Union Elec. Co. v. Energy Ins. Mut. Ltd.

• Citation: 689 F.3d 968
• Decision Date: 27 August 2012
• Docket Number: No. 11–1315.,11–1315.
• Parties: UNION ELECTRIC COMPANY, doing business as Ameren UE, Plaintiff–Appellant v. ENERGY INSURANCE MUTUAL LIMITED, Defendant–Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

689 F.3d 968

UNION ELECTRIC COMPANY, doing business as Ameren UE, Plaintiff–Appellant

v.ENERGY INSURANCE MUTUAL LIMITED, Defendant–Appellee.

No. 11–1315.

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 19, 2011.

Filed: Aug. 27, 2012.

Robert T. Haar, argued, Susan E. Bindler, Lisa A. Pake, on the brief, St. Louis, MO, for appellant.

David Zaslowsky, argued, New York, NY, Alan K. Goldstein, St. Louis, Michael A. Pollard, Lisa S. Brogan, Chicago, IL, on the brief, for appellee.

Before MELLOY, SMITH, and BENTON, Circuit Judges.

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.

I.

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 contract at issue in this case—which specifies that New York law applies—was drafted by the member insureds, in contrast to the insurer-drafted contracts commonly found in insurance disputes.

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:

To the extent that any claim or controversy between the Insured and the Company hereunder is not subject to arbitration for any reason whatsoever, the United States District Court for the Southern District of New York shall have exclusive jurisdiction thereof.

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.¹

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.

II.

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 correctin applying federal law to the Rule 12 motion to dismiss. As in M.B. Restaurants, Inc. v. CKE Restaurants, Inc., 183 F.3d 750 (8th Cir.1999), “the parties here do not argue the state and federal standards differ.” Id. at 752. Further, the parties have not challenged the applicability of federal law to this issue, and they assume that federal law applies. Accordingly, the district court did not err in applying federal law to determine the enforceability of the forum selection clause, and we likewise apply federal law in reviewing the enforceability of the forum selection clause in this case. See Rainforest Café, Inc. v. EklecCo, LLC, 340 F.3d 544, 546 (8th Cir.2003) (“Because the parties have not argued that state law would result in a materially different outcome, we indulge their suggestion that we interpret the forum selection clause under federal law.”).

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.² As to Stewart's relevance to this case, the Second Circuit recently rejected the very argument Union Electric now makes, noting that the motion before the Court in Stewart was a transfer motion, not a dismissal motion: “ Stewart, therefore, applied § 1404(a) because a § 1404(a) motion was before the Court.” TradeComet.com LLC v. Google, Inc., 647 F.3d 472, 477 (2d Cir.2011). We agree. There is authority supporting the district court's ability to sua sponte transfer a case under § 1404(a). See I–T–E Circuit Breaker Co. v. Becker, 343 F.2d 361, 363 (8th Cir.1965) (per curiam) (“[S]ubsection (a) of § 1404 is without any limiting language as to the power of the district court to transfer a civil action to another district such as is contained in subsection (b)....”); Graham Const. Services, Inc. v. Hammer & Steel, Inc., No. 4:11–cv–020, 2011 WL 3236083 at *5 (D.N.D. July 27, 2011) (unpublished); 14D Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3844 n. 2 (collecting cases). However, the reasoning in Stewart “nowhere requires a court to consider a forum selection clause pursuant to § 1404(a).” TradeComet.com, 647 F.3d at 477.But see Incompass IT, Inc. v. XO Commc'ns Servs., Inc., No. 11–570, 2011 WL 2037603, at *2 (D.Minn. May 24, 2011) (“[T]he [ Stewart ] Court determined that a federal court sitting in diversity jurisdiction should treat a request to enforce a forum-selection clause as a motion to transfer venue under 28 U.S.C. § 1404(a).”).

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 seeWright & 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...