Great Lakes Insurance SE v. Raiders Retreat Realty Co LLC ( 2022 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 21-1562
GREAT LAKES INSURANCE SE
v.
RAIDERS RETREAT REALTY CO., LLC,
Appellant
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 2-19-cv-04466)
District Judge: Honorable Eduardo C. Robreno
Argued on June 8, 2022
Before: CHAGARES, Chief Judge, AMBRO, and
FUENTES, Circuit Judges
(Opinion Filed: August 30, 2022)
Howard J. Bashman [Argued]
Law Offices of Howard J. Bashman
500 Office Center Drive, Suite 400
Fort Washington, PA 19034
Shawn M. Rodgers
Goldstein Law Partners
11 Church Road
Hatfield, PA 19440
Michael Yanoff
Goldstein Law Partners
610 Old York Road, Suite 340
Jenkintown, PA 19446
Counsel for Appellant Raiders Retreat Realty
Co., LLC
Michael I. Goldman [Argued]
Goldman & Hellman
233 Harvard Street, Suite 211
Brookline, MA 02446
George R. Zacharkow
Deasey, Mahoney & Valentini
1601 Market Street, Suite 3400
Philadelphia, PA 19103
Counsel for Appellee Great Lakes Insurance SE
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OPINION
AMBRO, Circuit Judge
A yacht owned by Raiders Retreat Realty Co., LLC ran
aground. Luckily (or so it believed), Raiders had insured the
vessel with marine insurer Great Lakes Insurance SE (“GLI”).
But after Raiders submitted a claim under its policy, GLI left
it high and dry. The insurer’s reason for denying coverage: the
yacht’s fire-extinguishing equipment had not been timely
recertified or inspected notwithstanding that the vessel’s
damage was not caused by fire. GLI sued first, seeking in
federal court a declaratory judgment that Raiders’ alleged
failure to recertify or inspect its fire-suppression equipment
rendered the policy void from its inception.
Raiders responded with five counterclaims, including
three extra-contractual counterclaims arising under
Pennsylvania law for breach of fiduciary duty, insurance bad
faith, and breach of Pennsylvania’s Unfair Trade Practices and
Consumer Protection Law, 73 Pa. Stat. Ann. § 201-1, et seq.
(the “Unfair Trade Practices Law”), respectively. Concluding
the policy’s choice-of-law provision mandated the application
of New York law and thus precluded Raiders’ Pennsylvania-
law-based counterclaims, the District Court dismissed those
claims. In so doing, the Court rejected Raiders’ argument that
applying New York law would contravene Pennsylvania public
policy, thereby making the choice-of-law provision
unenforceable under The Bremen v. Zapata Off-Shore Co., 407
U.S. 1, 15 (1972), which held that under federal admiralty law
3
a forum-selection provision is unenforceable “if enforcement
would contravene a strong public policy of the forum in which
suit is brought.” The District Court held that The Bremen did
not apply for the choice-of-law issue, such that it need not
consider whether there is strong Pennsylvania public policy
that precludes applying New York law. We think the answer
may be otherwise.
I. Background
Raiders, a Pennsylvania-based company, insured a
yacht for up to $550,000 with GLI, a company headquartered
in the United Kingdom. That yacht ran aground in June 2019,
incurring at least $300,000 in damage. Raiders submitted a
claim to GLI for loss of the vessel, but GLI rejected it, claiming
that the yacht’s fire-extinguishing equipment was not timely
recertified or inspected contrary to Raiders’ prior statements
otherwise. Though the damage to the yacht was free of fire,
GLI maintained Raiders misrepresented the vessel’s fire-
suppression system’s operating ability, thus making the policy
void from inception. The insurer then filed an action for
declaratory judgment in the U.S. District Court for the Eastern
District of Pennsylvania to determine whether the policy was
indeed void.
As noted, Raiders contested GLI’s allegations and
brought five counterclaims. It alleged breach of contract
(Count I); breach of the implied covenant of good faith and fair
dealing (Count II); breach of fiduciary duty (Count III);
insurance bad faith, in violation of 42 Pa. Stat. and Cons. Stat.
Ann. § 8371 (Count IV); and violation of Pennsylvania’s
Unfair Trade Practices Law (Count V). Relying on the policy’s
choice-of-law provision, GLI moved for judgment on the
pleadings under Federal Rule of Civil Procedure 12(c) as to
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Counts III through V, which sought relief available against
insurance companies under Pennsylvania law (hence not based
on the insurance contract and thereby referred to as extra-
contractual claims), on the ground that New York law, which
precludes these claims, governs. The choice-of-law provision
in the policy reads:
It is hereby agreed that any dispute arising
hereunder shall be adjudicated according to well
established, entrenched principles and
precedents of substantive United States Federal
Admiralty law and practice[,] but where no such
well established, entrenched precedent exists,
this insuring agreement is subject to the
substantive laws of the State of New York.
App. at 113. The District Court concluded that New York law
governed and barred Raiders’ Pennsylvania-law-based
counterclaims, thereby dismissing Counts III through V. The
Court later denied Raiders’ motion to reconsider its judgment.
Raiders now appeals.
II. Standard of Review
We give a fresh, or plenary, review of the District
Court’s choice-of-law determination. See Berg Chilling Sys.,
Inc. v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006). We
likewise exercise plenary review of the Court’s construction of
a written contract, see USX Corp. v. Prime Leasing Inc., 988
F.2d 433, 437 (3d Cir. 1993), and apply the same standard to
its grant of a motion for judgment on the pleadings,
“accept[ing] the nonmoving party’s factual allegations as true
and constru[ing] all allegations in the light most favorable to
5
that party,” Fed Cetera, LLC v. Nat’l Credit Servs., Inc., 938
F.3d 466, 469 n.7 (3d Cir. 2019).
III. Discussion
A. Our jurisdiction over this interlocutory appeal.
Because this case concerns a maritime insurance
contract, it fell within the District Court’s maritime
jurisdiction. 28 U.S.C. § 1333(1); AGF Marine Aviation &
Transp. v. Cassin, 544 F.3d 255, 260 (3d Cir. 2008). Our
jurisdiction over the appeal is less clear. Though neither party
contests it, before reaching the merits of this case we must first
independently establish our authority to decide. In re Klaas,
858 F.3d 820, 825 (3d Cir. 2017). We have, under 28 U.S.C.
§ 1292(a)(3), jurisdiction over appeals from “[i]nterlocutory
decrees of such district courts or the judges thereof determining
the rights and liabilities of the parties to admiralty cases in
which appeals from final decrees are allowed.” For
interlocutory appeals in admiralty cases, our precedent makes
this language “appl[y] to situations such as the dismissal of
parties from the litigation, grants of summary judgment (even
if not to all parties), and other cases where a claim has
somehow been terminated.” In re Complaint of PMD Enters.,
Inc., 301 F.3d 147, 149 (3d Cir. 2002). In short, “the order
appealed from must conclusively determine the merits of a
claim or defense.” Kingstate Oil v. M/V Green Star, 815 F.2d
918, 921 (3d Cir. 1987).
In practice, we have allowed interlocutory appeals in
admiralty cases where parties’ claims against one of the
defendants suffered dismissal for lack of subject matter
jurisdiction, see Jones & Laughlin Steel, Inc. v. Mon River
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Towing, Inc., 772 F.2d 62, 64 n.1 (3d Cir. 1985); the grant of
judgment on a counterclaim where the principal claim was
undecided, see In re Nautilus Motor Tanker Co., 85 F.3d 105,
110 n.3 (3d Cir. 1996); and even in an appeal from an order
determining the rights and liabilities of some but not all parties,
see Bankers Tr. Co. v. Bethlehem Steel Corp., 761 F.2d 943,
945 n.1 (3d Cir. 1985).
On the other hand, we refused to allow an interlocutory
appeal in admiralty where the trial court dismissed one claim
on which forfeiture of a vessel was based but three other
grounds for that remedy remained. See United States v. The
Lake George, 224 F.2d 117, 118–19 (3d Cir. 1955). We
likewise rejected an interlocutory appeal in admiralty where
the District Court denied a plaintiff’s motion for summary
judgment on the defendant’s counterclaim because “no right or
liability of the parties ha[d] been ‘conclusively determine[d].’”
PMD, 301 F.3d at 151 (second alteration in original) (quoting
Kingstate Oil, 815 F.2d at 921). We explained that “[h]ad the
District Court denied [the defendant] the right to file the
counterclaim or had it granted summary judgment to [the
plaintiff] on [the defendant’s] counterclaim, the rights and
liabilities of the parties may well have been conclusively
determined, in which case the District Court’s decision would
have been appealable.” Id.Because it foreclosed certain counterclaims, the
District Court’s decision to dismiss Raiders’ extracontractual
counterclaims is analogous to the hypothetical scenarios we
outlined in PMD. As we explained, “the rights and liabilities
of the parties may well have been conclusively determined”
and so “would have been appealable.” Id.7
Applying that logic here warrants interlocutory review.
Further, while Raiders still maintains two remaining
counterclaims (Counts I and II), the Pennsylvania-law-based
counterclaims dismissed by the District Court seek forms of
relief unavailable under the surviving counts. Cf. Lake
George, 224 F.2d at 118–19 (foreclosing appeal in admiralty
where remaining claims sought same relief as dismissed
claim). Moreover, “[i]n maritime cases, [a] choice-of-law . . .
determination,” such as the one before us, is deemed a
“determination on the merits and may be treated as the
equivalent of a motion for summary judgment.” Vasquez v.
Bridgestone/Firestone, Inc., 325 F.3d 665, 680 n.26 (5th Cir.
2003). For these reasons, we hold that the District Court’s
dismissal of Raiders’ extracontractual counterclaims
“determin[ed] the rights and liabilities of the parties” under §
1292(a)(3). Hence we have jurisdiction over this interlocutory
appeal.
B. The District Court should have considered whether
applying New York substantive law would
contravene Pennsylvania’s “strong public policy”
under The Bremen.
As our Court has summarized, the seminal maritime
insurance decision in Wilburn Boat Co. v. Fireman’s Fund
Insurance Co., 348 U.S. 310 (1955), established that “maritime
contracts are governed by federal admiralty law when there is
an established federal rule, but absent such a rule, state law
applies.” Royal Ins. Co. of Am. v. KSI Trading Corp., 563 F.3d
68, 73 (3d Cir. 2009). One such established federal rule is that
“[a] choice of law provision in a marine insurance contract will
be upheld in the absence of evidence that its enforcement
would be unreasonable or unjust.” 2 Thomas J. Schoenbaum,
8
Admiralty and Maritime Law § 19:6 (6th ed. 2020); see also
Great Lakes Reinsurance (UK) PLC v. Durham Auctions, Inc.,
585 F.3d 236, 242–44 (5th Cir. 2009) (determining whether
enforcing identical choice-of-law section in maritime
insurance policy “would be unreasonable or unjust”); cf. Neely
v. Club Med Mgmt. Servs., Inc., 63 F.3d 166, 197 n.36 (3d Cir.
1995) (observing in dicta that choice-of-law provisions are
“typically . . . enforced under federal maritime law”).
Raiders, however, contends this presumption of
enforceability should not control the choice of law here.1
Citing The Bremen, it argues that enforcing the choice of law
in the policy would be unreasonable and unjust, as applying
New York law would contravene the strong public policy of
Pennsylvania, which protects insureds in Pennsylvania from,
among other things, bad faith and unfair trade practices by
insurance companies.
The Bremen involved a dispute between an American
and a German company about the enforceability of a forum-
selection provision in a towing contract drawn up to facilitate
1
Raiders also maintains the express language of the policy’s
choice-of-law provision does not mandate applying New York
law to preclude its claims arising under Pennsylvania law. But
as it failed to raise this argument in the District Court (or, for
that matter, the more intriguing argument that the provision is
ambiguous and therefore should be construed against GLI as
the drafting party), Raiders has not properly preserved this
argument for our review. See Simko v. U.S. Steel Corp., 992
F.3d 198, 205 (3d Cir. 2021) (“It is well-established that
arguments raised for the first time on appeal are not properly
preserved for appellate review.”).
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the transport of a drilling rig from Louisiana to the Adriatic Sea
off the coast of Italy: “Any dispute arising must be treated
before the London Court of Justice.” 407 U.S. at 2. When a
contractual dispute arose, the American company sued in a
federal court. Id. at 3–4.
The U.S. Supreme Court ultimately held that the
contract’s forum selection was facially valid and should be
honored unless a compelling and countervailing reason
rendered enforcement unreasonable. Id. at 10, 15, 20. It
explained that that forum-selection articles in maritime cases
should be enforced absent a “strong showing” that
“enforcement would be unreasonable and unjust, or that the
clause [is] invalid for such reasons as fraud or overreaching.”
Id. at 15. It then provided examples of circumstances where
enforcement of a choice-of-forum provision would be
“unreasonable and unjust,” including, among other things,
situations where enforcement would “contravene a strong
public policy of the forum in which suit is brought, whether
declared by statute or by judicial decision.” Id. (emphasis
added). The choice of forum there was enforceable because
there was “strong evidence that the forum clause was a vital
part of the [parties’] agreement,” id. at 14, and it was not “an
agreement between two Americans to resolve their essentially
local disputes in a remote alien forum,” id. at 17.
Nearly twenty years later, in Carnival Cruise Lines, Inc.
v. Shute, 499 U.S. 585, 588 (1991), the Supreme Court
extended The Bremen’s framework to a dispute over which of
two competing states was the proper forum for a tort action in
admiralty. Carnival stemmed from a suit in Washington State
filed by a cruise ship passenger who sustained injuries in
international waters off the coast of Mexico. Id. The
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passenger’s ticket contained a forum-selection proviso that “all
disputes and matters” be litigated in Florida courts. Id. at 587–
88.
The Supreme Court analyzed the case under the
framework laid out in The Bremen to evaluate the
“reasonableness of the forum clause,” “refin[ing]” the latter
case’s analysis “to account for the realities of form passage
contracts.” Id. at 593. It noted that “a cruise line has a special
interest in limiting the fora in which it potentially could be
subject to suit.” Id. And “[b]ecause a cruise ship typically
carries passengers from many locales, it is not unlikely that a
mishap on a cruise could subject the cruise line to litigation in
several different fora.” Id. The Court further explained that “a
clause establishing ex ante the forum for dispute resolution has
the salutary effect of dispelling any confusion about where
suits arising from the contract must be brought and defended.”
Id. at 593–94. Forum aside, “the fact that [the passenger’s]
accident occurred off the coast of Mexico” meant “this dispute
[was not] an essentially local one inherently more suited to
resolution in the State of Washington than in Florida.” Id. at
594 (quotation marks omitted). In Carnival, therefore, the
Supreme Court extended The Bremen’s framework to disputes
over whether one state or another was the proper forum to bring
suit under a forum-selection provision.
GLI argues The Bremen “is utterly irrelevant because it
had absolutely nothing to do with the enforcement of choice of
law clauses.” Ans. Br. at 26 (emphasis added). We do not
agree. Though the contract in The Bremen “did not specifically
provide that the substantive law of England should be applied,”
the Court nonetheless “conclude[d] that the forum clause was
also an effort to obtain certainty as to the applicable substantive
11
law,” as “it is the general rule in English courts that the parties
are assumed, absent contrary indication, to have designated the
forum with the view that it should apply its own law.” The
Bremen, 407 U.S. at 13 n.15.
The U.S. Court of Appeals for the D.C. Circuit grasped
this in Milanovich v. Costa Crociere, S.p.A., 954 F.2d 763, 767
n.7 (D.C. Cir. 1992), by extending The Bremen’s framework to
the choice of law in a cruise ticket: while “The Bremen
involved a choice-of-forum clause, . . . the Supreme Court
recognized that enforcing the provision would have the effect
of subjecting the contract to foreign law.” Milanovich
concerned whether American or Italian law governed a cruise
ship passenger’s personal injury lawsuit where the contract
contained a provision specifying the application of Italian law.
Id. at 765–66. In resolving this question, the D.C. Circuit relied
on The Bremen and Carnival to hold that
courts should honor a contractual choice-of-law
provision in a passenger ticket unless the party
challenging the enforcement of the provision can
establish that “enforcement would be
unreasonable and unjust,” “the clause was
invalid for such reasons as fraud or
overreaching,” or “enforcement would
contravene a strong public policy of the forum in
which suit is brought.”
Id. at 768 (quoting The Bremen, 407 U.S. at 15) (emphasis
added).
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In the intervening decades, other circuits have relied on
Milanovich when considering choice-of-law provisions in
maritime contracts. See Chan v. Soc’y Expeditions, Inc., 123
F.3d 1287, 1297 (9th Cir. 1997) (upholding choice of law in
cruise ticket over defendants’ objections that Liberian law
should apply); Durham Auctions, 585 F.3d at 243–45
(upholding identical choice-of-law provision where insured
did not show applying New York law would contravene strong
public policy of Mississippi). We are therefore persuaded that
The Bremen’s framework is not “utterly irrelevant” in the
context of choice-of-law provisions but rather applies equally
to them as it does to those provisions selecting a forum.
GLI argues, however, that admiralty law is different:
even if The Bremen does extend to choices of law in addition
to forums, the framework it laid out does not apply here
because, based on the Supreme Court’s statement in Wilburn
Boat discussed above, “there is a rule of federal admiralty law
that choice of law clauses in policies of marine insurance are
presumptively valid and enforceable.” Ans. Br. at 29. Hence
we “must apply that federal rule, no matter what.” Id. at 21.
This mirrors the District Court’s opinion here, which held that
the public policy of Pennsylvania could not overcome “the
well-established principle that choice-of-law provisions in
maritime contracts are presumptively valid.” App. at 21.
In reaching its conclusion, the District Court also relied
on the U.S. Court of Appeals for the Ninth Circuit’s decision
in Galilea, LLC v. AGCS Marine Insurance Co., 879 F.3d 1052(9th Cir. 2018). GLI likewise points to Galilea to argue The
Bremen does not apply here. We disagree. Galilea, which
does not bind our Court, involved a dispute over the scope of
an insurance contract for a yacht owned by a Nevada company.
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879 F.3d at 1054. The yacht’s policy contained a forum-
selection provision mandating arbitration in New York and a
choice-of-law provision applying federal maritime law, but
where no such established principles and precedents exist, New
York law applied. Id. at 1055. The yacht’s owner sued in
federal court in Montana and argued the choice-of-law and
choice-of-forum provisions were precluded by Montana law
(which purportedly has a strong public policy against
enforcement of arbitration agreements) under The Bremen. Id.
at 1055, 1059–60.
The Ninth Circuit disagreed. It first explained that
because the arbitration provision was enforceable under the
Federal Arbitration Act (“FAA”), 9 U.S.C. § 1, et seq., “there
[was] no gap in federal maritime law to fill with law from any
state, Montana included, as the FAA supplies the governing
arbitration law for maritime transactions.” Id. at 1060(emphasis in original). The Court then reasoned that “The
Bremen considered whether the public policy of the forum
where suit was brought—there, federal public policy as
supplied by federal maritime law—outweighed the application
of the law of other countries.” Id. The Galilea dispute, in
contrast, concerned an “unequal, hierarchical relationship
between federal maritime law and state law.” Id. Because
“[w]ithin federal admiralty jurisdiction, conflicting state policy
cannot override squarely applicable federal maritime law,” the
Ninth Circuit held that the insured’s “reliance on Montana law
under The Bremen [was] misplaced.” Id. at 1060–61.
From this, the District Court here “conclude[d] that the
public policy of a state where a case was filed cannot override
the presumptive validity, under federal maritime choice-of-law
principles, of a provision in a marine insurance contract where
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the chosen forum has a substantial relationship to the parties or
the transaction.” App. at 21. “The issue is not,” the Court
explained, “whether New York law conflicts with
Pennsylvania public policy.” Id. Rather, it is “whether the
well-established principle that choice-of-law provisions in
maritime contracts are presumptively valid must yield to the
public policy preferences of the particular state in which the
case happens to have been brought.” Id. In holding the answer
is no, the Court’s opinion (relying on Galilea) turned on the
view that The Bremen and its progeny apply to one set of
circumstances whereas there is a separate regime governing
choice-of-law concerns in marine insurance contracts. Id. at
21–22.
But the principle of generally enforcing choice-of-law
provisions in marine insurance contracts is not altogether
separate from the choice-of-forum/choice-of-law regime set
out in The Bremen and Milanovich. Indeed, the rule that
choice-of-law provisions in maritime insurance contracts are
presumed enforceable unless “enforcement would be
unreasonable or unjust,” Schoenbaum, supra, § 19:6, is
identical to The Bremen’s rule that forum-selection provisions
should be honored unless “enforcement would be unreasonable
and unjust,” 407 U.S. at 15. Given this overlap—coupled with
The Bremen’s “strong public policy” exception comprising but
one part of the holding’s broader “unreasonable and unjust”
standard—we consider it altogether reasonable that a “strong
public policy of the forum [state] in which suit is brought”
could, as to that policy specifically, render unenforceable the
choice of state law in a marine insurance contract. See id.Moreover, the District Court’s confining of The Bremen
and its progeny only to disputes between international fora and
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U.S. law is belied by Carnival (uncited by the parties), in which
the Supreme Court applied The Bremen to a dispute over
whether Washington State or Florida was the proper forum to
decide. Given the broad language in The Bremen, its oft-
recognized applicability to choice-of-law provisions, see e.g.,
Milanovich, 954 F.2d at 768, and the extension of its holding
to a state-versus-state question in Carnival, we hold that The
Bremen’s framework extends to the choice-of-law provision at
issue here. Accordingly, the District Court needed to consider
whether Pennsylvania has a strong public policy that would be
thwarted by applying New York law. We thus vacate and
remand for further proceedings consistent with this holding.
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