Court Opinion

ID: 4177123
Source: CourtListenerOpinion
Date Created: 2017-06-13 18:03:15.193302+00
Date Added: 2024-06-11T07:47:13.215334
License: Public Domain

United States Court of Appeals
                       For the First Circuit

Nos. 16-1438
     16-1447

           AUTORIDAD DE ENERGÍA ELÉCTRICA DE PUERTO RICO,

                        Plaintiff, Appellee,

                                 v.

                      VITOL S.A.; VITOL, INC.,

                       Defendants, Appellants,

        FIDELITY AND DEPOSIT CO. OF MARYLAND; FULANO DE TAL;
            FIADORAS A, B AND C; ASEGURADORAS X, Y AND Z;
                       CARLOS M. BENÍTEZ, INC.,

                             Defendants.

            APPEALS FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF PUERTO RICO

       [Hon. Steven J. McAuliffe, * U.S. Senior District Judge]

                               Before

                   Torruella, Kayatta, and Barron,
                           Circuit Judges.

     Gregory G. Garre, with whom Alexandra Shechtel, Latham &
Watkins, LLP, Neal S. Manne, Alexander L. Kaplan, Weston L.
O'Black, Michael C. Kelso, Susman Godfrey L.L.P., Eduardo A. Zayas-
Marxuach, Francisco G. Bruno-Rovira, McConnell Valdés LLC,
Andrés W. López and The Law Offices of Andrés W. López, P.S.C.,

*   Of the District of New Hampshire, sitting by designation.
were on brief, for appellants.
     Eduardo J. Corretjer-Reyes, with whom Corretjer, L.L.C. was
on brief, for appellee.

                         June 13, 2017

                              -2-
             TORRUELLA, Circuit Judge.        The district court remanded

this case to the Commonwealth of Puerto Rico Court of First

Instance, San Juan Part, because it determined that the forum

selection clauses at issue were enforceable, and that the unanimity

requirement of 28 U.S.C. § 1446(b)(2)(A) therefore could not be

satisfied.     We affirm.

                              I.    Background 1

             Between August 2005 and December 2008, the Autoridad de

Energía Eléctrica de Puerto Rico (the Puerto Rico Electric Power

Authority or "PREPA") executed six contracts for the delivery of

fuel oil with entities whose names all began with "Vitol" -- and

we shall refer to them as such here.               For present purposes, it

suffices that at least one of the entities before us -- namely

Vitol, Inc., a Delaware corporation headquartered in Houston,

Texas -- admits that it is a party or assignee to the six contracts

before   us.     PREPA   is   a    public   corporation   and   governmental

instrumentality of the Commonwealth of Puerto Rico.               P.R. Laws

Ann. tit. 22, § 193.

1   Given the significant number of disagreements between the
parties about the facts of the case, we present only a brief
summary of the facts, with a focus on resolving only the question
that is before us -- whether to remand this case to the courts of
the Commonwealth. We do this in large part because we do not wish
to predetermine the outcome of the litigation in the Commonwealth
courts.

                                      -3-
            After PREPA learned that Vitol, S.A. -- following a

United Nations investigation that concluded that Vitol, S.A. had

paid, or had caused illegal surcharges to be paid, to Iraqi public

officials -- had pled guilty to first degree grand larceny in New

York state court, PREPA filed suit under, inter alia, Puerto Rico

Law No. 458 of December 29, 2000, P.R. Laws Ann. tit. 3, §§ 928-

928i ("Law 458").   This law prohibits government instrumentalities

and public corporations, such as PREPA, from awarding bids or

contracts to persons (including juridical persons) who have been

convicted   of   "crimes   that   constitute   fraud,   embezzlement   or

misappropriation of public funds listed in § 928b of this title."

P.R. Laws Ann. tit. 3, § 928.     "Undue intervention in the processes

of awarding bids or in government operations,"      "[b]ribery, in all

its modalities," and "[o]ffer[s] to bribe" are among the crimes

listed in section 928b.     Id. § 928b.

            Each of the contracts at issue in this case included a

substantively identical choice of law and forum selection clause:

       The Contract shall be governed by, and construed in
       accordance with the laws of the Commonwealth of Puerto
       Rico. Also, the contracting parties expressly agree
       that only the state courts of Puerto Rico will be the
       courts of competent and exclusive jurisdiction to
       decide over the judicial controversies that the
       appearing parties may have among them regarding the
       terms and conditions of this Contract.

                                   -4-
            All   but   the   first   contract   also   included   a   "Sworn

Statement" clause which read as follows: 2

       Previous to the signing of this Contract, the Seller
       will have to submit a sworn statement that neither
       [the] Seller nor any of its partners have been
       convicted, nor have they plead [sic] guilty of any
       felony or misdemeanor involving fraud, misuse or
       illegal appropriation of public funds as enumerated
       in Article 3 of Public Law number 428 of September 22,
       2004, as amended. 3

Note that, although the "Sworn Statement" clauses only speak to

convictions and guilty pleas, in the actual sworn statements, the

seller also stated -- as Law 458 required -- that it had "no

knowledge of being under judicial, legislative or administrative

investigation in Puerto Rico, the United States, or in any other

country."    See P.R. Laws Ann. tit. 3, § 928f.

            Each contract also included a "Contingent Fees" clause,

which provided, inter alia:

       The Seller represents and warrants that it                   is
       authorized to enter into, and to perform                    its
       obligations under this Contract and that it is              not
       prohibited from doing business in Puerto Rico                or

2  Although the first contract did not include a "Sworn Statement"
clause, such a sworn statement was provided, as it had to be
pursuant to Law 458. P.R. Laws Ann. tit. 3, § 928f.
3  Puerto Rico Law No. 428-2004 amended Law 458. It obligates any
person interested in bidding on and being awarded a government
contract to submit a sworn statement representing that said person
has not been convicted of any of the crimes listed in Law 458, and
whether said person is being investigated for any such crime.

                                      -5-
          barred    from   contracting    with   agencies    or
          instrumentalities of the Commonwealth of Puerto Rico.

            In addition, pursuant to Law 458, each contract was

"deemed to have . . . included . . . for all legal purposes" a

"penal clause or clauses that expressly set forth the provisions

contained [in] § 928c of this title."              Id. § 928e.       In turn,

section 928c provides:

          The conviction or guilt for any of the crimes listed
          in § 928b of this title shall entail, in addition to
          any other penalty, the automatic rescission of all
          contracts in effect on said date between the person
          convicted or found guilty and any agency or
          instrumentality of the Commonwealth government,
          public corporation, municipality, the Legislative
          Branch or the Judicial Branch of Puerto Rico.     In
          addition to the rescission of the contract, the
          Government shall have the right to demand the
          reimbursement of payments made with regard to the
          contract or contracts directly affected by the
          commission of the crime.

Id. § 928c (emphasis added).

            Four of the six contracts also contained a "Code of

Ethics"    clause,   by   which   Vitol   agreed    "to   comply     with   the

provisions of . . . [the] Code of Ethics for the Contractors,

Suppliers    and   Economic   Incentive   Applicants      of   the   Executive

Agencies of the Commonwealth of Puerto Rico" -- which meant that

Vitol accepted, inter alia, the obligation to "disclose all the

                                    -6-
information needed for [PREPA] to evaluate the transaction in

detail, and make correct and informed decisions."   Id. § 1756(b). 4

          Vitol never informed PREPA that: in 2004 (before any of

the six contracts with PREPA had been signed) the Independent

Inquiry Committee of the United Nations Oil-for-Food Programme

began investigating Vitol S.A. regarding its participation in that

program; 5 on October 27, 2005, the Independent Inquiry Committee

issued a final report (at which point only the first of the six

contracts before us had been signed) concluding that Vitol S.A.

had paid or had caused illegal surcharges to be paid to Iraqi

public officials in order for Vitol S.A. to be awarded contracts

to lift Iraqi oil during and as part of Vitol S.A.'s participation

in the Oil-for-Food Programme; on November 20, 2007 (at which point

four of the six contracts before us had been signed), Vitol S.A.

pled guilty to first degree grand larceny in New York state court

4  The Code of Ethics at issue also contains a provision that
requires a person who contracts with any executive agency of the
Commonwealth to certify that this person has not been convicted of
certain crimes, and further imposes a continuous duty to inform.
However, it appears that this provision only applies to convictions
in the "federal or Commonwealth jurisdiction," and therefore is
not pertinent here, for Vitol, S.A. was convicted in state court
in New York. P.R. Laws Ann. tit. 3, § 1756(p).
5  PREPA alleges that Vitol learned of the investigation between
December 2005 and April 25, 2006. For the purposes of affirming
this remand order, we do not need to decide whether this allegation
is accurate.

                               -7-
pursuant      to   a   plea   agreement      for    actions      related   to   its

participation in the United Nations Oil-for-Food Programme.

              PREPA eventually learned of the guilty plea, 6 and, in

November 2009, filed a complaint in the Commonwealth of Puerto

Rico Court of First Instance, San Juan Part, against Vitol, Inc.

and Vitol, S.A., alleging that two oil supply contracts it held

with Vitol, Inc. were null due to Law 458 and the Puerto Rico Civil

Code, 7 and seeking reimbursement of all payments made under the

contracts.     On December 14, 2009, invoking diversity jurisdiction,

defendants removed the claim to federal court.                   In December 2012,

PREPA filed a second complaint in the Commonwealth court regarding

four additional oil supply contracts, seeking similar relief.                   The

total amount of the payments PREPA seeks to have reimbursed is

approximately $3.89 billion.           The defendants removed this second

action   to    federal    court   as   well,       where   the    two   cases   were

consolidated.

6  The precise date on which PREPA learned of Vitol S.A.'s guilty
plea is disputed. PREPA argues that it learned about the guilty
plea between May 13, 2009 and June 23, 2009, whereas the defendants
argue that PREPA learned about it by at least May 13, 2009. We
need not resolve this matter, however, to determine that this case
was rightly remanded to the Puerto Rico courts.
7   The complaint also listed two of Vitol's insurers, Carlos
Benítez, Inc., and Fidelity & Deposit Company of Maryland, as
defendants, but they are no longer parties to this case.

                                       -8-
            After      various   developments       not    relevant   here,    on

March 15, 2016, the district court issued an order remanding the

case to the Commonwealth Court.           The district court reasoned that

the forum selection clauses applied to the dispute and bound Vitol,

Inc., who could therefore not consent to a co-defendant's removal.

The unanimity requirement thus could not be satisfied, and the

case had to be remanded.         See 28 U.S.C. § 1447(d).        We agree.

                                 II. Discussion

            It is dubitable whether we have jurisdiction to hear

this appeal.         A remand order that is based on a breach of the

unanimity requirement is not appealable pursuant to 28 U.S.C.

§ 1447(d).      Esposito v. Home Depot U.S.A., Inc., 590 F.3d 72, 77

(1st Cir. 2009).       However, "§ 1447(d) is not a bar to review of a

remand order based on a forum-selection clause."                  Autoridad de

Energía Eléctrica de P.R. v. Ericsson Inc., 201 F.3d 15, 17 (1st

Cir. 2000).     This raises the question whether a remand order based

on   a   lack   of   unanimity    due   to    a   forum   selection   clause   is

reviewable.     Such a remand order may not be appealable as long as

the district court colorably characterizes the remand order as

based on a lack of unanimity.           See Powerex Corp. v. Reliant Energy

Servs., Inc., 551 U.S. 224, 234 (2007) ("[R]eview of the District

Court's characterization of its remand as resting upon lack of

subject-matter jurisdiction, to the extent it is permissible at

                                        -9-
all, should be limited to confirming that that characterization

was colorable . . . .").

          We    need      not   decide,      however,    whether       we     have

jurisdiction to hear the present appeal.                 "The rule is well

established    in   this    Circuit    that    resolution    of    a    complex

jurisdictional issue may be avoided when the merits can easily be

resolved in favor of the party challenging jurisdiction."                   Cozza

v. Network Assocs., Inc., 362 F.3d 12, 15 (1st Cir. 2004).              Because

we find no difficulty in holding that the forum selection clauses

are enforceable, and the unanimity requirement is consequently not

satisfied, we bypass the jurisdictional issue and proceed to the

merits.

          Determining       whether     a    forum   selection     clause      is

enforceable    involves    three   steps.       "Under   federal       law,    the

threshold question in interpreting a forum selection clause is

whether the clause at issue is permissive or mandatory."               Claudio-

De León v. Sistema Universitario Ana G. Méndez, 775 F.3d 41, 46

(1st Cir. 2014) (quoting Rivera v. Centro Médico de Turabo, Inc.,

575 F.3d 10, 17 (1st Cir. 2009)).             "Permissive forum selection

clauses . . . authorize jurisdiction and venue in a designated

forum, but do not prohibit litigation elsewhere . . . .                         In

contrast, mandatory forum selection clauses contain clear language

indicating that jurisdiction and venue are appropriate exclusively

                                      -10-
in the designated forum."    Id. (alterations in original) (quoting

Rivera, 575 F.3d at 17).    Next, we ascertain the clause's scope to

determine whether it encompasses the claims -- an analysis that is

"clause-specific," id., meaning that "it is the language of the

forum selection clause itself that determines which claims fall

within its scope."   Id. (quoting Rivera, 575 F.3d at 19).    If we

find that the clause encompasses the claims, the final step is to

determine whether "a strong showing" has been made that the clause

should not be enforced because:

       (1) the clause is the product of fraud or
       overreaching; (2) enforcement is unreasonable and
       unjust; (3) its enforcement would render the
       proceedings gravely difficult and inconvenient to the
       point of practical impossibility; or (4) enforcement
       contravenes "a strong public policy of the forum in
       which suit is brought, whether declared by statute or
       judicial decision."

Carter's of New Bedford, Inc. v. Nike, Inc., 790 F.3d 289, 292

(1st Cir. 2015) (quoting Huffington v. T.C. Group, LLC, 637 F.3d

18, 23 (1st Cir. 2011)).

          Here, the forum selection clauses are plainly mandatory,

because they contain the following language: "the contracting

parties expressly agree that only the state courts of Puerto Rico

will be the courts of competent and exclusive jurisdiction to

decide over the judicial controversies that the appearing parties

may have among them . . . ."   (Emphasis added).   See, e.g., Summit

                                 -11-
Packaging Sys., Inc. v. Kenyon & Kenyon, 273 F.3d 9, 13 (1st Cir.

2001) ("[W]hen parties agree that they 'will submit' their dispute

to a specified forum, they do so to the exclusion of all other

forums"); Rivera, 575 F.3d at 17 n.5 ("'[T]ypical mandatory terms'

[include] 'shall,' 'exclusive,' 'only,' or 'must' . . . .").

             The forum selection clauses also encompass the claims at

issue. Vitol seeks to persuade us that PREPA is bringing statutory

(rather than contractual) claims, and that these claims thus are

not ones "regarding the terms and conditions of this Contract."

Even if we assume, favorably to Vitol, that PREPA's claims are

indeed   statutory     in    nature,    they    still   fall    under   the   forum

selection clauses.          In Huffington, this court held that a forum

selection clause that used the phrase "with respect to" encompassed

"statutory and common-law tort claims [that] rest on alleged

misrepresentations      that       occurred    before   [the    signing     of]   the

agreement," because "a suit is 'with respect to' the agreement if

the   suit   is   related     to    that   agreement    --     at   least    if   the

relationship seems pertinent in the particular context."                    637 F.3d

at 21-22.     This court noted that "the phrase 'with respect to'

[is] synonymous with the phrase 'with reference or regard to

something.'"      Id. at 22 (emphasis added).                Because we see no

difference between "with regard to" and "regarding," the forum

selection    clauses    in    the    present     case   encompasses       statutory

                                        -12-
claims.    The statutory claims here also plainly relate to the

agreements at issue -- for PREPA would have no claim against Vitol

if it had not been for the contracts.

            Although Vitol may be correct that the words "terms and

conditions of this Contract" narrow the forum selection clauses at

issue (as compared with clauses regarding "the contract"), PREPA's

claims here plainly do regard the "terms and conditions of this

Contract."     As   noted   above,    the   contracts   contained   "Sworn

Statement" clauses that specifically referenced Law 458; the sworn

statements Vitol provided also specifically referenced Law 458,

and were indeed required by Law 458.        Supra at 5.   Pursuant to Law

458, the contracts also contained de jure penal clauses that lay

out the consequences Law 458 imposes for having been convicted, or

having pled guilty to, a crime listed in Law 458.         Supra at 6.   In

addition, the contracts contained "Contingent Fees" clauses, which

required Vitol to certify that it was not "barred from contracting

with agencies or instrumentalities of the Commonwealth of Puerto

Rico."    Supra at 6.   PREPA alleges that, due to Law 458, Vitol was

barred from exactly that.     "Code of Ethics" clauses were also to

be found in the contracts, and required Vitol to disclose such

matters as guilty pleas to crimes listed in Law 458.         Supra at 7.

Thus, a statutory claim based on Law 458 is also a claim regarding

the terms and conditions of the contracts at issue.

                                     -13-
            At the third and final step of the analysis of the forum

selection clauses, Vitol seeks to convince us that it has made the

requisite strong showing that enforcement of the clauses would be

unreasonable and unjust because PREPA takes seemingly inconsistent

positions by seeking enforcement of forum selection clauses while

arguing that the contracts containing those clauses are void ab

initio.    Vitol also argues that equitable estoppel precludes PREPA

from maintaining these positions.        See InterGen N.V. v. Grina, 344

F.3d 134, 145 (1st Cir. 2003) (explaining that equitable estoppel

"precludes a party from enjoying rights and benefits under a

contract    while   at   the   same    time   avoiding   its   burdens   and

obligations").      Vitol fails to cite even a single case in which

enforcement of a forum selection clause was denied because it would

be unreasonable and unjust, or precluded by equitable estoppel.

In disposing of similar arguments, one of our sister circuits

showed the absurdity of the position Vitol is taking:

          Appellants also spend a good deal of time trying to
          convince us that because the contracts themselves are
          void and unenforceable . . . the forum selection
          clauses are also void. The logical conclusion of the
          argument would be that the federal courts . . . would
          first have to determine whether the contracts were
          void before they could decide whether, based on the
          forum selection clauses, they should be considering
          the cases at all.   An absurdity would arise if the
          [federal] courts . . . determined the contracts were
          not void and that therefore, based on valid forum
          selection clauses, the cases should be sent to [the

                                      -14-
       state court] — for what?      A determination as to
       whether the contracts are void?

Muzumdar v. Wellness Int'l Network, Ltd., 438 F.3d 759, 762 (7th

Cir. 2006).

          Vitol tries to remedy its failure to cite any precedent

involving forum selection clauses by instead citing precedents

involving arbitration clauses.    Even if we assume, for the sake of

argument, that these precedents can be extended to apply to forum

selection clauses, they do not help Vitol here. 8 The Supreme Court

has made clear that the three cases Vitol seeks to rely on do not

apply, where, as here, the contracts were entered into, but are

later argued to have been invalid:

       The issue of the contract's validity is different from
       the issue whether any agreement between the alleged
       obligor and obligee was ever concluded. Our opinion
       today addresses only the former, and does not speak
       to the issue decided in the cases cited by respondents
       . . . which hold that it is for courts to decide
       whether the alleged obligor ever signed the contract,
       Chastain v. Robinson–Humphrey Co., 957 F.2d 851 ([11th
       Cir.] 1992), whether the signor lacked authority to
       commit the alleged principal, Sandvik AB v. Advent
       Int'l Corp., 220 F.3d 99 ([3rd Cir.] 2000); Sphere
       Drake Ins. Ltd. v. All American Ins. Co., 256 F.3d
       587 ([7th Cir.] 2001), and whether the signor lacked

8  While the Supreme Court's statement that "[a]n agreement to
arbitrate . . . is, in effect, a specialized kind of forum-
selection clause" could be read to mean that precedent about forum
selection clauses also applies to arbitration clauses, the inverse
need not be true. Scherk v. Alberto-Culver Co., 417 U.S. 506, 519
(1974).

                                 -15-
          the mental capacity to assent, Spahr v. Secco, 330
          F.3d 1266 ([10th Cir.] 2003).

Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 n.1

(2006).     The Supreme Court, making clear that it did not matter

whether a contract was void or voidable, held that a challenge to

the validity of the contract must be resolved by an arbitrator.

Id. at 446, 449.        The challenge at issue was that "a contract

containing an arbitration provision [was] void for illegality."

Id. at 442.     To the extent that arbitration precedents apply to

the present case, then, they do not favor Vitol -- quite the

contrary,    they   imply   that   the    forum   selection   clauses   are

enforceable even if PREPA argues that the contracts are void.

                            III.   Conclusion

            The district court correctly decided that the forum

selection clauses were enforceable.           Therefore, the unanimity

requirement could not be met here, and remand was proper. 9

            Affirmed.

9  We have considered Vitol's remaining arguments, and deem them
to be without merit, at least insofar as they apply to the remand
issue before us.

                                   -16-