throughout the remainder of 2002. In December
2002 some of the Mutual Defendants, who were defending several lawsuits
nationwide, prepared and filed a Scheme of Bankruptcy in Bermuda, the
terms of which require a stay of pending litigation and fast-track,
mandatory arbitration of those claims by a Mutual-selected arbitrator in
Bermuda. On January 21, 2003, certain Mutual Defendants filed an
ancillary proceeding under § 304 of the Bankruptcy Code in the
Southern District of New York seeking to enforce in the United States the
terms of the Bermuda bankruptcy. Finally, the Mutual Defendants filed the
present motion to dismiss on January 24, 2003.
A motion to dismiss for improper venue based on a forum selection
clause is properly brought under Rule 12(b)(3). Weidner Communications,
Inc. v. H.R.H. Prince Bandar Al Faisal, 859 F.2d 1302, 1306 (7th Cir.
1988); Chapman v. Norwegian Cruise Line Ltd., No. 01 C 50004, 2001 WL
910102, *1 (N.D. Ill. July 6, 2001). The plaintiff bears the burden of
establishing that the venue he has chosen is proper and that the
forum-selection clause is unenforceable. Chapman, 2001 WL 910102, at *1.
We must resolve any factual disputes in favor of the plaintiff and draw
any reasonable inferences from those facts in the plaintiff's favor.
Moore v. AT & T Latin Am. Corp., No. 01 C 3013, 2001 WL 1002469, at
*2 (N.D. Ill. Aug. 29, 2001).
Plaintiffs first argue that the Mutual Defendants waived any venue
challenge by failing to timely raise their objections. Objections to
venue must be raised at the earliest possible opportunity or they are
deemed waived. Fed.R.Civ.P. 12(h)(1); Frietsch v. Refco, Inc., 56 F.3d 825,
830 (7th Cir. 1995). Generally this requirement entails objecting to
venue no later than the expiration of the period allotted for answering
or moving to dismiss the complaint. Fed.R.Civ.P. 12(h)(1); see also
Commercial Cas. Co. v. Consol. Stone Co, 278 U.S. 177, 179-80 (1929);
Ward v. Delaney, No. 01 C 3074, 2002 WL 31133099, *1 (N.D. Ill. Sept.
20, 2002). A defendant also may waive his venue objections by expressly
consenting to be sued in a certain district or by some other conduct that
implies consent. 5A Wright, A. Miller, C. & Cooper, E., Federal
Practice and Procedure § 1352; Cont'l Bank, N.A. v. Meyer,
10 F.3d 1293, 1297 (7th Cir. 1993); Trs. of Cent. Laborers' Welfare Fund
v. Lowery, 924 F.2d 731, 732 (7th Cir. 1991) (the privileged defenses
referred to in Rule 12(h)(1) "may be waived by formal submission in a
cause, or by submission through conduct.") (internal citation and
quotation omitted). Indeed, "[a] party need not actually file an answer
or motion before waiver is found." Continental, 10 F.3d at 1297. Thus, a
party that actively participates in litigation before filing an answer or
responsive motion nevertheless may be held to have waived its venue
objections, especially if significant periods of time have elapsed since
the filing of the complaint. See, e.g., In re Fin. Partners Class Action
Litig., No. 82 C 6611, 1985 WL 2373, *2 (N.D. Ill. Aug. 23, 1985)
(holding that defendant who had "technically preserved" a 12(b) defense
by filing no responsive pleading nevertheless had waived the defense by
engaging in discovery for over two years). Routine motions for extensions
of time to answer and participation in settlement negotiations, however,
do not constitute active participation in litigation for purposes of
venue objections. See 2215 Fifth St. Assocs. v. U Haul Int'l, Inc.,
148 F. Supp.2d 50, 56 (D.D.C. 2001) (holding that defendant did not waive
objection to improper venue based on the forum selection clause by
cooperating in settlement negotiations for six months because "the
period was not so great and the prejudice incurred by plaintiffs was not so
detrimental"); D'Amico v. Treat, 379 F. Supp. 1004, 1007-08 (N.D. Ill.
1974) (venue objection was not waived by filing an appearance and motion
for enlargement of time to answer or otherwise plead).
This case was filed over ten months ago. In the intervening period,
both parties represented to this Court that extensive settlement
negotiations were ongoing and that settlement was contingent, in part, on
an exhaustive audit of the claims under the Program. The parties filed
numerous agreed motions to extend the time for Defendants' answers while
the audit progressed. The Mutual Defendants willingly participated in the
settlement discussions, informal discovery, and in filing joint status
reports with this Court.*fn1 It is now evident that the Mutual
Defendants' motivations for participating in these exercises were
fueled, at least in part, by a tactical maneuver to postpone litigation
in the United States while they prepared an extensive Scheme of
Bankruptcy in Bermuda that will, if given effect here, halt all pending
causes of action and funnel them into mandatory arbitration in Bermuda.
That being said, however, Plaintiffs clearly were willing participants in
this tactic to the extent it served their desire for quick, informal
discovery. Despite this long delay and their lack of candor with this
Court, the Mutual Defendants did not participate in this litigation
outside the settlement context, and thus we conclude under relevant case
authority that they failed to timely raise their venue objections.
Accordingly we hold that the Mutual Defendants did not waive their venue
objections by failing to raise them in the ten months prior to their
pending motion to dismiss.
Having determined that the Mutual Defendants have not waived any
objections to venue, we turn to the validity of the forum selection
clause. It is well-settled that contractual forum selection clauses are
prima facie valid. M/S Bremen v. Zapata Off Shore Co., 407 U.S. 1, 10
(1972). Forum selection clauses in international contracts are accorded
special deference due to the "concerns of international comity, respect
for the capacities of foreign and transnational tribunals, and
sensitivity to the need of the international commercial system for
predictability in the resolution of disputes." Mitsubishi Motors Corp. v.
Sober Chrysler-Plymouth, Inc., 473 U.S. 614, 629 (1985). Thus, such
clauses are enforced unless the provision is unreasonable. Paper
Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th Cir.
1992). A forum selection clause is unreasonable if: (1) it is procured by
fraud or overreaching; (2) it would result in a forum so gravely
difficult or inconvenient that the plaintiff effectively will be denied
his day in court; or (3) its enforcement would contravene a strong public
policy of the forum in which
the suit was brought, as defined by statute
or judicial decision. See AAR Int'l, Inc. v. Nimelias Ents. S.A,
250 F.3d 510, 525 (7th Cir), cert. denied, 534 U.S. 955 (2001).
Here, the Shareholder Agreement's forum selection clause clearly
provides that the contract "shall be exclusively governed by and construed
in accordance with the laws of Bermuda and any dispute concerning this
agreement shall be resolved exclusively by the courts of Bermuda."
Therefore, we will enforce the clause unless Plaintiffs prove that it is
obviously unreasonable. Paper Express, 972 F.2d at 757.
Plaintiffs do not claim that the forum selection clause was the result
of fraud, overreaching or unequal bargaining power. Nor do they claim
that an Illinois or federal public policy as declared by a statute or
judicial decision would be contravened by enforcing the forum selection
clause. Plaintiffs' primary argument is that they will be denied due
process and thus their day in court if they are forced to litigate this
matter in Bermuda. In essence, Plaintiffs contend that they will not be
afforded a right to be heard because their causes of action will be
subsumed within Mutual's Bankruptcy Scheme in Bermuda, which if enforced
according to its terms, requires mandatory, fast-track arbitration of
Plaintiffs' claims by an arbitrator chosen by the Mutual Defendants.
Additionally, Plaintiffs assert that the present Bankruptcy Scheme
assigns almost no value to Plaintiffs' claims and requires a release of
future claims and the right to appeal. As a result, Plaintiffs argue, the
Scheme is contrary to American bankruptcy law as well as our principles
of due process.
Although these arguments have superficial appeal, Plaintiffs fail to
satisfy "the heavy burden of proof required to set aside the [forum
selection] clause on grounds of inconvenience." Carnival Cruise Lines,
Inc. v. Shute, 499 U.S. 585, 595 (1991) (internal quotation omitted);
Quist v. Empire Funding Corp., No. 98 C 8402, 1999 WL 982953, *3 (N.D.
Ill. Oct. 22, 1999). As an initial matter, it is not certain that the
Scheme will proceed in its present form. According to exhibits attached
to Plaintiffs' response, the Scheme has yet to be approved by the Bermuda
courts. (R. 28, Pls.' Resp., Ex. U, Section 304 Pet. at 14.) In
addition, a condition precedent to the Scheme becoming effective in
Bermuda is the issuance of an order by the New York Bankruptcy Court that
gives full force and effect to the Scheme in the United States. (Id.)
Many potential creditors, including Plaintiffs and other nationwide
litigants, have voiced vehement opposition to approval of the Scheme in
the New York bankruptcy proceeding. (Id., Ex. V, Pls.' Opp. to Mutual's
§ 304 Pet.) Given these objections and the Scheme's apparent
divergence from the protections and practices inherent under American
bankruptcy law, it is entirely possible that Mutual's § 304 Petition
will be denied, or at least modified, by the New York bankruptcy
court.*fn2 In addition, there is no evidence
that Plaintiffs presently
are unable to file an action in the Bermuda courts protesting the terms
of the Scheme. We are unconvinced that Plaintiffs have no recourse
against the Scheme in its present form such that they will be unable
to litigate their claims in Bermuda and thus be deprived of their day
in court if we enforce the forum selection clause.*fn3
Finally, we turn to Plaintiffs' arguments that the motion to dismiss
should be denied because: (1) some of their claims, including fraud,
RICO, conspiracy and negligent misrepresentation, lie outside the scope
of the Shareholder Agreement; (2) some of the parties, including the
individual Mutual Defendants and Cunningham-Lindsey, are not parties to
the Shareholder Agreement; and (3) some of Plaintiffs' claims arise out
of contracts that do not contain a forum selection clause. These
arguments are wholly without merit. The Shareholder Agreement,
essentially incorporates by reference the underlying insurance policies
and the Reinsurance Treaty as a "uniquely negotiated single contract."
Thus the fact that other relevant documents do not also contain a forum
selection clause does not undermine the clause's validity in this
action. Nor do Plaintiffs' claims asserting RiCO violations and fraud
defeat enforceability of the forum selection clause. The Agreement
expressly states that the forum selection clause applies to "any dispute
concerning" that Agreement. "[A]ll disputes the resolution of which
arguably depend upon the construction of an agreement `arise out of that
agreement" for purposes of a forum selection clause. Omron Healthcare,
Inc. v. Maclaren Exps., Ltd., 28 F.3d 600, 603 (7th Cir. 1994). The
alleged fraud, negligent misrepresentations or RICO violations occurred
because the Agreement and the Program were in place. The Shareholder
Agreement is the document that links the various contracts together as
well as the defendants to the plaintiffs; thus it is the controlling
document and its forum selection clause binds the parties. See Friedman
v. World Transp., Inc., 636 F. Supp. 685, 691 (N.D. Ill. 1986).
Similarly, we also reject Plaintiffs' argument that enforcement of the
forum selection clause is precluded by the fact that certain Defendants
are not parties to the Agreement. Plaintiffs cannot escape their
contractual obligations simply by joining parties who did not sign the
contract and then claiming that the forum selection clause does not
apply. See Hugel v. Corp. of Lloyd's, 999 F.2d 206, 209-10 (7th Cir.
1993); Friedman, 636 F. Supp. at 691. Parties that are "closely related"
to the dispute also may be bound to a forum selection clause. Hugel, 999
F.2d at 209. Certain of the Mutual Defendants clearly are third-party
beneficiaries of the Agreement, which is a sufficient, if not necessary,
status to satisfy the "closely related" standard. Id. at 210. The
remaining Defendants, including the individuals and
and their claims are so integrally related to the Shareholder Agreement
and the Program that they are bound to the forum selection clause.
Bonny, 3 F.3d at 162. For these reasons, although Cunningham-Lindsey is
not a Mutual Defendant and has not moved for dismissal, we are not
precluded from dismissing it from the action as well.
For the foregoing reasons we grant the Mutual Defendants' motion to
dismiss for lack of venue. (R. 23-1.) We also dismiss the nonmoving
Defendant, Cunningham Lindsey, for the reasons stated in this opinion.
The Clerk of the Court is instructed to enter judgment, pursuant to
Federal Rule of Civil Procedure 58, in favor of Defendants.