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D ock e t 99-5647

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. e du/thir dc ir c uit_2001/69Filed 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 Pennsylv ania, 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.

2OPINION OF THE COURT

PER CURIAM:

INTRODUCTION

Plaintiff-Appellant Mikael Salovaara appeals from t he
District Court's dismissal of the derivative action he brought on behalf of several entities, described in more detail below, against Defendant-Appellees Jackson N ational 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 affir m the dismissal order regarding Salovaara's complaint aga inst
Lazard Freres & Co.

JURISDICTION

The District Court had jurisdiction pursuant to Sec tion 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 de cide the dispositive motion in this case, pursuant to Fed. R . Civ. P. 73 and 28 U.S.C. S 636. Because the Magistrate Judg e dismissed Salovaara's Third Amended Complaint, we h ave jurisdiction pursuant to 28 U.S.C. SS 636(c) and 12 91.

FACTS AND PROCEDURES

This appeal arises from the District Court's dismis sal of a derivative suit, alleging fraud in the sale of ce rtain debt securities. The plaintiff-appellant in this case is Mikael Salovaara. He brought suit on behalf of himself,2 a s well as on behalf of the following entities: South Str eet Leveraged Corporate Recovery Fund, South Street Corporate Rec overy

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2. The claims that Salovaara brought in his individ ual capacity have since been dismissed. He does not appeal that dismi ssal.

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

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

SSP Inc. is the general partner of the SSP LPs. The SSP LPs are in turn general partners of the South Stree t Funds. The South Street Funds make investments by buying d ebt securities from various companies. A sale of debt s ecurities by the South Street Funds to the Jackson National L ife Insurance Company ("Jackson" or "JNL") is at issue in this

case.

Two people are behind the SSP LPs and the South Str eet Funds: Salovaara and Alfred C. Eckert, III. Salovaa ra 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 eate d 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. Cu rrently, the directors of SSP Inc. are Eckert, Gary Hindes, and Denise Hindes. Following a dispute and litigation b etween
Salovaara and Eckert over control of the South Stre et Funds, the Hindes were given control over a majorit y of the South Street Funds assets. As a result, the Hindes controlled more than 95% of the Notes held by the S outh Street Funds, while Salovaara maintained contr ol o ver less
than 5%.

In 1992, before Salovaara and Eckert had their fall ing 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 eorgan ization plan for Bucyrus was confirmed in December of 1994. Under this plan, the South Street Funds r eceived n otes issued by Bucyrus (the "Notes") as a r eplacement f or the debt they had acquired in 1992. The South Str eet F unds also received 11% of the stock of the r eorganized company. By late 1995, the South Street Funds held Notes iss ued by

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3. LP is short for Limited Partnership.

4Bucyrus 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 S outh Street Funds with the other defendant-appellee in t his case, the Jackson National Life Insurance Company. On February 28, 1996, the Hindes sold the majority sha r e of the Notes to Jackson, through Lazard, on behalf of the South Street Funds. Jackson paid a price of approxi mately 94% of the par value of the Notes. Lazard, as the b roker, received approximately 1% of this value as a commis sion. On February 29, 1996, Salovaara sought to enjoin th is sale
in the U.S. District Court for the Southern Distric t of New York. The court denied this relief, and the trade s ettled on March 4, 1996.

Salovaara claims that Jackson engaged in insider tr ading when it bought the Notes, assisted by Lazard. He st ates that Jackson was the "controlling shar eholder" of Bucyrus at the time of the transaction, and that it appoint ed two of its nominees to Bucyrus' Board of Directors. He cla ims that as a result of its ties with Bucyrus, Jackson knew in early 1996 that Bucyrus was considering refinancing the N otes at their par value. Jackson further knew that Bucyr us' business prospects had improved dramatically, and t hat it was appointing a new and respected head for the com pany. This information was not available to the general p ublic at
the time.

Salovaara claims that Jackson misappropriated insid e information from Bucyrus, from which it learned the Notes
were worth their face value and not 94% of that val ue. Salovaara states that the South Street Funds only
consented to sell the Notes to Jackson at 94% of th eir par value because it did not realize they wer e actuall y worth

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4. Even though the Notes had a par or face value of more than $55 million, their market value depended upon the likel ihood that Bucyrus would actually be able to repay this debt.

5more than that on the market. Salovaara claims that

Lazard told the Funds that 94% of par value was a f air price. Thus, according to Salovaara, Lazar d told t he South Street Funds that the Notes were worth 94% of par w hile at the same time it advised Bucyrus that they wer e wo rth more. According to Salovaara, Jackson was able, thr ough its access to this inside information, to take a "r isk free profit" by buying these Notes for less than they we re worth. Lazard received a 1% commission for its part in fac ilitating
the sale. Salovaara claims Lazard never told the So uth Street Funds that it was advising Bucyrus at the sa me time that it was advising the Funds, and that it br each ed its duty to the South Street Funds due to this undisclo sed
conflict of interest.

Salovaara sued Jackson for insider trading, in viol ation of the Securities Exchange Act S 10(b), and SEC Rule 1 0b-5. Jackson and Salovaara disagree over whether Salovaa ra pleaded a claim under the misappropriation theory, or whether Salovaara only pleaded a `traditional' clai m of insider trading. Salovaara's complaint also asserte d a state common-law claim against Jackson for fraudulent non disclosure of material information. Salovaara sued Lazard for breach of contract and breach of itsfiduciary d uty to the South Street Funds. The District Court, with th e consent of the parties, turned the case over to a M agistrate Judge for resolution. We shall simply r efer to the action of the District Court when discussing the prior pr oce edings in
this matter.

Jackson then filed a motion to dismiss the complain t,
and a motion to transfer the case to the Souther n District of New York. The court initially granted the transf er, but the
Southern District returned the case to the District of New Jersey. Jackson then moved that the complaints agai nst it should be dismissed because it did not have a duty to disclose any information about Bucyrus in its posse ssion to the South Street Funds. Jackson similarly ar gued t hat it did not have a duty to speak giving rise to common law cause of action, even if Salovaara stated one in hi s complaint. Finally, Jackson argued that Salovaara w as not the proper party to bring this suit on behalf of th e South Street Funds, because he did not meet the r equirem ents set
forth in Fed. R. Civ. P. 23.1.

6Salovaara replied that if the Notes wer e stocks an d not

bonds, he would clearly have alleged a case of insi der trading. He argued for extension of pr ecedents reg arding
stocks to cover debt securities such as the bonds i n question. Salovaara further replied that Jackson di d 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 So uth 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 Indemni fication Agreement with the South Street Funds that covers t he subject matter of this suit. This forum selection c lause specified that any disputes arising over the sale o f the
Notes must be resolved in the New York State courts located in New York County, or the federal courts l ocated in the Southern District of New York. Salovaara replie d that the Indemnification Agreement does not cover the su bject matter of this suit, and that dismissal or transfer would not be appropriate even if it did. According to Salovaa ra, 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 stat e a claim under Section 10(b) of the Exchange Act or Ru le 10b5, because Jackson did not have a duty to disclose any information regarding Bucyrus to the South Street F unds.
It reasoned that "there can be no fraud absent a du ty to speak." Lorenz v. CSX Corp., 1 F .3d 1406, 1418 (19 93) (citing Chiarella v. United States, 445 U.S. 222, 2 35 (1980)). It therefore dismissed these claims. It r ejected S alovaara's claim that United States v. O'Hagan, 521 U.S. 642 ( 1997) expanded the scope of Chiarella to include a duty t o disclose any nonpublic information prior to a sale of securities. The District Court noted that O'Hagan i nvolved a breach of duty that is not present in this case. It reasoned that a corporation does not have afiduciar y relationship with its debt security holders as it d oes with its

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

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 Jack son'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 Dist rict Court reasoned that the claim could only stand if J ackson had a duty to speak to the South Street Funds as pa rt of this transaction. As a matter of law, the District Court held that Jackson had no such duty, and it dismissed thi s claim
as well.

Finally, the District Court agreed that Salovaara w as 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 elate d action that he had personal knowledge of the information he cla ims
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 Hin des,
and therefore comes to court with unclean hands.

As to Lazard's motion to enforce the forum selectio n 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 matte r of the current lawsuit, and that the balancing test re quired 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 r easoned 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. 6 71, 679 (D.N.J. 1993).

Salovaara now appeals all these rulings. Jackson ha s filed a new motion to dismiss the claims against it as moot, based on the fact that it has settled any outstandi ng claims between it and the South Street Funds. Salovaara op poses this motion, arguing that the case is not moot beca use we have the power to review the propriety of this sett lement agreement.

8ISSUES AND STANDARD OF REVIEW

Although we have heard oral argument and reviewed t he 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 Salov aara.

I. Is Salovaara's suit against Jackson National moo t as a result of the settlement agreement r eache d between
Jackson National and the South Street Funds?

We exercise plenary review over whether, as a matte r of law, a case is moot. An appeal is moot when ther e exists no "subject matter upon which the judgment of the cour t can operate to make a substantive determination on the merits." Harris v. City of Philadelphia, 47 F.3d 13 11, 1325- 26 (3d Cir. 1994) (quotation omitted).

II. Did the District Court properly dismiss the cla im against Lazard because of the forum selectio n clause in the Indemnification Agreement?

The interpretation and enforcement of a forum selec tion clause is a matter of law, and we exercise plenary review over it. See Jumara v. State Farm Ins. Co. , 55 F.3 d 873 (3d Cir. 1995).

DISCUSSION

I. Is Salovaara's suit against Jackson National moo t as a result of the settlement agreement r eache d 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 S outh Street Funds have agreed to settle all disputes bet ween them, and the South Street Funds have given Jackson a general release from any and all liability. Money h as already been distributed as part of the settlement agreement. Jackson has therefore moved to dismiss t his lawsuit, with the support of the South Street Funds , as
moot.

The Settlement Agreement and Release wer e signed o n March 23, 2000. See Cooper Aff.P 9, Ex. C. As part of this

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

soon receive $18 million that has been held in escr ow as a result of the Bucyrus bankruptcy, and Jackson has received or will soon receive $6 million. Jackson a rgues that because all liabilities between it and the Sou th Street Funds have thus been resolved, there is no relief w e can grant and the appeal should be dismissed.

An appeal is moot when there exists no "subject mat ter 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 fili ng of a notice of appeal that moot the issues presented, th en 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. S enate 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, 6 99 (3d Cir. 1996). Moreover, vacatur may be decreed for ju dgments
whose review has become moot due to cir cumstances beyond the control of any of the parties or where t he
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 (19 50). Because mootness by reason of a settlement is a res ult of the voluntary actions of the party, it does not jus tify vacatur of a federal civil judgment under review. S ee 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 di spute between the South Street Funds and Jackson was prop erly 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 i n the corporation's best interests. See W olf v. Barkes, 348 F.2d

10994, 997 (2d Cir. 1965). Jackson points out that th e 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' of ficers or directors were named as defendants in this lawsuit, there is no reason to suspect an internal conflict of intere st led the Funds to settle this lawsuit for improper r easons. The South Street Funds have noted their support for dis missal of this appeal, and they have benefitted fr om the Settlement Agreement. The benefits the South Str eet Funds hav e received by settling with Jackson include the r eso lution of eight separate cases in four courts that have been in progress for five years, the limitation of the Fund s' potential exposure to liability, and the receipt of a recover y of a total of $19 million from various proceedings. Jackson ma intains
that it is not in the South Street Funds' best inte rests to continue with this derivative suit, given the benef its it has received from the settlement, and the South Street Funds agrees with this assessment.

Salovaara responds that this appeal is not moot, be cause we must review the Settlement Agreement to make sur e it was reached in good faith and was in the best inter est of the South Street Funds. According to Salovaara, Jac kson has provided only conclusory statements that the Agreement was in the South Street Funds' best inter ests and this is insufficient. Further, he ar gues these statements
do not demonstrate a lack of collusion between Jack son and the South Street Funds. Salovaara ar gues that some of the cases settled as part of this agreement wer e f rivolous, and the Agreement was of little value in this r ega rd. He also suggests that Eckert has a conflict of inter est th at 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 t o accept this Settlement Agreement at face value. W e have t he equitable power to review the Settlement for r easo nableness and to enjoin the corporation from entering into it , either temporarily or permanently, if it is not in the bes t interests of the company. See Wolf, 348 F .2d at 998; Cramer v. General Tel. & Elec. Corp., 582 F.2d 259, 275 (3d C ir. 1978), cert. denied, 439 U.S. 1129 (1979). However, our

11precedents do not require us to hold a special evid entiary

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 w ould trigger a need for further scrutiny of the Settleme nt Agreement on our part. The conflict Salovaara attri butes to
Eckert is so tenuous that we do not find it r eleva nt. Moreover, Jackson sets forth specific reasons why t he Settlement Agreement was in the best inter ests of the South Street Funds, and these reasons ar e objectiv ely
reasonable. Salovaara has not shown the existence o f any improper collusion or bad faith in reaching this Ag reement. Moreover, Salovaara may always file a new lawsuit a gainst
the South Street Funds if he believes it br eached a duty towards the shareholders by entering into the Settl ement. We do not need to re-open the settlement in the pre sent

case.

We therefore decline to intervene in this Settlemen t. Because there is no relief we can grant the South S treet Funds beyond that provided in the Settlement Agreem ent,
even if we were to decide in Salovaara's favor on t he merits of this appeal, we will dismiss Salovaara's appeal r egarding
Jackson as moot.

II. Did the District Court properly dismiss the cla im against Lazard because of the forum selectio n 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. I n reaching its decision to dismiss on this basis, the District Court had to interpret the forum selection clause t o see whether it applied to the subject matter of this di spute. The District Court also had to decide on the proper pro cedure for enforcing a forum selection clause. W e will ad dress the procedural question first, followed by the question of whether the District Court correctly interpr eted t he forum
selection clause.

12A. The Procedure for Enforcing A Forum Selection

Clause

It is clear that a party may bring a motion to tran sfer
from the initial federal forum to another federal c ourt 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 se lection clause specifies a non-federal forum. In that case, it seems
the district court would have no choice but to dism iss 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. (Canad a) Ltd., 859 F.2d 4, 6 n.4 (3d Cir. 1988); Central Contracti ng Co. v. Maryland Casualty Co., 367 F.2d 341 (3d Cir. 1966); 17 Moore's Federal Practice, S111.04[4][c] (Matthew Be nder 3d ed.). It is also clear that where venue would be pr oper in the initial forum court, provided no forum selectio n clause covered the subject matter of the lawsuit, it is in appropriate to dismiss pursuant to 28 U.S.C. S 1406 (allowing d ismissal based on improper venue). See Jumara, 55 F.3d at 87 8-79.

In the present case, the forum selection clause spe cified that suit could be brought either in state courts l ocated within New York County or in the United States Dist rict
Court for the Southern District of New Y ork. Lazar d has not filed a motion for transfer, but rather a motion to dismiss
based on the forum selection clause. The District C ourt
treated this as a motion to dismiss under Fed. R. C iv. P. 12(b)(6), but still employed the balancing test of 28 U.S.C. S 1404(a) to determine whether dismissal based on t he forum selection clause was proper. The District Cou rt found that dismissal was proper. Salovaara appeals, argui ng that
Lazard's motion should have been construed as a mot ion
for transfer because the forum selection clause all owed suit

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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 part ies and witnesses, in
the interest of justice. . . ." Before permitting such a transfer, a district

court
also must consider "all relevant factors to determi ne whether on balance the litigation would more conveniently pr oceed and the interests of justice be better served by transfer to a dif feren t forum." Jumara, 55 F.3d at 879 (quoting 1A Pt. 2 Moor e's P 0.345[5], at 4363).

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

is only warranted when the forum selection clause p r events filing in any federal court. See 17 Moore's Federal Practice, S 111.04[4][c]; Reynolds Publishers, Inc. v. Graphi cs Fin. Group, Ltd., 938 F. Supp. 256, 260-61 (D.N.J. 1996)

.

We agree that venue was otherwise pr oper in the Di strict of New Jersey and that 28 U.S.C. S 1406 would there fore not apply. The question is whether the District Cou rt 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 corpor ation, Avatar Communities, Inc. ("Avatar"), and a Pennsylv ania corporation, Crescent International, Inc. ("Crescen t"), entered into an agreement containing a forum select ion that required "`any litigation . . . [to] be mainta ined' in a state or federal court in Miami, Florida." 857 F.2d 943, 944 (3d Cir. 1988) (per curiam) (emphasis added). Never theless,
Crescent filed an action in the United States Distr ict Court for the Eastern District of Pennsylvania. In r espo nse, Avatar filed a Rule 12(b)(6) motion to dismiss, arg uing 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 fo rum selection clause that allows suit to be filed in an other federal forum. The present case involves such a cla use 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

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6. There is much disagreement over whether dismissa l (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), n ot 12(b)(3)); Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285, 128 9 (11th Cir. 1998) (collecting cases adopting each rationale and wher e forum selection clauses specified non-federal forums).

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

nothing in Crescent that pr ecludes a district cour t, faced
with a Rule 12 motion based on a forum selection cl ause, from considering S 1404 factors to deter mine wheth er transfer is the better course. Moreover , adding S 1404 to the mix does nothing to abrogate a district court's aut hority to dismiss under Rule 12. That is, the existence or no nexistence 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 ag reed upon a not-unreasonable forum selection clause that points to another federal venue, to transfer rather than d ismiss. And if a defendant moves under S 1404(a), transfer, of course, is the proper vehicle (assuming the r eason ableness of the forum selection clause). But when a defendan t moves under Rule 12, a district court retains the judicia l 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 a lso 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 for um selection clause that specified that litigation onl y be brought "in the . . . Circuit Court for the City of Hampton, Virginia, or the United States District Court for t he 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 enfo rcing forum selection clauses that permit suit in state o r federal courts. See Walker v. Carnival Cruise Lines, 63 F. Supp. 2d 1083 (N.D. Cal. 1999).7 Similarly, other courts tha t have

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7. Walker's interpretation ofNinth Circuit preceden t (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 L ines, 934 F.2d 1091 (9th Cir. 1991) ("Shute II"), despite Shute's somew hat complicated procedural history. The Shute litigation began with a summary judgment motion, in which the defendant alleged: (i) that th e District Court, in

the

15addressed the scope of Rule 12 in this context have

confirmed the power to dismiss under such circumsta nces. 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 I nt'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

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

that a forum selection clause permitted suit only in Flo rida's state or federal courts. In the alternative, the defendant r equeste d that the case be
transferred to the Southern District of Florida. Se e Shute v. Carnival Cruise Lines, 897 F.2d 377, 379 (9th Cir . 1990) (" Shute I").

The District Court granted summary judgment on pers onal jurisdiction grounds without addressing the forum selection clau se, and the Ninth Circuit reversed in Shute I. In Shute I, the Court of Appeals held that personal jurisdiction was proper, but that, since t he forum selection clause was unreasonable, that clause was legally un enforceable. The Supreme Court granted certiorari and reversed, hold ing that the forum selection clause was reasonable and enfor ceable, t hough the Court did not address whether the proper mechanism for such e nforcement was summary judgment under Rule 56 or transfer underS 1 406(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 gra nting summary judgment was simply affirmed. See Shute II, 934 F.2 d at 1091. By so doing, the Ninth Circuit necessarily, though implic itly, affirmed the District Court's authority to grant summary judgmen t, instead of granting transfer, in enforcing a forum selection c lause that would have allowed litigation to proceed in the Souther n Dist rict of Florida. Although the Shute litigation dealt only with summary judgme nt motions under Rule 56, subsequent decisions have construed the pr inciples 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. 1 991) ("[N]o one doubts the district court's power to dismiss pursua nt to a properly construed forum selection clause . . . .") (citing Carnival Cruise Lines, Inc., 499 U.S. at 585) (dictum); Inter national Sof tware Sys. v. Amplicon, Inc., 77 F.3d 112, 114 (5th Cir. 1996) ("The Suprem e Court reversed the Court of Appeals without reaching the personal juri sdiction issue, in effect reinstating the dismissal of the suit based on the forum selection clause.").

16Beverage Partners, 820 F. Supp. 284 (N.D. Miss. 199 3)

(same).

In light of the foregoing, we conclude that the Dis trict Court was not required to treat Lazar d's motion fo r dismissal as a motion for transfer simply because t he forum selection clause specified that suit be br ou ght in either a federal or a state forum. Ther efore, we h old that the District Court properly dismissed Salovaara's compl aint 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 i f a third party made a claim against the South Street Funds a nd Lazard arising out of the sale of securities. Salov aara argues that it does not apply to disputes between t he 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 intend ed to
have such a broad construction.

As the District Court noted, the Agreement pr ovide d: "In connection with our role as your agent in the propo sed sale of the Bucyrus-Erie Co. Secured Notes, you and we a re entering into this letter agreement." (App. 186, 19 0). It further provides:

This agreement and any claim related dir ect ly or indirectly to this agreement (including any claim concerning advice provided pursuant to this agreement) shall be governed and construed i n 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 Co unty of
New York or in the United States District Co urt for the
Southern District of New York.

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

It is quite clear to us that this language covers t he present dispute. As for Salovaara's claim that the alleged acts giving rise to the suit took place prior to th e formation

17of this Agreement, the Agreement specifically state s that it

covers any claim related "directly or indirectly" t o the sale or to advice rendered regarding the sale of the Not es. Since this lawsuit involves that subject matter, it is co vered by
the forum selection clause. The District Court thus did not
err when it found that the forum selection clause o f the Indemnification Agreement covered the subject matte r of
this lawsuit.

CONCLUSION

For the reasons stated above, we dismiss the case a gainst
Jackson National as moot and affirm the or der dism issing the cause against Lazard Freres.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

18