Carlyle Investment Management v. Moonmouth Company SA

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 13-3526
____________
CARLYLE INVESTMENT MANAGEMENT LLC; TC
GROUP LLC; TCG HOLDINGS LLC; DAVID M.
RUBENSTEIN; WILLIAM E. CONWAY, JR.; JAMES H.
HANCE; JOHN C. STOMBER; MICHAEL J. ZUPON;
DANIEL A. D'ANIELLO
v.
MOONMOUTH COMPANY SA; PLAZA MANAGEMENT
OVERSEAS SA; PARBOLD OVERSEAS LTD.; LOUIS
J.K.J. REIJTENBAGH; STICHTING RECOVERY CCC
PLAZA MANAGEMENT OVERSEAS SA,
Appellant
On Appeal from the United States District Court
for the District of Delaware
(D. C. No. 1-12-cv-01732)
District Judge: Honorable Sue L. Robinson
Argued on June 4, 2014
Before: HARDIMAN, SCIRICA and ROTH, Circuit Judges
(Opinion filed: February 25, 2015)
Michael F. Bonkowski, Esquire
J. Kate Stickles, Esquire
Cole, Schotz, Meisel, Forman & Leonard, P.A.
500 Delaware Avenue, Suite 1410
Wilmington, DE 19801
Alan Kolod, Esquire (Argued)
Mark N. Parry, Esquire
Moses & Singer
405 Lexington Avenue
New York, NY 10174
Counsel for Appellant
Shannon E. German, Esquire
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, DE 19899
Brian C. Rabbitt, Esquire
Sarah F. Teich, Esquire (Argued)
Robert A. Van Kirk, Esquire
Richard H. Wiegmann, Esquire
Williams & Connolly
725 12th Street, N.W.
Washington, DC 20005
Counsel for Appellees
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O P I N I O N OF THE COURT
ROTH, Circuit Judge:
Defendant Plaza Management Overseas S.A. appeals
the District Court’s order remanding this case to Delaware
Chancery Court pursuant to a forum selection clause in a
2006 contract between one of Plaza’s affiliated companies
and one of plaintiffs’ affiliated companies. For the reasons
that follow, we will affirm the judgment of the District Court.
I. Background
Plaintiffs are Carlyle Investment Management, L.L.C.,
a large publicly traded investment management firm; two
affiliated entities, TC Group, L.L.C. and TCG Holdings,
L.L.C.; three founders and officers of Carlyle, David
Rubinstein, Daniel D’Aniello, and William Conway, Jr.; and
three Carlyle-affiliated former directors of Carlyle Capital
Corporation Ltd. (CCC), James Hance, John Stomber, and
Michael Zupon. Defendants are Louis J.K.J. Reijtenbagh;
three entities he owns and controls, Plaza, Moonmouth
Company S.A., and Parbold Overseas Ltd.; and an affiliated
Dutch company, Stichting Recovery CCC. The record
indicates that Plaza is the only corporate defendant that has
not been dissolved.
CCC was an investment fund incorporated in 2006 in
Guernsey, a British Crown dependency in the English
Channel. CCC invested primarily in residential mortgage-
backed securities issued by Fannie Mae and Freddie Mac. In
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December 2006, Moonmouth purchased three million Class B
shares of CCC for $60 million under a contract known as the
2006 Subscription Agreement. Only Moonmouth and CCC
were parties to the Subscription Agreement. Plaza, in its
capacity as director of Moonmouth, signed the Subscription
Agreement on Moonmouth’s behalf. Plaza and Moonmouth
were owned and controlled by Reijtenbagh. Carlyle signed
the Subscription Agreement on behalf of CCC as its
investment manager. The Subscription Agreement contained
the following forum selection clause, which is the subject of
this litigation: “The courts of the State of Delaware shall
have exclusive jurisdiction over any action, suit or proceeding
with respect to this Subscription Agreement . . . .” The
Subscription Agreement also included a choice of law clause,
specifying that Delaware law was to govern.
In March 2008, as the global financial crisis depleted
CCC’s cash reserves, CCC entered liquidation. A court in
Guernsey appointed liquidators (the CCC Liquidators) to
oversee liquidation of the company. In July 2010, the CCC
Liquidators sued Carlyle and the other plaintiffs in Guernsey
for alleged breach of fiduciary duties owed to CCC.
In the fall of 2009, Reijtenbagh sought Carlyle’s
permission to sell to various third parties portions of
investments in Carlyle-affiliated funds that he held through a
different investment entity, Bundora Associates Inc. These
investments were subject to transfer restrictions, so
Reijtenbagh needed Carlyle’s approval and assistance to
execute the sales. The sales were accomplished through the
execution of seven Transfer Agreements between Bundora
(through Plaza, its director), several Carlyle affiliates, and the
third-party purchasers. Each Transfer Agreement contained a
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broad and materially identical release under which Bundora
and its affiliates released all their then-existing claims against
Carlyle and its affiliates. One of the Transfer Agreements,
the Carlyle Europe Partners III, L.P. (CEP III) Transfer
Agreement, also included a forum selection clause requiring
any litigation “relating in any way” to the agreement to be
brought in either English courts, Delaware state court, New
York state court, or the U.S. District Court for the Southern
District of New York.
In June 2012, a Dutch law firm representing
Moonmouth sent letters on behalf of Moonmouth, Plaza,
Parbold, and Reijtenbagh to plaintiffs and former independent
directors of CCC alleging that plaintiffs took “irresponsible
and unacceptable risks” in connection with the investments
that CCC managed and that they would hold plaintiffs liable
for all damages that the investors sustained in connection with
their investment in CCC.
In response, plaintiffs filed this action in the Delaware
Court of Chancery to enforce the Subscription Agreement’s
forum selection clause as well as the releases from liability
contained in the Bundora Transfer Agreements. Moonmouth,
Plaza, and Parbold were served on November 19, 2012.
Moonmouth was dissolved a week later, apparently pursuant
to the laws of the British Virgin Islands, where it was
incorporated.1 Plaintiffs’ amended complaint added a claim
alleging that defendants have been providing financial
support for the CCC Liquidators’ suit in Guernsey against
1
Stichting has also been dissolved though it is not clear when
this occurred.
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Carlyle and its affiliates in breach of the releases in the
Bundora Transfer Agreements.
Plaza removed the case to federal court on December
18, 2012. Plaintiffs moved to remand on January 17, 2013.
The District Court granted the motion and remanded to state
court on August 14, 2013. Plaza appealed.
II. Discussion
A. Jurisdiction
Carlyle contends that we lack jurisdiction to hear
Plaza’s appeal. We disagree. Generally, an order
“remanding a case to the State court from which it was
removed is not reviewable on appeal . . ..” 28 U.S.C. §
1447(d). We have recognized an exception to this rule when
the remand is not based on the reasons set forth in 28 U.S.C.
§ 1447(c). See New Jersey v. Merrill Lynch & Co., 640 F.3d
545, 547 (3d Cir. 2011) (citing Foster v. Chesapeake Ins. Co.,
933 F.2d 1207, 1210–11 (3d Cir. 1991)). It is well
established that a remand pursuant to a forum selection clause
does not fall within the reasons for remand listed in §
1447(c). See id.; Suter v. Munich Reinsurance Co., 223 F.3d
150, 152 (3d Cir. 2000); Foster, 933 F.2d at 1211. Thus,
because the District Court remanded due to the forum
selection clause and not due to a § 1447(c) reason, we have
jurisdiction over the appeal.2 Plaintiffs argue that the act of
mailing the remand order divests a federal court of
jurisdiction, citing Agostini v. Piper Aircraft Corp., 729 F.3d
2
A remand to state court is also considered a final order.
Suter, 223 F.3d at 152.
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350, 356 (3d Cir. 2013), and Trans Penn Wax Corp. v.
McCandless, 50 F.3d 217, 225 (3d Cir. 1995). These cases
are easily distinguishable because they involve remands under
§ 1447(c). A court of appeals, however, retains jurisdiction
over appeals of remand orders that are not made pursuant to §
1447(c). Therefore, we have jurisdiction under 28 U.S.C. §
1291.
B. Standard of Review
The federal removal statute, 28 U.S.C. § 1441, is
strictly construed, requiring remand if any doubt exists over
whether removal was proper. Abels v. State Farm Fire &
Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985). The party seeking
removal carries the burden of proving that removal is proper.
See Samuel-Bassett v. KIA Motors Am., Inc., 357 F.3d 392,
396 (3d Cir. 2004). That burden is particularly heavy when
the party seeks to avoid a forum selection clause through use
of removal. M/S Bremen v. Zapata Off-Shore Co., 407 U.S.
1, 15 (1972). In addition, in matters of contract construction,
we exercise plenary review. Merrill Lynch, 640 F.3d at 547.
C. Merits of the Appeal
1. Whether the Subscription Agreement Forum
Selection Clause is Binding
The District Court agreed with plaintiffs that Plaza is
bound by the forum selection clause despite not having been a
signatory. Delaware courts have set forth a three-part test for
determining whether a non-signatory to an agreement should
be bound by its forum selection clause: (1) is the forum
selection clause valid, (2) is the non-signatory a third-party
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beneficiary of the agreement or closely related to the
agreement, and (3) does the claim at hand arise from the non-
signatory’s status related to the agreement? See Baker v.
Impact Holding, Inc., No. CIVA 4960-VCP, 2010 WL
1931032, at *3 (Del. Ch. May 13, 2010) (citing Capital Grp.
Cos. v. Armour, No. CIV. A. 422-N, 2004 WL 2521295, at *5
(Del. Ch. Oct. 29, 2004)); Weygandt v. Weco, LLC, No. 4056-
VCS, 2009 WL 1351808, at *4 (Del. Ch. May 14, 2009).
For the first element, forum selection clauses are
presumed to be valid. See Ingres Corp. v. CA, Inc., 8 A.3d
1143, 1146 (Del. 2010). The clause is considered valid unless
the challenging party “clearly show[s] that enforcement
would be unreasonable and unjust, or that the clause [is]
invalid for such reasons as fraud or overreaching.” Id.
(citation and quotation marks omitted). Plaza challenges the
validity of the clause, but it provides no argument that it is
invalid for any of those reasons. Plaza’s arguments are better
characterized as arguments that the clause is inapplicable,
rather than invalid. We will address those arguments later in
the opinion. At this point, we will focus on whether the
forum selection clause is valid.
With respect to the second element, even if defendants
are not parties to the agreement or third-party beneficiaries of
it, they may be bound by the forum selection clause if they
are closely related to the agreement in such a way that it
would be foreseeable that they would be bound. See
Weygandt, 2009 WL 1351808, at *4. In determining whether
a non-signatory is closely related to a contract, courts
consider the non-signatory’s ownership of the signatory, its
involvement in the negotiations, the relationship between the
two parties and whether the non-signatory received a direct
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benefit from the agreement. See id. at *4-5; Capital Grp.,
2004 WL 2521295, at *6-7.
The District Court found that Plaza was closely related
to the Subscription Agreement. It did not err in doing so.
Plaza was Moonmouth’s director and it executed the
Subscription Agreement on Moonmouth’s behalf. Plaza and
Moonmouth are affiliated entities that are both owned and
controlled by Reijtenbagh. Several provisions of the
Subscription Agreement itself indicate the close relationship
between Moonmouth, Plaza, and Reijtenbagh. Reijtenbagh is
listed as Moonmouth’s primary contact person and his
address includes “c/o Plaza.” He is also listed as a person
authorized to give and receive instructions on behalf of
Moonmouth. Negotiations related to the Subscription
Agreement were conducted by Moonmouth, Plaza, and
Reijtenbagh. The Subscription Agreement states that the
“source of funds” for Moonmouth’s investment in CCC was
Plaza’s income. Additionally, the letter from the Dutch law
firm to the plaintiffs, complaining of losses related to the
CCC investment, was sent on behalf of Moonmouth, Plaza,
and Reijtenbagh. Thus, we agree with the District Court that
the three parties were closely related to the Subscription
Agreement.3
This result is consistent with Delaware cases in which
affiliates, officers, and directors have been held to be bound
by forum selection clauses. See, e.g., Baker, 2010 WL
3
It is not the case that Plaza is bound merely because it
signed the Subscription Agreement as Moonmouth’s director.
Rather, it is bound because of Plaza’s close relationship to the
agreement itself.
9
1931032, at *4; Weygandt, 2009 WL 1351808, at *5
(foreseeable that multiple entities controlled by same control
person would be subject to forum clause).
Plaza contends, however, that plaintiffs lack standing
to invoke the forum selection clause because they were not
parties to the Subscription Agreement. A non-signatory has
standing to invoke a forum selection clause when it is
“closely related to one of the signatories such that the non-
party’s enforcement of the clause is foreseeable by virtue of
the relationship between the signatory and the party sought to
be bound.” Ashall Homes Ltd. v. ROK Entm’t Grp. Inc., 992
A.2d 1239, 1249 (Del. Ch. 2010). We find that the non-
signatory plaintiffs are closely related to CCC so that it would
be foreseeable to defendants that they would enforce the
clause. All of the corporate plaintiffs are affiliates of Carlyle.
CCC was managed by Carlyle at the time the Subscription
Agreement was executed. A “Carlyle Group Privacy
Statement” was attached to the Subscription Agreement
explaining how Carlyle managed the confidentiality and
security of information provided by investors for CCC and
other Carlyle-affiliated investments. The Subscription
Agreement’s indemnification provision also extended beyond
CCC to Carlyle’s officers, directors, employees, agents, and
controlling persons. The individual plaintiffs were directors
of CCC or senior executives of Carlyle. Furthermore, the
letters sent by defendants via Dutch counsel were sent not
only to CCC but to the plaintiffs individually. In short, it is
clear that plaintiffs are closely related to CCC in such a way
that they may enforce the forum selection clause.
The third issue we consider in determining whether the
forum clause may be enforced is whether the claims against
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defendants arise from their status relating to the agreement.
Capital Grp., 2004 WL 2521295, at *5. This question is very
similar to the question of whether the forum selection clause
applies to this dispute. We answer both questions in the
affirmative. The claims in this case are “with respect to”4 the
Subscription Agreement and the claims against defendants
therefore arise from the Subscription Agreement.
Courts generally interpret language in a forum clause
encompassing any claims “with respect to” an agreement
broadly to mean “connected by reason of an established or
discoverable relation.” Huffington v. T.C. Grp., LLC, 637
F.3d 18, 22 (1st Cir. 2011) (quoting Coregis Ins. Co. v. Am.
Health Found., Inc., 241 F.3d 123, 128-29 (2d Cir. 2001));
accord John Wyeth & Brother Ltd. v. CIGNA Int’l Corp., 119
F.3d 1070, 1074-75 (3d Cir. 1997). An action need not even
allege contract-based claims in order for a forum selection
clause in a contract to be enforced. See Ashall Homes, 992
A.2d at 1252 (forum clause applies when claims “grow out of
the contractual relationship”); Crescent Int’l Inc. v. Avatar
Communities, Inc., 857 F.2d 943, 944 (3d Cir. 1988). If this
were not the rule, a plaintiff could easily avoid a forum
selection clause by artfully pleading non-contract claims that
stem from the contractual relationship. See Ashall Homes,
992 A.2d at 1252; Crescent Int’l, 857 F.2d at 945.
This case is similar to Huffington v. T.C. Group, LLC,
a case from the First Circuit involving some of the same
parties as this litigation. There, the plaintiff artfully avoided
4
Carlyle Inv. Mgmt. LLC v. Plaza Mgmt. Overseas, S.A., Civ.
No. 12-1732-SLR, 2013 WL 4407685, at *2 (D. Del. Aug.
14, 2013).
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contract claims in his pleadings and did not mention the
purchase agreement that contained the forum selection clause.
Huffington, 637 F.3d at 21. The Court of Appeals
nonetheless found the forum clause applicable, noting that
none of the claims would have arisen without the original
purchase contract. Id. at 22.
Here, Carlyle’s claims stem from Moonmouth’s initial
investment in CCC. Although the releases Carlyle seeks to
enforce were part of later agreements, the defendants would
not have any claims, nor would Carlyle need to seek release
from any claims, but for the original Subscription Agreement
that contains the forum selection clause. It is clear that the
relationship between plaintiffs and defendants, including the
letters from defendants’ Dutch counsel and plaintiffs’ present
efforts to be released from any claims, stem from the
Subscription Agreement. Thus, the claims are “with respect
to” the Subscription Agreement.
2. The Forum Selection Clause in the CEP III
Transfer Agreement
Carlyle argues that we could also affirm the District
Court’s remand on the alternative ground that one of the
agreements containing a release that Carlyle seeks to enforce
also contains an enforceable forum selection clause. We
agree. 5
5
“We may affirm a district court for any reason supported by
the record.” Brightwell v. Lehman, 637 F.3d 187, 191 (3d
Cir. 2011) (internal citations omitted).
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The CEP III Transfer Agreement’s forum clause
allows for litigation in English courts, Delaware state court,
New York state court, or the U.S. District Court for the
Southern District of New York. The clause’s reach in terms
of parties covered and disputes covered is broader than the
forum clause in the Subscription Agreement. It applies to
“any Affiliate of any party” to any action or dispute “arising
out of or relating in any way” to the agreement. R. at 870a.
Thus, all parties to the CEP III Transfer Agreement
agreed that any litigation, including litigation brought by or
against their affiliates, relating “in any way” to the agreement,
would be brought only in one of the four specified
jurisdictions. This included Delaware state court, but did not
permit litigation in the U.S. District Court for the District of
Delaware. Removal is only permitted when the case could
have originally been brought in federal court. 28 U.S.C. §
1441(a); In re Briscoe, 448 F.3d 201, 215 (3d Cir. 2006).
Because the forum selection clause does not designate
Delaware federal court as a possible forum, Count I could not
have been brought there. Thus, under terms of this clause,
which plainly binds defendants as affiliates of signatory
Bundora Associates, Inc., Count I is not removable to federal
court.
Furthermore, if one claim is not removable due to a
forum selection clause, the other claims may not be severed
and removed. To hold otherwise would be to invite
piecemeal litigation and to allow plaintiffs to circumvent
forum selection clauses through artful pleading of additional
claims. See Crescent Int’l, 857 F.2d at 945
3. Plaza’s Remaining Arguments
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Finally, Plaza contends that plaintiffs are judicially
estopped from enforcing the forum selection clause in the
Subscription Agreement because their complaint alleges that
the Bundora Transfer Agreements released the Subscription
Agreement. This argument fails for two reasons.
First, Plaza’s characterization of the complaint is
inaccurate. As plaintiffs point out, the releases in the
Bundora Transfer Agreements released only pre-existing
claims. They did not release or terminate the Subscription
Agreement itself or its forum selection clause. The amended
complaint is clear in pleading that only pre-existing claims
stemming from the Subscription Agreement, not the entire
agreement itself, were released by the Bundora Transfer
Agreement releases. In fact, the amended complaint pleaded
that the forum selection clause was valid and enforceable.
Second, the facts here do not meet the elements
required for judicial estoppel. The doctrine of judicial
estoppel prevents a party from prevailing in one phase of a
case on an argument and then relying on a contradictory
argument to prevail in another phase. New Hampshire v.
Maine, 532 U.S. 742, 749 (2001). Judicial estoppel requires
that: (1) a party adopts a position clearly inconsistent with an
earlier position and (2) the party had succeeded in persuading
a court to accept that party’s earlier position, so that judicial
acceptance of an inconsistent position in a later proceeding
would create “the perception that either the first or the second
court was misled.” Id. at 750. Here, Plaza fails to show
inconsistency because plaintiffs’ argument that prior claims
were released by the Bundora Transfer Agreements is
consistent with their argument that the forum selection clause
from the 2006 Agreement remains valid.
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Plaza also argues that plaintiffs waived their right to
move for remand by seeking enforcement of the releases from
the Bundora Transfer Agreements which do not have an
exclusive forum clause and therefore allow removal. This
argument is unavailing for the reasons previously discussed.
First, Carlyle’s claim regarding the Bundora Transfer
Agreements is “with respect to” the Subscription Agreement.
Second, one of the Bundora Transfer Agreements, the CEP III
Transfer Agreement, contained a forum selection clause
prohibiting removal to Delaware federal court. Plaintiffs
have not waived their right to seek remand of the case.
III. Conclusion
In sum, we agree with the District Court that the forum
selection clause in the Subscription Agreement pertains to
this case, may be enforced against defendants, and may be
invoked by plaintiffs. We also agree with plaintiffs that the
forum selection clause in the CEP III Transfer Agreement
provides a valid alternative ground supporting remand to state
court. We will therefore affirm the District Court’s order
remanding the case to the Delaware Court of Chancery.
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