Court Opinion

ID: 9909592
Source: CourtListenerOpinion
Date Created: 2023-12-13 19:00:39.001493+00
Date Added: 2024-06-11T12:50:05.514329
License: Public Domain

Case: 23-20066         Document: 00517000097             Page: 1      Date Filed: 12/13/2023

              United States Court of Appeals
                   for the Fifth Circuit                                       United States Court of Appeals
                                                                                        Fifth Circuit

                                      ____________                                    FILED
                                                                              December 13, 2023
                                       No. 23-20066                               Lyle W. Cayce
                                      ____________                                     Clerk

   Ralph Eads; Princess Alia, L.L.C.,

                                                                   Plaintiffs—Appellants,

                                             versus

   Spheric Assurance Company, Limited,

                                                Defendant—Appellee.
                      ______________________________

                      Appeal from the United States District Court
                          for the Southern District of Texas
                               USDC No. 4:22-CV-4021
                      ______________________________

   Before Smith, Graves, and Wilson, Circuit Judges.
   Per Curiam: *
          The yacht Princess Alia was destroyed by fire in 2021, and this action
   arises from the ensuing insurance coverage dispute. Plaintiffs-Appellants
   Ralph Eads and Princess Alia, L.L.C. (Alia) sued in Texas state court hoping
   to take advantage of that state’s comparatively favorable insurance laws.
   Defendant-Appellee Spheric Assurance Company (Spheric) removed the
   action to federal court and then sought to enforce a forum selection clause in

          _____________________
          *
              This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 23-20066      Document: 00517000097           Page: 2     Date Filed: 12/13/2023

                                     No. 23-20066

   the relevant insurance contract, which designated the British Virgin Islands
   as the appropriate forum.       The district court sided with Spheric and
   dismissed the case with leave to refile in the British Virgin Islands. Eads and
   Alia now appeal, contending that it would be unreasonable to enforce the
   forum selection clause because it is contrary to Texas public policy. This
   argument faced choppy waters navigating our precedent from the start, but
   it became foreclosed by Noble House, L.L.C. v. Certain Underwriters at
   Lloyd’s, London, 67 F.4th 243 (5th Cir. 2023), which this court published
   while this appeal was being briefed. We AFFIRM.
                                          I.
          The Princess Alia was a 62-foot, Jamaican flagged yacht that was
   destroyed by fire in 2021 while harboring in Cabo San Lucas, Mexico. Eads
   owned the Princess Alia through his company Princess Alia, L.L.C., of which
   he is the sole member. Prior to the yacht’s destruction, Spheric issued an
   insurance policy (the Policy) to Eads and Alia.
          The Policy covered all risks of physical loss or damage for the Princess
   Alia, but it also included several warranties that Eads and Alia were required
   to meet. The Policy further included a combined forum selection clause and
   choice of law provision:
          This Contract shall be governed by and construed in
          accordance with the laws of the British Virgin Islands and each
          party agrees to submit to the exclusive jurisdiction of the
          Courts of the British Virgin Islands.

   Both Plaintiffs are Texans, and they obtained the Policy through Spheric’s
   agent in Texas. Spheric is incorporated in the British Virgin Islands.
          When Eads and Alia submitted a claim under the Policy, Spheric
   denied coverage, citing various warranty violations and a lack of clarity as to
   the cause of the fire. Plaintiffs then filed suit against Spheric, alleging claims

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   for breach of contract, bad faith, and unfair settlement practices. Spheric
   removed the state court action to federal court and then filed a motion to
   dismiss for forum non conveniens pursuant to the Policy’s forum selection
   clause. Plaintiffs opposed the motion on public policy grounds, contending
   that British Virgin Islands law would allow Spheric to evade its alleged
   coverage obligations based on immaterial warranty violations, while Texas
   law would not. The district court granted the motion to dismiss and afforded
   Plaintiffs leave to refile in the British Virgin Islands. This appeal followed.
                                         II.
          “[T]he appropriate way to enforce a [forum selection] clause pointing
   to a state or foreign forum is through the doctrine of forum non conveniens.”
   Atl. Marine Const. Co. v. U.S. Dist. Ct. for W. Dist. of Texas, 571 U.S. 49, 60
   (2013). “When reviewing forum non conveniens rulings involving forum
   selection clauses, ‘[w]e review de novo the district court’s conclusions that
   the [forum selection clause] was mandatory and enforceable.’” PCL Civ.
   Constructors, Inc. v. Arch Ins. Co., 979 F.3d 1070, 1073 (5th Cir. 2020)
   (alterations original) (quoting Weber v. PACT XPP Techs., AG, 811 F.3d 758,
   766 (5th Cir. 2016)).
          “We apply a ‘strong presumption’ in favor of enforcing mandatory
   [forum selection] clauses.” Noble House, 67 F.4th at 248 (quoting Weber, 811
   F.3d at 773).    “The presumption of enforceability may be overcome,
   however, by a clear showing that the clause is ‘unreasonable’ under the
   circumstances.” Id. (quoting Weber, 811 F.3d at 773). As our precedent
   explains:
          Unreasonableness potentially exists where (1) the
          incorporation of the forum selection clause into the agreement
          was the product of fraud or overreaching; (2) the party seeking
          to escape enforcement “will for all practical purposes be
          deprived of his day in court” because of the grave

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           inconvenience or unfairness of the selected forum; (3) the
           fundamental unfairness of the chosen law will deprive the
           plaintiff of a remedy; or (4) enforcement of the forum selection
           clause would contravene a strong public policy of the forum
           state.
   Haynsworth v. The Corp., 121 F.3d 956, 963 (5th Cir. 1997) (first quoting M/S
   Bremen v. Zapata Off-Shore Co. (The Bremen), 407 U.S. 1, 18 (1972); then
   citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991); and then
   citing The Bremen, 407 U.S. at 12–13, 15). However, a party “resisting
   enforcement on these grounds bears a ‘heavy burden of proof.’”
   Haynsworth, 121 F.3d at 963 (quoting The Bremen, 407 U.S. at 17). “Federal
   law applies to determine the enforceability of forum selection clauses in
   diversity cases.” PCL Civ. Constructors, 979 F.3d at 1074 (citing All. Health
   Grp., LLC v. Bridging Health Options, LLC, 553 F.3d 397, 399 (5th Cir.
   2008)).
                                              III.
           Eads and Alia challenge the enforceability of the insurance contract’s
   forum selection clause only on public policy grounds, the fourth
   unreasonableness factor. 1 This sole issue before the court—whether Texas
   public policy allows enforcement of a forum selection clause mandating a
   jurisdiction with purportedly less favorable insurance laws—has already been
           _____________________
           1
             Plaintiffs spend much of their briefing discussing choice of law issues. However,
   choice of law issues play no role in the enforceability questions presented here. Our
   precedent is clear that “[f]ederal law applies to determine the enforceability of forum
   selection clauses in diversity cases.” PCL Civ. Constructors, 979 F.3d at 1074 (citing All.
   Health Grp., 553 F.3d at 399). By comparison, if Plaintiffs challenged the interpretation of
   the forum selection clause, i.e., whether it is mandatory or permissive, then we would
   conduct a choice of law analysis—including of the insurance contract’s choice of law
   provision—to determine which substantive law governed the contract’s construction. See,
   e.g., Weber, 811 F.3d at 768–73. Because it is not necessary to reach these issues, we
   withhold judgment on any choice of law questions in this dispute.

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   decided in the affirmative. Noble House, 67 F.4th at 254. 2 Further, to the
   extent Noble House is not perfectly analogous, Plaintiffs nonetheless fail to
   carry their “heavy burden of proof” to resist enforcement of the forum
   selection clause. Haynsworth, 121 F.3d at 963 (quoting The Bremen, 407 U.S.
   at 17).
                                              A.
             In Noble House, the plaintiff purchased an insurance policy for a yacht
   from the defendant, Certain Underwriters at Lloyd’s, London. 67 F.4th at
   247. Noble House, L.L.C. obtained the insurance policy through a Texas-
   based insurance broker, and the policy included a mandatory forum selection
   clause that selected the courts of England and Wales. Id. When the yacht
   lost its port rudder while at sea, Noble House, L.L.C. filed a claim with
   Lloyd’s, which spurred years of litigation. Id. Most relevantly, a district
   court in Texas eventually dismissed the action on forum non conveniens
   grounds because of the forum selection clause. Id. On appeal, the plaintiff
   pointed out that its claims might be time-barred in England or Wales; it thus
   argued that enforcement of the forum selection clause would be
   unreasonable. Id. at 249–52. We rejected that argument, explaining that
   controlling law affords no sympathy for a litigant on the wrong end of a forum
   selection clause, even when that party will be left to sue in a forum that
   effectively dooms its case. Id. at 250, 254.
             We also specifically discounted Noble House, L.L.C.’s arguments on
   the fourth unreasonableness factor, regarding Texas’s public policy. Id. at

             _____________________
             2
             Even though Noble House had not been decided at the time the district court
   rendered its decision or when Eads and Alia submitted their opening brief, both sides have
   since had the opportunity to address Noble House in their briefing.

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   252. On this point, Noble House, L.L.C. argued, unpersuasively, that
   “Texas has a strong public policy of regulating insurance” because:
          (1) “the public policy of the State of Texas is reflected in its
          statutes”; (2) there is a statute providing that insurance
          contracts sold to citizens or inhabitants of Texas are governed
          by Texas law, Tex. Ins. Code [art.] 21.42; (3) Texas
          residents must consent to the transfer of a suit involving an
          insurance contract, Tex. Ins. Code § 982.305; (4) Texas
          may regulate insurance; and (5) Texas has a strong interest in
          protecting its citizens against “overbearing tactics of insurance
          underwriters.”

   Id.
          Eads and Alia advance nearly identical arguments, emphasizing article
   21.42 and their concern about the “overbearing tactics of insurance
   underwriters.” So the reasoning of Noble House is especially apt:
          Even assuming it were true that Texas has a strong public
          policy of regulating insurance, this [c]ourt has already
          explained that the Supreme Court, “rejecting as a parochial
          concept the idea that notwithstanding solemn contracts all
          disputes must be resolved under our laws and in our courts,
          held that federal courts presumptively must enforce forum
          selection clauses in international [contracts].” And public
          policy “weighs strongly in favor” of this presumption.

   Id. (second alteration original) (quoting Haynsworth, 121 F.3d at 962). In
   short, Noble House instructs that it is reasonable to enforce a forum selection
   clause even if Texas has a strong public policy of regulating insurance.
          This determination, coupled with the fact that the Noble House
   plaintiff failed to identify a case where enforcement of a forum selection
   clause was found unreasonably to contravene state public policy, ultimately
   resolved that appeal. Id. Because the same principles apply here, Noble House

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   controls, and the district court correctly dismissed this action on grounds of
   forum non conveniens.
                                         B.
          Eads and Alia contend that the issues presented here are
   distinguishable and remain open questions. But while there are two potential
   differences between Noble House and the instant action, both are immaterial.
   And even if Noble House did not control, Plaintiffs still fail to carry their
   burden.
          First, Noble House involved Texas Insurance Code § 982.305, while
   Eads and Alia emphasize Texas Insurance Code § 862.054. See 67 F.4th at
   252. And as we have previously recognized, albeit in an unpublished opinion,
   § 862.054 articulates a Texas public policy against denials of insurance
   coverage based on technicalities. Santacruz v. Allstate Texas Lloyd’s, Inc., 590
   F. App’x 384, 387 (5th Cir. 2014) (per curiam) (citing Tex. Ins. Code
   § 862.054; Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984)).
   This arguably presents a conflict between Texas public policy favoring
   enforcement of contracts and Texas public policy against denials of insurance
   coverage based on technicalities. But nothing in Noble House suggests the
   panel’s decision would have changed if Noble House, L.L.C. had only cited
   a different section of the Texas Insurance Code. In fact, as discussed above,
   Noble House addressed competing Texas public policies and still sided in
   favor of enforcing the forum selection clause. 67 F.4th at 252.
          Second, Eads and Alia point to the purportedly undisputed evidence
   of their grim legal future in the British Virgin Islands should this action be
   sent there, drawn from a declaration of a British Virgin Islands lawyer who
   offers his opinion of how Plaintiffs’ case would fare in that venue. However,
   though Noble House lacked such evidence, the court made clear that its

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   conclusion would not change even where a forum selection clause relegated
   the plaintiff to a dead-end forum. Id. at 250, 252.
          Regardless, assuming arguendo that Noble House were distinguishable,
   there remains “quite a high burden of persuasion on the party seeking to
   avoid enforcement of the [forum selection clause].” Weber, 811 F.3d at 776.
   This burden is especially onerous given the “presumption of enforceability”
   for mandatory forum selection clauses. Barnett v. DynCorp Int’l, L.L.C., 831
   F.3d 296, 301 (5th Cir. 2016). Plaintiffs have not met it. At best, Eads and
   Alia have established that they could be disadvantaged by the forum selection
   clause, but they have not shown that this action presents “the sort of
   exceptional circumstance that justifies disregarding the parties’ agreement
   on public-interest-factor grounds.” Weber, 811 F.3d at 776. Indeed, they fail
   to cite a case that aligns with their position, and their cited precedent actually
   supports dismissal.
          Plaintiffs’ most developed argument regarding Texas public policy
   rests on In re AutoNation, Inc., 228 S.W.3d 663 (Tex. 2007). In AutoNation,
   the Supreme Court of Texas considered a writ of mandamus and reversed a
   trial court for abuse of discretion, directing it to enforce a forum selection
   clause. 228 S.W.3d at 670. So the case is hardly a safe harbor in which to
   anchor Plaintiffs’ arguments. The Supreme Court of Texas further observed
   that based on its “controlling precedents on [forum selection] clauses, the
   parties’ bargained-for agreement merits judicial respect.”           Id. at 669.
   Nevertheless, Eads and Alia point to a concurrence in AutoNation which left
   open the possibility that a forum selection clause might not be enforced upon
   a “clear showing” that it would undermine the forum state’s public policy.
   Id. at 671 (O’Neill, J., concurring). That concurrence was later cited for a
   similar proposition in In re Lyon Financial Services, Inc., 257 S.W.3d 228, 234–
   35 (Tex. 2008). But the ultimate disposition in Lyon Financial Services, like
   in AutoNation, reversed a trial court on a writ of mandamus for abuse of

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   discretion and directed the court to enforce the disputed forum selection
   clause and dismiss the suit. Id. at 235.
           In short, Texas law may leave open some avenue for disregarding a
   forum selection clause on public policy grounds, but the Supreme Court of
   Texas declined explicit invitations to do so in both AutoNation and Lyon
   Financial Services, even on highly deferential standards of review.
   AutoNation, 228 S.W.3d at 670; Lyon Fin. Servs., 257 S.W.3d at 234–35. And
   given that Eads and Alia fail to cite a case that actually sets aside a forum
   selection clause on public policy grounds, they apparently ask us to do so for
   the first time. Like the Supreme Court of Texas, we decline that invitation. 3
                                              IV.
           This action properly belongs in the British Virgin Islands, the forum
   agreed to by the parties in the Policy, and Spheric’s place of incorporation.
   Because the district court’s decision aligns with Noble House, the court
   correctly enforced the forum selection clause in the Policy. Moreover, Eads
   and Alia fail to establish that it would be unreasonable to enforce the forum
   selection clause in the face of Texas public policy. Accordingly, the district
   court’s decision to dismiss this case with leave to refile in the British Virgin
   Islands is AFFIRMED.

           _____________________
           3
            As a last point, the Supreme Court has granted certiorari this term in a case about
   non-enforcement of a choice of law provision in a marine insurance contract based on
   strong public policy grounds. See Great Lakes Ins. SE v. Raiders Retreat Realty Co., 47 F.4th
   225 (3d Cir. 2022), cert. granted in part, 143 S. Ct. 999 (2023). While Great Lakes involves
   admiralty law, both sides agree that its decision could impact this action. Nevertheless, our
   precedent on this topic is clear. So there is no need to hold this case in abeyance pending
   the Supreme Court’s decision in Great Lakes.

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