CIVIL ACTION NO. H-94-3714
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION
1995 U.S. Dist. LEXIS 21095
June 26, 1995, Decided
June 28, 1995, ENTERED
DISPOSITION: [*1] Lloyds motion for dismissal based on lack of subject matter jurisdiction is GRANTED, and further ORDERS that McDades claims are DISMISSED WITHOUT PREJUDICE.
COUNSEL: For THOMAS B MCDADE, plaintiff: Willis Witt, Attorney at Law, Houston, TX.
For LLOYDS THE SOCIETY OF, THE COMMITTEE OF LLOYDS, defendants: J Clifford Gunter, III, Bracewell & Patterson, Houston, TX.
JUDGES: MELINDA HARMON, UNITED STATES DISTRICT JUDGE
OPINIONBY: MELINDA HARMON
Pending before the Court in the above referenced action alleging common law fraud, violation of the Texas Deceptive Trade Practices Act, and securities fraud under the Securities and Exchange Act of 1934 is Defendant Lloyds of London ("Lloyds") motion to dismiss (Instrument #5). Upon reviewing the record and considering the applicable law, the Court is of the opinion that Lloyds motion (Instrument #5) should be GRANTED.
I. Related Background Facts.
Defendants NationsBank of Texas, N.A. and NationsBank of North Carolina, N.A. have been dismissed previously without prejudice. See Instrument #12. Plaintiff Thomas B. McDade ("McDade") became an underwriting member of Lloyds know as a "Name" prior to 1980. In 1986 McDade [*2] signed a document entitled "General Undertaking" which defined the choice of law and forum for any litigation related to his membership with Lloyds. The applicable clauses state:
2.1 The rights and obligations of the parties out of relating to the Members membership of, and/or underwriting of insurance business at, Lloyds and any other matter referred to in this Undertaking shall be governed by and construed in accordance with the laws of England.
McDade alleges that the General Undertaking was fraudulently induced and was an adhesion contract, Lloyds seeks dismissal under F.R.C.P. 12(b)(1) for lack of subject matter jurisdiction because under the terms of the General Undertaking, McDade is required to litigate all disputes arising from [*3] his Lloyds membership in the courts of England under English law. In the alternative Lloyds also seeks dismissal under the doctrine of international comity, or under the doctrine of forum non conveniens, or under F.R.C.P. 12(b)(2) for lack of personal jurisdiction over Lloyds.
It is well settled that forum selection clauses are considered "prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972). "The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under out laws and in our courts. . . We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts." M/S Bremen, 407 U.S. at 9. "Uncertainty regarding choice of law will almost inevitably exist with respect to any contract touching two or more countries, each with its own substantive laws and conflict-of-laws rules. A contractual [*4] provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable precondition to achievement of the orderliness and predictability essential to any international business transaction." Scherk v. Alberto-Culver Co., 417 U.S. 506, 515, 41 L. Ed. 2d 270, 94 S. Ct. 2449 (1974).
The enforcement of such a clause would be unreasonable, if the clause is invalid for fraud or overreaching, or if forcing the resisting party to proceed in the chosen forum would be so difficult for that party that it would effectively deprive it of its day in court. Seattle-First Natsl Bank v. Manges, 900 F.2d 795, 799 (5th Cir. 1990), citing M/S Bremen, 407 U.S. at 15. In this action McDade alleges fraud related to his overall membership contract with Lloyds and their failure to disclose investment decisions that were affecting his personal investment. Plaintiffs Opposition to Defendants Motion to Dismiss ("Opposition") (Instrument #9) at 3. He further alleges that had he known of their investment decisions, he would not have signed the General Undertaking. Opposition at 3.
Scherk establishes a test for the invalidation [*5] of a forum selection clause due to fraud or overreaching. "This qualification does not mean that any time a dispute arising out of a transaction is based upon an allegation of fraud, the clause is unenforceable. Rather, it means that an arbitration or forum-selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion." Scherk, 417 U.S. at 519 (interpreting M/S Bremen, 407 U.S. at 15). Consequently, McDades allegations of fraud related to the underlying contract do not invalidate the forum selection clause.
McDade also alleges fraud in the inducement related specifically to the General Undertaking which contained the choice of law and forum selection clauses. Opposition at 2 - 3. He alleges that he was not told by Lloyds at the time of signing the General Undertaking that they had obtained an enactment by Parliament that made it impossible to sue Lloyds of London except on the basis of fraud. Opposition at 3. However, based on his investments transactions with Lloyds, McDade can be assumed to be a sophisticated business individual capable of either understanding the choice of law and forum selection [*6] clauses in the General Undertaking or capable of obtaining legal representation to assist him in understanding the document prior to his singing.
McDade further alleges that the General Undertaking is an adhesion contract obtained through coercion. Opposition at 2 - 3. He indicates that he was told that he needed to sign the General Undertaking in order to avoid being expelled from Lloyds and he did not want to abandon his extensive investments with Lloyds. Opposition at 3. Even when there is disparity in the bargaining power of the parties and the terms were not negotiated, a forum selection clause can be reasonable because, the defendant has a special interest in limiting the forums available for suit, it avoids confusion and saves time and money in filing pretrial motions, and plaintiffs can benefit in terms of saving money. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593, 113 L. Ed. 2d 622, 111 S. Ct. 1522 (1991). Forum selection clauses are subject to judicial scrutiny for fundamental fairness. Id. In this case, as in Carnival, there is no indication that Lloyds set England as the forum in which disputes were to be resolved as a means of discouraging members [*7] from pursuing legitimate claims.
The party resisting enforcement of a forum selection clause bears a heavy burden of proof. M/S Bremen, 407 U.S. at 17. When McDade signed the General Undertaking the possibility of an inconvenient forum was obvious. The clause is plainly visible in the two page agreement and is unambiguous. Therefore, McDade has not satisfied the "heavy burden of proof" required to resist enforcement.
Because the forum selection clause is dispositive on the question of lack of subject matter jurisdiction and lack of subject matter jurisdiction is dispositive on the question of dismissal, Lloyds arguments regarding international comity, forum non conveniens, and lack of personal jurisdiction need not be addressed.
In accordance with the foregoing, the Court
ORDERS that Lloyds motion for dismissal based on lack of subject matter jurisdiction is GRANTED, and further
ORDERS that McDades claims are DISMISSED WITHOUT PREJUDICE.
SIGNED at Houston, Texas, this 26th day of June, 1995.
UNITED STATES [*8] DISTRICT JUDGE