On Appeal From the United States Court of Appeals For the Eastern District of Pennsylvania. (D.C. Civ. No. 94-cv-00366).
Before: Becker, Cowen and Garth, Circuit Judges.
This is an underinsured motorist (UM) case governed by Pennsylvania law. The appeal arises out of an action filed in the United States District Court for the Eastern District of Pennsylvania by plaintiffs George and Evangelina Jumara seeking to appoint arbitrators and to compel arbitration by their own carrier, defendant State Farm Insurance Company. Ultimately, it presents the question whether the Jumaras' (two) insurance contracts with State Farm, which incorporate the Pennsylvania Uniform Arbitration Act (UAA), contemplate arbitration-related proceedings in the Court of Common Pleas of Luzerne County (PA) or in the United States District Court for the Middle District of Pennsylvania, or in either court. The district court denied the Jumaras' motion to compel arbitration (and thereby effectively dismissed the action), reasoning that the insurance contracts, in light of the Pennsylvania law that they incorporate, contained a forum selection clause that relegates the plaintiffs to suit in the Court of Common Pleas of Luzerne County. We disagree, and will vacate the order denying plaintiff's motion.
Although the district court in effect disposed of the case under 28 U.S.C. § 1406 (for improper venue), we conclude that, because venue was actually proper in the Eastern District of Pennsylvania, the case could not be dismissed pursuant to that provision. The district court should instead have invoked 28 U.S.C. § 1404(a), which involves a multi-factor balancing test in which a contractual forum selection clause carries substantial although not dispositive weight. However, because the other factors cannot even in combination overcome the forum selection clause, we will not remand the case, but rather will direct the district court to transfer the case to the United States District Court for the Middle District of Pennsylvania, a "court of record" in Luzerne County.*fn1
I. FACTS AND PROCEDURAL HISTORY
Plaintiffs are residents of Luzerne County. While operating his motorcycle on May 22, 1992, George Jumara sustained serious injuries as a result of a collision with an automobile driven by Mary Reynolds. Jumara underwent emergency surgery for numerous lacerations and fractures. On June 9, 1992, the Jumaras filed a tort action against Reynolds, which they eventually settled on October 20, 1994 for the limits of Reynolds' automobile liability insurance policy, with the permission of State Farm. At the time of the accident, the Jumaras' two cars were covered by automobile insurance policies issued by State Farm. Each policy included underinsured motorist coverage of $100,000/$300,000, and each provided for arbitration in the event of disputes. Reynolds was covered by a $100,000 liability policy.
On January 21, 1994, the Jumaras claimed underinsured motorist benefits in the amount of $200,000 under their policies by filing a complaint in the district court for the Eastern District of Pennsylvania (P 9 of Petition). The complaint designated Steven C. Forman as the Jumaras' arbitrator, and sought the appointment of neutral and defense arbitrators and an order compelling underinsured motorist arbitration.*fn2 The Jumaras served this complaint on State Farm on February 8, 1994.
In response, State Farm designated Joseph Van Jura as its arbitrator, but, based on the arbitration provisions contained in the insurance contracts, challenged venue in the Eastern District. On April 4, 1994, the district court held that proper venue lay with the Court of Common Pleas in Luzerne County and therefore denied the Jumaras' motion. The Jumaras have appealed. As of the time of oral argument before us, the two parties' arbitrators had been unable to agree on a neutral third arbitrator.
By directing the Jumaras to the Pennsylvania state court, the district court's order in effect terminated the federal litigation of the Jumaras underinsured motorist claim. The order denying the Jumaras' motion was premised on the district court's view that Pennsylvania insurance law limited the Jumaras to proceeding in the Courts of Common Pleas. The court suggested no circumstances under which it would reconsider granting the Jumaras' motion, and hence the district court's order is final and appealable. 28 U.S.C.A. § 1291 (1994).
II. SUBJECT MATTER JURISDICTION
Jurisdiction in the district court was premised upon diversity of citizenship, 28 U.S.C.A. § 1332 (1994). The Jumaras are citizens of Pennsylvania, and State Farm is a citizen of Illinois, which is the state of its incorporation and the location of its principal place of business. Thus the Jumaras established the complete diversity required by § 1332(a).
The diversity statute further requires, of course, that the amount in controversy be in excess of $50,000. 28 U.S.C.A. § 1332(a) (1994). While the Jumaras allege that State Farm is obligated to pay compensation in excess of that amount (up to $200,000 or the sum of the underinsured motorist benefits of each of the Jumara's policies), they did not demand any money damages in the district court; rather they sought only arbitration. Because of the nature of the policy, the amount of the Jumaras' claim against State Farm depends on the insurance shortfall left by Reynolds' policy, itself a function of the extent of both Mr. Jumara's injuries and the recovery available under Reynolds' policy. Because the Jumaras did not allege the amount of the insurance shortfall, the question arises as to whether the Jumaras have satisfied the diversity statute's amount in controversy requirement. Indeed, State Farm argued in the district court that the lack of amount in controversy deprived that court of subject matter jurisdiction, an argument rejected by the court.
The question, however, is far from novel. We faced a similar situation in Manze v. State Farm Ins. Co., 817 F.2d 1062, 1068 (3d Cir. 1987). In Manze, the plaintiff sought to compel arbitration with her insurance company and appointment of a neutral arbitrator, and the carrier removed the action to federal court. Although the demand made by the insured on her insurer exceeded the jurisdictional minimum, and the policy provided coverage in excess of the minimum, the plaintiff objected to diversity jurisdiction, contending that the amount in controversy requirement was unmet because she had asked the state court only to compel arbitration, not to award the amount she demanded.
We rejected her argument, holding that the requirement was satisfied despite the fact that the action did not itself seek monetary relief, id. at 1068. We expressly followed Davenport v. Procter & Gamble Mfg. Co., 241 F.2d 511 (2d Cir. 1957), which denied a motion to remand to state court a (removed) action to compel arbitration according to the terms of a collective bargaining agreement, quoting Davenport 's Discussion of the amount in controversy requirement:
In considering the jurisdictional amount requirement the court should look through to the possible award resulting from the desired arbitration, since the petition to compel arbitration is only the initial step in a litigation which seeks as its goal a judgment affirming the award.
Manze, 817 F.2d at 1068 (quoting Davenport, 241 F.2d at 514). Thus the amount in controversy in a petition to compel arbitration or appoint an arbitrator is determined by the underlying cause of action that would be arbitrated.
This is in accord with general precedent concerning the amount in controversy requirement. The allegations on the face of the complaint control the amount in controversy unless it appears "'to a legal certainty the claim is really for less than the jurisdictional amount . . . .'" Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 353, 81 S. Ct. 1570, 1573, 6 L. Ed. 2d 890 (1961) (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S. Ct. 586, 590, 82 L. Ed. 845 (1938)). Indeterminacy of the amount to be recovered is therefore not sufficient to defeat diversity jurisdiction, and so it is immaterial that the Jumaras might eventually recover less than $50,000 from State Farm. Given that the Jumaras allege quite serious injuries and an entitlement to as much as $200,000 in underinsured motorist benefits, we cannot say with legal certainty that the Jumaras will recover less than $50,000. Thus, the amount in controversy requirement is satisfied, the district court had subject matter jurisdiction. We therefore turn to the merits of this appeal.
As we have explained, the district court dismissed the Jumaras' complaint by denying their motion to appoint arbitrators and to compel arbitration on the grounds of faulty venue.*fn3 We conclude that the district court should instead have considered whether to transfer the case to the United States District Court for the Middle District of Pennsylvania. We further conclude that the court should have ordered the transfer to the Middle District.
A. SHOULD THE DISTRICT COURT HAVE ACTED PURSUANT TO
28 U.S.C. § 1404 OR 28 U.S.C. § 1406?
The salient factor here is the presence of the forum selection clause. In federal court, the effect to be given a contractual forum selection clause in diversity cases is determined by federal not state law. Because "questions of venue and the enforcement of forum selection clauses are essentially procedural, rather than substantive, in nature," Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir. 1991), federal law applies in diversity cases irrespective of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938).
In Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 108 S. Ct. 2239, 101 L. Ed. 2d 22 (1988), the Supreme Court held that federal law governed the district court's decision whether to grant a motion to transfer a diversity case to the venue provided in the contractual forum selection clause. The Court noted that venue was proper in the district court under federal law (ignoring the forum selection clause). Id. at 28 n.8, 108 S. Ct. at 2243 n.8. The majority rejected the Dissent's contention that the effect -- if any -- of a forum selection clause should be a matter purely of contractual interpretation governed by state law. Instead, the Court required the district court to apply a case-specific balancing pursuant to the ...