Opinion
No. FST CV 08 5009331 S
June 1, 2009
MEMORANDUM OF DECISION RE MOTION TO DISMISS (#103.00)
The issue before the court is whether a forum selection clause requires dismissal of the case. For the following reasons, the defendants' motion to dismiss all nine counts of the plaintiffs' complaint is granted.
The plaintiffs, BioCapital, LLC ("BioCapital"), Gary Fairhead (Fairhead) and BioSystem Solutions, Inc. ("BioSystem"), commenced this action by service of process on the defendants, Peter Scharfglass (Scharfglass), Jeffrey Gitt, Brian Gitt, Mitch Gooze (Gooze) and BioSystem. The facts, as alleged by the complaint, are as follows. BioSystem is a Delaware corporation whose executive offices and principal place of business are located in Westport, Connecticut. The remaining defendants, Scharfglass, Jeffrey Gitt, Brian Gitt and Gooze, were all shareholders, officers and directors of BioSystem during the periods of time relevant to this cause of action. During September of 2006, BioSystem solicited subscriptions for the purchase of its series A preferred stock and prepared a subscription agreement for potential investors. Within that subscription agreement was language which specified that if BioSystem had not closed on the subscription agreement by October 1, 2006, it would return the money to the investor. In August of 2006, both Fairhead and BioCapital allegedly executed a subscription agreement and each provided $200,000 to BioSystem. BioSystem, however, failed to accept and close on either subscription agreement before the October 1, 2006 deadline. The plaintiffs further contend that BioSystem did not return the $200,000 to either Fairhead or BioCapital, despite their request to do so.
BioSystem is named as a plaintiff derivatively.
In a nine-count complaint, the plaintiffs allege a breach of subscription agreement, conversion and breach of fiduciary duty. The defendants have collectively filed a motion to dismiss asserting that Connecticut is an improper venue for this action pursuant to a mandatory forum selection clause contained in its shareholders agreement and incorporated by reference in its series A preferred stock subscription agreement. The plaintiffs in turn contend that the claims of breach of fiduciary duties are not subject to the forum selection clause because they are not "arising out of or in connection with" the contract. Furthermore, the plaintiffs also contest the enforceability of the contract itself and claim that enforcement of the forum selection clause would create an overwhelming hardship.
Legal Discussion
"A motion to dismiss properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court. A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction." (Internal quotation marks omitted.) Caruso v. Bridgeport, 285 Conn. 618, 627, 941 A.2d 266 (2008). "The grounds which may be asserted in [a motion to dismiss] are: (1) lack of jurisdiction over the subject matter; (2) lack of jurisdiction over the person; (3) improper venue; (4) insufficiency of process; and (5) insufficiency of service of process." Zizka v. Water Pollution Control Authority, 195 Conn. 682, 687, 490 A.2d 509 (1985), citing Practice Book § 10-31. "When a . . . court decides a jurisdictional question raised by a pretrial motion to dismiss, it must consider the allegations of the complaint in their most favorable light . . . In this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader." (Internal quotation marks omitted.) Cogswell v. American Transit Ins. Co., 282 Conn. 505, 516, 923 A.2d 638 (2007).
I. Enforceability of the Forum Selection Clause
"Historically, courts viewed forum selection clauses as improper attempts by the parties to oust jurisdiction from a court that otherwise had the authority to hear an action . . . Courts refused to enforce, as contrary to public policy, forum selection clauses that attempted to vest exclusive jurisdiction in a specific forum over controversies that would arise in the future," (Citation omitted.) Reiner, Reiner Bendett, P.C. v. Cadle Co., 278 Conn. 92, 100-01, 897 A.2d 58 (2006). In more recent years, however, our courts have concluded that forum selection clauses are enforceable absent a showing of unreasonableness under the totality of the circumstances of the agreement. Id., 101. "The threshold question is whether that court should have exercised its jurisdiction to do more than give effect to the legitimate expectations of the parties, manifested in their freely negotiated agreement, by specifically enforcing the forum clause." (Internal quotation marks omitted.) Id., 101-02.
In Connecticut, a two-step analysis for determining whether a forum selection clause should be enforced has been developed by the trial courts. Initially, the court must look to contract formation itself to ascertain whether the clause was the product of fraud or deception. Secondly, the court must determine whether the inconvenience resulting to the moving party would be so great that enforcement of the forum selection clause would create undo hardship. Total Telecommunications, Inc. v. Target Telecommunications, Inc., Superior Court, judicial district of Ansonia-Milford, Docket No. CV 96 053516 (March 11, 1997, Corradino, J.); see also IDV North America, Inc. v. Saronno, Superior Court, judicial district of Hartford, Docket No. CV 99 058059 (September 9, 1999, Teller, J.). Subsequent courts have expanded this analysis to the broader question of whether an enforceable contract existed between the parties. Darer v. Fresh Baked Studios, Inc., Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 00 0181202 (December 27, 2001, D'Andrea, J.). Implicit in this understanding is the logical proposition that without an enforceable contract in the first instance, a forum selection clause therein has no effect.
"The rules governing contract formation are well settled. To form a valid binding contract in Connecticut, there must be a mutual understanding of the terms that are definite and certain between the parties . . . To constitute an offer and acceptance sufficient to create an enforceable contract, each must be found to have been based on an identical understanding by the parties . . . If the minds of the parties have not truly met, no enforceable contract exists. [A]n agreement must be definite and certain as to its terms and requirements . . . So long as any essential matters are left open for further consideration, the contract is not complete . . . It is true . . . that in order to form a contract, generally there must be a bargain in which there is a manifestation of mutual assent to the exchange between two or more parties . . ." (Citation omitted; internal quotation marks omitted.) Wasniewski v. Quick Reilly, Inc., 105 Conn.App. 379, 389, 940 A.2d 811, cert. granted on other grounds, 287 Conn. 913, 950 A.2d 1291 (2008).
Upon examination of the plaintiffs' complaint, the plaintiffs allege that "Biosystem did not close on either [s]ubscription [a]greement before October 1, 2006." The defendants, however, have submitted a signed and sworn affidavit from Scharfglass, the chief executive officer of Biosystem, in which he attests that, "Biosystem closed the investment under the [s]ubscription [a]greements and issued Fairhead 71,942 shares of [s]eries A [p]referred [s]tock and BioCapital, LLC 71,942 shares of [s]eries A [p]referred [s]tock. Both Fairhead and BioCapital knew of the occurrence of the closing and accepted the terms of the investment, the closing of the investment, and the issuance of the [s]eries A [p]referred [s]tock." When an affidavit is submitted by a defendant, it becomes "incumbent on the plaintiff to dispute the facts contained therein." Weihing v. Dodsworth, 100 Conn.App. 29, 39, 917 A.2d 53 (2007). The plaintiffs have failed to offer any evidence to contradict or to dispute the facts set forth in the defendant Scharfglass' affidavit. As such, the record reflects the existence of a valid, enforceable contract.
II. Forum Non Conveniens
The plaintiffs suggest that "[e]ven where a claim is subject to a Delaware forum selection clause . . . [c]ourt[s] may decline to hear a case . . . if considerations of convenience, expense, and the interests of justice dictate that litigation in [Delaware] would be unduly inconvenient, expensive or otherwise inappropriate." In support of this proposition, the plaintiffs cite Aveta, Inc. v. Olivieri, 2008 Del.Super. LEXIS 439 (Del.Super. July 28, 2008) and Chrysler First Business Credit Corp. v. 1500 Locus Ltd. Partnership, 669 A.2d 104 (Del. 1995), both of which perform Delaware's forum non conveniens analysis. "[T]he common law doctrine of forum non conveniens is an exception to the general rule that a court must hear and decide cases over which it has jurisdiction by statute or constitution, and recognizes the discretion of a court, in some few instances, where jurisdiction and venue are proper . . . to dismiss a suit because the court has determined that another forum is better suited to decide the issues involved." (Citation omitted.) Sabino v. Ruffolo, 19 Conn.App. 402, 405-06, 562 A.2d 1134 (1989). "[O]nce a mandatory choice of forum clause is deemed valid, the burden shifts to the plaintiff[s] to demonstrate exceptional facts explaining why [they] should be relieved from [their] contractual duty." (Internal quotation marks omitted.) Total Telecommunications, Inc. v. Target Telecommunications, Inc., supra, Superior Court, Docket No. CV 96 053516. The plaintiffs claim that Connecticut should be the forum because of "the relative ease of access of proof" and "all other practical considerations that would make the trial easy, expeditious, and inexpensive." Courts have been clear, however, that the "[m]ere inconvenience and expense of travel are not, standing alone, adequate reasons to disturb the operation of a forum selection clause . . . It has been repeatedly held that the inconvenience necessary to persuade a court to decline to enforce a forum selection clause that has been found to be valid must be serious inconvenience, such inconvenience as would effectively deprive a plaintiff . . . of a forum in which to pursue its claim against [a defendant]." (Citations omitted; internal quotation marks omitted.) Id. In the present case, the plaintiffs essentially admit that litigation could proceed in Delaware, claiming only that Delaware is a weaker forum. The plaintiffs do not assert that they would be unable to bring forth these causes of action in Delaware. Accordingly, the court finds that the plaintiffs have failed to meet their burden.
III. Breach of Fiduciary Duty Claims
The plaintiffs additionally contend that because six of the nine counts in the complaint allege a breach of fiduciary duties against the defendants, they are independent of the agreement. The question therefore becomes whether a claim of breach of fiduciary duty is outside the terms of an agreement such that it is not subject to a forum selection clause.
The plaintiffs contend that breach of a fiduciary duty, as a tort based claim, can not be governed by a forum selection agreement within a written contract. Forum selection clauses, however, are "equally applicable to contractual and tort causes of action." Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 514 (9th Cir. 1988). The resolution of whether a forum selection clause applies to a particular tort claim depends upon the intention of the parties reflected in the wording of the clause and the facts of each individual case. Id.; Terra International, Inc. v. Mississippi Chemical Corp., 119 F.3d 688, 693 (8th Cir. 1997), cert. denied, 522 U.S. 1029, 118 S.Ct. 629, 139 L.Ed.2d 609 (1997). Many courts have implemented a three-part analysis to resolve the applicability of a contractual forum selection clause to a tort based claim. In such instances the courts will look to whether the tort claim depends on the existence of a contractual relationship; whether resolution of the claim depends on interpretation of the contract; and whether the facts of the contract claim parallel the tort based claim. Terra International, Inc. v. Mississippi Chemical Corp., supra, 119 F.3d 694.
In the case at bar, the "relevant agreements" to which the defendant refers are its stockholders agreement and series A preferred stock subscription agreement. Section 4.10 of the BioSystem Solutions, Inc. stockholders agreement, dated September 26, 2006, provides in relevant part:
(a) Each of the parties hereto hereby consents to the exclusive jurisdiction of all state and federal courts location in Delaware, as well as to the jurisdiction of all courts to which an appeal may be taken from such courts, for the purpose of any suit, action or other proceeding arising out of, or in connection with, this agreement or any of the transactions contemplated hereby. Each party hereby expressly waives any and all rights to bring any suit, action or other proceeding in or before any court or tribunal other than the courts described above and covenants that it shall not seek in any manner to resolve any dispute other than as set forth in this section 6.10 or to challenge or set aside any decision, award or judgment obtained in accordance with the provisions hereof. (b) Each of the parties hereto hereby expressly waives any and all objections it may have to venue, including, without limitation, the inconvenience of such forum, in any of such courts. In addition, each of the parties consents to the service of process by personal service or any manner in which notices may be delivered hereunder in accordance with section 4.8 of this agreement.
Paragraph IV of the BioSystem Solutions, Inc. series A [preferred] stock subscription agreement provides in relevant part: "The provisions set forth in Sections 4.6, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.15 and 4.16 of the [s]tockholders [a]greement shall be incorporated by reference into this subscription agreement and apply in all respects to the terms and provisions of this subscription agreement and the issuance of the [s]eries A [p]referred [s]tock."
Initially, it should be noted that no distinction is articulated in the present agreement as to the types of actions to which the forum selection clause applies. In fact, the wording reflects an understanding that all disputes between the parties must be resolved in accordance with the provisions of the clause. See Root v. GERS, United States District Court, Docket No. 8:01CV326 (D. Nebraska April 3, 2002) (forum selection clause may not be avoided by suggesting that claim of breach of fiduciary duty is outside terms of the agreement which specifies all claims arising under or related to the contract); Ronar, Inc. v. Wallace, 649 F.Sup. 310, 314 (S.D.N.Y. 1986) (the terms used to confer jurisdiction were simple and broad and thus did not limit claims arising under the agreement which made no distinction between contractual and non-contractual claims).
Additionally, the facts necessary to resolve the breach of fiduciary claims overlap significantly, if not entirely, with the remaining counts. See Bennett v. Hosting.com, Inc., United States District Court, Docket No. C-08-3792 SC (N.D.Cal. November 18, 2008) (contract related tort claims involving the same operative facts as a parallel claim for breach of contract should be heard in same forum selected by the contracting parties); McAdams v. Massachusetts Mutual Life Ins. Co., United States District Court, Docket No. 99-30284 (Mass. May 15, 2002) (breach of fiduciary claim involves the same operative facts as do the parallel claims for breach of contract).
Moreover, where the basic source of the duty owed by a defendant to a plaintiff is explicitly derived from the contractual relationship structured by the underlying agreement, the courts have generally found that a negotiated forum selection clause is applicable to all anticipated claims absent a showing of unenforceability of the contract itself. See International Equity Investments, Inc. v. Opportunity Equity Partners, Ltd., 475 F.Sup.2d 450, 454 (S.D.N.Y.), rev'd in part on other grounds, 475 F.Sup.2d 456 (2007) (claim for aiding and abetting a breach of fiduciary duty arose out of the operating agreement establishing a limited partnership); Oak Systems, Inc. v. Francotyp-Postalia, Inc., United States District Court, Docket No. 01-2794 (E.D.Pa. February 5, 2002) (when tort claims have their basis in the contractual business relationship between a plaintiff and a defendant the forum selection clause covers all actions arising directly or indirectly from that business relationship); Coastal Steel Corp. v. Tilghman Wheelabrator, Ltd., 709 F.2d 190, 203 (3d Cir.), cert. denied, 464 U.S. 938, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983) (where the tort claim depends upon the existence of a contractual relationship between the parties, such claims are covered by a contractually based forum selection clause). "[A]llowing a party to avoid a forum selection clause by pleading related . . . tort claims would violate the public policy supporting forum selection clauses. Pleading alternate non-contractual theories is not alone enough to avoid a forum selection clause if the claims asserted arise out of the contractual relation and implicate the contract's terms." (Citations omitted; internal quotation marks omitted.); Bowmont Corp. v. Krombacher Brauerei Bernhard GMBH Co., United States District Court, Docket No. 3:02 CV 1969 (D.Conn. September 8, 2003).
In this instance, the entirety of the plaintiffs' claims regarding breach of fiduciary duties are premised on their status as shareholders pursuant to the stockholders and subscription agreements. Furthermore, in instances, such as the present case, where the plaintiffs are the contracting parties, the courts have refused to limit the applicability of a forum selection clause exclusively to actions specified in the agreement when the agreement offered no such limitation. As contracting parties the plaintiffs may be deemed to have anticipated that by negotiating the conditions of the agreement to include terms that "it shall not seek in any manner to resolve any dispute other than as set forth in this section," they would be required to litigate the fiduciary claims in accordance with the forum clause. See Marano Enters of Kansas v. Z-Teca Rests., L.P., 254 F.3d 753, 757 (8th Cir. 2001) (shareholder plaintiff who was a party to the agreement was so closely related to the dispute arising out of the agreement as to be bound by the forum selection clause.); Vessel Systems, Inc. v. Sambucks, LLC, United States District Court, Docket No. 05-CV-1028-LRR (N.D. Iowa March 6, 2007) (breach of fiduciary claim not exempt from forum selection clause as parties should have anticipated litigation of non-contractual issues in selected venue); Abbott Laboratories v. Takeda Pharmaceutical Co., Ltd., 476 F.3d 421, 424-25 (7th Cir. 2007) (negotiating party to a contract is bound by the risk they undertake in agreeing to forum selection clause).
The plaintiffs rely primarily on Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002), cert. denied 538 U.S. 1032, 1235 S.Ct. 2076, 155 L.Ed.2d 1061 (2003), in support of their proposition that a breach of fiduciary duty is independent of the contract. In Parfi, the court held that a breach of fiduciary duty claim, limited to the circumstances of that case, was not "in connection" with the underwriting agreement. Id., 156. A narrow interpretation of Parfi seems especially prudent, however, in light of a previous Delaware Supreme Court holding that breach of fiduciary duty claims "are all subsumed under the rubric of the Agreement's forum selection clause for any claim `arising out of' and those that are `in connection with' the Agreement or transactions `contemplated by' or `related to' that [a]greement . . ." Elf Atochem North America, Inc. v. Jaffari, 727 A.2d 286, 294 (Del. 1999). Furthermore, Parfi involved the interpretation of an arbitration clause and the competence of arbitrators who, the court reasoned, were not judges or even lawyers experienced in determination of tort claims. Thus, the holding in Parfi, alone, which explicitly restricted its ruling to the unique circumstances of that case, does not support the plaintiffs' argument advocating general application.
"When `arising out of,' `relating to,' or similar words appear in a forum selection clause, such language is regularly construed to encompass . . . tort claims associated with the underlying contract." Credit Suisse Securities, (USA) LLC v. Hilliard, 469 F.Sup.2d 103 (S.D.N.Y. 2007); see Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1361 (2d Cir. 1993) (rejecting the contention that only allegations of contractual violations fall within the scope of forum selection clauses). In Abbott Laboratories v. Takeda Pharmaceutical Co., Ltd., supra, 476 F.3d 424-25, the court added to this analysis by ruling that a forum selection clause does not simply apply to claims for the contract itself but rather to all disputes that arise out of or concern the contract which would include all breach of contract claims or disagreements. Similarly, in DiChiara v. Ample Faith Investments, Ltd., United States District Court, Docket No. 06 Civ. 3838 (DLC) (S.D.N.Y. November 29, 2006) the court reasoned that, the forum selection clause "covers all actions that [pertain to any of the] obligations `arising under or relating to' the Stockholders Agreement . . ." [The plaintiff's] claim for breach of fiduciary duty implicates one such obligation. Indeed, each of [the plaintiff's] claims `relates to' the Stockholders Agreement, since those claims depend on rights and duties that must be analyzed by reference to the contractual relationship . . . One could not, after all, evaluate [the plaintiff's] claims of conversion and unjust enrichment without examining his claimed joinder in the Stockholders Agreement, the method and timing of the issuance of shares in the company, and the actions of [the corporation's] board of directors." (Citations omitted; internal quotation marks omitted.) DiChiara v. Ample Faith Investments, Ltd, supra, Docket No. 06 Civ. 3838 (DLC).
In the instant case, it is evident that the scope of the forum selection clause extends to tort based claims as well as strictly contractual ones. Accordingly, the court holds that the breach of fiduciary duty claims alleged in the plaintiffs' complaint are subject to the forum selection clause contained in the stockholders agreement.
Finally, the defendants request that the court award them attorneys fees. The defendants contend that, in accordance with the terms of the subscription agreement, the plaintiffs must indemnify them for expenses, including attorneys fees, which it incurs as a result of a shareholder's failure to perform. This finding, however, would require the court to interpret a contract which, for the aforementioned reasons, it declines to exercise jurisdiction over. The court, therefore, declines to exercise jurisdiction over this claim as well.
Conclusion
For the above reasons, the court finds that the forum selection clause contained in the present agreement is enforceable and applicable to all nine counts of the plaintiffs' complaint. Accordingly, the defendants' motion to dismiss is granted.