Opinion ID: 5288684
Heading Depth: 1
Heading Rank: 4

Heading: Distinguishing Bremen and Bonny

Text: To avoid this result, defendants also argue that they seek only routine enforcement of a routine forum-selection clause in a contract, citing M/S Bremen v. Zapata Oﬀ-Shore Co., 407 U.S. 1 (1972), and Bonny v. Society of Lloyd’s, 3 F.3d 156 (7th Cir. 1993). The district court looked carefully at both cases and ultimately concluded that Bonny supported dismissal based on Boeing’s forum bylaw. We explained above why we conclude that Boeing’s forum bylaw, as applied to this case, simply is not enforceable under Delaware law. It may be useful, however, to explain why we also do not ﬁnd Bremen or Bonny a suﬃcient basis for enforcing the forum bylaw here. We begin with Bremen. Zapata, a company based in Texas, contracted with plaintiﬀ Unterweser, a German corporation, to tow Zapata’s drilling rig (the Bremen) from Louisiana to Italy. M/S Bremen, 407 U.S. at 2. The towing contract provided that any dispute arising from the contract must be brought before the London Court of Justice. The rig was damaged in a storm in international waters in the Gulf of Mexico. Zapata No. 20-2244 17 directed Unterweser to tow the damaged rig to Tampa, Florida, the nearest port of refuge. A week later, Zapata—ignoring the terms of the contract—ﬁled suit in federal court in Tampa for negligent towing and breach of contract. Unterweser invoked the forum-selection provision and moved to dismiss for forum non conveniens. The district court denied Unterweser’s motion and concluded that Zapata’s choice of forum should not be disturbed. The Fifth Circuit aﬃrmed. The Supreme Court reversed, teaching that such forumselection provisions in contracts are “prima facie valid and should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under the circumstances.” 407 U.S. at 10. The Court explained that there were “compelling reasons why a freely negotiated private international agreement, unaﬀected by fraud, undue inﬂuence, or overweening bargaining power” should be fully enforced. Id. at 12. In the Bremen opinion itself, the Court emphasized the international character of the transaction, where choice-offorum and choice-of-law agreements may be especially helpful in case of disputes. Later cases show, however, that Bremen stands for the broader proposition that contractually valid choice-of-forum clauses will ordinarily be enforced. See, e.g., Atlantic Marine Constr. Co. v. U.S. District Court, 571 U.S. 49, 62−64 (2013); Mueller, 880 F.3d at 894, quoting Atlantic Marine, 571 U.S. at 64 (“forum-selection clauses should control except in unusual cases”). Bremen diﬀers from this case most importantly in that it involved a purely private contractual dispute. It did not involve any claim under a federal statute, let alone a federal statute with a non-waiver provision like Section 29(a) of the Exchange Act. While the Supreme Court has generally been 18 No. 20-2244 receptive to enforcing contractually valid forum-selection clauses, neither Bremen nor other decisions have endorsed such clauses as paths to avoid otherwise applicable federal statutes. Instead, the Court has warned against such uses. In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Corp., 473 U.S. 614 (1985), Chrysler asserted claims against Mitsubishi, including an antitrust claim under United States law. The parties’ contract required arbitration of disputes in Japan. The Supreme Court enforced the clause and ordered the parties to resolve their disputes in arbitration rather than in a court. The Court did so, however, only after being assured that the arbitration panel would apply United States antitrust law, and only after issuing a pointed warning against using an arbitration clause to avoid an otherwise-applicable federal statute, even one without an anti-waiver provision like the 1934 Exchange Act’s Section 29(a). Id. at 636–38, 637 n.19. The agreement between Mitsubishi and Chrysler also said it would be governed by Swiss law. Id. at 637 n.19. In an amicus brief, the United States had raised the possibility that the arbitral panel might read this choice-of-law provision as governing not only the terms of the contract but also as displacing United States law, including the Sherman Act, where it would otherwise apply. Mitsubishi had told the Court in oral argument that it was not trying to avoid application of the Sherman Act by that device. Despite that assurance, the Court still went out of its way to warn against that possibility: “in the event the choice-of-forum and choiceof-law clauses operated in tandem as a prospective waiver of a party’s right to pursue statutory remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy.” Id. (citations omitted). No. 20-2244 19 That considered warning carries even more force in this case under the Exchange Act of 1934, with its anti-waiver provision. In short, neither Bremen nor the more general policy in favor of enforcing contractual forum-selection clauses supports application of Boeing’s forum bylaw to foreclose entirely plaintiﬀ’s derivative Section 14(a) claims. Turning to this court’s decision in Bonny v. Society of Lloyd’s, defendants emphasize that we enforced choice-of-law and forum-selection provisions that had the eﬀect of foreclosing plaintiﬀs’ claims under federal securities law. We did so after being satisﬁed that English law would provide suﬃcient protection and remedies. 3 F.3d at 161–62. Defendants contend the same reasoning should apply to remedies under state law in this case, and the district court agreed. We disagree because of a critical diﬀerence between Bonny and this case that limits its reasoning. The plaintiﬀs in Bonny were United States citizens who had invested in the English insurer, Lloyd’s of London. The investment agreements provided that any disputes arising out plaintiﬀs’ investments with Lloyd’s would be governed by English law and that the courts of England would have exclusive jurisdiction over such disputes. After sustaining heavy losses, plaintiﬀs sued Lloyd’s in the Northern District of Illinois alleging claims under Section 12 of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934. The district court dismissed the suit based on the forum-selection clause. Id. at 157. We aﬃrmed, reasoning that the choice-oflaw and forum-selection provisions did not violate United States public policy and were therefore enforceable despite plaintiﬀs’ reliance on the anti-waiver provisions of the 1933 and 1934 Acts. 20 No. 20-2244 The lack of a true conﬂict between English law and applicable United States law was central to our decision. 3 F.3d at 161–62. First, citing Bremen, we noted that choice-of-law and forum-selection provisions in agreements between domestic and foreign businesses are “valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances.” Id. at 159, quoting Bremen, 407 U.S. at 10. The plaintiﬀs in Bonny, much like the plaintiﬀs in Bremen, had failed to demonstrate that the provisions at issue were unreasonable. Bonny, 3 F.3d at 160. Further, echoing the Supreme Court’s language in Bremen, Mitsubishi Motors, and Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), we explained that the presumptive validity of such provisions offered valuable predictability in international business transactions. Bonny, 3 F.3d at 159–60, discussing Mitsubishi Motors, 473 U.S. at 629, and Scherk, 417 U.S. at 516. Even so, we harbored “serious concerns that Lloyd’s clauses operate[d] as a prospective waiver of statutory remedies for securities violations,” but in the end we were “satisﬁed that several remedies in England vindicate[d] plaintiﬀs’ substantive rights while not subverting” the principles of full and fair disclosure protected by the Securities Act of 1933. Bonny, 3 F.3d at 160–61. 3 The international nature of the transactions and the availability of adequate remedies under British law convinced us that the forum-selection and choice-of- 3In Bonny, the record showed that English law afforded plaintiffs a cause of action similar to their claims under Section 10(b) of the Exchange Act of 1934 and Rule 10b-5. 3 F.3d at 161. There were no English rights and remedies similar to those under Sections 12(1) and 12(2) of the Securities Act of 1933. Id. at 162. No. 20-2244 21 law provisions were enforceable despite the anti-waiver provisions in the 1933 and 1934 Acts. Id. at 162. 4 Defendants argue that we should extend the same analysis—focused on the suﬃciency of remedies under state law—to enforce Boeing’s forum bylaw here. That argument overlooks the decisive role that the international character of the dispute played in Bonny. The English remedies were deemed suﬃcient only in light of the international nature of the investment agreements: “Given the international nature of the transactions involved here, and the availability of remedies under British law that do not oﬀend the polices behind the securities laws, the parties’ forum selection and choice of law provisions contained in the agreements should be given eﬀect.” 3 F.3d at 162. There is no hint in Bonny that the same logic and result would apply to a domestic transaction’s forum-selection 4 Bonny is consistent with decisions in other circuits balancing these competing interests when parties to international investments agree on foreign forums and foreign law. For example, in Haynsworth v. The Corporation, 121 F.3d 956 (5th Cir. 1997), the Fifth Circuit reiterated that United States courts should “tread cautiously before expanding the operation of U.S. securities law in the international arena,” particularly “in the case of England, a forum that American courts repeatedly have recognized to be fair and impartial.” Id. at 966–67 (footnote omitted). For similar holdings, see Richards v. Lloyd’s of London, 135 F.3d 1289, 1294–96 (9th Cir. 1998) (en banc); Roby v. Corporation of Lloyd’s, 996 F.2d 1353, 1364–66 (2d Cir. 1993); Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 958 (10th Cir. 1992); AVC Nederland B.V. v. Atrium Inv. P’ship, 740 F.2d 148, 158–59 (2d Cir. 1984) (Section 29(a) did not prevent enforcement of choice of Dutch forum and law). These decisions all seem generally consistent with the Supreme Court’s later decision in Morrison v. National Australia Bank, 561 U.S. 247 (2010), which limited extraterritorial application of United States securities laws. 22 No. 20-2244 clause that had the eﬀect of waiving federal securities rights and remedies and leaving the investor to only state-law remedies. To the contrary, extending Bonny to domestic investments and state-law remedies would undermine the pivotal decisions by Congress in 1933 and 1934 to assume the dominant role in securities regulation after decades of ineﬀective state regulation. Both federal Acts contain anti-waiver provisions that prevent parties from opting out of the federal laws in favor of state law, no matter how similar or strong the statelaw rights and remedies are. See 15 U.S.C. §§ 77n & 78cc(a). As applied to plaintiﬀ’s Section 14(a) claims, Boeing’s forum bylaw does not implicate the unique needs of international trade or require us to parse the similarities and diﬀerences between foreign and domestic securities laws. The anti-waiver provision of Section 29(a) does not invite a determination of whether state law oﬀers alternative remedies that might be deemed suﬃcient against an inchoate standard. Non-waiver is woven into the public policy of the federal securities laws because it is the express statutory law. And that law is binding—especially where, as here, there are no countervailing international policy interests at stake. Accord, Luce v. Edelstein, 802 F.2d 49, 57 (2d Cir. 1986) (forumselection clause provided for only state-court jurisdiction; district court correctly dismissed most claims but retained jurisdiction over Exchange Act claims); KDH Consulting Grp. LLC v. Iterative Capital Mgmt. L.P., 2020 WL 7251172, at  (S.D.N.Y. June 29, 2020) (following Luce, retaining Exchange Act claims but dismissing other claims). Bonny required a choice between United States law and policy and foreign law and policy. Here, however, we see no comparable tension between federal law and policy and No. 20-2244 23 Delaware state law and policy. After all, under the Supremacy Clause of the United States Constitution, state courts enforce and apply both state and federal law. See Claﬂin v. Houseman, 93 U.S. 130, 136 (1876) (“The law of the United States are laws in the several States, and just as much binding on the citizens and courts thereof as the State laws are. The United States is not a foreign sovereignty as regards the several States, but is a concurrent, and, within its jurisdiction, paramount sovereignty.”), cited in Brandon v. Anesthesia & Pain Mgmt. Assocs., 277 F.3d 936, 942 (7th Cir. 2002) (Illinois courts would recognize claim for retaliatory discharge in violation of Illinois public policy where employer ﬁred employee for objecting to violations of federal anti-fraud law). The Delaware Court of Chancery’s opinion in Boilermakers Fund shows no relevant tension between Delaware corporation law and public policy and federal securities law and policy. Instead, as noted, the Court of Chancery said that the defendant corporations would run into trouble under the Exchange Act’s anti-waiver provision in Section 29 if they tried to apply their forum-selection provisions to foreclose entirely claims under the Exchange Act. 73 A.3d at 962. 5 Finally, our dissenting colleague proposes an entirely different solution for the puzzle at this intersection of state 5 For all of these reasons, we respectfully disagree with relevant portions of several district court decisions that have extended the reasoning of Bonny beyond its international foundations to enforce forumselection clauses that had the effect of foreclosing claims under otherwiseapplicable federal securities laws and leaving plaintiffs to only state-law remedies. See Spenta Enterprises, Ltd. v. Coleman, 574 F. Supp. 2d 851, 857 (N.D. Ill. 2008), followed in Solid Q Holding, LLC v. Arenal Energy Corp., 2017 WL 935891, at  n.17 (D. Utah Mar. 8, 2017), and Vernon v. Stabach, 2014 WL 1806861, at  (S.D. Fla. May 7, 2014). 24 No. 20-2244 corporation law, federal securities law, and federal jurisdiction and venue rules. The dissent’s proposed solution would be to allow a Delaware state court to hear a derivative action under Section 14(a), despite the Exchange Act’s provision for exclusive federal jurisdiction in Section 29(a). As a matter of policy, that solution might well be a reasonable outcome, at least under a diﬀerent set of federal statutes and precedents. That solution, however, is not consistent with our reading of either Delaware law, the Exchange Act’s exclusive federal jurisdiction, Borak’s recognition of derivative claims under Section 14(a), or the Supreme Court’s caution in the Mitsubishi case, 473 U.S. at 637 n.19, against using choice-of-forum and choice-of-law clauses to attempt prospective waivers of federal statutory remedies. Notably, defendants have not advocated for the dissent’s novel proposal to send this dispute to state court in Delaware. The defendants have instead argued all along for their preferred Catch-22 result that would bar plaintiﬀ’s derivative Section 14(a) claim in any forum. Also, the dissent does not cite any precedent adopting its solution for this case. In our view, a state court would have to be bold indeed to adopt that solution and to exercise jurisdiction over this derivative claim despite Section 29(a), the lack of support from either side in this lawsuit, and the Supreme Court’s warning in footnote 19 of the Mitsubishi case. See also Cottrell v. Duke, 737 F.3d 1238, 1247−48 (8th Cir. 2013) (reversing Colorado River abstention over shareholder derivative action under Section 14(a) because Delaware state court could not exercise jurisdiction over that claim in parallel derivative action). It may or may not be true, as the dissent suggests, that Delaware could abolish or further restrict derivative claims based No. 20-2244 25 on federal laws in ways consistent with the dissent’s views. We decline to speculate on the point because Delaware has not yet done so or signaled its intention to do so. Unless and until it does, the better course is to hold that Boeing’s forum bylaw cannot be applied to this derivative action asserting a claim that is subject to exclusive federal jurisdiction. The judgment of the district court is REVERSED and the case is REMANDED to the district court for further proceedings consistent with this opinion. 26 No. 20-2244