In Re Lloyd's Register North America, Inc.

Case: 14-20554 Document: 00512939258 Page: 1 Date Filed: 02/18/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 14-20554
FILED
February 18, 2015
Lyle W. Cayce
Clerk
In re: LLOYD’S REGISTER NORTH AMERICA, INCORPORATED,
Petitioner.
Petition for a Writ of Mandamus to
the United States District Court
for the Southern District of Texas
Before SMITH, ELROD, and HIGGINSON, Circuit Judges.
PER CURIAM:
Lloyd’s Register North America, Inc. (“LRNA”), was the classification
society responsible for certifying a ship that Irving Shipbuilding, Inc. (“Irv-
ing”), was building for Pearl Seas Cruises, LLC (“Pearl Seas”). Pearl Seas was
dissatisfied with the ship and engaged in several years of arbitration and liti-
gation with Irving. After those proceedings had concluded, Pearl Seas sued
LRNA under various tort theories regarding LRNA’s allegedly inadequate per-
formance in certifying the ship and its alleged misdeeds during arbitration.
LRNA moved to dismiss on the ground of forum non conveniens (“FNC”),
claiming that a forum-selection clause in the Lloyd’s Register Rules and
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Regulations for the Classification of Ships (the “LR Rules”) and in the contract
between LRNA and Irving required Pearl Seas to bring the claims in England.
The district court denied the motion to dismiss without written or oral explana-
tion. LRNA petitions for a writ of mandamus to order the court to vacate its
denial and dismiss for FNC. Because the district court clearly abused its dis-
cretion and reached a patently erroneous result, and because LRNA has no
way effectively to vindicate its rights without a writ of mandamus, we grant
the petition.
I.
The following facts are taken from Pearl Seas’ First Amended Complaint
unless otherwise noted. Pearl Seas and LRNA communicated in 2006 about
LRNA’s potentially providing classification services for the vessels Pearl Seas
would be operating. Those classification services would require LRNA to cer-
tify that the ship complied with certain standards, including the requirements
of the ship’s flag state (the Marshall Islands) and the classification society’s
own rules. Pearl Seas agreed that LRNA would be the classification society for
its ships.
Later in 2006, Pearl Seas entered into a contract (the “Shipbuilding Con-
tract”) with Irving under which Irving would build a ship for Pearl Seas. LRNA
then entered into a contract (the “Classification Contract”) with Irving under
which LRNA would survey the ship during construction, ensuring that it com-
plied with the rules and regulations specified in the Shipbuilding Contract,
including the LR Rules. As construction continued, disputes arose between
Irving and Pearl Seas. Irving invoked the arbitration clause in the Shipbuild-
ing Contract in 2008, and contentious arbitration continued until Irving and
Pearl Seas settled in 2013.
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II.
Pearl Seas sued LRNA in the court a quo in late 2013, alleging fraud,
gross negligence, negligent misrepresentation, collusion, aiding and abetting,
civil conspiracy, and promissory estoppel in tort. Each cause of action is essen-
tially based on the theory that LRNA misrepresented the status of the vessel
to Pearl Seas and to the arbitrators.
LRNA moved to dismiss for FNC, seeking enforcement of two forum-
selection clauses that it said required the action to be brought in England. The
first appears in the LR Rules and reads, “Any dispute about the Services or the
Contract is subject to the exclusive jurisdiction of the English courts and will
be governed by English law.” The second appears in the Classification contract
between LRNA and Irving and reads, “Any dispute, claim, or litigation between
any member of the LR Group and the Client arising from or in connection with
the Services provided by LR shall be subject to the exclusive jurisdiction of the
English courts and will be governed by English law.” Irving claimed that both
of these clauses prevented Pearl Seas from bringing this suit in Texas.
Pearl Seas maintained that neither of these clauses applied, because
Pearl Seas was not a signatory to any agreement containing a forum-selection
clause. The district court held a hearing in which it questioned the parties
about numerous matters, including the motion to dismiss for FNC. A few
weeks later, the court issued an order denying several of the motions to dismiss
and the plaintiff’s motion for in camera inspection. The court explained its
decision in one sentence: “Having considered the motions, submissions, and
applicable law, the Court determines that all motions should be denied.”
III.
To be entitled to the extraordinary remedy of mandamus, LRNA has to
satisfy three requirements. First, it must have “no other adequate means to
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attain the relief [it] desires.” Cheney v. U.S. Dist. Court for Dist. of Columbia,
542 U.S. 367, 380 (2004). Second, it has to show a “clear and indisputable”
right to the writ. Id. at 381. And third, this court “must be satisfied that the
writ is appropriate under the circumstances.” Id.
A.
First, LRNA must show that it has no other “adequate means.” The writ
is not “a substitute for the regular appeals process,” id. at 380–81, so LRNA
must show that an ordinary appeal is inadequate. This requirement is satis-
fied: The usual appeals process does not provide an effective way to review a
denial of a motion to dismiss for FNC. Immediate appellate review of the deci-
sion to deny is rarely available, and review after final judgment is ineffective
to vindicate a wrongfully denied motion for FNC.
There is no adequate way immediately to review a denial of FNC. It is
not appealable under the collateral-order doctrine. Van Cauwenberghe v.
Biard, 486 U.S. 517, 527 (1988). The defendant has the option of seeking leave
for an interlocutory appeal under 28 U.S.C. § 1292(b), which is available only
in limited circumstances. The question to be certified must be “a controlling
question of law as to which there is substantial ground for difference of opin-
ion,” § 1292(b), and even if it is, both the district court and the court of appeals
have discretion not to grant the appeal. See Gonzalez v. Naviera Neptuno A.A.,
832 F.2d 876, 881 n.5 (5th Cir. 1987). 1 In In re Volkswagen of America Inc.,
545 F.3d 304 (5th Cir. 2008) (en banc), the court did consider the unavailability
of § 1292(b) certification to be relevant in concluding that a denial of a venue-
1 Other courts of appeals that have considered the question have come to the same
conclusion: Section 1292(b) is not an adequate substitute for mandamus. See In re Roman
Catholic Diocese of Albany, New York, Inc., 745 F.3d 30, 36 (2d Cir. 2014); In re Kellogg Brown
& Root, Inc., 756 F.3d 754, 761 (D.C. Cir. 2014), cert. denied, 2015 U.S. LEXIS 668 (U.S.
Jan. 20, 2015).
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transfer order qualified for mandamus relief. See id. at 319. That does not
mean, however, that § 1292(b) by itself provides sufficient review when it is
available.
LRNA is without adequate means to seek review of the denial when it
occurs, but we must also evaluate whether the ordinary appeals process is
otherwise sufficient. That is a difficult requirement to satisfy. In most cases,
relief from a potentially erroneous interlocutory order is available by appeal
after final judgment. Even though the defendant may be required to engage
in a costly and difficult trial and expend considerable resources before the court
enters an appealable judgment, those unrecoverable litigation costs are not
enough to make this means of attaining relief inadequate. See Roche v.
Evaporated Milk Ass’n, 319 U.S. 21, 29–30 (1943). There has to be a greater
burden, some obstacle to relief beyond litigation costs that renders obtaining
relief not just expensive but effectively unobtainable. Under Volkswagen, a
defendant’s entitlement to FNC ordinarily cannot adequately be vindicated
through the regular appeals process.
In Volkswagen, we were faced with a mandamus petition regarding a
denial of a motion to transfer venue. We held that the ordinary appeals process
would not provide an adequate remedy for the erroneous decision not to order
transfer. Two factors that we found convincing in the venue-transfer context
are also present here. First, a defendant is unlikely to be able to satisfy an
appellate court, after final judgment, that a failure to transfer venue was suffi-
ciently prejudicial as to be outcome-determinative. And second, the very harm
sought to be avoided by transferring venue—“inconvenience to witnesses,
parties and other”—will have worked irreversible damage and prejudice by the
time a final judgment is issued. Volkswagen, 454 F.3d at 319. Each of these
reasons applies with equal force in the FNC context.
On appeal from a final judgment, the improper failure to transfer venue
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is effectively unreviewable. The defendant would be in the unenviable position
of having to show that “it would have won the case had it been tried in a
convenient [venue].” Id. at 318–19 (quoting In re Nat’l Presto Indus., Inc., 347
F.3d 662, 663 (7th Cir. 2003)). The same ineffectiveness of review character-
izes the denial of an FNC motion: If it is denied and the case proceeds through
trial, the denial will not be considered reversible error “unless the moving
party can demonstrate great prejudice arising from trial in the plaintiff’s
chosen forum.” McLennan v. Am. Eurocopter Corp., 245 F.3d 403, 423–24 (5th
Cir. 2001). Such a standard does not provide adequate post-judgment review. 2
When one considers the instruction in Atlantic Marine that the private-interest
factors of FNC analysis should automatically be weighed in favor of enforcing
a forum-selection clause, 3 it is especially inapposite to force parties to rely on
post hoc appellate evaluations of whether the clause was worth bargaining for.
Even if the standard of review were such that a defendant could convince
an appeals court that the error justified reversal, we acknowledged in Volks-
wagen that the harm done by going through trial to final judgment would not
be remediable on appeal. Unrecoverable litigation costs do not make review
after final judgment inadequate, see Evaporated Milk, 319 U.S. at 29–30, but
the damage inflicted by the refusal to enforce a forum-selection clause is differ-
ent from the costs that defendants face as a matter of course after denial of a
motion that would otherwise terminate the litigation. The “inconvenience to
witnesses, parties and other,” Volkswagen, 545 F.3d at 319, is one of the factors
2 See Volkswagen, 545 F.3d at 318–19; see also In re Ford Motor Co., 591 F.3d 406, 416
(5th Cir. 2009) (on petition for rehearing) (“[I]n these FNC cases, mandamus is appropriate
on this prong because, if the issue is argued only on any eventual direct appeal, there is no
way to show that the outcome of the case would have been different, and any inconvenience
to the parties ‘will already have been done by the time the case is tried and appealed.’”)
(quoting Volkswagen, 545 F.3d at 318–19).
3See Atl. Marine Constr. Co. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568,
582 (2013).
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weighed in determining whether an FNC motion should be granted. An FNC
motion―like the venue-transfer motion at issue in Volkswagen―is a motion
that asserts those damages are too high to justify trying the case where it was
filed. If the matter must first proceed to final judgment before the denial of
that assertion is evaluated, then the damage will always already be done. And
“the prejudice suffered cannot be put back in the bottle.” Id.
There is no reason to distinguish between the normal appeals process in
the venue-transfer context, which we found lacking in Volkswagen, and that
same process in the context of FNC. The first requirement for mandamus relief
is therefore satisfied.
B.
The second requirement for mandamus relief is that the movant has a
“clear and indisputable” right to it. Cheney, 542 U.S. at 381. In recognition of
the extraordinary nature of the writ, we require more than showing that the
court misinterpreted the law, misapplied it to the facts, or otherwise engaged
in an abuse of discretion. And even reversible error by itself is not enough to
obtain mandamus. See Volkswagen, 545 F.3d at 309–10. Rather, we limit
mandamus to only “clear abuses of discretion that produce patently erroneous
results.” Id. at 310. We therefore must decide whether there was a clear abuse
of discretion and whether the court reached a patently erroneous result.
Because both of these requirements are satisfied, this requirement for manda-
mus is met.
1.
In distinguishing between ordinary and “clear” abuses of discretion, we
are guided by the principle reiterated in Volkswagen that mandamus must not
become a means by which the court corrects all potentially erroneous orders.
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See id. at 309 (citing Will v. United States, 389 U.S. 90, 98 n.6 (1967)). A court
commits a clear abuse of discretion, however, when it “clearly exceeds the
bounds of judicial discretion.” Id. at 310. The district court’s failure to provide
an explanation of its denial of LRNA’s motion clearly exceeded the bounds of
judicial discretion given the facts and circumstances present here.
It is an abuse of discretion for a district court to grant or deny a motion
to dismiss without written or oral explanation 4 or where, in ruling on a motion
to dismiss for FNC, it “fails to address and balance the relevant principles and
factors of the doctrine of [FNC].” Air Crash, 821 F.2d at 1166−67. The court
provided no written or oral explanation of its decision to deny LRNA’s motion.
In its response to the petition for mandamus, Pearl Seas claims that the
court did not abuse its discretion because Pearl Seas provided an adequate
legal and factual basis for denial in its brief, and the court indicated at a hear-
ing that it “had reviewed the briefs and was well aware of the issues.” This
notion is unavailing. An explanation must be generated by the court, not
inferred by the appellate court from the submissions of the parties. A contrary
opposite rule would require us to step into the shoes of the district court and
attempt to divine the basis for its decision without guidance, essentially reduc-
ing us to the role of replacing the district court’s discretion with our own in
violation of Volkswagen, 545 F.3d at 312.
The transcript of the July 17 hearing is likewise insufficient to satisfy
the requirement of a written or oral explanation. The court specifically said
that it has not yet decided the question of the forum-selection clause and
offered no conclusion as to the clause’s applicability or the propriety of granting
4 See In re Air Crash Disaster Near New Orleans, La., 821 F.2d 1147, 1166 (5th Cir.
1987) (en banc), vacated on other grounds sub nom. Pan Am. World Airways, Inc. v. Lopez,
490 U.S. 1032 (1989), reinstated except as to damages by In re Air Crash Disaster Near New
Orleans, La., 883 F.2d 17 (5th Cir. 1989) (en banc).
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or denying the motion to dismiss. Whether the court’s questions indicated that
it understood the law and the briefings is immaterial.
It is established that the court’s failure to explain its decision was an
abuse of discretion, but for mandamus to issue it must be a “clear” abuse. That
strict requirement is satisfied here. Denying the motion to dismiss without
explanation and without any visible weighing of the factors of FNC is not just
an abuse of discretion. It is an action that takes the decision entirely outside
the scope of judicial discretion, giving the parties and reviewing courts no way
of understanding how the court reached its decision and providing no assur-
ance that the decision was the result of conscientious legal analysis.
2.
We now turn to whether the district court reached a “patently erroneous
result.” Because the court failed to enforce a valid forum-selection clause, it
did patently err.
a.
The first question is whether the forum-selection clause applies to this
case. Pearl Seas is not a signatory to the contract between Irving and LRNA,
but there are doctrines under which a non-signatory can be held to the terms
of the contract. The doctrine on which the parties focused is the one that
applies here: direct-benefits estoppel.
Direct-benefits estoppel is a doctrine that holds a non-signatory to a
clause in a contract during litigation if the non-signatory “knowingly exploits
the agreement” containing the clause. Bridas S.A.P.I.C. v. Gov’t of Turkmen-
istan, 345 F.3d 347, 361–62 (5th Cir. 2003). We have identified two specific
ways in which a non-signatory can be bound under this theory. First, it may
be bound “by knowingly seeking and obtaining ‘direct benefits’ from the
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contract.” Noble Drilling Servs., Inc. v. Certex USA, Inc., 620 F.3d 469, 473
(5th Cir. 2010). Second, it may be bound “by seeking to enforce the terms of
that contract or asserting claims that must be determined by reference to that
contract.” Id. This case satisfies the second basis for direct-benefits estoppel
under well-established authority.
There are two main requirements for direct-benefits estoppel under this
theory. The party has to have “embraced the contract despite [its] non-
signatory status but then, during litigation, attempt to repudiate the . . . clause
in the contract.” Hellenic Inv. Fund, Inc. v. Det Norkse Veritas, 464 F.3d 514,
517–18 (5th Cir. 2006). First, the non-signatory has to have obtained some
benefit under the contract while it was in effect. This court made clear in Hel-
lenic that the value a classification society offers to the ultimate purchaser is
sufficient to satisfy this requirement. 5 Second, the non-signatory’s suit has to
be at least “premised in part” on the agreement. Id. at 518 (quoting Bridas,
345 F.3d at 362). Here, as in Hellenic, the complaint is alleging violations of
duties that are based in the agreement containing the forum-selection clause.
In Hellenic, we were faced with a factually similar case and concluded
that direct-benefits estoppel required the enforcement of the forum-selection
clause against the non-signatory plaintiff. There the plaintiff purchased a ship
and then, after problems arose with the vessel, sued the classification society
DNV for negligent misrepresentation. Id. at 515–16. DNV’s Rules contained
a forum-selection clause mandating that a “dispute arising in relation to or as
a consequence of these Rules” could be brought only in Norwegian court. Id.
at 516–17. We held that the negligent-misrepresentation claim was premised
5 See Hellenic, 464 F.3d at 519 (“Having stated a claim that expressly requires that
[the classification society’s] performance be for Hellenic's benefit, Hellenic cannot avoid the
estoppel implications of its position.”); cf. E.I. duPont de Nemours & Co. v. Rhone Poulenc
Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 200 n.6 (3d Cir. 2001).
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on a breach of DNV’s duties under its rules and therefore required the ship
purchaser to embrace the entire contract, including the forum-selection clause.
Pearl Seas has not identified a relevant way in which this case is legally
distinguishable from Hellenic, and we can find none. In both cases a ship pur-
chaser sued a classification society for negligent misrepresentation. In both
cases the negligent-misrepresentation claim referenced duties that must be
resolved by reference to the classification society’s rules. Hellenic settles the
question of applying direct-benefits estoppel here.
Pearl Seas maintains that the forum-selection clause in Lloyd’s Rules
does not, by its own language, apply to this dispute because it is limited to
disputes about “the Services or the Contract.” “Contract” is defined as “the
contract for supply of the Services,” and the Rules define “Services” as “the
services provided by LR.” Because the services in dispute are provided by
LRNA and not by the British parent Lloyd’s Register, Pearl Seas argues, the
Rules do not encompass disputes arising from services provided by LRNA,
which is instead part of the defined term “the LR Group.” It appears, however,
that LR sometimes uses “LR” to refer not just to the British classification
society but also to its foreign associates and subsidiaries. For example, the
same part of the Rules cited by Pearl Seas also refers to “Services” offered by
the LR Group, which included LRNA. It seems that LRNA’s intention in the
language of these rules was not to limit the forum-selection clause’s applicabil-
ity to those lawsuits against LR and not its subsidiaries.
The same interchangeability can be seen in the forum-selection clause in
the Classification Contract. It applies to disputes “between any member of the
LR Group and the Client” relating to “the Services provided by LR.” If LRNA
were not understood to be included within “LR,” it is not evident why an LRNA
contract would have a forum-selection clause about disputes between the client
and a different entity.
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Pearl Seas also argues that, because it is alleging tort claims and not
contract claims, direct-benefits estoppel does not apply. That argument is also
unavailing in light of Hellenic. Once a party who has embraced the contract
during its life has sued to enforce the contract’s terms or sues on a claim that
must be resolved by reference to the contract, it has embraced the contract and
cannot disclaim it in litigation. The plaintiff in Hellenic alleged negligent
misrepresentation—a tort claim—but the court held that the forum-selection
clause applied because the claim was based in part on the contract and still
depended on terms in the contract. See Hellenic, 464 F.3d at 518.
A non-signatory plaintiff can avoid a forum-selection clause by disclaim-
ing reliance on the contract, see Noble Drilling Servs., 620 F.3d at 474, but that
is not what Pearl Seas is doing here. Instead, it is bringing a claim that this
court has already said is based in part on the contract. This selective invoca-
tion of contractual duties is exactly the sort of inconsistency the doctrine of
direct-benefits estoppel is designed to prevent.
Pearl Seas also urges that direct-benefits estoppel cannot apply because
the LR Rules and the contract between Irving and LRNA both disclaim liability
to third parties and enforceability by third parties. Reciprocity and mutual
enforceability are not, however, requirements for direct-benefits estoppel, and
Pearl Seas cites no authority that supports its position. Indeed, in its brief
Pearl Seas at times discusses the doctrine of third-party beneficiary.
As this court has recognized, third-party beneficiary and direct-benefits
estoppel are distinct doctrines. Third-party-beneficiary doctrine looks at what
the parties intended when they executed the contract, whereas direct-benefits
estoppel looks at the actions of the parties after the contract was executed. See
Bridas, 345 F.3d at 362 (quoting E.I. duPont de Nemours, 269 F.3d at 200 n.7).
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If we interpreted direct-benefits estoppel to require that the parties demon-
strate an intention at the contracting stage to create a third-party beneficiary,
we would eliminate this distinction and collapse the doctrines.
Finally, Pearl Seas avers that LRNA cannot rely on direct-benefits estop-
pel because Pearl Seas alleged fraud, and this denies LRNA the benefit of
equitable remedies. Pearl Seas has not provided any binding or persuasive
authority for the proposition that a plaintiff can deny a defendant access to
equitable remedies just by alleging fraud, especially where the fraud is unre-
lated to the applicability of the equitable doctrine. Pearl Seas does not assert
that the claimed fraud played any role in bringing Pearl Seas within the scope
of the forum-selection clause or allowed LRNA to hide its inequitable behavior
behind a shield of equity. We decline to render direct-benefits estoppel inoper-
ative by stating that an allegation of a defendant’s wrongdoing is sufficient to
deny the application of these clauses.
b.
As the foregoing explanation shows, the forum-selection clause does
apply to Pearl Seas’ action against LRNA. This, however, is not the end of our
analysis of whether LRNA has a “clear and indisputable” right to mandamus.
Having established that the forum-selection clause applies, we must determine
whether the district court should have dismissed the complaint in accordance
with that clause. Given the Supreme Court’s instructions in Atlantic Marine,
the district court erred when it denied the motion to dismiss.
Atlantic Marine laid out the process courts must follow in ruling on an
FNC motion that seeks to enforce a valid forum-selection clause. Instead of
independently weighing the private interests of the parties, the court should
“deem the private-interest factors to weigh entirely in favor of the preselected
forum.” Atl. Marine, 134 S. Ct. at 582. The court should then weigh the public-
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interest factors, which include “the administrative difficulties flowing from
court congestion; the local interest in having localized controversies decided at
home; [and] the interest in having the trial of a diversity case in a forum that
is at home with the law.” Id. at 581 n.6 (quoting Piper Aircraft Co. v. Reyno,
454 U.S. 235, 241 n.6 (1981)). The plaintiff’s choice of forum will not be given
any weight, unlike in the ordinary FNC context. Id. at 581. The Supreme
Court allows for the possibility that a court may properly refuse to grant the
motion despite a valid forum-selection clause, but the forum-selection clause
will prevail except in “unusual cases.” Id. at 582.
Pearl Seas has not identified any factors that render this motion one of
those unusual cases. In its response to LRNA’s motion to dismiss, Pearl Seas
contends that Texas is the proper forum because the court needs to establish
“uniform rules of conduct applicable to corporate entities in Texas,” because
some communications originated in Texas, and because LRNA is the defendant
in a similar lawsuit in Texas district court. Those considerations are not
enough to make enforcement of the forum-selection clause invalid. 6
Pearl Seas raises additional concerns. It theorizes that it would face
“extreme juridical disadvantages in an English forum,” but it does not identify
what those disadvantages would be. Pearl Seas points out that the Fifth Cir-
cuit permits negligent-misrepresentation claims against classification socie-
ties, but it does not show that the remedies in English courts would be lacking.
Pearl Seas claims that dismissing for FNC would deprive the plaintiff of avail-
able Texas and U.S. remedies and would therefore violate public policy, but
Pearl Seas does not identify a remedy that would be unavailable in England.
In short, Pearl Seas fails to show why this is the exceptional case in which a
6Additionally, the other LRNA case that was pending in Texas has since been dis-
missed for FNC. See Vloeibare Pret Ltd. v. Lloyd’s Register N. Am., Inc., No. 4-13-3653, 2014
WL 3908195 (S.D. Tex. Aug. 8, 2014).
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valid forum-selection clause should not be enforced. We can think of no reason.
In sum, the district court committed a clear abuse of discretion when it
stepped outside the scope of judicial power and denied the FNC motion without
explanation. The court, with the best of intentions, then reached a patently
erroneous result when it declined to enforce a valid forum-selection clause.
LRNA has a “clear and indisputable” right to the issuance of the writ.
C.
The third requirement for the issuance of a writ of mandamus is that it
“is appropriate under the circumstances.” Cheney, 542 U.S. at 381. Because
the writ is “supervisory in nature,” it is especially appropriate where its issu-
ance will have significance “beyond the immediate case.” Volkswagen, 545
F.3d at 319. There is already an appeal pending from another case on this
issue in the Fifth Circuit, and it is possible that more will be forthcoming now
that the Supreme Court has strengthened the enforcement of forum-selection
clauses in Atlantic Marine.
The petition for writ of mandamus is GRANTED.
*****
JENNIFER WALKER ELROD, Circuit Judge, dissenting:
Mandamus is an “extraordinary remedy” for correcting a “clear abuse of
discretion” based on “extraordinary errors” leading to “a patently erroneous
result.” In re Volkswagen of Am., Inc., 545 F.3d 304, 309, 318 (5th Cir. 2008)
(en banc) (issuing the writ because the district court “disregard[ed] the specific
precedents of this Court in In re Volkswagen I”). Here, in its decision to
mandamus the district court, the majority opinion creates two new legal rules
about the doctrine of direct benefits estoppel, neither of which was compelled
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by our precedent. Because I do not believe the district court patently erred by
not anticipating these two new rules, I respectfully dissent.
The majority opinion’s first new rule concerns the extent of “direct
benefit” a non-signatory must receive. In our most on-point precedent, Hellenic
Inv. Fund, Inc. v. Det Norske Veritas, we applied direct benefits estoppel where
the non-signatory shipowner received the benefit of a class certificate from the
classification society. 464 F.3d 514, 516 (5th Cir. 2006). Our “direct benefit”
analysis focused specifically on the shipowner’s receipt of a class certificate; we
did not hold that the classification society’s preliminary inspections, standing
alone, conferred a benefit on the shipowner. Rather, it was the issuance of the
class certificate that conferred a benefit on the shipowner. Here, Pearl Seas
never received a class certificate from LRNA. The majority opinion
nonetheless holds that direct benefits estoppel applies because LRNA
“examin[ed] the ship and communicat[ed] with Pearl Seas in the course of
administering [incomplete] classification services.” This is an extension of the
holding in Hellenic. The majority opinion’s new rule might be sensible, but an
equally sensible rule is one requiring the issuance of a class certificate to
trigger direct benefits estoppel, as occurred in Hellenic. The district court
would not have patently erred by choosing the latter rule, even though the
majority opinion prefers the former.
The majority opinion’s second new rule concerns the knowledge
requirement of the direct benefits estoppel doctrine. As the majority opinion
recognizes, direct benefits estoppel only applies if the non-signatory knows
about the existence and the terms of the contract containing the forum-
selection clause. See Noble Drilling Servs., Inc. v. Certex USA, Inc., 620 F.3d
469, 473 (5th Cir. 2010). We have not previously addressed when the non-
signatory must acquire this knowledge. Here, Pearl Seas acquired knowledge
of the forum-selection clause after some of the alleged misrepresentations, but
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No. 14-20554
before other alleged misrepresentations. The majority opinion decides that
direct benefits estoppel applies so long as the non-signatory gains knowledge
“before much of the alleged wrongdoing and before [the non-signatory files its
lawsuit].” The majority opinion’s new rule seems sensible enough, but a
different rule might be equally sensible—say, a rule that a non-signatory only
can be bound if it learns about the forum-selection clause before its cause of
action accrues (i.e. before the first misrepresentation). The district court would
not have patently erred by choosing the latter rule, even though the majority
opinion prefers the former. 1
Finally, it is important to note that this is not merely a “time-and-place”
dispute. If the forum-selection clause is enforced, Pearl Seas may only bring
its claims in England. However, the parties acknowledged at oral argument
that no cause of action exists in the English courts for a ship owner to allege
negligent misrepresentation against a classification society. Cf. Otto Candies,
L.L.C. v. Nippon Kaiji Kyokai Corp., 346 F.3d 530 (5th Cir. 2003) (permitting
negligent-misrepresentation claims against classification societies). Moreover,
the Classification Contract expressly denies the right of any third party, such
as Pearl Seas, to enforce the terms of the Classification Contract. Thus, the
majority opinion effectively deprives Pearl Seas of any forum for its grievances
against LRNA to be heard.
1Indeed, this likely is the ground on which the district court denied LRNA’s motion
to dismiss. In Petrobras America, Inc. v. Vicinay Cadenas, S.A., 921 F. Supp. 2d 685, 694
(S.D. Tex. 2013), the same district court denied a motion to dismiss for forum non conveniens
because “there [was] no evidence that [plaintiff] had actual knowledge of the terms of the
Purchase Order.” Pearl Seas, at a hearing in the district court, cited Petrobras and argued
that it too lacked knowledge of the terms of the forum selection clause until after
misrepresentations were made. LRNA did not offer any response to that argument.
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No. 14-20554
Because I do not believe the district court patently erred, and because
the majority opinion deprives Pearl Seas of any forum for its claim, I would
deny the petition for writ of mandamus.
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