Court Opinion

ID: 3000195
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:02:14.050452+00
Date Added: 2024-06-11T11:45:40.599092
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                          ____________

No. 06-1835
ABBOTT LABORATORIES,
                                                  Plaintiff-Appellant,
                                  v.

TAKEDA PHARMACEUTICAL COMPANY LIMITED, et al.,
                                               Defendants-Appellees.
                          ____________
             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
              No. 05 C 3758—Ronald A. Guzmán, Judge.
                          ____________
   ARGUED OCTOBER 16, 2006—DECIDED FEBRUARY 2, 2007
                          ____________

 Before POSNER, RIPPLE, and WOOD, Circuit Judges.
   POSNER, Circuit Judge. In 1977, Abbott Laboratories
and the Japanese pharmaceuticals manufacturer Takeda
formed a 50-50 joint venture, Takeda-Abbott Products, to
engage in pharmaceutical research and development. In
1985 the parties converted it into a Delaware corpora-
tion, TAP Pharmaceuticals, which they continued to own
equally; each of the joint venturers was therefore en-
titled to choose half the members of TAP’s board of
directors. The 1985 agreement also expanded the scope of
the joint venture to include the distribution of pharmaceu-
2                                              No. 06-1835

ticals. In that regard the agreement provided that both
Abbott and Takeda could contract with TAP to furnish
it with bulk product for it to distribute. TAP was to
select bulk suppliers “on the basis of the economic ad-
vantage to TAP,” but was to give the original supplier
of the bulk product “the first opportunity to quote on”
resupplying it. The parties further agreed “to utilize their
voting power in [TAP] in such a manner as to effectuate
the intent of” both the 1977 and 1985 agreements.
  In 1995 Takeda made a contract to supply TAP for ten
years with bulk lansoprazole, a drug for treating symp-
toms of heartburn and acid reflux, which TAP marketed
under the name Prevacid. In 2004, shortly before the
contract expired, TAP’s board of directors voted to
renew it. Six months later Abbott filed this suit against
Takeda. The complaint charges that the defendant, in
breach of a fiduciary duty to Abbott imposed by Dela-
ware law (remember that TAP is a Delaware corpora-
tion), had coerced Abbott to instruct its directors on
TAP’s board to vote to renew the contract, even though the
contract price was excessive. Takeda had been able to
coerce Abbott, the complaint explains, by threatening to
stop supplying lansoprazole to TAP. How such a threat
could be credible is unclear; and one might also wonder
how Takeda could benefit from forcing TAP, of which
it was half owner, to pay an exorbitant price for a
critical input. Wouldn’t that be cutting off one’s nose to
spite one’s face? Abbott’s answer is that by forcing re-
newal at an exorbitant price and thus increasing Takeda’s
profits but TAP’s costs (and so reducing TAP’s profits),
Takeda would come out ahead because half of TAP’s
profits go to Abbott but all of Takeda’s profits go to
Takeda.
No. 06-1835                                                 3

  Abbott filed its suit in the federal district court in Chi-
cago, basing federal jurisdiction on diversity of citizenship.
The choice of forum was a surprise. The 1985 agreement
between Abbott and Takeda that created TAP states that
“in the event of a dispute between [Abbott and Takeda]
arising from, concerning or in any way related to this
Agreement,” suit shall be brought in Japan if Abbott is the
plaintiff and in Illinois if Takeda is the plaintiff. The
purpose of specifying two forums in this way is to dis-
courage either side from instituting litigation, because
whoever sues must litigate on the other party’s turf.
Compare Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585,
595 (1991). The downside is that if a dispute arises, each
party may try to maneuver the other into suing first, and
such maneuvers could make litigation more likely. But
the parties, being commercially sophisticated entities,
must have thought this effect of such a forum selection
clause less likely than its effect in discouraging litigation.
The district court held the clause valid and applicable, and
so dismissed the suit, precipitating this appeal.
  The 1985 agreement states that it “shall be governed by
the laws of the State of Illinois.” But there is a question
whether this provision bound the district court, and binds
us, with respect to forum selection. We left open the
question whether federal or state law governs the validity
and interpretation of such clauses in diversity suits in IFC
Credit Corp. v. Aliano Brothers General Contractors, Inc., 437
F.3d 606, 609 (7th Cir. 2006). We noted that if federal law
applies there may be an invitation to forum shopping
because the state law may be different, but that if state law
applies the determination of the forum for the litigation
is withdrawn from the federal courts even though they
have an independent interest in determining whether
4                                                 No. 06-1835

the suit is litigated in a federal district court and if so in
which one. Neither consideration figures in this case. There
is no risk of forum shopping, because if Abbott had filed
its suit in a state court Takeda could have removed it to a
federal court in the same state. And it is a matter of indif-
ference to the federal judiciary whether the forum selec-
tion clause in this case is enforced—it is no skin off the
federal courts’ back if this suit is litigated in Japan, but at
the same time there is nothing about the litigation that
would make it abnormally burdensome to the federal
district court in Chicago, as might be a concern if that
court somehow lacked the procedural or other resources
that are required for resolving an international commer-
cial dispute.
  Simplicity argues for determining the validity and
meaning of a forum selection clause, in a case in which
interests other than those of the parties will not be sig-
nificantly affected by the choice of which law is to control,
by reference to the law of the jurisdiction whose law
governs the rest of the contract in which the clause ap-
pears, Northwestern National Ins. Co. v. Donovan, 916 F.2d
372, 375-76 (7th Cir. 1990); Yavuz v. 66 MM, Ltd., 465 F.3d
418, 428 (10th Cir. 2006); Gleich v. Tastefully Simple, Inc.,
No. 05 C 1415, 2005 WL 3299187, at *5 (N.D. Ill. Dec. 2,
2005), rather than making the court apply two different
bodies of law in the same case. This implies that Illinois
law governs the validity of the forum selection clause in
this case.
   But while as we noted in IFC Credit Corp. v. Aliano
Brothers General Contractors, Inc., supra, 437 F.3d at 611-13,
there are differences of nuance between the federal and the
Illinois standards for determining the validity of a forum
selection clause, there is agreement between the jurisdic-
No. 06-1835                                                5

tions that ordinarily the parties’ contractual choice of
forum should be overridden only if that choice would
impose significant costs on third parties or on the judicial
system. Compare id. at 613; AAR Int’l, Inc. v. Nimelias
Enterprises S.A., 250 F.3d 510, 525 n. 9 (7th Cir. 2001), and
Northwestern National Ins. Co. v. Donovan, supra, 916 F.2d at
376, with Aon Corp. v. Utley, No. 1-05-2824, 2006 Ill. App.
LEXIS 1021, at *19-21 (Ill. App. Nov. 9, 2006); Yamada Corp.
v. Yasuda Fire & Marine Ins. Co., 712 N.E.2d 926, 934 (Ill.
App. 1999), and Calanca v. D & S Mfg. Co., 510 N.E.2d 21,
23-24 (Ill. App. 1987) (citing M/S Bremen v. Zapata Off-Shore
Co., 407 U.S. 1 (1972)). Neither basis for a finding of
invalidity is present in this case, and there is no conten-
tion that Abbott was coerced or deceived into agreeing
to the clause—Abbott proposed it to Takeda. The clause
is valid, and so we turn to the question of its meaning,
where again no difference between federal and Illinois
principles of interpretation (if there is a difference, which
we doubt) would affect the outcome.
  The clause is about as broadly worded as could be
imagined, and at least as a semantic matter it certainly
embraces Abbott’s suit. The breach of fiduciary obliga-
tion of its co-venturer about which Abbott complains
arose out of the corporate structure created by the agree-
ment, out of the provision of the agreement relating to
contracts with bulk suppliers, out of the deadlock potential
that the contractual provision for a 50-50 division of shares
and directors created, and out of the contractual duty of
the parties to vote their shares in a manner that would
achieve the purpose of the agreement, which was to
share profits equally—an intent that Takeda’s conduct, if
Abbott can be believed, flouted. So the wrong of which
Abbott’s suit complains arises from the 1985 agreement
6                                                  No. 06-1835

and even more clearly is related to it—the first thing
a court asked to adjudicate the suit would want to look
at would be the agreement.
  Abbott argues, however, that under Illinois principles for
the interpretation of forum selection clauses, a dispute
“relates to” an agreement only if resolution of the dispute
requires interpretation of the agreement. This would
mean that if Takeda acknowledged breaking the contract,
Abbott wouldn’t have to sue in Japan because there
would be no interpretive issue. That makes no sense; and
the case that Abbott cites in support, Boatwright v. Delott,
642 N.E.2d 875, 877 (Ill. App. 1994), is inapposite. It does
say that “forum selection clauses apply to tort claims
which require interpretation of the contract.” (Emphasis
added.) But the clause in Boatwright was much narrower
than the one in this case. It said nothing about arising
from or concerning or related to. Instead it said: “This
Contract shall be governed by and construed in accordance
with the law of the state of Texas applicable to contracts.”
(Emphasis added.)
   Abbott repeats its argument in different words when it
says that since its suit is a tort suit—a suit for breach of a
fiduciary duty to a partner in a joint venture—it arises out
of Delaware tort law rather than out of the 1985 agreement.
But the forum selection clause does not apply just to the
litigation of claims that arise out of, concern, etc., the
contract; it applies to the litigation of disputes that arise out
of, concern, etc., the contract. American Patriot Ins. Agency,
Inc. v. Mutual Risk Management, Ltd., 364 F.3d 884, 889 (7th
Cir. 2004); Marinechance Shipping, Ltd. v. Sebastian, 143
F.3d 216, 222-23 (5th Cir. 1998); John Wyeth & Brother Ltd. v.
CIGNA Int’l Corp., 119 F.3d 1070, 1074 (3d Cir. 1997). The
dispute is the parties’ disagreement over the validity and
No. 06-1835                                                  7

interpretation of the clause; the law of Delaware is (the
parties agree—though perhaps they shouldn’t, as we’ll
see in a moment) merely the body of law that will be used
to resolve the dispute. Even if the clause said “claim”
rather than “dispute,” Abbott’s argument would fail. A
claim of breach of contract arises from the contract and
from the parties’ conduct relating to the alleged breach.
  Abbott cites Parfi Holding AB v. Mirror Image Internet, Inc.,
817 A.2d 149 (Del. 2002), for the proposition that a claim
of breach of fiduciary duty (in that case of a majority
stockholder to the minority stockholders) is not “related to”
(or, in the words of Parfi, “in connection with”) the agree-
ment creating the contractual relationship between the
parties; in that case it was the agreement by which the
plaintiffs acquired their minority interest in the corpora-
tion. Just as in its handling of the Boatwright case, Abbott
overlooks a critical distinction between Parfi (which,
incidentally, is not an Illinois case) and the present case.
Parfi involved the interpretation not of a forum selection
clause but of an arbitration clause, and the competence
of arbitrators, who are not professional judges and often
aren’t even lawyers, is usually (though not always, see
Pearce v. E.F. Hutton Group, Inc., 828 F.2d 826, 829 (D.C. Cir.
1987)) limited to contractual interpretation, rather than
extending to the determination of tort claims, such as
breach of fiduciary duty. Armada Coal Export, Inc. v.
Interbulk, Ltd., 726 F.2d 1566, 1567-68 (11th Cir. 1984); see
Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-53
(2003) (plurality opinion); Hudson v. Chicago Teachers
Union, 743 F.2d 1187, 1195-96 (7th Cir. 1984); Old Dutch
Farms, Inc. v. Milk Drivers & Dairy Employees Local Union,
359 F.2d 598, 602-03 (2d Cir. 1966). Japanese courts are
staffed by professional judges competent to adjudicate
8                                               No. 06-1835

tort claims, including claims of fiduciary duty arising
under Delaware law, which the parties assume Japanese
courts would apply by virtue of the choice of law provi-
sion in the 1985 agreement; the provision requires dis-
putes to be resolved by the application of Illinois law.
  Illinois conflicts of law principles do suggest that Dela-
ware law governs Abbott’s claim of breach of fiduciary
duty. Spillyards v. Abboud, 662 N.E.2d 1358, 1361 (Ill. App.
1996); Libco Corp. v. Roland, 426 N.E.2d 309, 312 (Ill. App.
1981); Panter v. Marshall Field & Co., 646 F.2d 271, 285 (7th
Cir. 1981) (Illinois law). But we doubt that the choice of
law provision in the agreement was meant to incorporate
the entire law of Illinois, including its conflicts of law
principles. The usual assumption is that such a provi-
sion designates the law that will be applied to any dispute
that arises out of the contract in which the provision is
found. No matter; whether Illinois or Delaware law
governs the issue of fiduciary duty, Japanese courts are
competent to resolve the issue.
  It was natural for parties in the position Abbott and
Takeda were in when they negotiated the 1985 agree-
ment to want a dispute arising from an alleged abuse of
voting power to be encompassed by the forum selection
clause. That was probably the likeliest dispute to arise, and
one they would be particularly desirous of resolving
amicably, the goal of the clause. Were Abbott’s interpreta-
tion of the clause correct, moreover, we would be at a loss
to know how the clause could have been drafted to bring
this dispute within its scope. At argument Abbott’s
lawyer suggested that “the parties’ relationship” could
have been substituted for “this Agreement.” But that
would have invited Abbott to argue that the dispute in this
case arose not from the parties’ relationship but from
No. 06-1835                                                     9

Takeda’s unilateral misconduct and Delaware fiduciary
law.
   Abbott has one good interpretive argument, which is
that a “but for” test of “arising out of” or “related to”
would be unsound. For then if Abbott and Takeda had a
dispute over an unrelated agreement made 20 years later,
Takeda could argue that it arose from the 1985 agreement
because if it hadn’t been for what the parties learned
about each other in operating under the agreement they
would not have included in the later agreement the clause
giving rise to the dispute. Takeda’s lawyer at argument
readily conceded that the forum selection clause should
not be stretched that far, that is, to its literal limits. “But-
for causation is an unsatisfactory understanding of lan-
guage referring to ‘disputes arising out of’ an agreement.
Let us suppose that while inspecting Omron’s facilities,
a manager of Maclaren stepped on a baby rattle and fell.
Would the ensuing tort litigation go to the High Court of
Justice in the United Kingdom just because, but for the
distribution agreement, none of Maclaren’s employees
would have been on Omron’s premises?” Omron Healthcare,
Inc. v. MacLaren Exports Ltd., 28 F.3d 600, 602 (7th Cir.
1994); see also Carris v. Marriott Int’l, Inc., 466 F.3d 558, 559-
60 (7th Cir. 2006); Gavin v. AT & T Corp., 464 F.3d 634, 639-
40 (7th Cir. 2006); Movitz v. First Nat’l Bank of Chicago, 148
F.3d 760, 762-63 (7th Cir. 1998). The fact that a clause is
broadly worded to stop up loopholes doesn’t justify a
literal interpretation that carries far beyond any purpose
that can reasonably be imputed to the drafter. “When a
statute is broadly worded in order to prevent loopholes
from being drilled in it by ingenious lawyers, there is a
danger of its being applied to situations absurdly remote
from the concerns of the statute’s framers.” Fitzgerald v.
10                                                No. 06-1835

Chrysler Corp., 116 F.3d 225, 226 (7th Cir. 1997); see also
Tyson v. International Brotherhood of Teamsters, Local 710
Pension Fund, 811 F.2d 1145, 1149 (7th Cir. 1987). And so it
is with a forum selection clause. But this cannot carry the
day for Abbott. Its dispute with Takeda is not remote
from the purpose of the forum selection clause, but at its
heart.
   All that is left for Abbott to argue is that it would be
“unreasonable” to force it to litigate its suit in Japan. If so,
Illinois law would not require compliance with the forum
selection clause. Yamada Corp. v. Yasuda Fire & Marine Ins.
Co., supra, 712 N.E.2d at 932; Calanca v. D & S Mfg. Co.,
supra, 510 N.E.2d at 23; cf. M/S Bremen v. Zapata Off-Shore
Co., supra, 407 U.S. at 10. But what Abbott means by
“unreasonable” is simply that Japan is a less convenient
forum than Illinois for the litigation of this dispute. Maybe
so. And maybe therefore if the choice of forum were
governed by the doctrine of forum non conveniens Abbott
would be permitted to remain in Illinois, since balance
of convenience is the standard for application of the
doctrine. But a forum selection clause is a substitute for
the doctrine, not another name for it, and so the test of
reasonableness must be different from a test of conve-
nience. When it signed the 1985 agreement, Abbott (which,
remember, proposed the clause) could and no doubt did
consider the potential inconvenience of litigating in Japan,
but decided to risk it. It is bound by its choice. Id. at 16-17;
IFC Credit Corp. v. Aliano Brothers General Contractors,
Inc., supra, 437 F.3d at 613.
                                                    AFFIRMED.
No. 06-1835                                            11

A true Copy:
       Teste:

                      _____________________________
                      Clerk of the United States Court of
                        Appeals for the Seventh Circuit

                USCA-02-C-0072—2-2-07