NUECES COUNTY, TEXAS, v. CERTAIN UNDERWRITERS AT LLOYD’S OF LONDON et al., 2020 WL 2849944 (S.D. Tex. June 2, 2020).
Issue Discussed: Federal question jurisdiction, removal and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards
Submitted by Amy Kline
Date Promulgated: June 2, 2020
NUECES COUNTY, TEXAS, v. CERTAIN UNDERWRITERS AT LLOYD’S OF LONDON et al.,
2020 WL 2849944 (S.D. Tex. June 2, 2020).
Issue Discussed: Federal question jurisdiction, removal and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards
Submitted by Amy S. Kline
Date Promulgated: June 2, 2020
Case: Nueces County, Tex. v. Certain Underwriters at Lloyd’s of London, No. Civil Action No. 2:20-CV-065, WL 2849944 (S.D. Tex. June 2, 2020).
Issue Discussed: Whether removal to federal court premised on the allegation that the underlying insurance policy contains an arbitration agreement that falls under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards is proper.
Court: U.S. District Court for the Southern District of Texas
Date Decided: June 2, 2020
Issue Decided: A removal petition that makes a non-frivolous allegation that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards applies to the dispute is sufficient to invoke federal question jurisdiction, regardless of whether the arbitration agreement is ultimately held to be applicable.
Submitted by Amy S. Kline *
On June 2, 2020, the U.S. District Court for the Southern District of Texas issued an order denying a motion to remand a dispute removed pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”) of the Federal Arbitration Act. 9 U.S.C. §§ 202-03, 205.
Plaintiff Nueces County, Texas (the “County”) filed an action in the County Court of Nueces County, Texas to recover for property damage caused by Hurricane Harvey, along with extracontractual damages for claims-handling. The defendants removed the action to the U.S. District Court on the basis that the relevant policy contained an arbitration agreement that falls under the Convention, and that they sought to enforce the Convention and compel arbitration of the claims.
The Convention’s removal provision states, in relevant part, that:
Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending.
9 U.S.C. § 205 (emphasis added).
According to the County, the defendants did not, and would not be able to, establish that the dispute “relates to” the arbitration agreement or (b) the arbitration agreement “falls under” the Convention, and that their contention otherwise was “frivolous.”
The court rejected the County’s argument finding that its position “conflat[ed] the jurisdictional inquiry with the merits of the case.” Under Fifth Circuit law, Section 205 of the Federal Arbitration Act alters the ordinary removal practice and makes cases removable under this defense. Beiser v. Weyler, 284 F.3d 665, 671 (5th Cir. 2002). As such, “[a]s long as the defendant’s assertion is not completely absurd or impossible, it is at least conceivable that the arbitration clause will impact the disposition of the case. That is all that is required to meet the low bar of ‘relates to.’” (quoting Beiser, 284 F.3d at 669). Here, defendants’ removal petition alleged that an arbitration agreement that purports to fall under the Convention Act is contained in an insurance policy that was issued by at least one insurance company that is a citizen of a foreign country. The court held that these allegations were not frivolous and that removal was, therefore, appropriate.
The court also rejected the County’s argument that the forum selection clause in the underlying agreement constituted a waiver of the right to remove. The agreement, however, also included a specific non-waiver provision that specifically reserved the right to remove an action to federal court.
* Amy S. Kline is a Partner and Vice-Chair of the Insurance Industry Group at Saul Ewing Arnstein & Lehr, LLP
