Summary
In Milmar Food Grp. II, LLC v. Applied Underwriters, Inc., 85 N.Y.S.3d 347 (N.Y. Sup. Ct. 2018), the plaintiff sued Applied, AUCRA, ARS of New York, Continental, and two other companies regarding its insurance agreement.
Summary of this case from Coyle Trucking, Inc. v. Applied Underwriters, Inc.Opinion
EF003101-2017
09-24-2018
MILMAR FOOD GROUP II, LLC, Milmar Food Group, LLC and Milmar LLC, Plaintiffs, v. APPLIED UNDERWRITERS, INC., Applied Underwriters Captive Risk Assurance Company, Inc., Applied Risk Services, Inc., Applied Risk Services of New York, Inc., North American Casualty Company, Continental Indemnity Company, and California Insurance Company, Defendants.
For Plaintiffs: Andrew S. Lewner, Esq., Westerman Ball Ederer Miller Zucker & Sharfstein LLP, Uniondale, New York For Defendants: Shand S. Stephens, Esq., Anthony P. Coles, Esq., Joseph Alonzo, Esq., DLA Piper LLP (US), New York, New York
For Plaintiffs: Andrew S. Lewner, Esq., Westerman Ball Ederer Miller Zucker & Sharfstein LLP, Uniondale, New York
For Defendants: Shand S. Stephens, Esq., Anthony P. Coles, Esq., Joseph Alonzo, Esq., DLA Piper LLP (US), New York, New York
Catherine M. Bartlett, J.
It is ORDERED that the motion is disposed of as follows: Plaintiffs (collectively, "Milmar") are affiliated New York companies, engaged in the production and distribution of food products, which are required by New York law to provide workers compensation insurance for their employees. Defendants provide products and services in connection with workers compensation insurance coverage. Beginning in 2013, Milmar was covered under a workers compensation program (the "EquityComp Program") created, patented and implemented by Defendants.
There are essentially three components to this Program:
(1) Standard workers compensation insurance policies issued to Milmar by defendants Continental Indemnity Company ("Continental") and California Insurance Company ("California"), with rates and forms approved by New York's Department of Financial Services or its predecessor, the New York Insurance Department;
(2) A reinsurance agreement (the "Reinsurance Treaty") between defendant Applied Underwriters Captive Risk Assurance Company, Inc. ("AUCRA") and affiliates of defendant Applied Underwriters, Inc. ("AU"), including Continental and California; and
(3) A "Reinsurance Participation Agreement " ("RPA") between AUCRA and Milmar.
Milmar commenced this action, complaining that the RPA is illegal and fraudulent, and seeking inter alia a declaratory judgment that the RPA is void and unenforceable under the New York Insurance Law, equitable rescission of the RPA and money damages for sums paid under the RPA in excess of premiums due under the Continental and California insurance policies.
Defendants move, inter alia , (1) to dismiss Milmar's claims against AUCRA on the ground that the RPA designates the courts of Nebraska as the exclusive forum for resolving "any matter concerning this Agreement that is not subject to the dispute resolution provisions of Paragraph 13 hereof," and (2) to dismiss Milmar's claims against all remaining Defendants on the ground that AUCRA is a necessary party who cannot be joined in this New York action.
By prior Decision and Order dated December 6, 2017, this Court (1) held that by virtue of the McCarran-Ferguson Act, Section 25-2602.01(f)(4) of the Nebraska Uniform Arbitration Act reverse preempts the Federal Arbitration Act and invalidates the RPA's dispute resolution provisions, and accordingly (2) denied Defendants' motion to compel arbitration of Plaintiff's claims in this action. See, Milmar Food Group II, LLC v. Applied Underwriters, Inc., 58 Misc. 2d 497, 295 N.Y.S.2d 583 (Sup. Ct. Orange Co. 2017).
I. THE NEBRASKA FORUM SELECTION CLAUSE
A. The Issues on Defendants' Motion
Defendants move pursuant to CPLR § 3211(a)(1) (i.e. , on the basis of documentary evidence) to dismiss Milmar's claims against AUCRA on the ground that the RPA designates the courts of Nebraska as the exclusive forum for resolving "any matter concerning this Agreement that is not subject to the dispute resolution provisions of Paragraph 13 hereof disputes concerning the Agreement."
Milmar, in opposition, contends that (1) Nebraska law, not New York law, governs the enforceability of the RPA's forum selection clause; (2) the forum selection clause is unenforceable under Nebraska's Choice of Forum Act, Neb.Rev.St. § 25-414 ; (3) Milmar's claims are not within the scope of the RPA's forum selection clause; (4) the forum selection clause should be set aside on the ground of fraudulent inducement; (5) due process concerns preclude enforcement of the Nebraska forum selection clause against Milmar; and (6) AUCRA is collaterally estopped from enforcing the Nebraska forum selection clause.
B. The Legal Standard Governing Defendant's CPLR 3211(a)(1) Motion
CPLR § 3211(a)(1) provides that "[a] party may move for judgment dismissing one or more causes of action asserted against him on the ground that a defense is founded upon documentary evidence." "A contractual forum selection clause is documentary evidence...that may provide a proper basis for dismissal pursuant to CPLR 3211(a)(1)." Lischinskaya v. Carnival Corp. , 56 A.D.3d 116, 123, 865 N.Y.S.2d 334 (2d Dept. 2008), lv denied 12 N.Y.3d 716, 2009 WL 1851758 (2009) ; Landmark Ventures, Inc. v. Birger , 147 A.D.3d 497, 48 N.Y.S.3d 315 (1st Dept. 2017). "[A] dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense as a matter of law." Leon v. Martinez , 84 N.Y.2d 83, 88, 614 N.Y.S.2d 972, 638 N.E.2d 511 (1994) ; Walker, Truesdell, Roth & Associates, Inc. v. Globeop Financial Services LLC , 43 Misc. 3d 1230(A), 2013 WL 8597474 at *4 (Sup. Ct. NY Co. 2013).
C. The RPA's Choice of Law and Forum Selection Provisions
The RPA provides in pertinent part as follows:
14. Participant hereby irrevocably and unconditionally submits to the exclusive jurisdiction of the Courts of Nebraska for the purpose of enforcing any arbitration award rendered hereunder and all other purposes related to this Agreement, and agrees to accept service of process in any case instituted in Nebraska related to this Agreement and further agrees not to challenge venue in Nebraska provided such process is delivered in accordance with the applicable rules for service of process then in effect in Nebraska....
....
16. This Agreement shall be exclusively governed by and construed in accordance with the laws of Nebraska and any matter concerning this Agreement that is not subjectto the dispute resolution provisions of Paragraph 13 hereof shall be resolved exclusively by the courts of Nebraska without reference to its conflict of laws.
D. Which State's Law Governs?
"It is well-settled policy of the courts of this State to enforce contractual provisions for choice of law and selection of a forum for litigation." Boss v. American Express Fin. Advisors, Inc. , 15 A.D.3d 306, 307, 791 N.Y.S.2d 12 (1st Dept. 2005), aff'd 6 N.Y.3d 242, 811 N.Y.S.2d 620, 844 N.E.2d 1142 (2006). See also , Culbert v. Rols Capital Co. , 184 A.D.2d 612, 613, 585 N.Y.S.2d 67 (2d Dept. 1992) (citing Freedman v. Chemical Constr. Corp., 43 N.Y.2d 260, 265, 401 N.Y.S.2d 176, 372 N.E.2d 12 (1977) ). New York courts will enforce a foreign choice of law provision so long as the chosen forum bears a reasonable relation to the agreement and the enforcement of a foreign rule of law does not violate a fundamental public policy of New York. See, Boss v. American Express Fin. Advisors, Inc., supra ; Culbert v. Rols Capital Co., supra ; Gambar Enterprises, Inc. v. Kelly Services, Inc. , 69 A.D.2d 297, 303, 418 N.Y.S.2d 818 (4th Dept. 1979). Nebraska, as the principal place of business of AUCRA, one of the contracting parties, clearly bears a reasonable relation to the RPA. Neither party has asserted, much less demonstrated, that Nebraska law violates this State's fundamental public policy. Hence, the RPA's Nebraska choice-of-law provision is enforceable in this action.
Nebraska law imported via the RPA's choice-of-law provision applies to "substantive" issues only:
"Under common law rules matters of procedure are governed by the law of the forum" ( Martin v. Julius Dierck Equip. Co. , 43 N.Y.2d 583, 588 [403 N.Y.S.2d 185, 374 N.E.2d 97 (1978) ]...). "On the other hand, matters of substantive law fall within the course chartered by choice of law analysis" ( Tanges v. Heidelberg N. Am. , 93 N.Y.2d 48, 53 [687 N.Y.S.2d 604, 710 N.E.2d 250 (1999) ]...). New York courts therefore apply contractual choice of law clauses only to substantive issues (see Sears Roebuck & Co. v. Enco Assoc. , 43 N.Y.2d 389, 397 [401 N.Y.S.2d 767, 372 N.E.2d 555 (1977) ]...).
Education Resources Institute, Inc. v. Piazza , 17 A.D.3d 513, 794 N.Y.S.2d 65 (2d Dept. 2005). See also , USA India Export Import, Inc. v. Coca-Cola Refreshments USA, Inc. , 46 Misc. 3d 1215(A), 2015 WL 442028 at *7 (Sup. Ct. Westchester 2015).
As the Court in USA India Export Import, Inc., supra , observed, "[t]here is a division in authority as to whether the law of the forum chosen pursuant to a choice of law clause governs the enforceability of the forum selection clause." Id. , 46 Misc. 3d 1215(A) at *7. It "appeared" to that Court on the basis of federal caselaw that "the rule is that ‘questions of venue and the enforcement of forum selection clauses are essentially procedural, rather than substantive, in nature,’ " wherefore it applied New York law in determining the enforceability of a Georgia forum selection clause in a contract with a Georgia choice-of-law provision. Id. , at *7-8. See also, New York Trans Harbor LLC v. Derektor Shipyards Conn., LLC , 19 Misc. 3d 1134(A), 2008 WL 2097566 at *2-3 (Sup. Ct. Kings Co. 2008) (per the same federal caselaw, applying New York law to determine enforceability of English forum selection clause in contract with English choice-of-law provision). Another New York court, addressing a contract with New Jersey choice-of-law and forum selection provisions, held to the contrary that New Jersey law, not New York law, must be used to determine the meaning and enforceability of the contract's forum selection clause. See , Compunnel Software Group, Inc. v. Spectrasoft Technologies, Inc. , 21 Misc. 3d 1129(A), 2008 WL 4900618 at *1-2 (Civ. Ct. City of NY 2008).
It must be noted, however, that federal courts are divided as well. The Second Circuit Court of Appeals has acknowledged that "[t]he circuits are split around the question of whether a federal court sitting in diversity should apply federal or state law to determine the enforceability of a forum selection clause designating a domestic forum..." Martinez v. Bloomberg LP, 740 F.3d 211, 222 (2d Cir. 2014). The Martinez Court held, as a matter of federal law, that "questions of enforceability are resolved under federal law, while interpretive questions — questions about the meaning and scope of a forum selection clause — are resolved under the substantive law designated in an otherwise valid contractual choice-of-law clause." Id. , at 224.
The case at bar is only further complicated by the fact that the parties' agreement to a Nebraska choice-of-law provision effectively incorporated in the RPA Neb.Rev.Stat. § 25-414, a Nebraska statute which specifically concerns the enforcement of forum selection clauses. See , Woodmen of the World Life Ins. Society v. Puccio , 1 Neb. App. 478, 482, 499 N.W.2d 85 (Ct. App. 1993), overruled on other grounds by Woodmen of the World Life Ins. Society v. Yelich , 250 Neb. 345, 351, 549 N.W.2d 172 (1996). However, Nebraska courts have not definitively determined whether the law of the forum or the law designated in the contract governs the enforceability of a contractual forum selection clause. Faced with an agreement containing Pennsylvania choice-of-law and forum selection clauses, the Nebraska Supreme Court observed that analysis of the enforceability of the forum selection clause was complicated by the foreign choice-of-law provision and wrote: When a party to such an agreement files suit in a state that is not designated by either the forum selection clause or the choice-of-law clause, it is necessary to determine which state's law will govern the enforceability of the foreign selection clause itself. However, because in the present case we determine that the forum selection clause...is enforceable under either Nebraska law or Pennsylvania law, we need not decide which jurisdiction's law governs the question of enforceability of the forum selection clause.
Polk County Recreational Ass'n. v. Susquehanna Patriot Commercial Leasing Co., Inc., 273 Neb. 1026, 1036-37, 734 N.W.2d 750 (2007).
In the parallel circumstances present here, this Court similarly finds that analysis under New York law and under Nebraska law leads to the same result, and hence, that it is unnecessary to decide which jurisdiction's law governs the enforceability of the RPA's Nebraska forum selection clause.
E. The Forum Selection Clause Is Enforceable Under New York Law
" ‘Forum selection clauses are enforced because they provide certainty and predictability in the resolution of disputes’ (see Brooke Group v. JCH Syndicate 488 , 87 N.Y.2d 530, 534, 640 N.Y.S.2d 479, 663 N.E.2d 635 ... [1996] )." Boss v. American Express Fin. Advisors, Inc., supra , 6 N.Y.3d 242, 247, 811 N.Y.S.2d 620, 844 N.E.2d 1142 (2006). "The parties to an agreement ‘may freely select a forum which will resolve any disputes over the interpretation or performance of the contract’ ( Brooke Group v. JCH Syndicate 488 ,...). Such a forum selection clause is prima facie valid and enforceable ‘unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or it is shown that a trial in the selected forum would be so gravely difficult that the challenging party would, for all practical purposes, be deprived of its day in court’ ( LSPA Enter., Inc. v. Jani-King of NY, Inc. , 31 A.D.3d 394, 395, 817 N.Y.S.2d 657 (2d Dept. 2006)...[cit.om.]. ‘Absent a strong showing that it should be set aside, a forum selection agreement will control’ ( DiRuocco v. Flamingo Beach Hotel & Casino , 163 A.D.2d 270, 272, 557 N.Y.S.2d 140 (2d Dept. 1990)...)." Horton v. Concerns of Police Survivors, Inc. , 62 A.D.3d 836, 878 N.Y.S.2d 793 (2d Dept.), lv. denied 13 N.Y.3d 706, 2009 WL 2959671 (2009). See also , Trump v. Deutsche Bank Trust Co. Americas , 65 A.D.3d 1329, 1331, 887 N.Y.S.2d 121 (2d Dept. 2009) ; Sterling National Bank v. Eastern Shipping Worldwide, Inc. , 35 A.D.3d 222, 826 N.Y.S.2d 235 (1st Dept. 2006).
Milmar has not attempted to demonstrate that the Nebraska forum selection clause is unenforceable under New York law, claiming instead that the matter is governed by Nebraska law, and specifically, Neb.Rev.St. § 25-414.
There is no evidence that it would be unreasonable, unjust, or in contravention of New York public policy to require Milmar to abide by its agreement to litigate its claims against AUCRA in Nebraska.
Moreover, the RPA's Nebraska forum selection clause may be invalidated due to fraud or overreaching only if the fraud / overreaching is specific to the forum selection clause itself. See , Sterling National Bank v. Eastern Shipping Worldwide, Inc., supra , 35 A.D.3d at 223, 826 N.Y.S.2d 235 ; British West Indies Guaranty Trust Co., Ltd. v. Banque Internationale a Luxembourg , 172 A.D.2d 234, 567 N.Y.S.2d 731 (1st Dept. 1991) ; Studebaker-Worthington Leasing Corp. v. New Concepts Realty, Inc. , 25 Misc. 3d 1, 7, 887 N.Y.S.2d 752 (App. Term 2009) ; Signature Financial LLC v. Neighbors Global Holdings, LLC , 281 F.Supp.3d 438, 446 (S.D.N.Y. 2017) (surveying New York law). Milmar's claim of fraud and overreaching is directed to the RPA as a whole, and not specifically to the forum selection clause. The only exception to this rule is where the fraud so pervades the parties' agreement as to render it void ab initio . See , DeSola Group, Inc. v. Coors Brewing Company , 199 A.D.2d 141, 142, 605 N.Y.S.2d 83 (1st Dept. 1993) (citing Matter of Weinrott [Carp] , 32 N.Y.2d 190, 344 N.Y.S.2d 848, 298 N.E.2d 42 [1973] ); Studebaker-Worthington Leasing Corp. v. New Concepts Realty, Inc., supra ; Signature Financial LLC v. Neighbors Global Holdings, LLC, supra . Milmar has made no such showing, and another court, recently confronted with this very issue in another EquityComp case, held that the RPA could not be voided ab initio on the basis of claims much like Milmar's against AUCRA here. See, AGL Industries, Inc. v. Continental Indemnity Company , 2018 WL 3510387 at *3 (E.D.N.Y. July 19, 2018). Finally, Milmar has not shown that trial in Nebraska would be so gravely difficult that it would, for all practical purposes, be deprived of its day in court. Applying a forum non conveniens analysis in accord with what it takes to be Nebraska law, Milmar claims only that Nebraska is not a reasonably convenient place for the trial of this action. Under New York law, however, "where a party to a contract has agreed to submit to the jurisdiction of a court, that party is precluded from attacking the court's jurisdiction on forum non conveniens grounds." Honeywell International Inc. v. ARC Energy Services, Inc. , 152 A.D.3d 444, 55 N.Y.S.3d 658 (1st Dept. 2017) ; Sterling National Bank v. Eastern Shipping Worldwide, Inc., supra , 35 A.D.3d at 223, 826 N.Y.S.2d 235.
The Court notes in this regard that an insurance policy issued, as Milmar here claims, in violation of the New York Insurance Law is not void ab initio . Rather, it is "valid and binding upon the insurer issuing the same, but in all respects in which its provisions are in violation of the requirements or prohibitions of this chapter it shall be enforceable as if it conformed with such requirements or prohibitions." Insurance Law § 3103(a). See , National Convention Services, LLC v. Applied Underwriters Captive Risk Ass. Co., Inc. , 239 F.Supp.3d 761, 778 (S.D.N.Y. 2017) ; Everhome Mortgage Co. v. Charter Oak Fire Ins. Co. , 2012 WL 868961 at *7 (E.D.NY, March 14, 2012). See generally , 3405 Putnam Realty Corp. v. Chubb Custom Ins. Co. , 14 A.D.3d 310, 312, 788 N.Y.S.2d 64 (1st Dept. 2005) ("the weight of authority in New York holds that an insurance company's failure to comply with the licensing scheme of this State does not invalidate the insurance contract").
In view of the foregoing, Milmar has failed to carry its heavy burden under New York law of showing that the RPA's Nebraska forum selection clause should be set aside.
F. The Forum Selection Clause Is Enforceable Under Nebraska Law
"Under Nebraska law, the enforceability of a forum selection clause is evaluated by the terms of the Choice of Forum Act" (codified at Neb.Rev.Stat. § 25-414 ). Ameritas Investment Corp. v. McKinney , 269 Neb. 564, 572, 694 N.W.2d 191 (Neb. 2005). Neb.Rev.Stat. § 25-414 provides:
If the parties have agreed in writing that an action on a controversy may be brought in this state and the agreement provides the only basis for the exercise of jurisdiction, a court of this state will entertain the action if (a) the court has power under the law of this state to entertain the action; (b) this state is a reasonably convenient place for the trial of the action; (c) the agreement as to the place of the action was not obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means; and (d) the defendant, if within the state, was served as required by law of this state in the case of persons within the state or, if without the state, was served either personally or by certified mail directed to his last-known address.
By virtue of the RPA's Nebraska choice-of-law provision, Section 25-414 became an inherent part of the RPA In a Nebraska case involving a contract with Nebraska choice-of-law and forum selection clauses, the Court wrote:
The law of this state is an inherent part of every contract; every contract is made with reference to and subject to the existing law; and every law affecting the contract is read into it and becomes a part thereof. Haakinson & Beaty Co. v. Inland Ins. Co. , 216 Neb. 426, 344 N.W.2d 454 ...(1984). Therefore, § 25-414(1) is part of the subject contract.
See , Woodmen of the World Life Ins. Society v. Puccio, supra , 1 Neb. App. at 482, 499 N.W.2d 85. See also, Charter Oak Oil Co., Inc. v. Applied Underwriters, Inc. , 2017 WL 4018845 at *7 (D.Conn., Sept. 12, 2017), on reconsideration , 2018 WL 1046787 (D.Conn., Feb. 26, 2018).
"Under the Act, Nebraska courts are generally directed to enforce forum selection clauses unless certain statutory exceptions apply. A party seeking to avoid a contractual forum selection clause bears a heavy burden of showing that the clause should not be enforced, and, accordingly the party seeking to avoid the forum selection clause bears the burden of proving that one of the statutory exceptions applies." Polk County Recreational Ass'n v. Susquehanna Patriot Commercial Leasing Co., Inc., supra , 273 Neb. 1026, 1037, 734 N.W.2d 750 (2007).
Based on the express language of Neb.Rev.Stat. § 25-414, the Nebraska Supreme Court, in Ameritas Investment Corp. v. McKinney, supra , held that the Nebraska Choice of Forum Act governs the enforceability of a contractual forum selection clause only if the parties' "agreement provides the only basis for the exercise of jurisdiction " ( id. ), that is, "where the court would have no jurisdiction but for the fact that the parties have consented to its exercise by the choice-of-forum agreement ." Ameritas Investment Corp., supra , 269 Neb. at 572, 694 N.W.2d 191 (emphasis added). Thus, as that same Court reiterated in the Polk County case, "a challenge which claims that a forum selection clause naming Nebraska as the forum does not meet the requirements of the Act is properly viewed as a challenge to the personal jurisdiction over the defendant by the Nebraska court ..." Id. , 273 Neb. at 1033, 734 N.W.2d 750 (emphasis added).
Had Milmar commenced its action in Nebraska, the Nebraska courts would have personal jurisdiction over defendant AUCRA regardless of the RPA's forum selection clause. Per Milmar's Complaint (¶ 16), defendant AUCRA is an Iowa corporation with its principal place of business located in Omaha, Nebraska. AUCRA is subject to general jurisdiction in the courts of Nebraska by virtue of the location of its principal place of business therein. See , Daimler AG v. Bauman , 571 U.S. 117, 137, 134 S.Ct. 746, 187 L.Ed.2d 624 (2014). Therefore, the Nebraska courts would on Milmar's claims have personal jurisdiction over AUCRA quite aside from the RPA's forum selection clause. By its very terms, then, the Nebraska Choice of Forum Act would not apply to Milmar's action against AUCRA. See , Neb.Rev.Stat. § 25-414 ; Ameritas Investment Corp. v. McKinney, supra ; Polk County Recreational Ass'n v. Susquehanna Patriot Commercial Leasing Co., Inc., supra .
The analysis might well be otherwise if this were a case of AUCRA as plaintiff attempting to sue Milmar as defendant in Nebraska, for it is unclear whether the courts of Nebraska would have personal jurisdiction over Milmar, a New York corporation, "but for the fact that the parties have consented to its exercise by the choice-of-forum agreement." See , Ameritas Investment Corp. v. McKinney, supra , 269 Neb. at 573, 694 N.W.2d 191. In just such a case, where a Nebraska insurer commenced an action in Nebraska against an out-of-state insured, a Nebraska court applied the Choice of Forum Act to invalidate the parties' Nebraska forum selection clause on the ground, per Neb.Rev.St. § 25-414(b), that Nebraska was not "a reasonably convenient place for the trial of the action." See , Applied Underwriters, Inc. v. Dinyari, Inc. , 2008 WL 2231114 at *4-6 (Neb.App. 2008).
Here, however, where Milmar as plaintiff is suing AUCRA as defendant , it cannot rely simply on its own lack of contacts with Nebraska as grounds for invoking the Choice of Forum Act. Given defendant AUCRA's substantial connection with Nebraska, the RPA's Nebraska forum selection clause would plainly not be "the only basis for the exercise of jurisdiction" over AUCRA in a Nebraska action on Milmar's claims, and hence the Choice of Forum Act by its express terms does not here apply. See , Neb.Rev.St. § 25-414. This Court is aware of two cases wherein other courts, reasoning as does Milmar here, have allowed plaintiffs to invoke Neb.Rev.St. § 25-414 to challenge a forum selection clause even though the defendant was subject to general jurisdiction in Nebraska courts. However, (1) for reasons discussed above, such an application of Section 25-414 cannot be squared with the language of the statute or with the Nebraska Supreme Court's decisions in Ameritas and Polk County, supra ; and (2) as shown below, neither of those two cases remains good law for the point at issue.
In Woodmen of the World Life Ins. Society v. Puccio, supra , as in the case at bar, the parties entered into an agreement containing Nebraska forum selection and choice-of-law provisions. Puccio nevertheless brought suit as plaintiff in his home state of West Virginia. After attempting unsuccessfully to invoke the Nebraska forum selection clause in the West Virginia court, the Society sought a declaratory judgment in Nebraska that the parties' forum selection clause was valid and binding. Holding that Puccio's action was governed by Section 25-414, a Nebraska intermediate appellate court wrote:
If Nebraska is not a "reasonably convenient place" for Puccio's action, the Model Uniform Choice of Forum Act would not require the district court to accept Puccio's case, and Puccio would be free to file in a more convenient forum.
Puccio , 1 Neb.App. at 482, 499 N.W.2d 85. However, the Nebraska Supreme Court subsequently held that the Puccio Court should never have reached the merits of the case, and that "[t]o the degree that Puccio permitted the use of a declaratory judgment action to obtain judicial review of a judgment of another forum, it is overruled." Woodmen of the World Life Ins. Society v. Yelich , 250 Neb. 345, 351, 549 N.W.2d 172 (1996). Under the circumstances, this Court does not regard Puccio as an authoritative source of Nebraska law on this point.
Charter Oak Oil Co., Inc. v. Applied Underwriters, Inc. , 2017 WL 4018845 (D.Conn., Sept. 12, 2017), like the case at bar, involves the "EquityComp" insurance program, an east coast plaintiff insured, Nebraska-based insurance defendants including AUCRA, and the RPA containing Nebraska forum selection and choice-of-law provisions. When the insured brought suit in federal district court in its home state of Connecticut, the defendants moved to enforce the forum selection clause and have the case dismissed or transferred to Nebraska. The district court incongruously, and in this Court's view erroneously, concluded that the forum selection clause was the only basis for laying jurisdiction of the plaintiff insured's case in Nebraska, even though the defendant — there as here — was a corporation subject to general jurisdiction in Nebraska. Id. , 2017 WL 4018845 at *7-11. Regardless, on motion for reconsideration, the district court recognized that it had erred in analyzing the issue of the enforceability of the forum selection clause pursuant to Neb.Rev.St. § 25-414, since in federal court the relevant analysis is prescribed by federal law (see , Martinez v. Bloomberg LP, supra , 740 F.3d 211 (2d Cir. 2014). Accordingly, the district court on reconsideration abjured any reliance upon its prior holding with respect to Section 25-414. See, Charter Oak Oil Co., Inc. v. Applied Underwriters, Inc. , 2018 WL 1046787 at *6-7 (D.Conn., Feb. 26, 2018).
In view of the foregoing, this Court holds that the Nebraska Choice of Forum Act cannot be invoked to invalidate the RPA's forum selection clause in the circumstances of this case. Since the parties' agreement would not provide the only basis for the Nebraska courts' exercising personal jurisdiction over defendant AUCRA, the Section 25-414 statutory exceptions to the enforceability of the forum selection clause are inapplicable. See , Neb.Rev.Stat. § 25-414 ; Ameritas Investment Corp. v. McKinney, supra ; Polk County Recreational Ass'n v. Susquehanna Patriot Commercial Leasing Co., Inc., supra .Cf. , Applied Underwriters, Inc. v. Dinyari, Inc., supra .
Consequently, Milmar's contention that Nebraska is not a reasonably convenient place for the trial of this action does not constitute grounds for invalidating the forum selection clause in this case. Under Nebraska law, as under New York law, to invalidate the forum selection clause on constitutional due process grounds Milmar would have to demonstrate that trial in Nebraska would be "so gravely difficult and inconvenient" that it would be deprived of its day in court. See , Ameritas Investment Corp. v. McKinney, supra , 269 Neb. at 572, 694 N.W.2d 191 ; Polk County Recreational Ass'n v. Susquehanna Patriot Commercial Leasing Co., Inc., supra , 273 Neb. at 1039, 734 N.W.2d 750. Milmar does not even attempt to establish that bringing suit in Nebraska in accordance with the RPA forum selection clause to which it agreed would be "so gravely difficult and inconvenient" that it would be deprived of a remedy. Finally, in Nebraska, as in New York, a forum selection clause may not be invalidated based on allegations of fraud relating to the procurement of the contract as a whole rather than to the forum selection clause specifically. See , Polk County Recreational Ass'n v. Susquehanna Patriot Commercial Leasing Co., Inc., supra , 273 Neb. at 1040, 734 N.W.2d 750.
Thus, Milmar has also failed to carry its burden under Nebraska law of showing that the RPA's Nebraska forum selection clause should be set aside.
G. Milmar's Claims Are Within The Scope Of The Forum Selection Clause
The RPA designates the courts of Nebraska as the exclusive forum for resolving "any matter concerning this Agreement ...." RPA ¶ 16 states:
This Agreement shall be exclusively governed by and construed in accordance with the laws of Nebraska and any matter concerning this Agreement that is not subject to the dispute resolution provisions of Paragraph 13 hereof shall be resolved exclusively by the courts of Nebraska without reference to its conflict of laws.
Milmar argues:
[T]he claims asserted by Milmar are not subject to that clause. Indeed, Milmar has not asserted any claim or right arising under or relating to the RPA. Rather, Milmar has asserted claims that the RPA is invalid under New York Insurance Law (Counts I, II, III), New York's General Business Law (Count V), equity (Count IV) and under New York common law (Count VI). Nowhere in its Complaint does Milmar seek to enforce any aspect of the RPA or any right thereunder. To the contrary, it is Milmar's contention that the RPA is void, invalid and unenforceable. Said differently, Milmar has not asserted a single claim under the RPA; Milmar's claims relate to Defendant's conduct prior to the execution of the RPA. (Mem., p. 11)
The Court is not aware of any pertinent Nebraska authority concerning the meaning and scope of a contractual forum selection clause. As a matter of general principles of contract interpretation, the scope of a forum selection clause depends upon the intention of the parties reflected in the wording of the clause and the facts of the case. See, e.g. , Terra International, Inc. v. Mississippi Chemical Corp. , 119 F.3d 688, 693 (8th Cir.), cert. denied , 522 U.S. 1029, 118 S.Ct. 629, 139 L.Ed.2d 609 (1997).
The term "concerning" is defined by the Merriam-Webster dictionary as meaning "relating to" or "regarding." "The ordinary meaning of the phrase ‘relating to’ is a broad one — ‘to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with.’ " Central States Foundation v. Balka , 256 Neb. 369, 374, 590 N.W.2d 832 (1999) (quoting Black's Law Dictionary). While this Court has located no Nebraska decisions construing the term "concerning", the Nebraska Supreme Court has held that its functional equivalent — the phrase "relating to" — is "to be read broadly and should be interpreted as being comprehensive of the subject indicated." Citizens of Humanity, LLC v. Applied Underwriters Captive Risk Ass. Co., Inc. , 299 Neb. 545, 569, 909 N.W.2d 614 (2018) ; Central States Foundation v. Balka, supra , 256 Neb. at 375, 590 N.W.2d 832.
The RPA's forum selection clause — defined in terms of "any matter concerning" the RPA — must accordingly be construed as broad in scope and "comprehensive of the subject indicated." Contrary to Milmar's suggestion, then, that clause is not limited to claims involving the enforcement of rights under the RPA, nor may claims that the RPA is void, invalid and unenforceable be deemed categorically beyond its scope. Rather, Milmar's non-contractual claims against AUCRA fall within the broad scope of the Nebraska forum selection clause if they "concern" or stand in some discernible relationship to the RPA.
Courts have articulated in different ways the factors bearing on whether such a relationship exists. In Terra International, Inc. v. Mississippi Chemical Corp., supra , the Court wrote:
Although determining the scope of a forum selection clause is a rather case-specific exercise, several courts have offered further guidance on this issue and have articulated variously phrased general rules regarding the circumstances in which a forum selection clause will apply to tort claims. The Third Circuit has indicated that where tort claims "ultimately depend on the existence of a contractual relationship" between the parties, such claims are covered by a contractually-based forum selection clause. Coastal Steel Corp. v. Tilghman Wheelabrator Ltd. , 709 F.2d 190, 203 (3d Cir.), cert. denied, 464 U.S. 938, 104 S.Ct. 349, 78 L.Ed.2d 315 ...(1983). In Manetti-Farrow, Inc. v. Gucci America, Inc. , 858 F.2d 509, 514 (9th Cir. 1988), the Ninth Circuit stated that "[w]hether a forum selection clause applies to tort claims depends on whether resolution of the claims relates to interpretation of the contract." The First Circuit has phrased its test slightly differently, explaining that "contract-related tort claims involving the same operative facts as a parallel claim for breach of contract should be heard in the forum selected
by the contracting parties." Lambert v. Kysar , 983 F.2d 1110, 1121-22 (1st Cir. 1993).
Terra International, Inc., supra , 119 F.3d at 694. See also , BioCapital, LLC v. BioSystem Solutions, Inc. , 2009 WL 1815056 at *4 (Sup. Ct. Conn., June 1, 2009).
Here, the resolution of all of Milmar's claims against AUCRA relates to interpretation of the RPA (see , Manetti-Farrow, Inc. v. Gucci America, Inc., supra ) :
Count I is premised on the allegation that "[t]he RPA purports to charge rates to Plaintiffs in connection with
Workers' Compensation policies in amounts in excess of the rates approved by New York State Department of Insurance." (Complaint ¶ 118)
Count II is premised on the allegation that "[t]he RPA describes a reinsurance agreement between Plaintiffs, collectively a New York business engaged in the food service industry, and AUCRA, an insurance company." (Complaint ¶ 129)
Count III is premised on the allegation that representations relating to the EquityComp program were false and misleading due to "run-off" loss development factors contained in the RPA. (Complaint ¶¶ 140-144)
Counts IV, V and VI are premised on allegations that "the RPA was prohibited by law and not a guaranteed cost policy." (Complaint ¶¶ 149, 150, 158, 167, 170)
Count VI is premised in addition on the allegation that "[t]he RPA...alters the structure of the insurance relationship and results in alleged ‘profit-sharing’ scheme that has no element of insurance." (Complaint ¶ 171)
Each of these allegations quite plainly rests upon an interpretation of the RPA and its terms, and it is equally plain that definitive judicial interpretation of the RPA will be necessary to resolve Milmar's claims. This consideration — given the Nebraska Supreme Court's repeated holdings that the phrase "relating to" (the functional equivalent of "concerning") is "to be read broadly and should be interpreted as being comprehensive of the subject indicated" (see, Citizens of Humanity, LLC v. AUCRA , supra ; Central States Foundation v. Balka, supra ) is sufficient in this Court's view to bring Milmar's claims within the broad scope of the RPA's provision requiring that "any matter concerning [the RPA]" be resolved exclusively by the courts of Nebraska.
One federal district court, in Charter Oak Oil Co., Inc. v. Applied Underwriters, Inc., supra , has held to the contrary that claims similar to Milmar's here fell outside the scope of a forum selection clause which applied to "[a]ny legal suit, action, or proceeding arising out of, related to or based upon " the RPA. Id. , 2017 WL 4018845 at *6 (D.Conn., Sept. 12, 2017), on reconsideration , 2018 WL 1046787 at *4-6 (D.Conn., Feb. 26, 2018) (emphasis added). For a number of reasons, this Court declines to follow Charter Oak :
(1) Disregarding a Nebraska choice-of-law provision in the RPA, the Charter Oak Court applied federal law, not Nebraska law, to determine the meaning and scope of the forum selection clause. The Court's analysis in that regard contravenes the holding of the Second Circuit in Martinez v. Bloomberg LP, supra , 740 F.3d 211 (2d Cir. 2014), that "questions about the meaning and scope of a forum selection clause — are resolved under the substantive law designated in an otherwise valid contractual choice-of-law clause." Id. , at 224.
(2) In contravention of the Nebraska Supreme Court's holdings that "the phrase ‘relating to’ is to be read broadly and should be interpreted as being comprehensive of the subject indicated " (see, Citizens of Humanity, LLC v. AUCRA , supra ; Central States Foundation v. Balka, supra [emphasis added] ), the Charter Oak Court held to the contrary that "the Forum Selection Clause can only capture claims that are strictly ‘related to...[the RPA], or the transactions contemplated thereby’, and not merely claims that are related to events or issues that are themselves related to the RPA or the transactions contemplated thereby." Id. , 2018 WL 1046787 at *6 n. 10 (emphasis added).
(3) In so holding, the Charter Oak Court recognized that its decision is at odds with those of a number of other courts within the Second Circuit. See , Roby v. Corp. of Lloyd's , 996 F.2d 1353, 1357-61 (2d Cir. 1993) ; SLSJ, LLC v. Kleban , 2015 WL 1973307 at *15 (D.Conn., Apr. 30, 2015) ;
In re Libor-Based Fin. Instruments Antitrust Litig. , 2015 WL 4634541 at *29 (S.D.NY, Aug. 4, 2015), amended , 2015 WL 13122396 (S.D.N.Y., Oct. 19, 2015).
(4) Taking its cue from a dissenting opinion in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 473 U.S. 614, 645 [105 S.Ct. 3346, 87 L.Ed.2d 444] (1985) (Stevens, J., dissenting), the Charter Oak Court fabricated its own test out of whole cloth without even adverting to, much less applying, the tests formulated in an extensive body of federal caselaw for determining whether non-contractual claims are within the scope of a contractual forum selection clause. See, e.g., Terra International, Inc. v. Mississippi Chemical Corp., supra (summarizing caselaw).
In view of the foregoing, this Court regards Charter Oak as unpersuasive, and adheres to its determination that Milmar's claims fall within the scope of the RPA's forum selection clause.
H. AUCRA Is Not Collaterally Estopped From Relying On
The RPA's Nebraska Forum Selection Clause
Milmar contends that AUCRA is collaterally estopped from relying on the RPA's Nebraska forum selection clause by virtue of three prior decisions holding that this clause was unenforceable under Nebraska law. See, See , Applied Underwriters, Inc. v. Dinyari, Inc., supra , 2008 WL 2231114 (Neb.App. 2008) ; AUCRA v. E.M. Pizza, Inc. , Case No. C116-9385 (Dist. Ct. Douglas Co. 2017); Charter Oak Oil Co., Inc. v. Applied Underwriters, Inc., supra , 2017 WL 4018845 (D.Conn., Sept. 12, 2017), on reconsideration , 2018 WL 1046787 (D.Conn., Feb. 26, 2018).
The doctrine of collateral estoppel applies, of course, only if the very question before this Court was previously decided against AUCRA in a previous case. For reasons explained above (pp. 357–59), the question presented in Dinyari and in E.M. Pizza was materially different from the question presented here because, in those cases, AUCRA sought to haul their insureds as defendants into court in Nebraska, thereby giving rise to issues concerning personal jurisdiction which are simply not relevant to this case, where Milmar is the plaintiff . This distinction does not apply to the Charter Oak case, but, as is also explained above (p. 360), the Charter Oak Court, on motion for reconsideration, recognized that it had erred in analyzing the issue of the enforceability of the forum selection clause under Nebraska law, and abjured any reliance upon its prior holding that the forum selection clause was unenforceable under Nebraska law. See , id. , 2018 WL 1046787 at *6-7 (D.Conn., Feb. 26, 2018).
Therefore, AUCRA is not collaterally estopped from relying on the RPA's Nebraska forum selection clause.
I. Conclusion
AUCRA has established on the basis of documentary evidence that Milmar's claims against it are subject to dismissal on the ground that the RPA designates the courts of Nebraska as the exclusive forum for resolving "any matter concerning this Agreement that is not subject to the dispute resolution provisions of Paragraph 13 hereof disputes concerning the Agreement." Therefore, Milmar's claims against AUCRA are pursuant to CPLR § 3211(a)(1) dismissed without prejudice, and Milmar is granted leave to recommence its action against AUCRA in the courts of the State of Nebraska.
II. AUCRA IS A NECESSARY PARTY TO THIS ACTION
CPLR § 3211(a)(10) provides that "[a] party may move for judgment dismissing one or more causes of action asserted against him on the ground that the court should not proceed in the absence of a person who should be a party." Defendants move for dismissal of Milmar's claims against them on the ground that AUCRA is a necessary party who cannot be joined as a party herein due to the RPA's Nebraska forum selection clause.
A person should be joined as a party (1) "if complete relief is to be accorded between the persons who are parties to the action", or (2) if that person "might be inequitably affected by a judgment in the action." See , CPLR § 1001(a). Defendants have made a compelling demonstration that AUCRA is a necessary party to all claims asserted in this action. Milmar has tacitly admitted the same by failing to interpose any response to this aspect of Defendants' motion.
"Nonjoinder of a party who should be joined under Section 1001 is a ground for dismissal of an action without prejudice unless the court allows the action to proceed without that party under the provisions of that section." CPLR § 1003. "In determining whether to allow the action to proceed, the court shall consider:
1. whether the plaintiff has another effective remedy in case the action is dismissed on account of the nonjoinder;
2. the prejudice which may accrue from the nonjoinder to the defendant or to the person not joined;
3. whether and by whom prejudice might have been avoided or may in the future be avoided;
4. the feasibility of a protective provision by order of the court or in the judgment; and
5. whether an effective judgment may be rendered in the absence of the person who is not joined.
While dismissal of an action for nonjoinder of a given person is "a last resort" (see , Saratoga County Chamber of Commerce, Inc. v. Pataki , 100 N.Y.2d 801, 821, 766 N.Y.S.2d 654, 798 N.E.2d 1047 (2003) (citing Siegel, NY Prac. § 133 ), Defendants have made a compelling showing, without opposition from Milmar, that the Section 1001(b) factors militate in favor of their motion for dismissal. The Court notes in particular that Milmar has an effective remedy in Nebraska because all named Defendants except Applied Risk Services of New York, Inc. — a peripheral defendant against whom no specific allegations are made in the Complaint — are Nebraska corporations, or have their principal place of business in Nebraska, and are therefore subject to general jurisdiction in the courts of Nebraska. While this Court arguably has the authority to stay the instant proceedings while Milmar is pursuing its claims against AUCRA in Nebraska (see , First National Bank of Amsterdam v. Shuler , 153 N.Y. 163, 170, 47 N.E. 262 [1897] ), it appears that a stay in the circumstances here present would only lead to unnecessary delay and duplication of proceedings.
Therefore, Defendants' motion pursuant to CPLR § 3211(a)(1) is granted, and by reason of the nonjoinder of AUCRA due to the Nebraska forum selection clause, Milmar's claims against all remaining Defendants are dismissed without prejudice. The Court accordingly declines to reach the other issues raised in Defendants' motion papers.
It is therefore
ORDERED, that Plaintiff's claims against defendant Applied Underwriters Captive Risk Assurance Company, Inc. are dismissed without prejudice pursuant to the Nebraska forum selection clause in the parties' Reinsurance Participation Agreement, and it is further
ORDERED, that Plaintiff's claims against defendants Applied Underwriters, Inc., Applied Risk Services, Inc., Applied Risk Services of New York, Inc., North American Casualty Company, Continental Indemnity Company, and California Insurance Company are dismissed without prejudice for nonjoinder of defendant Applied Underwriters Captive Risk Assurance Company, Inc. due to the aforesaid Nebraska forum selection clause.
The foregoing constitutes the decision and order of the Court.