Chubb Capital I Limited v. New Orleans City

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

CHUBB CAPITAL I

LIMITED ET AL. CIVIL ACTION

VERSUS NO: 23-5806

NEW ORLEANS CITY SECTION: “H”

ORDER AND REASONS

Before the Court are Plaintiffs’ Motion for Preliminary Injunction (Doc.

3); Defendant’s Motion to Compel Arbitration and Stay Litigation (Doc. 31);

and Plaintiffs’ Motion to Strike Defendant’s Reply Brief in Support of its

Motion to Compel Arbitration (Doc. 57). For the following reasons, Plaintiffs’

Motion for Preliminary Injunction is GRANTED; Defendant’s Motion to

Compel Arbitration and Stay Litigation is DENIED; and Plaintiffs’ Motion to

Strike Defendant’s Reply Brief in Support of its Motion to Compel Arbitration

is DENIED.

BACKGROUND

This case arises out of a contract dispute between the Crescent City

Aviation Team (“CCAT”) and Defendant the City of New Orleans by and

through the New Orleans Aviation Board (“NOAB”). CCAT is a joint venture

composed of Leo A. Daly Company (“Daly”) and Atkins North America, Inc.

(“Atkins”). NOAB and CCAT contracted for CCAT’s provision of “professional

engineering and architectural design and related services” for construction of

the new terminal facility at the Louis Armstrong New Orleans International

Airport (“the Design Services Contract”).1 The Design Services Contract

contains an arbitration clause.

Plaintiffs are a group of insurers (“the Insurers”) who provide

professional liability insurance coverage to Daly and Atkins, with CCAT listed

as an additional insured.2 On June 30, 2023, NOAB filed an arbitration

demand with the American Arbitration Association against CCAT, Daly,

Atkins, and the Insurers, demanding over $51 million in damages for errors

and omissions in CCAT’s project work pursuant to the Design Services

Contract, in addition to a 50% extracontractual penalty under Louisiana

Revised Statutes § 22:1892. The Insurers submitted a written demand to

NOAB for their dismissal from the arbitration because they are not parties to

the Design Services Contract, and their insurance contracts do not contain

arbitration clauses. NOAB, however, refused to dismiss the Insurers.

On October 5, 2023, the Insurers filed suit in this Court, seeking (1) a

declaratory judgment that NOAB has no right to demand arbitration from

them and the Insurers should not be parties in the Arbitration, and (2) a

preliminary and permanent injunction enjoining NOAB’s prosecution of the

Arbitration against them.3 NOAB later filed a Third-Party Complaint against

Daly, Atkins, and CCAT, asserting claims for negligence, breach of contract,

1 Doc. 26 at 4.

2 Plaintiffs Chubb Capital I Limited, RenaissanceRe Corporate Capital (UK) Limited, Brit

UW Limited, and Swiss Re International SE had a contract of professional liability

insurance with Daly for the period of July 1, 2018 to July 1, 2019. Plaintiffs Catlin

Underwriting Agencies Limited, Scor Global P&C SE, AIG Europe Limited, Starr

Underwriting Agents Limited, Arch Insurance Canada Ltd., XL Reinsurance America Inc.,

Everest Insurance Company of Canada, Temple Insurance Company, and Aviva Insurance

Company of Canada had a contract of professional liability insurance with Atkins for the

period of April 30, 2020 to April 30, 2021.

3 Doc. 1 at 10.

and solidary liability of members of a joint venture.4 Now before the Court are

Plaintiffs’ Motion for Preliminary Injunction; Defendant’s Motion to Compel

Arbitration and Stay Litigation; and Plaintiffs’ Motion to Strike Defendant’s

Reply Brief in Support of its Motion to Compel Arbitration.5 Each motion is

opposed.6

LAW AND ANALYSIS

1. Plaintiffs’ Motion to Strike Defendant’s Reply Brief in Support

of its Motion to Compel Arbitration (Doc. 57)

Plaintiffs move this Court to strike as untimely Defendant’s Reply Brief

in Support of its Motion to Compel Arbitration. On January 19, 2024,

Defendant New Orleans City filed a Motion to Compel Arbitration, setting a

submission date of February 14, 2024.7 Pursuant to Local Rule 7.5, effective

January 1, 2024, a movant may file a reply brief in support of their motion “no

later than 4:00 p.m., two working days before the noticed submission date.”

Defendant, however, filed a reply brief in support of its Motion to Compel

Arbitration on the submission date.8 Defendant argues that it interpreted this

Court’s order setting oral argument on its motion to compel arbitration as

extending the deadline to file a reply brief to February 14, 2024.9

The Court, in setting Defendant’s motion for oral argument, instructed

the parties that “this order shall not be interpreted to alter the briefing

deadlines for Defendant’s Motion to Compel Arbitration and Stay Litigation

4 Doc. 21.

5 Docs. 3, 31 & 57.

6 Docs. 26, 38 & 59.

7 Doc. 31.

8 Doc. 40.

9 Doc. 59.

(Doc. 31) . . . , and all briefs shall be submitted by February 14, 2024.”10

Accordingly, the submission date remained set as February 14, 2024, and

pursuant to Local Rule 7.5, any reply brief, filed without leave of Court, must

have been filed by 4:00 p.m. two working days prior.11 Defendant’s reply brief,

filed without leave of court, was therefore untimely pursuant to Local Rule 7.5.

The Court, however, exercises its discretion and declines to strike

Defendant’s reply brief from the record, as the Insurers have failed to

demonstrate—or even allege—any prejudice.12 Moreover, the reply brief raises

arguments that were made and responded thereto at oral argument held on

February 16, 2024. In the event the Court found Defendant’s reply brief

untimely, Defendant asked this Court for leave to file.13 Accordingly, Plaintiffs’

Motion to Strike is DENIED, and Defendant’s request for leave to file a reply

is GRANTED.

2. Plaintiffs’ Motion for Preliminary Injunction (Doc. 3)

The Insurers “seek a preliminary injunction to enjoin the prosecution of

an arbitration against [them]” because they did not agree to arbitrate any

claims asserted by NOAB, and their policies with Daly, Atkins, and CCAT do

not contain arbitration clauses.14 An applicant for preliminary injunctive relief

10 Doc. 39.

11 Prior to the January 1, 2024 effective date of the newest Eastern District of Louisiana’s

Local Rules, this Court routinely granted a movant’s motion for leave file a reply brief if

such brief was filed on or before the submission date. The Local Rules now permit filing of

a reply brief without leave of court two working days prior to the submission date. A movant

may, nonetheless, move a court for leave to file its reply brief outside the deadlines set in

the Local Rules.

12 See Adams v. Travelers Indem. Co. of Conn., 465 F.3d 156, 161–62 (5th Cir. 2006); Phillips

v. Exact Sciences, No. 19-cv-0341, 2020 WL 419369, at *2 (W.D. La. Jan. 27, 2020).

13 See Doc. 59 at 3. See also Fields v. Dollar Tree Stores, Inc., No. 3:18-CV-00567-HTW-LRA,

2019 WL 4855508 at *2 (S.D. Miss. Sept. 30, 2019) (denying a motion to strike a reply brief

where the movant failed to “put forth any evidence that it has suffered prejudice from the

untimeliness of [p]laintiff’s responsive pleading”).

14 Doc. 3 at 2.

must show: “(1) a substantial likelihood that he will prevail on the merits, (2)

a substantial threat that he will suffer irreparable injury if the injunction is

not granted, (3) his threatened injury outweighs the threatened harm to the

party whom he seeks to enjoin, and (4) granting the preliminary injunction will

not disserve the public interest.”15 A preliminary injunction is an extraordinary

remedy.16 Accordingly, a preliminary injunction should only be granted when

the party seeking it has clearly carried the burden of persuasion on all four

requirements.17 In the end, a preliminary injunction is treated as an exception

rather than the rule.18

Defendant does not contest that the second, third, and fourth

requirements for injunctive relief are met. “An injury is ‘irreparable’ only if it

cannot be undone through monetary remedies.”19 Because “[b]eing compelled

to arbitrate a dispute where the parties have not agreed to arbitrate

constitutes irreparable harm per se,”20 the Court finds that the Insurers have

carried their burden with respect to the irreparable injury requirement. Next,

the Court finds that the irreparable harm the Insurers would suffer if forced

to arbitrate claims absent an agreement outweighs any harm Defendant would

suffer in potential litigation costs.21 Last, the Court finds that granting the

preliminary injunction would not disserve the public interest, as forcing a

15 Lake Charles Diesel, Inc. v. Gen. Motors Corp., 328 F.3d 192, 195–96 (5th Cir. 2003) (citing

Canal Auth. v. Callaway, 489 F.2d 567, 572 (5th Cir. 1974)).

16 Miss. Power & Light Co. v. United Gas Pipe Line, Co., 760 F.2d 618, 621 (5th Cir. 1985).

17 Id.

18 State of Tex. v. Seatrain Int’l, S.A., 518 F.2d 175, 179 (5th Cir. 1975).

19 Deerfield Med. Ctr. v. City of Deerfield Beach, 661 F.2d 328, 338 (5th Cir. 1981) (citing

Spiegel v. City of Houston, 636 F.2d 997 (5th Cir. 1981); Parker v. Dunlop, 517 F.2d 785,

787 (5th Cir. 1975)).

20 See, e.g., J2 Res., LLC v. Wood River Pipe Lines, LLC, No. 4:20-CV-2161, 2020 WL 4227424

(S.D. Tex. July 23, 2020).

21 Pershing LLC v. Bevis, No. 13-672-JJB-RLB, 2014 WL 1818098, at *5 (M.D. La. May 7,

2014) (citing Morgan Keegan & Co. v. Shadburn, 829 F. Supp. 2d 1141, 1153 (M.D. Ala.

2011)).

party who has not agreed to arbitrate a dispute to arbitrate would “‘undermine

the longstanding principle that arbitration is a consent-based process through

which parties can decide for themselves where and how to resolve a specific set

of potential disputes.’”22 Accordingly, the Court turns to the Insurers’

likelihood of prevailing on the merits.

To show a substantial likelihood of success on the merits, the Insurers

must show that NOAB’s claims against them are not arbitrable.23 The Insurers

argue that they did not agree to arbitrate the claims asserted by NOAB. While

non-signatories may be compelled to arbitrate under various state-law

theories, the Insurers further aver that these theories are inapplicable.

Additionally, the parties dispute whether the Louisiana Direct Action Statute

permits a direct-action plaintiff to demand arbitration from an insurer with

which the plaintiff has no privity of contract.24 The Court considers each of the

Insurers’ arguments in turn.

A. Agreement to Arbitrate

In determining whether the parties have agreed to arbitrate, courts must

apply state-law principles of contract.25 Under Louisiana law, the four

elements of a valid contract are: “(1) the parties must possess the capacity to

contract; (2) the parties’ mutual consent must be freely given; (3) there must

be a certain object for the contract; and (4) the contract must have a lawful

purpose.”26 The Insurers assert that no consent was given to enter into an

arbitration agreement.

22 Pershing LLC v. Fulcrum Capital Holdings LLC, No. 1:20-CV-587-RP, 2020 WL 3883256

(W.D. Tex. July 9, 2020) (quoting Raymond James Fin. Servs., Inc. v. Cary. 709 F.3d 382,

388 (4th Cir. 2013)).

23 See City of Meridian, Miss. V. Algernon Blair, Inc., 721 F.2d 525, 527 (5th Cir. 1983).

24 LA. REV. STAT. § 22:1269.

25 Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 218 (5th Cir. 2003).

26 Provenza v. Cent. & Sw. Servs., Inc., 775 So. 2d 84, 89 (La. App. 2d Cir. 2000) (citing LA.

CIV. CODE arts. 1918, 1927, 1966 & 1971).

To support a finding of consent, the court must determine whether there

was a “meeting of the minds.”27 In ULM Facilities, the Louisiana Second

Circuit Court of Appeal ordered a non-signatory insurer to arbitrate pursuant

to an agreement between its insured and a contractor, where the insurance

contract “offered no policy language opting out or stating that, if its insured

agreed to arbitration of claims, [the insurer] would not participate.”28

Considering this lack of policy language and the “special circumstances” of the

case, the Second Circuit found that the insurers “consented to the arbitration

to which their respective insureds agreed.”29

While the insurance contract in this case also lacks policy language

stating that the Insurers would not participate in any arbitration its insureds

agreed to, Defendant fails to explain what “special circumstances” are present

in this case or otherwise explain how the Insurers consented to arbitration to

which their insureds agreed.30 Indeed, Defendant’s opposition memorandum

omits mention of the term “consent” entirely. Absent a finding of consent or a

“meeting of the minds,” this Court finds that the Insurers did not agree to

arbitrate. Even so, non-signatories may be bound by an arbitration clause in

certain circumstances.

27 Adams v. JPD Energy, Inc., 46 So. 3d 751, 755 (La. App. 2d Cir. 2010).

28 ULM Facilities, 151 So. 3d at 133.

29 Id.

30 Indeed, “[c]onsent may be given either expressly or by implication.” Ill. Cent. Gulf. R.R. Co.

v. Int’l Harvester Co., 368 So. 2d 1009, 1011 (La. 1979) (citing LA. CIV. CODE arts. 1780 &

1811). “Thus, except in those instances in which the statutory law creates a legal

presumption, the mere silence of an offeree should not, in principle, be considered as

involving acceptance on his part. His consent can result from silence, however, when

combined with other facts or acts so as to imply or indicate his consent unequivocally.” Id.

at 1012 (emphasis added). In such cases, “it is left to the discretion of the judge to determine

if consent is to be implied from the particular circumstances of the case.” Id. Defendant has

failed to demonstrate unequivocal consent. Additionally, while the Court notes that the

insurance agreement referenced the Design Services Contract and listed NOAB as an

additional insured, the insurance agreement does not contain an arbitration clause.

B. Compelling Non-Signatories to Arbitrate

In determining whether non-signatories may nevertheless be bound by

an arbitration clause, state law applies.31 The Design Services Contract

provides that Louisiana law governs.32 Generally, “a party cannot be required

to submit to arbitration to any dispute that he has not agreed to submit.”33

There are, however, limited circumstances where a contract may be enforced

against a non-signatory.34 “Six theories for binding a non[-]signatory to an

arbitration agreement have been recognized: (a) incorporation by reference; (b)

assumption; (c) agency; (d) veil-piercing/alter ego; (e) estoppel; and (f) third-

party beneficiary.”35 The Court considers each in turn.

a. Incorporation by Reference

“The incorporation of an arbitration clause by reference to another

written contract is a suitable method of evidencing the parties’ intent to

arbitrate as long as the arbitration clause in the contract that is referred to

has a ‘reasonably clear and ascertainable meaning.’”36 Thus, a non-signatory

“may compel arbitration against a party to an arbitration agreement when that

party has entered into a separate contractual relationship with the non-

signatory which incorporates the existing arbitration clause.”37 Here, however,

31 Arthur Andersen, LLP v. Carlisle, 556 U.S. 624, 630–31 (2009).

32 Doc. 3-3 at 14 (“This Agreement shall be governed by the laws of the State of Louisiana.”).

33 Ciaccio v. Cazayoux, 519 So. 2d 799, 804 (La. App. 1st Cir. 1987).

34 Arthur Andersen, 556 U.S. at 630–31.

35 Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 356 (5th Cir. 2003) (citing

Thomson–C.S.F., S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995); E.I. DuPont

de Nemours & Co. v. Rhone Poulenc, 269 F.3d 187, 195–97 (3d Cir. 2001)). See also Traders’

Mart, Inc. v. AOS, Inc., 268 So. 3d 420, 427 (La. App. 2d Cir. 2019) (applying the theories

set forth in Bridas); Prasad v. Bullard, 51 So. 3d 35 (La. App. 5th Cir. 2010) (same).

36 Dufrene v. HBOS Mfg., LP, 872 So. 2d 1206, 1211 (La. App. 4th Cir. 2004) (citing Woodson

Constr. Co. v. R.L. Abshire Constr. Co., 459 So. 2d 566, 569 (La. App. 3d Cir. 1984);

Russellville Steel Co., Inc. v. A & R Excavating, Inc., 624 So. 2d 11, 13 (La. App. 5th Cir.

1993)).

37 Thomson–C.S.F., 64 F.3d at 777.

the Insurers do not seek to compel arbitration against a party to the arbitration

agreement; they seek to avoid it. Moreover, the Insurers do not assume the

obligations and privileges of its insureds in the contract of insurance.38 The

Court therefore finds the incorporation by reference theory inapplicable.

b. Assumption

“In the absence of a signature, a party may be bound by an arbitration

clause if its subsequent conduct indicates that it is assuming the obligation to

arbitrate.”39 The non-signatory’s conduct must manifest a clear intent to

arbitrate.40 The Insurers argue that they have not manifested a clear intent to

arbitrate the dispute with NOAB and that their “only action to date vis-à-vis

the NOAB Arbitration was to write a letter through counsel to NOAB

demanding the cessation of arbitration proceedings against them.”41

Defendant fails to point to any subsequent conduct by the Insurers that would

indicate a clear intent to arbitrate disputes arising out of the Design Services

Contract. Accordingly, this theory does not apply.

38 See Doc. 3-5 at 12. The Design Services Contract requires that its contractors obtain a

policy of liability insurance. However, Louisiana courts finding incorporation by reference

have generally based that finding upon an explicit incorporation clause evidencing a clear

intent to arbitrate. See, e.g., Woodson Constr. Co., Inc. v. R.L. Abshire Constr. Co., Inc., 459

So. 2d 566, 569 (La. App. 3d Cir. 1984) (finding incorporation by reference where the

contract provided that the “Subcontractor is required to complete the above described work

according to the terms and conditions of that certain contract by and between” the parties

who agreed to arbitrate Bartley, Inc. v. Jefferson Par. Sch. Bd., 302 So. 2d 280, 282 n.3 (La.

1974) (finding incorporation by reference where the contract provided that “[a]ll of these

Plans, Specifications, Addenda, Proposal, and said Agreement are made part of this

Agreement between [the parties] just as though all were annexed thereto”). See also

Russellville Steel Co., Inc. v. A & R Excavating, Inc., 624 So. 2d 11, 13–14 (La. App. 5th

Cir. 1993) (finding the arbitration agreement incorporated by reference where the

arbitration agreement referred to the other contract by naming the parties thereto and

attaching a copy of the contract).

39 Thomson–CSF, 64 F.3d at 777.

40 Id.

41 Doc. 3-1 at 14.

c. Agency

Agency is “the fiduciary relation which results from the manifestation of

consent by one person to another that the other shall act on his behalf and

subject to his control, and consent by the other so to act.”42 “An agency

relationship may be demonstrated by ‘written or spoken words or conduct, by

the principal, communicated either to the agent (actual authority) or to the

third party (apparent authority).’”43 Therefore, if CCAT signed the Design

Services Contract in its capacity as the Insurers’ agent, the Insurers would be

bound by the Design Services Contract’s arbitration clause. The Insurers,

however, aver that their actions did not in any way manifest consent for CCAT,

Daly, or Atkins to bind them to arbitration. Because NOAB fails to point to any

conduct by the Insurers that tend to show that CCAT had authority to bind

them to the arbitration provision of the Design Services Contract, agency

theory does not apply.

d. Veil-Piercing/Alter Ego

“Under the alter ego doctrine, a corporation may be bound by an

agreement entered into by its subsidiary regardless of the agreement’s

structure or the subsidiary’s attempts to bind itself alone to its terms, ‘when

their conduct demonstrates a virtual abandonment of separateness.’”44 “The

corporate veil may be pierced to hold an alter ego liable for the commitments

of its instrumentality only if (1) the owner exercised complete control over the

corporation with respect to the transaction at issue and (2) such control was

used to commit a fraud or wrong that injured the party seeking to pierce the

42 Bridas, 345 F.3d at 356–57 (quoting Restatement (Second) of Agency § 1(1) (1958)).

43 Id. (quoting Hester Int’l Corp. v. Federal Republic of Nigeria, 879 F.2d 170, 181 (5th Cir.

1989)).

44 Id. (quoting Thomson–C.S.F., 64 F.3d at 777).

veil.”45 Because the Insurers do not own CCAT, the alter ego theory does not

apply.

e. Equitable Estoppel

A court’s use of equitable estoppel is within its discretion.46 In the context

of arbitration, there are two theories of equitable estoppel: intertwined claims

and direct benefits.47 Intertwined claims estoppel “applies only to prevent a

signatory from avoiding arbitration with a non[-]signatory when the issues the

non[-]signatory is seeking to resolve in arbitration are intertwined with the

agreement that the estopped party has signed. The reverse is not also true.”48

In this case, Defendant, a signatory to the Design Services Contract, seeks to

estop the Insurers, as non-signatories, from avoiding arbitration. Because a

“signatory may not estop a non[-]signatory from avoiding arbitration

regardless of how closely affiliated that nonsignatory is with another signing

party,” the intertwined claims theory of equitable estoppel does not apply.49

The direct benefits theory of estoppel applies when a non-signatory

“knowingly exploits the agreement containing the arbitration clause.”50 For

this theory to apply, the non-signatory must have brought a suit against a

signatory premised in part upon the agreement.51 Here, the Insurers have not

45 Id. at 359 (citing Am. Fuel Corp. v. Utah Energy Dev’t Co., Inc., 122 F.3d 130, 134 (2d Cir.

1997)).

46 Id. at 360 (citing Grigson v. Creative Artists Agency, LLC, 210 F.3d 524, 528 (5th Cir.

2000)).

47 See id. at 360–62; Traders’ Mart, 268 So. 3d at 427.

48 Traders’ Mart, 268 So. 3d at 427 (citing Bridas, 345 F.3d at 361; Greene v. Chase

Manhattan Auto. Fin. Corp., No. Civ.A. 03-2179, Civ.A. 03-2640, 2003 WL 22872102 (E.D.

La. Dec. 3, 2003); Grigson, 210 F.3d 524; Lakeland Anesthesia, Inc. v. United Healthcare

of La., Inc., 871 So. 3d 380 (La. App. 4th Cir. 2004)).

49 See id. (citing Bridas, 345 F.3d at 361; Greene, 2003 WL 22872102; Grigson, 210 F.3d 524;

Lakeland Anesthesia, 871 So. 3d 380).

50 Id. at 361–62 (quoting DuPont, 269 F.3d at 199).

51 Id. at 362.

sued CCAT or NOAB under the agreement and have not “exploited” the Design

Services Contract to the degree that application of this theory requires.52

f. Third-Party Beneficiary

Third-party beneficiaries of a contract may be bound by the terms of an

arbitration agreement.53 “Under Louisiana law, a third-party beneficiary must

be created by contract, known as a stipulation pour autri, and is never

presumed.”54 For this Court to find that the Insurers are third-party

beneficiaries, it must be established that: “(1) the stipulation for a third party

is manifestly clear; (2) there is certainty as to the benefit provided the third

party; and (3) the benefit is not a mere incident of the contract between the

promisor and the promisee.”55

In Bridas S.A.P.I.C. v. Government of Turkmenistan, however, the Fifth

Circuit expressed reluctance to apply the third-party beneficiary theory where

the third-party beneficiary did not file a claim against a signatory to the

agreement or otherwise seek to enforce the terms of the agreement containing

the arbitration clause.56 Here, the Insurers did not file a claim against the

signatories or otherwise seek to enforce the terms of the Design Services

Contract. Moreover, Defendant fails to establish that the Insurers are third-

party beneficiaries of the Design Services Contract that contains the

arbitration clause.57 A review of the Design Services Contract reveals that they

52 See id.

53 See id. at 362–63; Billieson v. City of New Orleans, 863 So. 2d 557, 562–63 (La. App. 4th

Cir. 2003).

54 Johnson v. Am. Sec. Ins. Co., 650 F. Supp. 3d 483, 489–90 (E.D. La. 2023) (Vance, J.) (citing

Joseph v. Hosp. Serv. Dist. No. 2 of Par. St. Mary, 939 So. 2d 1206, 1212 (La. 2006)).

55 Joseph, 939 So. 2d at 1212.

56 Bridas, 345 F.3d at 363. “Bridas has not brought to our attention a case where a third-

party beneficiary has been bound to arbitrate a dispute, arising under an agreement to

which it is not a party, that the third-party itself did not initiate in court.” Id.

57 In its motion to compel arbitration, Defendant argues that it is a third-party beneficiary

because the Louisiana Direct Action Statute (“LDAS”) provides that “all liability policies”

are not. Accordingly, the Court declines to apply third-party beneficiary theory

to this case. No state-law theory to bind a non-signatory to an arbitration

agreement applies in this case.

C. Louisiana Direct Action Statute

The parties dispute whether the Louisiana Direct Action Statute (“the

LDAS”) requires third-party insurers to submit to binding arbitration where

their insureds have agreed to arbitrate. In diversity cases, such as this, federal

courts must apply state substantive law.58 To determine Louisiana law, courts

must look to the final decisions of the Louisiana Supreme Court.59 Upon this

Court’s review, it appears the Louisiana Supreme Court has not yet addressed

the precise issue before this Court.

“In the absence of a final decision by the Louisiana Supreme Court, we

must make an Erie guess and determine, in our best judgment, how that court

would resolve the issue if presented with the same case.”60 “In making an Erie

guess, we must employ Louisiana’s civilian methodology, whereby we first

examine primary sources of law: the constitution, codes, and statutes.”61

“‘Jurisprudence, even when it rises to the level of jurisprudence constante, is a

secondary law source in Louisiana.’”62 “Thus, although we will not disregard

the decisions of Louisiana’s intermediate courts unless we are convinced that

are issued “for the benefit of all injured persons,” including NOAB. Doc. 31-1 at 5. The full

text of the statute is, however, enlightening, as the LDAS provides that “[i]t is the intent

of this Section that all liability policies within their terms and limits are executed for the

benefit of all injured persons . . . .” LA. REV. STAT. § 22:1269(D) (emphasis added). The

liability policy’s terms do not include an agreement to arbitrate.

58 In re Katrina Canal Breaches Litig., 495 F.3d 191, 206 (5th Cir. 2007).

59 Id.

60 Id.

61 Id. (citing Lake Charles Diesel, Inc. v. Gen. Motors Corp., 328 F.3d 192, 197 (5th Cir. 2003);

Prytania Park Hotel, Ltd. v. Gen Star Indem. Co., 179 F.3d 169 (5th Cir. 1999)).

62 Id. (quoting Prytania Park Hotel, 179 F.3d at 169).

the Louisiana Supreme Court would decide otherwise, we are not strictly

bound by them.”63

Defendant argues that the Louisiana Second Circuit Court of Appeal in

ULM Facilities has answered the precise question before this Court and held

that the LDAS requires third-party insurers to submit to binding arbitration

where their insureds have agreed to arbitrate.64 Thus, Defendant avers that

this Court must order arbitration of NOAB’s claims against the Insurers. This

Court does not, however, find that ULM Facilities so holds. While citing the

LDAS for the proposition that “[o]rdinarily, an injured person may sue an

insurer directly,”65 the Second Circuit ultimately found that the insurers

“consented to the arbitration to which their respective insureds agreed.”66 The

LDAS gives procedural rights to tort victims—those with no contract- or

consent-based relationship with an insurer.67 Thus, the Second Circuit’s

finding of “consent” suggests that the court found an agreement to arbitrate,

not that the LDAS compelled arbitration.

And even if this Court found the holding in ULM Facilities to suggest

that the LDAS requires third-party insurers to submit to arbitration, the Court

is convinced that the Louisiana Supreme Court would hold otherwise.68 The

LDAS affords plaintiffs the right to bring a “direct action” against a tortfeasor’s

63 Id. (citing Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 261 (5th

Cir. 2003)).

64 See Univ. of La. Monroe Facilities, Inc. v. JPI Apartment Dev., 151 So. 3d 126, 133 (La.

App. 2d Cir. 2014) [hereinafter “ULM Facilities”].

65 ULM Facilities, 151 So. 3d at 133 (citing LA. REV. STAT. § 22:1269(B)(1)).

66 Id.

67 See Green v. Auto Club Group Ins. Co., 24 So. 3d 182, 184 (La. 2009) (citing Cacamo v.

Liberty Mutual Ins. Co., 764 So. 2d 41, 43 (La. 2000)); Taylor v. Fishing Tools, Inc., 274 F.

Supp. 666, 673 (E.D. La. 1967).

68 While Defendant notes that the Louisiana Supreme Court denied writ, “[a] writ denial by

th[e] Court has no precedential value.” St. Tammany Manor, Inc. v. Spartan Bldg. Corp.,

509 So. 2d 424, 428 (La. 1987).

insurer.69 The statute does not, however, define “direct action” or “action”

generally. Dictionaries define the term “action” as a “civil or criminal judicial

proceeding”70 or “the initiating of a proceeding in a court of justice by which

one demands or enforces one’s right.”71 The ordinary meaning of “action”

therefore does not include arbitration. Additionally, arbitration is a consent-

based process, and Defendant has failed to identify a single instance where the

Louisiana legislature has mandated arbitration among private parties.72 The

Court would find difficulty holding that the Louisiana legislature has now

implicitly done so by creating a procedural right of “action.”

Moreover, § 22:1269 provides that any “direct action” brought against

the insurer alone may be brought in a venue prescribed by Louisiana Code of

Civil Procedure article 42.73 The Code of Civil Procedure generally applies to

judicial proceedings—not necessarily to alternative dispute resolution

proceedings.74 Thus, in creating the procedural right of direct action, the

69 LA. REV. STAT. § 22:1269(B)(1) (“The injured person or his survivors or heirs . . . shall have

a right of direct action against the insurer within the terms and limits of the policy[.]”).

70 Action, BLACK’S LAW DICTIONARY (11th ed. 2019) (fourth definition).

71 Action, MERRIAM-WEBSTER DICTIONARY, https://www.merriam-

webster.com/dictionary/action (last updated Mar. 25, 2024).

72 The Court notes that Louisiana Revised Statutes § 47:337.51.1(A)(1) provides for a

“mandatory arbitration procedure” for tax assessments due at the taxpayer’s election.

Arbitration is therefore only mandatory for the tax collector if the taxpayer chooses to

initiate such proceedings. Where, as here, the state legislature has provided for mandatory

arbitration in clear terms, the Court would find difficulty holding that the legislature

intended to mandate arbitration by enacting the LDAS.

73 LA. REV. STAT. § 22:1269(B)(1). See also LA. CODE CIV. PROC. art. 41 (“Venue means the

parish where an action or proceeding may properly be brought and tried under the rules

regulating the subject.” (emphasis added)).

74 “Unless a mode of conducting the proceedings has been prescribed by the arbitration

agreement or submission, or regulated by statute, arbitrators have general discretion as to

the mode of conducting the proceedings and are not bound by formal rules of procedure and

evidence, and the standard of review of arbitration procedures is merely whether a party

to an arbitration has been denied a fundamentally fair hearing.” In re Arbitration Between

U.S. Turnkey Expl., Inc. & PSI, Inc., 577 So. 2d 1131, 1135 (La. App. 1st Cir. 1991) (citing

Nat’l Post Office Mailhandlers v. U.S. Postal Serv., 751 F.2d 834 (6th Cir. 1985)). The

legislature clearly contemplated that such rights were created with respect to

judicial actions alone. Defendant has failed to present any persuasive

argument otherwise. Accordingly, the Court finds that the Louisiana Supreme

Court would hold that the LDAS does not compel third-party insurers to

submit to binding arbitration where their insureds have agreed to arbitrate

but where the insurers have not.

Having considered all theories by which a non-signatory may be

compelled to arbitrate pursuant to an arbitration agreement, the Court finds

none applicable. The Court also finds the LDAS inapplicable. Accordingly, the

Insurers have carried their burden in demonstrating a substantial likelihood

of success on the merits by demonstrating that NOAB’s claims against them

are non-arbitrable. Plaintiffs’ Motion for Preliminary Injunction is

GRANTED.

3. Defendant’s Motion to Compel Arbitration and Stay Litigation

(Doc. 31)

Defendant moves this Court to compel arbitration of its claims against

the Insurers. The question of arbitrability is governed by the Federal

Arbitration Act (“FAA”), which broadly applies to any written provision in “a

contract evidencing a transaction involving commerce to settle by arbitration

a controversy thereafter arising out of such contract or transaction.”75 A two-

step analysis governs whether parties should be compelled to arbitrate a

dispute.76 The Court must first determine whether the parties agreed to

arbitrate the dispute.77 This determination involves two separate inquiries: (1)

Louisiana Code of Civil Procedure may also govern administrative agency proceedings. See

Bd. of Ethics in Matter of Monsour, 249 So. 3d 808, 810 (La. 2018).

75 Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983).

76 JP Morgan Chase & Co. v. Conegie ex rel. Lee, 492 F.3d 596, 598 (5th Cir. 2007).

77 Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 429 (5th Cir. 2004).

whether there is a valid agreement to arbitrate between the parties, and if so,

(2) whether the dispute in question falls within the scope of that agreement.78

The strong federal policy favoring arbitration applies “when addressing

ambiguities regarding whether a question falls within an arbitration

agreement’s scope,” but it does not apply “when determining whether a valid

agreement exists.”79 If the Court finds the parties agreed to arbitrate, it must

then proceed to the second step of the analysis and consider whether any

federal statute or policy renders the claims non-arbitrable.80

The United States Supreme Court has held that a litigant who was not

a party to an arbitration agreement may compel arbitration under the FAA “if

the relevant state contract law allows him to enforce the agreement.”81 A non-

party may also compel arbitration as a matter of substantive federal law when

traditional principles of state law allow a contract to be enforced by or against

nonparties.82 The Court, however, found supra that the Insurers did not agree

to arbitrate the claims asserted by NOAB and that none of the state-law

theories for enforcing an agreement against a non-signatory apply.

Accordingly, the first requirement to compel arbitration is not met, and

Defendant’s Motion to Compel Arbitration and Stay Litigation is DENIED.

CONCLUSION

For the foregoing reasons, Plaintiffs’ Motion for Preliminary Injunction

is GRANTED; Defendant’s Motion to Compel Arbitration and Stay Litigation

78 Sherer v. Green Tree Servicing, LLC, 548 F.3d 379, 381 (5th Cir. 2008).

79 Id.

80 Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 471 (5th Cir. 2002).

81 Arthur Andersen, 556 U.S. at 625.

82 Id. at 631 (internal quotations omitted).

is DENIED; and Plaintiffs’ Motion to Strike Defendant’s Reply Brief in

Support of its Motion to Compel Arbitration is DENIED.

IT IS FURTHER ORDERED that Defendant New Orleans Aviation

Board’s arbitration demand against Plaintiffs Chubb Capital I Limited, Brit

UW Limited, Swiss Re International SE, Catlin Underwriting Agencies

Limited, Scor Global P&C SE, AIG Europe Limited, Starr Underwriting

Agents Limited, Arch Insurance Canada Ltd., XL Reinsurance America Inc.,

Everest Insurance Company of Canada, Temple Insurance Company, Aviva

Insurance Company of Canada, and RenaissanceRe Corporate Capital UK

Limited in American Arbitration Association Case No. 01-23-002-9468 be

enjoined pending final disposition of this matter or further order of the Court.

New Orleans, Louisiana this 6th day of May, 2024.

g TRICHE MILAZZO

UNITED STATES DISTRICT JUDGE

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