Opinion
No. C5-00-967.
Filed December 5, 2000.
Appeal from the District Court, Stearns County, File No. C2-99-4486.
Norris J. Skogerboe, John J. Gores, Frank Munschower, (for appellants)
Roger C. Justin, Rinke Noonan, (for respondents)
Considered and decided by Anderson, Presiding Judge, Randall, Judge, and Harten, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).
UNPUBLISHED OPINION
Appellants challenge the district court's dismissal of their claims based on a forum-selection clause contained in the parties' asset-purchase agreements. Appellants argue that the district court (a) should have applied Iowa law rather than Minnesota law to determine whether to enforce the forum-selection clause, (b) abused its discretion by enforcing the forum-selection clause, and (c) should not have dismissed all claims because the forum-selection clause did not cover all of them. We affirm.
FACTS
Appellants Lonnie and Deborah Folsom (the Folsoms), Minnesota residents, owned three sign companies, which they desired to sell because of financial difficulties. Respondent MPM Signs, by its owner and manager respondent Michael Murphy, offered to purchase the business assets of the companies, and the Folsoms accepted. Michael Murphy is a Minnesota resident, and MPM Signs is a limited liability company incorporated in Iowa.
On October 29, 1998, the parties attended a meeting at the Folsoms' attorney's office to sign an asset-purchase agreement for two of the sign companies. At the meeting, there was no discussion or negotiation of the agreement. Several other events also occurred at this meeting. First, MPM Signs assumed a debt of the Folsoms and executed a promissory note to the Folsoms' creditor. Second, the parties signed an amendment to MPM Signs' operating agreement, which granted Lonnie Folsom 49% membership and Michael Murphy 51% membership. Last, Lonnie Folsom entered into a written employment agreement with MPM Signs for a term from November 1, 1998, to October 31, 1999.
On January 25, 1999, the parties met to sign a second asset-purchase agreement for the assets of the third company. Again, there was no discussion or negotiation of the agreement. The language of the October 29, 1998, and the January 25, 1999, asset-purchase agreements was identical. Each contained a forum-selection clause that provided:
Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the laws of the State of Iowa applicable to contracts made and performed in Iowa. All actions or proceedings to enforce any provision of this Agreement or to resolve any dispute arising under its terms must be brought in the federal and state courts sitting in Webster County, Iowa.
Michael Murphy terminated Lonnie Folsom's employment in August 1999, before the expiration of his employment contract. On September 3, 1999, Michael Murphy held a meeting for members of MPM Signs but did not give Lonnie Folsom timely notice of this meeting. At the meeting, Michael Murphy reallocated all of MPM Signs' profits and losses to himself.
The Folsoms filed a complaint against MPM Signs, Michael Murphy, and respondent Arthur Murphy in Stearns County District Court, alleging seven causes of action: (1) breach of the October 29, 1998, asset-purchase agreement; (2) breach of the October 29, 1998, promissory note; (3) breach of the January 25, 1999, asset-purchase agreement; (4) breach of the operating agreement that was part of the October 29, 1998, asset-purchase agreement; (5) breach of fiduciary duty by Michael Murphy; (6) breach of fiduciary duty by Arthur Murphy; and (7) breach of the employment contract.
Arthur Murphy, an Iowa resident, is Michael Murphy's father. Although Arthur Murphy is not an employee or officer of MPM Signs, the Folsoms claimed a breach of fiduciary duty by Arthur Murphy on the theory that he acted with apparent authority on behalf of MPM Signs. Arthur Murphy was present at the October 29, 1998, meeting and the January 25, 1999, meeting but denies exercising any authority over the company.
Respondents MPM Signs, Michael Murphy, and Arthur Murphy (MPM Signs) filed a motion requesting a temporary injunction and requesting "transfer" of the action to Iowa. The district court denied the motion for a temporary injunction and granted the motion to transfer. The Folsoms appealed, and this court remanded for the district court to (1) demonstrate its authority to transfer the action to Iowa or (2) dismiss the action. The district court then dismissed the entire action, and the Folsoms filed this appeal from the judgment.
DECISION
Application of Minnesota Law
The Folsoms argue that the district court erred by applying Minnesota law to determine whether to give effect to the forum-selection clause contained in the parties' asset-purchase agreements. The Folsoms contend that, because the forum-selection clause provides that the terms of the agreements are to be construed and governed by Iowa law, the district court should have applied Iowa law when determining whether to give effect to the clause itself.
The appeal of this issue presents a choice of law question. This court reviews questions of law de novo. See Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984) (stating reviewing court is not bound by and "need not give deference to a trial court's decision on a legal issue").
In making their argument, the Folsoms rely on Davenport Mach. Foundry Co. v. Adolph Coors Co., 314 N.W.2d 432 (Iowa 1982). In Davenport, the Iowa Supreme Court gave effect to a forum-selection clause that chose Colorado as the parties' forum for litigating disputes. Id. at 435-37. In reaching its conclusion, the Iowa Supreme Court evaluated the issue under relevant Iowa caselaw. Id. Because the court in Davenport applied Iowa law, the Folsoms contend that the district court also should have applied Iowa law.
The seminal case on forum-selection clauses in Minnesota adopted a pattern of analysis similar to Davenport. Hauenstein Bermeister, Inc. v. Met-Fab Indus., Inc., 320 N.W.2d 886 (Minn. 1982). In Hauenstein, the Minnesota Supreme Court framed the issue as whether the court "should refrain from exercising the jurisdiction that it admittedly possesses to give effect to the parties' intentions as expressed in a forum-selection clause." Id. at 889 (citation omitted). The court analyzed the issue using relevant Minnesota caselaw.
We conclude that the Folsoms' reliance on Davenport is misplaced. Davenport and Hauenstein involved a determination of whether each state's court should refrain from exercising its jurisdiction and give effect to the parties' forum-selection clauses. Each court applied its own state's law in arriving at its decision. Therefore the district court did not err by applying Minnesota law to determine whether it should refrain from exercising its jurisdiction and give effect to the forum-selection clause contained in the parties' asset-purchase agreements.
District Court's Enforcement of Forum-Selection Clause
Enforcement of a forum-selection clause falls within the discretion of the district court. Personalized Mktg. Serv. Inc. v. Stotler Co., 447 N.W.2d 447, 450 (Minn.App. 1989), review denied (Minn. Jan. 12, 1990). The district court's decision should not be disturbed unless the forum-selection clause is "so unreasonable that its enforcement would be clearly erroneous and against both logic and the facts on record." Id. at 451. (citation omitted).
When parties contractually agree to a forum-selection clause, that agreement should be given effect unless the party seeking to avoid the agreement can show that to do so would be unfair or unreasonable. Hauenstein, 320 N.W.2d at 890. Enforcement of a forum-selection clause is unfair or unreasonable if:
the chosen forum is a seriously inconvenient place for trial;
the choice of forum agreement is one of adhesion; [or]
the agreement is otherwise unreasonable.
Interfund Corp. v. O'Byrne, 462 N.W.2d 86, 88 (Minn.App. 1990) (quoting Hauenstein, 320 N.W.2d at 890).
Seriously Inconvenient Forum
In order for the chosen forum to be "`seriously inconvenient,' one party would have to be `effectively deprived of a meaningful day in court.'" Hauenstein, 320 N.W.2d at 890 (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 19, 92 S.Ct. 1907, 1918 (1972)). Location and convenience of witnesses are generally not considered a serious inconvenience. Id. But, enforcement of a forum-selection clause creates serious inconvenience if it would result in two lawsuits involving similar claims or issues being tried in separate courts. Personalized Mktg., 447 N.W.2d at 452.
Here, the Folsoms argue that enforcement of the forum-selection clause results in serious inconvenience because the events surrounding their claims took place in Minnesota and their witnesses are in Minnesota; hence the entire action should be heard in Minnesota rather than Iowa. They also argue that enforcement of the clause is seriously inconvenient because it results in duplicative litigation of similar claims across state lines.
The Folsoms have not shown that enforcement of the forum-selection clause would be seriously inconvenient. The Folsoms are free to re-file their entire action in Iowa, and deposition testimony can be used if their witnesses are unable to travel to Iowa for trial. See Interfund Corp., 462 N.W.2d at 88 (concluding deposition testimony can be used without disadvantage if witnesses cannot travel to forum); see also Hauenstein, 320 N.W.2d at 890 (stating location and convenience of witnesses generally not considered serious inconvenience). Further, all of the Folsoms' claims were dismissed by the district court. Because there are no claims remaining within the district court's jurisdiction, there is no duplicative litigation in Minnesota and Iowa. Consequently, enforcement of the forum-selection clause does not result in serious inconvenience.
Contract of Adhesion
A forum-selection clause is unreasonable if it is part of a contract of adhesion. Hauenstein, 320 N.W.2d at 891. Great disparity in bargaining power or lack of an opportunity to negotiate, coupled with a take-it-or-leave-it offer, may constitute an adhesion contract. Id. The fact that a contract was presented on a take-it-or-leave it basis, without more, however, is insufficient to show the agreement was one of adhesion. Id.
Here, the Folsoms argue that the agreement was a contract of adhesion because it was offered by MPM Signs on a take-it-or-leave-it basis without the opportunity for discussion or negotiation. The Folsoms assert that there was no meeting of the minds of the parties because of this lack of discussion or negotiation. Although the Folsoms use the term "meeting of the minds," which is not part of the general analysis of adhesion contracts, they seem to be implying that the term is synonymous with "unequal bargaining power."
In this case, the Folsoms were free to seek out other offers if they did not want to accept the purchase offer from MPM Signs. Importantly, the Folsoms initiated the sale of their assets and were represented by counsel. According to Lonnie Folsom's deposition testimony, their attorney had a copy of the agreement for a week prior to when the parties signed it. During this time, the Folsoms and their attorney had time to read the contract and negotiate terms. Lastly, the Folsoms were not unsophisticated individuals; they had owned three sign businesses prior to their decision to sell their business assets. See Interfund Corp., 462 N.W.2d at 89 (concluding agreement between parties who had business experience in addition to other factors is not product of unequal bargaining power). The Folsoms had the opportunity to negotiate the terms of the asset-purchase agreement and had equal bargaining power. The record lacks evidence that this was an adhesion contract.
Otherwise Unreasonable Agreement
Indications of unreasonableness in a forum-selection clause, other than those enumerated above, can be grounds for determining that enforcement of the clause would be unfair or unreasonable. Hauenstein, 320 N.W.2d at 891. Such indications include whether the enforcement of a forum-selection clause would "contravene a strong public policy of the forum in which the suit is brought" or impede "judicial economy and the prevention of multiple actions on similar issues." Interfund, 462 N.W.2d at 89 (citation omitted).
Here, the Folsoms argue that enforcing the forum-selection clause would be unreasonable because it contravenes judicial economy. They re-assert their argument that enforcement would force them to litigate separate claims in Minnesota and Iowa even though all of their claims involve similar facts and issues. They believe their claims of breach of fiduciary duty, breach of the operating agreement, and breach of the employment agreement must be litigated in Minnesota. At the same time, if the forum-selection clause is enforced, their remaining claims must be litigated in Iowa.
The Folsoms' claims of breach of fiduciary duty, breach of the operating agreement, and breach of the employment agreement do not have to be brought in Minnesota. As stated previously, the district court dismissed the Folsoms' entire action, and these claims could be re-filed in Iowa because MPM Signs has sufficient contact with Iowa. As a result, all the Folsoms' claims could be heard in Iowa. We conclude that enforcement of the forum-selection clause does not contravene judicial economy.
While we agree with the Folsoms that some of their claims could be litigated in Minnesota, we cannot conclude that the district court's decision to dismiss the entire action without prejudice was an abuse of discretion. All of the Folsoms' claims could be brought in Iowa. An Iowa trial is not inconvenient. The asset-purchase agreements are not adhesion contracts, and enforcement of the forum-selection clause did not contravene public policy or impede judicial economy.
District Court's Dismissal of the Folsoms' Entire Case
The district court may decline jurisdiction under forum non conveniens "when it fairly appears from the practicalities of trial that it is more appropriate to try the case in another forum." Searles v. Searles, 420 N.W.2d 581, 584 (Minn. 1988) (quotation omitted). Such a determination is within the district court's discretion. Hague v. Allstate Ins. Co., 289 N.W.2d 43, 45 (Minn. 1978), aff'd 449 U.S. 302, 101 S.Ct. 633 (1981). When the district court has weighed the relevant public private interest factors, its decision to decline jurisdiction will not be reversed absent an abuse of discretion. Kennecott Holdings Corp. v. Liberty Mut. Ins. Co., 578 N.W.2d 358, 360 (Minn. 1998).
Here, the Folsoms argue that the district court's dismissal of their entire case was an abuse of discretion because the forum-selection clause does not apply to their claims of breach of fiduciary duty, breach of the operating agreement, and breach of the employment agreement. This argument is the same as their argument that enforcement of the forum-selection clause was unreasonable; that is, an argument based on judicial economy.
The district court decided that "for the purposes of judicial economy, negotiation, clarity, and finality all matters should be heard by one court." As stated previously, all of the Folsoms' claims may be heard in Iowa because MPM Signs has sufficient contacts with Iowa. The Folsoms' claims involving the asset-purchase agreements are already under Iowa jurisdiction because of the forum-selection clause. Accordingly, judicial economy would be facilitated if the district court refrained from exercising its jurisdiction, and Iowa heard the entire action. The district court's decision to dismiss (without prejudice) all of the Folsoms' claims was proper.