Zurich American Insurance Company et al v. Vitus Marine, LLC et al DO NOT DOCKET. CASE HAS BEEN TRANSFERRED OUT

Filing 18

MEMORANDUM AND ORDER GRANTED 5 MOTION to Determine Venue.(Signed by Judge Nancy F. Atlas) Parties notified.(sashabranner, )

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ZURICH AMERICAN INSURANCE
COMPANY, et al.,
Plaintiffs,
v.
VITUS MARINE, LLC, et al.,
Defendants.

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CIVIL ACTION NO. H-11-3022

MEMORANDUM AND ORDER
This insurance coverage dispute is before the Court on the “Motion to
Determine Venue” [Doc. # 5] filed by Plaintiffs Zurich American Insurance Company,
National Union Fire Insurance Company of Pittsburgh, National Casualty Company,
Great American Insurance Company of New York, and Starr Indemnity & Liability
Company (collectively, “Underwriters”). Defendants Vitus Marine, LLC, Microgen
Technologies, Inc., and Sneed Shipbuilding, Inc. filed a Response [Doc. # 13] that
included a Cross-Motion to Dismiss or Transfer. Plaintiffs filed an Opposition [Doc.
# 16] to the Cross-Motion, and Defendants filed a Reply [Doc. # 17].
The Court has considered the parties’ briefing, the applicable legal authorities,
and all matters of record. The Court grants the Motion to Determine Venue to the
extent that the Court grants the Motion to Transfer pursuant to 28 U.S.C. § 1404(a).
I.

BACKGROUND

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This declaratory judgment action was filed after Defendants made claims under
an insurance policy, Subscription Policy No. FIS-10-042 (“Policy”). The Policy was
issued by FIS Marine/Arthur J. Gallagher Risk Management Services, Inc. (“FIS
Marine”), and Plaintiffs are the subscribing underwriters. The insurance claims are
the result of repairs that were made to two barges built at Sneed Shipbuilding, Inc.
(“Sneed”) after it was discovered that the barges contained defective welds.
Underwriters denied coverage, asserting that the Policy does not provide coverage for
defective or faulty workmanship. Defendants assert that they specifically negotiated
for the deletion from the Policy of “Addendum 2,” the standard policy provision
excluding coverage for damage to a vessel arising out of a builder’s faulty
construction and production procedures.
Plaintiffs filed this declaratory judgment lawsuit in this Court on August 18,
2011, at 10:40 a.m. Central Daylight Time. Defendants’ assignee filed a related
lawsuit in the United States District Court for the Western District of Washington that
same day at 4:04 p.m. Pacific Daylight Time. Plaintiffs argue that its lawsuit was filed
first and, therefore, the case should remain here. Defendants seek transfer of this case
to the federal court in Washington pursuant to 28 U.S.C. § 1404(a) for the
convenience of the parties and witnesses, and in the interest of justice. The issue has
been fully briefed and is now ripe for decision.

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II.

MOTION TO TRANSFER VENUE
Defendants move to transfer this case to the Western District of Washington

pursuant to 28 U.S.C. § 1404(a). Section 1404(a) provides that “[f]or the convenience
of parties and witnesses, in the interest of justice, a district court may transfer any civil
action to any other district or division where it might have been brought.” 28 U.S.C.
§ 1404(a); In re Volkswagen of Am., Inc., 545 F.3d 304, 308 n.1 (5th Cir. 2008) (en
banc), cert. denied, 129 S. Ct. 1336 (2009) (“Volkswagen II”); Pension Advisory
Group, Ltd. v. Country Life Ins. Co., 771 F. Supp. 2d 680, 709 (S.D. Tex. 2011) (Jack,
J.).
A.

District Where Case Could Have Been Brought

To determine whether transfer is appropriate under § 1404(a), the Court must
first determine “whether the judicial district to which transfer is sought would have
been a district in which the claim could have been filed.” In re Volkswagen AG, 371
F.3d 201, 203 (5th Cir. 2004) (“Volkswagen I”). A substantial part of the events
giving rise to this lawsuit, specifically the negotiation and signing of the Policy,
occurred in Seattle, Washington. As a result, this lawsuit could have been filed in the
Western District of Washington pursuant to 28 U.S.C. § 1391(a)(2).
B.

Standard for § 1404(a) Transfer

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The moving party must also show good cause for a transfer of venue.
Volkswagen II, 545 F.3d at 315. To show good cause, a moving party must “clearly
demonstrate that a transfer is for the convenience of parties and witnesses, in the
interest of justice.” Id. If “the transferee venue is not clearly more convenient than
the venue chosen by the plaintiff, the plaintiff’s choice should be respected.” Id.
Courts analyze pertinent private and public factors to determine whether transfer
would be more convenient for the parties and witnesses and in the interests of justice.
See In re Horseshoe Enter., 337 F.3d 429, 433-35 (5th Cir. 2003). These public and
private factors are not necessarily exhaustive or exclusive, and none can be said to be
of dispositive weight. Action Indus., Inc. v. U.S. Fid. & Guar. Corp., 358 F.3d 337,
340 (5th Cir. 2004) (citing Syndicate 420 at Lloyd’s London v. Early Am. Ins. Co., 796
F.2d 821, 827 (5th Cir. 1986)).
While “a plaintiff’s choice of venue is not a distinct factor in the venue transfer
analysis, it is nonetheless taken into account as it places a significant burden on the
movant to show good cause for the transfer.” See Volkswagen II, 545 F.3d at 315.
Where the plaintiff is not a resident of the chosen forum, or when the facts underlying
the claims did not occur in the chosen forum, the plaintiff’s choice is entitled to less
deference. See Horseshoe, 337 F.3d at 434-35; Rimkus Consulting Group, Inc. v.
Balentine, 693 F. Supp. 2d 681, 690 (S.D. Tex. 2010) (Ellison, J.). In this case, it is

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undisputed that none of the Plaintiffs is a citizen of Texas. As a result, Plaintiffs’
choice to file this lawsuit here does not weigh heavily in the § 1404(a) analysis.
C.

Private Interest Factors

The Court must consider private interest factors. “The private interest factors
are: (1) the relative ease of access to sources of proof; (2) the availability of
compulsory process to secure the attendance of witnesses; (3) the cost of attendance
for willing witnesses; and (4) all other practical problems that make trial of a case
easy, expeditious, and inexpensive.”

Volkswagen II, 545 F.3d at 315 (citing

Volkswagen I, 371 F.3d at 203). The relative convenience to the witnesses is often
recognized as the most important factor under § 1404(a). Spiegelberg v. Collegiate
Licensing Co., 402 F. Supp. 2d 786, 790 (S.D. Tex. 2005). In considering the
convenience of witnesses, the relative convenience to key witnesses and key non-party
witnesses is accorded greater weight in the venue transfer analysis. See id. at 790–91
(non-party witnesses); Gundle Lining Const. Corp. v. Fireman’s Fund Ins. Co., 844
F. Supp. 1163, 1166 (S.D. Tex. 1994) (key non-party witnesses); Continental Airlines,
Inc. v. Am. Airlines, Inc., 805 F. Supp. 1392, 1396 (S.D. Tex. 1992) (key witnesses).
The private interest factors weigh heavily in favor of transfer. Although
Defendant Sneed is a Texas corporation, the dispute in this declaratory judgment
action involves insurance coverage, not the underlying defects to the barges. The

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insurance policy, specifically the alleged deletion of Addendum 2, was negotiated and
signed in Washington, where most, if not all, key witnesses reside. The only witness
in Texas is the Sneed representative who participated in the policy negotiations in
Seattle, Washington, and who has agreed to travel to Washington as required. The
attendance of all key witnesses could be obtained with significantly less difficulty and
undue expense for any hearing or trial in Washington. It is undisputed that the vast
majority of any necessary depositions would need to be conducted in Washington.
Plaintiffs argue that there will be no need for witnesses because this is an
insurance coverage dispute. Under Washington law, however, contract interpretation
is based on “the contract as a whole” and includes consideration of “all circumstances
surrounding its formation” and “statements made by the parties in preliminary
negotiations.” See Carpenter v. Remtech, Inc., 226 P.3d 159, 161-62 (Wash. App.
2010); see also Spratt v. Crusader Ins. Co., 37 P.3d 1269, 1272 (Wash. App. 2002)
(holding that in cases involving actual negotiations between the insurer and the
insured, “extrinsic evidence is admissible to show the parties’ mutual intentions”).
The private interest factors weigh in favor of transfer to the district where the
majority of key witnesses are located, and where it will be significantly less expensive
and difficult for witnesses outside the Western District of Washington, most of whom
are located in Alaska and California, to attend court proceedings.

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D.

Public Interest Factors

The Court must also consider public interest factors, including (1) the
administrative difficulties flowing from court congestion; (2) the local interest in
having localized interests decided at home; (3) the familiarity of the forum with the
law that will govern the case; and (4) the avoidance of unnecessary problems of
conflict of laws or in the application of foreign law.” Volkswagen II, 545 F.3d at 315
(citing Volkswagen I, 371 F.3d at 203).
The public interest factors weigh heavily in favor of transfer. The Southern
District of Texas is an exceedingly busy court. This is not a local Houston dispute
because the insurance policy at issue was negotiated and issued in Seattle,
Washington, not in Texas.
The Washington court has much more familiarity with the application of
Washington law, particularly in connection with the Washington statutory claims that
are pending in the Washington lawsuit. Plaintiffs’ argument that Texas law will
apply, and their reliance on Article 21.42 of the Texas Insurance Code, is flawed.
That section provides that a contract of insurance payable to a citizen of Texas and
issued by an insurance company in the course of its doing business in Texas is deemed
a “contract made and entered into under and by virtue of the laws of” Texas. See TEX.
INS. CODE art. 21.42; Reddy Ice Corp. v. Travelers Lloyds Ins. Co., 145 S.W.3d 337,

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341 (Tex. App. – Houston [14th Dist.] 2004, no pet.). The provision is to be
construed narrowly to avoid giving it “extraterritorial effect.” Reddy Ice, 145 S.W.3d
at 341 (citing Aetna Life Ins. Co. v. Dunken, 266 U.S. 389, 399 (1924); Austin Bldg.
Co. v. Nat'l Union Fire Ins. Co., 432 S.W.2d 697, 701 (Tex. 1968)). In this case, the
record establishes that because the claimed loss is less than the purchase price of the
barges, the insurance proceeds are payable to Microgen Technologies, Inc., a
corporation that is not a citizen of Texas. As a result, the first requirement for the
application of Article 21.42 is not satisfied.
Plaintiffs argue also that Texas law applies pursuant to Restatement (Second)
Conflict of Laws § 193, which provides that the validity of an insurance contract, and
the rights created thereby, should be determined by the law of the state where the
insured risk is located. The section goes on, however, to provide that its choice of law
provision based on the location of the insured risk applies “unless with respect to the
particular issue, some other state has a more significant relationship . . . to the
transaction and the parties, in which event the local law of the other state will be
applied.” In this case, the dispute involves the circumstances surrounding the
negotiation of the insurance policy, which occurred in Seattle, Washington.
Moreover, under Texas law, there is a presumption that the parties intended their
insurance contract to be evaluated under the law of the state “where the contract was

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made.” Austin Bldg. Co. v. Nat’l Union Fire Ins. Co., 432 S.W.2d 697, 701 (Tex.
1968). Consequently, it appears that Washington law will apply in this case, and the
Washington federal court is more familiar with the application of Washington law.
The public interest favors resolving this dispute in the district where the policy
was negotiated and signed.
III.

CONCLUSION AND ORDER
The Court agrees that this lawsuit was filed before the Washington lawsuit and,

therefore, this Court should decide where the cases should proceed. Defendants have
demonstrated that the interests of the parties and witnesses strongly favor transfer of
the case to the Western District of Washington. The Court notes that this ruling is
based exclusively on § 1404(a) principles. The Court does not find that Plaintiffs
engaged in improper forum shopping or acted in bad faith by filing this lawsuit. The
Court is not abstaining from deciding the insurance coverage issues but is, instead,
transferring the case to a federal court that best accommodates the convenience of the
parties and witnesses, as well as the interests of justice.
Based on the foregoing, it is hereby
ORDERED that Plaintiffs’ Motion to Determine Venue [Doc. # 5] is
GRANTED to the extent that this Court will decide the venue issue. It is further

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ORDERED that Defendants’ Motion to Transfer [Doc. # 13] is GRANTED.
By separate order, the Court will transfer this case to the United States District Court
for the Western District of Washington pursuant to 28 U.S.C. § 1404(a).
SIGNED at Houston, Texas, this 19th day of October, 2011.

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