916 F.2d 372 (7th Cir. 1990), 90-1366, Northwestern Nat. Ins. Co. v. Donovan

Docket Nº:90-1366 to 90-1369, 90-1377.
Citation:916 F.2d 372
Party Name:NORTHWESTERN NATIONAL INSURANCE COMPANY, Plaintiff-Appellant, v. William F. DONOVAN, et al., Defendants-Appellees.
Case Date:October 17, 1990
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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916 F.2d 372 (7th Cir. 1990)



William F. DONOVAN, et al., Defendants-Appellees.

Nos. 90-1366 to 90-1369, 90-1377.

United States Court of Appeals, Seventh Circuit

October 17, 1990

Argued Sept. 7, 1990.

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John A. Rothstein, Richard C. Ninneman, Quarles & Brady, Milwaukee, Wis., for plaintiff-appellant.

Stephen E. Kravit, K. Scott Wagner, Kravit, Waisbren & Debruin, Milwaukee, Wis., Martha B. Lawley, Glenda Kirsch, Ryan, Shoss, Sudan, & Lawley, Houston, Tex., for defendants-appellees.

Before POSNER, MANION, and KANNE, Circuit Judges.

POSNER, Circuit Judge.

An insurance company appeals from the dismissal, for want of personal jurisdiction, of five diversity breach of contract suits that it brought in a federal district court in Wisconsin. The principal ground of appeal and the only one we need discuss is that the defendants consented, in a valid forum-selection clause contained in the contract

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on which the suits are based, to defend the suits in Wisconsin.

The parties agree that the validity of the clause is a matter of federal common law even though state law controls the substantive issues in the suits. There is a division between the circuits on the question, with the Ninth and Eleventh agreeing with the parties to this case that federal common law does indeed govern the question, Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 512 (9th Cir.1988); Stewart Organization, Inc. v. Ricoh Corp., 810 F.2d 1066, 1068 (11th Cir.1987) (per curiam), aff'd on other grounds, 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988), while the Third believes that the validity of a forum selection clause is a matter of state law. General Engineering Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352, 356-57 (3d Cir.1986). The former position is supported by Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988), and perhaps the circuit split will not survive it. The specific question in Stewart was whether, if a party moves for a change of venue under 28 U.S.C. Sec. 1404(a) to the forum designated in the parties' forum selection clause, the court in considering the motion should treat the issue of the clause's validity as one of federal law; the Court said "yes," over a strong dissent by Justice Scalia which argued on grounds independent of the existence of section 1404(a)--particularly the spur to forum shopping that is created when the choice of a federal court over a state court determines the validity of a forum selection clause and hence the venue of the suit--that state law should apply. Probably, therefore, the parties before us are correct to concede that the issue of validity is one of federal law, though we need not decide this, since litigants are, within limits not exceeded here, permitted to designate what law shall control their case. Casio, Inc. v. S.M. & R. Co., 755 F.2d 528, 531 (7th Cir.1985); Restatement (Second) of Conflict of Laws Sec. 187 (1971).

Validity and interpretation are separate issues, and it can be argued that as the rest of the contract in which a forum selection clause is found will be interpreted under the principles of interpretation followed by the state whose law governs the contract, so should that clause be. But this is another issue we need not decide; neither side invokes any interpretive principles founded on a particular state's law.

The defendants are well-to-do individuals (millionaires, in fact, though millionairehood is not what it used to be), Texans for the most part, who early in the last decade bought limited partnerships in one of two closely related tax-shelter enterprises that for simplicity we shall treat as one. In 1984 the enterprise decided it needed more money. The lender to whom it turned required it to secure its promissory notes by a financial obligation bond, issued by Northwestern National Insurance Company, the plaintiff in these cases. Northwestern in turn required the limited partners to agree to indemnify it should it be forced to make good on its bond to the lender. Each of the partners in the cases before us executed the indemnification agreement that Northwestern furnished it, and this is the agreement that contains the forum selection clause. The enterprise later defaulted and Northwestern had to pay off the notes, after which it sued the limited partners to enforce their agreement to indemnify it.

The agreement is a two-page printed form. The first page is dominated by a blank table that the indemnitor is to fill in with his financial statement. The second page, which is on the back of the first, consists of six paragraphs in a small but fully legible typeface. The first and longest paragraph sets forth the indemnitor's obligation to indemnify the insurance company upon the occurrence of stated conditions. The second paragraph, much shorter, sets forth several reservations of no relevance here designed to protect the company. The third and shortest paragraph is the one in issue. It states: "Venue, at the Company's option for litigation and/or...

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