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McDonnel Group, L.L.C. v. Great Lakes Insurance Se

United States Court of Appeals, Fifth Circuit

May 13, 2019

MCDONNEL GROUP, L.L.C., Plaintiff - Appellant
v.
GREAT LAKES INSURANCE SE, UK BRANCH, Improperly named as Certain Underwriters at Lloyd's, London; LLOYD'S SYNDICATES, CNP 4444 and CNP 958, Improperly named as Certain Underwriters at Lloyd's, London; INTER HANNOVER, Improperly named as Certain Underwriters at Lloyd's, London, Defendants - Appellees

          Appeal from the United States District Court for the Eastern District of Louisiana

          Before JOLLY, JONES, and DENNIS, Circuit Judges.

          E. GRADY JOLLY, CIRCUIT JUDGE

         In this appeal, relating to arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, [1] we address whether a "conformity to statute" provision[2] amends the insurance contract so as to conform with a conflicting, but preempted, state statute forbidding arbitration in insurance contracts.

         McDonnel Group, L.L.C. purchased an insurance policy from the defendants that included a written agreement to arbitrate disputes. After the Insurers denied McDonnel's claim, McDonnel initiated this declaratory and breach of contract action in federal district court. The Insurers moved to dismiss based on the policy's arbitration provision. McDonnel responded that the arbitration provision was "amended out" of the contract through the contract's conformity to statute provision because arbitration conflicted with a Louisiana statute. The district court held, however, that the allegedly conflicting Louisiana statute was preempted by the Convention, and therefore dismissed the case in favor of arbitration. We must decide whether the policy's conformity provision negates the agreement to arbitrate. We hold that it does not and thus AFFIRM the district court.

         I.

         In fall 2015, McDonnel Group, L.L.C. obtained a builder's risk insurance policy from a group of insurers[3] for a construction project on a property located in New Orleans, Louisiana. Two years later, according to McDonnel, the property suffered significant water damage. McDonnel submitted a claim that the Insurers refused to pay.

         McDonnel then filed the instant action seeking declaratory relief and damages for breach of contract and breach of the duty of good faith and fair dealing. The Insurers responded by filing a motion to dismiss for lack of subject-matter jurisdiction and improper venue.[4] Fed.R.Civ.P. 12(b)(1), (3). As to both defenses, the Insurers invoked the contract's arbitration provision, which provides:

Any dispute, controversy or claim arising out of, relating to, or in connection with this Policy, shall be finally settled by arbitration. The arbitration shall be conducted in accordance with the International Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration. The seat of the arbitration shall be New York, New York, in the United States of America.

         The Insurers argued that the arbitration provision should be enforced, and the case dismissed in favor of arbitration pursuant to the Convention.

         The policy, however, also contained a "conformity to statute" provision, stating: "In the event any terms of this Policy are in conflict with the statutes of the jurisdiction where the Insured Property is located, such terms are amended to conform to such statutes." Invoking that provision, McDonnel responded that any obligation to arbitrate under the Convention did not apply to the instant dispute because the policy's arbitration agreement was, as a matter of law, invalid. The arbitration provision was contrary to La. Rev. Stat. Ann. § 22:868(A)(2), which prohibits arbitration agreements in insurance contracts covering property located in the state. Thus, the conformity provision, McDonnel argued, "amended" the arbitration provision out of the contract in order to "conform" with Louisiana law. Consequently, the dispute between McDonnel and the Insurers was not subject to the Convention.

         The district court disagreed. Relying on the decision of our en banc court in Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd's, the court held that the Convention superseded La. Rev. Stat. Ann. § 22:868. 587 F.3d 714 (5th Cir. 2009). Because the state statute was preempted by federal law, the court determined that no conflict existed between the policy and state law so as to trigger the conformity provision of the policy. Thus, the arbitration agreement remained valid. The district court, therefore, dismissed the action in favor of arbitration. The parties, accordingly, present a precise issue in this appeal: does the contractual agreement to conform to state statutes apply when the conflicting state statute has been held as a matter of law to have been preempted by the Convention.

         II.

         The standard of review for a dismissal pursuant to both Federal Rules of Civil Procedure 12(b)(1) and 12(b)(3) is de novo.[5]See Ambraco, Inc. v. Bossclip B.V., 570 F.3d 233, 237-38 (5th Cir. 2009). The well-pleaded factual allegations in the complaint are taken "as true and [we] view them in the light most favorable to the plaintiff." See Lane v. Halliburton, 529 F.3d 548, ...


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