IN THE SUPREME COURT OF FLORIDA. Case No. SC Third DCA Case No. 3D

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1 IN THE SUPREME COURT OF FLORIDA Case No. SC Third DCA Case No. 3D DISCOVERY SUN PARTNERSHIP, DISCOVERY DAWN PARTNERSHIP, SUN HOLIDAY CRUISE SERVICES, INC. and APOLLO SHIP CHANDLERS, INC., Defendants/Petitioners, vs. ASSURANCEFORENINGEN SKULD (GJENSIDIG), and SKULD MUTUAL PROTECTION AND INDEMNITY ASSOCIATION (BERMUDA), LTD., Defendants/Respondents. RESPONDENTS' JURISDICTIONAL BRIEF NINA K. BROWN, ESQ. Florida Bar No ANTONIO D. MORIN, ESQ. Florida Bar Number: AKERMAN SENTERFITT Attorneys for Defendants/Respondents One Southeast Third Avenue, 28th Floor Miami, Florida Tel: Fax: On Review from the District Court of Appeal, Third District State of Florida

2 TABLE OF CONTENTS Page I. SUMMARY OF THE ARGUMENT... 1 II. STATEMENT OF THE CASE AND FACTS... 2 III. ARGUMENT... 3 A. The Skuld Decision... 3 B. The Gallagher Decision... 6 IV. CONCLUSION CERTIFICATE OF SERVICE CERTIFICATE OF TYPE STYLE AND SIZE i

3 TABLE OF AUTHORITIES Cases Pages Antillean Marine Shipping Corp. v. Through Transp. Mut. Ins., Ltd., 2002 WL (S.D. Fla. October 31, 2002)... 5 Assuranceforeningen Skuld (Gjensidig) v. Apollo Ship Chandlers, Inc., 847 So. 2d 991 (Fla. 3d DCA 2003)...1-6, 10 Benefit Ass'n Int'l, Inc. v. Mount Sinai Comprehensive Cancer Ctr., 816 So. 2d 164 (Fla. 3d DCA 2002)... 1, 4, 5 Gallagher v. Motors Ins. Corp., 605 So. 2d 62 (Fla. 1992) , 6-10 Ledee v. Ceramiche Ragno, 684 F.2d 184, (1 st Cir. 1982)... 4 Metropolitan Life Ins. v. Ward, 470 U.S. 869 (1985)... 7, 8 Miller v. Toles, 442 So. 2d 177, 180 (Fla. 1983)... 6 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985)... 4 Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974)... 4 Sedco, Inc.v. Petroleos Mexicanos Mexican Nat'l Oil Co. (Pemex), 767 F.2d 1140, 1145 (5 th Cir. 1985)... 4 ii

4 United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533 (1944)... 8 Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal., 451 U.S. 648 (1981)... 9 Statutes 15 U.S.C et seq U.S.C. 1 et seq.... 2, 3 9 U.S.C U.S.C. 201, et seq.... 1, 3 Fla. Stat Other Authorities Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, Fla. R. App. P (a)(2)(A)(iv)... 2 iii

5 I. SUMMARY OF THE ARGUMENT 1 In Assuranceforeningen Skuld (Gjensidig) v. Apollo Ship Chandlers, Inc., 847 So. 2d 991 (Fla. 3d DCA 2003), the Third District held that a controversy arising under an insurance contract containing an arbitration provision subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"), 2 must be arbitrated pursuant to the terms and conditions of that contract in Oslo, Norway. No Florida case holds otherwise. Indeed, the Third District's decision in Skuld is consistent with the only other Florida case addressing an arbitration clause governed by the Convention, Benefit Association International, Inc. v. Mount Sinai Comprehensive Cancer Center, 816 So. 2d 164 (Fla. 3d DCA 2002). The Discovery Defendants' claim of conflict is based on a decision from this Court, Gallagher v. Motors Insurance Corporation, 605 So. 2d 62 (Fla. 1992), that had nothing whatsoever to do with arbitration, contracts of any kind, citizens of other countries, the Federal Arbitration Act (the "FAA"), 3 or the enforceability of an 1 The parties subject to this proceeding, Assuranceforeningen Skuld (Gjensidig) and Skuld Mutual Protection and Indemnity Association (Bermuda) Ltd., ("Skuld") and Apollo Ship Chandlers, Inc., Sun Holiday Cruise Services, Inc., Discovery Sun Partnership, and Discovery Dawn Partnership (the "Discovery Defendants," or "Discovery"), were all defendants below. 2 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958 (entered into force for the U.S. on Dec. 29, 1970, reprinted following 9 U.S.C. 201, et seq.) 3 Federal Arbitration Act, 9 U.S.C. 1 et seq.

6 arbitration clause governed by the Convention. In Gallagher, this Court held constitutional an insurance premium tax statute, which has since been repealed. Accordingly, this Court should decline to exercise its discretionary jurisdiction as Skuld does not expressly and directly conflict with Gallagher on the same question of law. Fla. R. App. P (a)(2)(A)(iv). II. STATEMENT OF THE CASE AND FACTS Plaintiff below, Evaristo Alvarez ( Plaintiff ), 4 a seaman, alleged maritime claims arising from his kidney illness against the Discovery Defendants who were ship owners, chandlers and Plaintiff's employers. Certain of the ships on which Plaintiff sailed were insured by protection and indemnity ( P&I ) policies issued by Skuld, a maritime insurer. Skuld disclaimed coverage for Plaintiff's claims and, pursuant to the terms of the P&I policies, commenced arbitration in Oslo, Norway to resolve the coverage dispute. Thereafter, Skuld was joined as a defendant in this litigation and Discovery filed cross-claims for coverage against Skuld and moved for an order staying the arbitration. Skuld moved for an order compelling arbitration, in accordance with its insurance contract with Discovery. The trial court granted Discovery's motion to stay the arbitration and denied Skuld s motion to compel arbitration. 4 Plaintiff's claims against Discovery are currently being litigated in the trial court. 2

7 The Third District reversed the trial court and held that the claim for coverage under the P&I policies is subject to arbitration in Norway. Discovery moved for rehearing, rehearing en banc and sought certification, claiming conflict with, inter alia, Gallagher and that the issues raised were of great public importance. The Third District denied Discovery's motions. III. ARGUMENT A. The Skuld Decision In Skuld, the Third District held that the agreement to arbitrate between Skuld and Discovery arising under the P&I policies is enforceable under the Convention So. 2d at 994. A court presented with a request to refer a dispute to arbitration under the Convention should conduct a very limited four-pronged inquiry. Benefit Ass'n, 816 So. 2d at 167; Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co. (Pemex), The Convention is implemented by Chapter 2 of the Federal Arbitration Act, 9 U.S.C Section 202 provides in relevant part: An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. Section 2 in turn provides that a written arbitration clause in "any maritime transaction... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. 2. A policy of marine insurance is a "maritime transaction" subject to the FAA. 9 U.S.C. 1. 3

8 F.2d 1140, 1145 (5 th Cir. 1985); Ledee v. Ceramiche Ragno, 684 F.2d 184, (1 st Cir. 1982). 6 Thus, (1) if there is an agreement in writing to arbitrate the dispute; (2) if the agreement provides for arbitration in the territory of a signatory of the Convention; (3) if the agreement arises out of a legal relationship, whether contractual or not, which is considered commercial; and (4) if a party to the agreement is not an American citizen, the court must order arbitration. Benefit Ass'n, 816 So. 2d at 167; Sedco, 767 F.2d at 1145; Ledee, 684 F.2d at There is a strong presumption in favor of arbitration of international commercial disputes. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985); Scherk v. Alberto-Culver Co., 417 U.S. 506, (1974). Indeed, courts have found that "[a]s an exercise of Congress' treaty power and as federal law, '[t]he Convention must be enforced according to its terms over all prior inconsistent rules of law.'" Benefit Ass'n, 816 So. 2d at 167 (citing, Sedco, Inc.v. Petroleos Mexicanos Mexican Nat'l Oil Co. (Pemex), 767 F.2d 1140, 1145 (5 th Cir. 1985)). In Benefit Association International, a case virtually on point with Skuld, the Third District stated, "[a]bsent some exceptions not applicable here, federal rather than state law governs international arbitration agreements." Benefits Ass'n, 816 So. 2d at 167 (citations omitted). 7 The only time that a court should not enforce an agreement to arbitrate subject to the Convention is when the court finds the agreement "null and void, inoperative or incapable of being performed." Convention, Article II(3). The null and void exception to the enforcement of an arbitration clause in a contract subject to the Convention will only be interpreted to encompass those situations that can be applied neutrally and on an international scale. Thus, an arbitration provision will only be null and void under circumstances including fraud, duress and waiver. Ledee v. Ceramiche Ragno, 684 F.2d 184, 187 (1 st Cir. 1982) (citations omitted). 4

9 The Third District applied the four-pronged inquiry and found that all four prongs were satisfied. Skuld, 847 So. 2d at As a result, the Third District held that the P&I policies at issue are subject to the provisions of the Convention and the FAA and reversed the order precluding arbitration. Id. at 994. The Third District's decision that the arbitration clause in the P&I policies must be enforced is consistent with the only other Florida decisions that address the enforceability of arbitration agreements governed by the Convention, Benefit Association, 816 So. 2d 164 (Fla. 3d DCA 2002), and Antillean Marine Shipping Corp. v. Through Transport Mutual Insurance, Ltd., 2002 WL (S.D. Fla. October 31, 2002). In both cases, the respective courts ordered that the parties submit their insurance coverage disputes to arbitration pursuant to an insurance contract mandating arbitration, the Convention and the FAA. In particular, the Southern District, in Antillean Marine, rejected the very argument raised by Discovery Defendants below, i.e., that the FAA and the Convention were, by virtue of the McCarran-Ferguson Act, 15 U.S.C et seq., (the "Act"), preempted by Florida decisional law precluding the arbitration of insurance coverage disputes. Antillean Marine, 2002 WL at *3. The Third District in Skuld adopted the Antillean Marine Court's reasoning that the Act did not apply to allow the application of state law to preclude the enforcement of an 5

10 arbitration clause governed by the Convention and contained in an international maritime insurance policy. Skuld, 847 So. 2d at 993. No Florida case holds otherwise. B. The Gallagher Decision Gallagher, the case Discovery claims conflicts with Skuld, has nothing whatsoever to do with the applicability of the Act to international maritime insurance policies governed by the Convention. Indeed, the Gallagher Court's reference to the Act, which Discovery Defendants claim is in conflict with Skuld, merely provided a historical background to the Court's holding that a premium taxation scheme that has been repealed since 1988 was constitutional. 8 Gallagher, 605 So. 2d at nn In Gallagher, insurance carriers that were not domiciled or incorporated in Florida 9 sought a declaration that a premium tax scheme unconstitutionally discriminated against them in violation of the Equal Protection Clause of the United States and Florida Constitutions. 10 The insurance carriers based their challenge to the 8 See generally, Miller v. Toles, 442 So. 2d 177, 180 (Fla. 1983) (Alderman, J., dissenting) (stating that since the statutes which the majority opinion construes were repealed, the Court should have declined to exercise its discretionary jurisdiction). 9 The non-domiciled or incorporated insurers were referred to as "foreign insurers" in the opinion. The opinion, however, had nothing to do with insurers that are foreign citizens, such as Skuld. 10 Gallagher also upheld the constitutionality of a retaliatory tax scheme. Id. at There is no analysis or discussion of the McCarran-Ferguson Act in this portion of the opinion, and the Court upheld the retaliatory tax as constitutional on the grounds that it did not violate the Equal Protection and Privileges and Immunities Clauses of the 6

11 tax scheme on Metropolitan Life Insurance v. Ward, 470 U.S. 869 (1985), which held a premium tax scheme similar to the one at issue unconstitutional on the ground that it violated the Equal Protection Clause. Gallagher, 605 So. 2d at 66. This Court distinguished Gallagher from Ward and found that there was no violation of the Equal Protection Clause because the tax bore a rational relationship to a legitimate state purpose. 11 The Court determined that there was a rational relationship, notwithstanding the fact that there were no specific expressions of a legitimate state purpose in the statute itself. Instead, by utilizing the provisions of another statute later incorporated into the one at issue and the trial court's findings, the Court, in Gallagher, found that the tax was supported by a legitimate state purpose. Thus, aside from the Court's finding of constitutionality, the key holding in Gallagher was the Court's determination that the legitimate state purpose did not have to be expressly set forth in the statute that Constitution as the tax bore a rational relationship to a state purpose and the Privileges and Immunities Clause does not apply to corporations such as the taxpayer insurance carriers. In addition, the Court found that the Legislature, by tying the tax to the taxes of other jurisdictions, did not improperly delegate its authority to those jurisdictions. Accordingly, the Court upheld the retaliatory tax scheme (presently codified at , Fla. Stat.). Id. 11 In Gallagher, the Court acknowledged that certain legislative goals such as the ones delineated in Ward (the promotion of domestic business and encouragement of capital investment in the state) were not legitimate when furthered by discrimination based on residency. Gallagher, 605 So. 2d at 67. The Court distinguished the legislative goals set forth in Gallagher from those referenced in Ward. 7

12 imposed the tax, but could be discerned elsewhere. Id. at 69. As a result, the Court reversed the trial court's order to the extent that it found the premium tax statutes invalid. Id. at 70. In Gallagher, the Court did not rely at all on the Act to reach its decision. Indeed, the only reference to the Act in Gallagher is in a section of the opinion titled, "Historical Background." This "Historical Background" was used by the Court to explain how the United States Supreme Court, in Ward, was able to conclude that the premium tax scheme violated the Equal Protection Clause. The Court explained that the Act was passed in response to the Supreme Court's decision in United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944), in which the Court held, for the first time, that insurance was commerce within the meaning of the Commerce Clause. Gallagher, 605 So. 2d at 66 (citations omitted). As detailed by the Court, Congress enacted the Act in 1945 "which expressly exempted the business of insurance from the restraints of the dormant Commerce Clause, thereby restoring the states' pre-south-eastern Underwriters power to impose taxing and regulatory requirements on the business of insurance." Gallagher, 605 So. 2d at 66 (citations omitted). In addition, the Court said, "[a]fter the enactment of the McCarran-Ferguson Act, it was clear that the Commerce Clause no longer limited a state's power to condition the right of foreign insurers to do business within its borders." Id. (Citations 8

13 omitted). The quoted passages are the only time the Court in Gallagher mentions the Act. Next, the Court, noted that by 1985, at least 28 states employed differential premium taxes similar to that challenged in Gallagher. 12 Id. The Court's historical review continued and it said, "[h]owever it was not until 1981 that the United States Supreme Court explicitly held that the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution limits a state's authority to exclude a foreign corporation from doing business within its boundaries." Id. at 66. Further, the Court summarized that, in 1981, the United States Supreme Court explained that under the Equal Protection Clause, more onerous taxes or other burdens on foreign corporations than those imposed on domestic corporations are justified only where "the discrimination between foreign and domestic corporations bear a rational relation to a legitimate state purpose." Id. (quoting, Western & Southern Life Ins. Co. v. State Bd. of Equalization of Cal., 451 U.S. 648, 668 (1981)). "Applying the rational basis test, the Western & Southern Life Court upheld a California retaliatory tax which was imposed on foreign insurers when the insurers' home states imposed a discriminatory tax on California insurers doing business within their borders." Gallagher, 605 So. 2d at 66. The Gallagher-Court continued; "[f]our years after Western & Southern Life, a 12 The inference, of course, is that the taxes were imposed by the states under the implicit authority of the McCarran-Ferguson Act. 9

14 premium tax scheme similar to that at issue in this case was held violative of the Equal Protection Clause in Metropolitan Life Ins. v. Ward, 470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985)." Id. Thus, in Gallagher, this Court, from a historical perspective, set the stage for its ruling that Florida's premium tax scheme did not violate the Equal Protection Clause. In sum, the Gallagher Court's reference to the Act was limited to an explanation of the historical development of state insurance regulation, including the imposition of premium tax schemes, which schemes ultimately could be challenged under the Equal Protection Clause. It does nothing more. The question before the Court in Gallagher was one of constitutionality under the Equal Protection Clause, not preemption under the Act. IV. CONCLUSION Accordingly, this Court should deny the Petition for Jurisdiction as there is no express and direct conflict between the Third District's decision in Skuld, holding an arbitration agreement in a international maritime insurance policy enforceable under the Convention, and this Court's decision in Gallagher, holding a premium and retaliatory tax statutory scheme constitutional. Respectfully submitted, AKERMAN SENTERFITT One Southeast Third Avenue, 28th Floor Miami, Florida

15 Tel: Fax: By: Nina K. Brown, Esq. Florida Bar No Antonio D. Morin, Esq. Florida Bar No

16 CERTIFICATE OF SERVICE I HEREBY CERTIFY that true and correct copies of the foregoing were served via U.S. mail on the following counsel at their respective addresses as indicated this day of September, Attorney Jorge Pedraza, Esq. Rivkind, Pedraza & Margulies 66 West Flagler Street Suite 600 Miami, FL Tel Fax John H. Schulte, Esq. Stephen S. Bodden, Esq. Schulte & Bisbing 200 South Biscayne Blvd. Suite 2410 Miami, FL Tel Fax Jonathan Aronson, Esq. Rodriguez, Aronson & Essington, P.A Ponce de Leon Blvd., Suite 730 Miami, FL Tel Fax Frank H. Loomis, Esq. Hill, Betts & Nash LLP 601 Brickell Key Drive Courvoisier Centre II, Suite 500 Miami, FL Tel.: Fax: Joel S. Perwin, Esq. Podhurst Orseck, P.A. 25 West Flagler, Suite 800 Miami, Florida Tel Fax:

17 CERTIFICATE OF TYPE STYLE AND SIZE This brief has been prepared in Times New Roman 14-point type. 13