Opinion
No. 1:02cv96-C
July 31, 2002
MEMORANDUM AND RECOMMENDATION
THIS MATTER is before the court upon defendants' Motion to Dismiss, to which a response was filed on July 17, 2002. Although defendants have interposed a number of reasons for dismissal, the central reason is a forum-selection clause in the underlying agreement, in which the parties agreed to litigate any disputes arising from the agreement in a Nevada state court. Plaintiffs state in their brief, as follows:
Plaintiffs argue in their brief that the original joint venture agreement, which contained the forum-selection clause, was later modified. The relevant terms of the "modified agreement" are not explained by plaintiffs in their brief. In reviewing the complaint at paragraphs 33, et seq., the alleged modifications of the written agreement appear to be oral and limited to the subject of how profits would be split. Plaintiffs also aver in those paragraphs that it was implied that plaintiffs would perform a great deal of the work in brokering aircraft in North Carolina. No mention is made that the venue-selection clause of the agreement was modified.
Plaintiffs do not in any way dispute the existence of the "forum selection clause" language contained in Section Fourteen of the original Joint Venture Agreement. . . . However, the Plaintiffs do dispute what that language means under the facts and circumstances of this case.
Plaintiffs' Memorandum, at 2. Plaintiffs go on to argue that they executed the agreement in North Carolina; Chapter 22B-3 of the North Carolina General Statutes bans forum-selection clauses that choose any state other than North Carolina as the forum; this is otherwise a proper venue to hear the case; they have stated a claim, regardless of the forum-selection clause; the court has personal jurisdiction over the defendants; the fiduciary-shield doctrine has no application to this case; and plaintiff Joe Duncan has standing to file this action against defendants. In addition to such arguments, plaintiffs have submitted the affidavit of Joe Duncan and numerous exhibits constituting materials outside the record. This court can find no reason to convert the Motion to Dismiss into a motion for summary judgment and has disregarded those submissions.
Plaintiff cites a Ninth Circuit decision for the proposition that this court must convert defendants' motion into one for summary judgment where subject-matter jurisdiction is raised in a motion to dismiss. The law in the Fourth Circuit is inapposite to the law cited by plaintiffs:
When a defendant challenges subject matter jurisdiction pursuant to Rule 12(b)(1), "the district court is to regard the pleadings as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment." The district court should grant the Rule 12(b)(1) motion to dismiss "only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law."
Evans v. B.F. Perkins Co., a Div. of Standex Intern. Corp., 166 F.3d 642, 647 (4th Cir. 1999).
In order to reach the bulk of the issues, the undersigned must first consider the agreement of the parties to litigate this matter in another forum. Plaintiffs' reliance upon Chapter 22B-3 of the North Carolina General Statutes to defeat the forum-selection clause is misplaced, because disposition of defendants' Motion to Dismiss based upon a forum-selection clause is governed by the well-developed litany of considerations used when motions to transfer are made under 28, United States Code, Section 1404(a). In accordance with well-settled case law in the federal courts of North Carolina, the applicability and impact of Chapter 22B-3, banning forum-selection clauses, are considered in the balance, but "are not given dispositive weight." Cable-La, Inc. v. Williams Communications, Inc., 104 F. Supp.2d 569 (M.D.N.C. 1999).
This court's first concern is the impact of Chapter 22B-3 of the North Carolina General Statutes, which makes void any provision in a contract for forum selection where that forum is a state other than North Carolina. Although that statute will impact the court's analysis below, it is well-settled that where a federal court's jurisdiction is founded upon diversity of citizenship, 28, United States Code, Section 1332, the law of the forum state applies to issues of substantive law, Erie R.R. v. Thompkins, 304 U.S. 64, 78 (1938); but federal law governs on procedural issues, Hanna v. Plumer, 380 U.S. 460, 465 (1965). Forum selection is a procedural issue, governed in this case by Section 1404(a).
The prevailing law on forum-selection clauses in the Fourth Circuit is, as follows:
A forum selection clause is generally binding and will be enforced unless enforcement is "'unreasonable' under the circumstances." See The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). A choice of forum provision may be found unreasonable if (1) its formation was induced by fraud or overreaching; (2) the complaining party "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 may deprive the plaintiff of a remedy; or (4) its enforcement would contravene a strong public policy of the forum state. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991).
National Enterprises, Inc. v. South Carolina Ins. Co., 1998 WL 756893, **2 (4th Cir. 1998).
Reading plaintiffs' state-law argument in the context of federal decisions, their primary contention is that the venue-selection clause is unreasonable because its enforcement would contravene the strong public policy of the forum state, as found in Chapter 22B-3 of the North Carolina General Statutes. Similar arguments have been addressed by other federal courts in North Carolina. In Newman ex rel. Wallace v. First Atlantic Resources Corp., 170 F. Supp.2d 585 (M.D.N.C. 2001), the district court held, as follows:
Plaintiff does not claim that the forum-selection clause was the product of fraud or over-reaching, nor does she allege that Florida law will deprive her of a remedy. Instead, Plaintiff contends that enforcement of the forum-selection clause would be against North Carolina public policy and would effectively deprive her of her day in court.
Enacted in 1993, NCGS § 22B-3 provides that "any provision in a contract entered into in North Carolina that requires the prosecution of any action or the arbitration of any dispute that arises from the contract to be instituted or heard in another state is against public policy and is void and unenforceable." Although the North Carolina Supreme Court has not yet had occasion to interpret this statute, prior to the enactment of NCGS § 22B-3, the North Carolina Supreme Court had held that forum-selection clauses mandating resolution of disputes outside of North Carolina were valid. Perkins v. CCH Computax, Inc., 333 N.C. 140, 141, 423 S.E.2d 780, 781 (1992).
* * *
NCGS § 22B-3 would apply to the forum-selection provisions in question. Enactment of a statute is a clear indication of North Carolina's strong public policy against forum-selection clauses requiring out-of-state resolution of disputes. Plaintiff's dispute with Defendants arises from a contract entered into in North Carolina and requires arbitration in Miami-Dade County, Florida, and application of Florida law. The clear language of the statute would nullify the forum-selection clauses in the parties' contract.
Id., at 591-92. While the Newman court found that the statute would nullify the forum-selection clause, such finding was not the basis of decision, inasmuch as that court later determined that the Supremacy Clause of the United States Constitution trumped the state statute because the state law conflicted with the intent of the Federal Arbitration Act. Id.
In an earlier decision more directly on point, however, the Middle District considered the impact of the state statute on a Section 1404 motion to transfer (as an alternative to dismissal) that did not involve arbitration. In Cable-La, Inc. v. Williams Communications, supra, the same district judge as in Newman reasoned, as follows:
In the context of a motion to transfer under Section 1404(a), the Supreme Court has held that the validity of a forum selection clause is determined with reference to federal law, Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 32 (1988), and that such clauses are prima facie valid. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).
* * *
A court cannot observe Stewart's pronouncement that state public policies disfavoring forum-selection clauses do not invalidate such clauses, while at the same time holding that such a policy renders a clause at issue per se unreasonable and thus unenforceable. The direction issuing from Stewart is that a court integrate such a policy into the multi-factor analysis put in place by Congress to govern Section 1404(a) transfer motions, just as it must integrate the presence of the clause itself into the analysis (as a "central" factor). Stewart, 487 U.S. at 33 (Kennedy, J., concurring); see also Shaw Group, Inc. v. Natkin Co., 907 F. Supp. 201, 204 (M.D.La. 1995) (rejecting claim that Louisiana statutory provision similar to N.C.Gen.Stat. § 22B-3 renders forum-selection clause unreasonable and unenforceable, in light of Stewart). For this reason, the court will incorporate the public policy concerns of North Carolina, as well as those of Oklahoma, into the multi-factor analysis discussed below, but will not give such concerns dispositive weight.
Id., at 575-76 (parallel citations omitted). Cable-La appears to be wholly consistent with the decision of the Court of Appeals for the Fourth Circuit in Brock v. Entre Computer Ctrs., Inc., 933 F.2d 1253 (4th Cir. 1991), wherein the appellate court held, as follows:
Stewart . . . rejected a focus on state law and directed courts faced with § 1404(a) motions for change of venue to conduct a proper analysis under that section.
Id., at 1258.
The test used in the Middle District is set forth in Plant Genetic Sys., N.V. v. Ciba Seeds, 933 F. Supp. 519 (M.D.N.C. 1996), and is identical to the test developed in this district in Jim Crockett Promotions, Inc. v. Action Media Group, Inc., 751 F. Supp. 93 (W.D.N.C. 1990). In that case, this district established a litany of considerations applicable to any motion to transfer.
In order to determine whether transfer is proper, a balance must be struck between competing interests; and unless the balance is tipped strongly in favor of the moving party, Collins v. Straight, Inc., 748 F.2d 916, 921 (4th Cir. 1984), a plaintiff's choice of forum should not be disturbed. Upon a motion to transfer, the moving party carries the burden, 1A Moore's Federal Practice, para. 0.345[5] at 4360 (Matthew Bender 1990); and the burden is heavy, Datasouth Computer Corp. v. Three Dimensional Technologies, Inc., 719 F. Supp. 446, 451 (W.D.N.C. 1989).
A defendant carries a particularly heavy burden when it moves pursuant to [Section] 1404(a) to transfer an action from a district where venue is proper. As this court has noted previously, it is "black letter law," that "plaintiff's choice of a proper forum is a paramount consideration in any determination of a transfer request, and that choice . . . should not be lightly disturbed."
Phillips v. S. Gumpert Co., Inc., 627 F. Supp. 725, 726-27 (W.D.N.C. 1986) (citations omitted) (quoting Western Steer Mom 'N' Pop's v. FMT Invs., Inc., 578 F. Supp. 260, 265 (W.D.N.C. 1984)).
Unfortunately, neither the plaintiffs nor the defendants has moved to transfer this matter to the District of Nevada. The undersigned, however, will raise the motion sua sponte, inasmuch as transfer, rather than dismissal, appears to be a more appropriate remedy. The test in this district for determining whether transfer is proper, set forth in Jim Crockett Promotions, Inc. v. Action Media Group, Inc., supra, requires consideration of the following elements:
1. The plaintiff's initial choice of forum;
2. The residence of the parties;
3. The relative ease of access of proof;
4. The availability of compulsory process for attendance of witnesses and the costs of obtaining attendance of willing witnesses;
5. The possibility of a view;
6. The enforceability of a judgment, if obtained;
7. The relative advantages and obstacles to a fair trial;
8. Other practical problems that make a trial easy, expeditious, and inexpensive;
9. The administrative difficulties of court congestion;
10. The interest in having localized controversies settled at home and the appropriateness in having the trial of a diversity case in a forum that is at home with the state law that must govern the action; and
11. The avoidance of unnecessary problems with conflict of laws.
Id. at 7-8. Courts should make both a quantitative and qualitative analysis of the factors. McDevitt Street Co. v. Fidelity and Deposit Co., 737 F. Supp. 351, 354 (W.D.N.C. 1990).
1. Plaintiffs' Choice of Forum
Considering the first factor, a plaintiff's choice of forum is traditionally given great weight. While plaintiffs herein could have filed this action in Nevada, no inference of forum shopping is raised where a plaintiff files an action in his home forum. Indeed, based upon the allegations of the complaint, this district was a most appropriate forum in which to file this matter. The first factor weighs in favor of retention.
2. The Residence of the Parties
The second factor is neutral, but slightly favors retention. Based on the allegations of the complaint, all of the parties do substantial business in this district or have engaged in partnerships that have done business from this district. The second factor slightly favors plaintiffs, but will be given little weight.
3. The Relative Ease of Access of Proof and
4. The Availability of Compulsory Process for Attendance of Witnesses and the Costs of Obtaining Attendance of Willing Witnesses
The court anticipates no problems with compulsory process. A quantitative analysis requires this court to conclude transfer would simply shift the burden of travel from one side to the other; thus, this factor is neutral quantitatively, but slightly favors retention qualitatively, since plaintiffs are probably not as well funded.
5. The Possibility of a View
This factor is not relevant, inasmuch as the subject matter of the suit, which appears to be sales of aircraft and the surrounding documentation, is capable of presentation through testimony and exhibits.
6. The Enforceability of a Judgment, if Obtained
Not only is the governing law consistent from district to district, a judgment obtained in any federal district is easily transferred to any other federal district.
This factor is also neutral.
7. The Relative Advantages and Obstacles to a Fair Trial
There appear to be no obstacles to a fair trial in either district. To the extent "home fields" exist either in the Las Vegas or Asheville areas, which is slight, plaintiffs would be at an advantage in Asheville, while defendants would be at an advantage in the District of Nevada.
A forum-selection clause does not necessarily mean a party is forum shopping. The undersigned takes judicial notice that, as were the defendants in Cable-La, Inc., defendants herein are engaged in a multistate business and have a legitimate interest in litigating claims in one forum. Id., at 578. Indeed, just such a basis for a forum-selection clause was found to be highly appropriate in Carnival Cruise Lines, Inc. v. Shute, 488 U.S. 585 [ 499 U.S. 585] (1991), wherein the Court enforced a forum-selection clause on a cruise ticket, because the cruise operators had "a special interest in limiting the fora in which it potentially could be subject to suit." Id., at 593-94. This factor weighs heavily in favor of transfer.
8. Other Practical Problems that Make a Trial Easy, Expeditious, and Inexpensive
Trials are never easy, expeditious, or inexpensive. Whether this action is tried in Nevada or North Carolina, it will cost these parties an enormous sum, absent an early, amicable resolution.
9. The Administrative Difficulties of Court Congestion
While this court has the highest caseload per judgeship in the Fourth Circuit and the seventh highest nationwide, the Asheville Division is kept current, and pretrial proceedings are structured so that few, if any, civil cases are continued from the trial calendars for which they are targeted. Although caseloads per judge are high in this district, such statistic is irrelevant to an expeditious trial in the Asheville Division.
10. The Interest in Having Localized Controversies Settled at Home and the Appropriateness in Having the Trial of a Diversity Case in a Forum That is at Home with the State Law that Must Govern the Action and
11. Conflict of Laws
This action concerns a joint venture agreement, wherein plaintiffs were to provide certain services, apparently at one time from another state, but through an alleged modification and based on course and conduct, from North Carolina. Without doubt, defendants were to provide services of equivalent value, primarily in Nevada, as evidenced by the modification of the agreement, wherein the parties were to provide profits equally. The interest in having this controversy resolved in this forum, therefore, is equal to having it resolved in Nevada. Qualitatively and quantitatively, this factor weighs in favor of retention.
As to familiarity with applicable laws, plaintiffs have alleged state common-law claims sounding in tort and a statutory claim for unfair and deceptive trade practices. This court is confident that a Nevada court would find the North Carolina claims familiar, inasmuch as the general law surrounding such routine state-law claims finds equivalents in the common and statutory laws of most states. Thus, such element of this factor is neutral, in light of modern developments in the law and ready access to reference materials.
As the court found in Cable-La, Inc. v. Williams Communications, Inc., supra, the above factors, weighed in the absence of a forum-selection clause, would likely favor retention. Because the parties entered into a forum-selection clause, however, this court must discount the heavy weight that would otherwise be assigned to plaintiffs' choice of forum and assign all that weight to the choice of forum expressed in the contract.
The court has given both weight and consideration to plaintiffs' argument that forum-selection clauses are against the public policy of North Carolina. In a North Carolina forum, that argument may have carried the day. As other federal courts have found in analyzing the same issue, that public policy is expressed only in a statute and is contrary to the well-settled common law of the state. In addition, such policy is inconsistent with decisions of the United States Supreme Court, Stewart Org., Inc. v. Ricoh Corp., supra, Carnival Cruise Lines v. Shute, supra, and may well run afoul of the Contract Clause of the United States Constitution, see generally Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978), inasmuch as the statute does not appear related to any broad societal interest and works against only nonresidents at the expense of interstate commerce.
While this court is not unsympathetic to plaintiffs' position, they have not demonstrated that the forum-selection clause is unreasonable so as to make the remaining factors override the contractual choice of forum. Provisions concerning the venue for litigation are now common in the marketplace, and where the Supreme Court will hold a consumer-passenger to a forum-selection clause on the back of a ticket, as it did in Carnival, supra, it is hard to fathom how any court could find that plaintiffs, who are apparently doing substantial business in a sophisticated market, are any less sophisticated than the consumer in Carnival.
The undersigned, therefore, will recommend to the district court that this matter be transferred in accordance with 28, United States Code, Section 1404(a), to the District of Nevada for disposition.
If the district court finds that the venue-selection clause would only allow transfer to a state court in Nevada, the undersigned would respectfully recommend that the above analysis be applied to the Motion to Dismiss, and that this action be dismissed without prejudice as to refiling in the courts of the State of Nevada.
RECOMMENDATION
IT IS, THEREFORE, RESPECTFULLY RECOMMENDED that the court's own motion to transfer be ALLOWED, and that this matter be TRANSFERRED to the United States District Court for the District of Nevada for disposition. In the alternative, the undersigned recommends that defendants' Motion to Dismiss be ALLOWED, and this action be DISMISSED without prejudice as to refiling in the courts of the State of Nevada.
The parties are hereby advised that, pursuant to 28, United States Code, Section 636(b)(1)(C), written objections to the findings of fact, conclusions of law, and recommendation contained herein must be filed within ten (10) days of service of same. Failure to file objections to this Memorandum and Recommendation with the district court will preclude the parties from raising such objections on appeal. Thomas v. Arn, 474 U.S. 140 (1985), reh'g denied, 474 U.S. 1111 (1986); United States v. Schronce, 727 F.2d 91 (4th Cir.), cert. denied, 467 U.S. 1208 (1984).