Fairway Village Condominiums v. Independent Specialty Insurance Company

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

FAIRWAY VILLAGE CONDOMINIUMS CIVIL ACTION

VERSUS NO. 22-2022

INDEPENDENT SPECIALTY INSURANCE CO. SECTION: “G”(1)

ORDER AND REASONS

This litigation arises from an insurance coverage dispute following Hurricane Ida.1

Plaintiff Fairway Village Condominiums (“Plaintiff”) brings breach of contract and bad faith

claims against the insurer for its property, Defendant Independent Specialty Insurance Company

(“Defendant”). On April 10, 2023, this Court denied Defendant’s motion to compel arbitration

because it found that Louisiana Revised Statute § 22:868(D) did not exempt arbitration clauses

in surplus lines insurance contracts from the prohibition laid out in § 22:868(A).2 On April 26,

2023, Defendant filed a notice of appeal as to this Court’s April 10, 2023 Order and Reasons

denying the motion to compel arbitration.3 Before the Court is Defendant’s “Motion to Stay the

Proceedings Pending Appeal.”4 Plaintiff opposes the motion.5 Considering the motion, the

memoranda in support and in opposition, the record, and the applicable law, the Court grants the

motions and stays the proceedings pending outcome of the appeal.

1 See Rec. Doc. 1.

2 Rec. Doc. 58 at 11.

3 Rec. Doc. 59.

4 Rec. Doc. 28.

5 Rec. Docs. 31, 38.

I. Background

Plaintiff asserts that Hurricane Ida caused extensive damage to Plaintiff’s condominium

complex located at 382 Fairway Drive, LaPlace, LA 70068 (the “Property”).6 Plaintiff avers that

Defendant issued a policy of insurance covering the Property for damages from named storms

(the “Policy”).7 Plaintiff contends that it provided Defendant with a claim for damages related to

Hurricane Ida no later than September 6, 2021.8 Plaintiff alleges that Defendant “was aware of

the massive scale of repairs warranted and that insurance proceeds would be needed as soon as

possible to commence with repairs in order to mitigate further damages.”9 Plaintiff avers that in

the processing of its claim, Defendant retained Ron Sorenson (“Sorenson”) as field adjuster,

Velocity Claims, LLC, (“Velocity”) to administer the claim on behalf of Defendant, and Larry

Jacobs (“Jacobs”) of Sedgwick Delegated Authority (“Sedgwick”) to serve as the Third Party

Claims Administrator for Velocity.10

Plaintiff avers that Sorenson’s September 9, 2021 Inspection of the Property provided

Defendant with a complete and sufficient proof of loss.11 Plaintiff asserts that Defendant made an

initial advance payment of $200,000 to Plaintiff on September 21, 2021.12 Plaintiff alleges that

Defendant made three additional payments in February and March, 2022 totaling $751,462.49.13

6 Rec. Doc. 1 at 1–2.

7 Id. at 3–4.

8 Id. at 4.

9 Id. at 2.

10 Id. at 4–5.

11 Id. at 5.

12 Id.

13 See id.

Plaintiff avers that Defendant paid a total amount of $951,462.49, which is “less than half of the

proof of loss amounts submitted on behalf of Plaintiff by a public adjuster and separate

water/environmental mitigation company, both of which produced” proof of loss evidence

totaling $1,966,458.49.14

On July 1, 2022, Plaintiff filed a Complaint in this Court.15 On February 7, 2023,

Defendant filed a motion to compel arbitration.16 In its motion, Defendant argued that the

arbitration clause in the Policy is an enforceable forum selection clause in a surplus lines insurance

contract exempt from the prohibition in Louisiana Revised Statute § 22:868(A)(2).17 This Court

denied the motion to compel arbitration on April 10, 2023.18 Pursuant to Section 16 of the Federal

Arbitration Act, 9 U.S.C. § 16, an Order denying a motion to compel arbitration is immediately

appealable. Defendant appealed this Court’s decision on April 26, 2023.19 On May 3, 2023,

Defendant filed the instant motion to stay the proceedings.20 Plaintiff filed its opposition on May

23, 2023.21 This matter is currently set for a jury trial to begin on September 26, 2023.22

14 Id. at 6.

15 See generally id.

16 Rec. Doc. 24.

17 Rec. Doc. 24-1 at 7–9.

18 Rec. Doc. 58.

19 Rec. Doc. 59.

20 Rec. Doc. 62.

21 Rec. Doc. 68.

22 Rec. Doc. 57.

II. Parties’ Arguments

A. Defendant’s Arguments in Support of the Motion

Defendant makes three arguments in support of the motion. First, Defendant asserts that

it has made a substantial showing that it is likely to succeed on the merits because the Arbitration

Clause in the Policy is an enforceable forum selection clause exempted from the Louisiana

Revised Statutes’ anti-arbitration provision.23 Defendant avers that issue on appeal “is a crucial

issue of statutory interpretation that has wide-spread implications going well beyond the parties

to the instant case.”24 Defendant avers that the “legislative history of the 2020 amendments to La.

R.S. § 22:868 and the audio recording during the meeting of the legislators on May 13, 2020,

clearly and indisputably illuminates the legislators’ intent on carving out surplus lines carriers

from the ‘anti-arbitration’ provisions of La. R.S. § 22:868.”25 Defendant further asserts that “the

legislators’ amendment: (1) added ‘venue’ to Section A, prohibiting venue selection clauses in

insurance policies; and (2) added Section D, which, for the first time, carved-out surplus lines

insurers from the statute.”26

Second, Defendant argues that “it will be irreparably harmed by being forced to go above

and beyond the parameters of arbitration which were clearly set out in the agreement.”27

Defendant asserts that Plaintiff “will not be harmed by the granting of a stay pending appeal”

because its only injury, the delay in the final disposition of this matter, “is insufficient to find that

23 Rec. Doc. 62-1 at 2–3.

24 Id. at 3.

25 Id.

26 Id.

27 Id. at 14.

[Plaintiff] will be substantially injured by the issuance of a stay.”28

Third, Defendant avers that the public interest favors a stay in this matter because

Defendant “should not be deprived of its right to arbitration” without a firm resolution of whether

its alleged contractual right is preempted by Louisiana law.29 Defendant further argues that the

“public interest in efficient allocation of judicial resources favors granting a stay of trial court

proceedings in cases where a difficult question is presented on appeal.”30 Thus, Defendant argues

that this Court should grant the motion to stay because this case involves a serious legal question

and the balance of equities favors the granting of a stay.31

B. Plaintiff’s Arguments in Opposition to the Motion

Plaintiff brings three arguments in its opposition. First, Plaintiff argues that the instant

motion to stay proceedings is a disguised motion for reconsideration that improperly brings “new

argument and evidence that [Defendant] failed to introduce in the original” motion to compel.32

Plaintiff points out that Defendant asserted that three cases decided in the Eastern District of

Louisiana in January 2023 provided the basis for its original motion to compel.33 Plaintiff asserts

that Defendant’s original motion “made no mention of any earlier Louisiana case law, such as

[Shelter Mutual v. Rimkus Consulting Group] or [Creekstone Juban v. XL Insurance].”34 Plaintiff

further argues that Defendant never raised arguments based on the transcripts from the legislative

28 Id. (citing Weingarten Realty Investors v. Miller, 661 F.3d 904, 913 (5th Cir. 2011)).

29 Id.

30 Id.

31 Id.

32 Rec. Doc. 68 at 2.

33 Id. at 3–4.

34 Id. at 3.

debate or other legislative history to rebut the arguments put forth in Plaintiff’s opposition to the

motion to compel.35

Second, Plaintiff contends that Defendant’s argument that arbitration clauses in surplus

lines insurance contracts are exempt from the prohibition in Louisiana Revised Statute

§ 22:868(D) is contrary to Louisiana law.36 Plaintiff avers that Defendant ignores the Louisiana

Supreme Court’s definition of a forum selection clause as any clause that governs the place or

location where parties to a contract choose to “litigate” any disputes.37 Plaintiff argues that

arbitration clauses do not fit under this definition because arbitration is an alternative to

litigation.38 Thus, Plaintiff argues that Defendant has failed to make a substantial showing of the

likelihood of success on the merits because this Court’s denial of the motion to compel arbitration

is consistent with binding Louisiana Supreme Court precedent.39

Third, Plaintiff asserts that Defendant fails to sufficiently raise any argument that it will

suffer irreparable harm or that this case involves a compelling public interest.40 Plaintiff points

out that Defendant “fails to provide any specific basis of how it would be irreparably harmed if

the current proceedings are not stayed.”41 Plaintiff contends that Defendant’s motion undermines

the “long recognized public policy of prohibiting anti-arbitration provisions in insurance

35 Id.

36 Id. at 7.

37 Id.

38 Id. (quoting KeyClick Outsourcing, Inc. v. Ochsner Health Plan, Inc., 2011-0598 (La. App. 4 Cir.

3/14/2012), 89 So.3d 1207, 1210 (“Arbitration is a substitute for litigation.”)).

39 See id. at 7–8.

40 Id. at 8.

41 Id.

policies.”42 Thus, Plaintiff requests that this Court deny Defendant’s motion to stay the

proceedings pending appeal.43

III. Law and Analysis

The Fifth Circuit has stated that “[a]lthough appeals transfer jurisdiction from the district

court to the appellate court concerning ‘those aspects of the case involved in the appeal,’ the

district court is nonetheless free to adjudicate matters that are not involved in that appeal.”44 In

Hilton v. Braunskill, the Supreme Court of the United States established a four-factor test to

determine whether a discretionary stay should be granted pending an appeal. A court will

examine: “(1) whether the stay applicant has made a strong showing that he is likely to succeed

on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether

issuance of the stay will substantially injure other parties interested in the proceedings; and (4)

[whether] public interest [favors a stay].”45 Thus, this Court begins its analysis as to whether the

Defendant has made a substantial case as to its likelihood of success on the merits.

A. Whether Defendant Has Made a Substantial Showing of Success on the Merits

The Fifth Circuit has stated that “a stay can never be granted unless the movant has shown

that success on appeal is probable.”46 Though the Court remains confident that its finding that

§ 22:868(D) does not exempt arbitration provisions in surplus lines insurance contracts is correct,

the Court is cognizant that this is an issue of first impression as Defendant’s argument requires

42 Id.

43 Id.

44 Weingarten, 661 F.3d at 908 (quoting Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982)).

45 Id. (citing Hilton v. Braunskill, 481 U.S. 770 (1987)).

46 See Ruiz v. Estelle, 650 F.2d 555, 565 (5th Cir. 1981).

an interpretation of a recent 2020 amendment to Louisiana law. The Court notes that the Louisiana

Supreme Court amended Louisiana Supreme Court Rule XII on June 13, 2023, to allow federal

district courts to certify questions of state law to the Louisiana Supreme Court where there is no

clear controlling precedent. It may have been appropriate to certify this legal question under Rule

XII had the amendment been in effect at the time of this Court’s April 10, 2023 Order and

Reasons. Therefore, the Court finds that Defendant has submitted a substantial case. The Fifth

Circuit’s determination on this issue will have direct implications in numerous other insurance

cases. Thus, the Court finds that this factor weighs in favor of a stay.

B. Whether the Defendant has Shown That it Will be Irreparably Injured Absent a Stay

The second Hilton factor examines “whether the applicant will be irreparably injured

absent a stay.”47 Plaintiff argues that Defendant cannot manufacture irreparable harm just because

it disagrees with this Court’s ruling denying arbitration.48 Defendant contends that it will face

irreparable harm in this case and in future suits through the deprivation of its alleged contractual

right to resolve disputes in arbitration until the issue on appeal is “concretely resolved.”49 The

Court finds that Defendant has sufficiently shown that it will be injured absent the granting of a

stay pending the appeal as the trial date is set to occur before the appeal will be resolved.

C. Whether Issuance of the Stay Will Substantially Injure Other Parties Interested in the

Proceedings

The third Hilton factor is “whether issuance of the stay will substantially injure other

parties interested in the proceedings.” The Fifth Circuit has found that a party is not substantially

injured by the issuance of a stay where the “only potential injury” it faces “is delay in vindication

47 Hilton, 481 U.S. at 776.

48 Rec. Doc. 68 at 8 (citing Weingarten, 661 F.3d at 913).

49 Rec. Doc. 62-1 at 13–14.

of its claim.”50 Defendant argues that neither Plaintiff nor any other parties will be substantially

injured by the issuance of the stay.51 Plaintiff does not raise any argument as to any injury it would

sustain by a stay. The Court agrees with Defendant’s contention that no other parties will be

substantially injured by the issuance of the stay. Thus, the Court finds that this factor weighs in

favor of granting a stay pending the appeal.

D. Whether Public Interest Favors a Stay

The final Hilton factor asks whether public interest favors a stay. Defendant contends that

the public interest weighs heavily in favor of granting a stay here in the name of the efficient

allocation of judicial resources.52 Plaintiff contends that Defendant’s motion undermines the

“long recognized public policy of prohibiting anti-arbitration provisions in insurance policies.”53

Trial is set in this matter for September 26, 2023.54 The Fifth Circuit’s briefing schedule

for Defendant’s appeal provides that appellant’s brief is due on August 31, 2023.55 Therefore,

proceeding to trial in this Court while the Fifth Circuit considers the merits of the appeal will

constitute a waste of judicial resources. The issue of whether Louisiana Revised Statutes § 22:868

prohibits anti-arbitration provisions in surplus lines insurance policies “is significant and has the

potential for far-reaching effects and implications.”56 Other district courts have recognized that a

50 Weingarten, 661 F.3d at 913.

51 Rec. Doc. 62-1 at 13–14.

52 Id.

53 Rec. Doc. 68 at 8.

54 Rec. Doc. 57.

55 Fairway Village Condominiums v. Independent Specialty Ins. Co., Case No. 23-30274, Rec. Doc. 15 (5th

Cir. 2023) (granting extension of Appellant’s briefing deadline to August 31, 2023).

56 Cf. Lil Al M/V, 2018 WL 10780906 at *3.

failure to stay proceedings in cases with pending appeals on issues of first impression “may

prevent the Fifth Circuit from issuing guidance on th[e] unique and complex issue of law.”>’

Thus, the public interest weighs heavily in favor of granting a stay pending the appeal.

IV. Conclusion

For the foregoing reasons,

IT IS HEREBY ORDERED that Defendant’s “Motion to Stay the Proceedings Pending

Appeal”** is GRANTED.

IT IS ORDERED that this matter is STAYED and ADMINISTRATIVELY CLOSED

pending Defendant’s appeal of this Court’s Order and Reasons denying its motion to compel

arbitration. Any party may file a written motion to reopen these proceedings within THIRTY

(30) DAYS following the resolution of the interlocutory appeal.

NEW ORLEANS, LOUISIANA, this 23rd _ day of June, 2023.

Verret. Joburitte Brow,

NANNETTE JOLIVETTE BROWN

CHIEF JUDGE

UNITED STATES DISTRICT COURT

57 See, e.g., id.

8 Rec. Doc. 62.

10