Sabal Limited LP v. Deutsche Bank AG
Filing
21
ORDER GRANTING 9 Motion to Transfer Case. Signed by Judge David A. Ezra. (aej) [Transferred from Texas Western on 9/19/2016.]
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
SABAL LIMITED LP,
Plaintiff,
vs.
DEUTSCHE BANK AG,
Defendant.
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No. 5:16–CV–300–DAE
ORDER GRANTING MOTION TO TRANSFER VENUE
Before the Court is a Motion to Transfer Venue or Dismiss the
Amended Complaint filed by Defendant Deutsche Bank AG (“Defendant” or
“Deutsche Bank”). (Dkt. # 9.) On September 15, 2016, the Court held a hearing
on the motion: Stuart M. Riback of Wilk Auslander LLP and John A. Huddleston
of Strasburger & Price, LLP appeared on behalf of Sabal Limited LP (“Plaintiff” or
“Sabal”); David L. Goldberg of Katten Muchin Rosenman LLP appeared on behalf
of Deutsche Bank. After careful consideration of the memoranda filed in support
of and in opposition to the motion, as well as the arguments made at the hearing,
the Court, for the reasons that follow, GRANTS the Motion to Transfer (Dkt. # 9).
BACKGROUND
Sabal is a Texas limited partnership and private investment company
based out of San Antonio, Texas, that manages a single family’s investments.
1
(“Am. Compl.,” Dkt. # 3 ¶¶ 3, 8.) Deutsche Bank is a German Aktiengesellschaft 1
with its principal place of business in Frankfurt, Germany. (Id. ¶ 4.)
I.
The Securities Account Agreement
On February 23, 2010, Sabal, Deutsche Bank Securities Inc.2
(“DBSI”), and Deutsche Bank—through its New York affiliate Deutsche Bank
Trust Company of Americas—entered into a Securities Account and Control
Agreement (“SACA”). (“SACA,” Dkt. # 13-10, Ex. 9.) Through the SACA, Sabal
established two accounts at DBSI: a primary account “used for trading and margin
activities,” and a secondary account “used solely to hold financial assets as
collateral” in favor of Deutsche Bank (collectively, “the Securities Accounts”).
(Id. § 2.2.1.) The SACA required DBSI to honor all instructions from Sabal with
respect to financial assets held in the primary account. (Id. ¶ 2.4.1.) However, the
SACA prohibited DBSI from honoring Sabal’s requests to trade, redeem, or
transfer financial assets in the secondary account, and granted Deutsche Bank a
first lien on the secondary account. (Id. §§ 2.2.2, 2.4.2.)
1
Aktiengesellschaft translated to English refers to a German public limited
company whose shares are offered to the general public and traded on a public
stock exchange.
2
DBSI is a Deutsche Bank affiliate and a broker-dealer that executes securities
transactions for Deutsche Bank and its clients. (Dkt. # 9 at 2.)
2
The SACA and Sabal’s Securities Accounts “shall be governed by,
and construed in accordance with, the laws of the State of New York.” (Id. § 4.1.)
The SACA also contains a forum-selection clause stating:
In any action or proceeding arising out of or relating to this
Agreement, the parties hereto hereby irrevocably submit to the
exclusive jurisdiction of the courts of the State of New York and the
federal courts in New York City . . . [Sabal] hereby irrevocably
waives any objection [it] may now or hereafter have to the laying of
venue in the aforesaid courts, and any claim that any of the aforesaid
courts is an inconvenient forum . . . [Sabal] further agrees that any
action or proceeding by Sabal against [Deutsche Bank] in any respect
to any matter arising out of, or in any way relating to, this Agreement
or the obligations of [Sabal] hereunder shall be brought only in the
State and County of New York.
(Id. § 4.2.) Section Five of the SACA pertains to “Conflict with Other
Agreements” and states in relevant part:
In the event of any conflict between this Agreement (or any portion
thereof) and any other agreement now existing or hereafter entered
into, the terms of this Agreement shall prevail.
(Id. § 5.1.)
II.
The Swap Agreement
On July 15, 2011, Deutsche Bank and Sabal entered into a swap
agreement. (“Confirmation,” Dkt. # 13-9, Ex. 8.) Under the terms of the swap,
Deutsche Bank would pay Sabal a fixed rate of 4.65% on a notional $16 million
every quarter from November 1, 2011, through August 1, 2021. (Id. at 2.) In
exchange, Sabal would make payments to Deutsche Bank in two separate tranches.
3
First, from August 1, 2011, through November 1, 2015,3 Sabal would pay
Deutsche Bank a fixed rate of 2.25% on a notional $16 million every quarter. (Id.)
Second, starting November 1, 2015, through August 1, 2021, Sabal would pay
Deutsche Bank a floating rate on a notional $16 million every quarter. (Id.) The
floating rate was determined using a calculation tied to the price of Deutsche
Bank’s PULSE USD Index, but subject to a 0.00% floor and an 8.50% ceiling.4
(Id.
Deutsche Bank was contractually assigned the duty as “Calculation
Agent,” who was responsible for calculating the floating rate each quarter. (Id. at
2, 4.)
Sabal and Deutsche Bank memorialized the swap agreement using
four separate, industry standard, and integrated instruments. The four instruments
are: (1) the International Swap Dealers Association (“ISDA”) Master Agreement
(“Master Swap Agreement”); (2) the Schedule to the ISDA Master Swap
Agreement (“Swap Schedule”); (3) the Credit Support Annex to the Swap
Schedule (“CSA”); and (4) the trade confirmation (“Confirmation”) (collectively
“Swap Documents”). (“Master Swap Agreement,” Dkt. # 13-6, Ex. 5; “Swap
Schedule,” Dkt. # 13-7, Ex. 6; “CSA,” Dkt. # 13-8, Ex. 7; Confirmation.) The
3
Sabal’s payments commenced November 1, 2011, but included the August 1,
2011 payment. (Confirmation at 2.)
4
The Floating Rate equals: 2.25% + 5 [
], where
“Strike” means 3.20% from and including November 1, 2015, increasing 0.20%
4
Swap Documents expressly provide that they “shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York.” (Master
Swap Agreement § 13(a); Swap Schedule Part 4(h).) The Master Swap Agreement
also contains a forum-selection clause stating in relevant part:
With respect to any suit, action or proceedings relating to this
Agreement (“Proceedings”), each party irrevocably submits . . . to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan
in New York City, if this Agreement is expressed to be governed by
the laws of the State of New York.
(Master Swap Agreement § 13(b)(i).) Further, the Master Swap Agreement
provides that “[n]othing in this Agreement precludes either party from bringing
Proceedings in any other jurisdiction.” (Id. § 13(b).) Finally, the Master Swap
Agreement contains a merger clause stating that it “constitutes the entire agreement
and understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.” (Id. § 9(a).)
III.
The Dispute
The present dispute arises out of two discrete actions allegedly taken
by Deutsche Bank. First, Sabal alleges that at the inception of the swap, Deutsche
Bank took an “Independent Amount” of $960,000 as collateral from Sabal’s
accounts held at DBSI. (Am. Compl. ¶¶ 16
.) The CSA expressly provides that
the primary and secondary accounts—the accounts established by the SACA—are
used to hold eligible collateral for the swap. (CSA § 13(g)(i); id. Ex. A.)
5
However, Sabal contends that the Swap Documents do not provide Deutsche Bank
authorization to take the “Independent Amount.” (Am. Compl. ¶ 19.) Further,
Sabal alleges that Deutsche Bank wrongfully took more collateral by locking
Sabal’s primary or secondary accounts at DBSI, preventing Sabal from accessing
almost $4.5 million. (Id. ¶ 18.) Finally, Sabal alleges that Deutsche Bank
fraudulently altered language in the original Confirmation after the parties
executed the Swap Documents to give it authority to take an “Independent
Amount” as collateral.
The second dispute arose when it came time for Sabal to make
payments to Deutsche Bank using the floating rate formula. (Id. ¶¶
Specifically, the dispute concerns the calculation of the floating rate, and the
amount of money Sabal owed Deutsche Bank starting November 2015. On July
30, 2015, Deutsche Bank notified Sabal that Sabal was obligated to make a
payment in the amount of $152,288.89 on November 2, 2015, as a result of the
floating rate calculation formula. (Id. ¶ 24.) However, Sabal contends that
Deutsche Bank calculated the floating rate without using the contractually agreed
formula. (Id. ¶
Instead, Sabal alleges that Deutsche Bank inserted a
“minus 1” into the floating rate equation, resulting in a rate exceeding the ceiling
6
and thus requiring Sabal to pay 8.5% per quarter on the notional $16 million. 5 (Id.
Sabal argues that the floating rate formula as written in the Swap
Documents results in a floating rate below the floor, thus resulting in a floating rate
of 0%. (Am. Compl. ¶ 26.) Since the applied floating rate of 8.5% exceeded the
4.65% rate Deutsche Bank was obligated to pay Sabal, the net effect of the swap
required Sabal to pay Deutsche Bank 3.85% on the notional $16 million every
quarter. Sabal’s position is that because the proper calculation of the floating rate
results in a rate of 0%, Deutsche Bank should pay Sabal 4.65% every quarter. (Id.
On December 22, 2015, Deutsche Bank sent Sabal a potential default
notice because Sabal refused to make payment on November 2, 2015. (Am.
Compl. ¶ 30.) To avoid default, Sabal made a good faith payment to Deutsche
Bank in the requested amount of $152,288.89. (Id.) Subsequently, Deutsche Bank
sent another notice to Sabal indicating that the floating rate was 8.5% and a
payment was due on February 1, 2016. (Id. ¶ 32.)
On March 7, 2016, Sabal demanded that Deutsche Bank return the
good faith payment, release the “Independent Amount” collateral worth $960,000,
and unlock the remaining collateral in Sabal’s secondary account located at DBSI.
(Id. ¶ 34.) Deutsche Bank did not comply with Sabal’s demand, so Sabal sent to
5
Sabal alleges that Deutsche Bank confirmed that it had calculated the floating rate
using a “minus 1.” (Am. Compl. ¶ 31.)
7
Deutsche Bank a notice of potential default on March 18, 2016. (Id. ¶ 36.)
Deutsche Bank countered by serving notices of potential default on Sabal in San
Antonio, Texas. (Id. ¶ 37.) On March 24, 2016, Sabal terminated the Master Swap
Agreement by delivering notice on Deutsche Bank in Frankfurt, Germany. (Am.
Compl. ¶ 38.) Deutsche Bank sent a termination notice and a calculation notice to
Sabal the same day. (Id. ¶¶
)
On March 24, 2016, Sabal filed suit in this Court. (Dkt. # 1.) On
March 30, 2016, Sabal filed an Amended Complaint. (Am. Compl.) Sabal seeks
declaratory judgment, asserts a cause of action for conversion, and two causes of
action for breach of contract. (Id.
On May 5, 2016, Deutsche Bank and DBSI sued Sabal in the United
States District Court for the Southern District of New York (“the NY Action”) for
conduct arising out of the same facts of this case. (Dkt. # 13-5, Ex. 4.) In the NY
Action Complaint, Deutsche Bank admits that it has calculated the floating rate
using a “minus 1,” but contends that its omission in the original Swap Documents
was a scrivener’s error. (Id. ¶ 4.) Deutsche Bank and DBSI seek declaratory
judgment to reform the Swap Documents due to the scrivener’s error, and to order
DBSI to transfer certain collateral obligations to Deutsche Bank. (Id. ¶¶
Deutsche Bank also asserts causes of action against Sabal for breach of contract
and unjust enrichment. (Id. ¶¶
8
On June 20, 2016, Deutsche Bank filed a Motion to Transfer Venue or
Dismiss the Amended Complaint for lack of Personal Jurisdiction and Improper
Venue. (Dkt. # 9.) Sabal filed a Response (Dkt. # 13) and Deutsche Bank filed a
Reply (Dkt. # 15.)
LEGAL STANDARD
I.
Venue Transfers Based on Forum Selection Clauses
The Supreme Court held that a party may not enforce a forum-
selection clause by seeking dismissal of the suit under 28 U.S.C. § 1406(a) and
Rule 12(b)(3) because those provisions only apply when venue is “wrong” or
“improper,” as determined by federal venue law, 28 U.S.C. § 1391. Atlantic
Marine Const. Co., Inc. v. U.S. Dist. Court for the Western District of Texas, 134
S. Ct. 568, 577–79 (2013). Rather, a forum-selection clause may be enforced
through a motion to transfer under 28 U.S.C. § 1404(a), which “permits transfer to
any district where venue is also proper (i.e., ‘where [the] case] might have been
bought’) or to any other district to which the parties have agreed by contract or
stipulation.” Id. at 579 (quoting 28 U.S.C. § 1404(a)). “When the parties have
agreed to a valid forum-selection clause, a district court should ordinarily transfer
the case to the forum specified in that clause” and a proper application of § 1404(a)
requires that a forum-selection clause be “given controlling weight in all but the
most exceptional cases.” Id. at 581.
9
In the typical § 1404(a) analysis, the district court weighs the relevant
public and private factors and decides whether, on balance, a transfer would serve
“the convenience of parties and witnesses” and otherwise promote “the interest of
justice.” Id. at 581 n.6; see also In re Volkswagon, AG, 371 F.3d 201, 203 (5th
Cir. 2004). The private factors include: (1) the relative ease of access to sources of
proof; (2) the availability of compulsory process to secure the attendance of
witnesses; (3) the cost of attendance for willing witnesses; and (4) all other
practical problems that make trial of a case easy, expeditious, and inexpensive. In
re Volkswagon, AG, 371 F.3d at 203. The public factors include: (1) the
administrative difficulties flowing from court congestion; (2) the local interest in
having localized interests decided at home; (3) the familiarity of the forum with the
law that will govern the case; and (4) the avoidance of unnecessary problems of
conflict of laws or applying the foreign law. Id. A court also gives some weight to
the plaintiff’s choice of forum. Atl. Marine Const. Co., 134 S. Ct. at 581 n.6.
However, the usual § 1404(a) calculus changes when the transfer
motion is premised on a forum-selection clause. Id. This is primarily because “a
forum-selection clause . . . may have figured centrally in the parties’ negotiations
and may have affected how they set monetary and other contractual terms . . . .”
Id. at 583. In fact, it may “have been a critical factor in their agreement to do
business together in the first place.” Id. As such, “when parties have contracted in
10
advance to litigate disputes in a particular forum,” district courts should adjust their
usual § 1404(a) analysis in three ways to “not unnecessarily disrupt the parties’
settled expectations.” Id. at 582–83.
First, where a forum selection clause applies, the plaintiff’s choice of
forum merits no weight. Although the plaintiff is ordinarily allowed to select
whatever forum it considers most advantageous, “when a plaintiff agrees by
contract to bring suit only in a specified forum, the plaintiff has effectively
exercised its ‘venue privilege’ before the suit arises.” Id. at 581–82. As such, only
the plaintiff’s initial choice—that is, the agreed-to choice memorialized in the
contract’s forum-selection clause—deserves deference. Id. at 582. The plaintiff
bears the burden of establishing that transfer to the forum for which the parties
bargained is unwarranted. Atlantic Marine, 134 S. Ct. at 582.
Second, a court should not consider arguments about the parties’
private interests because when parties agree to a forum-selection clause, they have
effectively waived their right to challenge the preselected forum. Id. “[A] court
must deem the private-interest factors to weigh entirely in favor of the preselected
forum” because “‘whatever inconvenience [the parties] would suffer by being
forced to litigate in the contractual forum as [they] agreed to do was clearly
foreseeable at the time of contracting.’” Id. (quoting M/S Bremen v. Zapata OffShore Co., 407 U.S. 1, 17–18 (1972)). Instead, a court may only consider
11
arguments about public-interest factors. Id. “Because those factors will rarely
defeat a transfer motion, the practical result is that forum-selection clauses should
control except in unusual cases.” Id.
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. Rather, the
court in the contractually selected venue should not apply the law of the transferor
venue; instead, it should apply its own law. Atlantic Marine, 134 S. Ct. at 583.
In sum, Atlantic Marine held that if a contractually valid forumselection clause exists and applies to the lawsuit, a court should grant the motion to
transfer in accordance with the forum-selection clause absent extraordinary
circumstances. Id. at 581. The party opposing the transfer bears a heavy burden of
establishing that the transfer is unwarranted due to the extraordinary circumstances
as “[i]n all but the most unusual cases,” no extraordinary circumstances will exist
that warrant refusal to transfer in accordance with a forum-selection clause. Id. at
582–83.
When determining whether extraordinary circumstances exist that
warrant denial of transfer, only the public-interest factors of a traditional § 1404(a)
analysis may be considered, including: (1) the administrative difficulties flowing
12
from court congestion; (2) the local interest in having localized interests decided at
home; (3) the familiarity of the forum with the law that will govern the case; and
(4) the avoidance of unnecessary problems of conflict of laws of the application of
foreign law. Id. at 581–82.
DISCUSSION
This case calls upon the Court to first determine which forum
selection clause applies, and depending on that determination, whether to transfer
venue.
I.
The Forum Selection Clauses
A court must first determine whether a forum selection clause is
mandatory or permissive. Weber v. PACT XPP Tech., AG
(5th Cir. 2016) (citing Phillips v. Audio Active Ltd., 494 F.3d 378
2007)). Once a court makes this determination, it must then decide whether a
forum-selection clause applies to the present case, which involves two separate
inquiries: (1) whether the contract is valid and the forum-selection clause is
enforceable, and (2) whether the present case falls within the scope of the forumselection clause. Id. at 770 (“Only after the court has interpreted the contract to
determine whether it is mandatory or permissive does its enforceability come into
play.”); Mendoza v. Microsoft, Inc., 1 F. Supp. 3d 533, 542 (W.D. Tex. 2014)
(citing Braspetro Oil Servs. Co. v. Modec (USA), Inc., 240 F. App’x 612, 616 (5th
13
Cir. 2007) (enforcing a forum-selection clause requires first assessing the clauses’s
contractual validity and its scope)).
A. Choice of Law
As a threshold matter, the Court must determine what substantive law
to apply to various parts of the analysis below. The Fifth Circuit holds that federal
law applies to determine the enforceability of forum-selection clauses in both
diversity and federal question cases.6 Barnett v. DynCorp Int’l, L.L.C., ---F.3d---,
2016 WL 4010440, at *3 (5th Cir. 2016) (citing Haynsworth v. The Corp., 121
F.3d 956, 962 (5th Cir. 1997)); see also Ginter ex rel. Ballard v. Belcher,
Prendergast & Laporte, 536 F.3d 439, 441 (5th Cir. 2008). However, to interpret
the meaning and scope of a forum selection clause, a court must use the forum’s
choice-of-law rules to determine what substantive law governs. Weber, 811 F.3d
Barnett, 2016 WL 4010440 at *3; Phillips, 494 F.3d at 385.
Accordingly, Texas choice-of-law rules apply.
Here, both the SACA and the Swap Documents expressly provide that
they should be interpreted and construed using New York Law. (SACA § 4.1;
Master Swap Agreement § 13(a); Swap Schedule Part 4(h).) “Texas law gives
effect to choice of law clauses regarding construction of a contract.” Benchmark
6
Neither party has raised a challenge to the enforceability of the relevant forum
selection clauses.
14
Electronics, Inc. v. J.M. Huber Corp., 343 F.3d 719, 726 (5th Cir. 2003) (citing In
re J.D. Edwards World Solutions Co., 87 S.W.3d 546, 549 (Tex. 2002)).
Therefore, the Court will apply New York law to address Sabal’s arguments based
on contract law, and to interpret the scope of the forum selection clauses. See
Stinger v. Chase Bank, USA, NA, 265 F. App’x 224, 227 (5th Cir. 2008)
(explaining that to determine whether a dispute falls within the scope of an
arbitration agreement courts should apply state law (citing First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)); Brown v. Federated Capital
Corp.
substantive
law to determine the scope of a forum selection clause).
It is important to also note that cases analyzing forum selection
clauses are wrought with ambiguous legal reasoning. The vast majority of federal
courts have not clearly articulated the applicable law used to interpret the meaning
and scope of forum selection clauses. Instead, to the detriment of sound legal
analysis, the vast majority of federal district and circuit courts have simply cited to
federal precedent when interpreting forum selection clauses without conducting a
choice-of-law analysis to identify the source of the substantive law. See e.g.,
Mendoza, 1 F. Supp. 3d at 547–48 (citing federal precedent and general commonlaw contract principles to determine the scope of a forum selection clause);
Phillips, 494 F.3d at 385 (“[W]e have turned to federal precedent to interpret forum
15
clauses, but the underlying choice of law question has been left unaddressed.”).
Indeed, the Fifth Circuit has taken notice of this undisciplined practice by
observing that “[n]either this nor our sister circuits appear to have hewn closely to
this principle [of conducting a choice-of-law analysis] in interpreting [forum
selection clauses].” Weber, 811 F.3d at 771. Instead, “[t]he courts have
interpreted [forum selection clauses] according to general common-law contract
principles without addressing the source of that law.” Id. In an attempt to explain
this analytical confusion, the Fifth Circuit notes that “[t]he general-law approach
may be because, in this circuit and others, the enforceability of a [forum selection
clause] is governed by federal law.” Id. at 770. In that same vein, the Second
Circuit wrote in dicta that “we cannot understand why the interpretation of a forum
selection clause should be singled out for application of any law other than that
chosen to govern the interpretation of the contract as a whole.” Phillips, 494 F.3d
at 386. The Second Circuit’s reasoning also comports with Tenth Circuit law
where “[a] forum selection clause is part of the contract” and should not be
“singled out as a provision not to be interpreted in accordance with the law chosen
by the contracting parties.” Yavuz v. 61 MM, Ltd., 465 F.3d 418, 428 (10th Cir.
2006).
Here, the Court declines to continue the trend of inelegant and
confusing analysis by simply citing federal precedent and general common law
16
contract principles to interpret the meaning and scope of the forum selection
clauses at issue. Indeed, following that trend is wrong because “there is no federal
common law of contracts.” Barnett, 2016 WL 4010440 at 3 (quoting Ford v.
Hamilton Invs., Inc., 29 F.3d 255, 258 (6th Cir. 1994)). Instead, the Court will
adhere to guidance from the Fifth Circuit that its “core obligation” is “to ascertain
which body of substantive law to apply by implementing the choice-of-law rules of
its home jurisdiction.” Weber, 811 F.3d at 771. In this case, there is no doubt, for
the reasons explained above, that Texas’s choice-of-law rules dictate that New
York substantive law applies to interpret the meaning and scope of the contracts
and forum selection clauses in this case.
B. Mandatory and Permissive Nature of the Forum Selection Clauses
“The general rule in cases containing forum selection clauses is that
‘[w]hen only jurisdiction is specified the clause will generally not be enforced
without some further language indicating the parties’ intent to make jurisdiction
exclusive.” Fear & Fear, Inc. v. N.I.I. Brokerage, L.L.C., 851 N.Y.S.2d 311, 313
(N.Y. App. Div. 2008). A permissive forum selection clause “contains no
mandatory language binding the parties to a particular forum [but] merely states
that the [party] will submit to the jurisdiction to be selected by [the other party].”
Columbia Cas. Co. v. Bristol-Myers Squibb Co., 635 N.Y.S.2d 173, 176 (N.Y.
App. Div. 1995).
17
The Court has no difficulty in concluding that the SACA’s forum
selection clause is mandatory, and the forum selection clause in the Master Swap
Agreement is permissive. The SACA’s forum selection clause states “the parties
hereto hereby irrevocably submit to the exclusive jurisdiction of the courts of the
States of New York and the federal courts in New York City.” (SACA § 4.2.)
(emphasis added). This clause is unambiguously mandatory. The presence of the
words “irrevocably submit” and “exclusive” demonstrates the parties’ intent to
bind themselves to the particular forum of New York state courts or federal courts
in New York City. See Fear & Fear, 851 N.Y.S. at 313. Further, no conditional or
permissive language is present in the clause to suggest otherwise. See id. On the
other hand, the forum selection clause in the Master Swap Agreement states “each
party irrevocably submits . . . to the non-exclusive jurisdiction of the courts of the
State of New York and the United States District located in the Borough of
Manhattan in New York City [but] [n]othing in this Agreement precludes either
party from bringing Proceedings in any other jurisdiction.” (Master Swap
Agreement § 13(b)) (emphasis added). This clause is unambiguously permissive.
The submission to “non-exclusive” jurisdiction and the language permitting
proceedings in “any other jurisdiction” clearly demonstrates that the parties
intended to only consent to jurisdiction in the New York venues, but not be
required to bring lawsuits in those venues.
18
Having determined the nature of each relevant forum selection clause,
the Court must address the enforceability and applicability of the forum selection
clauses.
C. Enforceability of the Forum Selection Clauses
Typically, parties litigate the enforceability of a forum selection
clause on grounds that it is unreasonable. 7 Haynesworth, 121 F.3d at 963.
However, in this case, Sabal does not challenge the enforceability of SACA’s
forum selection clause on traditional unreasonableness grounds. Instead, Sabal
advances several contract-based theories to argue that the SACA’s forum selection
clause is inapplicable. Since such arguments call for the interpretation of the
7
In such a case, a court applies a four factor test considering whether:
(1) the incorporation of the forum selection clause into the agreement
was the product of fraud or overreaching; (2) the party seeking to
escape enforcement “will for all practical purposes be deprived of his
day in court” because of the grave inconvenience or unfairness of the
selected forum; (3) the fundamental unfairness of the chosen law will
deprive the plaintiff of a remedy; or (4) enforcement of the forum
selection clause would contravene a strong public policy of the forum
state.
Haynesworth, 121 F.3d at 963.
19
dueling contracts, New York law controls.8 See Weber, 811 F.3d at 770 (“[T]he
question of enforceability is analytically distinct from the issue of interpretation.”)
1.
The Merger Clause and Parol Evidence
Sabal’s principle argument is that the merger clause in the Master
Swap Agreement voids the SACA or its forum selection clause. In the alternative,
Sabal argues that the merger clause prohibits consideration of the SACA’s forum
selection clause pursuant to the parol evidence rule.
“The purpose of a merger clause is to require the full application of
the parol evidence rule in order to bar the introduction of extrinsic evidence to
alter, vary or contradict the terms of the writing.” Jarecki v. ShungMoo Louie, 745
N.E.2d 1006, 1009 (N.Y. 2001). “Where the parties have reduced their agreement
to an integrated writing, the parol evidence rule operates to exclude evidence of all
prior or contemporaneous negotiations between the parties offered to contradict or
modify the terms of their writing.” Marine Midland Bank-Southern v. Thurlow,
425 N.E.2d 805, 807 (N.Y. 1981). However, “the power of a merger clause does
not extend to antecedent contracts or events which are beyond the scope of the
contract encompassing the clause.” OneBeacon Amer. Ins. Co. v. Comsec
Ventures Intern., Inc., No. 8:07-cv-900, 2010 WL 114819, at *5 (N.D.N.Y Jan. 7,
8
Recently, the Fifth Circuit declined to determine whether a court should apply
federal or state law to determine the “validity” of a contract’s forum-selection
clause. Barnett, 2016 WL 4010440 at 5.
20
2010) (citing Primex Int’l Corp. v. Wal-Mart Stores, Inc., 89 N.E. 2d 624, 627
(N.Y. 1997)).
The merger clause states that the Master Swap Agreement “constitutes
the entire agreement and understanding of the parties with respect to its subject
matter and supersedes all oral communication and prior writings with respect
thereto.” (Master Swap Agreement § 9(a).) The “subject matter” of the Master
Swap Agreement is the swap itself. In contrast, the SACA pertains to the rights
and obligations of Sabal and Deutsche Bank concerning the creation and control
over Sabal’s Securities Accounts located at DBSI. Since the two agreements
pertain to different subject-matter, the parol evidence rule is inapplicable. In this
instance, parol evidence would include prior or contemporaneous oral or written
agreements between Sabal and Deutsche Bank relating to the swap itself. Yet here,
the forum selection clause in the SACA does not alter, vary, or contradict the
forum selection clause in the Master Swap Agreement because the two clauses
apply to disputes involving separate subject-matters. In the former instance, the
SACA’s forum selection clause applies to disputes arising out of or relating to the
SACA and the Securities Accounts it established. In the latter instance, the Master
Swap Agreement’s forum selection clause applies to disputes relating to the swap.
Additionally, the parties to the SACA are Sabal, Deutsche Bank, and DBSI, while
the parties to the Master Swap Agreement are Sabal and Deutsche Bank. In such
21
case where one party to the SACA is not a party to the Master Swap Agreement,
the parol evidence rule is not applicable. Marinelli v. Unisa Holdings, Inc., 655
N.Y.S.2d 495, 496 (App. Div. 1997) (“[T]he parol evidence rule is not applicable
since the alleged oral promise was made by one not a party to the written
agreement.”). Accordingly, the Court finds that “it is readily demonstrable that
enforcement of the parties’ obligations . . . arising out of [the SACA] does not
implicate the parol evidence rule in connection with the [Master Swap Agreement]
and, hence, is not precluded by the merger clause in that [latter] writing.” Primex,
89 N.E. 2d at 627.
Further, the Court finds that the merger clause in the Master Swap
Agreement does not void or supersede the SACA. Under New York law, the
general language of a merger clause like that included in the Master Swap
Agreement, “is insufficient to establish any intent of the parties to revoke
retroactively their contractual obligations.” Gen. Motors Corp. v. Fiat S.p.A, 678
F. Supp. 2d 141, 148 (S.D.N.Y. 2009) (quoting Primex, 89 N.E. 2d at 627). Here,
the merger clause in the Master Swap Agreement is general in nature, and does not
exhibit language demonstrating any intent between Sabal and Deutsche Bank to
revoke or novate the SACA. Indeed, the Master Swap Agreement expressly
provides that “the rights, powers, remedies and privileges in this Agreement are
cumulative.” (Master Swap Agreement § 9(d).) (emphasis added). See Bank
22
Julius Baer & Co., Ltd. v. Waxfield Ltd., 424 F.3d 278, 283 (2d Cir. 2005),
abrogated on other grounds by Granite Rock Co. v. Int’l Bhd. of Teamsters, 561
U.S. 287 (2010) (explaining that a merger clause in a subsequent contract did not
void a previous contract because the subsequent agreement stated it was
cumulative). Finally, “a contract should not be interpreted to produce a result that
is absurd,” and to read the merger clause as a revocation of the SACA would lead
to an absurd result. Greenwich Capital Fin. Prods., Inc. v. Negrin, 903 N.Y.S.2d
346, 348 (N.Y. App. Div. 2010). Here, the Swap Documents require eligible
collateral, and presumably all quarterly payments, to use the Securities Accounts
established by the SACA. (See CSA § 13(g)(i); id. Ex. A.) To find that the merger
clause voids the SACA, would essentially void the very accounts used to deposit
the quarterly transfers and hold collateral for the swap.
Accordingly, since the SACA is an antecedent contract, and both
agreements focus on different subject-matter, the Master Swap Agreement’s
merger clause neither voids the SACA nor prevents its consideration in this lawsuit
pursuant to the parol evidence rule. See Regions Bank v. Baldwin Cnty Sewer
Service, LLC, 106 So.3d 383 (Ala. 2012) (holding that under New York law, the
merger clause in an ISDA agreement identical to the one in this case had no effect
on a prior contract between the parties).
23
2.
Sabal’s Other Arguments
Sabal also contends that the Master Swap Agreement controls over the
SACA because it was entered into later in time. (Dkt. # 13 at 15.) Sabal correctly
points out that in New York “[i]t is well established that a subsequent contract
regarding the same matter will supersede the prior contract.” Barnum v. Millbrook
Care LP, 850 F. Supp. 1227, 1236 (S.D.N.Y. 1994) (citing Coll. Auxiliary Servs.
of State Univ. College, Inc. v. Slater Corp., 456 N.Y.S. 512 (N.Y. App. Div.
1982)). However, Sabal’s argument fails because the SACA and the Master Swap
Agreement do not regard the same subject-matter. As previously mentioned, the
SACA controls Sabal’s, Deutsche Bank’s, and DBSI’s obligations and rights of
control over the Securities Accounts, and the Master Swap Agreement pertains to
the swap transaction. Accordingly, the Master Swap Agreement, although later in
time, did not supersede the SACA because they relate to separate subjects.
Sabal next argues that the Master Swap Agreement controls because it
is specific to the matters in dispute. (Dkt. # 13 at 16.) Under New York law,
as to all provisions [that] are repugnant in the two documents.” Oakgrove Const.,
Inc. v. Genesee Valley Nurseries, Inc., 834 N.Y.S.2d 822, 823 (N.Y. App. Div.
2007). The Court agrees with Sabal that its breach of contract claims in this
24
lawsuit address the swap transaction, and that the Master Swap Agreement is
specific to that issue. However, the Court disagrees with Sabal that the only issue
present in this lawsuit references the swap. Sabal specifically seeks, inter alia, a
declaratory order from the Court that “[Deutsche Bank] . . . must release that
collateral” stored in the Securities Accounts held by DBSI. (Am. Compl. ¶ 42(c).)
Sabal needs a court order to cause Deutsche Bank to release collateral from the
Securities Account because under the terms of the SACA, DBSI may not honor
any request from Sabal to “redeem or transfer” money held in the collateral
account. (SACA § 2.4.2.) Instead, “[i]n the event that [DBSI] receives an [order]
from [Deutsche Bank] that is inconsistent with any order and/or instructions
received from [Sabal], [DBSI] shall honor [the instruction] of [Deutsche Bank].”
(Id. § 2.4.3.) Since Sabal has affirmatively pled declaratory relief to override the
provisions of the SACA, it has directly implicated that agreement. Therefore, the
Court finds that there are two specific transactions at issue here—one relating to
the swap and one relating to control over the Securities Accounts—and that the
Oakgrove rule is inapplicable.
Finally, the first-to-file rule does not otherwise require this lawsuit to
remain in this Court. “The first-to-file rule is a discretionary doctrine.” Cadle Co.
v. Whataburger of Alice, Inc., 174 F.3d 599, 603 (5th Cir. 1999). “Under the firstto-file rule, when related cases are pending before two federal courts, the court in
25
which the case was last filed may refuse to hear it if the issues raised by the cases
substantively overlap.” In re Spillman Development Grp., Ltd., 710 F.3d 299, 307
(5th Cir. 2013) (quoting Cadle Co., 174 F.3d at 603). Sabal’s first-to-file argument
misses the mark for one significant reason—the rule enables a court retaining
jurisdiction over a later filed case to refuse to hear it because of an already pending
case. Since this Court has jurisdiction over the originally filed lawsuit, the rule is
inapplicable. Therefore, the first-to-file rule is an argument more appropriately
made before the Southern District of New York, which is venue to the NY Action
where Deutsche Bank and DBSI have sued Sabal over the swap.
Accordingly, the Court finds that the SACA is not a voided instrument
under principles of New York contract law, and may be applicable to this lawsuit if
the issues presented fall within the scope of its forum selection clause.
D. Scope of the Forum Selection Clauses at Issue
Fifth Circuit and New York law apply similar standards to determine
whether the scope of a forum selection clause reaches the instant dispute. To
determine whether the forum-selection clause applies to the type of claims asserted
in the lawsuit, courts “look to the language of the parties’ contract to determine
which causes of action are governed by the forum selection clause . . . .”
Marinechance Shipping, Ltd. v. Sebastian, 143 F.3d 216, 222 (5th Cir. 1998). “If
the substance of the plaintiff’s claims, stripped of their labels, does not fall within
26
the scope of the forum selection clause, the clause cannot apply.” Id. In New
York, “[t]he applicability of a forum selection clause does not depend on the nature
of the underlying action.” Couvertier v. Concourse Rehabilitation and Nursing,
Inc., 985 N.Y.S. 683, 684 (N.Y. App. Div. 2014). Instead, “it is the language of
the forum selection clause itself that determines which claims fall within its
scope.” Id.
The New York trend is that broadly worded forum selection clauses
encompass a wide variety of claims. For example, the Appellate Division–Third
Department found a mandatory forum selection clause encompassed third-party
claims where the clause extended to “any dispute arising under or in connection
with” the agreement. Couvertier, 985 N.Y.S. at 684. That same court found that
tort claims were encompassed by a forum selection clause because its scope
extended to disputes “relating to the Contract.” Id.; Walker, Truesdell, Roth &
Assocs., Inc. v. Globeop Financial Servs. LLC, 993 N.Y.S.2d 647 (N.Y. Sup. Ct.
2013).
The SACA’s forum selection clause states:
In any action or proceeding arising out of or relating to this
Agreement, the parties hereto hereby irrevocably submit to the
exclusive jurisdiction of the courts of the States of New York and the
federal courts in New York City.
(SACA § 4.2.) In this case, the SACA is a broadly worded forum selection clause
that will encompass a wide variety of claims and remedies. Sabal has pled a cause
27
of action for conversion of its money held in the collateral Securities Account, and
seeks a remedy of declaratory relief, both of which, despite artful pleading, are
clearly “related to” the SACA. The SACA provides that Deutsche Bank has
exclusive authority over collateral held in the Securities Account maintained at
DBSI. The authority is so exclusive that the SACA grants Sabal no authority to
transfer its money held in that account. Here, Sabal alleges that Deutsche Bank
has “locked” its collateral Securities Account at DBSI and unlawfully holds
collateral in that account. Since the declaratory relief sought is meant to override
Deutsche Bank’s exclusive authority over money in the collateral Securities
Account, the Court finds that this dispute “relates to” the SACA because that
instrument created Deutsche Bank’s authority over the account at issue.
It is irrelevant that Sabal has also asserted breach of contract claims
that indisputably arise out of the Master Swap Agreement. Pleading claims that do
not relate to the SACA does not immunize Sabal from the SACA’s mandatory
forum selection clause because Sabal has also sought relief related to the SACA.
Indeed, in New York, a plaintiff “cannot circumvent application of [a] forum
selection clause by pleading parallel and/or additional related noncontractual
claims.” Tourtellot v. Harza Architects, 866 N.Y.S.2d 793, 795 (N.Y. App. Div.
2008). The only foreseeable way Sabal could have avoided the SACA’s
mandatory forum selection clause would have been to assert breach of contract
28
claims for the Master Swap Agreement and nothing more. Further, the Master
Swap Agreement’s forum selection clause does not unconditionally grant Sabal
authority to bring a lawsuit in any venue it chooses. Instead, the language states
only that “[n]othing in this Agreement precludes [Sabal] from bringing
Proceedings in any other jurisdiction.” (Master Swap Agreement § 13(b).)
(emphasis added). While nothing in the Master Swap Agreement prevents Sabal
from bringing a lawsuit in a non-New York jurisdiction, a different agreement, the
SACA, requires Sabal to bring lawsuits relating to it in a New York venue.
For the reasons explained above, the Court finds that the SACA
contains a mandatory forum selection clause requiring disputes related to it be
brought in New York State courts or the federal courts in New York City. The
Court also finds that the scope of the SACA extends to certain claims and remedies
of relief that Sabal has affirmatively pled. Accordingly, this dispute “relates to”
the SACA. See Rubens v. UBS AG, 5 N.Y.S.3d 55 (N.Y. App. Div. 2015)
(enforcing a mandatory forum selection clause in an account opening document
like the SACA).
II.
Whether to Transfer Venue
If a contractually valid forum-selection clause exists and applies to the
lawsuit, a court should grant the motion to transfer in accordance with the forumselection clause absent extraordinary circumstances. Atlantic Marine, 134 S. Ct at
29
581. Here, Sabal has failed to meet its “heavy burden” of establishing that transfer
would be unwarranted due to extraordinary circumstances. Id.
Indeed,
none of the public factors suggest the existence of extraordinary circumstances.
Both the federal courts of the Western District of Texas and the Southern District
of New York have enormous civil case loads. Indeed, actions per judgeship in the
Western District of Texas exceed those of the Southern District of New York by a
ratio of nearly two-to-one.9 Thus, the administrative difficulties flowing from
court congestion counsel in favor of transfer.
Second, the local interest in having localized interests decided at
home is not sufficient to demonstrate an extraordinary circumstance. Even though
Sabal is a San Antonio, Texas, based investment firm, there is no feature of this
case or question presented that is unique to the area. A party’s residence does not
necessarily establish a truly localized interest. Instead, the issues presented in this
case implicate contract interpretation involving a foreign party and New York law,
Securities Accounts maintained in Houston, Texas, and a swap agreement tied to a
financial index that tracks the U.S. dollar. These are not localized interests
exceptional to the San Antonio area, but are instead more global in nature.
Sufficient localized interests are more likely to involve issues exceptional, or
unique, to the local venue; examples may include specific water and oil rights, or a
9
The Court takes judicial notice of statistics published on the official United States
Courts website.
30
case involving a company that maintains a significant corporate footprint through
high localized employment rates and contributions to the local economy.
Third, the familiarity of the Southern District of New York with the
law that will govern the case favors transfer. Even though “federal judges
routinely apply the law of a State other than the State in which they sit,” Atlantic
Marine, 134 S.Ct. at 584, there is no doubt that the Southern District of New York
applies New York law more frequently than this Court does. Just as this Court is
more familiar with the nuances of Texas contract law and its rules of interpretation,
the Southern District of New York is more familiar with the application of New
York law.
The final factor—avoiding unnecessary problems of conflict of laws
or application of foreign law—is neutral. Neither party identifies any reason that
transfer would implicate problems involving conflicts of law or the application of a
foreign law.
Accordingly, the Court finds that transfer of venue to the Southern
District of New York is appropriate pursuant to 28 U.S.C. § 1404(a). 10
10
Deutsche Bank argues that this Court lacks personal jurisdiction over it. The
Supreme Court holds that a court may order the transfer of venue of a case
involving a defendant over whom the court lacks personal jurisdiction. Goldlawr,
Inc. v. Heiman, 369 U.S. 463, 466 (1962).
31
CONCLUSION
For the reasons explained, the Court GRANTS Deutsche Bank’s
Motion to Transfer Venue and ORDERS the Clerk of Court to TRANSFER this
case to the United States District Court for the Southern District of New York.
IT IS SO ORDERED.
DATE: San Antonio, Texas, September 19, 2016.
_____________________________________
DAVID ALAN EZRA
UNITED STATES DISTRICT JUDGE
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