Opinion
Case No. 2:99CV534C.
June 2, 2000.
ORDER
This action arose after Plaintiffs Wayne and Sherry Daley purchased a motor home manufactured by Defendant Gulf Stream Coach, Inc. The Daleys filed this action alleging that Gulf Stream breached the Warranty Agreement and Idaho Code § 48-901, et seq. This matter comes before the court on Gulf Stream's motion to dismiss for improper venue pursuant to Fed.R.Civ.P. 12(b)(3) or 28 U.S.C. § 1406 (a) or, in the alternative, to transfer venue pursuant to 28 U.S.C. § 1404 (a). The court conducted a hearing on Gulf Stream's motion on April 24, 2000. Having filly considered the arguments of counsel, the submissions of the parties and applicable legal authority, the court now enters the following order.
The Daleys' first cause of action, titled "Revocation of Acceptance," is brought against Gary's, not Gulf Stream. During oral argument, the parties appeared to agree that Gary's has never been served in this matter is apparently a defendant in name only.
Section 1406(a) and Fed.R.Civ.P. 12(b)(3) are essentially interchangeable, except insofar as a § 1406(a) motion gives the court the option to transfer in lieu of dismissal. See Moore's Federal Practice 3d § 111.04(4)(c) n, 44.
Background
On July 9, 1996, the Daleys, both residents of Utah, signed a purchase agreement and bought a new Gulf Stream Sun Voyager motor home from Defendant Gary's Freeway RV ("Gary's"), in Idaho. Gulf Stream, an Indiana corporation with its principal place of business in Indiana, is the manufacturer of the motor home. Gary's, the seller of the motor home, is an Idaho business.
On July 10, the day after signing the purchase agreement, the Daleys returned to Gary's to pick up the motor home. At that time, the Daleys were presented with a Warranty Agreement, which Mr. Daley (but not Mrs. Daley) signed. The Warranty Agreement contains an express warranty: "Your new recreational vehicle is warranted under normal use to be free of defects in material or workmanship for the construction of the recreational vehicle and all equipment and appliances installed by Gulf Stream Coach, Inc. to the original purchaser only." (Warranty Agreement, attached as Ex. A to Def.'s Mem.) The main focus of the parties is a forum selection clause contained in the Warranty Agreement:
EXCLUSIVE JURISDICTION FOR DECIDING ANY CLAIMS FOR DEFECTS OF ANY NATURE OR DAMAGES DUE FROM SUCH DEFECTS, DISPUTES OR LITIGATION CLAIMS, SHALL BE BROUGHT IN THE STATE OF MANUFACTURE AND THE APPLICABLE LAW SHALL BE THE LAW OF THE STATE OF MANUFACTURER [INDIANA].
(Id.) (original in caps) (underlying added)
The Daleys had ongoing mechanical problems with their new motor home and had to take the automobile back to Gary's for repair approximately sixteen times. The Daleys were not satisfied with Gary's repair and eventually contacted Gulf Stream, the manufacturer of the motor home.
Gulf Stream told the Daleys to bring the motor home to Indiana, which the Daleys did in April 1999. A week later, the repairs were still not completed, and the Daleys elected to return to Utah without the motor home. By May 28, 1999, when the motor home had still not been delivered to the Daleys, the Daleys notified Gulf Stream that the motor home was unacceptable and that they were revoking their acceptance at that time. The Daleys demanded that Gulf Stream pay damages. Gulf Stream opted instead to deliver the repaired motor home to the Daleys in Utah.
With the pending motion, Gulf Stream seeks dismissal or, in the alternative, a change of venue, based on the Indiana forum selection clause.
Analysis
A. Applicability of the Forum Selection Clause
Forum selection clauses are frequently classified as either mandatory or permissive. See Excell, Inc. v. Sterling Boiler Mechanical, Inc., 106 F.3d 318, 321 (10th Cir. 1997). Mandatory clauses contain "clear language showing that jurisdiction is appropriate only in the designated forum." Id. (citations omitted). Mandatory forum selection clauses contain language such as "exclusive" or "only." See Utah Pizza Serv., Inc. v. Heigel, 784 F. Supp. 835, 838 (D. Utah 1992). A permissive clause, on the other hand, authorizes jurisdiction in a designated forum, but does not prohibit litigation elsewhere. See id.
There is little doubt that the forum selection clause in this case is mandatory. The clause uses the word "exclusive" and requires that any action "shall be brought" in Indiana only. By the clear and unambiguous terms of the forum selection clause, suit may be broughtonly in Indiana, not in the District of Utah.
According to the Tenth Circuit, "the only way for [a litigant] to avoid the effect of [a mandatory forum selection clause] is to demonstrate [that the clause] is unfair or unreasonable." Excell, 106 F.3d at 321; Berrett v. Life Ins. Co. of the Southwest, 623 F. Supp. 946, 948 (D, Utah 1985). In order to show that the clause is invalid, the moving party must clearly demonstrate either that (1) the forum selection clause is invalid for fraud or overreaching or (2) forcing the moving party to proceed in the selected forum will be so gravely difficult and inconvenient that the clause, for all practical purposes, will deprive the moving party of his or her day in court.See Zions First Nat'l Bank v. Allen, 688 F. Supp. 1495, 1498 (D. Utah 1988), citing Bremen, 407 U.S. at 15, 18. The Daleys argue that both exceptions are applicable. 1. Daleys' Fraud Argument
The first issue, not discussed in any detail here, is whether federal or state law applies when evaluating the validity of a forum selection clause. In fact, the Tenth Circuit has not decided this issue. See, e.g., Excell, 106 F.3d at 320 (finding it unnecessary to decide whether federal common law or Colorado law applies since the court found no material discrepancies between the two bodies of law). The majority of courts (and, perhaps, all of the circuits that have addressed the issue) apply federal law (the Bremen rule) as opposed to state law to the question of the enforceability of a forum selection clause. See Moore's Federal Practice 3d, § 111.04(3)(c);Zions First Nat'l Bank, 688 F. Supp. at 1498 (applying federal common law without discussion); Zimmerman Metals, Inc. v. United Engineers Constructors, Inc., 720 F. Supp. 859 (D. Colo. 1989) (applying federal common law without discussion). The issue is of little consequence, however, since Utah law appears to be the same as federal common law. See, e.g., Prows v. Pinpoint Retail Sys., 868 P.2d 809 (Utah 1994) (citing Bremen).
The Daleys make two arguments that appear relevant to the fraud exception. First, the Daleys argue that they did not read the agreement and were unaware of the forum selection clause. Under Indiana law (the law to be applied), however, "a person is presumed to understand the documents which he signs and cannot be released from the terms of a contract due to his failure to read it." Clanton v. United States, 686 N.E.2d 896 (Ind.App. 1997). The forum selection clause is written on the front of a short warranty contract and there is nothing in the record to indicate that Gulf Stream concealed this information or otherwise acted fraudulently.
Second, the Daleys argue that they were required to agree to the forum selection clause in order to complete the purchase of the motor home because the Warranty Agreement was not presented to them until a day after the purchase agreement had been signed. But the facts before the court indicate otherwise. The Daleys were under no obligation to purchase the motor home on June 9 and it was their choice to sign the Warranty Agreement on June 10. In addition, the Daleys admit that they had no idea the forum selection clause was in the Warranty Agreement. They were, therefore, in no worse position had they signed the agreement on July 9.
This conclusion also disposes of the Daleys' "material alteration" argument. The Daleys argued against enforcement because the forum selection clause is an unenforceable addition to a preexisting contract and given without consideration. See M.K.C. Equip. Co., Inc. v. M.A.I.L. Code, Inc., 843 F. Supp. 679 (D. Kansas 1994) (holding unenforceable a forum selection clause added to a preexisting contract). The court rejects this argument since Gulf Stream was not a party to any contract before the Warranty Agreement was signed by Mr. Daley. Indeed, the only contract between Gulf Stream and the Daleys is the Warranty Agreement. Since this agreement is the first and only agreement between these two parties, the clause is not a material alteration of any original agreement.
2. Daleys' Inability to Litigate Argument
According to the Daleys', "[They] cannot afford to litigate this matter in Indiana." (Pls.' Opp'n Br. at 4.) Mr. Daley states in his affidavit:
I work for wages at the hourly rate of $17.00, and my employment is seasonal. I work sporadically during the winter months, and spring, summer and fall are busy times for my job. My wife . . . earn[s] $12.76 per hour. We cannot afford to litigate this matter in Indiana, and we only made the trip to Indiana because it was a last resort to try and resolve this matter, with a promise on the part of Gulf Stream to reimburse us for our out-of-pocket expenses.
(Aff. of Wayne S. Daley at 4-5.)
The Daley's assertion that they cannot afford to litigate in Indiana is unsupported by any evidence indicating that it would be more expensive to bring suit in Indiana instead of Utah. The Daleys' conclusory statements are insufficient, and the Daleys have not shown an inability to litigate this matter in Indiana. Accord Bremen, 407 U.S. at 12-19 (Absent some evidence submitted by the party opposing enforcement of the clause to establish fraud, undue influence, overweening bargaining power, or such serious inconvenience in litigating in the selected forum, the provision should be respected as the expressed intent of the parties.).
In summary, then, the Daleys have not demonstrated any exception to enforcement of the forum selection clause contained in the Warranty Agreement. The clause is valid.
B. Effect of the Forum Selection Clause
The effect of an exclusive forum selection clause when suit is brought in a different, but otherwise proper, forum depends, in part, on the whether the issue is raised in the context of a motion to transfer the action to the district provided for in the clause or whether the defendant has moved to dismiss. See Moore's Federal Practice 3d., § 110.01(4)(b) at 110-19. When the issue is raised in the context of a motion to transfer, "the district court must consider the existence of the clause together with the other convenience related factors enumerated in the transfer statutes." Id. There is, however, a split in the circuits as to whether dismissal is proper when suit is brought in a forum not identified in the forum selection clause. See id. (listing cases). As noted above, Gulf Stream has brought a motion to dismiss or, in the alternative, a motion to transfer venue.
Although the Tenth Circuit has apparently not ruled on this issue, some district courts in this circuit have held that transfer under 28 U.S.C. § 1404 (a), not dismissal under 28 U.S.C. § 1406 (a), is the appropriate remedy when a forum selection clause applies. See REO Sales, Inc. v. Prudential Ins. Co. of Am., 925 F. Supp. 1491, 1495-96 (D. Colo. 1996) ("It is abundantly clear that transfer is the appropriate remedy when a forum selection clause is applicable.");Furry v. First Nat'l Monetary Corp., 602 F. Supp. 6, 10 (W.D. Okla. 1984) (finding the forum selection clause enforceable and concluding that "the interests of justice would be best served by a transfer rather than a dismissal for improper venue under Fed.R.Civ.P. 12 (b)(3)"); Janko v. Outboard Marine Corp., 605 F. Supp. 51, 53 (W.D. Okla. 1985) (same); see also Moore's Federal Practice 3d, § 111.04(4)(c) at 111-51 ("[A] motion to dismiss is not the appropriate vehicle by which to give effect to the clause when the forum selection clause designates another federal court, or either a state or federal court in a particular state, as the exclusive forums. In those circumstances, the appropriate motion is one for transfer pursuant to § 1404(a)."); but see Berrett, 623 F. Supp. at 949 (dismissing claims without prejudice to refiling in the designated forum district); Utah Pizza, 784 F. Supp. at 838 (indicating that a forum selection clause is jurisdictional in nature).
The confusion among courts as to whether a motion to transfer or a motion to dismiss is the proper motion stems from the Supreme Court's decision in Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991), in which the Supreme Court found a forum selection clause dispositive and reversed the Ninth Circuit. See id at 589 597.Carnival Cruise Lines can reasonably be viewed as art implicit determination by the Supreme Court that dismissal is appropriate since, on remand, the Ninth Circuit affirmed the district court's dismissal of the action. See Shute v. Carnival Cruise, 934 F.2d 1091, 1091 (9th Cir. 1991). The court recognizes that both Furry and Janko are of limited precedential authority since they pre-date the Supreme Court's Carnival Cruise Lines decision.
The court agrees with the approach taken in REO Sales, Inc., and therefore considers the valid forum selection clause as part of Gulf Stream's motion to transfer. 28 U.S.C. § 1404 (a) provides:
For the convenience of the parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.28 U.S.C. § 1404 (a). The first issue in such a motion is whether the case could have initially been brought in Indiana. See Chrysler Credit Corp. v. County Chrysler, Inc., 928 F.2d 1509, 1515 (10th Cir. 1991) (a court cannot transfer a suit to a court where personal jurisdiction does not exist over the defendants originally). Based on the pleadings, the federal court in Indiana would have diversity jurisdiction, and this case could have been brought in Indiana.
According to the Complaint, both plaintiffs are, and have been, citizens of Utah; Gulf Stream is a Indiana corporation. (See Compl. at 2.)
When considering a motion to transfer venue under § 1404(a), the court begins with an understanding that "[U]nless the balance is strongly in favor of the movant the plaintiff's choice of forum should rarely be disturbed." William A. Smith Contracting Co. v. Travelers Indem. Co., 467 F, 2d 662, 664 (10th Cir. 1972). In the context of a mandatory forum selection clause, however, there is the additional understanding that "litigation may not be conducted outside the designated forum without meeting a `heavy burden of proof' of unfairness or inconvenience." Id.; see also Stewart Org. v. Ricoh Corp., 487 U.S. 22, 29 (1988) ("The presence of a forum selection clause such as the pates entered into in this case will be a significant factor that figures centrally in the district court's [§ 1404(a)] calculus."); Utah Pizza 784 F. Supp. at 837; In re Ricoh Corp., 870 F.2d 570, 573 (11th Cir. 1989) ("the venue mandated by a choice of forum clause rarely will be outweighed by other 1404(a) factors").
It is clear that federal courts have discretion whether to transfer venue under 1404(a). See Utah Pizza, 784 F. Supp. at 840. Accordingly, "each motion should be considered `according to an individualized, case by case consideration of convenience and fairness.'" Id. (quoting Stewart Org., 487 U.S. at 29).
According to the Daleys, venue should not be transferred because (1) Gulf Stream had superior bargaining power and position; (2) the Daleys were presented with the Warranty Agreement only after they had purchased the motor home; (3) the Daleys are not sophisticated buyers; (4) the Daleys did not read the document and did not know about the clause; (5) the Daleys' selection of Utah should be afforded great weight; (6) most of the witnesses who know about the transaction reside in Utah or close-by in Idaho; (7) Gulf Stream is better able to litigate in a foreign state than are the Daleys; and (8) the motor home in question is presently located in Utah.
Gulf Stream contends that the following factors show that venue should be transferred: (1) the Daleys have not demonstrated an inability to litigate in Indiana; (2) the law of Indiana will apply and the federal court sitting in Indiana will have greater familiarity with that law; (3) all of the witnesses who know about the manufacture of the coach and its condition upon shipment from Gulf Stream are in Indiana; (4) an inventory of the condition of the coach was made when the Daleys brought it back to Indiana and all the repairs were made in Indiana; (5) all of the witnesses involved in the repairs of the coach are in Indiana; (6) none of the events which are the subject of this action occurred in Utah.
Mr. Daley's claim alleging breach of the Warranty Agreement should have been brought in Indiana since Mr. Daley signed the Warranty Agreement and agreed to its forum selection clause. Transferring the rest of the claims, including those brought by Mrs. Daley, would avoid any unnecessary division of the lawsuit. In addition, given the mandatory forum selection clause, a fair balancing of the various factors favors Gulf Stream's position. See In re Ricoh Corp., 870 F.2d at 573 ("the venue mandated by a choice of forum clause rarely will be outweighed by other 1404(a) factors").
Pursuant to 28 U.S.C. § 1404 (a), therefore, the court orders that this case be transferred to the United States District Court for the Northern District of Indiana.