
rule. See Murchison Capital Partners, LP v. Nuance Commc’ns, Inc., 625 Fed. App’x
617, 627 (5th Cir. 2015) (affirming dismissal of plaintiff’s claim on the ground that
the defendant “would have been entitled to prevail on a Rule 12(b)(1) or 12(b)(3)
motion to dismiss the case because the dispute is covered by the arbitration clause”).
II.
The policy at issue provides, in pertinent part:
VII. General Conditions
...
2.

Arbitration:

Any dispute, controversy or claim arising out of,
relating to, or in connection with this Policy, shall be
finally settled by arbitration. The arbitration shall
be conducted in accordance with the International
Arbitration Rules of the American Arbitration
Association in effect at the time of the arbitration.
The seat of the arbitration shall be New York, New
York, in the United States of America.3
...

The Underwriters move to dismiss under both rules. Neither the Underwriters nor
McDonnel urge the application of one rule over the other, and the parties have not
fully briefed the issue.
3 R. Doc. No. 6-2, at 19.
2

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7.

Conformity to Statute:

In the event any terms of this Policy are in conflict
with the statutes of the jurisdiction where the
Insured Property is located, such terms are amended
to conform to such statutes.
The Underwriters insist that McDonnel’s claims must be dismissed in favor of
arbitration pursuant to the policy’s broad arbitration provision, the Federal
Arbitration Act (“FAA”), and the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (“the Convention”).
McDonnel contends that the arbitration provision is void and unenforceable,
as it is amended out of the policy by the conformity to statute provision. In support
of this argument, McDonnel cites La. Rev. Stat. § 22:868, which 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, . . . shall contain
any condition, stipulation, or agreement []:
...
(2)
Depriving the courts of this state of the jurisdiction
of action against the insurer.
...
C.
Any such condition, stipulation, or agreement in
violation of this Section shall be void, but such voiding shall
not affect the validity of the other provisions of the
contract.
Louisiana courts have interpreted this statute as voiding arbitration agreements in
certain insurance contracts. See Todd v. Steamship Mut. Underwriting Ass’n, Ltd.,
No. 08-1195, 2011 WL 1226464 (E.D. La. March 28, 2011) (Berrigan, J.). Thus,

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McDonnel maintains that, because there is a conflict between the terms of the policy
and a Louisiana statute, the conformity to statute provision operates to nullify the
arbitration provision.
This issue is easily resolved by the Fifth Circuit’s en banc decision in Safety
National Casualty Corporation v. Certain Underwriters at Lloyd’s, London, 587 F.3d
714 (5th Cir. 2009). In Safety National, the Court considered whether the McCarran–
Ferguson Act authorizes state law to reverse-preempt the Convention. The Court’s
negative answer to that question is dispositive of the motion presently before the
Court.
The McCarran-Ferguson Act provides that “the continued regulation and
taxation by the several States of the business of insurance is in the public interest,
and that silence on the part of the Congress shall not be construed to impose any
barrier to the regulation or taxation of such business by the several States.” 15 U.S.C.
§ 1011. It further states that “[n]o Act of Congress shall be construed to invalidate,
impair, or supersede any law enacted by any State for the purpose of regulating the
business of insurance, or which imposes a fee or tax upon such business, unless such
Act specifically relates to the business of insurance.” 15 U.S.C. § 1012.
“The McCarran-Ferguson Act thus allows state law to reverse-preempt an
otherwise applicable federal statute” in certain circumstances. Safety National, 587
F.3d at 720; see also Munich Am. Reins. Co. v. Crawford, 141 F.3d 585, 590 (5th Cir.
1998) (“Ordinarily, federal law pre-empts conflicting state law by virtue of the
Supremacy Clause. The McCarran–Ferguson Act reverses that effect in the narrow

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range of cases involving state regulation of the insurance industry.”). For instance,
a state statute like La. Rev. Stat. § 22:868 might reasonably be read to reversepreempt, by way of the McCarran-Ferguson Act, a federal statute like the FAA.
See Am. Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490 (5th Cir. 2006) (affirming
district court holding that a Mississippi statute regulating the business of insurance
reverse-preempts the FAA).
Whether the McCarran-Ferguson Act causes La. Rev. Stat. § 22:868 to reversepreempt the Convention, however, is a different matter entirely, one to which the
Fifth Circuit has clearly spoken. As the Safety National court observed, La. Rev. Stat.
§ 22:868 “conflicts with the United States’[] commitments under the Convention.”
587 F.3d at 719.
The Convention states that each signatory nation “shall
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.” The Convention contemplates enforcement in
a signatory nation’s courts, directing that courts “shall”
compel arbitration when requested by a party to an
international arbitration agreement, subject to certain
exceptions not at issue in the present case.
Id. Yet “requiring arbitration of the present dispute in compliance with the
Convention would contravene” La. Rev. Stat. § 22:868. Id.
Faced with this conflict, the Fifth Circuit determined that the Convention,
though given effect through implementing legislation, is not an “Act of Congress” for
purposes of the McCarran-Ferguson Act. Id. at 722–24. Consequently, “the
McCarran-Ferguson Act’s provision that ‘no Act of Congress’ shall be construed to

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supersede state law regulating the business of insurance is inapplicable.” Id. at 725.
La. Rev. Stat. § 22:868, therefore, does not reverse-preempt the Convention. And
absent such reverse-preemption, the Convention supersedes La. Rev. Stat. § 22:868
“by straightforward application of the Supremacy Clause.” See id. at 746 (Elrod, J.
dissenting); see also Sedco, Inc. v. Petroleos Mexicanos Mexican Nat’l Oil Co. (Pemex),
767 F.2d 1140, 1145 (5th Cir. 1985) (noting that the Convention was “negotiated
pursuant to the Constitution’s [t]reaty power” and made “the highest law of the land”
by its enabling legislation); Todd, 2011 WL 1226464, at *8 (“[T]he Convention
supersedes [La. Rev. Stat.] § 22:868.”).
Accordingly, where the Convention applies, La. Rev. Stat. § 22:868 has no
effect. See Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516 (1992) (“Since [] M’Culloch
v. Maryland, it has been settled that state law that conflicts with federal law is
without effect.”).

McDonnel’s assertion that the conformity to statute provision

applies and writes the arbitration provision out of the policy is, therefore, misplaced.
As the Underwriters note, the conformity to statute provision only applies if a term
of the policy conflicts with a Louisiana statute. Because the Convention supersedes
La. Rev. Stat. § 22:868, however, no conflict exists. Cf. Light v. Blue Cross and Blue
Shield of Ala., Inc., 790 F.2d 1247, 1248 (noting, in the context of a case involving a
conformity to statute provision, that “[i]f ERISA pre-empts state law, there is no
applicable state law to which the administrator must conform”).
The only remaining question is whether the arbitration provision should be
enforced under the Convention. In this regard, “[t]he Convention contemplates a very

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limited inquiry by courts when considering” whether arbitration is required. Sedco,
767 F.2d at 1144.

Specifically, a court must consider (1) whether there is an

agreement in writing to arbitrate the dispute; (2) whether that agreement provides
for arbitration in the territory of a Convention signatory; (3) whether a party to the
agreement is not an American citizen; and (4) whether the agreement arises out of a
commercial legal relationship. Id. at 1145. “If these requirements are met, the
Convention requires district courts to order arbitration.” Id.
These four requirements are easily met.4

The policy contains a written

agreement to arbitrate. That agreement requires arbitration to take place in New
York, New York, in the United States of America, which is a signatory to the
Convention.

The Underwriters are not American citizens.

And the arbitration

agreement arises out of a commercial relationship—namely, an insurance contract
between corporate entities. The Convention, therefore, governs, and arbitration is
appropriate, as the dispute relates to the policy.
Accordingly,
IT IS ORDERED that the Underwriters’ motion to dismiss in favor of
arbitration is GRANTED and that all claims asserted by McDonnel in the abovecaptioned matter are DISMISSED WITHOUT PREJUDICE.

Indeed, McDonnel does not argue to the contrary. Although it contends that the
Convention does not apply, McDonnel does not dispute the Underwriters’ assertions,
made in their motion to dismiss, that there is an agreement in writing to arbitrate
the dispute; that the agreement provides for arbitration in the territory of a
Convention signatory; that a party to the agreement is not an American citizen; and
that the agreement arises out of a commercial legal relationship.
4

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New Orleans, Louisiana, June 28, 2018.

_______________________________________
LANCE M. AFRICK
UNITED STATES DISTRICT JUDGE

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