Zurich Insurance PLC v. Ethos Energy (USA) LLC
Filing
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OPINION AND ORDER granting 5 Motion to Dismiss. The case is DISMISSED WITH PREJUDICE..(Signed by Judge Melinda Harmon) Parties notified.(jdav, 4)
United States District Court
Southern District of Texas
ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ZURICH INSURANCE PLC,
Plaintiff,
VS.
ETHOS ENERGY (USA) LLC,
Defendant.
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August 16, 2016
David J. Bradley, Clerk
CIVIL ACTION NO. 4:15-CV-03580
OPINION AND ORDER
Before the Court is Defendant Ethos Energy’s (“Ethos”) Motion to Dismiss Plaintiff
Zurich Insurance’s (“Zurich”) claims pursuant to Federal Rule of Civil Procedure 12(b)(1). Doc.
5. After reviewing the parties’ submissions and the applicable law, the Court finds that it does
not have subject-matter jurisdiction over this action. The Court grants Defendant’s motion to
dismiss.
I. Background
This case arises from an action to enforce an arbitrator’s subpoena directing a non-party
to the arbitration to produce documents pursuant to 9 U.S.C. § 7, also known as Section 7 of the
Federal Arbitration Act (“FAA”). The underlying arbitration involves Zurich and TransCanada
Turbines, Ltd. (“TCT”). Doc. 1 at 1. Zurich initiated the proceedings on behalf of its subrogors,
seeking compensation for damage sustained to a turbine owned by these subrogors during TCT’s
repair work. Id. at 2–3. Zurich claims that “[a]t the time relevant to the underlying dispute, a
company identified as Wood Group de Chile S.A., contracted with Zurich’s subrogors to provide
operational and management services at the subrogors’ facility. Id. at 3. Zurich further alleges
that Ethos is a successor corporation to Wood Group and also “a corporation intimately related to
. . . TCT.” Id. Zurich claims that pursuant to an Operation and Maintenance Agreement with
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Wood Group, Ethos has a contractual obligation to provide Zurich’s subrogors with
documentation related to warranty claims. Id. at 5. Thus, Zurich seeks to compel Ethos to
produce discovery documents related to its arbitration action with TCT. Id.
After some time of attempting to get Ethos to comply with discovery requests, Zurich
obtained a subpoena duces tecum from the arbitration panel compelling Ethos to produce the
documents. Id. Ethos refuses to respond to the subpoena and Zurich brings the present suit
asking the Court to order cooperation. Id. at 6–7. Ethos moved to dismiss the action on two
grounds: (1) subject-matter jurisdiction is lacking because the FAA does not itself confer
jurisdiction under a federal question, and the amount-in-controversy does not meet the $75,000
threshold required for diversity jurisdiction; and (2) FAA §7 does not authorize the enforcement
of pre-hearing document subpoenas of third parties. The Court finds that it lacks subject-matter
jurisdiction over this action, and thus need not resolve the second issue.
II. Standard of Review
“Federal courts are courts of limited jurisdiction. They possess only that power
authorized by Constitution and statute, which is not to be expanded by judicial decree.”
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (internal citations omitted).
“It is incumbent on all federal courts to dismiss an action whenever it appears that subject-matter
jurisdiction is lacking.” Stockman v. FEC, 138 F.3d 144, 151 (5th Cir. 1998).
A party may raise the issue of jurisdiction by filing a motion to dismiss under Fed. R.
Civ. P. 12(b)(1). The party asserting jurisdiction bears the burden of responding to a Rule
12(b)(1) motion and “constantly bears the burden of proof that jurisdiction does in fact exist.”
Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001). “When a Rule 12(b)(1) motion is
filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1)
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jurisdictional attack before addressing any attack on the merits.” Id.
III. Discussion
A. Federal-Question Jurisdiction
Zurich seeks to establish federal-question jurisdiction through FAA § 7, which authorizes
the summoning of witnesses and documents in arbitration actions. See Doc. 6 at 6. Federalquestion jurisdiction arises in “civil actions arising under the Constitution, laws, or treaties of the
United States.” 28 U.S.C. § 1331. “The [Federal] Arbitration Act is something of an anomaly in
the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and
regulating the duty to honor an agreement to arbitrate, yet it does not create any independent
federal-question jurisdiction under 28 U.S.C. § 1331 . . . or otherwise.” Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983). The Fifth Circuit has similarly
stated that “it is undisputed that the FAA is not an independent grant of federal jurisdiction.”
Hamstein Cumberland Music Grp. v. Williams, 532 F. App’x 538, 542 (5th Cir. 2013) (per
curiam) (quoting Smith v. Rush Retail Ctrs., Inc., 360 F.3d 504, 505 (5th Cir. 2004)) (internal
quotation marks omitted) (referring to FAA § 10).
Zurich argues that the Moses Cone footnote is not applicable because it refers to FAA § 4
and is dictum. Doc. 6 at 9. The Court does not find this argument compelling, as this footnote has
been cited twice by the Supreme Court, as well as the Fifth Circuit. See Hall St. Assocs., L.L.C.
v. Mattel, Inc., 552 U.S. 576, 581–82 (2008); Vaden v. Discover Bank, 556 U.S. 49, 59 (2009)
(noting the prominent role of state courts due to the FAA’s “nonjurisdictional cast”); PrudentialBache Secur., Inc. v. Fitch, 966 F.2d 981, 987 (5th Cir. 1992), abrogated on other grounds by
Vaden, 556 U.S. at 57. While the Fifth Circuit has not addressed this issue in the context of § 7,
other circuits have held that it does not establish independent federal jurisdiction. See, e.g., Stolt3/6
Nielsen SA v. Celanese AG, 430 F.3d 567, 572 (2nd Cir. 2005) (“[P]arties invoking Section 7
must establish a basis for subject-matter jurisdiction independent of the FAA.”); Amgen Inc. v.
Kidney Ctr. of Del. Cnty., Ltd., 95 F.3d 562, 567 (7th Cir. 1996) (“[The FAA] does not create
subject-matter jurisdiction for independent proceedings, whether they involve § 4 or § 7.”). The
Court agrees with the Second and Seventh Circuits, and finds that FAA § 7 does not confer
independent federal jurisdiction. Zurich does not allege an independent basis for jurisdiction, and
thus does not establish federal-question jurisdiction.
B. Diversity Jurisdiction
Zurich alternatively asserts that the Court has diversity jurisdiction over this action. Doc.
6 at 12. For diversity jurisdiction, the amount-in-controversy must exceed $75,000 and complete
diversity must exist between all parties. 28 U.S.C. § 1332(a). Diversity of citizenship is not
contested in this case; the determinative question is whether the amount-in-controversy
requirement is met.
In certain instances, the amount-in-controversy in an underlying arbitration action can
serve as the amount-in-controversy in a subsequent district-court action. In Webb v. Investacorp,
Inc., the Fifth Circuit decided whether the amount-in-controversy sought in an underlying
arbitration action should apply to a motion to remand. 89 F.3d 252, 256 (5th Cir. 1996). The
defendant pursued arbitration of a claim involving $75,000.1 Id. at 255. The plaintiff filed an
action in state court seeking a declaratory judgment that the contracts between it and the
defendant were not subject to arbitration. Id. When the defendant removed the case to federal
court, the plaintiff filed a motion to remand, arguing the amount-in-controversy requirement was
not satisfied because a declaratory judgment action would not result in any direct pecuniary gain
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In 1996, the amount-in-controversy threshold was $50,000.
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or loss to the defendant. Id. The district court denied the motion, and the Fifth Circuit affirmed,
stating “the district court properly looked to the amount of [defendant’s] claim in the underlying
arbitration to determine the amount in controversy in this action for declaratory relief.” Id. at
257.
Here, Zurich contends that the amount-in-controversy in the underlying arbitration should
extend to claims with non-party Ethos. See Doc. 6 at 13. But that is precisely what distinguishes
this case from Webb. Unlike the plaintiff in Webb, Ethos is not a party to the underlying
arbitration. The controversy before the Court does not form the basis of the arbitration, as Zurich
seeks damages from TCT. Zurich asserts no claim against Ethos, and seeks nothing from Ethos
other than the production of discovery documents.
Zurich cites Federal Insurance Co. v. Law Offices of Edward T. Joyce, P.C. for the
proposition that the amount-in-controversy in an underlying arbitration action can extend to
enforce discovery subpoenas on a non-party to the arbitration. Doc. 6 at 12. In that case, the
district-court action involved a non-party to the underlying arbitration, and the court accepted
that the amount-in-controversy requirement was met since the underlying arbitration amount
exceeded $75,000. 2008 WL 4348604, at *1 (N.D. Ill. Mar. 13, 2008). Because that case
contains no reasoning to justify its decision, however, it is not helpful in deciding this issue. See
id. Moreover, the Court is not bound to follow it. See, e.g., Bishop v. City of Galveston, CIV.A.
H-11-4152, 2013 WL 960531, at *12 (S.D. Tex. Mar. 12, 2013) (Harmon, J.) (“[T]his Court first
notes it is not bound by another district court decision.”), aff’d sub nom. Bishop v. City of
Galveston, 595 Fed. App’x 372 (5th Cir. 2014); Fox v. Acadia State Bank, 937 F.2d 1566, 1570
(11th Cir. 1991) (district court is not bound by another district court’s decision, or even an
opinion by another judge of the same district, only by its own appellate court and the Supreme
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Court); Colby v. J.C. Penney Co., Inc., 811 F.2d 1119, 1123 (7th Cir. 1987) (“[N]either this court
nor the district courts of this circuit give the decisions of other courts of appeals automatic
deference; we recognize that, within reason, the parties to cases before us are entitled to our
independent judgment.”).
Finally, Zurich argues that if the underlying arbitration is dismissed, it stands to lose as
much as $7 million. Id. But the arbitration action represents the resolution of the rights and
liabilities of Zurich and TCT. Zurich fails to show how there is any amount-in-controversy
between Zurich and Ethos, as Ethos would not be harmed even if TCT were to lose the
arbitration action. Thus, Zurich has not satisfied its burden in establishing the subject-matter
jurisdiction of this Court.
IV. Conclusion
For the foregoing reasons, the Court does not have subject-matter jurisdiction over this
action. The Court hereby
ORDERS that Defendant’s Motion to Dismiss is GRANTED and the case is hereby
DISMISSED WITH PREJUDICE.
SIGNED at Houston, Texas, this 16th day of August, 2016.
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MELINDA HARMON
UNITED STATES DISTRICT JUDGE
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