Filed: Jan. 26, 2016
Latest Update: Mar. 02, 2020
Summary: Case: 15-40432 Document: 00513357037 Page: 1 Date Filed: 01/26/2016 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit No. 15-40432 FILED January 26, 2016 Lyle W. Cayce Clerk PETER WEBER, Individual, Plaintiff–Appellant, versus PACT XPP TECHNOLOGIES, AG, Defendant–Appellee. Appeal from the United States District Court for the Eastern District of Texas Before SMITH, WIENER, and GRAVES, Circuit Judges. JERRY E. SMITH, Circuit Judge: Peter Weber
Summary: Case: 15-40432 Document: 00513357037 Page: 1 Date Filed: 01/26/2016 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit No. 15-40432 FILED January 26, 2016 Lyle W. Cayce Clerk PETER WEBER, Individual, Plaintiff–Appellant, versus PACT XPP TECHNOLOGIES, AG, Defendant–Appellee. Appeal from the United States District Court for the Eastern District of Texas Before SMITH, WIENER, and GRAVES, Circuit Judges. JERRY E. SMITH, Circuit Judge: Peter Weber ..
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Case: 15-40432 Document: 00513357037 Page: 1 Date Filed: 01/26/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-40432 FILED
January 26, 2016
Lyle W. Cayce
Clerk
PETER WEBER, Individual,
Plaintiff–Appellant,
versus
PACT XPP TECHNOLOGIES, AG,
Defendant–Appellee.
Appeal from the United States District Court
for the Eastern District of Texas
Before SMITH, WIENER, and GRAVES, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
Peter Weber appeals a judgment of dismissal, without prejudice, based
on forum non conveniens (“FNC”). The district court decided that the subject
contract contained a valid and enforceable forum selection clause (“FSC”) re-
quiring litigation in Germany. Because the FSC is mandatory and enforceable,
and no overwhelming public interest requires retention in Texas, we affirm.
I.
This is a complex, multi-forum dispute over compensation between a
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No. 15-40432
German company and its former chief executive officer (“CEO”). PACT XPP
Technologies, AG (“PACT”), was a technology start-up company in the field of
highly parallel processing that, at some time after 2002, morphed into an
intellectual-property licensing and enforcement entity. Weber joined PACT’s
Supervisory Board in 2002, was elected chairman of the board in 2003, and
took over as CEO in 2004. The company is incorporated in Germany,
but―during the relevant period―its primary business activities were in the
United States.
Weber avers that, until 2008, (1) he had served without compensation
under various oral agreements providing for payments once the business
became profitable; and (2) in 2008 he entered into a written contract that pro-
vided for a combination of profit shares and shares in “special proceeds” that
the company earned in patent litigation. That compensation agreement, writ-
ten in German, appears not to have been negotiated or executed in a single
location; PACT’s agent signed in Munich, Weber in California. The agreement
was approved by board resolution but not by the shareholders.
The agreement contains an FSC, the proper English translation of which
is in dispute. The contract states, “Soweit gesetzlich zulässig, ist Gerichts-
stand und Erfüllungsort der Sitz der PACT AG.” Weber urges that this should
be translated to read, “To the extent permitted by law, jurisdiction and place
of performance shall be the residence of PACT AG.” Instead of translating the
word “Sitz” as “residence,” PACT says, to the contrary, that it should be given
what PACT contends is its more natural contextual meaning of “corporate
seat”; PACT therefore avers that the clause should be understood to read, “As
far as permitted by statute, jurisdiction and place of performance shall be
2
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situated at the seat of the PACT AG.” 1
The contents and effect of the compensation agreement came into issue
as a result of a successful patent suit by PACT in the Eastern District of Texas.
Weber avers that, as a result of his efforts, PACT discovered infringement by
a competitor and resolved to file suit. Weber claims further that he vetted law
firms, engaged counsel, and supervised the litigation, which resulted in a hefty
jury verdict in May 2012 that yielded a judgment in September 2013.
A few months after the verdict, but before judgment was entered, Weber
was voted out of office as a board member of PACT. He tried to establish that
PACT felt it was bound to pay his fee nonetheless, but PACT never affirmed
that understanding, so Weber sued in November 2013, alleging breach of con-
tract, quantum meruit, and promissory estoppel and seeking damages and
declaratory relief. Two days later, PACT filed the Civil Law equivalent of a
declaratory judgment action in Germany, requesting a declaration that, be-
cause the compensation agreement had never been ratified by PACT’s share-
holders, it was invalid under German law, which requires such ratification.
In the U.S. litigation, PACT moved to dismiss on FNC grounds, contend-
ing that both the traditional FNC factors and the Atlantic Marine FNC doc-
trine in the context of an FSC 2 dictated that the German courts were the proper
forum. That motion relied heavily on the declaration of Anatol Dutta, a Ger-
man professor of law specializing in private international law. His declaration
explains relevant German and European Union (“EU”) legal concepts that
PACT claims are applicable. The key aspects of the Dutta declaration are
1Neither party asserts that the distinction between “To the extent permitted by law”
and “As far as permitted by statute” is important.
2 See Atl. Marine Constr. Co. v. U.S. Dist. Court for W. Dist. of Tex., 134 S. Ct. 568,
580 (2013) (holding that the correct procedural mechanism for enforcement of an FSC speci-
fying a foreign forum is through a motion to dismiss for FNC).
3
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these:
• Germany, as a Civil Law jurisdiction, does not recognize equitable causes
of action as such, but there are legal concepts closely analogous to promis-
sory estoppel and quantum meruit that can be deployed by litigants in con-
tract disputes.
• German courts would interpret the FSC as providing for mandatory, exclu-
sive jurisdiction in the German courts.
• The validity or enforceability of the FSC would not be affected by the inval-
idity of the compensation provisions of the contract.
• German choice-of-law principles would dictate application of German sub-
stantive law for two reasons: first, because the applicable EU law (the
Rome I 3 and Rome II 4 Regulations) treat FSCs as strong evidence of an
implicit election of the substantive law of the selected forum; and second,
because German law treats place-of-performance clauses as strong evi-
dence of an implicit election of the substantive law of the place of
performance.
• The dispute here implicates important issues of German law and public
policy relating to the compensation of board members of German
corporations.
Weber’s response to the FNC motion emphasized the extent of PACT’s
U.S. operations and the fact that the dispute arose in large part from the
proper allocation of a money judgment obtained in a U.S. court. Weber further
maintained that the FSC did not mandate German jurisdiction, because
(1) PACT’s “residence” was in the United States, where its principal business
was carried out (and the FSC did not explicitly vest exclusive jurisdiction and
venue in Germany), (2) PACT could not simultaneously disclaim its obligation
to pay under the contract and assert the validity of the FSC, and (3) the
Regulation 864/2007, on the Law Applicable to Non-Contractual Obligations
3
(Rome II), 2007 O.J. (L 199) 40 (EC). See Clay H. Kaminsky, The Rome II Regulation:
A Comparative Perspective on Federalizing Choice of Law, 85 TUL L. REV. 55 (2010) (discuss-
ing the Rome I and Rome II Regulations).
Regulation 593/2008, on the Law Applicable to Contractual Obligations (Rome I),
4
2008 O.J. (L 177) 6 (EC).
4
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traditional FNC factors heavily favored the Eastern District of Texas as the
place for litigation. The factor that Weber stressed was the unavailability of
equitable remedies under German law.
Along with a reply brief, PACT filed a supplemental declaration by Dutta
emphasizing the availability of Civil Law analogies for quantum meruit and
promissory estoppel claims. The declaration also engaged in a more extended
discussion of the meaning of the word “Sitz” under German law; German law
was quite clear on its meaning in this context and that German courts would
have no doubt that the term referred to PACT’s place of incorporation in Ger-
many. Additionally, Dutta noted that the term “Gerichtsstand,” used in the
FSC and initially translated by all parties as “jurisdiction,” is a term of art
under German law “that is used for the purpose of selecting the forum to
resolve disputes. In English, its meaning would encompass court, jurisdiction,
and venue.” Finally, Dutta renewed his position that, under German law and
general principles of private international law, an FSC is valid and severable
regardless of the validity of the substance of the underlying contract.
After the briefing, Weber filed a declaration by Michael Molitoris, his
German litigation counsel, who averred that, on his review of the relevant facts
and law, Weber likely would have no remedy should the action proceed in Ger-
many under German law. Molitoris explained that the compensation relation-
ship between a member of a corporate board and the company is governed not
by German contract law but by German statutory corporate law. Because the
contract was never ratified by the shareholders, German corporate law would
prohibit enforcement of the compensation arrangement. Because of certain
presumptions in German law, Weber could not recover under the German
equivalents of quantum meruit and promissory estoppel. In summary, Moli-
toris stated that “if the action is pursued in Germany, Mr. Weber will be most
5
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likely unable to seek any redress for the decade of uncompensated services he
conferred on PACT XPP.”
At the same time, Weber filed a supplemental declaration of his own
stating, at some length, that he was unaware of any ratification requirement,
did not consult a lawyer, was told by PACT representatives that no ratification
was necessary, and was not under the impression, when the contract was
signed, that the FSC specified Germany as the place for litigation.
In June 2014—during the pendency of the FNC motion—the German
court issued a provisional judgment declaring that the agreement was un-
enforceable as to compensation for lack of shareholder ratification. In August
2014, the court entered a judgment with a more thorough explanation. The
court stated that even though the agreement was unenforceable as to compen-
sation, the FSC nonetheless vested mandatory jurisdiction over all disputes—
local and international—arising from the compensation agreement in the Ger-
man courts. The German judgment was by consent: Weber filed an “accep-
tance of claim” pleading that admitted the validity of the PACT suit but
expressly reserved his right to pursue equitable claims in the U.S. courts or
claims for “unjust enrichment” and “management without order” (Civil Law
analogues of quantum meruit) in the German courts.
The magistrate judge (“MJ”) in the litigation here advised that, even
though the German court had invalidated the compensation provisions under
German corporate law, the FSC was severable, mandatory, and enforceable. 5
Because that clause was not affected by the German corporate-law principle
5 The MJ cited Afram Carriers, Inc. v. Moeykens, 145 F.3d 298, 301 (5th Cir. 1998), for
the proposition that FSCs are presumptively valid and severable and that attacks on the
validity of the contract as a whole do not affect the validity of the FSC unless the party seek-
ing to avoid enforcement demonstrates specifically that the FSC, as distinguished from the
contract as a whole, was invalid or procured through fraud.
6
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that shareholders must ratify compensation agreements, the MJ reasoned that
Fifth Circuit law dictated its enforcement. The MJ determined further that
there were no extraordinary factors to overcome Atlantic Marine’s strong pre-
sumption in favor of FNC dismissal when there is a valid FSC; the MJ recom-
mended dismissal without prejudice to refiling in Germany. Weber filed object-
ions to the MJ’s findings and recommendations. The district court rejected the
objections and adopted the findings and recommendations.
We first review the governing legal framework for enforcement of FSCs,
then we turn to the substance of this dispute. We review de novo the district
court’s conclusions that the FSC was mandatory and enforceable. We review
for abuse of discretion the district court’s use of Atlantic Marine’s balancing
test (explained at length below). Because the district court correctly deter-
mined that the clause was mandatory and enforceable and did not abuse its
discretion in concluding that the Atlantic Marine balancing test favors dismis-
sal without prejudice, we affirm.
II.
The legal framework is drawn primarily from Atlantic Marine, which
clarified the proper mechanism for enforcing FSCs. That dispute concerned an
FSC pointing to a U.S. court; the Court held that the proper mechanism for
enforcing such a clause is a motion for transfer of venue under 28 U.S.C.
§ 1404(a). Atl. Marine, 134 S. Ct. at 575, 579. The Court also specified that
the proper mechanism to enforce an FSC that calls for litigation in a domestic
state court or in a foreign court is through a motion to dismiss on grounds of
FNC.
Id. at 580. The Court further announced the effect that a mandatory
and enforceable FSC should have on the § 1404(a) and FNC analyses. 6
6 Although the Court’s analysis of the effects of the FSC was in the context of a
7
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For the usual § 1404(a) or FNC motion, the court considers various
private- and public-interest factors. The private-interest factors include “rela-
tive ease of access to sources of proof; availability of compulsory process for
attendance of unwilling, and the cost of obtaining attendance of willing, wit-
nesses; possibility of view of premises, if view would be appropriate to the
action; and all other practical problems that make trial of a case easy, expedi-
tious and inexpensive.” Piper Aircraft, 454 U.S. at 241 n.6. The public-interest
factors include “the administrative difficulties flowing from court congestion;
the local interest in having localized controversies decided at home; [and] the
interest in having the trial of a diversity case in a forum that is at home with
the law.”
Id. A plaintiff’s choice of forum is given “some”—significant but non-
determinative—weight. See Atl.
Marine, 134 S. Ct. at 581 n.6.
The existence of a mandatory, enforceable FSC dramatically alters this
analysis. First, the plaintiff’s choice of forum “merits no weight”; instead he
has the burden of establishing that § 1404(a) transfer or FNC dismissal is un-
warranted. Id. at 581–82. And second, the court should not consider the
private-interest factors: Because the parties have contracted for a specific
forum, they “waive the right to challenge their preselected forum as inconven-
ient . . . .”
Id. at 582. Instead, the court should consider only public-interest
factors.
Id. “Because those factors will rarely defeat a transfer motion, the
§ 1404(a) motion, the Court explicitly noted that § 1404(a) is just a codification of the FNC
doctrine “for the subset of cases in which the transferee forum is within the federal court
system; in such cases, Congress has replaced the traditional remedy of outright dismissal
with transfer.” Atl.
Marine, 134 S. Ct. at 580 (citing Sinochem Int’l Co. v. Malaysia Int’l
Shipping Corp.,
549 U.S. 422, 430 (2007)). The factors that courts consider in evaluating the
propriety of a § 1404(a) transfer and an FNC dismissal are substantively identical, and in-
deed the Court in Atlantic Marine cited Piper Aircraft—the canonical FNC case—for a list of
the various factors to be considered in deciding a § 1404(a) motion.
Id. at 581 n.6 (citing Piper
Aircraft Co. v. Reyno,
454 U.S. 235, 241 n.6 (1981), for a list of private- and public-interest
factors to be considered in evaluating § 1404(a) and FNC motions).
8
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practical result is that [FSCs] should control except in unusual cases.” Id.
Cases in which the public-interest factors are sufficiently strong to outweigh a
valid FSC “will not be common.”
Id.
The parties dispute―and Atlantic Marine does not address―the proper
standard of review on appeal of an FNC dismissal when there is an FSC.
Weber maintains that the standard is de novo, but PACT argues that it is
abuse of discretion. Both parties are partially correct: Ordinary FNC dismiss-
als based on the above-described Piper Aircraft balancing test are properly
reviewed for abuse of discretion, 7 but the Fifth Circuit’s pre-Atlantic Marine
cases on enforcement of FSCs require de novo review. 8
The post-Atlantic Marine standard of review for a motion to dismiss on
FNC grounds to enforce an FSC is an issue of first impression in this court.
Weber’s two basic arguments in favor of a straightforward de novo review are
unavailing. First, he cites pre-Atlantic Marine cases such as Calix-Chacon.
But those were not decided under an FNC rubric—for example, Calix-Chacon,
493 F.3d at 509, used the now-discredited Federal Rule of Civil Proce-
dure 12(b)(3) approach 9 to FSC enforcement, and Mitsui does not actually say
which precise procedural mechanism was utilized for the motion to dismiss. 10
Second, Weber cites the de novo analysis of other circuits, but they do
7 Piper Aircraft, 454 U.S. at 257.
8See Calix-Chacon v. Global Int’l Marine, Inc., 493 F.3d 507, 510 (5th Cir. 2007);
Mitsui & Co. (USA), Inc. v. Mira M/V,
111 F.3d 33, 35 (5th Cir. 1997) (per curiam).
9 Atlantic Marine, 134 S. Ct. at 577 (“Atlantic Marine contends that a party may en-
force a [FSC] by seeking dismissal of the suit under § 1406(a) and Rule 12(b)(3). We disagree.
Section 1406(a) and Rule 12(b)(3) allow dismissal only when venue is ‘wrong’ or ‘improper.’
Whether venue is ‘wrong’ or ‘improper’ depends exclusively on whether the court in which
the case was brought satisfies the requirements of federal venue laws, and those provisions
say nothing about [an FSC].”).
See Mitsui, 111 F.3d at 34 (saying only that “Euro moved to dismiss on the basis of
10
the [FSC] in the bill of lading”).
9
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not support his approach. His reliance on Claudio-de Leon v. Sistema Universi-
tario Ana G. Mendez, 775 F.3d 41 (1st Cir. 2014), is inapposite, because the
First Circuit continues to use its pre-Atlantic Marine Rule 12(b)(6) method of
FSC enforcement instead of the Supreme Court’s recommended FNC ap-
proach. See
id. at 46, 46 n.3. 11 It is therefore unsurprising that in Claudio-de
Leon the court applied its usual standard of review for a Rule 12(b)(6) motion.
Weber’s citation to Martinez v. Bloomberg LP, 740 F.3d 211 (2d Cir.
2014), is similarly unhelpful; that court specifically withheld the question as
to what standard of review should apply to FSC enforcement under the new
FNC approach in the wake of Atlantic Marine.
Id. at 217. Indeed, Martinez
notes the same tension in the caselaw that we face here: a general principle in
favor of abuse-of-discretion review for ordinary FNC dismissals in apparent
conflict with earlier decisions employing de novo review of motions to dismiss
in FSC cases.
Id. But the Martinez court found that it need not decide the
question, because the standard of review did not affect the outcome.
Id. And
Weber’s citation to AAR International, Inc. v. Nimelias Enterprises S.A.,
250
F.3d 510 (7th Cir. 2001), fails to support his position, because that court states
only that the enforceability of the FSC gets de novo review (with which we
agree), without saying anything about the standard for the overall Atlantic
Marine balanceing test.
Id. at 527.
PACT’s arguments for ordinary abuse-of-discretion review are similarly
inapt. It would be unusual to review a district court’s construction of a con-
tract, or its determination of the contract’s enforceability, for abuse of
11 As Claudio-de Leon correctly notes, 775 F.3d at 46 n.3, the Atlantic Marine Court
expressly declined to determine whether a Rule 12(b)(6) motion is an appropriate mechanism
for enforcement of an FSC. The First Circuit apparently has determined that its previous
approach therefore remains valid despite Atlantic Marine’s exhortations in favor of the FNC
analysis.
10
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discretion, because we ordinarily review contract interpretations and enforce-
ability rulings de novo. 12 There is no reason for the FSC context to be any
different. PACT concedes as much in its brief, agreeing that the district court’s
construction of the contract should be reviewed de novo.
Therefore, we adopt a mixed standard of review for post-Atlantic Marine
FNC rulings involving FSCs. We review the district court’s interpretation of
the FSC and its assessment of that clause’s enforceability de novo, then we
review for abuse of discretion the court’s balancing of the private- and public-
interest factors.
III.
We first decide, de novo, whether the FSC is mandatory or permissive.
Our caselaw recognizes a sharp distinction between mandatory and permissive
FSCs. 13 A mandatory FSC affirmatively requires that litigation arising from
the contract be carried out in a given forum. By contrast, a permissive FSC is
only a contractual waiver of personal-jurisdiction and venue objections if liti-
gation is commenced in the specified forum. Only mandatory clauses justify
transfer or dismissal. An FSC is mandatory only if it contains clear language
specifying that litigation must occur in the specified forum—and language
merely indicating that the courts of a particular place “shall have jurisdiction”
(or similar) is insufficient to make an FSC mandatory. 14 Weber urges that the
clause is permissive, but PACT claims it is mandatory.
12 E.g., Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 609 (5th Cir. 2000).
13 E.g., Caldas & Sons, Inc. v. Willingham, 17 F.3d 123, 127–28 (5th Cir. 1994).
14 Id. (holding that an FSC providing that “[t]he law and courts of Zurich shall be
applicable” was permissive rather than mandatory); see generally K & V Sci. Co. v. Bayerische
Motoren Werke Aktiengesellschaft (“BMW”),
314 F.3d 494, 500 (10th Cir. 2002) (collecting
decisions from several circuits and comparing language that the courts have held mandatory
to that which they have held permissive).
11
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To decide which of them is correct, we follow a three-step approach.
First, we review the record to determine the best possible English-language
rendering of the German-language FSC. Second, we apply Texas choice-of-law
rules to determine which substantive law governs the interpretation of the
FSC. Third, we apply that substantive law to the language of the FSC to decide
whether it is mandatory or permissive. We conclude that this FSC is
mandatory.
A.
The German-language contract contains an FSC that reads, “Soweit ges-
etzlich zulässig, ist Gerichtsstand und Erfüllungsort der Sitz der PACT AG.”
A review of this record suggests that the best available translation of the pas-
sage is that “[t]o the extent permitted by law, jurisdiction, venue, courts, and
place of performance shall be at the corporate seat of PACT AG.” 15 That trans-
lation departs from Weber’s proposed rendering in two key respects; both dif-
ferences are based on Dutta’s uncontradicted declarations.
First, Dutta opined that “Sitz” is best understood as “corporate seat.”
Although Weber’s brief repeatedly asserts that the term should be understood
to mean “residence,” Weber never rebuts Dutta’s persuasive explanation of the
term-of-art meaning that “Sitz” has in a commercial contract. More impor-
tantly, though, Weber’s own German-law expert, Molitoris, agrees with Dutta:
Molitoris rendered that portion of the document as “the seat of PACT AG” and
explained that a German court would understand the clause to confer exclusive
jurisdiction on the Munich courts (PACT’s “seat,” where it is registered).
Weber makes no real attempt to defend his proposed translation—
rendering “Sitz” as “residence,” interpreting “residence” as “principal place of
15 It is agreed that PACT’s corporate “seat” is in Munich, Germany.
12
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business,” then reasoning that PACT’s “principal place of business” was “the
United States.” Instead, Weber relies on Keaty v. Freeport Indonesia, Inc., 503
F.2d 955 (5th Cir. 1974), for the proposition that a court faced with two oppos-
ing but reasonable interpretations of a contract provision ought to pick the one
that operates against the drafter (here, PACT). If Keaty applied, Weber would
have a reasonable argument that PACT—the drafter—ought not benefit from
its own ambiguous drafting.
But Keaty is inapposite, because Weber’s proposed “residence” rendering
is not reasonable. Weber proffers no evidence or rationale to counter Dutta’s
thorough and persuasive explanation of the term-of-art meaning that “Sitz”
bears in a commercial-law context; Weber’s contention in favor of the “resi-
dence” construction is nothing more than a series of assertions. Therefore, the
rule of construction against the drafter cannot determine the matter: That
principle is merely a tiebreaker when a contract is susceptible to two equally
reasonable interpretations. Here, there is a persuasive, well-supported inter-
pretation—“corporate seat”—and an unsupported interpretation― “resi-
dence”―unreasonably unmoored from the commercial-law context in which the
term appears.
Our construction of the FSC also renders the German word “Gerichts-
stand” to mean not only “jurisdiction” but also “venue” and “courts.” That is
because there is uncontradicted testimony by Dutta that “Gerichtsstand,”
translated with proper attention to its specific legal context, would include
those meanings. Specifically, Dutta states that “[a] proper understanding of
‘Sitz’ reads in harmony with the remainder of the compensation agreement.
‘Gerichtsstand’ is a term of art that is used for the purpose of selecting the
forum to resolve disputes. In English, its meaning would encompass court,
jurisdiction, and venue.” Weber does not contest that analysis, nor does his
13
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expert have anything to say on the subject. By rendering the word in this
manner, Dutta’s translation best captures the contextual meaning.
B.
The parties dispute which law to apply in interpreting the FSC. PACT
maintains that German law should apply; Weber advances the federal-general-
common-law approach that appears to characterize our past FSC jurispru-
dence. We conclude that we are bound to engage in the ordinary choice-of-law
analysis that federal courts sitting in diversity routinely perform under the
Erie-Klaxon doctrine. 16 Applying Texas choice-of-law rules, German substan-
tive law governs.
A choice-of-law analysis to determine what substantive law should guide
this court’s interpretation of the FSC is proper under ordinary principles gov-
erning diversity litigation. A federal court sitting in diversity applies the
forum state’s choice-of-law rules to determine which substantive law will
apply. Klaxon, 313 U.S. at 496–97. Neither this court nor our sister circuits
appear to have hewn closely to this principle in interpreting FSCs. The courts
have interpreted FSCs according to general common-law contract principles
without addressing the precise source of that law. 17 The use of this general-
law approach may be because, in this circuit and others, the enforceability of
an FSC is governed by federal law. Haynsworth v. The Corp.,
121 F.3d 956,
962 (5th Cir. 1997). But, as several circuits have explicitly recognized, the
question of enforceability is analytically distinct from the issue of interpreta-
tion: Only after the court has interpreted the contract to determine whether
16See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); Klaxon Co. v. Stentor Elec. Mfg.
Co.,
313 U.S. 487 (1941).
17See, e.g., City of New Orleans v. Mun. Admin. Servs., Inc., 376 F.3d 501, 504 (5th
Cir. 2004); Caldas & Sons, Inc. v. Willingham,
17 F.3d 123, 127–28 (5th Cir. 1994).
14
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No. 15-40432
it is mandatory or permissive does its enforceability come into play. 18
As PACT points out, several sister circuits, acknowledging this distinc-
tion between interpretation and enforceability, have applied foreign law to de-
termine the meaning of an FSC. As Weber accurately responds, they have
typically done so in the context of contracts that contain choice-of-law clauses
specifying foreign law in addition to FSCs specifying a foreign forum. 19 But
the presence or absence of a specific choice-of-law clause does not alter the core
obligation of a federal court, sitting in diversity, to ascertain which body of
substantive law to apply by implementing the choice-of-law rules of its home
jurisdiction.
Courts may be justified in pretermitting this analysis when neither
party contends that any distinctive feature of the relevant substantive law de-
cides the dispute. And indeed, parties’ failure to brief choice-of-law analysis or
arguments about distinctive features of foreign law seems to have driven many
courts to default to general contract principles, even when they recognize that
either ordinary choice-of-law rules or a valid choice-of-law clause would, in
See Phillips v. Audio Active Ltd., 494 F.3d 378, 384–86 (2d Cir. 2007); Yavuz v.
18
61 MM, Ltd., 465 F.3d 418, 430 (10th Cir. 2006).
19 See, e.g., Martinez v. Bloomberg LP, 740 F.3d 211, 220–21 (2d Cir. 2014);
Yavuz,
465 F.3d at 427. Neither party accurately characterizes the cases it relies on in this regard.
PACT says straightforwardly that “Courts interpret the [FSC] in light of the law of the for-
eign forum.” Weber responds that “PACT flagrantly omits the crucial and dispositive fact
that this premise can only apply when the contract contains a valid and explicit choice of law
provision selecting the law of a foreign forum.”
PACT’s claim is too simple in that it misses the fact that there is a choice-of-law anal-
ysis that the court must perform before it applies (or declines to apply) foreign law. Weber is
correct to the extent that the cases on which PACT relies did involve choice-of-law clauses,
but Weber misses the mark in suggesting that those cases stand for the inverse proposition
that in the absence of a choice-of-law clause courts must apply general law. Nothing in those
decisions suggests that, when choice of law is important to the outcome despite the absence
of a choice-of-law clause in the contract, a court should not engage in an ordinary choice-of-
law analysis to decide how to interpret the language of the FSC.
15
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No. 15-40432
principle, dictate application of foreign law. 20 But that is not the case here,
when the choice of law might be determinative (because German courts would
uncontroversially find the clause to be mandatory) and the parties vigorously
dispute the proper source of law that should apply. Resolving that dispute, we
conclude that the proper method is to apply Texas choice-of-law rules when
interpreting an FSC.
This action was brought in a Texas federal court, so under Klaxon, Texas
choice-of-law rules apply. Texas follows the Restatement (Second) of Conflict
of Laws. E.g., Maxus Exploration Co. v. Moran Bros., 817 S.W.2d 50, 53 (Tex.
1991). When the parties did not contract for the application of the law of a
particular forum, Section 188 of the Restatement provides for application of
the “law of the state which, with respect to that issue, has the most significant
relationship to the transaction and the parties under the principles stated
in § 6.” RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188 (1971). In turn,
Section 6 provides that courts should consider factors including
(a) the needs of the interstate and international systems,
20 See Abbott Labs. v. Takeda Pharm. Co., 476 F.3d 421, 423–24 (7th Cir. 2007) (noting
that “[s]implicity argues for determining the . . . meaning of [an FSC] . . . by reference to the
law of the jurisdiction whose law governs the rest of the contract in which the clause appears,”
but nonetheless applying general-law principles to determine the meaning of the FSC be-
cause the parties did not contend there were important differences between Illinois law
(which governed under choice-of-law principles) and general law); Adams v. Raintree Vaca-
tion Exch., LLC,
702 F.3d 436, 438 (7th Cir. 2012) (noting, in a dispute over an FSC that also
specified foreign law, that, where the parties briefed only general common-law arguments
about the FSC and did not make any arguments as to distinctive features of the foreign law
suggested by the contract, the court would just apply general contract principles rather than
engage in an analysis of foreign law);
Phillips, 494 F.3d at 385–86 (“Without the benefit of
briefing by the parties on this issue, we cannot understand why the interpretation of [an
FSC] should be singled out for application of any law other than that chosen to govern the
interpretation of the contract as a whole . . . . However, the parties neither objected to the
district court’s citation to federal precedent in its interpretation of the clause before us, nor
construed the clause under English law in their briefs. We will assume from the parties’
briefing that they do not rely on any distinctive features of English law and apply general
contract law principles and federal precedent to discern the meaning and scope of the [FSC].”
(Citation omitted.)).
16
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(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative inter-
ests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
Id. § 6. In evaluating those factors, Section 188 directs the court to pay particu-
lar attention to
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of
business of the parties.
“These contacts are to be evaluated according to their relative importance with
respect to the particular issue.” Id. § 188. Further, in contracts for rendition
of services, the court should look to the law of the place where the contract
specifies that the services should be rendered.
Id. § 196. 21 When a contract
for services gives a place for performance, “[a]s a rule, that factor alone is
conclusive in determining what state’s law is to apply.” DeSantis v. Wackenhut
Corp.,
793 S.W.2d 670, 679 (Tex. 1990).
The balance of factors favors application of German law. This is a
German-language contract, governing the compensation of a German-born
businessman by a German company for his service on its supervisory board of
directors, specifying that performance would be in Munich and contemplating
at least permissive jurisdiction in the German courts for disputes arising under
21 Accord Maxus Exploration, 817 S.W.2d at 53 (“In the case of a contract for the
rendition of services, section 196 accords the place of performance paramount importance.”).
17
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No. 15-40432
the contract. That the contract calls for performance “at the corporate seat of
PACT AG”—which the parties agree is in Munich—likely settles the issue.
Such a contractual specification of a place of performance is generally indepen-
dently conclusive as to what law to apply. Id.
Setting the primacy of that factor aside for a moment, the overall balanc-
ing test also favors German law. Looking to the Section 188 factors, three seem
to tilt strongly in favor of Germany: “place of performance,” “location of subject
matter,” and “the domicil, residence, nationality, place of incorporation and
place of business of the parties.” The contract calls for performance in Munich.
The subject-matter of the contract is Weber’s service as a member of the super-
visory board, an activity necessarily directed toward the company’s German
headquarters (where board meetings took place). Though Weber is a U.S. citi-
zen and domiciliary, the other aspects of this factor point strongly to Germany.
Weber was born there and is a German-speaking former German citizen, and
PACT was incorporated and headquartered in Germany. The “place of con-
tracting” and “place of negotiations” are basically neutral, because we do not
have any facts regarding the location of the negotiations, and the contract was
signed in two different locations. 22
The broader § 6 factors also favor use of German law. The first—the
needs of the national and international court systems—does not favor either
side particularly. But the “relevant policies” factors seem to point strongly to
German law: This dispute concerns the internal compensation relations of a
German corporation. A contract between a German corporation and a member
of its board seems strongly to implicate German policy. Dutta’s declaration
22See Sonat Exploration Co. v. Cudd Pressure Control, Inc., 271 S.W.3d 228, 233 (Tex.
2008) (noting that the role of these factors is minimal when the parties negotiated and signed
an agreement remotely from two locations).
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No. 15-40432
makes plain that there are important policy issues regarding German cor-
porate law in this suit, so it makes sense to apply German substantive law.
The justified-expectations factor is hard to parse in this context: Although
Weber argues that he never anticipated that German law would control the
contract, it was a German-language contract governing the internal relations
of a German company. This factor is more or less a wash, but likely the parties
anticipated that German law would govern, given the language and subject
matter and the fact that the contract contains an FSC pointing to Munich.
The “basic policies underlying the area of law” factors are embodied in
Sections 188 and 196, which, as discussed above, favor German law. The
certainty-and-predictability factor does not especially favor one side or the
other. Finally, the factor of “ease in determining the law to be applied” might
slightly militate against German law, given that American courts are not
familiar therewith, but the record includes a voluminous—and basically
unanimous—discussion of the substance of the relevant German law. In sum-
mary, Texas courts would apply German substantive law.
C.
Because German substantive law applies, the FSC is mandatory. Dutta
(PACT’s expert), Molitoris (Weber’s expert), and the German court that heard
PACT’s declaratory-judgment action agree that, under German law, a clause
reading as this one does confers exclusive and mandatory jurisdiction in the
specified forum.
IV.
Having concluded that the FSC is mandatory, we must decide whether
it is enforceable. Though Weber says it is not, his position is without merit.
This court, in keeping with Supreme Court precedents, applies a strong
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presumption in favor of the enforcement of mandatory FSCs. Haynsworth,
121 F.3d at 962–63.
The presumption of enforceability may be overcome, however, by a
clear showing that the clause is ‘unreasonable’ under the circum-
stances. Unreasonableness potentially exists where (1) the incorpora-
tion of the [FSC] into the agreement was the product of fraud or over-
reaching; (2) the party seeking to escape enforcement ‘will for all practi-
cal purposes be deprived of his day in court’ because of the grave incon-
venience or 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 [FSC] would contravene a strong public policy of
the forum state.[ 23]
Arguments that go to the validity of the contract as a whole do not prevent
enforcement of an FSC; instead, the party seeking to avoid enforcement must
demonstrate that the FSC is invalid rather than merely claim the contract is
invalid. Id. In effect, the court is to treat the FSC as both severable and pre-
sumptively valid.
Weber advances four basic theories of unenforceability. First, he avers
that the FSC is unenforceable because it would deny him a remedy. Second,
he contends that to the extent the German court ruled that the compensation
agreement never became binding on PACT for lack of shareholder ratification,
the FSC is inoperative because there was never any contract to begin with.
Third, he maintains that PACT is estopped from enforcing the clause because
it took the position that it was not bound by the compensation agreement in
the German litigation. Fourth, Weber claims that the concept of unclean hands
prevents enforcement of the FSC, because PACT defrauded him by refusing to
pay on the agreement and thus should not be allowed to benefit from the
clause. But those arguments are insufficient to overcome the strong
23 Haynsworth, 121 F.3d at 963 (quoting M/S Bremen v. Zapata Off-Shore Co.,
407 U.S. 1, 7 (1972)).
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presumption of enforceability.
Weber’s suggestion that he would not have any remedy under German
law is unpersuasive. There are causes of actions available under German law
that would allow him to seek relief essentially identical to the relief available
under the quasi-contractual, equity claims he advances in the litigation here.
Dutta’s declarations discuss those analogous actions in some depth. Molitoris,
on Weber’s behalf, predicted that those claims would not succeed under Ger-
man law as a consequence of certain corporate-law presumptions governing
work done by corporate directors.
But it is the availability of a remedy that matters, not predictions of the
likelihood of a win on the merits. And the fact that certain types of remedies
are unavailable in the foreign forum does not change the calculus if there exists
a basically fair court system in that forum that would allow the plaintiff to seek
some relief. 24 For example, in Piper Aircraft, 454 U.S. at 255, the Court deter-
mined that FNC dismissal in favor of a UK forum was proper even though the
plaintiffs would not be able to bring strict-liability and wrongful-death causes
of action and were unlikely to receive damages nearly as high as would be
likely in the United States.
Weber’s second argument is that because the contract never became
operative under German corporate law, there is no binding FSC. But that the-
ory misstates both the litigation position that PACT adopted in the German
litigation and the actual ruling of the German court. Weber relies on Granite
Rock Co. v. International Brotherhood of Teamsters, 130 S. Ct. 2847, 2856
(2010), which noted that an arbitration clause could not be invoked in a dispute
24 See Kempe v. Ocean Drilling & Exploration Co., 876 F.2d 1138, 1145–46 (5th Cir.
1989) (ruling that a foreign forum is “inadequate only where it would afford a plaintiff no
remedy at all”).
21
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as to whether and when the contract itself was formed. Although this court’s
decisions do treat FSCs and arbitration clauses as basically similar, Hayns-
worth, 121 F.3d at 963, it does not appear that PACT or the German court took
the stance that no contract was ever formed.
PACT urged, and the German court ruled, that the FSC was valid and
severable from the rest of the agreement, such that it would govern regardless
of whether any obligation to pay the success fee was ever created. That makes
sense in light of the fact that the German court’s reasoning on the contract
dispute turned not on contract law but on German corporate law: The reason
the agreement was unenforceable as to the compensation arrangement was
that it was not in keeping with German regulatory principles relating to the
compensation of board members.
Thus, the parties validly contracted for the FSC itself—they just did not
comply with regulatory forms as to the compensation provisions because the
shareholders never voted in favor of that arrangement. And Weber makes no
clear showing that there was fraud, overreaching, or some other invalidating
factor in the procurement of the FSC specifically; all of his contentions are dir-
ected to the the substance of the contract as a whole rather than to the FSC.
Our caselaw requires that level of specificity before we will refuse to enforce
an FSC. Id. at 962–64.
Third, Weber reasons that PACT is estopped from enforcing the FSC on
account of its position that the compensation agreement never became opera-
tive. Because PACT argued that, in the German court, it was not bound by the
agreement, Weber claims the company cannot now enforce part of the agree-
ment. But it does not appear that PACT ever took the position that Weber has
ascribed to it. In the German forum and the district court, PACT advanced
identical arguments that the FSC was mandatory and severable, such that it
22
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No. 15-40432
survived the invalidity of the underlying compensation agreement. Both the
German court and the district court so held.
Fourth, Weber makes a general unclean-hands claim: Because PACT
acted inequitably by refusing to pay Weber’s success fee, it should not be en-
titled to the equitable ruling of FNC that it seeks. But, as PACT responds, this
court quite recently declined to adopt that legal argument. 25 And PACT cor-
rectly observes that the cases that Weber cites for the proposition that FNC is
not available to a defendant accused of fraud and other inequitable conduct do
not really state that proposition. 26 Finally, the unclean-hands notion puts the
cart before the horse: It would require this court to reach the merits of the
dispute to determine whether to uphold the FNC dismissal. To the contrary,
however, the enforceability determination should be made without reference
to the underlying merits. Haynsworth, 121 F.3d at 964.
Weber’s contentions are insufficient to overcome our strong presumption
in favor of enforcement of the FSC. It is enforceable.
V.
Because the FSC is both mandatory and enforceable, the Atlantic Marine
25 See In re Lloyd’s Register N. Am., Inc., 780 F.3d 283, 293 (5th Cir.), cert. denied,
136
S. Ct. 64 (2015).
26 The unclean-hands decisions that Weber relies on do not really stand for the propo-
sition that allegations of fraud or other wrongdoing justify denying FNC dismissal on the
basis of an otherwise valid and enforceable FSC. The Court in Koster v. (American) Lumber-
mens Mutual Casualty Co., 330 U.S. 518, 523 (1947), does not appear to address the unclean-
hands doctrine and is primarily focused on the peculiarities of shareholders’ derivative suits.
Although PenneCom B.V. v. Merrill Lynch & Co.,
372 F.3d 488, 493 (2d Cir. 2004), has some
fairly broad language about the general doctrine of unclean hands, the court was not address-
ing an FNC forum-enforcement motion but, instead, was discussing collateral estoppel. And
any potential application of PenneCom is defeated by the above-discussed reasoning from
Lloyd’s Register and Haynsworth, because the alleged inequitable conduct here is a merits
issue that would have to be litigated to conclusion before the court could decide whether to
invoke the unclean-hands doctrine in resolving the FNC motion.
23
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No. 15-40432
private-interest factors strongly favor dismissal without prejudice to refiling
in Germany. The only remaining question is whether this is one of the rare
cases in which the public-interest FNC factors favor keeping a case despite the
existence of a valid and enforceable FSC. The district court determined that
the public-interest factors did not so greatly outweigh the private-interest fac-
tors as to justify retaining the case in the United Stated despite the parties’
agreement. We review that determination for abuse of discretion and find
none.
The public-interest factors for FNC include “administrative difficulties
flowing from court congestion; the local interest in having localized controver-
sies decided at home; the interest in having the trial of a diversity case in a
forum that is at home with the law that must govern the action; the avoidance
of unnecessary problems in conflict of laws, or in the application of foreign law;
and the unfairness of burdening citizens in an unrelated forum with jury duty.”
Piper Aircraft, 454 U.S. at 260 n.6 (internal quotations omitted). And the
Court in Atlantic
Marine, 135 S. Ct. at 582, made certain its view that the
public-interest factors would outweigh a valid forum clause only in truly extra-
ordinary cases: The factors “will rarely defeat a transfer motion,” so “the prac-
tical result is that [FSCs] should control except in unusual cases.” “Although
it is ‘conceivable in a particular case’ that the district court ‘would refuse to
transfer a case notwithstanding the counterweight of [an FSC],’ such cases will
not be common.”
Id. (citation omitted).
This suggests quite a high burden of persuasion on the party seeking to
avoid enforcement of the FSC, and Weber has not met it. His briefing on the
public-interest factors consists of two pages of cursory claims supported by only
a single case (which is cited only as authority for the existence of the afore-
mentioned factors). Those two pages advance several variations on the claim
24
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No. 15-40432
that Texas and the United States have an interest in protecting their citizens
from abuse by foreign corporations. That, while true, manifestly is not the sort
of exceptional circumstance that justifies disregarding the parties’ agreement
on public-interest-factor grounds. The interests of the United States and the
states individually in protecting their own citizens are implicated in every case
in which a U.S. citizen attempts to resist enforcement of an FSC; Weber’s
proposed rule would nullify the Supreme Court’s clear directive to reserve, for
truly exceptional cases, the step of disregarding the parties’ agreement that a
case should be litigated elsewhere.
Weber’s arguments are not sufficient to demonstrate that the district
court abused its discretion in its balancing of the public- and private-interest
factors under the Atlantic Marine analysis. Given the Supreme Court’s strong
admonitions in favor of dismissal and against retention save for extraordinary
matters, the district court was well within the bounds of its considerable dis-
cretion in dismissing.
The judgment of dismissal without prejudice is AFFIRMED.
25
