Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04734/USCOURTS-cand-3_06-cv-04734-4/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

FRIGATE LIMITED,

Plaintiff,

 v.

CECILIA L. DAMIA,

Defendant. /

No. C 06-04734 CRB

ORDER

Now pending before the Court is Plaintiff’s motion to dismiss Defendant’s second

counterclaim. For the reasons set forth below, that motion is DENIED.

BACKGROUND

In 1991, Cecilia Damia and her husband, Emil Damia, who is now deceased,

established two trusts: the Cecilia L. Damia Family Trust and the Emil Damia Family Trust

(collectively, the “Damia Family Trusts”). Into these trusts they placed certain assets,

including their interest in a number of convalescent hospitals located in Northern California. 

Under the terms of the agreements establishing the trusts (the “Trust Agreements”), they

relinquished all rights to these assets and gave them to a trustee for management. The

current trustee of the Damia Family Trusts is an Isle of Man company called Frigate Limited. 

Significantly, the Trust Agreements contain a provision requiring all disputes arising under

them to be governed by the law of the Isle of Man, an island jurisdiction located off the coast

of England. These Trust Agreements also contain a forum selection clause, which provides

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that any lawsuits arising under them shall be submitted to the jurisdiction of the High Court

of the Isle of Man.

Following the establishment of the Damia Family Trusts, Cecilia Damia (“Damia”)

entered into several contractual agreements with the trustee, whereby the trustee effectively

gave to her large sums of money out of the assets of the Damia Family Trusts. This case

involves five such transactions:

• First, at the time that the trusts were established, the trustee and Damia

signed a Private Annuity Agreement, under which the trustee agreed to

provide Damia with a monthly annuity of approximately $19,000.

• Second, in April of 2003, the trustee provided Damia with a loan of $630,000. The parties executed a promissory note requiring all disputes

arising in connection with the loan to be resolved in California courts.

According to the trustee, Damia has failed to repay this loan.

• Third, at some point in 1999, the trustee provided Damia with another loan

so that she could purchase and maintain certain property in Costa Rica.

According to the trustee, Damia has never provided any documentation of

the putative purchase of this property, and there remains an unpaid balance

of approximately $250,000 on this loan.

• Fourth, in April of 2004, the trustee provided Damia with an additional loan of $50,000. According to the trustee, Damia has refused to sign a

promissory note on this loan and has failed to repay any portion of it.

• Fifth, in June of 2004, the trustee and Damia entered into a so-called

“Service Agreement.” Under the terms of the Service Agreement, Damia

agreed to provide certain management services in connection with the

convalescent hospitals owned by the trust. In particular, she agreed to

provide quarterly accountings and to manage certain bank accounts

pertaining to these hospitals. In exchange, the trustee agreed to provide

Damia with a monthly stipend of $5,000.

The trustee filed suit in August of 2006, alleging that Damia had failed to live up to her end

of the last four of bargains. Specifically, the trustee asserted causes of action for her failure

to comply with their agreement as to the $630,000 loan (Claims 1 and 5), the Coast Rica

loans (Counts 2 and 6), the $50,000 loan (Claims 3 and 7), and the Service Agreement

(Counts 4 and 8).

Defendant counterclaimed. She asserts three causes of action: (1) that the trustee

breached the Service Agreement, (2) that the trustee breached its fiduciary duty under the

Trust Agreements; and (3) that the trustee breached the Private Annuity Agreement by

discontinuing her monthly annuity of $19,000. Moreover, as an affirmative defense to the

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trustee’s claims, Damia asserts that she is excused from performance under these various

contracts because the trustee breached its obligations under the Trust Agreements.

Now pending before the Court is Defendant’s motion to dismiss Plaintiff’s second

counterclaim. Defendant argues that this particular counterclaim must be dismissed because

it arises under the Trust Agreements, which require the submission of any disputes arising

under them to the High Court of the Isle of Man. In other words, Defendant contends that

the counterclaim relating to the breach of its fiduciary duty cannot be heard in this Court in

connection with this lawsuit, and must be heard if at all in the Isle of Man, because it arises

under the Trust Agreements, and not under the distinct contractual agreements that form the

basis for Plaintiff’s original complaint.

DISCUSSION

Under Ninth Circuit law, a motion to dismiss based on a forum selection clause is

treated as a challenge to venue under Rule 12(b)(3), and the district court therefore may

consider facts and pleadings outside the scope of the complaint. Argueta v. Banco

Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996). Generally, courts will enforce a forum

selection clause, even one that requires submission of the dispute to a foreign court, unless

the party challenging the clause can clearly show that its enforcement would be

“unreasonable under the circumstances.” M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1,

10 (1972). Consistent with the “presumption in favor of enforcing [a] forum selection

clause,” TAAG Linhas Aereas de Angola v. Transamerica Airlines, Inc., 915 F.2d 1351,

1355 (9th Cir. 1990), the Ninth Circuit has held that a forum selection clause must be

enforced unless the party opposing it clearly shows (1) that the clause “was the result of

fraud, undue influence, or overweening bargaining power,” (2) that forum identified in the

clause is “so ‘gravely difficult and inconvenient’ that the complaining party will ‘for all

practical purposes be deprived of its day in court,’” or (3) that enforcement of the clause

would “contravene a strong public policy of the forum in which the suit is brought.” 

Argueta, 87 F.3d at 325 (quoting Bremen, 407 U.S. at 18, and citing Carnival Cruise Lines v.

Shute, 499 U.S. 585, 591 (1991)).

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Here, the Court concludes that enforcement of the forum selection clause in the Trust

Agreements would be “unreasonable under the circumstances” of this peculiar case. 

Bremen, 407 U.S. at 10. If the Court dismisses Damia’s counterclaim, she will be forced to

litigate the case simultaneously in the Isle of Man. Moreover, because Damia asserts the

basis for the counterclaim as an affirmative defense against the trustee’s claims, this Court

may address and decide many of the issues presented in the counterclaim. Under these

circumstances, the instant proceedings may well have preclusive effect on any subsequent

proceedings in the Isle of Man, and Damia may be effectively “deprived of [her] day in

court” as to that counterclaim. See Argueta, 87 F.3d at 325. 

For similar reasons, the Court also finds that the enforcement of the forum selection

clause in the Trust Agreements would be contrary to sound judicial policy. A plethora of

legal rules and doctrines are designed to promote the efficient resolution of controversies. 

See, e.g., Fed. R. Civ. P. 18 (permitting the joinder of related claims and remedies); Fed. R.

Civ. P. 19 (requiring the joinder of persons needed for just adjudication of a controversy);

Fed. R. Civ. P. 20 (permitting joinder); Fed. R. Civ. P. 22 (allowing interpleader for

interested parties); 28 U.S.C. § 1291 (requiring a “final order” by the district court so as to

avoid piecemeal or unnecessary litigation of appeals). Compelling Damia to litigate the same

issues in a different jurisdiction halfway around the world, when this Court is adjudicating

those very same issues at the trustee’s own behest, is needlessly inconvenient and

burdensome; requiring such duplicitous litigation is plainly contrary to the policy of the

federal judiciary of promoting the consistent and complete adjudication of disputes. To the

extent that it has been deprived of the benefit of the forum selection clause in the Trust

Agreements, the trustee has only itself to blame--by entering into contracts with the settlor,

even though she may have been acting in a distinct and unrelated role, the trustee itself

created the specter that its fiduciary duty under the Trust Agreements would be invoked in a

dispute. The trustee cannot enter into multiple agreements, all of which pertain to the same

set of assets and bind the same parties (albeit perhaps acting in different roles), and then

complain that they contain mutually incompatible forum selection clauses. Cf.Adam v.

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Saenger, 303 U.S. 59, 67-68 (1938) (“The plaintiff having, by his voluntary act in demanding

justice from the defendant, submitted himself to the jurisdiction of the court, there is nothing

arbitrary or unreasonable in treating him as being there for all purposes for which justice to

the defendant requires his presence. ”). The trustee has identified no case, and this Court is

aware of none, in which a plaintiff first filed suit and then successfully invoked a forum

selection clause to exclude counterclaims as to the very same subject matter.

Of course, the Court makes no determination at this point whether the Trust

Agreements and the other contracts are so closely intertwined or related that a breach of one

might excuse performance under another. The point here is merely that the agreements

between the trustee and Damia (whether acting as settlor or as third-party) involve

overlapping facts and require a resolution of the parties’ respective rights as to the very same

property; under these circumstances, it would be unreasonable to require the extraction and

exportation one set of issues for independent resolution by a foreign court. For this reason,

the Court exercises its discretion not to enforce the forum selection clause, see Transamerica

Airlines, 915 F.2d at 1353, and Plaintiff’s motion to dismiss Defendant’s second

counterclaim is hereby DENIED.

IT IS SO ORDERED.

Dated: January 12, 2007 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

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