Fifth Circuit Decides on Waiver of Removal Rights Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards

The United States Court of Appeals for the Fifth Circuit held that a contract containing a choice of law and forum clause effectively waives the right to remove to federal court under the New York Convention.

In ENSCO International Inc. v. Certain Underwriters at Lloyd’s et. al. (No. 08-10451) (5th Cir. Aug. 12, 2009), plaintiff ENSCO International, Inc. is an offshore drilling oil and gas company and defendants are several insurance underwriters (the “Underwriters”). The Underwriters insured an oil rig owned by ENSCO, which insurance policies (the “Policies”) contain a choice of law and jurisdiction clause stating that:

“The proper and exclusive law of this insurance shall be Texas law. Any disputes arising under or in connection with it shall be subject to the exclusive jurisdiction of the Courts of Dallas County, Texas.”

During Hurricane Katrina, the oil platform suffered serious damage and a dispute arose between the parties about the scope of the coverage of the Policies. ENSCO sued the Underwriters in Dallas County, consistent with the forum selection clause. However, the Underwriters removed the case to federal court, claiming removal rights under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (a.k.a. the New York Convention). See 9 U.S.C. § 205. ENSCO moved to remand, arguing that the forum selection clause waives the right to remove. The district court sided with ENSCO and the Underwriters now appeal.

At issue in this case is whether the Policies contain a waiver of the right to remove the case to federal court. The Fifth Circuit first highlighted the legal standard for waiver:

For a contractual clause to prevent a party from exercising its right to removal, the clause must give a ‘clear and unequivocal’ waiver of that right….There are three ways in which a party may clearly and unequivocally waive its removal rights: [1] by explicitly stating that it is doing so, [2] by allowing the other party the right to choose venue, or [3] by establishing an exclusive venue within the contract.

After a discussing at length City of New Orleans v. Mun. Admin. Servs., Inc., 376 F.3d 501 (5th Cir. 2004) and McDermott International, Inc. v. Lloyds Underwriters, 944 F.2d 1199 (5th Cir. 1991), the court concluded that the third basis for waiver (the contractual specification of jurisdiction) applies here, because the Policies “fixes ‘exclusive’ venue for litigation in ‘the Courts of Dallas Country, Texas.’ “

Accordingly, the court held that the Underwriters have waived their right to remove and affirmed the order to remand.

Technorati Tags:

arbitration, ADR, law, Fifth Circuit