Quality Custom Rail & Metal LLC v. Travelers Casualty and Surety Company of America

Filing 27

Memorandum Opinion and Order: The Court grants Travelers' 23 Amended Motion to Transfer Venue, and it transfers this action to the Eastern District of Louisiana. (Ordered by Chief Judge Sidney A Fitzwater on 3/4/2014) (tln)[Transferred from txnd on 3/6/2014.]

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
QUALITY CUSTOM RAIL &
METAL, LLC,
Plaintiff,
VS.
TRAVELERS CASUALTY AND
SURETY COMPANY OF AMERICA,
Defendant.

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§ Civil Action No. 3:13-CV-3587-D
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MEMORANDUM OPINION
AND ORDER
The instant motion to transfer under 28 U.S.C. § 1404(a) presents the questions
whether the plaintiff—who is suing as a non-signatory to recover under a surety bond for
unpaid labor, materials, and equipment furnished on a construction project—is bound by the
bond’s forum-selection clause under the doctrine of direct-benefits estoppel, and, if so,
whether the plaintiff has shown that extraordinary circumstances unrelated to the
convenience of the parties clearly disfavor a transfer. Concluding that the plaintiff is bound
by the forum-selection clause and that it has failed to show such extraordinary circumstances,
the court grants the motion and transfers this action to the Eastern District of Louisiana.
I
Defendant Travelers Casualty and Surety Company of America (“Travelers”) issued
a surety bond to Carl E. Woodward, LLC d/b/a Woodward Design & Build (“Woodward”)
for a construction project in New Orleans, Louisiana. The bond covers labor, materials, and

equipment furnished for use in the performance of the project. Woodward hired plaintiff
Quality Custom Rail & Metal, LLC (“Quality Custom”) to perform certain work on the
project. Quality Custom alleges that Woodward has not paid it for labor, materials, and
equipment, and it sues Travelers, as surety, to recover under the bond.
The bond contains a clause that states, in pertinent part: “No suit or action shall be
commenced by a Claimant under this Bond other than in a court of competent jurisdiction
in the state in which the project that is the subject of the Construction Contract is located[.]”
(the “forum-selection clause”). D. Am. Mot. Ex. A at § 12.1 Quality Custom filed this
lawsuit in Texas state court, and Travelers removed the suit to this court based on diversity
of citizenship. In Travelers’ amended notice of removal, it asserts that “[v]enue is proper in
[the Northern District of Texas] under 28 U.S.C. § 1441(a) because the state court where the
action has been pending is located in this district and within this division.” Am. Not. of
Removal ¶ 10. Relying on the forum-selection clause, Travelers now moves to transfer the
case under 28 U.S.C. § 1404(a) to the Eastern District of Louisiana.2 Quality Custom
opposes the motion.

1

The court cites the record in this manner because Travelers did not include the
document in an appendix, as N.D. Tex. Civ. R. 7.1(i)(1) requires.
2

Travelers initially moved under Fed. R. Civ. P. 12(b)(3) to dismiss and transfer
venue. Shortly after the motion became ripe, the Supreme Court decided Atlantic Marine
Construction Co. v. United States District Court for the Western District of Texas, ___ U.S.
___, 134 S. Ct. 568 (2013). Because Atlantic Marine appeared to materially impact how
Travelers’ motion should be framed and decided, the court granted Travelers leave to file an
amended motion.
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II
28 U.S.C. § 1404(a) codifies “the doctrine of forum non conveniens for the subset of
cases in which the transferee forum is within the federal court system.” Atl. Marine Constr.
Co. v. U.S. Dist. Court for W. Dist. of Tex., ___ U.S. ___, 134 S. Ct. 568, 580 (2013).
Section 1404(a) provides that, “[f]or the convenience of parties and witnesses, in the interest
of justice, a district court may transfer any civil action to any other district or division where
it might have been brought or to any district or division to which all parties have consented.”
In cases where there is no forum-selection clause, district courts “must evaluate both the
convenience of the parties and various public-interest considerations.” Atl. Marine, 134 S.
Ct. at 581. They analyze § 1404(a) motions under the familiar private- and public-interest
factors3 and “decide whether, on balance, a transfer would serve ‘the convenience of parties
and witnesses’ and otherwise promote ‘the interest of justice.’” Id. at 581 (quoting
§ 1404(a)).
But in cases where there is a valid forum-selection clause, “[t]he calculus changes”
because the clause “‘represents the parties’ agreement as to the most proper forum.’” Id.
(quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 31 (1988)). In that circumstance,
district courts must “adjust their usual § 1404(a) analysis in three ways.” Id. “First, the
plaintiff’s choice of forum merits no weight. Rather, as the party defying the forum-selection
clause, the plaintiff bears the burden of establishing that transfer to the forum for which the

3

In Atlantic Marine the Court identifies non-exclusive private- and public-interest
factors. Atl. Marine, 134 S. Ct. at 581 n.6.
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parties bargained is unwarranted.” Id. “Second, a court evaluating a defendant’s § 1404(a)
motion to transfer . . . should not consider arguments about the parties’ private interests.”
Id. at 582. “Third, when a party bound by a forum-selection clause flouts its contractual
obligation and files suit in a different forum, a § 1404(a) transfer of venue will not carry with
it the original venue’s choice-of-law rules—a factor that in some circumstances may affect
public-interest considerations.” Id. Accordingly, in a case involving a forum-selection
clause, “a district court should transfer the case unless extraordinary circumstances unrelated
to the convenience of the parties clearly disfavor a transfer.” Id. at 575.
III
The court first considers a threshold issue—whether Travelers has waived or is
judicially estopped from moving to transfer venue. Quality Custom contends that Travelers
has waived any objection to venue because it removed the suit on the basis of diversity
jurisdiction and acknowledged in its amended notice of removal that venue is proper in the
Northern District of Texas. See Am. Not. of Removal ¶ 10. Travelers replies that removing
a case from state to federal court does not preclude a party from later moving to transfer the
case to another federal forum.
The court concludes that Travelers’ motion to transfer is not precluded by waiver or
judicial estoppel. The sole basis for Quality Custom’s contention is that Travelers asserted
in its amended notice of removal that venue is proper in the Northern District of Texas.
According to Quality Custom, this is a judicial admission that this lawsuit should be brought
in this district. The court disagrees. This assertion was likely made to establish compliance
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with the removal requirement of 28 U.S.C. § 1446(a), which provides that “[a] defendant .
. . desiring to remove any civil action from a State court shall file in the district court of the
United States for the district and division within which such action is pending[.]” But even
if it was not, the fact that venue is proper in the Northern District of Texas does not foreclose
Travelers from arguing that this case should be transferred to the Eastern District of
Louisiana.4 “[Section] 1404(a) does not condition transfer on the initial forum’s being
‘wrong.’” Atl. Marine, 134 S. Ct. at 579; compare 28 U.S.C. § 1406(a), with id. § 1404(a).
That venue is proper in this court is not inconsistent with the assertion that the case should
be transferred to another venue under § 1404(a). In fact, § 1404(a) contemplates cases where
venue is proper in multiple fora. See, e.g., Atl. Marine, 134 S. Ct. at 579 (noting that
§ 1404(a) “permits transfer to any district where venue is also proper.” (emphasis added)).
The court therefore declines to hold that Travelers’ motion is precluded based on waiver or
judicial estoppel.
IV
The court now considers whether Quality Custom is bound by the bond’s forumselection clause, and, if it is, whether it has shown that extraordinary circumstances unrelated
to the convenience of the parties clearly disfavor a transfer.

4

Indeed, if Travelers wanted to exercise its right to remove the case to federal court,
it was required to remove it to the Northern District of Texas; it could not have removed it
directly to the Eastern District of Louisiana. See 28 U.S.C. § 1441(a).
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A
Quality Custom argues that Atlantic Marine is not controlling because its reasoning
is predicated on the idea that the party opposing transfer has previously agreed to litigate in
a chosen forum and that a district court’s decision not to give controlling weight to the
forum-selection clause would upset the parties’ settled expectations. Quality Custom
maintains that this rationale is inapposite because it did not agree to bring its claims in
Louisiana, and there are therefore no settled expectations to upset. It posits that, because it
was not a party to the surety bond between Travelers and Woodward, Atlantic Marine does
not apply, and the court should conduct the typical § 1404(a) analysis. Travelers replies that
Quality Custom is bound by the forum-selection clause, despite its non-signatory status,
because it is attempting to derive a benefit from the surety bond.
B
The court concludes that Quality Custom is bound by the forum-selection clause under
the doctrine of direct-benefits estoppel.5 Direct-benefits estoppel is a doctrine that has been

5

The question whether federal or state law controls on this question is unsettled in this
circuit. See, e.g., Covington v. Aban Offshore Ltd., 650 F.3d 556, 558-59 & n.2 (5th Cir.
2011) (not deciding whether federal or state law applies to question whether non-signatory
is bound by arbitration agreement); DK Joint Venture 1 v. Weyand, 649 F.3d 310, 314 & n.4
(5th Cir. 2011) (same); Harland Clarke Holdings Corp. v. Milken, ___ F.Supp.2d ___, 2014
WL 468840, at *12-13 (W.D. Tex. Feb. 4, 2014) (discussing lack of clarity on issue). In
Washington Mutual Finance Group, LLC v. Bailey, 364 F.3d 260 (5th Cir. 2004), the Fifth
Circuit noted that nearly all federal circuits faced with the question whether a non-signatory
is bound by an arbitration provision contained in a contract on which it sues have applied the
federal law of arbitrability to resolve the issue. Id. at 267 n.6. The panel agreed with this
trend and noted that there is no reason to think that applying state law would have yielded
a different result. Id. In Todd v. Steamship Mutual Underwriting Ass’n (Bermuda) Ltd., 601
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developed in the arbitration context. The doctrine applies to “non-signatories who, during
the life of the contract, have embraced the contract despite their non-signatory status but
then, during litigation, attempt to repudiate the arbitration clause in the contract.” Hellenic
Inv. Fund, Inc. v. Det Norske Veritas, 464 F.3d 514, 517-18 (5th Cir. 2006) (citing E.I.
DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d
187, 200 (3d Cir. 2001)) (internal quotation marks omitted). “A non-signatory can ‘embrace’
a contract containing an arbitration clause in two ways: (1) by knowingly seeking and
obtaining ‘direct benefits’ from that contract; or (2) by seeking to enforce the terms of that
contract or asserting claims that must be determined by reference to that contract.” Noble
Drilling Servs., Inc. v. Certex USA, Inc., 620 F.3d 469, 473 (5th Cir. 2010). Although the
doctrine is most often applied to arbitration clauses, it also applies to forum-selection clauses.
See Hellenic, 464 F.3d at 520 (binding non-signatory to a contract’s forum-selection clause

F.3d 329 (5th Cir. 2010), however, the Fifth Circuit noted that “state law controls whether
an arbitration clause can apply to nonsignatories.” Id. at 336 (relying on Arthur Andersen
LLP v. Carlisle, 556 U.S. 624 (2009)). In the present case, the court will apply federal law
because the parties appear to agree that it applies, and because it appears that the outcome
would be the same under state law (Texas and Louisiana both appear to recognize the theory
of direct-benefits estoppel). See Fleetwood Enters., Inc. v. Gaskamp, 280 F.3d 1069, 1074
(5th Cir. 2002) (“Texas courts have found non-signatories bound to arbitration agreements
in only two situations: first, where the non-signatory sued on the contract; and second, where
the non-signatory was a third-party beneficiary of the contract.”) (Texas law); In re
FirstMerit Bank, N.A., 52 S.W.3d 749, 755 (Tex. 2001) (“But a litigant who sues based on
a contract subjects him or herself to the contract’s terms.”); Sturdy Built Homes, L.L.C. v.
Carl E. Woodward L.L.C., 82 So.3d 473, 478 (La. App. 2011) (affirming decision to apply
equitable estoppel doctrine to enforce arbitration clause against non-signatories). “Where
there are no differences between the relevant substantive laws of the respective states, there
is no conflict, and a court need not undertake a choice of law analysis.” R.R. Mgmt. Co. v.
CFS La. Midstream Co., 428 F.3d 214, 222 (5th Cir. 2005) (citation omitted).
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under direct-benefits estoppel theory); Harland Clarke Holdings Corp. v. Milken, ___
F.Supp.2d ____, 2014 WL 468840, at *18 (W.D. Tex. Feb. 4, 2014) (“However, the Court
holds that, when a party is ‘bound by’ a contract, it is subject to the terms of the contract that
resulted from the bargained-for exchange, regardless of whether it itself bargained for those
terms.”); Compana LLC v. Mondial Assistance SAS, 2008 WL 190522, at *4 (N.D. Tex. Jan.
23, 2008) (Fitzwater, C.J.) (noting that direct-benefits estoppel grants signatory right to
enforce contractual provision against non-signatory); cf. Scherk v. Alberto-Culver Co., 417
U.S. 506, 519 (1974) (“An agreement to arbitrate before a specified tribunal is, in effect, a
specialized kind of forum-selection clause[.]”).
Quality Custom is bound by the bond’s forum-selection clause by direct-benefits
estoppel. It knowingly sought and obtained a direct benefit from the bond because it
acknowledges that the “surety bond was an inducement, upon which [it] relied, in order to
perform the work on the Project.” Pet. § III. It also seeks to enforce the terms of the bond,
and its claim must be determined by reference to the contract, because it “seeks to recover
on the bond, and brings this suit against the surety for recover[y] on the bond.” Id. Indeed,
Quality Custom’s claim is that it is entitled to recover under the bond for unpaid labor,
supplies, and equipment. See D. Am. Mot. Ex. A at § 1 (binding surety “to pay for labor,
materials and equipment furnished for use in the performance of the Construction Contract,
which is incorporated herein by reference, subject to the following terms”).6

6

In several places in its response brief, Quality Custom argues that the forum-selection
clause is not a “traditional” or “true” forum-selection clause. See P. Resp. 2, 6. Quality
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Quality Custom argues that arbitration cases are inapposite because there is a federal
policy favoring arbitration. But the rationale of direct-benefits estoppel is not based on a
federal policy favoring arbitration. The rationale is based more generally on principles of
contract and agency law. See, e.g., Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347,
356 (5th Cir. 2003) (“Ordinary principles of contract and agency law may be called upon to
bind a nonsignatory to an agreement whose terms have not clearly done so.”). This is why
the doctrine has been applied not just to arbitration clauses but also to forum-selection
clauses and other contractual provisions. See, e.g., LaRoss Partners, LLC v. Contact 911
Inc., 874 F.Supp.2d 147, 155 (E.D.N.Y. 2012) (noting that several courts “have espoused the
general principle that a party is estopped from denying a contract provision when it has
directly benefited from the contract”). Additionally, Quality Custom ignores that there is a
policy favoring the enforcement of forum-selection clauses. See M/S Bremen v. Zapata OffShore Co., 407 U.S. 1, 9-14 (1972) (discussing history of forum-selection clauses and noting
that forum-selection clauses should be honored “absent some compelling and countervailing
reason”).

Custom does not cite any authority for its characterization, but it appears to argue that,
because the clause provides that the suit be brought in a particular state but not a particular
court, it is not a valid forum-selection clause. This argument lacks force. “By definition, a
forum selection clause is ‘[a] contractual provision in which the parties establish the place
(such as the country, state, or type of court) for specified litigation between them.’” BBC
Chartering & Logistic GmbH & Co. K.G. v. Siemens Wind Power A/S, 546 F.Supp.2d 437,
442 (S.D. Tex. 2008) (quoting Black’s Law Dictionary 681 (8th ed. 2004)). That the forumselection clause at issue specifies a state but not a particular court does not render it invalid
or unenforceable. Quality Custom does not challenge the validity or enforceability of the
forum-selection clause in any other way.
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The court therefore holds that Quality Custom is bound by the bond’s forum-selection
clause.
C
The court now considers whether there are extraordinary circumstances unrelated to
the convenience of the parties that clearly disfavor a transfer. Quality Custom makes no
effort to show that there are such extraordinary circumstances here. Instead, it merely argues
that Atlantic Marine does not apply and that the court should conduct the typical § 1404(a)
analysis. It incorporates by reference its response to Travelers’ original motion to dismiss
and transfer, but that response also fails to demonstrate extraordinary circumstances.
Virtually all of Quality Custom’s arguments are about the convenience of the parties. As to
public-interest factors implicated by the motion to transfer, Quality Custom concedes that
“[t]here is no public policy favoring one forum over another in this case,” and that the surety
bond “does not mandate that the law of any particular jurisdiction . . . be applied.” P.
10/30/2013 Resp. 7.7 Because Quality Custom has failed to demonstrate that there are
extraordinary circumstances unrelated to the convenience of the parties that clearly disfavor
a transfer, the court holds that the case should be transferred under § 1404(a).

7

The court cites Quality Custom’s original response brief, which was incorporated by
reference. The other citations to Quality Custom’s response brief in this memorandum
opinion and order refer to Quality Custom’s February 4, 2014 response brief to Travelers’
amended motion to transfer.
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*

*

*

For the reasons explained, the court grants Travelers’ amended motion to transfer
venue, and it transfers this action to the Eastern District of Louisiana. The clerk of court
shall effect the transfer according to the usual procedure.
SO ORDERED.
March 4, 2014.

_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE

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