The four-part venue test adopted by the Eastern District of Texas after the Heartland opinion was short-lived, as the Federal Circuit granted mandamus relief in In re Cray, noting: “[O]ur analysis of the case law and statute reveal three general requirements relevant to the inquiry: (1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant.”
While not within the usual subject matter of this blog, the general importance to Texas business litigation of the Eastern District’s June 30 decision in Raytheon Co. v. Cray, Inc. warrants attention. Raytheon sued Cray in the Marshall Division of the Eastern District for alleged infringement of at least two patents about supercomputer systems. After the Supreme Court’s recent opinion in TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514 (2017), Cray moved to transfer, arguing that it (1) did not reside in the district and (2) had not committed acts of infringement or had a regular and established place of business there. The Eastern District adopted a four-factor test and denied the motion, examining —
- physical presence “including but not limited to property, inventory, infrastructure, or people”;
- defendant’s representations “internatlly or externally, that is has a presence in the district”;
- benefits received from the defendant’s presence in the district, “including but not limited to sales revenue”; and
- “the extent to which a defendant interacts in a targeted way with existing or potential customers, consumers, users or entities within a district, including but not limited to through localized customer support, ongoing contractual relationships, or targeted marketing efforts.”
No. 2:15-CV-01554-JRG (June 29, 2017).
While arising from the Federal Circuit’s patent jurisdiction rather than the Fifth Circuit, the Supreme Court’s unanimous May 22 decision in TC Heartland LLC v. Kraft Foods Group Brands LLC is of great interest to all local corporations involved in patent litigation: “As applied to domestic corporations, ‘reside[nce]’ in [28 U.S.C.] § 1400(b) refers only to the State of incorporation.”
A former employee of a defense contractor sued for unpaid benefits; the forum selection clause said: “This Contract shall be governed by and interpreted exclusively under the laws of Kuwait and all disputes between the Parties shall be resolved exclusively in Kuwait.” Noting a potential threshold issue as to whether federal or Texas law governs the “validity” of a forum selection clause (while federal law clearly governs their “enforceability”), the Fifth Circuit found it enforceable under either standard. Kuwait – where the work was done – had a stronger interest in application of its laws than Texas, and the most relevant law was a statute of repose rather than limitation, which “operates as ‘a substantive definition of, rather than a procedural limitation on, rights.'” Barnett v. Dyncorp Int’l LLC, No. 15-10757 (July 26, 2016).
The forum selection clause in Weber v. Pact XPP Technologies AG, written in German, referred to the “Sitz” of defendant Pact AG, which could be translated as “residence” or “corporate seat.” After determining that a mixed de novo / abuse of discretion standard of review was appropriate after Atlantic Marine, the Fifth Circuit affirmed dismissal of a Texas case in favor of Germany. The Court found that the defendant’s broader reading of the clause was better-reasoned, that German law applied to its review (“A contract between a German corporation and a member of its board seems strongly to implicate German policy”), and that the plaintiff did not have a legally cognizable policy argument against enforcing the clause. No. 15-40432 (Jan. 26, 2016).
In the cases of In re: Radmax and In re: Volkswagen of America, the Fifth Circuit asserted its power to oversee the transfer of cases under 28 USC § 1404(a). In the recent case of In re: Archer Directional Drilling Co., the Court stayed and partially remanded a venue appeal for the district court to make findings on the relevant factors: “Here, unlike in Volkswagen and Radmax, the district court failed to provide any analysis supporting its denial of Archer’s motion to transfer the case. Articulating the basis for the denial of a change of venue motion is ‘the better practice’ for a district court. . . . In the present case, the lack of explanation makes it impossible for us to determine whether the district court clearly abused its discretion, which is required in order for us to decide whether to
grant mandamus relief.” (citations omitted). No. 15-41539 (Jan. 13, 2016, unpublished).
The Fifth Circuit reversed a ruling that declined to enforce a Moroccan judgment in the case of Dejoria v. Maghreb Petroleum Exploration, S.A., No. 14-51022 (Sept. 30, 2015). Acknowledging that the Moroccan court system has been criticized for a lack of independence from that country’s king, the Court concluded that “we cannot agree that the Moroccan judicial system lacks sufficient independence such that fair litigation in Morocco is impossible,” and that the defendant had not shown that “Morocco would not recognize an otherwise enforceable foreign judgment only because the judgment was rendered in Texas.” The Court distinguished other cases involving Iranian “revolutionary courts” and the Liberian court system during that country’s civil war, saying they “exemplify how a foreign judicial system can be so fundamentally flawed as to offend basic notions of fairness.”
Revisiting the forum non conveniens question whether Mexico is an “available alternative” forum for a tort claim, the Fifth Circuit reaffirmed that the damages caps imposed by Mexican law do not disqualify it as a forum, and that this defense may be raised even in the context of moving to set aside a default judgment. Moreno v. LG Electronics, USA, Inc., No. 14-40563 (Sept. 8, 2015).
Red Barn Motors sued its lender in a Louisiana district court. That court transferred the case to Indiana based on a forum selection clause. Three months later, the dealer sought mandamus relief from the Fifth Circuit, which denied its request. The Court noted that the case was no longer in the Circuit – meaning that the only possible remedy would be to ask the Indiana court to return the case, which would require a “very extreme case.” “Despite the potential availability” of this limited opportunity for mandamus relief, the Court found that the unexplained three-month delay in seeking review showed a lack of diligence that defeated the petition. In re: Red Barn Motors, Inc., No. 15-30067 (July 20, 2015).
Pearl Seas sued Lloyd’s Register North America (“LRNA”) for inadequate performance in certifying a cruise ship (the “Pearl Mist,” seen to the right.) LRNA moved to dismiss on the grounds of forum non conveniens in favor of England, citing a forum selection clause contained in its rules. The district court denied the motion without explanation and the Fifth Circuit reversed in a 2-1 panel opinion. In re Lloyd’s Register North America, Inc.. No. 14-20554 (Feb. 24, 2015), re-released after initial publication as a per curiam opinion on February 18.
The Court held: (1) as in the case of In re: Volkswagen, 545 F.3d 304 (5th Cir. 2008) (en banc), which involved the denial of a motion to transfer venue, mandamus is appropriate in the context of forum non conveniens; (2) it is an abuse of discretion to “grant or deny a[n FNC] motion without written or oral explanation” as to the relevant factors; and (3) the plaintiff was plainly bound by LRNA’s rules under the doctrine of direct-benefit estoppel, since its claim “referenced duties that must be resolved by reference to the classification society’s rules.” (citing Hellenic Inv. Fund v. Det Norkse Veritas, 464 F.3d 514 (5th Cir. 2006)). (A panel reached a similar result in Vloeibare Pret Limited v. Lloyd’s Register North America, Inc., No. 14-20538 (April 16, 2015, unpublished).
A dissent by Judge Elrod argued that the majority’s analysis of direct-benefit estoppel expanded the Court’s prior holdings in two areas — the degree to which the claim incorporated the relevant rules, and the timing of when the plaintiff learns of the rules. The dissent also expressed concern that the substantive claim would not be recognized in England.
The point of division between the majority and dissent — whether an error is “clear” or not — resembles a similar split between the majority and dissent in the mandamus case of In re Radmax, 720 F.3d 285 (5th Cir. 2013), which granted the writ as to the erroneous denial of an “intra-district” motion to transfer venue. Interestingly, Judge Higginson was the dissenter in Radmax, and also dissented from the denial of en banc review of that panel opinion, while here he forms part of the two-judge majority that grants mandamus relief. Judge Smith, who was in the majority of the Radmax panel opinion, is the author of this opinion after its initial release as per curiam.
In the press of year-end business, I neglected to cover a notable mandamus opinion in 2014 from the Federal Circuit, In re Google, Inc, No. 2014-147, 2014 WL 5032336 (Oct. 9, 2014). Reminiscent of that Court’s opinion in In re Genentech, 566 F.3d 1338 (2009), and the Volkswagen/Radmax line of cases from the Fifth Circuit, In re: Google addresses the denial of a motion to transfer patent litigation from the Eastern District of Texas.
The district court focused on “each defendant mobile phone manufacturer’s ability to modify and customize” the relevant platform. The Federal Circuit disagreed and granted mandamus relief, emphasizing the “substantial similarity involving the infringement and invalidity issues in all the suits.” That Court also rejected an argument based on the first-filed rule, finding that on these facts, “the equities of the situation do not depend on this argument.” (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip Co., 342 U.S. 180, 186 n.6 (1952). Concluding with a review of the practical considerations listed by 1404(a), the Court noted that the product at issue was developed in the Northern District of California, and thus the “bulk of the relevant evidence” is there as well.
A helicopter crashed in the Gulf of Mexico. Its owner sued three defendants — Rolls-Royce, who built the engine bearing in question; the designer of the “pontoon flotation” system that deployed after the crash; and a repair company that worked on that system. Rolls-Royce sought severance and transfer to Indiana, based on a forum selection clause in its warranty, and relying on the recent case of Atlantic Marine Construction v. Western District of Texas, 134 S. Ct. 568 (2013). The district court denied its motions; in a 2-1 decision, the Fifth Circuit reversed. In re: Rolls Royce Corp., 775 F.3d 671 (5th Cir. 2014).
After confirming that mandamus relief was available, despite the novel procedural context of a combined transfer and venue motion, the majority reviewed the applicability of Atlantic Marine. “For cases where all parties signed a forum selection contract, the analysis is easy: except in a truly exceptional case, the contract controls.” For a situation such as this one, however, the analysis is more subtle: “While Atlantic Marine noted that public factors, standing alone, were unlikely to defeat a transfer motion, the Supreme Court has also noted that section 1404 was designed to minimize the waste of judicial resources of parallel litigation of a dispute. The tension between these centrifugal considerations suggests that the need — rooted in the valued public interest in judicial economy — to pursue the same claims in a single action in a single court can trump a forum-selection clause.”
The dissent “believe[s] the majority have erroneously and confusingly diminished the scope of Atlantic Marine,” concluding: “Simple two-party disputes are near a vanishing breed of litigation. It seems highly unlikely that the Supreme Court granted certiorari and awarded the extraordinary relief of mandamus simply to proclaim that a forum selection clause must prevail only when one party sues one other party. The Court is not naive about the nature of litigation today.”
The forum selection clause in Waste Management of Louisiana LLC v. Jefferson Parish was permissive, not mandatory:
“Jurisdiction: This Agreement and the performance thereof shall be governed, interpreted, construed and regulated by the laws of the State of Louisiana and the parties hereto submit to the jurisdiction of the 24th Judicial District Court for the Parish of Jefferson, State of Louisiana. The parties hereby waiving [sic] any and all plea[s] of lack of jurisdiction or improper venue.”
When Waste Management sued in Louisiana federal court, the defendant’s forum non conveniens motion was denied and the Fifth Circuit declined to review that denial by interlocutory appeal. No. 14-90040 (Nov. 28, 2014, unpublished). The Court noted: “Unlike their mandatory counterparts, permissive forum selection clauses allow but do not require litigation in a designated forum. As such, we have never required district courts to transfer or dismiss cases involving clauses that are permissive.” It held that Atlantic Marine Construction v. District Court, 134 S. Ct. 568 (2013), did not change that rule, as that case involved a mandatory clause, and “[t]he vast majority of district courts deciding this issue have rejected Atlantic Marine’s application to permissive forum selection clauses.”
The Swareks and the Derrs disputed the ownership of a large farm in Issaquena County, Mississippi (at 1400 residents, the least populous county in that state, but also the home of its largest captured alligator). Their litigation unfolded as follows:
- In 2005, Swareks sued Derrs in Issaquena County;
- In March 2009, the Derrs sued Swareks in the — somewhat unlikely — venue of the German Regional Court in Düsseldorf, Germany (population 600,000, and capital of the state of North Rhine-Westphalia);
- In November 2009, the Swareks voluntarily dismissed their claims in Mississippi;
- In 2010, the Derrs lost in Germany when that court recognized the dismissal of the Mississippi claims; but then,
- The Derrs ultimately won on appeal in Germany before the Higher Regional Court of Düsseldorf, obtaining judgment for $300,000 in costs.
The Derrs sought to domesticate the judgment in Mississippi, and the district court rejected their request, citing res judicata and characterizing the German action as an end run around the Mississippi state court. On appeal, the Fifth Circuit affirmed with these three observations:
- “Filing a mirror-image lawsuit in a foreign court while domestic litigation is pending is not sufficient, on its own, to preclude recognition of a foreign judgment, and the district court erred in denying comity on this ground.”
- While dismissal for want of jurisdiction may not have preclusive effect, a voluntary dismissal does: “If the plaintiff chooses to extinguish his rights forever he is entitled to do so, and the defendant will reap the benefit of a res judicata bar to any attempt by the plaintiff
- As to the German appellate holding: “The German Higher Regional Court’s decision to sidestep the comity determination and re-adjudicate claims that had already been settled in the Chancery Court violated the Mississippi public policy of res judicata and the Swareks’ right to permanently terminate their claims. Comity must be a two-way street.”
A dissent characterized the interplay between the Mississippi and German holdings differently, and thus would affirm.
In a 9-0 opinion, the Supreme Court reversed a Fifth Circuit panel about the enforcement of a forum selection clause. Atlantic Marine Construction v. U.S. District Court for the Western District of Texas, 571 U.S. ___ (December 3, 2013). The panel opinion questioned enforceability when the district of suit was otherwise proper under the federal venue statutes; a strong dissent by Judge Catharina Haynes argued otherwise. The Supreme Court endorsed her position: “When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a §1404(a) motion be denied. And no such exceptional factors appear to be present in this case.” Procedurally, while the Supreme Court noted in its introduction that the case arose in a mandamus context, it nowhere discusses how that posture affects the analysis — a significant point that divided the Fifth Circuit’s recent en banc vote in the case of In re Radmax.
“What does Judge X think about my issue?” If Judge X has served on the Fifth Circuit for some time, his or her votes in two cases can provide good insight: (1) the denial of en banc rehearing in Huss v. Gayden, 585 F.2d 823 (5th Cir. 2009), a difficult Daubert case, and (2) the en banc opinion of In re Volkswagen, 545 F.3d 304 (5th Cir. 2008), which granted mandamus relief for the denial of a 1404 venue transfer motion from the Eastern District of Texas. A third case has now joined that list — the recent 7-8 vote to deny en banc rehearing for In re Radmax, 730 F.3d 285 (5th Cir. 2013). The Radmax panel granted mandamus relief to compel an intra-district transfer under section 1404. Judge Higginson, who dissented from the panel, also dissented from the en banc vote, pinpointing the issue as whether the ruling “propounds appellate mandamus power over district judges which the Supreme Court has said we do not have.” The votes in Huss, Volkswagen, and Radmax signal much about a judge’s philosophy as to the power and role of a district judge.
Plaintiffs sued for defamation, based on critical comments about their role in the Chinese drywall MDL that ended up on the “Above the Law” website. Herman v. Cataphora, Inc., No.12-30966 (Sept. 17, 2013). The Fifth Circuit agreed with the district court that Louisiana had no jurisdiction over the defendants because that state was not the “focal point” of the statements, citing Calder v. Jones, 465 U.S. 783 (1984) and Clemens v. McNamee, 615 F.3d 374 (5th Cir. 2010). It took issue, however, with the district court granting the motion to dismiss and then ordering a transfer. It noted that a district court has authority to transfer (under 28 U.S.C. § 1406(a)) if it determines that it lacks personal jurisdiction, and therefore vacated the dismissal order and remanded with instructions to order transfer.
In BP Exploration v. Johnson, the plaintiff in a Deepwater Horizon case sued in Texas to enforce an alleged settlement agreement. No. 12-20512 (Aug. 8, 2013, unpublished). BP asked the MDL panel to consolidate the case with the other Deepwater Horizon matters in the Eastern District of Louisiana. Before the panel could rule, however, the Texas judge asked for summary judgment briefing and granted summary judgment to the defense on the ground that no agreement had been created. The Fifth Circuit vacated the judgment and remanded with instructions to transfer to the MDL case, noting the complexity of the Deepwater Horizon litigation, and more generally: “It is typical in such scenarios for the court before which the tort claims are pending to determine whether a binding settlement agreement has arisen, as that court is already familiar with the parties and the claims and the proceedings.”
“Mandamus petitions from the Marshall Division are no strangers to the federal courts of appeals.” In re Radmax, Ltd., No. 13-40462 (June 18, 2013). In Radmax, the Fifth Circuit found a clear abuse of discretion in declining to transfer a case from the Marshall Division of the Eastern District of Texas to the Tyler Division. It found that the district court incorrectly applied the eight relevant 1404(a) factors, giving undue weight to potential delay and not enough weight to witness inconvenience, and quoting Moore’s Federal Practice for the principle that “‘the traditional deference given to plaintiff’s choice of forum . . . is less’ for intra-district transfers.” Accordingly the Court granted mandamus pursuant to In re Volkswagen, 545 F.3d 304 (5th Cir. 2008) (en banc). A pointed dissent agreed that the 1404(a) factors favored transfer but saw no clear abuse of discretion, noting that there was no clear Fifth Circuit authority on several of the points at issue in the context of intra-district transfers. “The majority persuasively fills those doctrinal gaps with citations to Moore’s Federal Practice; that treatise may prove convincing, but it is not binding law.”
The Supreme Court has granted certiorari in the case of In re Atlantic Marine Construction, 701 F.3d 736 (5th Cir. 2012), which declined to grant mandamus relief to enforce a forum selection clause. The questions for review indicate that the Court plans to resolve a circuit split about the standard for enforcement of a forum selection clause, when the forum of suit would otherwise be proper under the federal venue statutes. One view uses the test for “improper venue,” while another analyzes the issue under a 1404(a) convenience framework.
A creditor successfully made a “credit bid” under the Bankruptcy Code for assets of a failed golf resort. Litigation followed between the creditor and guarantors of the debt, ending with a terse summary judgment order for the guarantors: “This is not rocket science. The Senior Loan has been PAID!!!!” Fire Eagle LLC v. Bischoff, No. 11-51057 (Feb. 28, 2013). The Fifth Circuit affirmed in all respects, holding: (1) the bankruptcy court had jurisdiction over the dispute with the guarantors because it had a “conceivable effect” on the estate; (2) the issue of the effect of the credit bid was within core jurisdiction and did not raise a Stern v. Marshall issue; (3) core jurisdiction trumped a forum selection clause on the facts of this case; (4) a transfer into the bankruptcy court based on the first-to-file rule was proper; and (5) the creditor’s bid extinguished the debt. On the last holding, the Court noted that the section of the Code allowing the credit bid did not provide for fair-market valuation of the assets, unlike other Code provisions.
In re Atlantic Marine Construction denied a mandamus petition about enforcement of a forum selection clause, finding no “clear abuse of discretion.” No. 12-50826 (Nov. 19, 2012). The majority and specially concurring opinions exchanged detailed views on whether Fed. R. Civ. P. 12(b)(3) or 28 U.S.C. § 1404(a) controls a forum selection issue when the parties did not select state law to govern enforcement of the clause and venue would otherwise be proper in the district of suit. The majority opinion reflects a continuing conservatism in recent mandamus cases after 2008’s en banc Volkswagen opinion.
In National Union v. American Eurocopter, a contribution suit arising from settlement of claims about a helicopter crash, a Hawaii district court found no personal jurisdiction and transferred venue to Texas. No. 11-10798 (Aug. 27, 2012). The appellant challenged that ruling, and the Fifth Circuit held that it lacked jurisdiction over that issue. Id at 4 (quoting 28 U.S.C. § 1294, defining appellate jurisdiction as reaching “appeals . . . [f]rom a district court of the United States to the court of appeals for the circuit embracing the district”). On the merits, the Court affirmed a dispositive choice-of-law ruling for Texas law, noting a Texas choice-of-law provision in a relevant contract, a rough balance between the place of the accident (Hawaii) and the defendants’ headquarters (Texas), and the relatively weak interest of an out-of-state insurer. Id. at 5-7 (noting Beech Aircraft v. Jinkins, 739 S.W.2d 19 (Tex. 1987)).