MELLOY, Circuit Judge.
In this diversity action filed in the United States District Court for the Eastern District of Missouri, Union Electric Company ("Union Electric") appeals the district court's grant of Energy Insurance Mutual Limited's ("EIM") motion to dismiss. While the district court correctly determined that M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), provides the standard for evaluating a motion to dismiss based on a contractual forum selection clause, we reverse and remand for the district court to consider in the first instance whether the State of Missouri's public policy against the enforcement of mandatory arbitration provisions invalidates the forum selection clause.
This diversity case is an insurance dispute between Union Electric, a Missouri public utility, and EIM, a mutual insurance company incorporated in Barbados and with a principal place of business in Florida. Union Electric is one of over 150 member insureds of EIM. The insurance
Union Electric owns and operates the Taum Sauk hydroelectric power plant, which is located in Reynolds County, Missouri. In December of 2005, the Taum Sauk's upper reservoir suffered a catastrophic breach, causing extensive damage to the surrounding area. EIM, as Union Electric's second-layer excess liability insurer, refused to pay under Union Electric's insurance policy. On June 28, 2010, Union Electric brought suit against EIM, seeking $32 million in damages for breach of contract and vexatious refusal to pay. EIM moved to dismiss the case under Federal Rule of Civil Procedure 12(b)(3) and (6), arguing that venue was improper because the contract between EIM and Union Electric contains a forum selection clause specifying that the United States District Court for the Southern District of New York shall have exclusive jurisdiction over any case between the parties. That clause states in full:
In addition, EIM moved to dismiss under Rule 12(b)(6), arguing that another clause in the contract between the two companies required a "mini-trial" as a condition precedent to bringing suit. EIM argued to the district court that, because Union Electric failed to participate in a mini-trial prior to filing the present action, the complaint failed to state a claim.
The district court granted EIM's motion on both grounds. As to the mini-trial issue, the court relied on the "[s]everal courts [that] have determined that dismissal of an action is warranted when there has been a failure to mediate a dispute pursuant to a contract that makes mediation a condition precedent to litigation." Order at 4. As to the forum selection clause, the court applied federal law as articulated in Bremen, which states that forum selection clauses "are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances." Bremen, 407 U.S. at 10, 92 S.Ct. 1907. The district court found the forum selection clause enforceable under Bremen and dismissed the case, though the court did not specify whether the dismissal was under 12(b)(3) or, instead, under 12(b)(6). Union Electric now appeals the district court's dismissal, as to both the forum selection clause issue and the mini-trial issue. This court has jurisdiction to hear Union Electric's appeal under 28 U.S.C. § 1291.
We review the district court's decision to enforce a forum selection clause for an abuse of discretion. Servewell Plumbing, LLC v. Fed. Ins. Co., 439 F.3d 786, 788 (8th Cir.2006). "A district court abuses its discretion when it applies an incorrect legal standard," Lauer v. Barnhart, 321 F.3d 762, 764 (8th Cir.2003), and "we review whether the district court applied the correct legal standard in exercising that discretion de novo," Sherman v. Winco Fireworks, Inc., 532 F.3d 709, 714 (8th Cir.2008).
As a preliminary matter, we must determine whether the district court was correct
Union Electric's primary challenge to the district court's decision on the forum selection clause issue is that, when a case complies with the applicable venue statute — in this case, 28 U.S.C. § 1391 — the district court cannot give effect to a valid forum selection clause specifying venue in another federal district court by dismissing the case under Rule 12 and the standard articulated in Bremen. Instead, according to Union Electric, Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988), specifies that transfer under 28 U.S.C. § 1404(a) is the only available procedural device to give effect to a forum selection clause that specifies another federal district court, thus replacing the stringent standard from Bremen with the more lenient and fact-specific approach found in § 1404(a). See Stewart, 487 U.S. at 29-30, 108 S.Ct. 2239 ("Section 1404(a) is intended to place discretion in the district court to adjudicate motions for transfer according to an individualized, case-by-case consideration of convenience and fairness. A motion to transfer under § 1404(a) thus calls on the district court to weigh in the balance a number of case-specific factors." (internal marks and citation omitted)). Union Electric thus urges us to read Stewart as creating a per se ban on clause-based dismissals when the forum selection clause specifies suit in another federal district court. Union Electric argues that, under this reading of Stewart, the district court abused its discretion when it applied Bremen in evaluating EIM's motion.
EIM disagrees, arguing that precedent from this court, as well as from the Supreme Court, establishes the propriety of clause-based dismissals under Rule 12 and Bremen. EIM cites to what it describes as "numerous cases from this Court [that] have affirmed the use of a Rule 12(b) dismissal to enforce a forum selection clause." Appellee's Br. at 36 (citing Servewell, 439 F.3d at 786; M.B. Rests., 183 F.3d at 750; Marano Enters. of Kan. v. Z-Teca Rests., L.P., 254 F.3d 753, 753 (8th Cir.2001); and Rainforest Café, 340 F.3d at 544). As an initial matter, EIM is correct to observe that these cases establish that Rule 12 is indeed an appropriate vehicle for enforcing a forum selection clause.
Because there was no dismissal motion on appeal before the Stewart Court, that case cannot be read to invalidate such motions. See TradeComet.com, 647 F.3d at 478 (collecting cases). But see Wright & Miller, supra, at § 3803.1 ("Thus, the Supreme Court in Stewart held that a federal court sitting in diversity jurisdiction should treat a request to enforce a forum selection clause that permits venue in another federal district as a motion to transfer venue under the federal venue statute, the terms of which are set out in Section 1404(a).... Thus, in a diversity case, a forum selection clause should be considered by the district court only within the context of consideration of a Section 1404(a) motion to transfer."). Indeed, the Stewart Court went to great pains to make clear that "the first question for [the lower court's] consideration should have been whether § 1404(a) itself controls respondent's request to give effect to the parties' contractual choice of venue" — not because § 1404(a) somehow controls all motions based on a forum selection clause, but instead for a much simpler reason: because "the immediate issue before the District Court was whether to grant respondent's motion to transfer the action under § 1404(a)." Stewart, 487 U.S. at 28-29, 108 S.Ct. 2239; see also Kerobo v. Sw. Clean Fuels Corp., 285 F.3d 531, 540 (6th Cir.2002) (Bertelsman, District Judge, dissenting) ("Stewart did not hold that a motion to dismiss is always improper if venue under the federal venue statutes is correct."). Union Electric cites a leading treatise and a recent district court opinion for the proposition that, if "the forum selection clause permits venue in another federal district, ... the Stewart decision instructs courts to use the Section 1404(a) balancing test, even if, as in Stewart, the movants ask for the suit to be dismissed for improper venue pursuant to the forum clause." Wright & Miller, supra, at § 3803.1; see also Janson v. LegalZoom.com, Inc., 727 F.Supp.2d 782, 785 (W.D.Mo.2010) ("If venue is proper in a district court and a forum selection clause permits venue in another federal district court, 28 U.S.C. § 1404(a) governs the question of whether the Court should give effect to that clause and dismissal is not proper."). But this is an untenable reading of Stewart because there was no dismissal motion before the Court in that case.
Our conclusion regarding the availability of clause-based dismissal also disposes of Union Electric's argument that the standards articulated in Stewart control the enforcement of forum selection clauses. While Stewart undoubtedly guides the resolution of § 1404(a) transfer motions, case law from the Supreme Court as well as
In Bremen, the defendant moved to dismiss for lack of jurisdiction or, alternatively, on the grounds of forum non conveniens. The Court described the "threshold question [before the district court as] whether that court should have exercised its jurisdiction to do more than give effect to the legitimate expectations of the parties, manifested in their freely negotiated agreement, by specifically enforcing the forum clause." Bremen, 407 U.S. at 12, 92 S.Ct. 1907. According to the Supreme Court, "[t]he correct approach [is] to enforce the forum clause specifically unless [it can be] clearly show[n] that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." Id. at 15, 92 S.Ct. 1907.
Union Electric argues that Bremen is inapplicable to diversity cases because it was decided under the Court's admiralty jurisdiction. While that position finds some support in this circuit's case law, as well as in decisions of the Supreme Court,
Accordingly, a district court sitting in diversity jurisdiction and applying federal law must apply the standard articulated in Bremen to the question of whether to enforce a forum selection clause through dismissal.
Union Electric argues that even if the Bremen standard controls, reversal is appropriate because the district court misapplied Bremen when it failed to consider whether enforcement of the forum selection clause would contravene public policy. As mentioned above, we review the district court's decision to enforce a forum selection clause for an abuse of discretion. Servewell, 439 F.3d at 788. While the district court cited the correct legal standard, we agree with Union Electric that the district court incorrectly applied that standard. Specifically, the district court failed to give due consideration to Missouri's public policy, and we therefore reverse and remand the case to the district court.
"Forum selection clauses are prima facie valid and are enforced unless they are unjust or unreasonable or invalid for reasons such as fraud or overreaching." M.B. Rests., 183 F.3d at 752 (citing Bremen, 407 U.S. at 15, 92 S.Ct. 1907). "Where, as here, the forum selection clause is the fruit of an arm's-length negotiation, the party challenging the clause
Union Electric argues that Missouri has a strong public policy in favor of litigating this dispute in Missouri in light of the magnitude of the environmental damage the reservoir's breach caused. According to Union Electric, enforcement of the forum selection clause would contravene that public policy. In addition, Union Electric argues that "enforcement of the forum selection clause would likely vitiate Missouri's public policy invalidating mandatory arbitration provisions in insurance agreements," Appellant Br. at 35, because "[u]nder New York law, unlike Missouri law, arbitration provisions in insurance contracts are enforceable," id. at 40.
The district court held that Union Electric "failed to meet its heavy burden of proof to set aside the forum selection clause in the insurance contract." Order at 8. The district court failed, however, to address Union Electric's argument that enforcement of the forum selection clause in favor of New York courts would result in enforcement of the mandatory arbitration provision, thereby contravening Missouri's public policy against the enforcement of such provisions. See Sturgeon v. Allied Prof'ls Ins. Co., 344 S.W.3d 205, 210 (Mo.Ct.App.2011) (footnote omitted) (stating that the enforcement of mandatory arbitration provisions "would be contrary to Missouri public policy, because Section 435.350 of the Missouri Arbitration Act prohibits mandatory arbitration provisions in insurance contracts."). The district court's failure to address Missouri's public policy concerning mandatory arbitration provisions in insurance contracts pursuant to Farmland constituted an abuse of discretion. Farmland, 806 F.2d at 852 ("[C]onsideration should be given to the public policy of Missouri forbidding forum selection clauses."). Accordingly, we reverse