Karen L. Suter, the Commissioner of Banking and Insurance of the State of New Jersey, as Liquidator of Integrity Insurance Company v. Munich Reinsurance Company
Docket: 99-5611
Court: Court of Appeals for the Third Circuit; August 7, 2000; Federal Appellate Court
Karen L. Suter, as Liquidator of Integrity Insurance Company, initiated legal proceedings against Munich Reinsurance Company in New Jersey's Superior Court, claiming breaches of reinsurance treaties and seeking damages and declaratory relief. Munich Re removed the case to the U.S. District Court for New Jersey, citing arbitration clauses governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In response, the Liquidator sought to remand the case back to state court on three grounds: the "Service of Suit" clause waived Munich Re's right to remove, the New Jersey Liquidation Act preempted the Convention and the Federal Arbitration Act under the McCarran-Ferguson Act, and Munich Re's prior involvement in litigation barred removal.
A Magistrate Judge recommended granting the remand based solely on the waiver argument, which the District Court accepted, remanding the case without addressing the arbitration motions. Munich Re subsequently appealed the remand order, which is considered a final appealable order due to its reliance on a contractual forum selection clause. The appellate jurisdiction is established as the remand order is treated as a collateral order. The case involves reinsurance treaties from 1978 to 1985, where Munich Re agreed to reinsure certain liabilities of Integrity under specific insurance policies.
In the event of the Reinsurers' failure to pay any claimed amounts, they must submit to the jurisdiction of any competent U.S. court at the Company's request and adhere to the court's legal framework. Each treaty includes an arbitration clause stating that disputes regarding the agreement's interpretation or related transactions will be settled by three arbitrators: one selected by the Company, one by the Reinsurer, and a third chosen by the first two within 30 days.
Delinquency proceedings were initiated against Integrity in 1986, leading to a 1987 court declaration of insolvency, resulting in liquidation under the New Jersey Liquidation Act. The court appointed the New Jersey Commissioner of Insurance as the Liquidator, tasked with settling Integrity's liabilities, managing assets, and concluding its business affairs. The Liquidator must file a Notice of Determination (NOD) for each claim, with the recommended decisions becoming final if not timely contested.
The Liquidator has issued NODs allowing claims for indemnification and defense expenses under Umbrella Policies, but many claims remain unresolved. In June 1996, the Liquidator sought court approval for a Final Dividend Plan (FDP) to expedite the liquidation process, which faced opposition from Munich Re, particularly regarding coverage for defense expenses.
Starting in December 1996, the Liquidator billed Munich Re $6.8 million for allowed claims, including $2.8 million for disputed defense expenses. Munich Re has not paid this amount or the $4 million for undisputed claims, citing a desire to offset these against previous payments made for disputed expenses. Consequently, the Liquidator has initiated a lawsuit against Munich Re in the Liquidation Court for a declaratory judgment affirming coverage for the disputed defense expenses and seeking damages for non-payment.
The primary issue is whether the District Court erred in concluding that a service of suit clause waived Munich Re's right to remove under the Convention Act. This matter is being addressed for the first time. Previous cases considered similar service of suit clauses with respect to waivers of other rights: in *Patten Sec. Corp. v. Diamond Greyhound Genetics* and *In re Texas Eastern Transmissions Corp.*, the court found that federal policies favoring arbitration and protecting foreign sovereigns required clear and unambiguous language for a waiver to be recognized. In contrast, *Foster v. Chesapeake Ins. Co.* determined that no presumption against waiver existed for removal based on diversity grounds.
The Convention Act allows defendants to remove state court actions related to arbitration agreements to federal court before trial, without the need for removal grounds to appear on the complaint itself. The Act aims to ensure predictable enforcement of arbitral contracts and awards for U.S. citizens by foreign governments. For the U.S. to uphold rights under the Convention, Congress needed to assure enforcement of these contracts in U.S. courts. The summary will evaluate whether the waiver of removal rights under the Convention Act parallels the removal rights under the Foreign Sovereign Immunities Act (FSIA) or those based on diversity jurisdiction.
The Supreme Court emphasizes that the Convention aims to promote the recognition and enforcement of international commercial arbitration agreements and to standardize the enforcement of arbitral awards. It highlights the importance of U.S. district courts in facilitating this uniform enforcement and stresses that courts in signatory countries should not reject arbitration agreements based on local biases that undermine their binding nature. The Convention Act reflects Congress's commitment to overcoming historical judicial reluctance to enforce such agreements in international contexts.
The Court also notes the significance of international comity and the need for predictability in resolving disputes in the international commercial arena, asserting that arbitration agreements should be enforced regardless of potentially differing domestic outcomes. The Third Circuit in Patten Sec. Corp. v. Diamond Greyhound Genetics, Inc. reiterates that arbitration is favored under federal law, and ambiguities regarding arbitrable issues should lean towards arbitration. Conversely, it states that forum selection clauses lack the same federal favor and may be unenforceable if they conflict with strong public policy.
In this case, the forum selection clause was deemed ambiguous, lacking reference to arbitration, leading to the conclusion that while the plaintiff submitted to New Jersey courts, it did not waive its right to arbitration. Thus, both the forum selection clause and the arbitration provision can coexist, with the former determining the location for enforcing arbitration awards.
In Foster v. Chesapeake Ins. Co., the court addressed a forum selection clause in a reinsurance agreement, which mandated that the reinsurer submit to the jurisdiction of any competent court in the U.S. at the company's request. The court ruled that this clause waived the reinsurer's right to remove the case based on diversity of citizenship, affirming that the reinsurer had consented to remain in the chosen forum. The court emphasized that allowing removal would contradict the agreement, as it obstructs a court from rendering a final decision.
The court dismissed the need for a "clear and unequivocal" standard for waiving removal rights, arguing that such a standard did not align with the restrictive nature of removal rights and hindered parties' ability to contract concerning litigation venues. Instead, the court advocated for applying standard contractual interpretation principles to assess waiver of removal rights.
Additionally, the court distinguished its ruling from the Sixth Circuit's decision in In re Delta Re, which required a clear waiver under the Foreign Sovereign Immunities Act (FSIA), stating that the considerations for FSIA did not apply to diversity jurisdiction waivers. It also differentiated its earlier ruling in Patten, noting that while arbitration clauses require careful scrutiny, no similar preference exists for federal over state court in diversity cases.
In In re Texas Eastern Transmission Corp., the court reiterated that a service of suit clause did not waive removal rights, aligning with the FSIA's intent to establish a distinct federal subject matter jurisdiction.
The enactment of the Foreign Sovereign Immunities Act (FSIA) was motivated by specific policy considerations related to U.S. international relations, which differ from those applicable to the federal diversity statute. The Supreme Court recognized Congress's intent to minimize interference with foreign relations by centralizing private actions against foreign states in federal courts, specifically through nonjury trials. Consequently, the FSIA designates U.S. District Courts as the "preferred forum" for these cases, promoting a liberal jurisdictional approach to encourage private actions against foreign states.
The FSIA's jurisdictional provisions facilitate this policy, as § 1330 allows original jurisdiction in district courts regardless of the amount in controversy, while § 1441(d) grants foreign states an unconditional right to remove cases to federal court. This section also liberalizes removal timeframes and eliminates the plaintiff's right to a jury trial.
The document addresses whether a service of suit clause waives a foreign state's removal rights, distinguishing the case from Foster due to the unique policy goals of the FSIA. It references the Sixth Circuit's ruling in In re Delta Re, which supports the notion that such a clause does not waive removal rights, emphasizing that the FSIA's objectives are best achieved through a uniform federal legal framework. The court concluded that permitting a vague contractual provision to restrict federal jurisdiction would contradict public policy favoring federal adjudication of claims against foreign states. Moreover, it clarified that the clause in question is better understood as a commitment to submit to U.S. jurisdiction rather than a traditional forum selection clause, addressing concerns about personal jurisdiction without impeding the right of removal.
The conclusion drawn is that a waiver of the right to remove under the Convention Act cannot occur without clear and unambiguous language indicating such a waiver, similar to the standards established under the Foreign Sovereign Immunities Act (FSIA). Both the Convention Act and FSIA favor federal forums, with any ambiguities in contract language being interpreted against waiver. The removal provisions of both statutes allow defendants to remove cases based on foreign domicile without regard to the amount in controversy. The timelines for removal are also extended under both statutes, with defendants able to remove cases at any time before trial without needing to show cause under the Convention Act.
The necessity for an express waiver is emphasized to ensure predictable enforcement of arbitral contracts and awards, unify standards for international arbitration agreements, and mitigate judicial hostility towards arbitration. A clear waiver requirement also limits the potential for other countries to rely on the Convention’s reciprocity clause to deviate from its terms. Despite the possibility of state courts being bound by the Convention, an express waiver rule would maintain uniformity across federal decisions, which can be appealed to ensure consistency.
Four specific considerations that justify treating waivers of removal rights under the FSIA differently from those under diversity statutes are equally applicable to the Convention Act: (1) the broad scope of the removal statute; (2) the aim to mitigate local biases in state courts; (3) the significant shift from established legal norms; and (4) the need for uniformity in application.
The adoption of the "clear and unambiguous language" standard is supported by previous analyses in Texas Eastern and Foster, as well as by the Fifth Circuit's ruling in McDermott Int'l v. Lloyds Underwriters, which emphasized that an express-waiver rule aligns with the Convention Act's objectives of reciprocity, uniformity, and efficiency. In applying this standard, the service of suit clause in the Reinsurance Agreement was deemed ambiguous, and it was determined that it does not waive Munich Re's right to remove under the Convention Act. The clause lacks explicit language waiving removal rights, allowing a defendant to remove a case after complying with state court requirements without violating their agreement to abide by state court decisions. The decision acknowledges the Liquidator's argument regarding foreign relations concerns but asserts that similar statutes indicate otherwise, and that the Supreme Court has recognized foreign policy considerations related to the Convention. The court emphasizes that without legislative guidance, it is inappropriate to interpret statutes based on subjective assessments of their importance, asserting that similar statutes should be interpreted consistently regardless of the nature of the foreign entity involved.
The Liquidator contends that the Convention Act is reverse preempted by the New Jersey Liquidation Act, referencing the McCarran-Ferguson Act, which allows state laws to prevail over federal laws when the federal statute does not specifically relate to insurance and would impair state laws designed for regulating insurance. The Liquidator asserts that several provisions of the New Jersey Liquidation Act would be impaired if Munich Re could remove the case to federal court and compel arbitration. Specifically, the Liquidation Act grants the Superior Court original jurisdiction over delinquency proceedings, establishes that such proceedings are the exclusive method for handling insurer liquidation, and allows the court to issue orders to prevent interference with the commissioner or the insurer's assets.
The Liquidator argues that these provisions were created to regulate insurance and that removing the case or enforcing an arbitration ruling would undermine them. However, it is assumed for the sake of this decision that these provisions do regulate insurance, yet the court finds no impairment. The court notes that this case is not a delinquency proceeding or one seeking access to the insurer's assets. Even if it were, the Superior Court has the authority to enjoin actions that interfere with its proceedings. The court characterizes the case as a suit by the Liquidator against a reinsurer to enforce contract rights for an insolvent insurer, which would ultimately benefit the insurer's estate, indicating no potential interference with the Liquidation Act.
No friction exists between the Liquidation Act and the arbitration of this controversy, as supported by the Liquidator's interest in arbitration. The court in Arkwright Mut. Ins. Co. v. Integrity Ins. Co. confirmed that it did not have exclusive jurisdiction over disputes involving the Liquidator and reinsurers. While a decision against the Liquidator regarding the reinsurance agreement may reduce the estate's value, this does not affect the Liquidation Act's provisions. The Fifth Circuit's interpretation of the Oklahoma Liquidation Act, which granted state courts the power to address all issues related to an insolvent insurance company's assets, is distinguishable from this case due to differences in jurisdiction and the nature of the claims involved. The application of the Convention Act does not conflict with the New Jersey Liquidation Act and is not reverse preempted by it under the McCarran-Ferguson Act. Additionally, the Liquidator's claim that Munich Re consented to the Liquidation Court's jurisdiction is contested by Munich Re, which asserts that its engagement was part of a routine audit rather than discovery. Ultimately, the District Court's order remanding the case to state court is reversed, and the case is remanded to the District Court to consider Munich Re's motion to compel arbitration and for further proceedings aligned with this opinion.
The forum selection clause stipulates that the Agreement is governed by New Jersey law, with the Company consenting to the jurisdiction of New Jersey courts for disputes arising under the Agreement. The service of suit clause requires Underwriters to submit to any competent court in the U.S. at the Assured's request and comply with jurisdictional requirements, with all related matters governed by that court's laws. The Convention Act favors federal courts as the preferred forum for disputes under its provisions, with a strong preference for arbitration. Any ambiguities regarding arbitrable issues should lean towards arbitration. In this context, historical state court biases against arbitration suggest that questions of waiver related to removal rights should favor federal forums, particularly for international arbitration agreements, which are treated more favorably than domestic ones.
The Liquidator contends that Section 205 is more restrictive than Section 1441(d), highlighting that while Section 1441(d) allows for extended removal time limits and dismisses the right to a jury trial in cases that are arbitrable, Section 205 does not require jury trial dismissal since the court itself determines arbitrability. The Liquidator believes Section 1441(d) is broader and less procedural, but it is inferred that Section 1441(d) contains procedural requirements due to its allowance for time extensions under certain conditions. Therefore, the conclusion that Section 205 provides narrower removal rights compared to Section 1441(d) lacks basis.
A dissenting opinion argues that the removal provisions of the Foreign Sovereign Immunities Act (FSIA) differ fundamentally from those applicable to corporations under the Convention Act. Citing *Foster v. Chesapeake Ins. Co.*, it emphasizes that forum selection clauses should be interpreted based on standard contractual principles, which typically allow for waivers of removal rights unless a sovereign's right to remove under the FSIA is clearly stated otherwise. In *In Re Texas Eastern Transmission Corp.*, the court determined that the unique nature of sovereign litigation warrants a departure from normal practices, requiring clear and unequivocal language to waive a sovereign's removal rights under the FSIA, due to its specific policy considerations and broad removal rights. The dissent critiques the majority's view that the FSIA and Convention Act are similar enough to warrant the same interpretation regarding removal rights, asserting that the majority misapplies the principles established in *Foster* and fails to acknowledge the distinct considerations that apply to sovereign versus non-sovereign entities. The dissent maintains that the established standards for contractual waivers should not be conflated with those for non-contractual waivers, underscoring the unique aspects of the FSIA's provisions.
The Convention Act's removal provisions differ significantly from those in the FSIA, lacking the explicit congressional intent for clear waivers of removal rights found in the FSIA. Consequently, corporations do not possess an unqualified right to remove cases under the Convention Act, as sovereigns do under the FSIA. Unlike the FSIA, which addresses unique foreign policy considerations related to sovereign immunity and jurisdiction, the Convention Act does not engage these same unique concerns. The Texas Eastern case clarifies that special removal rules are necessary due to the unique policy issues involved in cases asserting jurisdiction over foreign sovereigns. The courts have emphasized that waivers of removal rights must be explicit, a standard not met by the Convention Act. Moreover, the FSIA provides specific unqualified rights of removal that are not available under the Convention Act, such as the absence of an amount in controversy requirement, the ability to remove after trial has commenced, and an automatic guarantee of a bench trial. In contrast, parties under the Convention Act face significant limitations, including the inability to remove after a trial has started and no guarantee of a bench trial.
The provisions of the Convention Act, while broader than those of 28 U.S.C. § 1441, do not match the breadth of the Foreign Sovereign Immunities Act (FSIA) and do not confer an "unqualified right of removal." The majority's opinion attempts to downplay the significant differences between the FSIA and the Convention Act. Although the Convention Act allows more time for removal compared to § 1441, this distinction does not warrant a departure from the general removal rules, as the FSIA's removal rights are unqualified. The majority's decision improperly extends the FSIA's exception to general removal rules to the Convention Act, based more on its legislative judgment regarding foreign relations and arbitration agreements than on legal precedent. Furthermore, the ruling is deemed unfair to corporations like Munich Re, which negotiated in good faith to litigate in a chosen forum, suggesting that the decision undermines their contractual obligations. The excerpt also critiques a Sixth Circuit opinion regarding contractual waivers, emphasizing the need for clarity in such waivers, particularly in the context of the FSIA. Ultimately, the differences in removal rights between the FSIA and the Convention Act highlight the distinct legal frameworks governing these situations.
