Seventh Circuit Determines that Service-of-Suit Clauses Can Waive Statutory Right of Removal

Pine Top Receivables has returned to the published opinions of the U.S. Court of Appeals for the Seventh Circuit. We previously wrote about Pine Top’s successful attempt to compel arbitration with a Uruguayan company and the intersection of the Federal Arbitration Act and the Panama Convention.

Pine Top was again before the Seventh Circuit in Pine Top Receivables of Illinois, LLC v. Transfercom, Ltd., No. 16-1073 (7th Cir. Sept. 1, 2016), which addressed the effect of a contractual service-of-suit clause on a party’s right to remove a case to federal court.

Pine Top was created to collect the accounts receivable of a liquidated insurer. Before the insurer’s liquidation, however, Transfercom had assumed certain obligations owed to the insurer. So Pine Top sued Transfercom to collect on the receivables under two reinsurance treaties entered into in the early 1980s between the liquidated insurer and Transfercom’s predecessor in interest.

Transfercom removed the case to federal court on diversity grounds, and Pine Top moved to remand to state court, citing the “service-of-suit” clause in each reinsurance treaty, which provided:

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Company, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.

Pine Top argued, and the district court agreed, that this clause contractually waived Transfercom’s right to remove the case, leaving Pine Top with the “exclusive authority” to select jurisdiction and venue.

On appeal, Transfercom argued that waiver of the right to remove must be “clear and unequivocal” and that the waiver language in these treaties was rendered ambiguous by the treaties’ arbitration clause, which provided:

As a condition precedent to any right of action hereunder, any irreconcilable dispute between the parties to this Agreement will be submitted for decision to a board of arbitration.

In a six-page opinion by Judge Yandle (from the Southern District of Illinois, sitting by designation), the Seventh Circuit affirmed the district court, making two notable observations in the process.

First, the statutory right to remove can be waived. The court distinguished between a removal right—more easily waived as a “purely private interest”—and a right to dismissal for forum non conveniens, which requires a court to consider public interests as well. The court explained that one way to effect a waiver is through a forum-selection clause, and that an “overwhelming majority of federal courts” hold that service-of-suit clauses “foreclose a defendant’s right of removal.”

Second, the court rebuffed Transfercom’s argument that a contractual waiver must be “clear and unequivocal.” The court distinguished the cases cited by Transfercom as involving “litigation-based waivers.” Moreover—in a bow to freedom of contract—the court refused to adopt a “standard so stringent as to be contrary to the right of parties to contract in advance regarding where they will litigate.” Judges are to use the same standards of interpretation as with other contractual questions.

The Seventh Circuit further held that service-of-suit clauses complement arbitration clauses, and, when “[r]ead as a whole, the reinsurance agreement require[d] Transfercom to submit to the jurisdiction of any court of competent jurisdiction chosen by [Pine Top],” whether that meant determining the “arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration, or to resolve . . . a claim not subject to arbitration—including [Pine Top]’s breach of contract claim.”