Court Opinion

ID: 50370
Source: CourtListenerOpinion
Date Created: 2010-04-26 00:50:32+00
Date Added: 2024-06-11T14:57:45.437058
License: Public Domain

United States Court of Appeals
                                                                 Fifth Circuit
                                                              F I L E D
                IN THE UNITED STATES COURT OF APPEALS           May 11, 2007
                        FOR THE FIFTH CIRCUIT
                                                          Charles R. Fulbruge III
                                                                  Clerk

                             No. 06-20561

BRASPETRO OIL SERVICES COMPANY - BRASOIL; PETROLEO
BRASILEIRO SA, Petrobras

                 Plaintiffs - Appellants

v.

MODEC (USA), Inc.

                 Defendant - Appellee

                         --------------------
             Appeal from the United States District Court
                  for the Southern District of Texas
                         USDC No. 4:06-CV-128
                         --------------------

Before KING, WIENER, and OWEN, Circuit Judges.

PER CURIAM:*

     Plaintiffs-appellants Braspetro Oil Services Co. and

Petroleo Brasileiro S.A. appeal the district court’s dismissal of

their case, arguing that the district court erred in enforcing a

forum selection clause against them.    For the following reasons,

we AFFIRM.

                 I. FACTUAL AND PROCEDURAL BACKGROUND

     In 1996 plaintiffs-appellants Braspetro Oil Services Co.

(“Brasoil”), a corporation organized under the laws of the Cayman

Islands, B.W.I., and Petroleo Brasileiros SA (“Petrobras”)1, a

     *
        Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
     1
         Brasoil is an indirect subsidiary of Petrobras.
                             No. 06-20561
                                  -2-

Brazilian corporation (collectively the “plaintiffs”), invited

bids on a project for the conversion of a large crude carrier

into an oil platform for use off the shore of Brazil.   Modec,

Inc. (“Modec”), a Japanese company, joined with Marítima Navegc~o

e Engenharia Ltda., a Brazilian company, to form a consortium

(the “Consortium”) to bid on the project.   The plaintiffs awarded

the contract to the Consortium, the lowest qualified bidder.

Defendant-appellee Modec (USA), Inc. (“Modec USA”), a corporation

domiciled in Texas, was not a member of the Consortium at that

time, but pursuant to a written appointment, Modec USA acted as

attorney-in-fact for Modec and participated in the bidding and

negotiations.

     In March 1997, the plaintiffs and the Consortium entered

into a contract (the “Conversion Contract”) which required the

Consortium to complete the project within a specified time, and

in return the plaintiffs agreed to pay the Consortium about $289

million.   Another contractual provision required the Consortium

to provide a performance bond for the full contract price upon

the execution of the Conversion Contract.   The Consortium did not

post the bond upon execution of the contract, but several weeks

later it tendered performance in the form of a bond written by

U.K. Guaranty and Bonding Corp., Limited (“UKGB”).

     The Conversion Contract also had a forum selection clause

designating Rio de Janeiro, Brazil as the forum for any disputes

arising from the contract.    The plaintiffs allege that Modec USA

joined the Consortium in 1997, and further allege that, as a

result, Modec USA accepted joint and several liability for the
                            No. 06-20561
                                 -3-

Consortium’s duties and obligations under the Conversion

Contract.    The Consortium did not complete the project by the

specified date, and although the plaintiffs mitigated their

damages by completing the project using subcontractors and

suppliers, the Consortium did not reimburse the plaintiffs for

those expenses.    The plaintiffs then attempted to recover their

losses by collecting on the bond, but UKGB refused to honor the

bond.    Multiple lawsuits originated from this alleged breach of

the Conversion Contract and UKGB’s refusal to honor the bond.

     In 2002, the plaintiffs filed suit against other members of

the Consortium (Modec, Marítima Navegac~o e Engenharia Ltda and

Maritima Overseas, Inc.2) in the 32nd Civil Bench Court in Rio de

Janeiro, Brazil.    That suit is currently pending.   In that same

year, the plaintiffs filed suit in a New York state court against

UKGB, the bond writer.    The New York court dismissed that case on

forum non conveniens grounds, holding that Brazil was the

appropriate forum in which to litigate the claims related to the

bond.

     On January 11, 2006, the plaintiffs filed the instant suit

against Modec USA for breach of contract, unjust enrichment,

fraud, and civil conspiracy in the Southern District of Texas.3

The plaintiffs allege that members of the Consortium, including

     2
        The plaintiffs allege that Maritima Overseas, Inc. joined
the Consortium in September 1997 at the same time as Modec USA.
     3
        The Southern District of Texas is where Modec USA resides
and the judicial district where many of the acts underlying this
litigation allegedly occurred. The plaintiffs therefore contend,
and Modec USA does not dispute, that in the absence of
enforcement of the forum selection clause, venue is proper in the
Southern District of Texas to 28 U.S.C. § 1391(a).
                           No. 06-20561
                                -4-

Modec USA, breached the Conversion Contract when they failed to

complete the project, failed to pay various subcontractors and

suppliers, and did not provide a “first-class bond”, and that

Modec USA is jointly and severally liable for the breach of the

Consortium’s duties and obligations under the Conversion

Contract.   The plaintiffs also assert that Modec USA participated

in a fraudulent conspiracy to obtain a faulty performance bond

and to induce the plaintiffs to award the project to the

Consortium.   The other members of the Consortium are not parties

to this lawsuit.

     The district court granted Modec USA’s motion to dismiss the

complaint on the grounds that the plaintiffs and Modec USA were

bound by the forum selection clause and that enforcement of the

forum selection clause was not unjust or unreasonable.   The court

also held, alternatively, that it had discretion to dismiss the

suit under the first-to-file rule because the litigation in Texas

was duplicative of the litigation in Brazil.   The plaintiffs now

appeal.

                          II. DISCUSSION

     On appeal, the plaintiffs contend that the district court

should not have enforced the forum selection clause.

Specifically, the plaintiffs assert that the district court erred

by (1) determining that the instant case was duplicative of the

Brazilian suit, (2) applying the first-to-file rule to the

plaintiffs’ claims, (3) holding that the challenged behavior is

within the scope of the forum selection clause, and (4) rejecting

the plaintiffs’ contention that applying the forum selection
                             No. 06-20561
                                  -5-

clause is unjust and unreasonable under the circumstances.

     We review a district court’s decision to enforce a forum

selection clause de novo.     Hellenic Inv. Fund, Inc. v. Det Norske

Veritas, 464 F.3d 514, 517 (5th Cir. 2006).       On a Rule 12(b)(3)

motion to dismiss for improper venue, the court must accept as

true all allegations in the complaint and resolve all conflicts

in favor of the plaintiff.        See, e.g., Murphy v. Schneider Nat’l,

Inc., 362 F.3d 1133, 1138 (9th Cir. 2004); 5B CHARLES ALAN WRIGHT

& ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1352 (3d ed.

2004).

     Forum selection clauses play an important role in

international contracting because they eliminate the “uncertainty

as to the forum for disputes and applicable law [that] ‘will

almost inevitably exist with respect to any contract touching two

or more countries.’”    Haynsworth v. The Corp., 121 F.3d 956, 962

(5th Cir. 1997) (quoting Scherck v. Alberto-Culver Co., 417 U.S.
506, 516 (1974)).   Federal law applies to determine the

enforceability of forum selection clauses in both diversity and

federal question cases.     Id.    Such clauses “are prima facie valid

and should be enforced unless enforcement is shown by the

resisting party to be ‘unreasonable’ under the circumstances.”

M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972) (“The

Bremen”).   A forum selection clause may be considered

unreasonable if:

            (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  inconvenience   or
                             No. 06-20561
                                  -6-

           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, 121 F.3d at 963.     To qualify as unreasonable, the

fraud and overreaching must be specific to the forum selection

clause.   Id.    The party resisting application of the forum

selection clause has a “heavy burden of proof.” The Bremen, 407
U.S. at 17.     Forum selection clauses are generally enforced.

See, e.g., Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585,

595 (1991) (enforcing a forum selection clause in a cruise line’s

ticket contract).    The Court “has enforced every forum selection

clause in an international contract that has come before it”

since deciding The Bremen.     Haynsworth, 121 F.3d at 963.

     The plaintiffs urge that the forum selection clause does not

apply to the claims against Modec USA because (1) the scope of

the fraud and conspiracy extends beyond the scope of the

Conversion Contract, and (2) the alleged acts of fraud and

conspiracy took place before the execution of that contract.       The

plaintiffs allege that Modec USA is a member of the Consortium

and assumed all the duties of the Consortium under the Conversion

Contract, and we must accept that allegation as true in reviewing

a Rule 12(b)(3) dismissal.      Before we can consider enforcing a

forum selection clause, we must first determine “whether the

clause applies to the type of claims asserted in the lawsuit,”

Terra Int’l, Inc. v. Miss. Chem. Corp., 119 F.3d 688, 692 (8th

Cir. 1997).     In this inquiry we “look to the language of the

parties’ contracts to determine which causes of action are
                            No. 06-20561
                                 -7-

governed by the forum selection clause[].”   Marinechance

Shipping, Ltd. v. Sebastian, 143 F.3d 216, 222 (5th Cir. 1998).

     Although the Conversion Contract is written in Portuguese,

the official English translation states:

          The parties hereby elect the courts of the
          City of Rio de Janeiro, State of Rio de
          Janeiro, as competent to solve any dispute or
          controversy arising from the execution of this
          Contract, with express waiver of any other
          court, regardless of any privilege thereof.

The term “arising” is generally interpreted as indicating a

causal connection.   See Coregis Ins. Co. v. Am. Health Found.,

Inc., 241 F.2d 123, 128 (2d Cir. 2001) (interpreting the phrase

“arising out of” in the context of an insurance policy and

observing that “[t]he phrase ‘arising out of’ is usually

interpreted as “indicat[ing] a causal connection.”) (quoting Am.

States Ins. Co. v. Guillermin, 671 N.E.2d 317, 325 (Ohio Ct. App.

1996) (alteration in original).

     The plaintiffs’ contention that the forum selection clause

does not apply to the claims against Modec USA because the claims

are outside the clause’s scope fails, as this assertion is

inconsistent with the pleadings.   In the pleadings, the

plaintiffs alleged “[t]he Conversion Contract obligated the

Consortium to provide a Performance Bond for the full amount of

the Conversion Contract.”   Any fraudulent act in procuring that

bond, therefore, arose from and grew out of the existence of the

requirement in the Conversion Contract.

     Further, to the extent that the plaintiffs assert that the

alleged acts occurred before the execution of the Conversion

Contract and therefore did not arise out of the execution of the
                              No. 06-20561
                                   -8-

contract, this argument is foreclosed by our circuit’s precedent.

In Haynsworth v. Lloyd’s of London, the plaintiffs alleged fraud,

breach of fiduciary duty, and violations of the Texas Deceptive

Trade and Practice Consumer Protection Act and the Texas

Securities Act based on the defendants’ alleged efforts to induce

the plaintiffs to unwittingly underwrite high-risk insurance

policies.   121 F.3d 956, 960-61 (5th Cir. 1997).     As here, the

alleged fraudulent acts underlying the claims in Haynsworth

occurred before the parties entered into the agreement with the

forum selection clause, and the district court enforced the forum

selection clause.      Id. at 963-64.   On appeal, the plaintiffs

asserted that the defendants made certain misrepresentations to

lure them into agreeing to the forum selection clause, and that

they entered into the agreements based on the alleged fraud.         Id.

The court rejected that argument, holding that any

misrepresentations that were made related to the contract as a

whole.   Id. at 963.    Specifically, the court held that “fraud

. . . must be specific to a forum selection clause . . . to

invalidate it . . . . [A]llegations of such conduct as to the

contract as a wholeSSor portions of it other than the [forum

selection] clauseSSare insufficient; the claims of fraud

. . . must be aimed straight at the [forum selection] clause

. . . to succeed.”     Id. (internal citations omitted).    The

alleged fraud in the instant case is not specific to the forum

selection clause but goes to both to the Conversion Contract as a

whole and also to the bond requirement contained in the contract.

     The plaintiffs cite numerous district court cases in which
                            No. 06-20561
                                 -9-

courts have held that claims based on fraudulent acts made before

a contract was entered into were not subject to forum selection

clauses in the contracts.   All are factually distinguishable.4

     The plaintiffs also cite Farmland Industries, Inc. v.

Frazier-Parrott Commodities, Inc., in which the Eighth Circuit

did not enforce a forum selection clause within an agreement that

it determined the plaintiff would not have made in the absence of

fraud.    806 F.2d 848 (8th Cir. 1987), rev’d on other grounds,

Lauro Lines S.R.L. v. Chasser, 490 U.S. 495 (1989).      But in

Farmland Industries, the Eighth Circuit limited its holding to

situations involving “a fiduciary relationship (such as between a

commodities broker and its customer).”     Id. at 851.   The court

also based its holding in part on Missouri’s public policy

against forum selection clauses in declining to enforce the

clause.   Id. at 852.   No similar fiduciary relationship exists

here, and we are not faced with a similar public policy concern.

And finally, to the extent Farmland Industries might be

     4
        We discuss only the district court case most prominently
featured in the plaintiffs’ brief. In Smith v. Lucent
Technologies, No. 02-0481, 2004 WL 515769, *2 (E.D. La. 2004),
the parties entered into a contract in 1999 for Lucent to provide
certain products to Actel, Inc. Then in 2000, those same parties
entered into a loan and security agreement that contained a forum
selection clause. Id. When Actel’s bankruptcy trustee brought
suit against Lucent, alleging that it breached the 1999 contract,
the district court concluded that the forum selection clause in
the 2000 contract did not apply. Id. at *13. The contract
containing the forum selection clause had already been fulfilled
and the court found that the claims brought by the bankruptcy
trustee had no “discernible association or link with those facts
that would support a parallel breach of contract claim with
respect to the 2000 Agreement.” Id. In contrast, in the instant
case, the same facts that support the fraud claim support a
parallel breach of contract claim, and the breach of the contract
containing the forum selection clause and the fraud accompanying
that breach are the focus of the complaint.
                           No. 06-20561
                               -10-

persuasive in the absence of these distinctions, it is

inconsistent with our circuit’s precedent that allegations of

fraud in the inducement of a contract must relate specifically to

the forum selection clause to render that clause unenforceable.

Cf. Haynsworth, 121 F.3d at 962-63 (holding that to invalidate a

forum selection clause alleged fraud must be specific to that

clause).   Accordingly, the claims brought are within the scope of

the forum selection clause.

D.   Unjust and Unreasonable

     To defeat the presumption that the forum selection clause at

issue here is valid, the plaintiffs must show that enforcement in

this situation would be unreasonable and unjust.   See The Bremen,
407 U.S. at 10.   The plaintiffs contend that applying the clause

is unreasonable and would effectively deny the plaintiffs their

day in court because (1) it would be very expensive and take a

long time to bring suit against Modec USA in Brazil, and

(2) Modec USA has already argued that it is not part of the

Consortium and that the Conversion Contract does not apply to it.

These arguments do not satisfy the heavy burden the plaintiffs

have in demonstrating unreasonableness, particularly given that

one of the plaintiffs, Petrobras, is located in Brazil and the

plaintiffs chose Brazil as the designated forum.

     In support of its argument that the cost and time necessary

to bring suit against Modec USA in Brazil would be prohibitive,

the plaintiffs note that to serve Modec USA, they would have to

utilize letters rogatory, a process that can take up to a year or

more.   But as the plaintiffs waited more than four years after
                             No. 06-20561
                                 -11-

bringing suit against the other members of the Consortium to file

this complaint against Modec USA, their argument that time

considerations make enforcement of the forum selection clause

unreasonable is unconvincing.    Had the plaintiffs brought suit

against Modec USA in 2002 when they filed suit against the other

parties, service might well have been complete at this point in

the litigation.   And although the plaintiffs contend that if they

are forced to begin the time-consuming letters-rogatory process

now, witnesses and evidence will likely become stale, they cite

no specific evidence or witnesses.    Again, the plaintiffs’ four-

year delay in bringing the suit against Modec USA undercuts their

assertion that time concerns require litigating this action in

the United States.

     Further, the plaintiffs’ argument that the procedures in

Brazil are onerous is undercut by the fact that they chose Brazil

as their designated forum.    The plaintiffs were sophisticated

parties contracting voluntarily, and the plaintiffs do not allege

fraud specific to the inclusion of the forum selection clause.

     Finally, the plaintiffs contend that Modec USA has not

consented to jurisdiction in Brazil.    But Modec USA also has not

challenged Brazil’s jurisdiction or even been served with a

complaint in the Brazilian litigation.      And although Modec USA

did argue in the district court that it is not part of the

Consortium and that the Conversion Contract does not apply to it,

this argument challenges the merits of the complaint and does not

imply that Brazil would not have jurisdiction.      The plaintiffs

have not satisfied their burden that it would be unjust or
                           No. 06-20561
                               -12-

unreasonable to enforce the forum selection clause.

     Because the claims at issue in this case fall within the

scope of the forum selection clause, and enforcement of the

clause is not unreasonable or unjust under these circumstances,

the district court did not err in enforcing the forum selection

clause.   We need not and do not reach the remaining

issuesSSwhether the district court properly determined that this

suit was duplicative of the Brazilian suit or whether the first-

to-file rule was properly appliedSSbecause those issues involve

alternative grounds relied on by the district court.

                        III.   CONCLUSION

     For the foregoing reasons, we AFFIRM the district court’s

judgment and its subsequent order denying reconsideration.