Lead Opinion
The plaintiffs, who are citizens and residents of Germany, brought this suit for federal securities fraud against Refco, a U.S. commodities broker headquartered in Chicago. (There are two other defendants, but we need not discuss them separately.) Refco moved to dismiss the suit on the ground that the forum selection clause in the plaintiffs’ investment contracts made Germany the exclusive venue fоr any suit arising out of the contracts. The district judge granted the motion, precipitating this appeal.
The background to the dispute can be sketched briefly. Several years ago Refco agreed with several German businessmen to establish nine commodity pools as unincorporated associations in Germany. The businessmen owned three corporations, which becаme the promoters of the pools and in this capacity solicited Germans, through prospectuses printed in German, to invest in the pools. The management of the pools is in the hands of German trustees. The pools raised $35 million from several thousand German investors, who constitute the class on behalf of whom this suit is brought. The pools planned to trade commodities on U.S. commodity exchanges; that is why Refco had been involved in the creation of the pools. The pools signed brokerage agreements with Refco, and the prospectuses that the pools issued to prospective investors touted the employment of “the most respected brokerage firms” and noted that, “like all exchange transactions, all aspects of trаding in so-called futures are closely regulated by law and' supervised by government authorities. In the U.S., a special federal agency supervises the strict observance of these regulations.” The complaint alleges — we must assume truthfully, of course without vouching for its truth — that the promoters and trustees were entirely controlled by Refco and that Refco’s goal was to operate a Ponzi scheme. Unsophisticated investors would be enticed into investing in the commodity pools by false promises of low risk and high return, and the inevitable losses would be concealed by the use of money from new investors to pay the high returns promised to the old investors. The scheme collapsed in 1992 and this suit ensued.
The plaintiffs made their investments in the pool pursuant to cоntracts that they signed with both the promoters and the trustees. Each contract contained a clause providing that “place of jurisdiction ... is the registered office of the trustee, to the extent permissible under the law.” That office is, of course, in Germany. Refco was not a party to either sort of contract. But its brokerage agreements with the pools containеd a clause in which “the parties agree that all disputes, claims, actions or proceedings arising directly, indirectly or otherwise in connection with, out of, related to or from this Agreement and any related agreement shall be litigated at the discretion and election of Refco only in a court in Chicago, Illinois.”
It might seem that neither forum-selection clause would be relevant to this suit: the one in the investment contracts because the suit is against a nonparty to them, Refco; the one in the brokerage contracts both because the suit does not arise out of those contracts and because they permit only Refco to invoke the clause and it is not doing so. Regarding the first point, courts in this country (the significance of this qualification will bеcome clear shortly) enforce forum selection clauses in favor of non-parties “closely related” to a signatory. Hugel v. Corporation of Lloyd’s,
The existence of mutuality would be pretty academic were it clear that the plaintiffs could sue Refco in Germany even without a forum selection clause. But we do not know whether Refco would be suable there, under the German equivalent of our long-arm statutes, apart from the forum selection clause.
Our analysis to this point has suggested that Refco is indeed “closely related,” in the relevant sense, to the signatories of the forum selection clause contained in the investment contracts and is therefore entitled to invoke the clause. Against this cоnclusion the plaintiffs argue, first, that they could not have enforced the forum selection clause against Refco. They tell us that whatever the situation may be under American law, German law would not permit a nonparty to a contract containing a forum selection clause to enforce the clause; and it would be German law that controlled if the plaintiffs were trying to suе in Germany. This argument is important not only for its bearing on the issue of mutuality and hence on Refco’s right as a nonparty to the forum selection clause nevertheless to take advantage of it, but also because of the qualification that the clause is effective only “to the extent permissible under the law” of Germany. Unless the forum selection clause is enforceable against Refco, Refco might not be suable in Germany at all, in which event the clause by its own terms would authorize the plaintiffs to sue Refco elsewhere.
Critical as the argument is, we cannot consider it. The plaintiffs failed to lay the requisite foundation and have thus waived it. Granted, the meaning of foreign law is no longer treated as a strict question of fact to be proved in the samе manner as other questions of fact, which is to say by sworn testimony and documents admissible under the rules of evidence. Fed.R.Civ.P. 44.1; Twohy v. First National Bank,
The plaintiffs argue that the forum selection clause in the investment contracts is permissive rather than mandatory: it allows either party to sue in Germany; it does not require suit there. This too is implausible. The absence of the indefinite article (the clause says “place of jurisdiction” is Germany, not “a place of jurisdiction” is Germany) implies that thеre is only one place of jurisdiction. One hesitates to put much weight on semantic niceties when dealing with a translation; the contracts between the pools and the investors, in which this forum selection clause is found, are entirely in German. The translation, however, is the plaintiffs’.
We are given greater pause by the Eleventh Circuit’s decision in Citro Florida, Inc. v. Citrovale, S.A.,
The qualification “to the extent permissible” has additional significаnce in this case. If Refco was and is not suable in Germany at all, then the effect of the qualification is to allow the plaintiffs to sue Refco anywhere, even if the forum selection clause is entirely applicable and enforceable. But the plaintiffs, while arguing belatedly that a German court would not have required Refco to litigate in Germany by virtue of the forum selection clause, have not argued that they could not and cannot sue Refco in Germany, wholly without regard to the forum selection clause, because a German court could not obtain jurisdiction over Refco, or for some other reason. Either the plaintiffs missed the point, or they can sue Refco in Germany, all right, though (for reasons to be noted) with less prospect for a large success.
The plaintiffs5 next argument is that mutuality is destroyed by the other forum selection clause, the one in the brokerage contracts, the one that allows Refco to select Chicago as the venue for a suit arising out of those contracts. The argument runs that if the plaintiffs had wanted to sue in Germany, Refco could have invoked that clause to shift the litigation tо Chicago. We do not think this is correct, even if — an issue of German law on which the briefs cast no light — contracts with the pools are deemed to be contracts with the investors in the pools, that is, with the members of the unincorporated associations, or even if, alternatively, the investors are deemed “closely related” to the pools. The clause, though broadly worded, envisages suits that arise out of disputes between Refco on the one hand and the promoters or trustees on the other. That is not the character of the suit between the investors and Refco. Refco has no quarrel with the promoters or trustees, hence no dispute arising out of the brokerage contracts with them. So it could not have invoked the clause (thus destroying thе mutu
The plaintiffs are very concerned about what they contend are the inadequacies of German securities law from a plaintiffs perspective. If the inadequacies went so far as to bar the plaintiffs from suing Refco in Germany altogether, then the forum selection clause in the investment contracts would by its own terms entitle them to sue elsewhere. But they do not argue this. And once the reference in the prospectuses to American regulation of the commodity markets is understood to be a reference to direct regulation rather than to private suits, we can hardly be confident that these plaintiffs, who аre German nationals, thought that by investing in commodity pools promoted and managed by other Germans they were acquiring a right, should the pools collapse, to sue an American firm in America under American law — in the face of a forum selection clause that not only makes Germany the venue for any suit but further provides that the contract is subject to German law. In so observing wе do not mean to imply that the contract, or the dispute arising out of it, is really governed by German law. That will be for a German court to decide should the plaintiffs refile their suit in Germany. For all we know, Germany is as hospitable to choice of law clauses in contracts as American courts have become. In re Stoecker,
The plaintiffs have an argument of a different sort — that even if the forum selection clause in the investment contracts would bar this suit if properly invoked, Refco waited too long to invoke it. An objection to venue must be made at the earliest possible opportunity. Fed.R.Civ.P. 12(h)(1); Snyder v. Smith,
Refco argues with some basis in case law (though it is the minority view) that a motion to dismiss on the basis of a forum selection clause should be deemed to be brought under Fed.R.Civ.P. 12(b)(6) (failure to state a claim) rather than 12(b)(3) (improper venue). Lambert v. Kysar,
AFFIRMED.
Dissenting Opinion
dissenting.
The undersigned joins the majority except for a substantive concern pursued by appellants which has not been considered by either the District or this Appellate Court.
Plaintiffs’ belatedly presented an affidavit on German law as a basis for their motion to reconsider the District Court’s order of dismissal. In citing German Code of Civil Procedure § 38 apрellants continue to argue that if the German forum selection clauses are enforced as ruled by the District Judge, plaintiffs will be deprived of their day in court. They contend that Refco will be unreachable by these plaintiffs because German law prohibits a non-party to a contract containing a forum selection clause from being bound by that clause and Refco will simрly assert the Chicago forum selection clause when sued in Germany rendering it immune from suit by plaintiffs in all jurisdictions. In response Refco says in effect we don’t know and we don’t care — too late. Footnote 15 of Appellees brief states: Because the affidavit was submitted belatedly, the Court cannot know whether a counter-affidavit would have demonstrated conclusively that plaintiffs’ affidavit was incorrect in its description of German law. Counsel’s comments were no more helpful at oral argument.
The majority recognizes the importance of plaintiffs’ argument and agrees that unless the forum selection clause is enforceable against Refco, Refco might not be suable in Germany at all, in which event the clause by its own terms would authorize the plaintiffs to sue Refco elsewhere.
Having said all this let it be understood that the undersigned is in agreement with the majority that the district judge was not obliged to consider this belatedly considered affidavit and if “such a procedure were countenanced, some law suits really might never end, rather than just seeming endless.”
Nevertheless, an exception should be made where plaintiffs may be deprived of their access to court altogether, or are sent to Germany and return for that eventual relief to which they may be entitled. This could be avoided where the single, significant issue could be resolved at this time by either sending it a few floors down for limited remand with directions or providing a supplemental briefing schedule for consideration by this Court.
It is fundamental that on appeаl to this court a litigant is restricted to those arguments which already have been raised at the district court level. There are narrow exceptions to this rule, “where jurisdictional questions are presented or where, in exceptional eases, justice demands more flexibility.” International Travelers Cheque Co. v. BankAmerica Corp.,660 F.2d 215 , 225 (7th Cir.1981).
Old Republic Ins. Co. v. Federal Crop Ins. Corp.,
Although the argument pursued by plaintiffs may not be jurisdictional, nonetheless, the circumstances of this apрeal appear to be exceptional.
The general rule is that an appellate court will not consider an issue not raised in the trial court except where the obvious result would be a miscarriage of justice or where failure to consider the issue would be inconsistent with substantial justice. See Gregory ex rel. Gregory v. Honeywell, Inc.,835 F.2d 181 , 184 (8th Cir.1987).
Estate of Vak v. C.I.R.,
Believing this to be an exceptional case and that failure to consider the issue of German law would be inconsistent with substantial justice where that determination could be readily resolved by either this or the District Court, I dissent.