Autoridad de Energia Electrica v. Vitol SA Services, LLC , 859 F.3d 140 ( 2017 )

United States Court of Appeals
For the First Circuit
Nos. 16-1438
16-1447
AUTORIDAD DE ENERGÍA ELÉCTRICA DE PUERTO RICO,
Plaintiff, Appellee,
v.
VITOL S.A.; VITOL, INC.,
Defendants, Appellants,
FIDELITY AND DEPOSIT CO. OF MARYLAND; FULANO DE TAL;
FIADORAS A, B AND C; ASEGURADORAS X, Y AND Z;
CARLOS M. BENÍTEZ, INC.,
Defendants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Steven J. McAuliffe, * U.S. Senior District Judge]
Before
Torruella, Kayatta, and Barron,
Circuit Judges.
Gregory G. Garre, with whom Alexandra Shechtel, Latham &
Watkins, LLP, Neal S. Manne, Alexander L. Kaplan, Weston L.
O'Black, Michael C. Kelso, Susman Godfrey L.L.P., Eduardo A. Zayas-
Marxuach, Francisco G. Bruno-Rovira, McConnell Valdés LLC,
Andrés W. López and The Law Offices of Andrés W. López, P.S.C.,
* Of the District of New Hampshire, sitting by designation.
were on brief, for appellants.
Eduardo J. Corretjer-Reyes, with whom Corretjer, L.L.C. was
on brief, for appellee.
June 13, 2017
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TORRUELLA, Circuit Judge. The district court remanded
this case to the Commonwealth of Puerto Rico Court of First
Instance, San Juan Part, because it determined that the forum
selection clauses at issue were enforceable, and that the unanimity
requirement of 28 U.S.C. § 1446(b)(2)(A) therefore could not be
satisfied. We affirm.
I. Background 1
Between August 2005 and December 2008, the Autoridad de
Energía Eléctrica de Puerto Rico (the Puerto Rico Electric Power
Authority or "PREPA") executed six contracts for the delivery of
fuel oil with entities whose names all began with "Vitol" -- and
we shall refer to them as such here. For present purposes, it
suffices that at least one of the entities before us -- namely
Vitol, Inc., a Delaware corporation headquartered in Houston,
Texas -- admits that it is a party or assignee to the six contracts
before us. PREPA is a public corporation and governmental
instrumentality of the Commonwealth of Puerto Rico. P.R. Laws
Ann. tit. 22, § 193.
1 Given the significant number of disagreements between the
parties about the facts of the case, we present only a brief
summary of the facts, with a focus on resolving only the question
that is before us -- whether to remand this case to the courts of
the Commonwealth. We do this in large part because we do not wish
to predetermine the outcome of the litigation in the Commonwealth
courts.
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After PREPA learned that Vitol, S.A. -- following a
United Nations investigation that concluded that Vitol, S.A. had
paid, or had caused illegal surcharges to be paid, to Iraqi public
officials -- had pled guilty to first degree grand larceny in New
York state court, PREPA filed suit under, inter alia, Puerto Rico
Law No. 458 of December 29, 2000, P.R. Laws Ann. tit. 3, §§ 928-
928i ("Law 458"). This law prohibits government instrumentalities
and public corporations, such as PREPA, from awarding bids or
contracts to persons (including juridical persons) who have been
convicted of "crimes that constitute fraud, embezzlement or
misappropriation of public funds listed in § 928b of this title."
P.R. Laws Ann. tit. 3, § 928. "Undue intervention in the processes
of awarding bids or in government operations," "[b]ribery, in all
its modalities," and "[o]ffer[s] to bribe" are among the crimes
listed in section 928b. Id. § 928b.
Each of the contracts at issue in this case included a
substantively identical choice of law and forum selection clause:
The Contract shall be governed by, and construed in
accordance with the laws of the Commonwealth of Puerto
Rico. Also, the contracting parties expressly agree
that only the state courts of Puerto Rico will be the
courts of competent and exclusive jurisdiction to
decide over the judicial controversies that the
appearing parties may have among them regarding the
terms and conditions of this Contract.
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All but the first contract also included a "Sworn
Statement" clause which read as follows: 2
Previous to the signing of this Contract, the Seller
will have to submit a sworn statement that neither
[the] Seller nor any of its partners have been
convicted, nor have they plead [sic] guilty of any
felony or misdemeanor involving fraud, misuse or
illegal appropriation of public funds as enumerated
in Article 3 of Public Law number 428 of September 22,
2004, as amended. 3
Note that, although the "Sworn Statement" clauses only speak to
convictions and guilty pleas, in the actual sworn statements, the
seller also stated -- as Law 458 required -- that it had "no
knowledge of being under judicial, legislative or administrative
investigation in Puerto Rico, the United States, or in any other
country." See P.R. Laws Ann. tit. 3, § 928f.
Each contract also included a "Contingent Fees" clause,
which provided, inter alia:
The Seller represents and warrants that it is
authorized to enter into, and to perform its
obligations under this Contract and that it is not
prohibited from doing business in Puerto Rico or
2 Although the first contract did not include a "Sworn Statement"
clause, such a sworn statement was provided, as it had to be
pursuant to Law 458. P.R. Laws Ann. tit. 3, § 928f.
3 Puerto Rico Law No. 428-2004 amended Law 458. It obligates any
person interested in bidding on and being awarded a government
contract to submit a sworn statement representing that said person
has not been convicted of any of the crimes listed in Law 458, and
whether said person is being investigated for any such crime.
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barred from contracting with agencies or
instrumentalities of the Commonwealth of Puerto Rico.
In addition, pursuant to Law 458, each contract was
"deemed to have . . . included . . . for all legal purposes" a
"penal clause or clauses that expressly set forth the provisions
contained [in] § 928c of this title." Id. § 928e. In turn,
section 928c provides:
The conviction or guilt for any of the crimes listed
in § 928b of this title shall entail, in addition to
any other penalty, the automatic rescission of all
contracts in effect on said date between the person
convicted or found guilty and any agency or
instrumentality of the Commonwealth government,
public corporation, municipality, the Legislative
Branch or the Judicial Branch of Puerto Rico. In
addition to the rescission of the contract, the
Government shall have the right to demand the
reimbursement of payments made with regard to the
contract or contracts directly affected by the
commission of the crime.
Id. § 928c (emphasis added).
Four of the six contracts also contained a "Code of
Ethics" clause, by which Vitol agreed "to comply with the
provisions of . . . [the] Code of Ethics for the Contractors,
Suppliers and Economic Incentive Applicants of the Executive
Agencies of the Commonwealth of Puerto Rico" -- which meant that
Vitol accepted, inter alia, the obligation to "disclose all the
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information needed for [PREPA] to evaluate the transaction in
detail, and make correct and informed decisions." Id. § 1756(b). 4
Vitol never informed PREPA that: in 2004 (before any of
the six contracts with PREPA had been signed) the Independent
Inquiry Committee of the United Nations Oil-for-Food Programme
began investigating Vitol S.A. regarding its participation in that
program; 5 on October 27, 2005, the Independent Inquiry Committee
issued a final report (at which point only the first of the six
contracts before us had been signed) concluding that Vitol S.A.
had paid or had caused illegal surcharges to be paid to Iraqi
public officials in order for Vitol S.A. to be awarded contracts
to lift Iraqi oil during and as part of Vitol S.A.'s participation
in the Oil-for-Food Programme; on November 20, 2007 (at which point
four of the six contracts before us had been signed), Vitol S.A.
pled guilty to first degree grand larceny in New York state court
4 The Code of Ethics at issue also contains a provision that
requires a person who contracts with any executive agency of the
Commonwealth to certify that this person has not been convicted of
certain crimes, and further imposes a continuous duty to inform.
However, it appears that this provision only applies to convictions
in the "federal or Commonwealth jurisdiction," and therefore is
not pertinent here, for Vitol, S.A. was convicted in state court
in New York. P.R. Laws Ann. tit. 3, § 1756(p).
5 PREPA alleges that Vitol learned of the investigation between
December 2005 and April 25, 2006. For the purposes of affirming
this remand order, we do not need to decide whether this allegation
is accurate.
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pursuant to a plea agreement for actions related to its
participation in the United Nations Oil-for-Food Programme.
PREPA eventually learned of the guilty plea, 6 and, in
November 2009, filed a complaint in the Commonwealth of Puerto
Rico Court of First Instance, San Juan Part, against Vitol, Inc.
and Vitol, S.A., alleging that two oil supply contracts it held
with Vitol, Inc. were null due to Law 458 and the Puerto Rico Civil
Code, 7 and seeking reimbursement of all payments made under the
contracts. On December 14, 2009, invoking diversity jurisdiction,
defendants removed the claim to federal court. In December 2012,
PREPA filed a second complaint in the Commonwealth court regarding
four additional oil supply contracts, seeking similar relief. The
total amount of the payments PREPA seeks to have reimbursed is
approximately $3.89 billion. The defendants removed this second
action to federal court as well, where the two cases were
consolidated.
6 The precise date on which PREPA learned of Vitol S.A.'s guilty
plea is disputed. PREPA argues that it learned about the guilty
plea between May 13, 2009 and June 23, 2009, whereas the defendants
argue that PREPA learned about it by at least May 13, 2009. We
need not resolve this matter, however, to determine that this case
was rightly remanded to the Puerto Rico courts.
7 The complaint also listed two of Vitol's insurers, Carlos
Benítez, Inc., and Fidelity & Deposit Company of Maryland, as
defendants, but they are no longer parties to this case.
-8-
After various developments not relevant here, on
March 15, 2016, the district court issued an order remanding the
case to the Commonwealth Court. The district court reasoned that
the forum selection clauses applied to the dispute and bound Vitol,
Inc., who could therefore not consent to a co-defendant's removal.
The unanimity requirement thus could not be satisfied, and the
case had to be remanded. See 28 U.S.C. § 1447(d). We agree.
II. Discussion
It is dubitable whether we have jurisdiction to hear
this appeal. A remand order that is based on a breach of the
unanimity requirement is not appealable pursuant to 28 U.S.C.
§ 1447(d). Esposito v. Home Depot U.S.A., Inc., 590 F.3d 72, 77
(1st Cir. 2009). However, "§ 1447(d) is not a bar to review of a
remand order based on a forum-selection clause." Autoridad de
Energía Eléctrica de P.R. v. Ericsson Inc., 201 F.3d 15, 17 (1st
Cir. 2000). This raises the question whether a remand order based
on a lack of unanimity due to a forum selection clause is
reviewable. Such a remand order may not be appealable as long as
the district court colorably characterizes the remand order as
based on a lack of unanimity. See Powerex Corp. v. Reliant Energy
Servs., Inc., 551 U.S. 224, 234 (2007) ("[R]eview of the District
Court's characterization of its remand as resting upon lack of
subject-matter jurisdiction, to the extent it is permissible at
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all, should be limited to confirming that that characterization
was colorable . . . .").
We need not decide, however, whether we have
jurisdiction to hear the present appeal. "The rule is well
established in this Circuit that resolution of a complex
jurisdictional issue may be avoided when the merits can easily be
resolved in favor of the party challenging jurisdiction." Cozza
v. Network Assocs., Inc., 362 F.3d 12, 15 (1st Cir. 2004). Because
we find no difficulty in holding that the forum selection clauses
are enforceable, and the unanimity requirement is consequently not
satisfied, we bypass the jurisdictional issue and proceed to the
merits.
Determining whether a forum selection clause is
enforceable involves three steps. "Under federal law, the
threshold question in interpreting a forum selection clause is
whether the clause at issue is permissive or mandatory." Claudio-
De León v. Sistema Universitario Ana G. Méndez, 775 F.3d 41, 46
(1st Cir. 2014) (quoting Rivera v. Centro Médico de Turabo, Inc.,
575 F.3d 10, 17 (1st Cir. 2009)). "Permissive forum selection
clauses . . . authorize jurisdiction and venue in a designated
forum, but do not prohibit litigation elsewhere . . . . In
contrast, mandatory forum selection clauses contain clear language
indicating that jurisdiction and venue are appropriate exclusively
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in the designated forum." Id. (alterations in original) (quoting
Rivera, 575 F.3d at 17). Next, we ascertain the clause's scope to
determine whether it encompasses the claims -- an analysis that is
"clause-specific," id., meaning that "it is the language of the
forum selection clause itself that determines which claims fall
within its scope." Id. (quoting Rivera, 575 F.3d at 19). If we
find that the clause encompasses the claims, the final step is to
determine whether "a strong showing" has been made that the clause
should not be enforced because:
(1) the clause is the product of fraud or
overreaching; (2) enforcement is unreasonable and
unjust; (3) its enforcement would render the
proceedings gravely difficult and inconvenient to the
point of practical impossibility; or (4) enforcement
contravenes "a strong public policy of the forum in
which suit is brought, whether declared by statute or
judicial decision."
Carter's of New Bedford, Inc. v. Nike, Inc., 790 F.3d 289, 292
(1st Cir. 2015) (quoting Huffington v. T.C. Group, LLC, 637 F.3d
18, 23 (1st Cir. 2011)).
Here, the forum selection clauses are plainly mandatory,
because they contain the following language: "the contracting
parties expressly agree that only the state courts of Puerto Rico
will be the courts of competent and exclusive jurisdiction to
decide over the judicial controversies that the appearing parties
may have among them . . . ." (Emphasis added). See, e.g., Summit
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Packaging Sys., Inc. v. Kenyon & Kenyon, 273 F.3d 9, 13 (1st Cir.
2001) ("[W]hen parties agree that they 'will submit' their dispute
to a specified forum, they do so to the exclusion of all other
forums"); Rivera, 575 F.3d at 17 n.5 ("'[T]ypical mandatory terms'
[include] 'shall,' 'exclusive,' 'only,' or 'must' . . . .").
The forum selection clauses also encompass the claims at
issue. Vitol seeks to persuade us that PREPA is bringing statutory
(rather than contractual) claims, and that these claims thus are
not ones "regarding the terms and conditions of this Contract."
Even if we assume, favorably to Vitol, that PREPA's claims are
indeed statutory in nature, they still fall under the forum
selection clauses. In Huffington, this court held that a forum
selection clause that used the phrase "with respect to" encompassed
"statutory and common-law tort claims [that] rest on alleged
misrepresentations that occurred before [the signing of] the
agreement," because "a suit is 'with respect to' the agreement if
the suit is related to that agreement -- at least if the
relationship seems pertinent in the particular context." 637 F.3d
at 21-22. This court noted that "the phrase 'with respect to'
[is] synonymous with the phrase 'with reference or regard to
something.'" Id. at 22 (emphasis added). Because we see no
difference between "with regard to" and "regarding," the forum
selection clauses in the present case encompasses statutory
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claims. The statutory claims here also plainly relate to the
agreements at issue -- for PREPA would have no claim against Vitol
if it had not been for the contracts.
Although Vitol may be correct that the words "terms and
conditions of this Contract" narrow the forum selection clauses at
issue (as compared with clauses regarding "the contract"), PREPA's
claims here plainly do regard the "terms and conditions of this
Contract." As noted above, the contracts contained "Sworn
Statement" clauses that specifically referenced Law 458; the sworn
statements Vitol provided also specifically referenced Law 458,
and were indeed required by Law 458. Supra at 5. Pursuant to Law
458, the contracts also contained de jure penal clauses that lay
out the consequences Law 458 imposes for having been convicted, or
having pled guilty to, a crime listed in Law 458. Supra at 6. In
addition, the contracts contained "Contingent Fees" clauses, which
required Vitol to certify that it was not "barred from contracting
with agencies or instrumentalities of the Commonwealth of Puerto
Rico." Supra at 6. PREPA alleges that, due to Law 458, Vitol was
barred from exactly that. "Code of Ethics" clauses were also to
be found in the contracts, and required Vitol to disclose such
matters as guilty pleas to crimes listed in Law 458. Supra at 7.
Thus, a statutory claim based on Law 458 is also a claim regarding
the terms and conditions of the contracts at issue.
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At the third and final step of the analysis of the forum
selection clauses, Vitol seeks to convince us that it has made the
requisite strong showing that enforcement of the clauses would be
unreasonable and unjust because PREPA takes seemingly inconsistent
positions by seeking enforcement of forum selection clauses while
arguing that the contracts containing those clauses are void ab
initio. Vitol also argues that equitable estoppel precludes PREPA
from maintaining these positions. See InterGen N.V. v. Grina, 344
F.3d 134, 145 (1st Cir. 2003) (explaining that equitable estoppel
"precludes a party from enjoying rights and benefits under a
contract while at the same time avoiding its burdens and
obligations"). Vitol fails to cite even a single case in which
enforcement of a forum selection clause was denied because it would
be unreasonable and unjust, or precluded by equitable estoppel.
In disposing of similar arguments, one of our sister circuits
showed the absurdity of the position Vitol is taking:
Appellants also spend a good deal of time trying to
convince us that because the contracts themselves are
void and unenforceable . . . the forum selection
clauses are also void. The logical conclusion of the
argument would be that the federal courts . . . would
first have to determine whether the contracts were
void before they could decide whether, based on the
forum selection clauses, they should be considering
the cases at all. An absurdity would arise if the
[federal] courts . . . determined the contracts were
not void and that therefore, based on valid forum
selection clauses, the cases should be sent to [the
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state court] — for what? A determination as to
whether the contracts are void?
Muzumdar v. Wellness Int'l Network, Ltd., 438 F.3d 759, 762 (7th
Cir. 2006).
Vitol tries to remedy its failure to cite any precedent
involving forum selection clauses by instead citing precedents
involving arbitration clauses. Even if we assume, for the sake of
argument, that these precedents can be extended to apply to forum
selection clauses, they do not help Vitol here. 8 The Supreme Court
has made clear that the three cases Vitol seeks to rely on do not
apply, where, as here, the contracts were entered into, but are
later argued to have been invalid:
The issue of the contract's validity is different from
the issue whether any agreement between the alleged
obligor and obligee was ever concluded. Our opinion
today addresses only the former, and does not speak
to the issue decided in the cases cited by respondents
. . . which hold that it is for courts to decide
whether the alleged obligor ever signed the contract,
Chastain v. Robinson–Humphrey Co., 957 F.2d 851 ([11th
Cir.] 1992), whether the signor lacked authority to
commit the alleged principal, Sandvik AB v. Advent
Int'l Corp., 220 F.3d 99 ([3rd Cir.] 2000); Sphere
Drake Ins. Ltd. v. All American Ins. Co., 256 F.3d
587 ([7th Cir.] 2001), and whether the signor lacked
8 While the Supreme Court's statement that "[a]n agreement to
arbitrate . . . is, in effect, a specialized kind of forum-
selection clause" could be read to mean that precedent about forum
selection clauses also applies to arbitration clauses, the inverse
need not be true. Scherk v. Alberto-Culver Co., 417 U.S. 506, 519
(1974).
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the mental capacity to assent, Spahr v. Secco, 330
F.3d 1266 ([10th Cir.] 2003).
Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 n.1
(2006). The Supreme Court, making clear that it did not matter
whether a contract was void or voidable, held that a challenge to
the validity of the contract must be resolved by an arbitrator.
Id. at 446, 449. The challenge at issue was that "a contract
containing an arbitration provision [was] void for illegality."
Id. at 442. To the extent that arbitration precedents apply to
the present case, then, they do not favor Vitol -- quite the
contrary, they imply that the forum selection clauses are
enforceable even if PREPA argues that the contracts are void.
III. Conclusion
The district court correctly decided that the forum
selection clauses were enforceable. Therefore, the unanimity
requirement could not be met here, and remand was proper. 9
Affirmed.
9 We have considered Vitol's remaining arguments, and deem them
to be without merit, at least insofar as they apply to the remand
issue before us.
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