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AMERICAN PATRIOT INS. v. MUTUAL RISK MANAGEMENT

February 27, 2003

AMERICAN PATRIOT INSURANCE AGENCY, INC., AN ILLINOIS CORPORATION,
V.
MUTUAL RISK MANAGEMENT, LTD., DIANE M. HENDRICKS AND KENNETH A. HENDRICKS, PLAINTIFFS, V. MUTUAL RISK MANAGEMENT, LTD., A BERMUDA CORPORATION, MUTUAL INDEMNITY (BERMUDA), LTD., A BERMUDA CORPORATION, COMMONWEALTH RISK SERVICES, L.P., CUNNINGHAM-LINDSEY, INC., A TEXAS CORPORATION, GLENN PARTRIDGE, AN INDIVIDUAL, DAVID ALEXANDER, AN INDIVIDUAL, AND RICHARD TURNER, AN INDIVIDUAL, DEFENDANTS.



The opinion of the court was delivered by: Ruben Castillo, District Judge.

  MEMORANDUM OPINION AND ORDER

Plaintiffs filed a nine-count complaint against Defendants for fraud, misrepresentation, conspiracy, breach of contract, equitable relief, RICO violations and negligence arising out of a failed commercial insurance program. Mutual Risk Management, Ltd., Mutual Indemnity (Bermuda), Ltd., Commonwealth Risk Services, L.P., David Alexander, Glenn Partridge and Richard Turner (the "Mutual Defendants") move to dismiss the claims against them for improper venue on the ground that a forum selection clause in a contract with Plaintiffs requires any litigation to be brought in Bermuda. Because we agree that the forum selection clause controls in this case, we grant the Mutual Defendants' motion to dismiss. (R. 23-1.)

RELEVANT FACTS

In 1997 American Patriot Insurance Agency, Inc. ("APIA") entered into an agreement with certain of the Mutual Defendants to establish a commercial insurance program for APIA's roofing contractor clients (the "Program"). To effectuate the Program, Plaintiffs and Mutual Holdings, the parent company of Mutual Indemnity (Bermuda) Ltd., entered into a Shareholder Agreement, which, among other things, required Mutual Indemnity to reinsure APIA's liability on its roofing policies. APIA, in turn, was required to indemnify Mutual Indemnity and to provide irrevocable Letters of Credit to Mutual Indemnity as collateral. The Shareholder Agreement was one of several agreements executed between the parties, but these agreements "constitute[d] a single insurance program . . . which is a uniquely negotiated single contract." (R. 24, Defs.' Mem., Ex. 1, Shareholder Agreement.) The Shareholder Agreement contains a forum selection clause which states in pertinent part 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." (Id.)

Pursuant to the Program, Legion, an insurance company not a party to the present action, underwrote the Program and issued various insurance policies to the roofing contractors. Legion contracted with Cunningham-Lindsey, or one of its related entities, to service claims arising under the policies. Legion and Mutual Indemnity retained portions of the premiums in loss funds. Under the Agreements, if the losses and expenses in any Program year exceeded the loss funds, APIA assumed responsibility for paying on Mutual Indemnity's behalf those excess amounts. APIA's irrevocable letters of credit served as collateral underlying these obligations. In 1999 the claims and losses under the Program were greater than expected, and Plaintiffs became concerned with their maximum potential liability under the letters of credit. Plaintiffs investigated these losses and discovered what they believed to be a fraudulent, or at the minimum negligent, scheme involving Cunningham-Lindsey, Legion and certain of the Mutual Defendants.

LEGAL STANDARDS

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).

ANALYSIS

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 ...


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