Huffington v. T.C. Group, LLC

United States Court of Appeals
For the First Circuit

No. 10-1405

MICHAEL HUFFINGTON,

Plaintiff, Appellant,

v.

T.C. GROUP, LLC; THE CARLYLE GROUP; CARLYLE CAPITAL CORPORATION,
LTD.; CARLYLE INVESTMENT MANAGEMENT, LLC; DAVID M. RUBENSTEIN,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Patti B. Saris, U.S. District Judge]

Before

Lynch, Chief Judge,

Boudin and Howard, Circuit Judges.

John A. Tarantino with whom Paul V. Curcio, Philip Y. Brown,
Edward F. Whitesell, Jr. and Adler Pollock & Sheehan P.C. were on
brief for appellant.
Robert A. Van Kirk with whom Vidya A. Mirmira, Jonathan E.
Pahl and Williams & Connolly LLP were on brief for appellees.

February 25, 2011
 BOUDIN, Circuit Judge. This appeal concerns a forum

selection clause in a securities contract. Michael Huffington, a

Massachusetts resident, made a $20 million investment in a fund

raised by The Carlyle Group ("Carlyle"), a trade name for T.C.

Group, LLC, a global investment management firm organized under

Delaware law with its principal place of business in Washington,

D.C. The investment occurred after Huffington had discussions with

David Rubenstein, a founder and managing director of Carlyle.

According to the complaint, whose allegations we accept

as true for purposes of this appeal, Chmielinski v. Massachusetts,

513 F.3d 309, 311 (1st Cir. 2008), there had been earlier

discussions between Huffington and Rubenstein about Carlyle's

private equity business, but Huffington expressed reservations

about private equity because of his cautious investment philosophy

and told Rubenstein that he "wanted something more conservative."

Rubenstein told Huffington that he would check on Carlyle

investment products more suitable for Rubenstein's risk profile.

On August 29, 2006, Carlyle formed Carlyle Capital

Corporation, Ltd. ("the fund"), which was to be managed by Carlyle

Investment Management with the stated goal of achieving "risk-

adjusted returns." Unlike most of Carlyle's offerings, the fund

was not private equity but was rather an independent, Guernsey-

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based company;1 its aim was to invest in fixed-income securities,

primarily residential mortgage-backed securities issued by the

Federal National Mortgage Association ("Fannie Mae") and the

Federal Home Loan Mortgage Corporation ("Freddie Mac"). The value

of such securities depends, of course, on the cash flow generated

by the mortgages and the prospects that the principal and interest

will be paid.

According to Huffington, Rubenstein--in a visit to the

former's home in Boston--presented the fund as a lower risk

investment vehicle that would suit Huffington's philosophy and told

Huffington that Carlyle and the fund used a conservative investment

strategy that avoided "overleverage." Rubenstein followed up with

a letter repeating that the fund was a lower risk investment with

limited downside. Other materials from Carlyle and telephone

conversations with John Stomber, who was in charge of the fund,

reinforced this message.

On January 9, 2007, Huffington, using an investment

vehicle whose details are irrelevant to this appeal, committed to

purchasing shares of the fund for $20 million. As part of the

commitment, Huffington executed a subscription agreement ("the

agreement"), which governed his rights and duties as a shareholder

1
Carlyle asserts that the fund is a Guernsey limited company
now in liquidation proceedings and is not controlled by Carlyle,
T.C. Group, Carlyle Investment Management, or Rubenstein (together
"the Carlyle defendants"). The fund did not join the brief
submitted by the Carlyle defendants and did not file its own brief.

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in the fund. The agreement included a choice of law clause and a

forum selection clause. The choice of law clause provided:

[T]he parties expressly agree that all terms
and provisions hereof shall be governed,
construed and enforced solely under the laws
of the State of Delaware, without reference to
any principles of conflicts of law (except
insofar as affected by the state securities or
"blue sky" laws of the jurisdiction in which
the offering described herein has been made to
the Investor).

The forum selection clause provided: "The courts of the State of

Delaware shall have exclusive jurisdiction over any action, suit or

proceeding with respect to this Subscription Agreement . . . ."

On January 26, 2007, Huffington met with Stomber and

other Carlyle representatives and was told--for the first time, he

claims--that the fund would be leveraged. Nevertheless, Huffington

received assurances that despite the fund's use of leverage, he

should not be concerned about its risk. On February 20, Carlyle

notified Huffington that the fund had accepted his commitment, and

Huffington wired his $20 million investment.

In the spring, summer, and fall of 2007, Huffington made

inquiries about the status of the fund and was repeatedly assured

by Stomber that his investment was safe. But even as these

reassurances were given to Huffington, the fund's performance began

to suffer because the value of mortgage-backed securities held by

the fund started declining. In March 2008, the fund--having

leveraged its equity thirty-two times to buy securities--defaulted

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on its loans and, its traded shares having plunged to less than

ninety-eight percent of their initial offering price, went into

liquidation.

On July 13, 2009, Huffington brought suit in

Massachusetts state court alleging three claims against the Carlyle

defendants and the Guernsey-based fund for allegedly

misrepresenting the risks associated with the fund: (1) a violation

of the Massachusetts Blue Sky Law (formally, the Massachusetts

Uniform Securities Act), Mass. Gen. Laws ch. 110A, § 410 (2008),

(2) common-law misrepresentation, and (3) a violation of the

Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A,

§ 11. The Carlyle defendants removed the case to federal court.

On February 19, 2010, the district court dismissed

Huffington's claims without prejudice, Fed. R. Civ. P. 12(b)(6),

concluding that the forum selection clause encompassed his claims

and that the clause did not offend Massachusetts public policy.

Huffington v. T.C. Group, LLC, 685 F. Supp. 2d 239, 244 (D. Mass.

2010). Huffington now appeals to contest this ruling, whose

correctness turns on legal issues that we review de novo, Rafael

Rodríguez Barril, Inc. v. Conbraco Indus., Inc., 619 F.3d 90, 92

(1st Cir. 2010). Although the Carlyle defendants assert that

Huffington was made well aware of both the prospective leverage and

the risks associated with the investment, the merits of the

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controversy are not before us--only the proper venue for their

determination.

A forum selection clause may make the designated forum

merely available for resolution of disputes or it may make it

"exclusive," at least in the sense that either side can insist upon

it as the venue. See Rivera v. Centro Médico de Turabo, Inc., 575

F.3d 10, 17 (1st Cir. 2009). In this case, both sides agree that

the clause is exclusive; the issues primarily in dispute are

whether the clause covers the claims set forth in Huffington's

complaint and, if so, whether the clause is enforceable.

We start with the coverage question. The terse language

of the forum selection clause, already quoted in full, makes

Delaware courts the exclusive forum for "any action, suit or

proceeding with respect to this Subscription Agreement."

Huffington argues that his claims are not "with respect to" the

agreement because he advances no contract claim and his stated

statutory and common-law tort claims rest on alleged

misrepresentations that occurred before he signed the agreement.

Under the choice of law clause, the agreement itself--

necessarily including the forum selection clause--is (the blue sky

exception aside) governed by Delaware law; but the parties do not

claim that Delaware law varies from ordinary contract principles.

Nor do they suggest that the forum selection clause is illuminated

by any extrinsic evidence, say, of pre-contract negotiations about

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it. So the scope question turns, as often is so with contracts, on

plain language, attributed purpose, available precedent, and any

background policy considerations that may bear.

Starting with language, see Rivera, 575 F.3d at 19,

Huffington's position would wear well if the clause encompassed

only claims "to enforce or for breach of" this agreement, e.g.,

Jacobson v. Mailboxes Etc. U.S.A., Inc., 646 N.E.2d 741, 744 (Mass.

1995) ("all actions enforcing this agreement"); but the clause by

its terms reaches any claim "with respect to" the agreement and

easily invites a broader application. This is confirmed by the

usual sources: dictionaries and case law construing such phrases.

Dictionaries describe the phrase "with respect to" as

synonymous with the phrase "with reference or regard to something,"

13 The Oxford English Dictionary 732 (2d ed. 1989) (emphasis

omitted); and they define the word "respect" in the context of the

phrase as meaning simply "relation," "reference," "connection," or

"association" to a particular thing.2 Thus, a suit is "with

respect to" the agreement if the suit is related to that

2
E.g., The American Heritage Dictionary 1052-53 (2d coll. ed.
1991) (defining "respect" as "[r]elation; reference"); The Random
House Dictionary of the English Language 1640 (2d ed. unabr. 1987)
(defining "respect" as "relation or reference"); Webster's Third
New International Dictionary 1934 (unabr. 2002) (defining "respect"
as "a relation or reference to a particular thing or situation");
West's Legal Thesaurus/Dictionary 644, 657 (spec. deluxe ed. 1986)
(defining "respect" as "relation" and "relation" in turn as a
"connection or association").

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agreement--at least if the relationship seems pertinent in the

particular context.

So, too, courts describe the phrase "with respect to" as

synonymous with the phrases "with reference to," "relating to," "in

connection with," and "associated with," and they have held such

phrases to be broader in scope than the term "arising out of," to

be broader than the concept of a causal connection, and to mean

simply "connected by reason of an established or discoverable

relation." Coregis Ins. Co. v. Am. Health Found., Inc., 241 F.3d

123, 128-29 (2d Cir. 2001) (Sotomayor, J.) (collecting

authorities); see also John Wyeth & Bro. Ltd. v. CIGNA Int'l Corp.,

119 F.3d 1070, 1074-75 (3d Cir. 1997) (Alito, J.).

Huffington counters that the "misrepresentations at issue

would be actionable regardless of whether the parties executed a

contract," but that is not quite so. On some facts a

misrepresentation can be actionable without a contract, but the

alleged "misrepresentations at issue" are actionable here, on

Huffington's own theories of liability, only because they caused

him to enter into an agreement whereby he made an unfavorable

purchase. In a nutshell, only if the misrepresentations

proximately caused the agreement and consequent acquisition was

there a recoverable loss.

Indeed, the purchase could not have been made without the

agreement. The fund was offered privately, in reliance upon the

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exemption from registration under section 4(2) of the Securities

Act of 1933, 15 U.S.C. § 77d(2) (2006), and Regulation D, 17 C.F.R.

§ 230.501-.508 (2010). In accordance with the exemption,

prospective investors were required to "execute and deliver a

complete Subscription Booklet, which includes a subscription

agreement."

Each cause of action Huffington asserted has as a

prerequisite the loss that flowed from the agreement and

acquisition. The Blue Sky claim is for misrepresentations creating

liability "to the person buying the security." Mass. Gen. Laws

ch. 110A, § 410(a)(2). A misrepresentation claim under

Massachusetts common law requires an act causing loss in reasonable

reliance upon a misrepresentation, Masingill v. EMC Corp., 870

N.E.2d 81, 88 (Mass. 2007)--again, in this case the contracted-for

purchase. The 93A claim too depends on a "loss of money or

property." Mass. Gen. Laws ch. 93A, § 11.

Finally, forum selection clauses have varying purposes,

but one reasonably inferred where, as here, a security is being

offered to a range of customers is to concentrate all related

litigation in a single forum. This assures the defendant that it

will be able to litigate all of the actions in one place convenient

to it; that one set of rules will apply; that consolidation may be

readily available; that inconsistent outcomes can be minimized; and

that a single lead precedent can control all cases. We do not, in

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passing on a motion to dismiss, rely on Carlyle's more specific but

perhaps disputable version of its intent.3

Forum selection clauses using embracing language are

common and have usually been construed broadly.4 Courts have often

contrasted this language with narrower language--e.g., "to

enforce," "to construe"--that could easily have been employed if a

narrower focus were intended. E.g., John Wyeth & Bro., 119 F.3d at

1075; Jacobson, 646 N.E.2d at 744-45. Tellingly, the precedents

offered by Huffington are from this latter category and readily

distinguishable. E.g., Computer Sales Int'l, Inc. v. Lycos, Inc.,

No. Civ.A.05-10017 RWZ, 2005 WL 3307507, at *2 (D. Mass. Dec. 6,

2005).

This brings us to the issue of enforceability and, once

again, as in Conbraco, 619 F.3d at 92, we can sidestep the Erie

question, Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), of whether

to treat the issue of a forum selection clause's enforceability as

"procedural" (and so look to federal law for a test) or as

"substantive" (and instead look to state law). That is because, in

3
The Carlyle defendants say that centralization was important
to Carlyle because, among other reasons, the fund was a foreign
entity, incorporated in Guernsey; was marketed to investors in
foreign countries; and, after early rounds of private financing,
traded on a foreign exchange in Amsterdam.
4
E.g., ACE Capital Re Overseas Ltd. v. Cent. United Life Ins.
Co., 307 F.3d 24, 30 & n.2 (2d Cir. 2002) (Sotomayor, J.) (citing
cases); Coregis Ins. Co., 241 F.3d at 128-29 (citing cases); Roby
v. Corp. of Lloyd's, 996 F.2d 1353, 1361 (2d Cir.), cert. denied,
510 U.S. 945 (1993).

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determining enforceability, both Delaware and Massachusetts follow

the federal common-law standard described by the Supreme Court in

The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972).5

Under Bremen, "the forum clause should control absent a

strong showing that it should be set aside," 407 U.S. at 15, and

the party resisting enforcement bears the "heavy burden" of

demonstrating why the clause should not be enforced, id. at 17.

The Supreme Court has listed four grounds for finding a forum

selection clause unenforceable:

(1) the clause was the product of "fraud or
overreaching," id. at 15;

(2) "enforcement would be unreasonable and
unjust," id.;

(3) proceedings "in the contractual forum will
be so gravely difficult and inconvenient that
[the party challenging the clause] will for
all practical purposes be deprived of his day
in court," id. at 18; or

(4) "enforcement would contravene a strong
public policy of the forum in which suit is
brought, whether declared by statute or by
judicial decision," id. at 15.

See also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,

473 U.S. 614, 632-33 (1985) (discussing Bremen's factors).

The first three conditions can be put aside. The first

is triggered not by claims that the contract was induced by fraud

5
Ingres Corp. v. CA, Inc., 8 A.3d 1143, 1145 & n.8 (Del.
2010); Aveta, Inc. v. Colón, 942 A.2d 603, 607 n.7 (Del. Ch. 2008);
Cambridge Biotech Corp. v. Pasteur Sanofi Diagnostics, 740 N.E.2d
195, 201 (Mass. 2000).

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but only by a focused showing--which Huffington does not attempt--

that "the inclusion of that clause in the contract was the product

of fraud or coercion." Scherk v. Alberto-Culver Co., 417 U.S. 506,

519 n.14 (1974) (emphasis omitted). Although Huffington says that

fairness and convenience support a Massachusetts forum, he does not

show that litigating in Delaware, as agreed, is unreasonable or

unjust.

If the second condition turned on "contacts" or

"convenience," Huffington might have something to argue about since

Massachusetts was his residence and he received a visit and

communications in the state relating to the purchase. But both

context and association with other terms (fraud, unjust, strong

public policy) make clear that the second condition is more

demanding. See also Carnival Cruise Lines, Inc. v. Shute, 499 U.S.

585, 595 (1991). The third--requiring practical impossibility--is

even clearer on this point. Furness v. Wright Med. Tech., Inc. (In

re Mercurio), 402 F.3d 62, 66 (1st Cir. 2005).

Huffington invokes an unpublished district court

decision, Nutracea v. Langley Park Invs. PLC, No. 2:06-cv-2019-MCE-

DAD, 2007 WL 135699 (E.D. Cal. Jan. 16, 2007), in which the court

declined to enforce a stock purchase agreement's forum selection

clause that denominated New York as the forum, basing its decision

on convenience, fairness, and California public policy, id. at *1-

*3. Nutracea relied in part on flexible venue transfer criteria,

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28 U.S.C. § 1404(a) (2006), see 2007 WL 135699 at *1, *3--not the

Bremen requirements that bind us in this case. As the Second

Circuit explained:

The same broad-based balancing [in a motion to
transfer venue] is not appropriate where, as
here, a party seeks to have an action
dismissed or remanded to state court, rather
than transferred, on the basis of a forum
selection clause that purports to preclude
litigation from a venue other than a specific
state court.

Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir. 1990) (per curiam);

see also Langley v. Prudential Mortg. Capital Co., 546 F.3d 365,

369 (6th Cir. 2008).6

Huffington's core challenge rests on Bremen's fourth

factor: that "enforcement would contravene a strong public policy

of the forum in which suit is brought, whether declared by statute

or by judicial decision," 407 U.S. at 15. Huffington argues that

the public policy underpinning the Massachusetts Blue Sky Act

requires that courts in Massachusetts must always retain

jurisdiction over such claims. If so, that policy might carry

weight even assuming that it was not binding under Erie. Compare

Albemarle Corp. v. AstraZeneca UK Ltd., 628 F.3d 643, 651-53 (4th

6
Nutracea also relied on what it understood to be public
policy considerations adopted by the California courts to protect
claims under its state securities law statute. Even assuming that
Massachusetts courts took the view attributed to California,
Massachusetts' interest in its statute is adequately protected in
this case for reasons discussed below.

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Cir. 2010), with Doe 1 v. AOL LLC, 552 F.3d 1077, 1085 (9th Cir.

2009) (Nelson & Reinhardt, JJ., concurring) (per curiam).

However, by its terms, the Massachusetts Blue Sky Law

simply creates a cause of action making liable--for any material

misrepresentation causing loss--a person who offers or sells a

security in Massachusetts. Mass. Gen. Laws ch. 110A, § 410(a)(2).

Nothing cited to us suggests that the cause of action can be

litigated only in a court located in Massachusetts or that

Massachusetts forbids dismissals where a forum selection clause

specifies a different forum. Massachusetts securities law claims

are not uncommonly brought in other jurisdictions.7

Huffington points us to the anti-waiver provision of the

Massachusetts Blue Sky Law, which invalidates any agreement by the

buyer to "waive compliance with any provision of this chapter or

any rule or order hereunder," Mass. Gen. Laws ch. 110A, § 410(g).

In the analogous federal securities context, a "chorus of

authority," Haynsworth v. The Corporation, 121 F.3d 956, 960 (5th

Cir. 1997), cert. denied, 523 U.S. 1072 (1998), has held that anti-

waiver provisions, e.g., 15 U.S.C. §§ 77n, 78cc(a), do not

categorically render forum selection clauses unenforceable. Lipcon

7
E.g., F.W. Webb Co. v. State St. Bank & Trust Co., No. 09-
Civ. 1241(RJH), 2010 WL 3219284, at *15-*16 (S.D.N.Y. Aug. 12,
2010); In re Nat'l Century Fin. Enters., Inc., 541 F. Supp. 2d 986,
1010-11 (S.D. Ohio 2007); I-Enter. Co. v. Draper Fisher Jurvetson
Mgmt. Co. V, No. C-03-1561 MMC, 2005 WL 3590984, at *24-*26 (N.D.
Cal. Dec. 30, 2005).

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v. Underwriters at Lloyd's, London, 148 F.3d 1285, 1295 (11th Cir.

1998) (joining seven circuits), cert. denied, 525 U.S. 1093 (1999).

Finally, Huffington argues that the Massachusetts statute

has terms quite favorable to the buyer. E.g., Marram v. Kobrick

Offshore Fund, Ltd., 809 N.E.2d 1017, 1025-27 (Mass. 2004).

Ordinarily, a forum selection clause is respected even if the forum

state would substitute its own remedy, so long as the chosen forum

will itself provide an adequate remedy. Lipcon, 148 F.3d at 1297.

But the outcome might be different if Delaware were likely to

substitute a substantially less powerful remedy in the teeth of a

strong Massachusetts policy.

However, while a Delaware choice of law clause (quoted

above) appears in the agreement, that clause--unlike the forum

selection clause--is addressed to interpretation and enforcement of

the agreement and not to all claims "with respect to" the

agreement; and, anyway, the choice of law clause provides that

Delaware law controls "except insofar as affected by the state

securities or 'blue sky' laws of the jurisdiction in which the

offering described herein has been made to the Investor." This

seems at first blush to preserve Huffington's Massachusetts Blue

Sky Law claim at issue.

Huffington does not directly argue that a Delaware court

would refuse to enforce the Massachusetts Blue Sky Law--he has

filed a protective action in Delaware setting forth that very

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claim--and apart from Nutracea, 2007 WL 135699, at *1-*3, the

precedents to which he points involve cases where the plaintiffs

would have had no adequate remedy in the selected forum because of

their inability to maintain a lawsuit in that forum, e.g., Brown v.

Scrips Invs. & Loans, Inc., No. C08-1166 RSM, 2009 WL 1649947, at

*4-*6 (W.D. Wash. June 11, 2009).

In all events, Huffington agreed that "related to" claims

would be litigated in Delaware--where he remains free to argue that

the Massachusetts Blue Sky claim survives by virtue of

Massachusetts law, the choice of law clause's narrower language, or

this clause's blue sky exception. Here, as in Conbraco, 619 F.3d

at 95, as against mere doubts (if any) that the claim would not

survive, which would only juxtapose a possible Massachusetts

interest against the explicit agreement, the agreement prevails.

There remains to be addressed only Huffington's

suggestion that the enforceability of the forum selection clause

should be certified to the Massachusetts Supreme Judicial Court if

we have any doubt about state law on the issue. Certification is

not routine, is rarely done where not requested in the district

court, and is not necessary here--this case having been excellently

briefed and argued on both sides in this court.

Affirmed.

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