St. Paul Fire v. Courtney Enterprises ( 2001 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-3236
___________
St. Paul Fire and Marine Insurance *
Company; St. Paul Guardian Insurance *
Company, *
*
Plaintiffs - Appellees, * Appeal from the United States
* District Court for the
v. * District of Minnesota.
*
Courtney Enterprises, Inc., *
*
Defendant - Appellant. *
___________
Submitted: May 18, 2001
Filed: October 15, 2001
___________
Before LOKEN, ROSS, and FAGG, Circuit Judges.
___________
LOKEN, Circuit Judge.
From December 1989 to December 1996, St. Paul Fire and Marine Insurance
Company (“St. Paul”) provided workers compensation and general liability insurance,
and St. Paul affiliates provided claims handling services, to Courtney Enterprises, Inc.
of Houston, Texas (“Courtney”). In July 1999, St. Paul sent Courtney a $512,406
invoice for amounts due under this contractual relationship. When Courtney failed
to pay and would not agree to arbitrate the dispute in Minnesota, St. Paul filed a
petition to compel arbitration in the District of Minnesota. Courtney moved to
dismiss for lack of personal jurisdiction and now appeals the district court’s1 order
granting St. Paul’s petition. We have jurisdiction to review a final order compelling
arbitration. See 9 U.S.C. § 16(a)(3); Green Tree Fin. Corp.-Ala. v. Randolph, 531
U.S. 79 (2000). We affirm.
I.
St. Paul’s workers compensation and general liability policies provided that
Courtney would reimburse St. Paul for the deductible portion of liability claims paid
by St. Paul under the policies. For each policy period (typically one year), the parties
entered into an additional agreement specifying the claims handling services St. Paul
would provide and the terms and conditions governing the payment of amounts owed
by Courtney under the policies and the claims handling agreement. The claims
handling agreements do not expire until all policy claims are paid or discharged.
St. Paul’s July 1999 invoice included debit and credit entries from six of the
seven annual policy periods. Two of the entries, which accounted for more than the
net amount that St. Paul claimed was owing ($512,406), were described as follows:
Fourth Incurred Loss Large Deductible Adjustment
Plan Term: 12/1/94 to 12/1/95
Additional Amount Due The St. Paul 96,564
1st, 2nd, 3rd Combined Large Deductible 482,081
Seventh Incurred Loss Retro & Deductible Adjustment
Plan Term: 12/1/91 to 12/1/92
Return Amount Due the Insured (26,587)
4th, 5th, 6th Combined Retro & Deductible 48,742
1
The HONORABLE ANN D. MONTGOMERY, United States District Judge
for the District of Minnesota.
-2-
For the 1991-1992 policy year, the Claims Service Agreement between Courtney and
St. Paul Risk Services, Inc. provided:
All matters in dispute between [Courtney] and SPRS in relation to this
Agreement, and whether arising during or after the period of this
Agreement, shall be referred for arbitration in the following manner:
* * * * *
c. The matter shall be determined by arbitration conducted in
the City of St. Paul, State of Minnesota . . . . The
arbitrator(s) shall apply the substantive law of the State of
Minnesota as the proper law of this Agreement.
For the 1994-1995 policy year, the Incurred Loss Deductible Agreement between
Courtney and St. Paul provided for arbitration of disputes regarding “interpretation
or application of any of the provisions of this Agreement.” The agreement is
“governed by the laws of the State of Minnesota” but does not specify Minnesota as
the required forum for arbitration.
In response to St. Paul’s petition to compel arbitration, Courtney filed a motion
to dismiss for lack of personal jurisdiction, supported by an affidavit stating it has no
other contacts with Minnesota, and an answer alleging that the “side agreement” to
arbitrate the dispute in Minnesota is contrary to the Texas insurance laws and
therefore unenforceable. St. Paul filed copies of the relevant contract documents and
correspondence regarding the unpaid invoice. Courtney filed a copy of a letter from
the Texas Department of Insurance advising that the Incurred Loss Deductible
Agreement attached to St. Paul’s petition was not the “large deductible endorsement”
that St. Paul filed and the Department approved for use in workers compensation
policies for Texas insureds.
-3-
Based on this record, the district court denied Courtney’s motion to dismiss,
concluding Courtney had sufficient contacts with Minnesota to give the court
personal jurisdiction. The court granted St. Paul’s petition to compel arbitration,
declining to consider whether the underlying contracts are unenforceable because that
issue goes to the merits of the dispute. Courtney appeals both rulings.
II.
A. Personal Jurisdiction. The Supreme Court of Minnesota has construed
the Minnesota long-arm statute as extending the personal jurisdiction of Minnesota
courts as far as due process will allow. Therefore, the personal jurisdiction issue in
this case turns on whether the district court’s assertion of personal jurisdiction over
Courtney offends the Due Process Clause of the Fourteenth Amendment. See, e.g.,
Minnesota Mining & Mfg. Co. v. Nippon Carbide Indus. Co., 63 F.3d 694, 697 (8th
Cir. 1995), cert denied, 516 U.S. 1184 (1996). “To defeat a [pretrial] motion to
dismiss for lack of personal jurisdiction, the nonmoving party need only make a prima
facie showing of jurisdiction.” Dakota Indus., Inc. v. Dakota Sportswear, Inc., 946
F.2d 1384, 1387 (8th Cir. 1991). Of course, when the underlying action is a petition
to compel arbitration, a trial is unlikely. That means the moving party must seek an
evidentiary hearing if it wishes to challenge the factual underpinnings of the
nonmoving party’s prima facie case. Courtney did not request such a hearing.
St. Paul seeks to arbitrate Courtney’s refusal to pay a July 1999 invoice. The
invoice included an amount due for the “Plan Term” of December 1991 to December
1992. In the Claims Service Agreement in effect for that policy year, Courtney
agreed to arbitrate disputes relating to the agreement “in the City of St. Paul, State of
Minnesota.” By agreeing to that forum selection clause, Courtney impliedly
consented to be sued in Minnesota to compel arbitration of such disputes. “Due
process is satisfied when a defendant consents to personal jurisdiction by entering
into a contract that contains a valid forum selection clause.” Dominium Austin
-4-
Partners, L.L.C., v. Emerson, 248 F.3d 720, 726 (8th Cir. 2001); accord Unionmutual
Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524, 527 (1st
Cir.1985); Petrol Shipping Corp. v. Kingdom of Greece, 360 F.2d 103, 107 (2nd
Cir.), cert denied, 385 U.S. 931 (1966).
Implying consent to personal jurisdiction from the forum selection clause in an
agreement to arbitrate is necessary to implement the statutory requirement that an
arbitration hearing must be held “within the district in which the petition for an order
directing such arbitration is filed.” 9 U.S.C. § 4. When the agreement to arbitrate
includes a forum selection clause, most courts have concluded that “only a district
court in that forum has jurisdiction to compel arbitration pursuant to Section 4 [of the
Federal Arbitration Act].” Management Recruiters Int’l v. Bloor, 129 F.3d 851, 854
(6th Cir. 1997). Thus, if the court in the selected forum did not have personal
jurisdiction to compel arbitration, the agreement to arbitrate would be effectively
unenforceable, contrary to the strong national policy in favor of arbitration.
Noting the fact that St. Paul only attached the 1994-1995 Incurred Loss
Deductible Agreement to its petition to compel arbitration, Courtney argues the 1991-
1992 Claims Service Agreement is irrelevant and therefore there is no implied
consent to personal jurisdiction because the 1994-1995 agreement did not contain an
arbitration forum selection clause. We disagree. St. Paul properly submitted the
additional contract documents in opposing Courtney’s personal jurisdiction motion.
Read as a whole, the documents reflect a contract claim that is in part for amounts due
under the 1991-1992 agreement. That is a more than adequate prima facie showing
of Courtney’s consent to personal jurisdiction. As Courtney did not request an
evidentiary hearing to challenge this plain meaning of the contract documents, the
-5-
district court’s denial of Courtney’s motion to dismiss for lack of personal jurisdiction
must be affirmed.2
B. Arbitrability. In deciding whether to compel arbitration, a district court
must determine whether the dispute is arbitrable, that is, within the scope of the
agreement to arbitrate, unless the parties have clearly agreed to leave that issue to the
arbitrator. However, the court may not rule on the merits of any claim the parties
have agreed to arbitrate. See AT&T Tech. v. Communications Workers, 475 U.S.
643, 649-50 (1986). In this regard, the court’s focus is “the making of the agreement
for arbitration,” 9 U.S.C. § 4, not the entire underlying agreement. For example, the
court may consider whether there was fraud in the inducement of the arbitration
clause but it may not consider a defense of fraud in the inducement of the underlying
contract. The latter issue goes to the merits of the dispute and is for the arbitrator.
See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402-04 (1967).
Courtney argues that the agreement to arbitrate is invalid under the Texas
insurance laws, which must be enforced by reason of the McCarran-Ferguson Act.3
Under Prima Paint, we must determine whether this defense goes to the issue of
arbitrability or to the merits of the underlying contract claim. If the Texas insurance
laws forbid the arbitration of insurance disputes, that is a defense to arbitrability and
2
The 1994-1995 Incurred Loss Deductible Agreement provided for arbitration
and stated that it “shall be governed by the laws of the State of Minnesota.” We need
not decide whether this agreement standing alone would support personal jurisdiction
in Minnesota. Given the overall course of dealing, it is clearly appropriate to compel
arbitration of the entire dispute over the July 1999 invoice in the forum the parties
selected for arbitration in the 1991-1992 Claims Service Agreement.
3
“No Act of Congress shall be construed to invalidate, impair, or supersede any
law enacted by any State for the purpose of regulating the business of insurance . . .
unless such Act specifically relates to the business of insurance.” 15 U.S.C.
§ 1012(b).
-6-
the Federal Arbitration Act would be “inversely preempted” by the McCarran-
Ferguson Act. See Standard Sec. Life Ins. Co. v. West, No. 01-1223, 2001 WL
1175069 (8th Cir. Oct. 5, 2001) (applying Missouri law); Mutual Reinsur. Bureau v.
Great Plains Mutual Ins. Co., 969 F.2d 931 (10th Cir.) (applying Kansas law), cert
denied, 506 U.S. 1001 (1992). But Courtney does not argue that Texas law prohibits
the arbitration of insurance disputes. Indeed, St. Paul has cited cases establishing that
Texas courts do enforce agreements to arbitrate insurance disputes, such as In re
Certain Underwriters at Lloyd’s, 18 S.W.2d 867, 872 (Tex. Civ. App. 2000).
Rather, Courtney’s defense is that the claims handling agreements that are the
basis for St. Paul’s contract claim are unenforceable because they were not filed and
approved under the Texas insurance laws. We agree with the district court that this
defense goes to the merits of the underlying contract dispute. The Texas insurance
laws, if applicable in this way, are not impaired by the agreement to arbitrate. Thus,
the McCarran-Ferguson Act has no impact on the issue of arbitrability. See Life of
America Ins. Co. v. Aetna Life Ins. Co., 744 F.2d 409, 412-13 (5th Cir. 1984);
Hamilton Life Ins. Co. v. Republic Nat’l Life Ins. Co., 408 F.2d 606, 611 (2nd Cir.
1969). If Courtney’s invalidity defense is sound, the dispute is arbitrable but St.
Paul’s claim may be unenforceable. We have no authority to address this invalidity
issue, as the parties have agreed to submit it to arbitration.
The judgment of the District Court is affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
-7-