Fifth Circuit
affirms dismissal of employment dispute over work performed for American
company in Kuwait based on forum non conveniens
DynCorp
International, L.L.C. (“DynCorp”), an American company with its principal place
of business in Texas, provides logistics support services to U.S. Army. In
2011, DynCorp extended an offer to Jonathan Barnett, a Georgia resident, to
work for DynCorp in Kuwait. DynCorp and Barnett signed a one-year Foreign
Service Employment Agreement drafted by DynCorp in Texas. In February 2012,
Barnett signed a similar one-year contract, and in March 2013, an extension of
the same contract (the “Agreement”).
According to the Agreement, Barnett’s geographical location of employment was Kuwait; his base wages were set in American dollars, while his overtime and working holiday compensation were to be paid at premium rates in accordance with Kuwait Labor Law. Furthermore, Barnett’s work schedule, holidays, medical leave benefits, circumstances under which he could be terminated, and compensation due upon termination were also to be determined according to Kuwait law. Moreover, the Agreement incorporated a forum-selection clause, which stated: “This Contract shall be governed by and interpreted exclusively under the laws of Kuwait and all disputes between the Parties shall be resolved exclusively in Kuwait.”
Upon completing a one-week training program in Texas, Barnett flew to Kuwait where he worked two years plus. According to Barnett, he worked seventy-two hours per week, including some of his “off days” and public holidays.
In
March 2013, DynCorp informed Barnett that his employment would soon be
terminated because DynCorp would no longer provide services at Barnett’s
location. In its letter, DynCorp promised Barnett that he would receive an
end-of-service indemnity, accrued and unused leave credit, and other benefits;
and that any balance of wages due would be distributed on the next scheduled
pay date after Barnett’s departure from Kuwait. In June 2013, Barnet concluded
his work for DynCorp and left Kuwait.
In March 2015, Barnett filed and action in a federal court in Texas alleging that he never received all of the wages and benefits DynCorp owed him, and that DynCorp breached the Agreement by failing to provide him overtime pay, paid leave, end-of service payment, and premature contract termination damages as he is entitled by Kuwait Labor Law.
DynCorp moved to dismiss Barnett’s action on the basis of forum non conveniens. In its motion to dismiss DynCorp argued that Agreement’s forum-selection clause mandates that the action be litigated in Kuwait. In his response to the motion Barnett argued that forum-selection clause is void under Texas law and unenforceable under federal law. He specifically argued that under Texas Civil Practice & Remedies Code section 16.070 the forum-selection clause is void because it directs litigation to a forum in which the limitations period for breach of an employment contract is less than two years. Relying on the decision in Atlantic Marine Construction Co. v. United States District Court, 134 S. Ct. 568 (2013), the district court granted the motion. Barnett appealed.
The United States Court of Appeals for the Fifth Circuit affirms district court’s decision. The key issue here is whether a forum-selection clause in an agreement is void if it directs litigation to a forum in which the laws are less favorable than the law of the state in which the agreement was signed.
The
Court reviewed this case de novo. Deciding on which jurisdiction’s law governs,
and to what effect, the Court states:
“Atlantic Marine tells us that a ‘valid’ forum-selection clause pointing to a foreign tribunal requires forum non conveniens dismissal absent unusual circumstances. 134 S. Ct. at 581-83 & n.8. But in Atlantic Marine, ‘there was no dispute that the forum-selection clause was valid.’ Id. at 576. And the Court noted, without elaboration, that its analysis ‘presuppose[d] a contractually valid forum-selection clause.’ Id. at 581 n.5. Atlantic Marine thus did not answer under what law forum-selection clauses should be deemed invalid, see In re Union Elec. Co., 787 F.3d 903, 906-07 (8th Cir. 2015)—an issue that has long divided courts, see, e.g., Lambert v. Kysar, 983 F.2d 1110, 1116 & n.10 (1st Cir. 1993) (noting a circuit split over whether to apply federal or state law). Consequently, courts and commentators have continued to express uncertainty about ‘whether a federal court in a diversity case should look to federal law, state law or both when deciding whether a forum selection clause is valid.’ Rolfe v. Network Funding LP, No. 14-CV-9-BBC, 2014 WL 2006756, at *1 (W.D. Wis. May 16, 2014); see Linda S. Mullenix, Gaming the System: Protecting Consumers from Unconscionable Contractual Forum-Selection and Arbitration Clauses, 66 HASTINGS L.J. 719, 731(2015). […]”
“Neither
the Supreme Court nor this court has said what source of law governs the
‘validity’ of a forum-selection clause. But even in diversity cases, federal
law governs the ‘enforceability’ of forum-selection clauses in this circuit.
Haynsworth v. The Corp., 121 F.3d 956, 962 (5th Cir. 1997); see Weber, 811 F.3d
at 770. This federal law, derived from a pair of seminal admiralty cases,
requires a party attacking a forum-selection clause to overcome a presumption
of enforceability by showing that the clause is ‘`unreasonable’ under the
circumstances’ because (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. Haynsworth, 121 F.3d at 963 (citing
Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991), and M/S Bremen
v. Zapata Off-Shore Co., 407 U.S. 1, 12-13 (1972)). When the ‘interpretation’
of a forum-selection clause is at issue in a diversity case, however, we apply
the forum state’s choice-of-law rules to determine what substantive law
governs. Weber, 811 F.3d at 770-71.”
While
Barnett argued that the “validity” of a forum-selection clause is a matter of
substantive contract law that is separate from and must precede any federal-law
analysis of “enforceability” or application of Atlantic Marine, DynCorp offered
a different approach arguing that “validity” in this context is just part of
the federal law of enforceability, which heavily favors forum-selection
clauses.
The Court disagrees with Barnett’s position for the following reasons:
“[…]
First, we do not appear to have drawn his distinction between validity and
enforceability, instead seeming to treat those words as synonyms in the
forum-selection clause context. Even in diversity cases, we have often framed
our analysis of such clauses by quoting Bremen’s instruction that
forum-selection clauses ‘are prima facie valid and should be enforced unless
enforcement is shown by the resisting party to be `unreasonable’ under the
circumstances.’ Int’l Software Sys., Inc. v. Amplicon, Inc., 77 F.3d 112, 114
(5th Cir. 1996) (emphasis added). Too, while presupposing a ‘valid’
forum-selection clause, the Court in Atlantic Marine did not mention the word
‘enforceability.’”
“Barnett’s position is also in tension with Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988). There, the defendant moved to transfer or dismiss a contract dispute on the basis of a forum-selection clause. The federal district court denied that motion, reasoning that Alabama law controlled and disfavored forum-selection clauses. Id. at 24. Indeed, the Alabama Supreme Court at that time held that ‘contractual agreements by which it is sought to limit particular causes of action which may arise in the future to a specified place[] are . . . invalid.’ Redwing Carriers, Inc. v. Foster, 382 So. 2d 554, 556 (Ala. 1980), overruled by Prof’l Ins. Corp. v. Sutherland, 700 So. 2d 347 (Ala. 1997). Yet the U.S. Supreme Court reversed, holding that, if the forum state’s law rejects forum-selection clauses, a district court should consider that in its 28 U.S.C. § 1404(a)balancing of factors for and against transfer, rather than afford the forum-selection clause ‘no consideration (as [state] law might have it).’ Stewart, 487 U.S. at 30-31.”
The Court then enumerates the conditions that Barnett has to show in order to prevail in this case.
“If
federal law alone controls the validity and enforceability of this
forum-selection clause, Barnett must show that the clause is unreasonable
because (1) the clause was incorporated into the Agreement by fraud or
overreaching, (2) the selected forum is gravely unfair or inconvenient, (3) the
chosen law is so fundamentally unfair as to deprive him of a remedy, or (4)
enforcement of the forum-selection clause would contravene a strong public
policy of the forum state. Haynsworth, 121 F.3d at 963. Barnett does not argue
any of the first three prongs. That leaves the question whether the clause’s
enforcement would contravene a strong public policy of Texas.”
“If, instead, the issue of a forum-selection clause’s ‘validity’ is separate from its ‘enforceability’ and not determined by federal law in diversity cases, it seems that the law applicable to that determination would be the same law applicable to forum-selection clause interpretation—that is, the law selected by the forum state’s choice-of-law rules. See Weber, 811 F.3d at 770-71 […] ‘Simplicity argues for determining the validity and meaning of a forum selection clause,’ at least when ‘interests other than those of the parties will not be significantly affected by the choice of which law is to control, by reference to the law of the jurisdiction whose law governs the rest of the contract in which the clause appears.’ Abbot Labs. v. Takeda Pharm. Co., 476 F.3d 421, 423 (7th Cir. 2007). And the Restatement (Second) of Conflict of Laws, which Texas courts generally look to ‘[i]n deciding which state’s law should govern the construction of contractual rights,’ Maxus Expl. Co. v. Moran Bros., Inc., 817 S.W.2d 50, 53 (Tex. 1991), provides that ‘[t]he validity of a contract, in respects other than capacity and formalities, is determined by the law selected by’ the Restatement’s general choice-of-law principles, RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 200 (1971). Thus, if we were to look to nonfederal law to determine the validity of this forum-selection clause, we would not automatically apply Texas’s substantive law; rather, we would apply the state’s choice-of-law rules. See Weber, 811 F.3d at 770. Under those rules, Texas law would control only if the Agreement’s choice-of-law clause—which ‘exclusively’ selects Kuwaiti law to govern the Agreement and disputes between the parties—is itself unenforceable. Cf. Nexen Inc. v. Gulf Interstate Eng’g Co., 224 S.W.3d 412, 417 (Tex. App. 2006)[…].”
“‘The Supreme Court of Texas has recognized that contractual choice of law provisions should generally be enforced, but has also stated that `the parties’ freedom to choose what jurisdiction’s law will apply . . . [is not] unlimited.’ Int’l Interests, L.P. v. Hardy, 448 F.3d 303, 306-07 (5th Cir. 2006) (alteration in original) (quoting DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990)). That freedom is limited by Texas’s adoption of section 187 of the Restatement, which provides:
(1)
The law of the state chosen by the parties to govern their contractual rights
and duties will be applied if the particular issue is one which the parties
could have resolved by an explicit provision in their agreement directed to
that issue.
(2)
The law of the state chosen by the parties to govern their contractual rights
and duties will be applied, even if the particular issue is one which the
parties could not have resolved by an explicit provision in their agreement
directed to that issue, unless either
(a)
the chosen state has no substantial relationship to the parties or the
transaction and there is no other reasonable basis for the parties’ choice, or
(b)
application of the law of the chosen state would be contrary to a fundamental
policy of a state which has a materially greater interest than the chosen state
in the determination of the particular issue and which, under the rule of §
188, would be the state of the applicable law in the absence of an effective
choice of law by the parties.
RESTATEMENT
§ 187; see DeSantis, 793 S.W.2d at 677-78.”
“We may assume, in Barnett’s favor, that we are dealing with an issue the parties ‘could [not] have resolved by an explicit provision in their agreement directed to that issue.’ Thus, as in a recent case in which we applied Texas’ choice-of-law rules to render the Agreement’s choice-of-law provision unenforceable, Barnett must satisfy Section 187(2) of the Restatement. See Cardoni v. Prosperity Bank, 805 F.3d 573, 581 (5th Cir. 2015).
As in that case, Section 187(2)(a) does not help Barnett because Kuwait clearly has a ‘substantial relationship’ to this contract for services to be performed there. See id. at 581-82; see also Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319, 325 (Tex. 2014). Hence, the parties’ choice of Kuwaiti law would control unless its application ‘would be [1] contrary to a fundamental policy of a state [2] which has a materially greater interest than the chosen state in the determination of the particular issue and [3] which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.’ RESTATEMENT § 187(2); Drennen, 452 S.W.3d at 325-27.”
“Taking the last of these requirements first, it is not clear that Texas law would apply in the absence of an effective choice of law provision because, in a contract for the performance of services, the main place of performance is ‘[as] a rule . . . conclusive in determining what state’s law is to apply.’ DeSantis, 793 S.W.2d at 679; see also RESTATEMENT § 196 (explaining that the ‘validity of a contract for the rendition of services’ is usually determined ‘by the local law of the state where the contract requires that the services, or a major portion of the services, be rendered’); cf. Castilleja v. Camero, 414 S.W.2d 424, 426 (Tex. 1967) (holding, before Texas’s adoption of the Restatement, that ‘[a] contract which is made in one jurisdiction but which relates to and is to be performed in another jurisdiction is governed by the law of the place of performance’). […]”
The Court then analyses the question if the application of Kuwaiti law would contravene a fundamental policy of the state of Texas as expressed in section 16.070.
“’The Restatement does not give ‘a general definition of `fundamental policy,’ and the Texas Supreme Court has been reluctant to provide one itself. Drennen, 452 S.W.3d at 327. That high court has, however, made clear that application of foreign law ‘is not contrary to the fundamental policy of the forum merely because it leads to a different result,’ or ‘is materially different.’ DeSantis, 793 S.W.2d at 680. ‘[T]he focus,’ rather, ‘is on whether the law in question is a part of state policy so fundamental that the courts of the state will refuse to enforce an agreement contrary to that law, despite the parties’ original intentions, and even though the agreement would be enforceable in another state connected with the transaction.’ Id.”
“We conclude that enforcing the Kuwaiti choice-of-law clause, even given the statute of repose, would not contravene a fundamental policy of the state of Texas. This court has affirmed a refusal to apply section 16.070’s substantially similar predecessor to an agreement not shown to be ‘a Texas contract.’ Watson v. R.I. Ins. Co., 196 F.2d 254, 254-56 (5th Cir. 1952). That suggests that section 16.070 limits parties’ freedom to contractually shorten limitation periods only in contracts otherwise governed by Texas law, and that its underlying policy has similarly limited reach. […]”
“More fundamentally, we are dealing not with a contractual limitations period, but with a contractual choice of foreign law that includes a one-year statute of repose for certain claims. ‘Unlike a statute of limitations, `a statute of repose creates a substantive right to be free from liability after a legislatively determined period.’ Burlington N. & Santa Fe Ry. Co. v. Poole Chem. Co., 419 F.3d 355, 363 (5th Cir. 2005) (quoting Cadle Co. v. Wilson, 136 S.W.3d 345, 350 (Tex. App. 2004)); see also CTS Corp. v. Waldburger, 134 S. Ct. 2175, 2182-83 (2014). A statute of repose, therefore, typically operates as ‘a substantive definition of, rather than a procedural limitation on, rights.’ Trinity River Auth. v. URS Consultants, Inc., 889 S.W.2d 259, 261 (Tex. 1994) (quoting Lamb v. Wedgewood S. Corp., 302 S.E.2d 868, 872 (N.C. 1983)); see also Galbraith Eng’g Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 866 (Tex. 2009). […]”
“The statute of repose, therefore, is part of Barnett and DynCorp’s choice of a body of substantive law to govern their relationship. The text of section 16.070—which proscribes provisions ‘that purport[] to limit the time in which to bring suit’ or ‘establish[] a limitation period that is shorter than two years’—gives no indication that it bars provisions selecting foreign law that includes, as a substantive matter, a shorter-than-two-years statute of repose.”
The Court concluded that Barnett’s “[…] relied-upon state law neither voids this forum-selection clause nor renders its enforcement unreasonable under federal law. The district court was therefore right to apply Atlantic Marine’s modified forum non conveniens framework. As the district court recognized, Barnett’s choice of forum merits no weight in this analysis, and the private-interest factors ‘weigh entirely in favor of the preselected forum,’ Kuwait. See Atl. Marine, 134 S. Ct. at 582. […]”
Concluding also that the district court did not abuse its discretion by dismissing Barnett’s action, the Court affirmed district court’s decision.
Citation: Barnett v. DynCorp International, LLC, 831. F.3d 296 (5th Cir. 2016).
