Deluge and Dissent: Dissecting Creekstone Juban I, LLC v. XL Insurance America, Inc.

by Hannah Catchings, Senior Associate

I. Introduction

In August 2016, catastrophic flooding inundated much of southern Louisiana, resulting in 10 deaths[1] and economic damage estimates upwards of $8.7 billion.[2] East Baton Rouge and Livingston parishes bore the brunt of that damage.[3] Among the myriad properties that sustained extensive flood damage was Juban Crossing, a 471-acre mixed-use development located in Livingston Parish.[4] Juban Crossing opened in 2015 and is owned by Creekstone/Juban I, LLC (“Creekstone”), a single asset limited liability company incorporated in Delaware.[4] Following the flood, Creekstone’s insurer, XL Insurance America, a Delaware corporation, paid out $5 million pursuant to the company’s insurance policy; however, Creekstone subsequently filed suit in Livingston Parish seeking additional funds from XL Insurance.[6] In response to the suit, XL Insurance filed a declinatory exception of improper venue, a peremptory exception of no cause of action, and a motion to dismiss, arguing that Creekstone’s policy contained a forum selection clause in which the parties agreed to litigate all disagreements in New York.[7] Consequently, the principal issue in the case became whether the forum selection clause was enforceable. The case eventually reached the Louisiana Supreme Court, which held that Louisiana Revised Statutes § 22:868(A)(2) did not prohibit the enforcement of the disputed forum selection clause.[8] This Lagniappe Post argues in favor of Justice Hughes’s dissenting opinion, in which he outlined three reasons why the majority’s approach was problematic, including public policy, party mischaracterization, and the “unsupportable reformation” of the insurance contract.[9]

II. Background

The primary issue addressed in Creekstone Juban I, LLC v. XL Insurance America, Inc. was whether a forum selection clause in an insurance contract violated Louisiana Revised Statutes § 22:868(A)(2).[10] The relevant statutory language in § 22:868(A)(2) states that no insurance contract “delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state . . . shall contain any condition, stipulation, or agreement . . . [d]epriving the courts of this state of the jurisdiction of action against the insurer.”[11] Put simply, when an insurance contract covers a Louisiana resident, § 22:868(A)(2) prohibits any provision in the policy that would prevent Louisiana courts from exercising jurisdiction in an action against the insurer.[12] Although Creekstone was incorporated in Delaware, the LLC’s managing member is Stephen Keller, a Louisiana resident and the developer of Juban Crossing.[13] Keller has also been involved in other real estate development projects in the Baton Rouge area, including the Enclave and the Reserve at Cedar Lodge.[14] Based on business filings with the Louisiana Secretary of State, Creekstone appears to be Keller’s only business incorporated under Delaware law.[15] Consequently, the Creekstone Juban I court found that § 22:868(A)(2) clearly applied to the parties’ dispute because Creekstone’s insurance policy was “delivered or issued for delivery” in Louisiana and did, in fact, “cover subjects” located in Louisiana.[16]

In Creekstone Juban I, the majority primarily relied on two cases: Bremen v. Zapata Off-Shore Co., which the United States Supreme Court decided in 1972, and Shelter Mutual Insurance Co. v. Rimkus Consulting Group, Inc. of Louisiana, a Louisiana Supreme Court case decided in 2014.[17] Bremen involved an admiralty dispute in which the U.S. Fifth Circuit Court of Appeals declined to enforce a forum selection clause in an international towage contract between a German corporation and a Texas corporation.[18] The parties had contracted for the German corporation to tow the Texas corporation’s self-elevating drilling rig from Louisiana to a point off Ravenna, Italy, in the Adriatic Sea.[19] Ultimately, the Bremen Court found that a forum selection clause “should control absent a strong showing that it should be set aside.”[20] A strong showing, for example, might reveal that enforcement of a forum selection clause “would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching.”[21] In Shelter Mutual, the Louisiana Supreme Court expressly adopted the “Bremen view,” holding that forum selection clauses are not per se violative of Louisiana’s public policy, which resolved a circuit split among Louisiana’s appellate courts.[22] In its reliance on Bremen and Shelter Mutual, the Creekstone Juban I majority advanced two main arguments: (1) that the plain language of Louisiana Revised Statutes § 22:868(A)(2) favored XL Insurance, and (2) that no absurd consequences would result from applying the statute as written.[23] Justice Hughes disagreed.[24]

III. Dissent

In his dissent, Justice Hughes articulated three reasons as to why he believed the majority opinion was incorrect: (1) failure to recognize public policy, (2) false dichotomy between “big sophisticated” business and “single” Louisiana residents,[25] and (3) an “unsupportable reformation of the contract to enable the desired result.”[26] Although all three reasons discussed by Justice Hughes are persuasive, his argument that the majority opinion fails to recognize public policy is the most compelling. Justice Hughes began his dissent by noting how “ridiculous” it is that flooding in Louisiana that impacted a “Louisiana business with Louisiana customers and employees that suffer[ed] millions of dollars in damages requiring millions of dollars of repairs by Louisiana carpenters, plumbers, and painters in Louisiana insured by an insurance policy delivered in Louisiana should be required to litigate against the insurer in New York,” given Louisiana’s longstanding public policy granting Louisiana courts jurisdiction in cases involving insurance contracts.[27]

In addition to showing that every relevant part of this case was specific to Louisiana, Justice Hughes pointed out that prior to the Louisiana Supreme Court’s decision in Shelter Mutual, § 22:868 had already “been on the books” for 66 years.[28] Acknowledging this history, the majority, in its discussion of Bremen and Shelter Mutual, described the evolution from the view that forum selection clauses were against public policy to today’s contemporary view embracing forum selection clauses.[29] The Creekstone Juban I court quoted the frequently cited language in which the Bremen Court described the historical view as “‘vestigial legal fiction,’ that has ‘little place in an era when all courts are overloaded and when businesses once essentially local now operate in world markets.’”[30] The problem with the majority’s reliance on this language, however, is that it fails to mention any of the limiting language that the Bremen Court used. Bremen was an admiralty case, and the U.S. Supreme Court was quite mindful of this fact, stating that the treatment of forum selection clauses as prima facie valid was “the correct doctrine to be followed by federal district courts sitting in admiralty.”[31] The U.S. Supreme Court also decided Bremen in 1972, meaning that the statutory provision at issue in Creekstone Juban I predates Bremen. Consequently, courts should consider the fact that the Louisiana Legislature wrote and enacted Louisiana Revised Statutes § 22:868 at a time when forum selection clauses were not only already against Louisiana’s public policy, but also against public policy nationwide.[32] The majority relied on the fact that the Louisiana Legislature did not amend § 22:868 after its decision in Shelter Mutual; however, Justice Hughes pointed out that Shelter Mutual did not involve an insurance contract.[33] Thus, the legislature had no reason to revisit to the statute at issue in Creekstone Juban I.[34] Furthermore, the Bremen Court explicitly noted that it was not “dealing with an agreement between two Americans to resolve their essentially local disputes in a remote alien forum.”[35] Rather, the Bremen Court acknowledged the various international components of the conflict––the petitioner was a German corporation, the respondent was a Texas corporation, the drilling rig was located in Louisiana, the destination was in Italy, the damage to the rig occurred in international waters in the Gulf of Mexico, the port of refuge was in Florida, and the parties had contractually agreed to litigate any disputes in England.[36] This observation highlights how different the facts of Bremen were from Creekstone Juban I, in which the vast majority of the case was intrinsically tied to Louisiana. Justice Hughes pointed out a similar problem with the majority’s heavy reliance on Shelter Mutual because Shelter Mutual did not involve an insurance contract dispute.[37] The fact that Creekstone Juban I dealt with an insurance contract is precisely what distinguishes it from Bremen and Shelter Mutual.

Additionally, Justice Hughes addressed the majority’s reliance on “the idea that ‘jurisdiction’ and ‘venue’ are separate and distinct concepts” in its analysis of La. R.S. § 22:868.[38] In its opinion, the majority argued that, when acting to prohibit forum selection clauses, the Louisiana Legislature “has been unequivocal, employing the terms ‘venue’ or ‘forum,’ thereby distinguishing the concepts from jurisdiction.”[39] Significantly, however, the insurance policy at issue in Creekstone Juban I did not include the words “venue” or “forum.”[40] The section of the policy containing the disputed clause was simply titled “Service of Suit and Choice of Law.”[41] Noting the irony embedded within the majority’s analysis, Justice Hughes stated:

I have searched in vain for venue in [the clause at issue]. As best I can understand, it works like this: Even though the contract does not contain the word venue, but rather says “jurisdiction”, this court has determined that what the parties really meant was venue, and because jurisdiction and venue are different concepts, and the statute does not refer to venue, it does not apply to this contract. Really.[42]

Justice Hughes’s statement, which reads like the judicial equivalent of a mic drop, highlights arguably the biggest problem with the majority opinion in Creekstone Juban I.[43] Even assuming that the majority’s interpretation of § 22:868(A)(2) was correct, its reading of the disputed clause was not.

IV. Conclusion

As Shelter Mutual made clear, the general rule in Louisiana is that forum selection clauses do not violate public policy.[44] Despite this fact, courts should read Louisiana Revised Statutes § 22:868 as providing an exception for insurance contracts. Doing so would more closely align with Louisiana’s long history of tight regulation of the insurance industry in this state. Given that the Louisiana Supreme Court’s holding in Creekstone Juban I did not recognize such an exception, it is inconsistent with this regulatory history. Moreover, failure to read this exception into § 22:868 provides insurers with a backdoor approach to enforce choice of law provisions,[45] further frustrating Louisiana’s public policy goals.

[1] Edwards Issues Statement on Two-Year Flood Anniversary, Off. of the Governor (Aug. 12, 2018), https://gov.louisiana.gov/news/gov-edwards-issues-statement-on-twoyear-flood-anniversary; cf. Dek Terrell, La. Econ. Dev., The Economic Impact of the August 2016 Floods on the State of Louisiana 4 (Sept. 2016), https://gov.louisiana.gov/assets/docs/RestoreLA/SupportingDocs/Meeting-9-28-16/2016-August-Flood-Economic-Impact-Report_09-01-16.pdf (stating “[a]t least 13 deaths were reported across the state”).

[2] LED Assesses August 2016 Flood Impact, Continues Recovery Effort, La. Econ. Dev. (Sept. 9, 2016), https://www.opportunitylouisiana.com/led-news/news-releases/news/2016/09/09/led-assesses-flood-impact-continues-recovery-effort. Notably, the $8.7 billion does not include the estimated cost of flood damage to Louisiana’s public infrastructure. Id.

[3] Terrell, supra note 1.

[4] Stephanie Riegel, Juban Crossing Developer Hoping to have Flood Damaged Shopping Center Reopened Within 90 Days, Greater Baton Rouge Bus. Rep. (Aug. 17, 2016), https://www.businessreport.com/article/juban-crossing-developer-hopes-flood-damaged-shopping-center-reopened-within-90-days.

[5] Creekstone Juban I, LLC v. XL Ins. Am., Inc., 282 So. 3d 1042, 1044–45 (La. 2019).

[6] Id. at 1045.

[7] The specific language in the contract stated, “In the event that any disagreement arises between the ‘insured’ and the ‘Company’ requiring judicial resolution the ‘insured’ and the ‘Company’ each agree that any suit shall be brought and heard in a court of competent jurisdiction within the State of New York.” Creekstone Juban I, 282 So. 3d at 1045.

[8] See generally id.

[9] See generally id. at 1054–55.

[10] Creekstone Juban I, 282 So. 3d 1042.

[11] La. Rev. Stat. § 22:868(A)(2) (2019).

[12] Louisiana Supreme Court Rejects Challenge to Forum Selection Clause in Insurance Policy Issued to a “Sophisticated” Insured, 41 No. 9 Ins. Litig. Rep. 9, Westlaw (May 31, 2019).

[13] Creekstone Juban I, 282 So. 3d at 1044–45.

[14] Search for Louisiana Business Filings, La. Secretary of State, https://coraweb.sos.la.gov/commercialsearch/commercialsearch.aspx (search “Stephen Keller” in the “Officer Name or Agent Name” box, then click “Search.”) (last visited Mar. 7, 2020).

[15] La. Secretary of State, https://www.sos.la.gov/Pages/default.aspx (last visited Feb. 2, 2020).

[16] Creekstone Juban I, 282 So. 3d at 1045 n.2.

[17] Shelter Mut. Ins. Co. v. Rimkus Consulting Grp., Inc., 148 So. 3d 871 (La. 2014).

[18] See generally Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 2 (1972).

[19] Id. at 2.

[20] Id. at 15.

[21] Id. at 15.

[22] See generally Shelter Mut., 148 So. 3d 871.

[23] See generally Creekstone Juban I, 282 So. 3d 1042.

[24] See generally Creekstone Juban I, 282 So. 3d at 1054–55 (Hughes, J., dissenting).

[25] In this part of his analysis, Justice Hughes questioned the majority’s characterization of Creekstone as a “sophisticated” business entity, noting that the company’s incorporation in Delaware was “obviously for tax purposes.” Hughes argued that it did not matter whether both parties were on equal footing, however, because § 22:868 regulates “the type of contract, not the character of the parties.” See generally Creekstone Juban I, 282 So. 3d at 1055 (Hughes, J., dissenting) (emphasis in original).

[26] Creekstone Juban I, LLC v. XL Ins. Am., Inc. of La., Civ. No. 18-0748, 282 So. 3d 1042, 1054 (La. 05/08/19) (Hughes, J., dissenting). Justice Hughes’s argument regarding the reformation of the contract is discussed in more detail below.

[27] Id.

[28] Id. at 1054.

[29] Creekstone Juban I, 282 So. 3d at 1046–47.

[30] Creekstone Juban I, 282 So. 3d at 1046 (quoting Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12 (1972)).

[31] Bremen, 407 U.S. at 10.

[32] Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).

[33] Creekstone Juban I, 282 So. 3d at 1054–55 (Hughes, J., dissenting).

[34] See generally Creekstone Juban I, 282 So. 3d at 1054–55 (Hughes, J., dissenting).

[35] Bremen, 407 U.S. at 17.

[36] See generally Bremen, 407 U.S. at 2–4.

[37] Creekstone Juban I, 282 So. 3d at 1054–55.

[38] Id. at 1055 (Hughes, J., dissenting).

[39] Id. at 1048 (majority opinion).

[40] Id. at 1045.

[41] Id. at 1045.

[42] Id. at 1055 (Hughes, J., dissenting).

[43] Id.

[44] See generally Shelter Mut. Ins. Co. v. Rimkus Consulting Group, Inc., 148 So. 3d 871 (La. 2014).

[45] For example, the contract at issue in Creekstone Juban I contained a choice of law provision requiring the application of New York law.

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