Opinion ID: 439220
Heading Depth: 2
Heading Rank: 2

Heading: The forum-selection/choice-of-law clause

Text: 23 Assuming therefore that the district court could otherwise have exercised jurisdiction, as it seems to have thought, we reach the question whether it was justified in declining to do so because of the agreement that [a]ll and any disputes, differences or questions arising from the present Agreement shall be decided and determined by the competent court at Utrecht, and that [t]he laws of the Netherlands shall apply to and govern this agreement. 24 We begin our discussion by saying that if appellant had argued that the forum-selection clause did not apply to a claim that the Agreement was induced by fraud, 11 we might have entertained some doubt on this score. The clause was indeed more than a jurisdiction-conferring clause which, although providing a plaintiff with a guaranteed forum, does not deprive him of the right to sue in another having personal jurisdiction over the defendant. See Gruson, Forum-Selection Clauses in International and Interstate Commercial Agreements, 1982 U.Ill.L.Rev. 133, 134-35 & n. 3 (collecting cases). What is not so clear, at least from the English translation, is that the clause included a claim that the Agreement had been induced by fraud as distinguished from a claim relating to the time or manner of performance. In the related area of contracts to arbitrate, courts have drawn some rather nice distinctions. The leading case of Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2 Cir.1959) (Medina, J.), cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, dismissed pursuant to stipulation, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960), held that a clause referring to arbitration [a]ny complaint, controversy, or question which may arise with respect to this contract that cannot be settled by the parties thereto was sufficiently broad, as a matter of federal although perhaps not of New York law, to include a claim of fraud in the inducement. However, Judge Medina wrote only two years later in In re Kinoshita & Co., 287 F.2d 951 (2 Cir.1961), that a clause in a charter referring to arbitration any dispute or difference [that] should arise under this Charter did not include a claim of fraud in the inducement, although the standard clause recommended by the American Arbitration Association (Any controversy or claim arising out of or relating to the contract, or the breach thereof) would have done the job, accord, Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (AAA clause); cf. S.A. Mineracao v. Utah International Inc., 576 F.Supp. 566, 570-73 (S.D.N.Y.1983), (2 Cir. aff'd, 745 F.2d 190 1984) (aris[ing] or occur[ing] under included claim of fraud in the inducement). 12 Whether choice of law here is a matter we are free to determine, as we believe it to be, see 1A Moore's Federal Practice p 0.325 at 3412 (1983); D'Oench, Duhme & Co. v. Federal Deposit Insurance Corp., 315 U.S. 447, 465, 62 S.Ct. 676, 682, 86 L.Ed. 956 (1942) (concurring opinion of Justice Jackson), or is to be determined by the choice-of-law rules of New York, the interpretation of a forum-selection and choice-of-law clause in a contract executed in the Netherlands among Dutch nationals and a Georgia partnership composed of Dutchmen will require the application of Dutch law to words in the Dutch language--[a]lle geschillen die uit deze overeenkomst mochten voortvloeien and [o]p deze overeenkomst is Nederlands recht van toepassing. The notary who drew the Agreement submitted an affidavit that the provision selecting the court at Utrecht as the forum for any litigation between the parties (unless the Partnership selects another forum) constitutes an exclusive vesting of jurisdiction of all disputes relating to or arising from the Agreement--language sufficiently broad to include a claim of fraud. AVC offered no legal opinion to the contrary. We thus hold the clause to be applicable by its terms. 25 Analysis of the validity of the forum-selection choice-of-law clause must begin with The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). That case concerned a contract between Zapata, an American corporation based in Texas, and a German corporation, Unterweser, for Unterweser to tow a Zapata oil rig from Louisiana to a point in the Adriatic Sea off Ravenna, Italy. The contract provided that [a]ny dispute arising must be treated before the London Court of Justice; there was no express choice-of-law clause. The rig was damaged while in the Gulf of Mexico, and Zapata instituted suit in a district court in Florida. The Fifth Circuit, sitting in banc, affirmed, by a divided vote, the district court's denial of a motion by Unterweser to dismiss. The Supreme Court reversed. Repudiating earlier decisions adverse to forum-selection clauses, the Court upheld the view expressed in Judge Wisdom's dissent in the court of appeals that such clauses 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, 92 S.Ct. at 1913 (footnote omitted). The correct approach, the Chief Justice wrote, would have been to enforce the forum clause specifically unless Zapata could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching. 407 U.S. at 15, 92 S.Ct. at 1916. He added that [a] contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision. Id. 26 It is too plain to require extended discussion that The Bremen would require enforcement of the clause here in question if the action were not brought under the Securities Exchange Act. To be sure, the Agreement was not an international commercial agreement, 407 U.S. at 16, 92 S.Ct. at 1916, in the sense that the Zapata-Unterweser contract was, and there was not the same possibility of the application of the laws of many different jurisdictions. 407 U.S. at 13, 92 S.Ct. at 1915. But other differences argue even more strongly for enforcement. Whereas the Zapata-Unterweser agreement provided an English forum for the determination of a controversy between an American company and a German company concerning a contract prepared in Germany, modified in Texas, and ultimately accepted in Germany, 407 U.S. at 2-3, 92 S.Ct. at 1909, we have here a dispute among three Dutch businessmen arising out of negotiations initiated and concluded in their own country, which they have agreed should be resolved by their own courts and by their own law. There can be nothing unreasonable and unjust in enforcing such an agreement; what would be unreasonable and unjust would be to allow one of the three to disregard it. 13 27 AVC's case therefore rests on the provision in Sec. 29(a) of the Securities Exchange Act that 28 [a]ny condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void. 29 Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), held that an agreement for arbitration contained in a standard form margin contract between a customer and a large brokerage firm violated a similarly worded provision in Sec. 14 of the Securities Act of 1933. It has been argued that Wilko should be restricted to the facts there presented--a contract of adhesion where the purchaser had little or no bargaining power, see, e.g., Scherk, supra, 417 U.S. at 512 n. 6, 94 S.Ct. at 2453 n. 6 14 --and that a distinction, viable in the instant context, can be drawn between Sec. 14 of the Securities Act of 1933 and Sec. 29(a) of the Securities Exchange Act of 1934, see id. at 513-14, 94 S.Ct. at 2454. However, we conclude, as did the Supreme Court in Scherk, that affirmance is here required without need to consider either of these arguments. 30 Scherk upheld, over a claim based on Sec. 29(a) of the Securities Exchange Act, an arbitration clause 15 in an agreement whereby Alberto-Culver, a Delaware corporation with headquarters in Illinois, whose stock was traded on the New York Stock Exchange, purchased three enterprises, organized under the laws of Germany and Liechtenstein, owned by Scherk, a German citizen residing in Switzerland. Payment was to be made in cash and promissory notes; the court of appeals regarded the latter as securities, 484 F.2d 611, 615 (7 Cir.1973), and this conclusion was not questioned by the Supreme Court. On finding that trademarks which were among the assets of the Scherk enterprises were encumbered and that their purchase was induced through serious instances of fraudulent representations and omissions by Scherk and his agents within the jurisdiction of the United States, 417 U.S. at 522, 94 S.Ct. at 2458 (dissenting opinion), Alberto-Culver claimed rescission and, when Scherk refused this, began suit in a district court in Illinois. The district court denied a motion by Scherk to dismiss and the court of appeals affirmed on the basis of what it considered the controlling force of Wilko, with Judge Stevens dissenting. 31 Proceeding on the assumption that Alberto-Culver's fraud claim was within the Securities Exchange Act, see 417 U.S. at 516 n. 9, 94 S.Ct. at 2455 n. 9, the Supreme Court reversed the court of appeals' refusal to enforce the arbitration clause. It held that the foreign aspects of the transaction implicated considerations and policies significantly different from those found controlling in Wilko. Id. at 515, 94 S.Ct. at 2455. In that case there was no question but that the laws of the United States generally, and the federal securities laws in particular, would govern disputes arising out of the stock-purchase agreements, id., whereas in Scherk, by contrast, in the absence of the arbitration provision considerable uncertainty existed at the time of the agreement, and still exists, concerning the law applicable to the resolution of disputes arising out of the contract. Id. at 516, 94 S.Ct. at 2455. This is likewise true here; it is highly unlikely that, even apart from the challenged clause, a court in the Netherlands would apply the Securities Exchange Act. The Court pointed out that if Scherk had anticipated Alberto-Culver's bringing suit in the United States, he might have sought an order in France or some other country enjoining Alberto-Culver from proceeding with its litigation in the United States. Id. at 517, 94 S.Ct. at 2456. This also is true here. We assume that Atrium could have included in its complaint in the Netherlands a request that AVC be enjoined from suing in the United States, and there seems to be every reason to suppose, given the forum-selection clause, that such a request would have been honored, whatever effect the courts of this country might ultimately have granted to it. After saying that [t]he exception to the clear provisions of the Arbitration Act carved out by Wilko is simply inapposite to a case such as the one before us, id., the Court turned to The Bremen and indicated that the rule it was announcing with respect to arbitration should also apply to a forum-selection clause, since [a]n agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause that posits not only the situs of the suit but also the procedure to be used in resolving the dispute. Id. at 518-19, 94 S.Ct. at 2456-57 (footnote omitted). 16 32 The considerations in favor of excepting the forum-selection/choice-of-law clause here at issue from Sec. 29(a) of the Securities Exchange Act are quite as strong as were those for excepting the arbitration clause in Scherk. In some respects they are stronger. All the individuals concerned are citizens and residents of the Netherlands, the selected forum, whereas in Scherk the plaintiff was American, the defendant was German or Swiss, and the arbitration was to take place in France. Most important, the alleged victim here was Dutch whereas in Scherk it was a publicly held American company; indeed, the true victims were the thousands of investors who are the security holders in Alberto-Culver, 417 U.S. at 526, 94 S.Ct. at 2460 (dissenting opinion), who were surely a subject of greater concern to the United States than a Dutch businessman dealing with his own countrymen. Here there were alleged misrepresentations in the United States--but so there were in Scherk, see 484 F.2d at 613; 417 U.S. at 522, 94 S.Ct. at 2458 (dissenting opinion). 17 The only remaining distinction is that here the fraud arose in connection with plaintiff's acquisition of American real estate, represented by an interest in a partnership of Dutch citizens formed in accordance with the laws of Georgia. We fail to see how the interest of the United States in preventing foreigners from perpetrating a fraud on a compatriot in such a transaction is greater than in preventing a foreigner from perpetrating a fraud on thousands of innocent American stockholders as in Scherk. Justice Douglas urged, in his dissent in Scherk, 417 U.S. at 530-31, 94 S.Ct. at 2462-63 that, 33 [w]hen a foreign corporation undertakes fraudulent action which subjects it to the jurisdiction of our federal securities laws, nothing justifies the conclusion that only a diluted version of those laws protects American investors. 34 But the majority held that, on the facts of that case, and despite Sec. 29(a) of the Exchange Act, dilution to the extent of holding American investors to an arbitration clause was required. Such considerations apply a fortiori to a foreign investor, particularly when the asserted injury has been inflicted by his fellow countrymen and the agreement calls for litigation in their own country. While the United States may have an interest in encouraging foreign investment in American real estate which is furthered by extending the protections of the securities laws to securities issued in such transactions, Scherk implies that this interest does not require that foreign investors be allowed to escape from a forum-selection/choice-of-law clause in an agreement executed in their own country with their fellow nationals. That is all we need decide here. 35 We could now end this opinion if we did not deem it necessary to mention a decision of our own that has not been cited to us, Indussa Corporation v. S.S. Ranborg, 377 F.2d 200 (2 Cir.1967) (en banc). This was a libel in rem brought by a consignee on a $2600 damage claim against a Norwegian ship that had been found in the Southern District of New York. The shipment, from Antwerp to San Francisco, had been under a bill of lading which contained provisions that if the shipment was subject to the Carriage of Goods by Sea Act (COGSA), 46 U.S.C. Sec. 1300 et seq., as it was, the provisions of that act should govern, but also that 36 [a]ny dispute arising under this Bill of Lading shall be decided in the country where the Carrier has his principal place of business, and the law of such country shall apply except as provided elsewhere herein. 37 However, Sec. 3(8) of COGSA, 46 U.S.C. Sec. 1303(8), forbade 38 [a]ny clause, covenant, or agreement in a contract of carriage ... lessening [the carrier's liability for negligence, fault, or dereliction of statutory duties] otherwise than as provided in this Act. 39 Overruling William H. Muller & Co. v. Swedish American Line, Ltd., 224 F.2d 806 (2 Cir.), cert. denied, 350 U.S. 903, 76 S.Ct. 182, 100 L.Ed. 793 (1955), we held the quoted clause was void. Placing stress on COGSA's use of the word lessening, we pointed out that, 40 [f]rom a practical standpoint, to require an American plaintiff to assert his claim only in a distant court lessens the liability of the carrier quite substantially, particularly when the claim is small. Such a clause puts a high hurdle in the way of enforcing liability ..., and thus is an effective means for carriers to secure settlements lower than if cargo could sue in a convenient forum.... A clause making a claim triable only in a foreign court would almost certainly lessen liability if the law which the court would apply was neither the Carriage of Goods by Sea Act nor the Hague Rules. Even when the foreign court would apply one or the other of these regimes, requiring trial abroad might lessen the carrier's liability since there could be no assurance that it would apply them in the same way as would an American tribunal subject to the uniform control of the Supreme Court, and Sec. 3(8) can well be read as covering a potential and not simply a demonstrable lessening of liability. ... We think that Congress meant to invalidate any contractual provision in a bill of lading for a shipment to or from the United States that would prevent cargo able to obtain jurisdiction over a carrier in an American court from having that court entertain the suit and apply the substantive rules Congress had prescribed. 41 (Citations omitted; emphasis in original). 18 42 If there were inconsistency between our decision in Indussa and the Supreme Court's later decision in Scherk, the latter, of course, must prevail. However, we do not think there is any need to question Indussa in order for us to follow Scherk in this case. Scherk read into Sec. 29 of the Securities Exchange Act an exception sufficient to validate arbitration agreements and, by implication, forum-selection and choice-of-law clauses, where the foreign elements of a transaction that comes within the Act are sufficiently meaningful. But there is no possibility of reading a foreign exception into COGSA, whose preamble, 46 U.S.C. Sec. 1300, states that it applies only to a bill of lading or similar document of title which is evidence of a contract for the carriage of goods by sea to or from ports of the United States. A foreign exception to COGSA would swallow the whole; such an exception to Sec. 29 of the Securities Exchange Act leaves the overwhelming bulk of transactions covered by the Act untouched. Indussa thus does not stand in the way of our affirming here, and our decision leaves Indussa untouched. 43 The order of the district court dismissing the complaint is affirmed.