Acosta v. Master Maintenance & Construction Inc.

                                                                    United States Court of Appeals
                                                                             Fifth Circuit
                                                                           F I L E D
                IN THE UNITED STATES COURT OF APPEALS
                                                                            June 8, 2006
                          FOR THE FIFTH CIRCUIT
                          _____________________                       Charles R. Fulbruge III
                                                                              Clerk
                               No. 05-30126
                          _____________________

KEN ACOSTA; ET AL.,
                                                                      Plaintiffs,

HENRY CHIRO, SR.; JACQUELINE B. CHIRO; ZACHARY SMITH, III,

                                                      Plaintiffs - Appellants,

                                     versus

MASTER MAINTENANCE AND CONSTRUCTION INC.; ET AL.,

                                                                      Defendants,

MASTER MAINTENANCE AND CONSTRUCTION INC.;
GEORGIA GULF CORP.; PAYNE & KELLER COMPANY INC.;
LEXINGTON INSURANCE CO.; LOUISIANA INTRASTATE GAS CO.;
LA INTRASTATE GAS CORP.; HYDROCHEM INDUSTRIAL SERVICES INC.;
LIG LIQUIDS CO.; EQUITABLE RESOURCES INC;
ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES LTD.,

                                          Defendants - Appellees.
_________________________________________________________________

           Appeal from the United States District Court
               for the Middle District of Louisiana
_________________________________________________________________

Before JOLLY, HIGGINBOTHAM, and SMITH, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

      The   United    States   is   a   party    to    the   Convention     on    the

Recognition     and     Enforcement       of     Foreign        Arbitral     Awards

(“Convention”), which Congress has implemented at 9 U.S.C. § 201,

et seq. (“Convention Act”).         Among the Convention Act’s provisions

are   jurisdictional     grants     giving     the    federal    district    courts

original and removal jurisdiction over cases related to arbitration
agreements falling under the Convention.           This appeal asks whether

Appellants’ action is related to an arbitration agreement falling

under the Convention and therefore removable to federal court, and

if so, whether the unanimity rule applicable to removals under 28

U.S.C. § 1441(a) also applies to Convention Act removals.               We need

not decide this last question because even if the unanimity rule

applies, it is satisfied here.

                                       I

                                       A

      Appellants constitute a three-person subset of over 2,000

plaintiffs who brought state-law tort actions in Louisiana state

court alleging injuries stemming from the September 1996 release of

a   mustard-gas   agent    at   the   Georgia    Gulf   Corporation     (“GGC”)

facility in Plaquemine, Louisiana.              Louisiana state law allows

direct actions against a tortfeasor’s insurers, so the plaintiffs

named   as   defendants,   in   addition   to     GGC   and   several   of   its

contractors, two foreign insurers, Primex, Ltd. (“Primex”) and X.L.

Insurance Company, Ltd. (“X.L.”), whose insurance policies included

arbitration clauses governing disputes over coverage.

      In October 1998, the plaintiffs amended their complaints to

assert intentional tort claims against GGC.             Shortly thereafter,

Primex and X.L. notified GGC in writing that they were disputing

insurance coverage as a result of these new allegations.                      In

December 1998, Primex and X.L. notified GGC that they had commenced

arbitration pursuant to their policies’ arbitration clauses.                 Five

                                       2
days later, and one day after a subset of defendants (“the LIG

defendants”)1 were severed from the case by joint motion of the

parties, Primex and X.L. removed this and scores of related cases

to federal court, arguing that the allegations of an intentional

tort created a coverage dispute between them and GGC, thus invoking

the arbitration clauses of their insurance policies and bringing

the action within the purview of the Convention Act and its

provisions for removal.   The plaintiffs filed a motion for remand

to state court shortly thereafter, which the District Court denied

in March 1999.

     Primex filed a motion to compel arbitration and stay the

plaintiffs’ actions, and the plaintiffs filed a motion requesting

certification of the remand denial for immediate appeal under 28

U.S.C. § 1292(b).   While these motions were pending, a settlement

agreement was negotiated, but Appellants elected not to participate

and pursued the litigation, which was eventually dismissed with

prejudice on summary judgment in December 2004.   Appellants appeal

only to contest the District Court’s jurisdiction. If jurisdiction

exists for the District Court to have entertained this action, it

is to be found in the Convention Act.

                                 B




     1
      The “LIG defendants” are Louisiana Intrastate Gas Company,
L.L.C.; LIG Chemical Company; Equitable Resources, Inc.; and
Associated Electric Gas Insurance Services, Ltd.

                                 3
     The provision of the Convention Act providing for removal is

9 U.S.C. § 205:

          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. The
          procedure for removal of causes otherwise
          provided by law shall apply, except that the
          ground for removal provided in this section
          need not appear on the face of the complaint
          but may be shown in the petition for removal.
          For the purposes of Chapter 1 of this title
          any action or proceeding removed under this
          section shall be deemed to have been brought
          in the district court to which it is removed.

The parties agree that the insurance policies’ arbitration clauses

“fall[] under the Convention” as defined in § 202.2         We must


     2
      9 U.S.C. § 202:

          An arbitration agreement or arbitral award
          arising out of a legal relationship, whether
          contractual or not, which is considered as
          commercial, including a transaction, contract,
          or agreement described in section 2 of this
          title,   falls   under   the   Convention.   An
          agreement or award arising out of such a
          relationship   which   is    entirely   between
          citizens of the United States shall be deemed
          not to fall under the Convention unless that
          relationship involves property located abroad,
          envisages performance or enforcement abroad,
          or has some other reasonable relation with one
          or more foreign states. For the purpose of
          this section a corporation is a citizen of the
          United States if it is incorporated or has its
          principal place of business in the United
          States.

                                4
therefore decide whether this action “relates to” the arbitration

clauses within the meaning of § 205 and whether the failure of the

LIG defendants to consent to removal defeats jurisdiction for lack

of unanimous consent among defendants.

                                        II

                                        A

       Section 205 does not explicitly define when an action “relates

to”    an   arbitration    agreement        falling   under    the   Convention.

However, the federal courts have recognized that the plain and

expansive language of the removal statute embodies Congress’s

desire to provide the federal courts with broad jurisdiction over

Convention Act cases in order to ensure reciprocal treatment of

arbitration agreements by cosignatories of the Convention.

       Congress’s purpose and intent, in enacting the Convention Act,

was “to encourage the recognition and enforcement of commercial

arbitration agreements and international contracts and to unify the

standard by which the agreements to arbitrate are observed and

arbitral awards are enforced in the signatory countries.”                    Sherck

v.    Alberto-Culver     Co.,   417   U.S.    506,    520   n.15   (1974).     The

unambiguous     policy    in    favor    of    recognition     of    arbitration

agreements falling under the Convention is reflected in provisions

incorporating by reference the Federal Arbitration Act, 9 U.S.C. §

208,3 and independently and explicitly empowering courts to compel

       3
        9 U.S.C. § 208:


                                        5
arbitration in accordance with the arbitration agreements involved.

9 U.S.C. § 206.4

     Because “uniformity is best served by trying all [Convention]

cases in federal court unless the parties unequivocally choose

otherwise,” McDermott Int’l, Inc. v. Lloyds Underwriters of London,

944 F.2d 1199, 1207-08 (5th Cir. 1991), Congress granted the

federal courts jurisdiction over Convention cases5 and added one of

the broadest removal provisions, § 205, in the statute books.           So

generous is the removal provision that we have emphasized that the

general   rule   of   construing   removal   statutes   strictly   against


           Chapter 1 [9 U.S.C. § 1 et seq.] applies to
           actions and proceedings brought under this
           chapter to the extent that chapter is not in
           conflict with this chapter or the Convention
           as ratified by the United States.
     4
      9 U.S.C. § 206:

           A court having jurisdiction under this chapter
           may direct that arbitration be held in
           accordance with the agreement at any place
           therein provided for, whether that place is
           within or without the United States. Such
           court   may   also   appoint   arbitrators  in
           accordance   with   the   provisions   of  the
           agreement.
     5
      9 U.S.C. § 203:

           An action or proceeding falling under the
           Convention shall be deemed to arise under the
           laws and treaties of the United States. The
           district   courts    of   the   United    States
           (including the courts enumerated in section
           460   of  title    28)   shall   have   original
           jurisdiction    over    such   an    action   or
           proceeding, regardless of the amount in
           controversy.

                                     6
removal “cannot apply to Convention Act cases because in these

instances, Congress created special removal rights to channel cases

into federal court.”     Id. at 1213.

     With these considerations in mind, we turn to the statutory

text and the meaning of the statutory phrase “relates to”; that is,

we must decide whether the subject matter of the underlying lawsuit

“relates to” the arbitration agreement in the insurance policy

between the alleged tortfeasor and the defendant insurers.       In

Beiser v. Weyler, 284 F.3d 665 (5th Cir. 2002), we examined the

plain meaning of the phrase, relevant Supreme Court dicta regarding

the phrase, and Congressional use of the phrase in other statutes,

e.g., 28 U.S.C. § 1334 (giving federal district courts jurisdiction

over any state proceeding that “relates to” a bankruptcy case). We

noted that the phrase “relates to” “conveys a sense of breadth” and

“sweeps broadly . . . .”      284 F.3d at 669.   We interpreted the

phrase in a way that was sufficient to dispose of that case on its

facts, namely, “whenever an arbitration agreement falling under the

Convention could conceivably affect the outcome of the plaintiff’s

case, the agreement ‘relates to’ the plaintiff’s suit,” 284 F.3d at

669 (emphasis in original), but we emphasized that the adopted rule

for that case was not exhaustive of the cases in which jurisdiction

would be appropriate.6

     6
       “This definition of ‘relates to’ as ‘conceivably having an
effect on the outcome of’ seems to capture at least one sense in
which we commonly use the phrase . . . . Whatever else the phrase
‘relates to’ conveys, it means at least as much as having a

                                   7
     Appellants now assert that the definition given to the phrase

“relates to” in Beiser means that jurisdiction is lacking here

because Louisiana’s    direct-action      statute   cancels   the   binding

effect of the arbitration clauses; thus, whatever is decided in the

arbitration    proceedings   will   not   affect    the   outcome    of   the

litigation.7   Even if this asserted effect of the Beiser rule on


possible effect on the outcome of an issue or decision.”            284 F.3d
at 669 (emphases added).
     7
      If not for the direct-action statute, this case would fit
easily under the Beiser rule:     Appellants’ claims against the
foreign insurers hinge on policy coverage, which is to be
determined, according to the policy, by arbitration.        Hence,
arbitration would appear likely, if not certain, to affect the
ultimate outcome of Appellants’ lawsuit, since “an arbitration
award can be enforced in a subsequent proceeding against parties
that did not participate in an arbitration in circumstances when
the parties to the arbitration had related and congruent interests
which were properly advanced during the arbitration.”        Nauru
Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d
160, 166 (5th Cir. 1998).

     However, a plausible argument for Appellants, which relies on
dictum in In re Talbott Bigfoot, Inc., 887 F.2d 611, 614 (5th Cir.
1989) (court not required by Federal Arbitration Act to stay direct
action pending arbitration of coverage dispute), and Zimmerman v.
Int’l Cos. & Consulting, Inc., 107 F.3d 344 (5th Cir. 1997) (same),
contends that binding a direct-action plaintiff to the results of
an arbitration proceeding to which it has not consented would
contradict the direct-action statute by taking the insurance
coverage question away from the state courts as guaranteed by the
state statute, and such a result is not required by federal policy.
Thus, the district court in Mangin v. Murphy Oil USA, 2005 U.S.
Dist. LEXIS 8338 (E.D. La. Apr. 29, 2005), held that arbitration
could not conceivably affect the outcome of the lawsuit because
collateral estoppel would not apply to the results of arbitration
in which the direct-action plaintiffs did not participate.

     Appellants failed to make this collateral-estoppel argument in
their opening brief, and cite Mangin in their reply brief only for
its favorable conclusion, otherwise mischaracterizing Mangin’s
analysis as “effectively illustrat[ing] the straightforward logic

                                    8
the arbitration clauses is correct, it does not dispose of the

jurisdictional question, for as we have indicated, Beiser did not

purport to establish a comprehensive rule disposing of all cases.

Thus we return to the statutory text to determine whether the

Convention Act’s grant of jurisdiction extends to this case.


underpinning   Appellants’  position   in   the  instant    case.”
Notwithstanding   this  gloss,   as  the   issue  before   us   is
jurisdictional, we note our skepticism of the analysis adopted by
the Mangin court.

     First, the assertion that arbitration can have no preclusive
effect is difficult to square with Bigfoot’s statement that a
discretionary stay pending arbitration might still be available,
887 F.2d at 614 (5th Cir. 1989); see also Moses H. Cone Memorial
Hospital v. Mercury Constr. Corp., 460 U.S. 1, 20 n. 23 (1983); In
re Complaint of Hornbeck Offshore Corp., 981 F.2d 752, 755 (5th
Cir. 1993).   Thus, in Lannes v. Operators Int’l, 2004 U.S. Dist.
LEXIS 25781 (E.D. La. 2004), the district court held that the
availability of a discretionary stay left open the possibility that
arbitration could affect the outcome. Second, whether collateral
estoppel is the legal equivalent of “could not conceivably affect”
is unclear. Irrespective of a stay, a court might find the results
of arbitration between insurers and insured (whether voluntary or
compelled by the court pursuant to § 206) to be persuasive, if not
binding, and thus rely thereon in determining policy coverage.
Third, to the extent Mangin’s analysis relies on Bigfoot’s
assumption that an arbitration clause is no different from a no-
action clause, we think that assumption unnecessary to the holding
and therefore dictum.    Fourth, we note that the federal policy
favoring arbitration, which was held not to conflict with the
direct-action statute, may not be identical in the FAA and
Convention Act contexts.     At the least, we note that the FAA
contains no independent grant of federal jurisdiction, see Nauru
Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d
160, 163 (5th Cir. 1998); the Convention Act does.

     As this last point suggests, the holdings of Bigfoot and
Zimmerman are inapposite to the jurisdictional question posed here.
In fact, the very assertion that arbitration clauses undisputedly
falling under the Convention Act must be ignored emphasizes our
responsibility to reasonably ensure the availability of a federal
forum in which the uniform observance of such arbitration
agreements can be most consistently effected.

                                9
     “Relate” means “to have connection, relation, or reference,”

AMERICAN HERITAGE DICTIONARY   OF THE   ENGLISH LANGUAGE (4th Ed. 2000); see

also Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983).                      It is

unarguable that the subject matter of the litigation has some

connection,    has   some      relation,      has       some   reference    to    the

arbitration clauses here.        Appellants’ assertion of claims against

the insurers is, in part, an assertion of policy coverage of the

insured’s alleged torts. Common sense dictates the conclusion that

policy provisions relating to coverage of the insured’s torts are,

almost by definition, related to claims that are based on the

disputed assertion      of     coverage      of   the    insured’s     torts.     The

arbitration clauses here declare the forum for the resolution of

coverage   disputes;    they     are    therefore       related   to    Appellants’

disputed assertion of coverage and, hence, to the subject matter of

Appellants’ claims against the defendant insurers that depend on

the existence of coverage.        Stated as a rule, a clause determining

the forum for resolution of specific types of disputes relates to

a lawsuit that seeks the resolution of such disputes.

     The jurisdictional question need not be confused by the

presence of the direct-action statute.                    The operation of the

direct-action statute as a matter of Louisiana state law does not

alter the fact that the litigation is related to the arbitration

clause as a matter of logic and federal removal law.                     Both state

and federal courts can give proper effect to the direct-action

statute; but we cannot ignore Congress’s decision that the federal

                                        10
courts are best able to establish uniformity in the enforcement of

arbitral   agreements.      We    therefore     apply   the    jurisdictional

provision, § 205, according to the plain meaning of its broadly

drafted terms.

     In    sum,   we   conclude   that    the   District      Court   correctly

determined that the instant case “relates to” an arbitration

agreement falling under the Convention.

                                     B

     We now come to the parties’ dispute over whether § 205

removals require the unanimous consent of (non-nominal) defendants.

The District Court held that § 205 does not require unanimity, but

ruled in the alternative that unanimity was satisfied.                Because we

affirm the second conclusion, we need not consider the first.

     The District Court ruled that unanimity was achieved because

the allegedly non-consenting defendants, the LIG defendants, were

nominal parties whose consent was not required under the unanimity

rule.   See, e.g., Tri-Cities Newspapers, Inc. v. Tri-Cities P.P. &

A. Local 349, 427 F.2d 325, 327 (5th Cir. 1970).                 The District

Court so held because, prior to removal, Appellants had signed a

letter evincing an agreement in principle to settle their claims

against the LIG defendants, and the state court had granted the

parties’ joint motion to sever the LIG defendants from the ongoing

litigation.       Appellants stated that they would “terminate the

involvement of LIG group in all matters arising out of the chemical

exposures that are the subject of this consolidated action.”

                                     11
     We agree with the District Court that Appellants’ attempt to

retain the LIG defendants in the litigation for the sole purpose of

defeating removal jurisdiction fails. Whether a party is “nominal”

for removal purposes depends on “whether, in the absence of the

[defendant], the Court can enter a final judgment consistent with

equity and good conscience which would not be in any way unfair or

inequitable to the plaintiff.”               Tri-Cities Newspapers, Inc., 427

F.2d at 327.         We are satisfied that the             severance of the LIG

defendants, voluntarily requested by Appellants based on their

agreement     to     settle   and    dismiss      all     claims    against   those

defendants, would enable the court to reach a final judgment

“consistent        with   equity    and    good       conscience”   and   fair   to

Appellants.        Thus, even assuming unanimity is required, it is

satisfied.

                                          III

     For the foregoing reasons, we affirm the conclusion of the

District Court that the subject matter of the instant action

relates to arbitration agreements falling under the Convention and

that federal jurisdiction was not defeated by a lack of unanimous

consent     of     defendants      because      the    allegedly    non-consenting

defendants were nominal parties whose consent was not required.

Therefore, the judgment of the District Court that removal was

proper under the Convention Act, 9 U.S.C. § 205, is

                                                                          AFFIRMED.



                                          12