ANALYSIS

Plaintiffs first argue that the Mutual Defendants waived any venue challenge by failing to
timely raise their objections. Objections to venue must be raised at the earliest possible
opportunity or they are deemed waived. Fed. R. Civ. P. 12(h)(1); Frietsch v. Refco, Inc., 56 F.3d
825, 830 (7th Cir. 1995). Generally this requirement entails objecting to venue no later than the
expiration of the period allotted for answering or moving to dismiss the complaint. Fed. R. Civ.
P. 12(h)(1); see also Commercial Cas. Co. v. Consol. Stone Co, 278 U.S. 177, 179-80 (1929);
Ward v. Delaney, No. 01 C 3074, 2002 WL 31133099, *1 (N.D. Ill. Sept. 20, 2002). A
defendant also may waive his venue objections by expressly consenting to be sued in a certain
district or by some other conduct that implies consent. SA Wright, A. Miller, C. & Cooper, E.,
Federal Practice and Procedure § 1352; Cont’l Bank, N.A. v. Meyer, 10 F.3d 1293, 1297 (7th
Cir. 1993); Trs. of Cent. Laborers’ Welfare Fund v. Lowery, 924 F.2d 731, 732 (7th Cir. 1991)
(the privileged defenses referred to in Rule 12(h)(1) “may be waived by formal submission in a
cause, or by submission through conduct.”) (internal citation and quotation omitted). Indeed,
“[a] party need not actually file an answer or motion before waiver is found.” Continental, 10
F.3d at 1297. Thus, a party that actively participates in litigation before filing an answer or
responsive motion nevertheless may be held to have waived its venue objections, especially if
significant periods of time have elapsed since the filing of the complaint. See, e.g., In re Fin.
Partners Class Action Litig., No. 82 C 6611, 1985 WL 2373, *2 (N.D. Ill. Aug. 23, 1985)
(holding that defendant who had “technically preserved” a 12(b) defense by filing no responsive
pleading nevertheless had waived the defense by engaging in discovery for over two years).

Routine motions for extensions of time to answer and participation in settlement negotiations,


claims in Bermuda and thus be deprived of their day in court if we enforce the forum selection
clause.
Finally, we turn to Plaintiffs’ arguments that the motion to dismiss should be denicd because:

(1) some of their claims, including fraud, RICO, conspiracy and negligent misrepresentation, lie
outside the scope of the Shareholder Agreement; (2) some of the parties, including the individual
Mutual Defendants and Cunningham-Lindsey, are not parties to the Shareholder Agreement; and (3)
some of Plaintiffs’ claims arise out of contracts that do not contain a forum selection clause. These
arguments are wholly without merit. The Shareholder Agreement, essentially incorporates by
reference the underlying insurance policies and the Reinsurance Treaty as a “uniquely negotiated
single contract.” Thus the fact that other relevant documents do not also contain a forum selection
clause does not undermine the clause’s validity in this action. Nor do Plaintiffs’ claims asserting
RICO violations and fraud defeat enforceability of the forum selection clause. The Agreement
expressly states that the forum selection clause applies to “any dispute concerning” that Agreement
“[A]ll disputes the resolution of which arguably depend upon the construction of an agreement ‘arise
out of that agreement” for purposes of a forum selection clause. Omron Healthcare, Inc. v.
Maclaren Exps., Ltd., 28 F.3d 600, 603 (7th Cir. 1994). The alleged fraud, negligent
misrepresentations or RICO violations occurred because the Agreement and the Program were in
place. The Shareholder Agreement is the document that links the various contracts together as well

as the defendants to the plaintiffs; thus it is the controlling document and its forum selection clause

> Plaintiffs also argue that they may be unable to obtain necessary documentary and
testimonial evidence in Bermuda. But the mere loss of live testimony by non-party witnesses
ordinarily does not constitute such serious inconvenience so as to warrant setting aside a freely
negotiated forum selection clause. Quist, 1999 WL 982953, at *3,

9


Bankruptcy in Bermuda that will, if given effect here, halt all pending causes of action and funnel
them into mandatory arbitration in Bermuda. That being said, however, Plaintiffs clearly were
willing participants in this tactic to the extent it served their desire for quick, informal discovery.
Despite this long delay and their lack of candor with this Court, the Mutual Defendants did not
participate in this litigation outside the settlement context, and thus we conclude under relevant
case authority that they failed to timely raise their venue objections. Accordingly we hold that
the Mutual Defendants did not waive their venue objections by failing to raise them in the ten
months prior to their pending motion to dismiss.

Having determined that the Mutual Defendants have not waived any objections to venue,
we turn to the validity of the forum selection clause. It is well-settled that contractual forum
selection clauses are prima facie valid. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10
(1972). Forum selection clauses in international contracts are accorded special deference due to
the “concerns of international comity, respect for the capacities of foreign and transnational
tribunals, and sensitivity to the need of the international commercial system for predictability in
the resolution of disputes.” Mitsubishi Motors Corp. v. Sober Chrysler-Plymouth, Inc., 473 US.
614, 629 (1985). Thus, such clauses are enforced unless the provision is unreasonable. Paper
Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th Cir. 1992). A forum
selection clause is unreasonable if: (1) it is procured by fraud or overreaching; (2) it would result
in a forum so gravely difficult or inconvenient that the plaintiff effectively will be denied his day
in court; or (3) its enforcement would contravene a strong public policy of the forum in which the
suit was brought, as defined by statute or judicial decision. See AAR Int ‘L, Inc. v. Nimelias Ents.

S.A., 250 F.3d 510, 525 (7th Cir), cert. denied, 534 U.S. 955 (2001).



however, do not constitute active participation in litigation for purposes of venue objections. See
2215 Fifth St. Assoes. v. U Haul Int'l, Inc., 148 F. Supp. 2d 50, 56 (D.D.C. 2001) (holding that
defendant did not waive objection to improper venue based on the forum selection clause by
cooperating in settlement negotiations for six months because “the period was not so great and
the prejudice incurred by plaintiffs was not so detrimental”); D’Amico v. Treat, 379 F. Supp.
1004, 1007-08 (N.D. III. 1974) (venue objection was not waived by filing an appearance and
motion for enlargement of time to answer or otherwise plead).

This case was filed over ten months ago. In the intervening period, both parties
represented to this Court that extensive settlement negotiations were ongoing and that settlement
was contingent, in part, on an exhaustive audit of the claims under the Program. The parties filed
numerous agreed motions to extend the time for Defendants’ answers while the audit progressed.
The Mutual Defendants willingly participated in the settlement discussions, informal discovery,
and in filing joint status reports with this Court.’ It is now evident that the Mutual Defendants’
motivations for participating in these exercises were fueled, at least in part, by a tactical

maneuver to postpone litigation in the United States while they prepared an extensive Scheme of

' The parties’ initial joint status report, which was filed in August 2002, did not
specifically identify venue as a defense. Instead, the defendants generally reserved “their
respective rights to submit any appropriate motions . . . and to assert any and all appropriate
defenses and counterclaims.” (R. 13, Initial Joint Status Report at 3.) Notably, the defendants
raised as a “major legal issue” whether Bermuda law should be applied in this action, but did not
assert at that time that the action must be dismissed for improper venue in light of the forum
selection clause. (/d. at 5.) In the parties’ January 2003 joint status report, however, Defendants
finally flagged the issue of whether “the forum selection clause in the Shareholder Agreement
mandates dismissal of the claims against some or all of the Mutual Defendants.” (R. 21, Joint
Status Report at 5.) Although the initial joint status report could be deemed the defendants’
“earliest opportunity” to voice venue objections, we have uncovered no cases holding that
representations or omissions in joint status reports constitute waiver of privileged defenses such
as venue, and thus decline to so hold today



to exhibits attached to Plaintiffs’ response, the Scheme has yet to be approved by the Bermuda
courts. (R. 28, Pls.’ Resp., Ex. U, Section 304 Pet. at 14.) In addition, a condition precedent to
the Scheme becoming effective in Bermuda is the issuance of an order by the New York
Bankruptcy Court that gives full force and effect to the Scheme in the United States. (/d.) Many
potential creditors, including Plaintiffs and other nationwide litigants, have voiced vehement
opposition to approval of the Scheme in the New York bankruptcy proceeding. (/d., Ex. V, Pls.’
Opp. to Mutual’s § 304 Pet.) Given these objections and the Scheme’s apparent divergence
from the protections and practices inherent under American bankruptcy law, it is entirely possible
that Mutual’s § 304 Petition will be denied, or at least modified, by the New York bankruptcy
court.’ In addition, there is no evidence that Plaintiffs presently are unable to file an action in the
Bermuda courts protesting the terms of the Scheme. We are unconvinced that Plaintiffs have no

recourse against the Scheme in its present form such that they will be unable to litigate their

> Given Mutua!’s insolvency some form of bankruptcy appears inevitable. Thus,
Plaintiffs’ claims and recovery will be subject to the terms of that arrangement, whatever it may
be, including potential stays on litigation and curtailed damages recovery. A forum selection
clause is not unreasonable simply because the party opposing it will not have the “same judicial
process in the imposed forum that it would have in its chosen forum.” Karlberg European
Tanspa, Inc. v. JK-Josef Kratz Vertriebsgesellschaft, MBH, 618 F. Supp. 344, 348 (ND, Ill.
1985). We uphold forum selection clauses in international transactions subject to laws and
remedies different or less favorable than those of the United States. See Bonny v. Soc’y of
Lloyd's, 3 F3d 156, 162 (7th Cir. 1993). Similarly, we will not reach the attenuated conclusion
that Plaintiffs have been denied their day in court simply because they may be subject to a set of
terms in a foreign bankruptcy proceeding that are less favorable than those in a domestic
bankruptcy, especially if those terms have passed muster via ancillary proceedings in our own
bankruptcy courts. We trust that our bankruptcy courts will not sanction a Scheme that is so
anathema to fundamental principles of due process and fairness, as Plaintiffs contend, and thus
we need not pass judgment on the fairness of the Bermuda Scheme in this action by invalidating
the forum selection clause on those grounds.


ier Form (06497),
aaa

* : United States District Court, Northern District of Illinois
Name of Assigned nae | Ruben Castillo Si judge if Other
or Magistrate Judge . than Assigned Judge
CASE NUMBER 02 C 2728 DATE | 2/27/2003
CASE American Patriot Insurance Agency, Inc., et al. vs. Mutual Risk Management, Ltd., et al.
TITLE

[In the following box (a) i lant, 3rd party plaintifY, and (b) state briefly the nature

of the motion bein,

Jicate the parly Filing the motion, ¢.g,, plaintiff,
ated.)

MOTION:

DOCKET ENTRY:

(1) a) Fited motion of [ use listing in “Motion” box above.]

Q) a Brief in support of motion due _

(3) ia Answer brief to motion due____. Reply to answer brief due

(4) im Ruling/Hearingon set for at

(5) oO Status hearing[held/continued to] [set for/re-set for] on set for __

(6) i] Pretrial conference[held/continued to] [set for/re-set for] on __, Set for oat

mea) Oo ‘Trial[sct for/re-set for] on _ at.
(8) im [Bench/Jury trial] [Hearing] held/continued tot
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
CUFRCPa(m) = ClLocal Rule 41.1 COFRCP41(ay(l) OO ERCPAI(a)(2).

(10) i [Other docket entry] Enter Memorandum Opinion and Order. Mutual defendants’ motion to
dismiss for improper venue pursuant to Fed.R.Civ.P, 12(b)(3) [23-1 ] is granted. Defendant, Cunningham-
Lindsey, Inc. is also dismissed for the reasons stated in the opinion. Judgment is entered in favor of the
defendants and against the plaintiff. This case is hereby dismissed with prejudice.

dl) @f {Por further detail see order attached to the original minute order.]

No notices required, advised in open court Document
Number

No notices required

umber of notices

Notices mailed by judge's stat FEB 9 953

Notified counsel by telephone.

v Docketing to mail notices.

JS | Mail AO 450 form.

Copy to judge/magistrate judge unos sontsio “snl dtocketing dey init
ro cps gga We Le 83380 a

initials -
oteesaa voce



binds the parties. See Friedman v. World Transp., Inc., 636 F. Supp. 685, 691 (N.D. Ill. 1986).
Similarly, we also reject Plaintiffs’ argument that enforcement of the forum selection clause is
precluded by the fact that certain Defendants are not parties to the Agreement. Plaintiffs cannot
escape their contractual obligations simply by joining parties who did not sign the contract and then
claiming that the forum selection clause does not apply. See Hugel v. Corp. of Lloyd's, 999 F.2d
206, 209-10 (7th Cir. 1993); Friedman, 636 F. Supp. at 691. Parties that are “closely related” to the
dispute also may be bound to a forum selection clause. Hugel, 999 F.2d at 209. Certain of the
Mutual Defendants clearly are third-party beneficiaries of the Agreement, which is a sufficient, if not
necessary, status to satisfy the “closely related” standard. /d. at 210. The remaining Defendants,
including the individuals and Cunningham-Lindsey, and their claims are so integrally related to the
Shareholder Agreement and the Program that they are bound to the forum selection clause. Bonny, 3
F.3d at 162. For these reasons, although Cunningham-Lindsey is not a Mutual Defendant and has
not moved for dismissal, we are not precluded from dismissing it from the action as well.
CONCLUSION

For the foregoing reasons we grant the Mutual Defendants’ motion to dismiss for lack of
venue. (R. 23-1.) We also dismiss the nonmoving Defendant, Cunningham Lindsey, for the reasons
stated in this opinion. The Clerk of the Court is instructed to enter judgment, pursuant to Federal

Rule of Civil Procedure 58, in favor of Defendants.

ENTERED;
Judge Ruben Castillo
United States District Court

Dated: February 27, 2003

10


Here, the Shareholder Agreement’s forum selection clause clearly provides that the
contract “shall be exclusively governed by and construed in accordance with the laws of
Bermuda and any dispute concerning this agreement shall be resolved exclusively by the courts
of Bermuda.” Therefore, we will enforce the clause unless Plaintiffs prove that it is obviously
unreasonable. Paper Express, 972 F.2d at 757.

Plaintiffs do not claim that the forum selection clause was the result of fraud,
overreaching or unequal bargaining power. Nor do they claim that an Illinois or federal public
policy as declared by a statute or judicial decision would be contravened by enforcing the forum
selection clause. Plaintiffs’ primary argument is that they will be denied due process and thus
their day in court if they are forced to litigate this matter in Bermuda. In essence, Plaintiffs
contend that they will not be afforded a right to be heard because their causes of action will be
subsumed within Mutual’s Bankruptcy Scheme in Bermuda, which if enforced according to its
terms, requires mandatory, fast-track arbitration of Plaintiffs’ claims by an arbitrator chosen by
the Mutual Defendants. Additionally, Plaintiffs assert that the present Bankruptcy Scheme
assigns almost no value to Plaintiffs’ claims and requires a release of future claims and the right
to appeal. As a result, Plaintiffs argue, the Scheme is contrary to American bankruptcy law as
well as our principles of due process.

Although these arguments have superficial appeal, Plaintiffs fail to satisfy “the heavy
burden of proof required to set aside the [forum selection] clause on grounds of inconvenience.”
Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991) (internal quotation omitted);
Quist y. Empire Funding Corp., No. 98 C 8402, 1999 WL 982953, *3 (N.D. Ill. Oct. 22, 1999),

As an initial matter, it is not certain that the Scheme will proceed in its present form. According


became concerned with their maximum potential liability under the letters of credit. Plaintiffs
investigated these losses and discovered what they believed to be a fraudulent, or at the minimum
negligent, scheme involving Cunningham-Lindsey, Legion and certain of the Mutual Defendants.

Accordingly, in April 2001, Plaintiffs filed the instant complaint, alleging fraud,
misrepresentation, conspiracy, breach of contract, RICO violations and negligence arising out of
the Program. The parties engaged in settlement discussions throughout the remainder of 2002
In December 2002 some of the Mutual Defendants, who were defending several lawsuits
nationwide, prepared and filed a Scheme of Bankruptcy in Bermuda, the terms of which require a
stay of pending litigation and fast-track, mandatory arbitration of those claims by a Mutual-
selected arbitrator in Bermuda. On January 21, 2003, certain Mutual Defendants filed an
ancillary proceeding under § 304 of the Bankruptcy Code in the Southern District of New York
seeking to enforce in the United States the terms of the Bermuda bankruptcy. Finally, the Mutual
Defendants filed the present motion to dismiss on January 24, 2003.

LEGAL STANDARDS

A motion to dismiss for improper venue based on a forum selection clause is properly
brought under Rule 12(b)(3). Weidner Communications, Inc. v. H.R.H. Prince Bandar Al Faisal,
859 F.2d 1302, 1306 (7th Cir. 1988); Chapman v. Norwegian Cruise Line Ltd., No. 01 C 50004,
2001 WL 910102, *1 (N.D. Ill. July 6, 2001). The plaintiff bears the burden of establishing that
the venue he has chosen is proper and that the forum-selection clause is unenforceable.
Chapman, 2001 WL 910102, at *1. We must resolve any factual disputes in favor of the plaintiff
and draw any reasonable inferences from those facts in the plaintiffs favor. Moore v. AT&T

Latin Am. Corp., No. 01 € 3013, 2001 WL 1002469, at *2 (N.D. Ill. Aug. 29, 2001).


RELEVANT FACTS

In 1997 American Patriot Insurance Agency, Inc. (“APIA”) entered into an agreement
with certain of the Mutual Defendants to establish a commercial insurance program for APIA’s
roofing contractor clients (the “Program”). To effectuate the Program, Plaintiffs and Mutual
Holdings, the parent company of Mutual Indemnity (Bermuda) Ltd., entered into a Shareholder
Agreement, which, among other things, required Mutual Indemnity to reinsure APIA’s liability
on its roofing policies. APIA, in turn, was required to indemnify Mutual Indemnity and to
provide irrevocable Letters of Credit to Mutual Indemnity as collateral. The Shareholder
Agreement was one of several agreements executed between the parties, but these agreements
“constitute[d] a single insurance program . . . which is a uniquely negotiated single contract.”
(R. 24, Defs.” Mem., Ex. 1, Shareholder Agreement.) The Shareholder Agreement contains a
forum selection clause which states in pertinent part that the contract “shall be exclusively
governed by and construed in accordance with the laws of Bermuda and any dispute concerning
this agreement shall be resolved exclusively by the courts of Bermuda.” (/d.)

Pursuant to the Program, Legion, an insurance company not a party to the present action,
underwrote the Program and issued various insurance policies to the roofing contractors. Legion
contracted with Cunningham-Lindsey, or one of its related entities, to service claims arising
under the policies. Legion and Mutual Indemnity retained portions of the premiums in loss
funds. Under the Agreements, if the losses and expenses in any Program year exceeded the loss
funds, APIA assumed responsibility for paying on Mutual Indemnity’s behalf those excess
amounts. APIA’s irrevocable letters of credit served as collateral underlying these obligations.

In 1999 the claims and losses under the Program were greater than expected, and Plaintiffs


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

AMERICAN PATRIOT INSURANCE
AGENCY, INC.,, an Illinois corporation,
DIANE M. HENDRICKS and KENNETH
A. HENDRICKS, No. 02 C 2728

Plaintiffs, Judge Ruben Castillo

Vv.

MUTUAL RISK MANAGEMENT, LTD.,

a Bermuda corporation, MUTUAL
INDEMNITY (BERMUDA), LTD., a Bermuda
corporation, COMMONWEALTH RISK
SERVICES, L.P., CUNNINGHAM-LINDSEY,
INC., a Texas corporation, GLENN
PARTRIDGE, an individual, DAVID
ALEXANDER, an individual, and RICHARD
TURNER, an individual,

» @ 2003

wee SS HS SH Se SH SH SH Se Se SS Serer er

Defendants.

MEMORANDUM OPINION AND ORDER

Plaintiffs filed a nine-count complaint against Defendants for fraud, misrepresentation,
conspiracy, breach of contract, equitable relief, RICO violations and negligence arising out of a
failed commercial insurance program. Mutual Risk Management, Ltd., Mutual Indemnity
(Bermuda), Ltd., Commonwealth Risk Services, L.P., David Alexander, Glenn Partridge and
Richard Turner (the “Mutual Defendants”) move to dismiss the claims against them for improper
venue on the ground that a forum selection clause in a contract with Plaintiffs requires any
litigation to be brought in Bermuda. Because we agree that the forum selection clause controls in

this case, we grant the Mutual Defendants’ motion to dismiss. (R. 23-1.)