159 F. Supp. 3d 729
S.D. Miss.2015Background
- KCSR (general contractor) subcontracted work to Kanza under a Master Agreement requiring a $6,796,000 performance bond. Hanover issued the bond naming Kanza as principal and KCSR as obligee.
- KCSR sued Hanover in Mississippi state court seeking ~$3.58M for costs incurred correcting Kanza’s alleged breach/deficient performance, plus punitive damages and attorney’s fees for alleged bad-faith denial of the bond claim.
- Hanover removed to federal court based on diversity jurisdiction; KCSR moved to remand, arguing Hanover contractually waived removal by incorporation of a mandatory forum-selection clause in the Master Agreement.
- The Master Agreement’s Section 17 requires that court proceedings be brought in Warren County, Mississippi, “except as necessary to enforce indemnity or defense obligations.” The Bond incorporated the Master Agreement without limiting that incorporation.
- Hanover argued the indemnity exception covers KCSR’s claims and that the Bond did not bind Hanover to the subcontract’s forum clause; KCSR argued the indemnity exception is limited and the clause is mandatory and binding on Hanover.
- The court held the Master Agreement’s forum-selection clause is mandatory as to these claims, the indemnity exception does not encompass KCSR’s suit, and Hanover — through its unqualified incorporation of the Master Agreement into the Bond — waived its removal rights; remand granted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Master Agreement contain a mandatory forum-selection clause that bars removal? | Section 17 is mandatory (uses “must”) and requires litigation in Warren County except for limited insurance/indemnity-related claims. | N/A (KCSR is plaintiff moving to remand) | Clause is mandatory as to claims within its scope. |
| Does the indemnity/defense exception in Section 17 make the clause inapplicable to KCSR’s claims? | KCSR: exception limited to third-party defense/indemnity needs; does not cover first-party contract-damage claims. | Hanover: KCSR seeks reimbursement for losses caused by Kanza’s breach, so it is an indemnity claim within the exception. | The indemnity exception does not reasonably cover KCSR’s contract-damage claims; it cannot swallow the clause. |
| Is Hanover bound by the Master Agreement’s forum-selection clause via incorporation in the Bond? | KCSR: Bond incorporates the Master Agreement without limiting language, so Hanover is bound and waived removal. | Hanover: Bond incorporation was only to define scope of work; it did not manifest intent to adopt the forum clause. | Bond incorporated the Master Agreement unqualifiedly; Hanover is bound by the mandatory forum clause. |
| Should the case be remanded despite federal diversity jurisdiction? | KCSR: Yes — Hanover contractually waived removal rights by being bound to mandatory forum clause. | Hanover: Removal proper because exception applies or Bond did not import forum clause. | Court grants remand; forum-selection clause controls venue and removal rights waived. |
Key Cases Cited
- Ensco Int'l, Inc. v. Certain Underwriters at Lloyd’s, 579 F.3d 442 (5th Cir. 2009) (explains ways contractual forum clauses can waive removal rights)
- City of New Orleans v. Mun. Admin. Servs., Inc., 376 F.3d 501 (5th Cir. 2004) (clarifies mandatory vs. permissive forum-selection clauses)
- M/S Bremen v. Zapata OffShore Co., 407 U.S. 1 (1972) (enforceability standard for forum-selection clauses)
- Wal-Mart Stores, Inc. v. Qore, Inc., 647 F.3d 237 (5th Cir. 2011) (contractual indemnity language construed broadly where unambiguous)
- Chembulk Trading LLC v. Chemex Ltd., 393 F.3d 550 (5th Cir. 2004) (contract interpretation principle: give effect to all terms)
- Muzumdar v. Wellness Int’l Network, Ltd., 438 F.3d 759 (7th Cir. 2006) (permissive-jurisdiction language does not override an otherwise mandatory forum-selection clause)