Abbott Laboratories v. Takeda Pharmaceutical, 06-1835.

• Citation: 476 F.3d 421
• Decision Date: 02 February 2007
• Docket Number: No. 06-1835.,06-1835.
• Parties: ABBOTT LABORATORIES, Plaintiff-Appellant, v. TAKEDA PHARMACEUTICAL COMPANY LIMITED, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

476 F.3d 421

ABBOTT LABORATORIES, Plaintiff-Appellant, v. TAKEDA PHARMACEUTICAL COMPANY LIMITED, et al., Defendants-Appellees.

No. 06-1835.

United States Court of Appeals, Seventh Circuit.

Argued October 16, 2006.

Decided February 2, 2007.

Christopher Landau (argued), Kirkland & Ellis, Washington, DC, for Plaintiff-Appellant.

Thomas P. Sullivan, Terri L. Mascherin (argued), Jenner & Block, Chicago, IL, for Defendants-Appellees.

Before POSNER, RIPPLE, and WOOD, Circuit Judges.

POSNER, Circuit Judge.

In 1977, Abbott Laboratories and the Japanese pharmaceuticals manufacturer Takeda formed a 50-50 joint venture, Takeda-Abbott Products, to engage in pharmaceutical research and development. In 1985 the parties converted it into a Delaware corporation, TAP Pharmaceuticals, which they continued to own equally; each of the joint venturers was therefore entitled to choose half the members of TAP's board of directors. The 1985 agreement also expanded the scope of the joint venture to include the distribution of pharmaceuticals. In that regard the agreement provided that both Abbott and Takeda could contract with TAP to furnish it with bulk product for it to distribute. TAP was to select bulk suppliers "on the basis of the economic advantage to TAP," but was to give the original supplier of the bulk product "the first opportunity to quote on" resupplying it. The parties further agreed "to utilize their voting power in [TAP] in such a manner as to effectuate the intent of" both the 1977 and 1985 agreements.

In 1995 Takeda made a contract to supply TAP for ten years with bulk lansoprazole, a drug for treating symptoms of heartburn and acid reflux, which TAP marketed under the name Prevacid. In 2004, shortly before the contract expired, TAP's board of directors voted to renew it. Six months later Abbott filed this suit against Takeda. The complaint charges that the defendant, in breach of a fiduciary duty to Abbott imposed by Delaware law (remember that TAP is a Delaware corporation), had coerced Abbott to instruct its directors on TAP's board to vote to renew the contract, even though the contract price was excessive. Takeda had been able to coerce Abbott, the complaint explains, by threatening to stop supplying lansoprazole to TAP. How such a threat could be credible is unclear; and one might also wonder how Takeda could benefit from forcing TAP, of which it was half owner, to pay an exorbitant price for a critical input. Wouldn't that be cutting off one's nose to spite one's face? Abbott's answer is that by forcing renewal at an exorbitant price and thus increasing Takeda's profits but TAP's costs (and so reducing TAP's profits), Takeda would come out ahead because half of TAP's profits go to Abbott but all of Takeda's profits go to Takeda.

Abbott filed its suit in the federal district court in Chicago, basing federal jurisdiction on diversity of citizenship. The choice of forum was a surprise. The 1985 agreement between Abbott and Takeda that created TAP states that "in the event of a dispute between [Abbott and Takeda] arising from, concerning or in any way related to this Agreement," suit shall be brought in Japan if Abbott is the plaintiff and in Illinois if Takeda is the plaintiff. The purpose of specifying two forums in this way is to discourage either side from instituting litigation, because whoever sues must litigate on the other party's turf. Compare Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S.Ct. 1522 113 L.Ed.2d 622 (1991). The downside is that if a dispute arises, each party may try to maneuver the other into suing first, and such maneuvers could make litigation more likely. But the parties, being commercially sophisticated entities, must have thought this effect of such a forum selection clause less likely than its effect in discouraging litigation. The district court held the clause valid and applicable, and so dismissed the suit, precipitating this appeal.

The 1985 agreement states that it "shall be governed by the laws of the State of Illinois." But there is a question whether this provision bound the district court, and binds us, with respect to forum selection. We left open the question whether federal or state law governs the validity and interpretation of such clauses in diversity suits in IFC Credit Corp. v. Aliano Brothers General Contractors, Inc., 437 F.3d 606, 609 (7th Cir.2006). We noted that if federal law applies there may be an invitation to forum shopping because the state law may be different, but that if state law applies the determination of the forum for the litigation is withdrawn from the federal courts even though they have an independent interest in determining whether the suit is litigated in a federal district court and if so in which one. Neither consideration figures in this case. There is no risk of forum shopping, because if Abbott had filed its suit in a state court Takeda could have removed it to a federal court in the same state. And it is a matter of indifference to the federal judiciary whether the forum selection clause in this case is enforced—it is no skin off the federal courts' back if this suit is litigated in Japan, but at the same time there is nothing about the litigation that would make it abnormally burdensome to the federal district court in Chicago, as might be a concern if that court somehow lacked the procedural or other resources that are required for resolving an international commercial dispute.

Simplicity argues for determining the validity and meaning of a forum selection clause, in a case in which interests other than those of the parties will not be significantly affected by the choice of which law is to control, by reference to the law of the jurisdiction whose law governs the rest of the contract in which the clause appears, Northwestern National Ins. Co. v. Donovan, 916 F.2d 372, 375-76 (7th Cir.1990); Yavuz v. 61 MM, Ltd., 465 F.3d 418, 428 (10th Cir.2006); Gleich v. Tastefully Simple, Inc., 2005 WL 3299187, at *5 (N.D.Ill. Dec.2, 2005), rather than making the court apply two different bodies of law in the same case. This implies that Illinois law ;governs the validity of the forum selection clause in this case.

But while as we noted in IFC Credit Corp. v. Aliano Brothers General Contractors, Inc., supra, 437 F.3d at 611-13, there are differences of nuance between the federal and the Illinois standards for determining the validity of a forum selection clause, there is agreement between the jurisdictions that ordinarily the parties' contractual choice of forum should be overridden only if that choice would impose significant costs on third parties or on the judicial system. Compare id. at 613; AAR Int'l, Inc. v. Nimelias Enterprises S.A., 250 F.3d 510, 525 n. 9 (7th Cir.2001), and Northwestern National Ins. Co. v. Donovan, supra, 916 F.2d at 376, with Aon Corp. v. Utley, 2006 WL 3247185 (Ill.App. Nov. 9, 2006), 2006 Ill. App. LEXIS 1021, at *19-21; Yamada Corp. v. Yasuda Fire & Marine Ins. Co., 305 Ill.App.3d 362, 238 Ill.Dec. 822, 712 N.E.2d 926, 934 (1999), and Calanca v. D & S Mfg. Co., 157 Ill.App.3d 85, 109 Ill. Dec. 400, 510 N.E.2d 21, 23-24 (1987) (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972)). Neither basis for a finding of invalidity is present in this case, and there is no contention that Abbott was coerced or deceived into agreeing to the clause—Abbott proposed it to Takeda. The clause is valid, and so we turn to the question of its meaning, where again no difference between federal and Illinois principles of interpretation (if there is a difference, which we doubt) would affect the outcome.

The clause is about as broadly worded as could be imagined, and at least as a semantic matter it certainly embraces Abbott's suit. The breach of fiduciary obligation of its co-venturer about which Abbott complains arose out of the corporate structure created by the agreement, out of the provision of the agreement relating to contracts with bulk suppliers, out of the deadlock potential that the contractual provision for a 50-50 division of shares and directors created, and out of the contractual duty of the parties to vote their shares in a manner that would achieve the purpose of the agreement, which was to share profits equally—an intent that Takeda's conduct, if Abbott can be believed, flouted. So the wrong of which Abbott's suit complains arises from the 1985 agreement and even more clearly is related to it—the first thing a court asked to adjudicate the suit would want to look at would be the agreement.

Abbott argues, however, that under Illinois principles for the interpretation of forum selection clauses, a dispute "relates to" an agreement only if resolution of the dispute requires interpretation of the agreement. This would mean that if Takeda acknowledged breaking the contract, Abbott wouldn't have to sue in Japan because there would be no interpretive issue. That makes no sense; and the case that Abbott cites in support, Boatwright v. Delott, 267 Ill.App.3d 916, 205 Ill.Dec. 10, 642 N.E.2d 875, 877 (1994), is inapposite. It does say that "forum selection clauses apply to tort claims which require interpretation of the contract." (Emphasis added.) But the clause in Boatwright was much narrower than the one in this case. It said nothing about arising from or concerning or related to. Instead it said: "This Contract shall be governed by and construed in accordance with the law of the state of Texas applicable to contracts." (Emphasis added.)

Abbott repeats its argument in different words when it says that since its suit is a tort suit—a suit for breach of a fiduciary duty to a partner in a joint venture—it arises out of Delaware tort law rather than out of the 1985 agreement. But the forum selection clause does not apply just to the litigation of claims that arise out of, concern, etc., the contract; it applies to the litigation of disputes that arise out...