2001 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-5-2001

Salovaara v. Jackson Natl Life

Precedential or Non-Precedential:

Docket 99-5647

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Recommended Citation

"Salovaara v. Jackson Natl Life" (2001). 2001 Decisions. Paper 69.

http://digitalcommons.law.villanova.edu/thirdcircuit_2001/69
Filed April 5, 2001 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 99-5647 

MIKAEL SALOVAARA, individually and derivatively on 

behalf of SOUTH STREET LEVERAGED CORPORATE 

RECOVERY FUND, L.P.; SOUTH STREET CORPORATE 

RECOVERY FUND I.L.P.; SSP PAR TNERS, L.P.; 

SSP ADVISORS, LP; SSP, INC., 

 Appellants 

v. 

JACKSON NATIONAL LIFE INSURANCE COMPANY , 

a Company Organized Under the Laws of the 

State of Michigan; LAZARD FRERES & CO., 

a Limited Liability Corporation Organized Under the

Laws of the State of New York 

ON APPEAL FROM THE 

UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF NEW JERSEY 

(D.C. Civil No. 97-cv-01422) 

Magistrate Judge: Honorable John J. Hughes 

ARGUED June 1, 2000 

BEFORE: SCIRICA, and NYGAARD, Circuit Judges, and 

POLLAK, District Judge* 

(Filed: April 5, 2001) 

_________________________________________________________________ 

* The Honorable Louis H. Pollak, District Judge for the United States 

District Court for the Eastern District of Pennsylvania, sitting by 

designation. 
 Joseph L. Buckley, Esq. (Argued) 

 Sills, Cummis, Radin, Tischman, 

 Epstein & Gross 

 One Riverfront Plaza 

 Newark, NJ 07102 

 Counsel for Appellants 

 as to Jackson National Life 

 Insurance issues 

 Richard H. Epstein, Esq. (Argued) 

 Sills, Cummis, Radin, Tischman, 

 Epstein & Gross 

 One Riverfront Plaza 

 Newark, NJ 07102 

 Counsel for Appellants as to 

 Lazard Freres & Co. issues 

 Steven I. Cooper, Esq. 

 John H. Doyle, III, Esq. (Argued) 

 Anderson, Kill & Olick 

 1251 Avenue of the Americas 

 New York, NY 10020 

 Forrest B. Lammiman, Esq. 

 Randall Hack, Esq. 

 Lord, Bissell & Brook 

 115 South LaSalle Street 

 Chicago, IL 60603 

 Counsel for Appellee 

 Jackson National Life 

 Thomas G. Rafferty, Esq. (Argued) 

 Cravath, Swaine & Moore 

 825 Eighth Avenue 

 Worldwide Plaza 

 New York, NY 10019-7415 

 Counsel for Appellee 

 Lazard Freres & Co. 

 2 
OPINION OF THE COURT 

PER CURIAM: 

INTRODUCTION 

Plaintiff-Appellant Mikael Salovaara appeals from the 

District Court's dismissal of the derivative action he 

brought on behalf of several entities, described in more 

detail below, against Defendant-Appellees Jackson National 

Life Insurance company and Lazard Frer es & Co. As 

explained below, we will dismiss Salovaara's appeal with 

regard to Jackson because it is moot and will affirm the 

dismissal order regarding Salovaara's complaint against 

Lazard Freres & Co. 

JURISDICTION 

The District Court had jurisdiction pursuant to Section 

27 of the Securities Exchange Act of 1934, 15 U.S.C. 

S 78aa, and under 28 U.S.C. SS 1331, 1332, and 1367. The 

parties consented to allow a Magistrate Judge to decide the 

dispositive motion in this case, pursuant to Fed. R. Civ. P. 

73 and 28 U.S.C. S 636. Because the Magistrate Judge 

dismissed Salovaara's Third Amended Complaint, we have 

jurisdiction pursuant to 28 U.S.C. SS 636(c) and 1291. 

FACTS AND PROCEDURES 

This appeal arises from the District Court's dismissal of 

a derivative suit, alleging fraud in the sale of certain debt 

securities. The plaintiff-appellant in this case is Mikael 

Salovaara. He brought suit on behalf of himself,2 as well as 

on behalf of the following entities: South Str eet Leveraged 

Corporate Recovery Fund, South Street Corporate Recovery 

_________________________________________________________________ 

2. The claims that Salovaara brought in his individual capacity have 

since been dismissed. He does not appeal that dismissal. 

 3 
Fund (collectively "the South Street Funds"); SSP Inc.; and 

SSP Partners and SSP Advisors (collectively "the SSP LPs").3 

SSP Inc. is the general partner of the SSP LPs. The SSP 

LPs are in turn general partners of the South Street Funds. 

The South Street Funds make investments by buying debt 

securities from various companies. A sale of debt securities 

by the South Street Funds to the Jackson National Life 

Insurance Company ("Jackson" or "JNL") is at issue in this 

case. 

Two people are behind the SSP LPs and the South Street 

Funds: Salovaara and Alfred C. Eckert, III. Salovaara and 

Eckert each own 50% of the stock of SSP Inc. Eckert is a 

director of the corporation, while Salovaara is not. 

Salovaara and Eckert also own all the equity in the SSP 

LPs. Salovaara and Eckert used the SSP LPs to make 

investments in the South Street Funds. They cr eated these 

entities in 1991, but have since had a falling out. Salovaara 

was a limited partner of the SSP LPs at the time of the 

transactions at issue, although he is not today. Currently, 

the directors of SSP Inc. are Eckert, Gary Hindes, and 

Denise Hindes. Following a dispute and litigation between 

Salovaara and Eckert over control of the South Street 

Funds, the Hindes were given control over a majority of the 

South Street Funds assets. As a result, the Hindes 

controlled more than 95% of the Notes held by the South 

Street Funds, while Salovaara maintained contr ol over less 

than 5%. 

In 1992, before Salovaara and Eckert had their falling 

out, the South Street Funds invested in the debt of

Bucyrus-Erie International ("Bucyrus"), by securing

financing for that company. In 1994, Bucyrus filed for relief 

under Chapter 11 of the Bankruptcy Code. A r eorganization 

plan for Bucyrus was confirmed in December of 1994.

Under this plan, the South Street Funds r eceived notes 

issued by Bucyrus (the "Notes") as a r eplacement for the 

debt they had acquired in 1992. The South Str eet Funds 

also received 11% of the stock of the r eorganized company. 

By late 1995, the South Street Funds held Notes issued by 

_________________________________________________________________ 

3. LP is short for Limited Partnership. 

 4 
Bucyrus with a face value (or "par value") of more than $55 

million. 

In late 1995, the Hindes decided to sell the Notes under 

their control, and hired defendant-appellee Lazard Freres & 

Co. ("Lazard") to assist them by pr oviding advice concerning 

the actual market value of the Notes and the 

reasonableness of any offers made to pur chase them.4 

Lazard entered into negotiations on behalf of the South 

Street Funds with the other defendant-appellee in this case, 

the Jackson National Life Insurance Company. On 

February 28, 1996, the Hindes sold the majority shar e of 

the Notes to Jackson, through Lazard, on behalf of the 

South Street Funds. Jackson paid a price of approximately 

94% of the par value of the Notes. Lazard, as the broker, 

received approximately 1% of this value as a commission. 

On February 29, 1996, Salovaara sought to enjoin this sale 

in the U.S. District Court for the Southern District of New 

York. The court denied this relief, and the trade settled on 

March 4, 1996. 

Salovaara claims that Jackson engaged in insider trading 

when it bought the Notes, assisted by Lazard. He states 

that Jackson was the "controlling shar eholder" of Bucyrus 

at the time of the transaction, and that it appointed two of 

its nominees to Bucyrus' Board of Directors. He claims that 

as a result of its ties with Bucyrus, Jackson knew in early 

1996 that Bucyrus was considering refinancing the Notes 

at their par value. Jackson further knew that Bucyrus' 

business prospects had improved dramatically, and that it 

was appointing a new and respected head for the company. 

This information was not available to the general public at 

the time. 

Salovaara claims that Jackson misappropriated inside 

information from Bucyrus, from which it learned the Notes 

were worth their face value and not 94% of that value. 

Salovaara states that the South Street Funds only 

consented to sell the Notes to Jackson at 94% of their par 

value because it did not realize they wer e actually worth 

_________________________________________________________________ 

4. Even though the Notes had a par or face value of more than $55 

million, their market value depended upon the likelihood that Bucyrus 

would actually be able to repay this debt. 

 5 
more than that on the market. Salovaara claims that

Lazard told the Funds that 94% of par value was a fair 

price. Thus, according to Salovaara, Lazar d told the South 

Street Funds that the Notes were worth 94% of par while at 

the same time it advised Bucyrus that they wer e worth 

more. According to Salovaara, Jackson was able, through 

its access to this inside information, to take a "risk free 

profit" by buying these Notes for less than they were worth. 

Lazard received a 1% commission for its part in facilitating 

the sale. Salovaara claims Lazard never told the South 

Street Funds that it was advising Bucyrus at the same time 

that it was advising the Funds, and that it br eached its 

duty to the South Street Funds due to this undisclosed 

conflict of interest. 

Salovaara sued Jackson for insider trading, in violation of 

the Securities Exchange Act S 10(b), and SEC Rule 10b-5. 

Jackson and Salovaara disagree over whether Salovaara 

pleaded a claim under the misappropriation theory, or 

whether Salovaara only pleaded a `traditional' claim of 

insider trading. Salovaara's complaint also asserted a state 

common-law claim against Jackson for fraudulent nondisclosure of material information. Salovaara sued Lazard 

for breach of contract and breach of itsfiduciary duty to 

the South Street Funds. The District Court, with the 

consent of the parties, turned the case over to a Magistrate 

Judge for resolution. We shall simply r efer to the action of 

the District Court when discussing the prior pr oceedings in 

this matter. 

Jackson then filed a motion to dismiss the complaint, 

and a motion to transfer the case to the Souther n District 

of New York. The court initially granted the transfer, but the 

Southern District returned the case to the District of New 

Jersey. Jackson then moved that the complaints against it 

should be dismissed because it did not have a duty to 

disclose any information about Bucyrus in its possession to 

the South Street Funds. Jackson similarly ar gued that it 

did not have a duty to speak giving rise to common law 

cause of action, even if Salovaara stated one in his 

complaint. Finally, Jackson argued that Salovaara was not 

the proper party to bring this suit on behalf of the South 

Street Funds, because he did not meet the r equirements set 

forth in Fed. R. Civ. P. 23.1. 

 6 
Salovaara replied that if the Notes wer e stocks and not 

bonds, he would clearly have alleged a case of insider 

trading. He argued for extension of pr ecedents regarding 

stocks to cover debt securities such as the bonds in 

question. Salovaara further replied that Jackson did have a 

duty to speak with regard to the common law claim. 

Finally, Salovaara claimed he was a proper party to bring 

this suit because his interests and those of the South 

Street Funds are aligned in this case, even though they are 

engaged in adversarial litigation on other matters.

Lazard responded that Counts II, IV and V of the 

complaint should be dismissed against it because it entered 

into a forum selection clause as part of an Indemnification 

Agreement with the South Street Funds that covers the 

subject matter of this suit. This forum selection clause 

specified that any disputes arising over the sale of the 

Notes must be resolved in the New York State courts

located in New York County, or the federal courts located in 

the Southern District of New York. Salovaara replied that 

the Indemnification Agreement does not cover the subject 

matter of this suit, and that dismissal or transfer would not 

be appropriate even if it did. According to Salovaara, 

dismissal or transfer are not in the inter ests of judicial 

efficiency and will lead to increased costs for the parties, as 

well as the possibility of inconsistent verdicts in the two 

actions. 

The District Court held that Salovaara did not state a 

claim under Section 10(b) of the Exchange Act or Rule 10b5, because Jackson did not have a duty to disclose any 

information regarding Bucyrus to the South Street Funds. 

It reasoned that "there can be no fraud absent a duty to 

speak." Lorenz v. CSX Corp., 1 F .3d 1406, 1418 (1993) 

(citing Chiarella v. United States, 445 U.S. 222, 235 (1980)). 

It therefore dismissed these claims. It r ejected Salovaara's 

claim that United States v. O'Hagan, 521 U.S. 642 (1997) 

expanded the scope of Chiarella to include a duty to 

disclose any nonpublic information prior to a sale of 

securities. The District Court noted that O'Hagan involved 

a breach of duty that is not present in this case. It 

reasoned that a corporation does not have afiduciary 

relationship with its debt security holders as it does with its 

 7 
shareholders, so O'Hagan does not apply. Jackson, the 

District Court held, owed no duty to the South Str eet 

Funds. Alternatively, the District Court held that because 

the South Street Funds were not the sour ce of Jackson's 

information, Jackson had no fiduciary r elationship with the 

Funds that was violated during this sale. 

With regard to the common law fraud claim, the District 

Court reasoned that the claim could only stand if Jackson 

had a duty to speak to the South Street Funds as part of 

this transaction. As a matter of law, the District Court held 

that Jackson had no such duty, and it dismissed this claim 

as well. 

Finally, the District Court agreed that Salovaara was not 

a proper party to bring this action, because he is in a 

generally adversarial position to the South Str eet Funds in 

other ongoing litigation, he testified in a r elated action that 

he had personal knowledge of the information he claims 

Jackson and Lazard failed to disclose to the South Street 

Funds, and he has engaged in a sham proceeding to 

manufacture evidence in his lawsuit against the Hindes, 

and therefore comes to court with unclean hands. 

As to Lazard's motion to enforce the forum selection 

clause, the District Court granted it, treating it as a motion 

to dismiss under Fed. R. Civ. P. 12(b)(6). It found that the 

Indemnification Agreement covered the subject matter of 

the current lawsuit, and that the balancing test required by 

28 U.S.C. S 1404(a) favored dismissal so the action could be 

re-filed in the Southern District of New York. It reasoned 

that it had the power to dismiss the claim against Lazard 

instead of transferring the case, citing National 

Micrographics Sys. v. Canon U.S.A., 825 F . Supp. 671, 679 

(D.N.J. 1993). 

Salovaara now appeals all these rulings. Jackson has 

filed a new motion to dismiss the claims against it as moot, 

based on the fact that it has settled any outstanding claims 

between it and the South Street Funds. Salovaara opposes 

this motion, arguing that the case is not moot because we 

have the power to review the propriety of this settlement 

agreement. 

 8 
ISSUES AND STANDARD OF REVIEW 

Although we have heard oral argument and reviewed the 

parties' briefs regarding numerous issues, we find the two 

issues that follow are dispositive. Ther efore, we will not 

address the remainder of the issues raised by Salovaara. 

I. Is Salovaara's suit against Jackson National moot as 

 a result of the settlement agreement r eached between 

 Jackson National and the South Street Funds?

We exercise plenary review over whether, as a matter of 

law, a case is moot. An appeal is moot when ther e exists no 

"subject matter upon which the judgment of the court can 

operate to make a substantive determination on the 

merits." Harris v. City of Philadelphia, 47 F.3d 1311, 1325- 

26 (3d Cir. 1994) (quotation omitted). 

II. Did the District Court properly dismiss the claim 

 against Lazard because of the forum selection clause 

 in the Indemnification Agreement? 

The interpretation and enforcement of a forum selection 

clause is a matter of law, and we exercise plenary review 

over it. See Jumara v. State Farm Ins. Co. , 55 F.3d 873 (3d 

Cir. 1995). 

DISCUSSION 

I. Is Salovaara's suit against Jackson National moot as 

 a result of the settlement agreement r eached between 

 Jackson National and the South Street Funds?

The only counts Salovaara currently asserts against

Jackson were brought in a repr esentative capacity on 

behalf of the South Street Funds. Jackson and the South 

Street Funds have agreed to settle all disputes between 

them, and the South Street Funds have given Jackson a 

general release from any and all liability. Money has 

already been distributed as part of the settlement 

agreement. Jackson has therefore moved to dismiss this 

lawsuit, with the support of the South Street Funds, as 

moot. 

The Settlement Agreement and Release wer e signed on 

March 23, 2000. See Cooper Aff.P 9, Ex. C. As part of this 

 9 
Settlement, the South Street Funds has r eceived or will 

soon receive $18 million that has been held in escrow as a 

result of the Bucyrus bankruptcy, and Jackson has 

received or will soon receive $6 million. Jackson argues 

that because all liabilities between it and the South Street 

Funds have thus been resolved, there is no relief we can 

grant and the appeal should be dismissed. 

An appeal is moot when there exists no "subject matter 

upon which the judgment of the court can operate to make 

a substantive determination on the merits." Harris v. City of 

Philadelphia, 47 F.3d 1311, 1325-26 (3d Cir. 1994) 

(quotation omitted). If events occur after the filing of a 

notice of appeal that moot the issues presented, then there 

is no remaining justiciable controversy. W e do not have 

jurisdiction to hear a case that cannot affect the rights the 

appellant wishes to assert. See North Car olina v. Rice, 404 

U.S. 244, 246 (1971). Further, we may consider the 

question of whether a case has become moot, even if this 

issue was not certified for appeal. See Larsen v. Senate of 

the Commonwealth of Pennsylvania, 152 F.3d 240, 246 (3d 

Cir. 1998). Intervening events, such as the parties reaching 

settlement in the case, can render an appeal moot. See 

Blanciak v. Allegheny Ludlum Corp., 77 F .3d 690, 699 (3d 

Cir. 1996). Moreover, vacatur may be decreed for judgments 

whose review has become moot due to cir cumstances 

beyond the control of any of the parties or where the 

mootness results from the unilateral action of the party 

who prevailed in the lower court. See Kacher v. May, 484 

U.S. 72, 82, 83, 108 S.Ct. 388, 391 (1987); United States v. 

Munsingwear, 340 U.S. 36, 40, 71 S.Ct. 104, 107 (1950). 

Because mootness by reason of a settlement is a result of 

the voluntary actions of the party, it does not justify 

vacatur of a federal civil judgment under review. See U.S. 

Bancorp Mortgage Co. v. Bonner Mall P'ship, 513 U.S. 18, 

29, 115 S.Ct. 386, 393 (1994). 

Thus, the only question before us is whether the dispute 

between the South Street Funds and Jackson was properly 

resolved while this derivative suit was pending. A 

corporation may enter into a settlement despite the

existence of a derivative action when doing so is in the 

corporation's best interests. See W olf v. Barkes, 348 F.2d 

 10 
994, 997 (2d Cir. 1965). Jackson points out that the South 

Street Funds voluntarily and knowingly surr endered their 

right to recover damages from this appeal. Further, it points 

out that because none of the South Street Funds' officers or 

directors were named as defendants in this lawsuit, there is 

no reason to suspect an internal conflict of interest led the 

Funds to settle this lawsuit for improper r easons. The 

South Street Funds have noted their support for dismissal 

of this appeal, and they have benefitted fr om the Settlement 

Agreement. The benefits the South Str eet Funds have 

received by settling with Jackson include the r esolution of 

eight separate cases in four courts that have been in 

progress for five years, the limitation of the Funds' potential 

exposure to liability, and the receipt of a recovery of a total 

of $19 million from various proceedings. Jackson maintains 

that it is not in the South Street Funds' best interests to 

continue with this derivative suit, given the benefits it has 

received from the settlement, and the South Street Funds 

agrees with this assessment. 

Salovaara responds that this appeal is not moot, because 

we must review the Settlement Agreement to make sure it 

was reached in good faith and was in the best interest of 

the South Street Funds. According to Salovaara, Jackson 

has provided only conclusory statements that the 

Agreement was in the South Street Funds' best interests 

and this is insufficient. Further, he ar gues these statements 

do not demonstrate a lack of collusion between Jackson 

and the South Street Funds. Salovaara ar gues that some of 

the cases settled as part of this agreement wer e frivolous, 

and the Agreement was of little value in this r egard. He also 

suggests that Eckert has a conflict of inter est that prevents 

him from entering into a fair Settlement Agr eement in this 

case. 

It is clear from the case law that we do not have to accept 

this Settlement Agreement at face value. W e have the 

equitable power to review the Settlement for r easonableness 

and to enjoin the corporation from entering into it, either 

temporarily or permanently, if it is not in the best interests 

of the company. See Wolf, 348 F .2d at 998; Cramer v. 

General Tel. & Elec. Corp., 582 F.2d 259, 275 (3d Cir. 

1978), cert. denied, 439 U.S. 1129 (1979). However, our 

 11 
precedents do not require us to hold a special evidentiary 

hearing in every case; they merely demonstrate that we may 

review settlement agreements when derivative suits are 

pending if the circumstances so warrant. 

On the present facts, we do not see anything that would 

trigger a need for further scrutiny of the Settlement 

Agreement on our part. The conflict Salovaara attributes to 

Eckert is so tenuous that we do not find it r elevant. 

Moreover, Jackson sets forth specific reasons why the 

Settlement Agreement was in the best inter ests of the 

South Street Funds, and these reasons ar e objectively 

reasonable. Salovaara has not shown the existence of any 

improper collusion or bad faith in reaching this Agreement. 

Moreover, Salovaara may always file a new lawsuit against 

the South Street Funds if he believes it br eached a duty 

towards the shareholders by entering into the Settlement. 

We do not need to re-open the settlement in the present 

case. 

We therefore decline to intervene in this Settlement. 

Because there is no relief we can grant the South Street 

Funds beyond that provided in the Settlement Agreement, 

even if we were to decide in Salovaara's favor on the merits 

of this appeal, we will dismiss Salovaara's appeal r egarding 

Jackson as moot. 

II. Did the District Court properly dismiss the claim 

 against Lazard because of the forum selection clause 

 in the Indemnification Agreement? 

Lazard claims that a forum selection clause covers the 

dispute between it and the South Street Funds, and 

requires that this lawsuit be brought either in the District 

Court for the Southern District of New Y ork or in a New 

York State court located within New Y ork County. In 

reaching its decision to dismiss on this basis, the District 

Court had to interpret the forum selection clause to see 

whether it applied to the subject matter of this dispute. The 

District Court also had to decide on the proper procedure 

for enforcing a forum selection clause. W e will address the 

procedural question first, followed by the question of 

whether the District Court correctly interpr eted the forum 

selection clause. 

 12 
A. The Procedure for Enforcing A Forum Selection 

 Clause 

It is clear that a party may bring a motion to transfer 

from the initial federal forum to another federal court based 

on a valid forum selection clause. Such a motion is

governed by 28 U.S.C. S 1404(a).5 See Stewart Org., Inc. v. 

Ricoh Corp., 487 U.S. 22, 32, 108 S.Ct. 2239, 2245 (1988). 

Transfer is not available, however, when a forum selection 

clause specifies a non-federal forum. In that case, it seems 

the district court would have no choice but to dismiss the 

action so it can be filed in the appropriate forum so long as 

dismissal would be in the interests of justice. See, e.g., 

Instrumentation Assoc., Inc. v. Madsen Elec. (Canada) Ltd., 

859 F.2d 4, 6 n.4 (3d Cir. 1988); Central Contracting Co. v. 

Maryland Casualty Co., 367 F.2d 341 (3d Cir. 1966);17 

Moore's Federal Practice, S111.04[4][c] (Matthew Bender 3d 

ed.). It is also clear that where venue would be proper in 

the initial forum court, provided no forum selection clause 

covered the subject matter of the lawsuit, it is inappropriate 

to dismiss pursuant to 28 U.S.C. S 1406 (allowing dismissal 

based on improper venue). See Jumara, 55 F.3d at 878-79. 

In the present case, the forum selection clause specified 

that suit could be brought either in state courts located 

within New York County or in the United States District 

Court for the Southern District of New Y ork. Lazard has not 

filed a motion for transfer, but rather a motion to dismiss 

based on the forum selection clause. The District Court 

treated this as a motion to dismiss under Fed. R. Civ. P. 

12(b)(6), but still employed the balancing test of 28 U.S.C. 

S 1404(a) to determine whether dismissal based on the 

forum selection clause was proper. The District Court found 

that dismissal was proper. Salovaara appeals, arguing that 

Lazard's motion should have been construed as a motion 

for transfer because the forum selection clause allowed suit 

_________________________________________________________________ 

5. Under 28 U.S.C. S 1404(a), a district court may transfer a civil case 

to 

another district "[f]or the convenience of the parties and witnesses, in 

the 

interest of justice. . . ." Before permitting such a transfer, a district 

court 

also must consider "all relevant factors to determine whether on balance 

the litigation would more conveniently pr oceed and the interests of 

justice be better served by transfer to a dif ferent forum." Jumara, 55 

F.3d at 879 (quoting 1A Pt. 2 Moor e's P 0.345[5], at 4363). 

 13 
to be filed in another federal forum. He notes that dismissal 

is only warranted when the forum selection clause pr events 

filing in any federal court. See 17 Moore's Federal Practice, 

S 111.04[4][c]; Reynolds Publishers, Inc. v. Graphics Fin. 

Group, Ltd., 938 F. Supp. 256, 260-61 (D.N.J. 1996). 

We agree that venue was otherwise pr oper in the District 

of New Jersey and that 28 U.S.C. S 1406 would therefore 

not apply. The question is whether the District Court 

properly dismissed the case instead of transferring it to the 

Southern District of New York. In that regard, an 

examination of our decision in Crescent Int'l Inc. v. Avatar 

Communities, Inc., 857 F.3d 943, 944 (3d Cir. 1988), is 

particularly helpful. In Crescent, a Florida corporation, 

Avatar Communities, Inc. ("Avatar"), and a Pennsylvania 

corporation, Crescent International, Inc. ("Crescent"), 

entered into an agreement containing a forum selection 

that required "`any litigation . . . [to] be maintained' in a 

state or federal court in Miami, Florida." 857 F.2d 943, 944 

(3d Cir. 1988) (per curiam) (emphasis added). Nevertheless, 

Crescent filed an action in the United States District Court 

for the Eastern District of Pennsylvania. In r esponse, 

Avatar filed a Rule 12(b)(6) motion to dismiss, arguing a 

breach of the forum selection clause. The District Court 

granted Avatar's Rule 12(b)(6) motion based on the forum 

selection clause and we upheld the dismissal.6 See 

Crescent, 857 F.2d at 944-45. 

Our holding in Crescent leaves no doubt that a 12(b)(6) 

dismissal is a permissible means of enfor cing a forum 

selection clause that allows suit to be filed in another 

federal forum. The present case involves such a clause and 

accordingly Crescent contr ols. The District Court's sua 

sponte weighing of S 1404's factors does nothing to limit the 

precedential impact of Crescent, where the parties agreed 

_________________________________________________________________ 

6. There is much disagreement over whether dismissal (where 

appropriate) should be made pursuant to Fed. R. Civ. P. 12(b)(1), 

12(b)(3), or 12(b)(6). See, e.g.,Lambert v. Kysar, 983 F.2d 1110, 1112n.1 

(1st Cir. 1993) (dismissal based on forum selection clause specifying 

state forum grounded on Fed. R. Civ. P. 12(b)(6), not 12(b)(3)); Lipcon v. 

Underwriters at Lloyd's, London, 148 F.3d 1285, 1289 (11th Cir. 1998) 

(collecting cases adopting each rationale and wher e forum selection 

clauses specified non-federal forums). 

 14 
that S 1404 was inapplicable to their case. Indeed, there is 

nothing in Crescent that pr ecludes a district court, faced 

with a Rule 12 motion based on a forum selection clause, 

from considering S 1404 factors to deter mine whether 

transfer is the better course. Moreover , adding S 1404 to the 

mix does nothing to abrogate a district court's authority to 

dismiss under Rule 12. That is, the existence or nonexistence of a S 1404(a) motion is not pertinent to deciding 

the proper scope of a 12(b)(6) motion. 

We acknowledge that, as a general matter , it makes better 

sense, when venue is proper but the parties have agreed 

upon a not-unreasonable forum selection clause that points 

to another federal venue, to transfer rather than dismiss. 

And if a defendant moves under S 1404(a), transfer, of 

course, is the proper vehicle (assuming the r easonableness 

of the forum selection clause). But when a defendant moves 

under Rule 12, a district court retains the judicial power to 

dismiss notwithstanding its consideration of S 1404. As 

such, the District Court's dismissal of Salovaara's claim 

against Lazard was proper. 

The District Court's interpretation of Rule 12(b)(6) not 

only comports with our holding in Crescent but is also 

corroborated by authority from other jurisdictions. In 

Security Watch v. Sentinel Sys., Inc., for example, the Sixth 

Circuit affirmed a Rule 12 dismissal based on a forum 

selection clause that specified that litigation only be 

brought "in the . . . Circuit Court for the City of Hampton, 

Virginia, or the United States District Court for the Eastern 

District of Virginia." 176 F .3d 369, 374 (6th Cir. 1999) 

(emphasis added). Additionally, Ninth Circuit case law has 

been read to allow Rule 12(b)(3) as a means of enforcing 

forum selection clauses that permit suit in state or federal 

courts. See Walker v. Carnival Cruise Lines, 63 F. Supp. 2d 

1083 (N.D. Cal. 1999).7 Similarly, other courts that have 

_________________________________________________________________ 

7. Walker's interpretation ofNinth Circuit precedent (Walker explicitly 

relied on Argueta v. Banco Mexicano, S.A., 87 F.3d 320 (9th Cir. 1996)) 

finds further support in Shute v. Carnival Cruise Lines, 934 F.2d 1091 

(9th Cir. 1991) ("Shute II"), despite Shute's somewhat complicated 

procedural history. The Shute litigation began with a summary judgment 

motion, in which the defendant alleged: (i) that the District Court, in 

the 

 15 
addressed the scope of Rule 12 in this context have

confirmed the power to dismiss under such circumstances. 

See Rooney v. Biomet, Inc., 63 F. Supp. 2d 126 (D. Mass. 

1999) (granting dismissal under Rule 12(b) based on a 

forum selection clause that specified certain state and 

federal courts as acceptable forums); Soil Shield Int'l Inc. v. 

Lilly Indus., Inc., No. C 98-1353, 1998 WL 283580 (N.D. 

Cal. May 29, 1998) (same); Hunter Distrib. Co., Inc. v. Pure 

_________________________________________________________________ 

Western District of Washington, lacked personal jurisdiction; and (ii) 

that 

a forum selection clause permitted suit only in Florida's state or federal 

courts. In the alternative, the defendant r equested that the case be 

transferred to the Southern District of Florida. See Shute v. Carnival 

Cruise Lines, 897 F.2d 377, 379 (9th Cir . 1990) ("Shute I"). 

The District Court granted summary judgment on personal jurisdiction 

grounds without addressing the forum selection clause, and the Ninth 

Circuit reversed in Shute I. In Shute I, the Court of Appeals held that 

personal jurisdiction was proper, but that, since the forum selection 

clause was unreasonable, that clause was legally unenforceable. The 

Supreme Court granted certiorari and reversed, holding that the forum 

selection clause was reasonable and enfor ceable, though the Court did 

not address whether the proper mechanism for such enforcement was 

summary judgment under Rule 56 or transfer underS 1406(a). See 

Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991). 

On remand, defendant's request for transfer was not discussed; 

instead, the District Court's original decision granting summary 

judgment was simply affirmed. See Shute II, 934 F.2d at 1091. By so 

doing, the Ninth Circuit necessarily, though implicitly, affirmed the 

District Court's authority to grant summary judgment, instead of 

granting transfer, in enforcing a forum selection clause that would have 

allowed litigation to proceed in the Souther n District of Florida. 

Although 

the Shute litigation dealt only with summary judgment motions under 

Rule 56, subsequent decisions have construed the principles contained 

therein as relevant in the context of 12(b) motions as well. See Foster v. 

Chesapeake Ins. Co., 933 F.2d 1207, 1215 (3d Cir. 1991) ("[N]o one 

doubts the district court's power to dismiss pursuant to a properly 

construed forum selection clause . . . .") (citing Carnival Cruise Lines, 

Inc., 499 U.S. at 585) (dictum); Inter national Software Sys. v. Amplicon, 

Inc., 77 F.3d 112, 114 (5th Cir. 1996) ("The Supreme Court reversed the 

Court of Appeals without reaching the personal jurisdiction issue, in 

effect reinstating the dismissal of the suit based on the forum selection 

clause."). 

 16 
Beverage Partners, 820 F. Supp. 284 (N.D. Miss. 1993) 

(same). 

In light of the foregoing, we conclude that the District 

Court was not required to treat Lazar d's motion for 

dismissal as a motion for transfer simply because the 

forum selection clause specified that suit be br ought in 

either a federal or a state forum. Ther efore, we hold that the 

District Court properly dismissed Salovaara's complaint 

against Lazard. 

B. Scope of Coverage of the Forum Selection Clause 

With regard to the coverage of the forum selection clause, 

Salovaara argues that it was meant to apply only to

lawsuits requiring the Funds to indemnify Lazar d if a third 

party made a claim against the South Street Funds and 

Lazard arising out of the sale of securities. Salovaara 

argues that it does not apply to disputes between the South 

Street Funds and Lazard. Salovaara also notes that the 

Agreement does not define the scope of its coverage, and 

that this omission indicates that it was not intended to 

have such a broad construction. 

As the District Court noted, the Agreement pr ovided: "In 

connection with our role as your agent in the proposed sale 

of the Bucyrus-Erie Co. Secured Notes, you and we are 

entering into this letter agreement." (App. 186, 190). It 

further provides: 

 This agreement and any claim related dir ectly or 

 indirectly to this agreement (including any claim 

 concerning advice provided pursuant to this 

 agreement) shall be governed and construed in 

 accordance with the laws of the State of New Y ork . . . . 

 No such claim shall be commenced, prosecuted or 

 continued in any forum other than the courts of the 

 State of New York located in the City and County of 

 New York or in the United States District Court for the 

 Southern District of New York. 

(App. 187-88, 191-92). 

It is quite clear to us that this language covers the 

present dispute. As for Salovaara's claim that the alleged 

acts giving rise to the suit took place prior to the formation 

 17 
of this Agreement, the Agreement specifically states that it 

covers any claim related "directly or indirectly" to the sale 

or to advice rendered regarding the sale of the Notes. Since 

this lawsuit involves that subject matter, it is covered by 

the forum selection clause. The District Court thus did not 

err when it found that the forum selection clause of the 

Indemnification Agreement covered the subject matter of 

this lawsuit. 

CONCLUSION 

For the reasons stated above, we dismiss the case against 

Jackson National as moot and affirm the or der dismissing 

the cause against Lazard Freres. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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