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Green Technology Lighting Corp. v. Liberty Surplus Insurance Corp.

United States District Court, S.D. New York

February 26, 2018

GREEN TECHNOLOGY LIGHTING CORP., Plaintiff,
v.
LIBERTY SURPLUS INSURANCE CORP., LIBERTY INSURANCE UNDERWRITERS INC., INSURE IDAHO, LLC, and CROUSE AND ASSOCIATES INSURANCE SERVICES OF NORTHERN CALIFORNIA, INC., Defendants.

          MEMORANDUM DECISION AND ORDER

          David C. Nye U.S. District Court Judge

         I. OVERVIEW

         Two of the four Defendants in this case, Liberty Surplus Insurance Company and Liberty International Underwriters Inc. (collectively “Liberty”), move to transfer this case to the United States District Court for the Southern District of New York pursuant to a forum-selection clause in a contract between Liberty and Plaintiff Green Technology Lighting Corp. (“GTLC”). Dkt. 12. GTLC and the remaining Defendants in this case oppose the Motion. For the reasons outlined below, the Court finds good cause to GRANT the Motion IN PART. The Court finds it necessary and appropriate to sever the claims GTLC asserts against Liberty and transfer those claims to the Southern District of New York. All other claims will remain in the District of Idaho.

         II. FACTS

         GTLC manufactures and sells energy efficient light bulbs. Although GTLC is a Georgia corporation, it is “domiciled” in Edina, Minnesota. Dkt. 1, at 2. In addition, “[d]uring the relevant time period, . . . GTLC's managing director resided in Meridian, Idaho.” Dkt. 27, at 2. In late 2015, one of GTLC's customers, Menards, Inc., notified GTLC that certain light bulbs GTLC had produced for retail sale (A21 LED light bulbs) were defective. After conducting an investigation, Menards and GTLC determined that the bulbs posed a potential risk of property damage and/or injury to persons. Accordingly, in early 2016, GTLC recalled approximately 400, 000 light bulbs.

         GTLC incurred over $900, 000 of costs and expenses in recalling the light bulbs, including costs incurred to recover the defective light bulbs from Menards. GTLC had a “Product Recall Insurance Policy” through Liberty with a policy period of November 30, 2015, to November 30, 2016 (“the Policy”). The Policy contained the following forum-selection clause:

CHOICE OF LAW AND FORUM: The construction, validity and performance of this Policy will be governed by the laws of the United States and the State of New York without giving effect to provisions regarding choice of law. All claims and disputes will be brought for adjudication either in the Supreme Court of the State of New York in and for the County of New York or in the U.S. District Court for the Southern District of New York.

Dkt. 15-5, at 14.

         On February 8, 2016, GTLC made a claim for coverage of the losses it incurred during the recall to Liberty under the Policy. Liberty denied the claim on the ground that the Policy did not cover the incurred loss. The Policy provided “Product Recall Expense Coverage” but not “Product Recall Liability Coverage, ” and Liberty claims the losses fall under the later. GTLC disagrees and on October 16, 2017, it filed this suit seeking to recover its losses associated with the recall under the Policy.

         GTLC also filed suit against its insurance brokers, Defendants Insure Idaho, LLC (“Insure Idaho”) and Crouse and Associates Insurance Services of Northern California, Inc. (“Crouse”) (collectively “the Brokers”). It appears Insure Idaho was GTLC's retail broker and Crouse was acting as a wholesale broker when the events that gave rise to this suit took place.

         GTLC asserts that it retained Insure Idaho and Crouse to procure an insurance policy that covered both product recall expenses and product recall liabilities. On October 19, 2015, Liberty sent an application for the Policy to Crouse. Thereafter, Crouse and/or Insure Idaho sent this initial application to GTLC. Apparently, this was the incorrect application. Liberty sent a subsequent (correct) application to Crouse/Insure Idaho on November 30, 2015, but the Brokers failed to forward this application to GTLC. On December 1, 2015, GTLC sent the completed initial (incorrect) application to Crouse/Insure Idaho and relied on the Brokers to obtain the proper requested insurance coverage. In mid-December, Liberty sent an insurance binder to Crouse/Insure Idaho, in which it agreed to provide GTLC with $3, 000, 000 in product recall expense coverage but not product recall liability coverage. Neither of the Brokers forwarded this binder to GTLC. Shortly thereafter Crouse/Insure Idaho instructed Liberty to place coverage per the insurance binder. GTLC did not know that the Brokers had failed to procure coverage for product recall liability until it received a copy of the Policy on February 16, 2016, after it had made its claim regarding the LED light bulb recall.

         GTLC asserts six “counts” in its Complaint: (1) broker malpractice/negligence against Insure Idaho and Crouse; (2) broker malpractice/breach of contract against Insure Idaho; (3) bad faith against Liberty; (4) breach of contract against Liberty; (5) agency; (6) estoppel; and (7) attorney fees.

         One month after GTLC filed suit, Liberty filed the pending Motion to Transfer in which it argues, generally, that the Policy contained a forum-selection clause that requires this suit to be tried in the Southern District of New York. On January 16, 2018, after the Motion was fully briefed, the Court held oral argument on the Motion. The following day, the Court issued an Order asking the parties to file simultaneous briefs addressing whether it would be appropriate for the Court to sever the claims against Liberty, transfer those claims to the U.S. District Court for the Southern District of New York, and stay the remaining claims in this Court pending the resolution of the claims against Liberty. Dkt. 34. The Court received briefs from GTLC, Liberty, and Insure Idaho on January 31, 2018. Dkts. 35-37. Crouse then filed a notification that it was joining in the supplemental briefs filed by GTLC and Insure Idaho. Dkt. 38.

         III. ANALYSIS

         “[A] forum-selection clause may be enforced by a motion to transfer under [28 U.S.C] § 1404(a).” Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 134 S.Ct. 568, 575 (2013). In contrast, if venue is “wrong” or “improper” (under 28 U.S.C. § 1391)[1] a venue objection is properly brought under 28 U.S.C. § 1406(a) or a Rule 12(b)(3) motion to dismiss for improper venue. Id. Section 1404(a) provides, “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.”

         “When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a § 1404(a) motion be denied.” Atl. Marine Const., 134 S.Ct. at 581. “In the typical case not involving a forum-selection clause, a district court considering a § 1404(a) motion . . . must evaluate both the convenience of the parties and various public-interest considerations.” Id. However, “[t]he ‘enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.'” Id. (quoting Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 33 (1988) (Kennedy, J., concurring)). Accordingly, “[t]he presence of a valid forum-selection clause requires district courts to adjust their usual § 1404(a) analysis in three ways.” Id.

         “First, the plaintiff's choice of forum merits no weight. Rather, as the party defying the forum-selection clause, the plaintiff bears the burden of establishing that transfer to the forum for which the parties bargained is unwarranted.” Id. “Second, a court . . . should not consider arguments about the parties' private interests, ” such as convenience for themselves or for witnesses. Id. at 582. “[A] district court may consider arguments about public-interest factors, ” but these will only control in “unusual cases.” Id. Third, though inconsequential to the present motion, “when a party bound by a forum-selection clause flouts its contractual obligation and files suit in a different forum, a § 1404(a) transfer of venue will not carry with it the original venue's choice-of-law rules.” Id.

         After the Supreme Court's decision in Atlantic Marine, the process for addressing a motion to transfer to enforce a forum-selection clause has been complicated in cases where, as here, both contracting and non-contracting parties are defendants. Luckily, at least two federal circuit courts have recently addressed this exact situation. See In re: Howmedica Osteonics Corp., 867 F.3d 390, 403 (3d Cir. 2017) (“[W]e have need of a separate framework to determine how forum-selection clauses affect the § 1404(a) transfer analysis where both contracting and non-contracting parties are found in the same case and where the non-contracting parties' private interests run headlong into the presumption of Atlantic Marine.”); In re Rolls Royce Corp., 775 F.3d 671, 679 (5th Cir. 2014) (“For cases where all parties signed a forum selection contract, the analysis is easy: except in a truly exceptional case, the contract controls. But not so where, as here, not all parties to the lawsuit have entered into a forum selection agreement.”). Both circuits outlined multi-step analyses courts should conduct before ruling on a motion to transfer. This Court finds the Third Circuit's analysis most applicable to this case because, like here, the Third Circuit in Howmedica Osteonics also faced “contention[s] that a forum specified in some of the parties' contracts lack[ed] personal jurisdiction over [one of the defendants] and the assertion that [that defendant was] a ‘necessary party.'” 867 F.3d at 403. The Third Circuit “prescribe[d] a four-step inquiry” for courts to follow “in sequence: (1) the forum-selection clauses, (2) the private and public interests relevant to non-contracting parties, (3) threshold issues related to severance, and (4) which transfer decision most promotes efficiency while minimizing prejudice to non-contracting parties' private interests.” Id. at 403-04. The Court will consider each of these in turn.

         A. The ...


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