Kronlage Family Limited Partnership v. Independent Specialty Insurance Company

District Court, E.D. Louisiana·Decided August 17, 2022·No. 2:22-cv-01013·Unknown

Opinion

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA

KRONLAGE FAMILY LP CIVIL ACTION VERSUS NO. 22-1013 INDEPENDENT SPECIALTY SECTION: “G”(5) INSURANCE CO. et al.

ORDER AND REASONS Before the Court are Plaintiff Kronlage Family LP’s (“Plaintiff”) “Motion to Remand”1 (the “Motion to Remand”) and “Motion to Invalidate Arbitration Provision as Void under Louisiana Insurance Law” (the “Motion to Invalidate the Arbitration Provision”).2 In the Motion to Remand, Plaintiff argues that Defendants Independent Specialty Insurance Co. (“ISIC”) and Certain Underwriters at Lloyd’s and other Insurers Subscribing to Binding Authority Number B604510568622021 (“Underwriters”) (collectively, “Defendants”) improperly removed the matter based on an invalid arbitration provision and the incorrect assumption that federal law preempts Louisiana insurance law.3 Defendants oppose the motion.4 Plaintiff replies to Defendants’ opposition.5

1 Rec. Doc. 7. 2 Rec. Doc. 20. 3 Rec. Doc. 7-1 at 2. 4 Rec. Doc. 13. 5 Rec. Doc. 18. In support of the Motion to Invalidate the Arbitration Provision, which Plaintiff also describes as a “supplemental reply memorandum in support of its motion to remand”, Plaintiff reiterates the arguments in support of the Motion to Remand and alleges that Defendants have now formally demanded arbitration of the insurance contract even though the arbitration provision is prohibited under Louisiana law.6 Defendants filed an untimely opposition to the Motion to

Invalidate the Arbitration.7 For the reasons discussed below, removal pursuant to the Convention Act, 9 U.S.C. § 201, et seq. (the “Convention Act”), was proper. Furthermore, Louisiana insurance law does not reverse-preempt the Convention Act. Therefore, having considered the motion, the memoranda in support and in opposition, the record, and the applicable law, the Court denies the Motion to Remand. Additionally, given that the arbitration provision at issue is subject to the Convention Act, and not Louisiana law, the Court also denies the Motion to Invalidate the Arbitration Provision. I. Background

This litigation arises out of alleged damage to Plaintiff’s property during Hurricane Ida.8 Plaintiff filed a petition for damages against Defendants in the Twenty-Fourth Judicial District Court for the Parish of Jefferson on March 15, 2022.9 According to the petition, Plaintiff purchased an insurance policy from ISIC on April 6, 2021, insuring the properties located at 1801 and 1809 S. Sherwood Forest Blvd., Baton Rouge, LA 70816, against all risks of loss (the

6 See Rec. Doc. 20-1. 7 Rec. Doc. 24. Pursuant to Local Rule 7.5, Defendants’ opposition to the Motion to Invalidate the Arbitration Provision was due on August 2, 2022. However, Defendants did not file the opposition until August 9, 2022. 8 Rec. Doc. 1-1 at 1. 9 Id. “Policy”).10 In the petition, Plaintiff avers that, on August 29, 2021, the property covered by the Policy was severely damaged by hurricane force winds sustained during Hurricane Ida.11 On April 14, 2022, Defendants removed the action to this Court, asserting subject matter jurisdiction based on a federal question under 28 U.S.C. §§ 1441 and 1446.12 In the Notice of

Removal, Defendants assert that removal is proper because there is an arbitration provision in the Policy that falls under the Convention Act.13 “Congress promulgated the Convention Act in 1970 to establish procedures for our courts to implement” the Convention on the Recognition and Enforcement of Foreign Arbitral Award (the “Convention”).14 The Convention is an international treaty, ratified by Congress in 1970, which seeks to “encourage the recognition and enforcement of commercial contracts and to unify the standard by which the agreements to arbitrate are observed, and arbitral awards are enforced in signatory countries.”15 Therefore, Defendants aver in the Notice of Removal that, because Underwriters are a foreign corporation with its principle place of business in the United Kingdom, and because the United Kingdom signed the Convention, this Court has original jurisdiction under the Convention Act.16

10 Id. at 2. 11 Id. at 3. 12 Rec. Doc. 1 at 3. 13 Id. 14 McDermott Intern., Inc. v. Lloyds Underwriters of London, 944 F.2d 1199, 1208 (5th Cir. 1991). 15 Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974). 16 Id. at 3–5. 9 U.S.C. § 205 states that “where a subject matter of an action or proceeding pending in State court relates to an arbitration agreement or award falling under the Convention, … the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States and division embracing the place where the action or proceeding is pending.” Plaintiff then filed the Motion to Remand, arguing that the removal was improper because it was based on an invalid arbitration provision and relied on the incorrect assumption that federal law preempts Louisiana insurance law.17 Defendants oppose the motion, arguing that the validity of the arbitration agreement is not relevant when deciding a motion to remand, removal under the

Convention Act was proper, and Louisiana insurance law does not reverse-preempt the Convention Act.18 In reply, Plaintiff argues that Defendants provide no evidentiary support that the Underwriters are international entities subject to the Convention and alternatively asks for the Court to treat any participating international entities differently.19 Then, Plaintiff filed the Motion to Invalidate the Arbitration Provision, claiming that Defendants engaged in the “prohibited action” under Louisiana law of formally demanding arbitration of the dispute.20 Defendants filed an untimely opposition to the Motion to Invalidate the Arbitration.21 II. Parties’ Arguments A. Plaintiff’s Arguments in Support of Remand In the Motion to Remand, Plaintiff argues that removal was improper for two reasons.22 First, Plaintiff contends that removal was improperly based on an arbitration provision that, on its

17 Rec. Doc. 7-1 at 2. 18 See Rec. Doc. 13. 19 Rec. Doc. 18 at 1–2. 20 Rec. Doc. 20-1 at 1. 21 Rec. Doc. 24. Pursuant to Local Rule 7.5, Defendants’ opposition to the Motion to Invalidate the Arbitration Provision was due on August 2, 2022. However, Defendants did not file the opposition until August 9, 2022. 22 Rec. Doc. 7-1 at 2. face, is invalid in Louisiana.23 Plaintiff asserts that the arbitration provision is buried in the Policy and “has several requirements which do not comply with Louisiana Insurance law.”24 Second, Plaintiff argues that Defendants’ removal “relies on federal question jurisdiction that improperly assumes federal law preempts Louisiana’s Insurance Law.”25 In support of this contention, Plaintiff relies on Donelon v. Shilling,26 a Louisiana Supreme Court opinion which

holds that state law reverse-preempts the Federal Arbitration Act (“FAA”) under the McCarran- Ferguson Act.27 Plaintiff asserts that the Convention Act is reverse-preempted by Louisiana law under the McCarran-Ferguson Act because “[e]ven defendants admit that the Convention is simply a subpart of the [FAA].”28 Therefore, Plaintiff concludes that this Court does not have original jurisdiction over this matter.29 B. Defendants’ Arguments in Opposition to Remand In opposition to Plaintiff’s Motion to Remand, Defendants advance three arguments.

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Kronlage Family Limited Partnership v. Independent Specialty Insurance Company, (E.D. La. 2022).

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