In Union Electric Company v. Energy Insurance Mutual Limited, the United States District Court for the Eastern District of Missouri changed its mind regarding the appropriateness of Missouri as a venue for resolving an insurance coverage dispute. The court initially declined to honor a forum selection clause because it was contrary to Missouri public policy. In a September 10 memorandum and order, however, the court decided a venue transfer was appropriate in light of recent US Supreme Court jurisprudence limiting discretion to disregard forum selection clauses. No. 4:10-cv-1153 (CEJ), 2014 WL 4450467, *2, *6 (E.D. Mo. Sept. 10, 2014).
The coverage dispute at issue arose in December 2005 from a “sudden catastrophic breach” of the “Taum Sauk hydroelectric power plant in Missouri.” Id. at *1. Union Electric Company (“Union Electric”) owned the power plant. Id. It sought coverage for the breach from Energy Insurance Mutual Limited (“Energy Insurance”), its second-layer excess insurer with a coverage limit of $100 million. Id. When Energy Insurance paid only $68 million, Union Electric brought suit in the Eastern District of Missouri for “breach of contract and vexatious refusal to pay.” Id.
Energy Insurance moved to dismiss the action because the contract contained a forum selection clause, providing that “the United States District Court for the Southern District of New York shall have exclusive jurisdiction” over disputes between the companies that are not subject to arbitration. Id. The district court held that the forum selection clause was valid and enforceable. Id. The Eighth Circuit reversed because the court failed “to give ‘due consideration’ to Missouri public policy,” as required under M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). Id. On remand, the district court determined that the forum selection clause was unenforceable because it required arbitration and Missouri public policy prohibited enforcement of mandatory arbitration provisions in insurance contracts. Id.
Energy Insurance then moved to transfer venue under 28 U.S.C. § 1404(a). Energy Insurance relied upon the Supreme Court’s recent decision in Atlantic Marine Construction Company, Inc. v. U.S. District Court for the Western District of Texas, ___ U.S.____, 134 S. Ct. 568 (2013). There, the Supreme Court held that “a proper application of § 1404(a) requires that a forum selection clause be ‘given controlling weight in all but the most exceptional cases.’” Id. at *2 (citing Atlantic Marine, 134 S. Ct. at 579, 583).
Union Electric opposed the transfer. It argued that Atlantic Marine did not affect the court’s prior determination under Bremen that the forum selection clause violated Missouri public policy. Id. at *3. The district court disagreed and set aside its earlier determination. Id.
First, the court determined that the forum selection clause was valid. The court reasoned that the motion to transfer venue differed from the earlier Rule 12 motion to dismiss because the venue motion was brought pursuant to Section 1404(a), the venue transfer statute. Id. The court decided that the “multifaceted analysis” required by Section 1404(a) could not be defeated by a single state policy prohibiting mandatory arbitration provisions in insurance contracts. Id. Moreover, the public policy concerns important to the court’s denial of the motion to dismiss were “no longer implicated” because Energy Insurance “waived its right to seek arbitration.” Id. at *4.
Accordingly, to determine the validity of the forum selection clause, the court reasoned that it need only determine whether the clause violated general principles of contract law. Id. The court determined the agreement did not. Id. The agreement “was entered into between two large commercial entities operating at arm’s length,” it was not a contract of adhesion, and no allegations of fraud, duress, misrepresentation, or other misconduct were raised. Id. The court, therefore, decided that the forum selection clause was valid.
Next, the district court addressed the enforceability of the forum selection clause. Relying on Atlantic Marine, the court explained that (1) it should give no weight to the plaintiff’s choice of forum because the plaintiff is the party “defying” the forum selection clause; (2) it should not consider any arguments about the parties’ private interests and should only consider public interest factors; and (3) “a party flouting its contractual obligation by filing suit in a different forum will not carry with it the choice-of-law rules of that improper forum.” Id. at *5. The court decided no public interest factors favored Missouri, particularly given that Union Electric was already remediating the damage caused by the breach. Id. at *6. Further, New York law governed the dispute. Id. Accordingly, the court found “that the balance is in favor of transfer and [Union Electric] has not met its ‘burden of establishing that transfer to the forum for which the parties bargained is unwarranted.’” Id.
The decision demonstrates the strong preference of federal courts for enforcing forum selection clauses. Further, it highlights the import of asserting the right basis for a change of venue, as the insurer here was successful under Section 1404(a), not under Rule 12.