Applied Medical Distribution C v. the Surgical Company Bv ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
APPLIED MEDICAL DISTRIBUTION  No. 09-55155
CORPORATION, a California D.C. No.
corporation, 8:07-cv-01420-
Plaintiff-Appellant, DOC-MLG
v.  ORDER
THE SURGICAL COMPANY BV, a AMENDING
Netherlands limited liability OPINION AND
company, AMENDED
Defendant-Appellee.
 OPINION
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted
September 4, 2009—Pasadena, California
Filed November 3, 2009
Amended November 17, 2009
Before: Raymond C. Fisher and Ronald M. Gould,
Circuit Judges, and Morrison C. England, Jr.,
District Judge.*
Opinion by Judge Gould
*The Honorable Morrison C. England, Jr., United States District Judge
for the Eastern District of California, sitting by designation.
15269
APPLIED MEDICAL v. THE SURGICAL COMPANY 15273
COUNSEL
Richard J. Grabowski, Brian M. Hoffstadt (argued) and
Edward S. Chang, Jones Day, Irvine, California, for the
plaintiff-appellant.
Bruce H. Jackson (argued) and Jerry Salcido, Baker &
McKenzie LLP, San Francisco, California, for the defendant-
appellee.
ORDER
The opinion filed on November 3, 2009, and published at
__ F.3d __, 2009 WL 3583047, is AMENDED as follows:
On slip opinion page 14835, the final sentence ending on
slip opinion page 14836, delete the following text: “, so Surgi-
cal’s filing of the Belgian action, in violation of the forum
selection clause, should not impede comity”.
IT IS SO ORDERED.
OPINION
GOULD, Circuit Judge:
Applied Medical Distribution Corporation appeals the dis-
trict court’s judgment in its diversity action against the Surgi-
cal Company BV denying injunctive relief that would have
15274 APPLIED MEDICAL v. THE SURGICAL COMPANY
prevented Surgical from pursuing its suit in Belgium for statu-
tory termination damages allegedly available under Belgian
law. The issue is whether the district court abused its discre-
tion in denying the anti-suit injunction. We have jurisdiction
under 28 U.S.C. § 1291. We reverse and remand for the dis-
trict court to enter an anti-suit injunction.
I
Applied Medical Distribution Corporation (“Applied”), a
California corporation, and the Surgical Company BV
(“Surgical”), a Netherlands limited liability company, entered
a relationship whereby Surgical would purchase surgical sup-
ply products from Applied for distribution in Belgium, the
Netherlands, and Luxembourg. The relationship began with-
out a written agreement in 1999, and in 2000 the parties
agreed in a written contract that Surgical would be the exclu-
sive distributor of Applied’s products in the three countries.
In 2006, the parties entered a new distribution agreement
(“Agreement”), effective retroactively to January 1, 2005. The
parties negotiated for more than a year regarding the terms of
the Agreement. These terms include the following four provi-
sions important here:
Paragraph 9(a): “Unless extended by mutual agreement in
writing,” the Agreement would terminate on December 31,
2007. The parties could also terminate the Agreement before
then for any reason or no reason with 90 days notice. See
Paragraph 9(e).
Paragraph 9(f), entitled “Limitation on Liability”: “In the
event of termination by either Party in accordance with any of
the provisions of this Agreement, neither Party shall be liable
to the other, because of such termination, for compensation,
reimbursement of damages on account of the loss of prospec-
tive profits or anticipated sales or on account of expenditures,
inventory, investments, leases or commitments in connection
APPLIED MEDICAL v. THE SURGICAL COMPANY 15275
with the business or goodwill of either Party. Termination
shall not, however, relieve either Party of obligations incurred
prior to termination.”
Paragraph 10(a), entitled “Governing Law and Jurisdic-
tion”: “This Agreement shall be governed by and construed
under the laws of the State of California. The federal and state
courts within the State of California shall have exclusive
jurisdiction to adjudicate any dispute arising out of this
Agreement.”
Paragraph 10(f), entitled “Legal Expenses”: “The prevail-
ing Party in any legal action brought by one Party against the
other and arising out of this Agreement shall be entitled, in
addition to any other rights and remedies it may have, to reim-
bursement for its expenses, including court costs and reason-
able attorneys’ fees.”
Mr. van Schil, Surgical’s CEO, claims that he objected to
the forum selection clause, but signed the Agreement and
accepted it in order to maintain the business relationship. He
also claims that he thought the Agreement’s choice-of-law
and limitation-on-liability provisions would not limit Surgi-
cal’s rights under Belgian law, but he did not assert that such
an understanding was ever discussed with Applied.
Around June 2007, Applied notified Surgical that under
Paragraph 9(a) of the Agreement, Applied would not be
renewing the Agreement, which was then scheduled to expire
on December 31, 2007. Surgical replied in writing on Novem-
ber 9, 2007, asserting that Surgical was entitled to protection
under the Belgian Act of 1961 (“Belgian Act”) in the form of
compensation. Next, Applied filed a complaint seeking
declaratory relief against Surgical on December 7, 2007, in
the United States District Court for the Central District of Cal-
ifornia. Surgical thereafter filed suit in Belgium on January
29, 2008.
15276 APPLIED MEDICAL v. THE SURGICAL COMPANY
In its declaratory action in district court, Applied filed a
motion for summary judgment—the motion underlying this
appeal—requesting that the court: “(1) enjoin Surgical from
pursuing relief in Belgium or any other non-California forum
under non-California law; (2) declare that the Agreement ter-
minated pursuant to its terms on December 31, 2007; (3)
declare that ‘goodwill indemnities’ are precluded and that
Surgical will take nothing due to termination of the Agree-
ment; and (4) award Applied its costs, expenses, and attorneys
fees.”
Before addressing the anti-suit injunction, the district court
made several holdings that are not appealed by Surgical. The
district court held that “the dispute over goodwill indemnities
arises out of the Agreement” because the determination of
whether goodwill indemnities may be recovered requires
passing on the applicability of Paragraph 9(f)’s limitation on
liability for damages resulting from termination. The district
court concluded that the choice-of-law and forum selection
clauses in the Agreement were valid because they were
reached through extensive, arms-length bargaining between
sophisticated parties and there was no evidence of fraud or
deceit. Therefore, the court held that “California law and a
California forum apply to the instant dispute” and that “Bel-
gian law is inapplicable to the interpretation of the Agree-
ment.”
The district court next held that the Agreement had termi-
nated under its terms when Applied elected not to renew it,
and concluded that according to Paragraph 9(f), Applied
could not be liable “for compensation, reimbursement of dam-
ages on account of the loss of prospective profits or antici-
pated sales or on account of expenditures, inventory,
investments, leases or commitments in connection with the
business or goodwill of either Party.” The district court spe-
cifically held that “goodwill indemnities are precluded and
that Surgical shall take nothing due to the termination of the
Agreement.”
APPLIED MEDICAL v. THE SURGICAL COMPANY 15277
The district court rejected Surgical’s argument that Para-
graph 9(f) did not apply to goodwill indemnities. Surgical had
argued that goodwill indemnities accrued “prior to the termi-
nation” of the Agreement and only happened to become due
when the Agreement terminated. The district court rejected
this argument because the only way that Applied could poten-
tially incur goodwill liability would be upon a termination of
the Agreement, and such liability, as the district court saw it,
is expressly foreclosed by Paragraph 9(f).
Next, the district court declined to enjoin Surgical from
pursuing relief in Belgium. The district court determined that
“the Belgian Action alleges that certain pre-termination dam-
ages are due aside from termination-related goodwill indem-
nities and other termination-related damages,” and that the
Belgian claims under the Belgian Act were “potentially
broader” than the issues under consideration by the district
court. The district court did not explain further which claims
were not dependent on the termination of the Agreement or
otherwise did not “aris[e] out of th[e] Agreement” so as to be
exempt from the contract’s forum selection clause. Because it
concluded that the Belgian claims were “potentially broader,”
the district court held that an anti-suit injunction would be
inappropriate.
Finally, the district court held that Applied was entitled to
its costs, expenses, and attorneys’ fees because it prevailed on
its motion for declaratory relief and the Agreement expressly
provided for fees to a prevailing party.
The district court entered a final judgment on January 20,
2009. Only Applied appeals, and it appeals only the district
court’s denial of the anti-suit injunction.
II
We review a district court’s denial of an anti-suit injunction
for abuse of discretion. E. & J. Gallo Winery v. Andina
15278 APPLIED MEDICAL v. THE SURGICAL COMPANY
Licores S.A., 446 F.3d 984, 989 (9th Cir. 2006). A district
court’s factual findings in connection with a denial of an anti-
suit injunction are reviewed for clear error. Id. The district
court’s interpretation of the underlying legal principles, how-
ever, is reviewed de novo. Id. When a district court makes an
error of law, it is an abuse of discretion. Id.[1] In Gallo, at various stages of our analysis, we held that
a district court, in evaluating a request for an anti-suit injunc-
tion, must determine (1) “whether or not the parties and the
issues are the same, and whether or not the first action is dis-
positive of the action to be enjoined”; (2) whether the foreign
litigation would “frustrate a policy of the forum issuing the
injunction”; and (3) “whether the impact on comity would be
tolerable.” Id. at 991, 994 (quotation marks and citations
omitted).
Because we conclude that Gallo is controlling, a discussion
of that case is helpful to illuminate our analysis. In Gallo, the
large California winemaker Gallo entered a distribution agree-
ment with Ecuadorian alcohol distributor Andina Licores. Id.
at 987. The distribution agreement contained forum selection
and choice-of-law clauses in favor of California. Id. Disputes
arose between Gallo and Andina regarding some allegedly
late shipments and whether Andina was an exclusive distribu-
tor of Gallo wine. Andina filed suit in Ecuador under an Ecua-
dorian “decree” that was intended to protect Ecuadorians who
entered into distribution agreements with foreign entities. Id.After Andina engaged in procedural machinations in the
Ecuadorian courts, Gallo filed suit in California state court,
seeking declaratory and injunctive relief and damages;
Andina removed the case to federal court. Of relevance to this
case, Gallo filed a motion for a preliminary injunction
restraining Andina from pursuing the action in Ecuador. Id. at
988. The district court denied Gallo’s request for an anti-suit
injunction primarily because the claims arose under different
laws—one under California law and the other under the Ecua-
dorian decree. Id. at 991. We reversed.
APPLIED MEDICAL v. THE SURGICAL COMPANY 15279
In applying the first prong of the test outlined above, we
determined that the issues were the same because both causes
of action focused on whether the distributorship agreement
had been breached. Id. Andina argued that the issues were not
the same because an anti-suit injunction would deprive it of
its broader rights under Ecuadorian law, but we rejected this
argument: “First, it is not clear that Andina has claims under
Ecuadorian law, as the contract contains a choice-of-law
clause in favor of California. Second, to the degree that Ecua-
dorian law does apply, federal courts are capable of applying
it to Andina’s claims.” Id. (citations omitted).
We then turned to considerations of policy and comity
respectively. We stressed the strong policy in favor of enforc-
ing forum selection clauses that the United States Supreme
Court has developed over the years. Id. at 992 (citing Carni-
val Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991)). We
explained that “[w]ithout an anti-suit injunction in this case,
the forum selection clause effectively becomes a nullity.” Id.Turning to comity, we reasoned that “where private parties
have previously agreed to litigate their disputes in a certain
forum, one party’s filing first in a different forum would not
implicate comity at all.” Id. at 994. We pointed out that a rule
that “any party seeking to evade the enforcement of an
otherwise-valid forum selection clause need only rush to
another forum and file suit . . . could also have serious delete-
rious effects for international comity.” Id. We also dismissed
the district court’s reasoning that the Ecuadorian court was
more competent to decide whether the Ecuadorian decree
applied or not: “[T]he contract clearly contains a California
choice-of-law clause; thus, the validity of the forum selection
clause should be decided by California law, as the law of the
contract, rather than by Ecuadorian law.” Id. And, “to the
degree Ecuadorian law is applicable, the district court is capa-
ble of applying it.” Id.
III
With this background on the applicable law as explained in
Gallo, we address whether the district court abused its discre-
15280 APPLIED MEDICAL v. THE SURGICAL COMPANY
tion in denying the anti-suit injunction. Despite our general
inclination to affirm when feasible on matters within a district
court’s discretion, we nonetheless conclude here that the dis-
trict court did abuse its discretion in denying such relief. We
in turn rest our decision primarily on the following two rea-
sons: First, the district court applied the wrong legal standard
by requiring that the claims in the domestic and foreign action
be “identical” instead of engaging in the more functional
inquiry concerning dispositiveness required by Gallo. Second,
the district court relied on the clearly erroneous factual deter-
mination that Surgical’s Belgian claims, other than goodwill
indemnities, were available apart from termination. Because
all of Surgical’s claims, like goodwill indemnities, as a practi-
cal matter depend on termination of the Agreement, they all
“aris[e] out of th[e] Agreement” and are subject to the forum
selection clause. Under Gallo, the claims in the two actions
are functionally the same and the first action is dispositive of
the action to be enjoined in the sense that all of the Belgian
claims fall under the contract’s forum selection clause and can
be litigated and resolved in the California action. Further-
more, we recognize California’s strong policy in favor of
enforcing forum selection clauses and note the comity con-
cerns that would arise if a party to a contract containing a
forum selection clause were permitted to proceed with dupli-
cative litigation challenging the rightful authority of the
contractually-designated forum court. Accordingly, an injunc-
tion restraining Surgical from pursuing its Belgian action is
appropriate. A contrary result would effectively nullify the
forum selection and choice-of-law clauses, thereby eliminat-
ing the certainty of a contractual result that is necessary to
foster international trade and commerce.
A
The first step under Gallo in deciding if an anti-suit injunc-
tion is appropriate is determining “whether or not the parties
and the issues are the same, and whether or not the first action
is dispositive of the action to be enjoined.” Gallo, 446 F.3d
APPLIED MEDICAL v. THE SURGICAL COMPANY 15281
at 991 (citations omitted). Applied and Surgical argue a great
deal about exactly how “identical” the issues must be between
the domestic and foreign action. Confusion on this point is
understandable because in Gallo the local action encompassed
the sole issue raised in the Ecuadorian suit: breach of contract.
Id. Surgical argues that Gallo requires that all the issues be
identical in both actions. Applied argues that complete over-
lap between issues is not required and that Gallo’s holding
disfavors litigants who attempt to evade forum selection
clauses by bringing foreign actions.
We concluded in Gallo that “whether or not the parties and
issues are the same, and whether or not the first action is dis-
positive of the action to be enjoined” are both part of the “first
step” of the test. Id. (citations omitted). In cases like this
where the parties are the same, whether the issues are the
same and the first action dispositive of the action to be
enjoined are interrelated requirements; that is, to the extent
the domestic action is capable of disposing of all the issues in
the foreign action and all the issues in the foreign action fall
under the forum selection clause, the issues are meaningfully
“the same.” These interrelated requirements are sensible
because the fundamental question the Gallo test is designed
to address is whether a requested anti-suit injunction should
issue under a contractual forum selection agreement. More-
over, our conclusion in Gallo that this first-step analysis was
equivalent to both the Second Circuit’s formulation (which
asked if the domestic action was dispositive) and the First Cir-
cuit’s formulation (which asked if the issues were the same)
rested on our recognition that issues are functionally the same
if one action is dispositive of the other. Id. (citing Paramedics
Electromedicina Comercial, Ltda v. GE Medical Sys. Info.
Techs., Inc., 369 F.3d 645, 652 (2d Cir. 2004); Quaak v. Klyn-
veld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11,
18 (1st Cir. 2004)).
[2] Therefore, the crux of the functional inquiry in the first
step of the analysis is to determine whether the issues are the
15282 APPLIED MEDICAL v. THE SURGICAL COMPANY
same in the sense that all the issues in the foreign action fall
under the forum selection clause and can be resolved in the
local action. Instead, the district court focused too narrowly
on the fact that “not all of the issues are identical.” (Emphasis
added.) Gallo did not impose such a specific requirement. For
example, it was irrelevant in that case that the Ecuadorian suit
was under an Ecuadorian decree whereas the domestic action
was based on California law, because both clearly depended
upon the same alleged violation of a distribution agreement.
Id.Moreover, requiring issues to be precisely and verbally
identical would lead to counterproductive, and perhaps unin-
tended, results. For example, forum selection clauses would
lose their reliability and robustness if a party could avoid
them simply by waiting until a local suit is filed, and then file
a foreign action that, despite being easily disposed of by reso-
lution of the local action, is in some way not identical in form,
a likely possibility because the verbal form of laws in differ-
ent countries will inevitably differ. Such language differences
across national systems, if they invariably allowed competing
international litigation, would wholly frustrate the normal pur-
poses of clauses selecting a forum and applicable law.
So-called globalization has enhanced the significance of
international trade, and those in business who would trade
across national lines confront many varying legal systems in
different countries. If we do not give primacy to parties’
choice of forum and choice of law, there will be insufficient
certainty to foster international trade relations. Conversely, so
long as the parties have no gross disparity in bargaining
power, it is difficult to see how holding them to their agreed
forum and law is not beneficent.
B
[3] There is no dispute that the parties are the same in this
action and the Belgian action. Therefore, we turn to “whether
APPLIED MEDICAL v. THE SURGICAL COMPANY 15283
or not . . . the issues are the same, and whether or not the first
action is dispositive of the action to be enjoined.” Gallo, 446
F.3d at 991. We hold that the present action is dispositive of
the Belgian action because all of the claims in the Belgian
action “arise[ ] out of th[e] Agreement,” are subject to the
forum selection clause, and therefore must be disposed of in
the California forum if at all. Therefore, the issues are func-
tionally the same. Interpreting the forum selection clause, the
district court already held that disputes concerning the appli-
cability of the limitation-on-liability provision “aris[e] out of
th[e] Agreement.” However, the district court denied the anti-
suit injunction on the basis of its conclusion that the issues
involved in Surgical’s Belgian action were not identical to the
issues that Applied raised in the California action. The proper
question, however, was whether the issues in the Belgian suit
were the same as the issues before the district court in the
functional sense articulated above. So framed, it is apparent
that Surgical’s Belgian claims, like its claim for goodwill
indemnities, seek damages that occur “only as a result of ter-
mination,” concern the applicability of the limitation-on-
liability provision, and therefore are disputes “arising out of
th[e] Agreement” that are subject to the “exclusive jurisdic-
tion” of “the federal and state courts within the State of Cali-
fornia” under the forum selection clause.
[4] The record indicates that Surgical seeks in its Belgian
action damages for (1) indemnity in lieu of notice, (2) good-
will indemnity, (3) costs and other indemnities, and (4) repur-
chase of stock.1 The district court determined that “[i]t was
1
In Surgical’s writ concerning the Belgian action, Surgical refers to
these categories alternatively as (1) just and equitable compensation, (2)
just and equitable complementary compensation, (3) costs incurred, and
(4) repurchase of stock. These categories are referred to in Surgical’s
November 9, 2007, demand letter to Applied and in its brief as damages
for (1) indemnity in lieu of notice, (2) goodwill indemnity, (3) costs and
other indemnities, and (4) repurchase of stock. Despite the incongruous
nomenclature, our examination of the record leads us to conclude that
these categories of damages are synonymous and in any event, that none
of them could be asserted except upon a termination of the Agreement.
We adopt, for purposes of our discussion, the terms as used in Surgical’s
letter as they are more descriptive.
15284 APPLIED MEDICAL v. THE SURGICAL COMPANY
only as a result of termination that Applied potentially
incurred any goodwill indemnity obligations” and “[t]he
Agreement specifically exempts Applied from such obliga-
tions through Paragraph 9(f).” Similarly, Surgical’s claims for
indemnity in lieu of notice, costs and other indemnities, and
repurchase of stock occur “only as a result of termination”
and are precluded by the language of the contract. Surgical
argues that these claims do not depend on termination of the
Agreement and instead arise from Applied’s failure to comply
with the pre-termination notice provisions in the Belgian Act.
However, Surgical prefaced its demand for these damages in
its November 9, 2007, letter by stating that “[t]he Act pro-
vides for the following protection in the case of unilateral ter-
mination by the manufacturer without cause.” (Emphasis
added.) Surgical repeats that these claims are available “in the
case of unilateral termination” in its brief. Thus, just as the
district court reasoned with regard to the goodwill indemnities
(a holding that Surgical did not appeal), none of Surgical’s
other Belgian claims could arise but for the termination of the
Agreement. Nothing that Surgical argues establishes other-
wise. The district court’s disparate treatment of goodwill
indemnities and Surgical’s other Belgian claims, to this
extent, was clearly erroneous.
In support of its argument that its claims under the Belgian
Act do not arise out of the Agreement, Surgical relies heavily
on the following sentence in Paragraph 9(f): “Termination
shall not, however, relieve either Party of obligations incurred
prior to termination.” Surgical argues that any damages—like
goodwill indemnities—that accrue during the Agreement are
recoverable without regard to the Agreement’s limitation-on-
liability provision, even if triggered by termination of the
Agreement. The district court already expressly rejected that
argument, stating as follows:
Even though goodwill payments increase over time,
they are not actually due until termination occurs.
Thus, the actual obligation to pay damages resulting
APPLIED MEDICAL v. THE SURGICAL COMPANY 15285
from loss of goodwill does not arise prior to termina-
tion, but instead arises upon termination. If the par-
ties had ultimately decided to continue the
relationship, Applied would not have incurred any
obligations for goodwill indemnities. It was only as
a result of termination that Applied potentially
incurred any goodwill indemnity obligations. The
Agreement specifically exempts Applied from such
obligations through Paragraph 9(f).
As the district court reasoned, the disputed clause in Para-
graph 9(f) must be read in conjunction with the rest of the
paragraph, which provides unequivocally that “neither Party
shall be liable to the other, because of such termination” for
a nearly exhaustive list of potential liabilities. Surgical’s read-
ing of the last clause of Paragraph 9(f) would essentially evis-
cerate the entire paragraph as to most termination-related
damages.
[5] Surgical next argues that the district court’s ruling only
addressed damages and that “the district court neglected to
consider the numerous other substantive issues, including
jurisdictional issues and liability issues that arise under the
1961 Belgian Distributor Act.” This argument is misplaced;
the district court already held—and Surgical did not appeal
that holding—that California law controls interpretation of the
Agreement and that “Belgian law is inapplicable to the inter-
pretation of the Agreement.” The district court’s logic that
“any determination whether goodwill indemnities are proper
requires a determination as to the applicability of the contract
provision in 9(f),” bringing the dispute within the ambit of the
California choice-of-law and forum selection provisions,
applies equally to Surgical’s other Belgian claims. Thus,
despite Surgical’s tangential claim that the Belgian Act
requires the Belgian court to disregard the Agreement’s
limitation-on-liability provision, the binding contractual lan-
guage providing for California law and a California forum
controls in the first instance, Belgian law notwithstanding. See
15286 APPLIED MEDICAL v. THE SURGICAL COMPANY
Gallo, 446 F.3d at 991 (rejecting the argument that an injunc-
tion would deprive Andina of rights under Ecuadorian law
because “it is not clear that Andina has claims under Ecuador-
ian law, as the contract contains a choice-of-law clause in
favor of California”).
Surgical relies on the Eleventh Circuit case, Canon Latin
America, Inc. v. Lantech (CR), S.A., which held that a Florida
action based on common law contract claims was not disposi-
tive of an earlier action brought in Costa Rica for violation of
a Costa Rican law creating liability for unlawful termination
of an exclusive distributorship. 508 F.3d 597, 601–02 (11th
Cir. 2007). Even if we were to adopt its reasoning, Canon is
inapposite. In Canon, the district court did not grant Canon’s
summary judgment claim as to a declaration that the Florida
choice-of-law provision was valid and enforceable, id. at 600
n.7; but here, the enforceability of the choice-of-law provision
and applicability of California law to interpretation of the
Agreement is law of the case and not appealed. Moreover,
Canon is not Ninth Circuit precedent and explicitly recog-
nized that the Ninth Circuit does not require foreign claims to
be identical in form to the local claims. Id. at 601 n.8.
Surgical further argues that the Belgian suit should not be
enjoined because “Applied seeks no declaratory relief based
on the specific unwaivable rights” under the Belgian Act, and
thus the issues in the two suits are different. This argument
imposes an unjustifiably narrow view of how issues can over-
lap. In its complaint for declaratory relief, Applied sought a
declaration that any disputes arising out of the Agreement
must be adjudicated in a California forum under California
law and Surgical never urged that California law required
application of the Belgian Act. Applied’s claim that Surgical
should “take nothing due to termination of the Agreement,”
a determination ultimately adopted by the district court, is dis-
positive of Surgical’s Belgian claims in the sense that those
claims arise out of termination of the Agreement and could
have been asserted in the district court, whether or not they
APPLIED MEDICAL v. THE SURGICAL COMPANY 15287
have any merit. Applied was not required to invoke the spe-
cific language of the Belgian Act in seeking declaratory relief.
Instead, it is sufficient that the federal action in the United
States District Court for the Central District of California as
a whole is the proper action and forum for disposing of the
Belgian action. Contrary to Surgical’s claims, differences
between foreign and domestic law do not necessarily make
the “issues” different. Just as the local and foreign issues were
functionally the same in Gallo even though the foreign action
asserted claims under a foreign statute, see Gallo, 446 F.3d at
991, the issues are not different here merely because Surgical
framed its Belgian action in terms of the Belgian Act. Again,
there are many countries in the world with disparate legal sys-
tems and declining to enforce the forum selection and choice-
of-law provisions here would foster uncertainty detrimental to
international business relations.
C
[6] The second step in deciding if an anti-suit injunction is
appropriate is determining if the continuation of the foreign
litigation would “frustrate a policy of the forum issuing the
injunction.” Gallo, 446 F.3d at 992 (quoting Seattle Totems
Hockey Club v. Nat’l Hockey League, 652 F.2d 852, 855 (9th
Cir. 1981)). The district court, having erroneously concluded
that the threshold requirements in Gallo were not met,
declined to discuss this factor. As we noted in Gallo and reaf-
firm here, there is a strong policy favoring robust forum selec-
tion clauses. Id. at 992–93. But without the availability of
anti-suit injunctions, the vitality of forum selection clauses
would be impermissibly and improvidently jeopardized.
Although a foreign court might eventually agree that a forum
selection clause controls, there is no guarantee that such a res-
olution would be reached in a timely fashion or at all, and this
uncertainty would impair the parties’ ability to enforce a
forum selection clause. Anti-suit injunctions may be the only
viable way to effectuate valid forum selection clauses:
15288 APPLIED MEDICAL v. THE SURGICAL COMPANY
Forum selection clauses are increasingly used in
international business. When included in freely
negotiated commercial contracts, they enhance cer-
tainty, allow parties to choose the regulation of their
contract, and enable transaction costs to be reflected
accurately in the transaction price. We have also
repeatedly stressed the importance of forum selec-
tion clauses and have held that they should be
enforced absent strong reasons to set them aside.
Without an anti-suit injunction in this case, the
forum selection clause effectively becomes a nullity.
The potential implications for international com-
merce are considerable.
Id. at 992 (internal quotation and citations omitted).
[7] Surgical argues that the Belgian action does not frus-
trate California policy to enforce forum selection clauses
because the Belgian claims arise out of the Belgian Act, not
out of the Agreement, and therefore are not subject to the
Agreement’s forum selection clause. However, as discussed,
the district court’s unappealed holding that the dispute over
goodwill indemnities arises out of the Agreement is equally
applicable to Surgical’s other Belgian claims. The district
court held that a dispute over goodwill indemnities arises out
of the Agreement because it “requires a determination as to
the applicability of the contract provision in Paragraph 9(f).”
Likewise, Surgical’s claim of entitlement to the other dam-
ages it seeks in its Belgian action requires the same determi-
nation whether Paragraph 9(f)’s limitation-on-liability
provision applies and likewise arises out of the Agreement.
Any continuation of the Belgian action denigrates the integ-
rity of the parties’ prior written commitment that disputes
concerning the Agreement would be litigated in California.
Therefore, California’s strong policy favoring enforcement of
APPLIED MEDICAL v. THE SURGICAL COMPANY 15289
forum selection clauses militates in favor of the anti-suit injunc-
tion.2
D
The third step in deciding if an anti-suit injunction is appro-
priate is determining “whether the impact on comity would be
tolerable.” Gallo, 446 F.3d at 994. The district court summa-
rily concluded that an injunction would undermine the doc-
trine of comity. We disagree. The district court’s conclusion
on comity appears to have been based on its prior erroneous
conclusion that an anti-suit injunction here would be overly
broad. The district court’s conclusion that the anti-suit injunc-
tion would undermine comity was in error; enjoining Surgi-
cal’s Belgian action would not have an intolerable impact on
comity.
[8] “[T]he extent to which the United States, or any state,
honors the judicial decrees of foreign nations is a matter of
choice, governed by the comity of nations” and the
“[e]xtension of comity to a foreign judgment is neither a mat-
ter of absolute obligation, on the one hand, nor of mere cour-
tesy and good will, upon the other.” Asvesta v. Petroutsas,
580 F.3d 1000, 1010–11 (9th Cir. 2009) (internal quotations
and citations omitted). Recognizing that anti-suit injunctions
may implicate comity concerns, we have urged that they be
issued sparingly. Gallo, 446 F.3d at 989. However, Surgical
and Applied are both private parties that previously agreed to
litigate disputes arising out of their contract in California. Id.2
Surgical points out that the forum selection clause in Gallo provided
for a California forum for “any cause of action arising between the parties,
whether under this agreement or otherwise,” 446 F.3d at 987, and that this
is broader than the Agreement’s forum selection clause which provides for
a California forum for disputes arising out of the Agreement. However,
the difference in the forum selection language does not detract from the
interest that California has in the vigorous enforcement of forum selection
clauses that require resolving disputes about an agreement in California
under California law.
15290 APPLIED MEDICAL v. THE SURGICAL COMPANY
at 994. We concluded in Gallo that under its facts enjoining
a first-filed foreign suit that contravened a forum selection
clause “did not implicate comity at all.” Id. Here, enjoining
Surgical’s subsequently-filed foreign suit which contravenes
the Agreement’s forum selection clause, a fortiori, does not
implicate comity.
[9] Surgical makes much of what it claims is Belgium’s
interest, expressed through the Act, of “protect[ing] distribu-
tors who provide services in the Belgium territory against
manufacturers who use their unequal bargaining power to
cause distributors to make investments in time, money, and
personnel to develop a client base only to cut them off after
the distributor provided the ground work.” Even assuming
that Surgical has accurately depicted Belgium’s interest, Sur-
gical’s reliance on it is misplaced. The district court, in hold-
ing that the forum selection and choice-of-law clauses were
valid, enforceable and governed the dispute over goodwill
indemnities, explicitly rejected Surgical’s argument that the
forum selection clause was “unenforceable due to undue
influence or overweening bargaining power.” Surgical did not
appeal this holding, which is now the law of the case, see
United States v. Washington, 235 F.3d 438, 441 (9th Cir.
2000), but Surgical seeks, by implication, to collaterally
attack the underlying findings. The record provides no basis
to undermine the district court’s conclusion that the Agree-
ment was reached as a result of arms-length bargaining and
protracted negotiation. Furthermore, whereas Surgical argues
that Belgium has an “important state interest” in not enjoining
a “Belgian distributor from pursuing enforcement of the . . .
rights and protections afforded it by the 1961 Belgian Distrib-
utor Act,” Surgical admits elsewhere in its brief that it is still
in issue “[w]hether the 1961 Belgium Distributor Act applies
to a Dutch distributor [such as Surgical] engaged in distribu-
tion activities in Belgium.” (Emphasis added.) Surgical also
conflates the interest Belgium has in protecting its exclusive
distributors through judicial application of its substantive law
with its interest in providing a forum. Surgical does not con-
APPLIED MEDICAL v. THE SURGICAL COMPANY 15291
tend that Belgium’s interest in protecting its exclusive distrib-
utors through application of Belgian law cannot be vindicated
by other fora applying Belgian law where appropriate. It war-
rants repeating that federal judges are quite capable of apply-
ing foreign law. Gallo, 446 F.3d at 991 (“[T]o the degree that
[foreign] law does apply, federal courts are capable of apply-
ing it.”) (citing Fed. R. Civ. P. 44.1; Republic of the Philip-
pines v. Marcos, 862 F.2d 1355, 1361 (9th Cir. 1988) (en
banc)). Therefore, it is not clear what interest Belgium has, if
any, in providing a forum to a Dutch company to litigate its
dispute with a California company concerning their contract,
a contract that was freely entered after exhaustive, arms-
length negotiation. Accordingly, it cannot be said that enjoin-
ing Surgical’s Belgian action would intolerably impact comity
(if it would have any impact at all).
Surgical next argues that Gallo involved extreme facts dis-
tinguishable from this case and so an injunction is less appro-
priate here. We characterized the foreign action in Gallo as
“messy, protracted, and potentially fraudulent” in part
because the defunct decree Andina relied on was promulgated
by a military dictatorship. Id. at 995. Surgical argues that its
Belgian action, however, is in good faith and is founded on
legitimate Belgian law. Surgical’s attempt to distinguish
Gallo on these bases is misplaced. While the extreme facts in
Gallo tilted the balance “even further in favor of granting an
injunction,” we made clear in Gallo that demonstration of
such extreme facts was not necessary to conclude that an
injunction would not have an intolerable impact on comity.
Id. at 993. Instead, we concluded that where there is “no pub-
lic international issue raised,” a foreign government is not
involved in the litigation, and the litigation involves private
parties concerning disputes arising out of a contract, not only
would an anti-suit injunction not have an intolerable impact
on comity, but allowing foreign suits to proceed in such cir-
cumstances would seriously harm international comity. Id. at
994.
15292 APPLIED MEDICAL v. THE SURGICAL COMPANY
[10] Surgical’s subsequent filing of its Belgian action also
raises the concern that it is attempting to evade the rightful
authority of the district court. See id. at 995. Notably, a sub-
stantial portion of the monetary damages Surgical seeks in its
Belgian action is comprised of Surgical’s claim for goodwill
indemnities, which the district court already held Surgical was
not entitled to (along with any other damages due to termina-
tion). Surgical opted to proceed with its claim for goodwill
indemnities and other damages in its Belgian action in spite
of the fact that its entitlement to goodwill indemnities was
already being litigated in the district court. We reject Surgi-
cal’s argument that enjoining the subsequent Belgian action
would intolerably impact comity. Surgical does not so much
as acknowledge that allowing it to proceed in its Belgian
action would effectively abrogate the United States District
Court’s judgment that Surgical is not entitled to goodwill
indemnities and shall take nothing due to termination. At
most, there are competing comity concerns, so it cannot fairly
be said that granting the anti-suit injunction, thereby preserv-
ing the authority of the district court and the force of its final
judgment, would have an intolerable impact on comity.
IV
[11] We conclude that the district court erred as a matter of
law in its application of the Gallo test, which requires, as the
first step, a functional analysis concerning whether issues are
the same in the sense that the issues in the action to be
enjoined come within the terms of the forum selection clause
and the local action is capable of disposing of them. The dis-
trict court’s treatment of Surgical’s Belgian claims, other than
goodwill indemnities, as being available apart from termina-
tion was clearly erroneous. The district court’s denial of the
anti-suit injunction was an abuse of discretion. We
REVERSE and REMAND to the district court for it to order
an anti-suit injunction.3
3
The panel expresses no opinion whether Surgical can, at this late stage
in the proceedings after a final judgment, subsequently seek to assert Bel-
gian Act claims in the district court, on the theory that California law
might embrace and apply Belgian law in part.