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this opinion should not be published and is not precedent except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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.