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construing clause that the "laws of the State of Tennessee shall govern this contract and transaction, and the parties further agree that venue for any matter relating to this contract shall be in Marion County, Tennessee" and holding that the clause was unambiguous, referred to a specific county, contained no reference to the federal courts or to any federal judicial district, and because there is no federal court in Marion County, the clause mandates venue in the state courts sitting in Marion County
Summary of this case from Paolino v. Argyll Equities, L.L.C.Opinion
No. 1:02-cv-363
April 10, 2003
MEMORANDUM AND ORDER
Before the Court is defendants' motion to dismiss [Court File No. 6] pursuant to Rule 12(b). The defendants do not specify a 12(b) subsection. Defendants argue for dismissal because the forum selection clause in the parties' contract precludes venue in this Court. The Court will RESERVE ruling on the motion and will ORDER the parties to further brief the issue in accordance with this memorandum.
I. BACKGROUND
Plaintiffs (collectively referred to as "Navair") have brought suit against defendants (collectively referred to as "Aircenter"), seeking, inter alia, damages of $200,000. Navair alleges that the individual plaintiffs are domiciled in Minnesota and that the corporate plaintiff is incorporated and has its principal place of business in Minnesota. It is further alleged that the corporate defendant is a Tennessee corporation doing business in Chattanooga, Tennessee, and that the individual defendant can be found in Chattanooga, Tennessee. Navair alleges this case is properly brought in federal court based on diversity jurisdiction, 28 U.S.C. § 1332, inasmuch as the parties are diverse and the amount in controversy exceeds $75,000. The Court notes that in its fifth cause of action, Navair makes a claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968. Because a RICO claim presents a federal question, subject matter jurisdiction is also proper here pursuant to 28 U.S.C. § 1331.
Navair's claims arise out of a contract between the parties. Aircenter asserts that a document entitled "Aircraft Purchase Order" is part of that contract. Paragraph 12 of this document states: "Laws of the State of Tennessee shall govern this contract and transaction, and the parties further agree that venue for any matter relating to this contract shall be in Marion County, Tennessee." (Def. Br. Ex. A). The parties dispute whether this Court is the proper venue for this action but do not dispute the choice-of-law provision in this forum-selection clause ("Clause").
Aircenter argues that because there is no federal court sitting in Marion County, Tennessee, the only proper venue for claims arising out of the contract is in the state courts of Marion County. Aircenter argues that its interpretation of the Clause is correct, enforcement of the Clause is not unreasonable, and this action must therefore be dismissed.
Navair argues that the Clause permits venue in the federal court of the district that encompasses Marion County. If the only proper venue for this action is the state courts of Marion County, Navair argues, then enforcement of the Clause is unreasonable. Thus, Navair concludes, jurisdiction and venue are proper in this Court.
II. ANALYSIS
A. Propriety of the Motion to Dismiss
Although Aircenter did not specify the subsection of Rule 12(b) pursuant to which its motion was brought, Aircenter is challenging venue. The Court assumes then that the motion to dismiss has been brought pursuant to subsection (b)(3), improper venue.
Navair draws the Court's attention to a Sixth Circuit opinion, see Kerobo v. Southwestern Clean Fuels, Corp., 285 F.3d 531 (6th Cir. 2001), which appears to support Navair's contention that a Rule 12(b) motion is an improper procedural mechanism to challenge venue while seeking enforcement of a forum-selection clause. The Court disagrees.
The forum-selection clause in Kerobo provided, in relevant part: "Jurisdiction for any action for breach, damages or default shall be within the County of Orange, State of California." Kerobo, 285 F.3d at 532-33. Despite the existence of diversity jurisdiction, the plaintiffs brought suit in a state court in Michigan. Id. at 533. The defendants removed the action to the appropriate federal court in Michigan. Id. The defendants then and then moved for dismissal for improper venue pursuant to Rule 12(b)(3) because the forum-selection clause established venue in California. Id. In the alternative, the defendants moved for transfer to the appropriate federal court in California pursuant to 28 U.S.C. § 1404 (a). Id. Relying on M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), the district court enforced the forum-selection clause, which it found to be reasonable, and granted the motion to dismiss. Id.
28 U.S.C. § 1404 (a) states: "For the convenience of 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."
M/S Bremen is an admiralty case that provides a framework for determining whether a forum-selection clause should be enforced. Federal courts also apply this framework to diversity cases.
On appeal, the Kerobo court first concluded that statutory venue was proper in the district court of Michigan because the defendants properly removed the action from state court. Id. at 534. Finding the facts of the case identical to that in Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22 (1988), the court then held that the forum-selection clause did not render the venue, which was dictated by federal statute, improper. Id. at 535. As in Ricoh, the court concluded that only § 1404(a), not a Rule 12 motion to dismiss, governed the parties' venue dispute. Id. at 538-39. The court reversed and remanded for determination of the appropriate effect under federal law of the parties' forum-selection clause on the defendants' § 1404(a) motion to transfer. Id. at 539.
The court stated that venue in removed cases is governed solely by 28 U.S.C. § 1441 (a), which provides for removal to the federal district court "for the district and division embracing the place where such action was pending."
Kerobo is distinguishable from the case at bar. First, the dispute in Kerobo involved the determination of which state — California or Michigan — was the proper venue. The determination that must be made here is which court — state of federal — is the proper venue. Second, the defendants removed the case from state to federal court. In the case at bar, Navair filed this action directly in federal court; it was not removed from state court. Third, § 1404(a) could be applied to the dispute in Kerobo. Here, § 1404(a) is not applicable where a defendant seeks to transfer a case originally filed in federal court to state court. Accordingly, the Court determines that Kerobo is distinguished on the facts of that case and, therefore, is not controlling law in the present matter.
The dissent in Kerobo argued that there are cases presenting situations where only a motion to dismiss, not a § 1404(a) motion to transfer, will resolve the dispute in diversity cases. Kerobo, 285 F.3d at 539. Therefore, the dissent argues for an Erie analysis of motions to dismiss that challenge venue due to a conflicting forum-selection clause. Id.; see, generally, Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
B. State or Federal Law
Although Kerobo is not controlling, the Court concludes that the determination of the appropriate effect of the Clause on Aircenter's motion to dismiss should be analyzed under federal common law rather than state law. This conclusion is supported by the Supreme Court in Ricoh:
If no federal statute or Rule covers the point in dispute, the district court then proceeds to evaluate whether application of federal judge — made law would disserve the so-called twin aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration of the laws. If application of federal judge — made law would disserve these two policies, the district court should apply state law.Ricoh, 487 U.S. at 27 n. 6 (citations and quotation marks omitted). Applying federal common law (or judge — made law) to the validity and enforcement of the Clause in this dispute will produce the same result if analyzed under Tennessee law. See Security Watch, Inc. v. Sentinel Systems, Inc., 176 F.3d 369, 375 (6th Cir. 1999) (citing Dyersburg Machine Works, Inc. v. Rentenbach Eng'g Co., 650 S.W.2d 378, 380 (Tenn. 1983) ("We conclude the courts of this state . . . should enforce [forum-selection clauses] unless the party opposing enforcement demonstrates that it would be unfair and inequitable to do so.")).
Due to the federal question presented in this case, there is no doubt that federal law, rather than state law, governs any dispute over venue. Both parties, however, rely on case law that analyze the enforceability of forum-selection clauses in diversity cases. To avoid revisiting this issue in the event the RICO claim is dismissed, the Court, like the parties, analyzes the issue as if jurisdiction exists only upon diversity. It will be seen that the result is the same — the Court applies federal common law to the venue dispute.
In M/S Bremen, the Supreme Court ruled 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," M/S Bremen, 407 U.S. at 10, or that "the clause was invalid for such reasons as fraud and overreaching." Id. at 15. Because state and federal law are in accord, it is unnecessary for this Court to conduct a proper Erie analysis. The Court will apply the standards articulated in the admiralty case of M/S Bremen to determine the enforceability of the Clause. Tennessee principles of contract law will be applied to the interpretation of the Clause.
C. Interpretation of the Clause
The Court must interpret whether the Clause permits this suit to be brought in the federal court of the district and division encompassing Marion County or whether venue in the state courts of Marion County is mandatory. This issue must be resolved prior to analyzing the enforceability of the Clause.
Navair argues that the Clause is susceptible to more than one interpretation which makes it ambiguous. Therefore, the contract must be construed against Aircenter, the drafter of the contract. The Court disagrees.
A court must ascertain the intention of the parties based upon the usual, natural, and ordinary meaning of the language used. See Seraphine v. Aqua Bath Co., 2003 WL 1610871, at *3 (Tenn.Ct.App. Mar. 28, 2003) (slip copy). The language of a contract should be understood in its plain and ordinary meaning. See American Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 814 (Tenn. 2000). A contract is ambiguous only when it is of uncertain meaning and may fairly be understood in more ways than one. Johnson v. Johnson, 37 S.W.3d 892, 896 (Tenn. 2001) (quotation marks omitted). An ambiguity does not exist "merely because the parties may differ as to interpretations of certain of its provisions." Id.
This last tenet can be traced to an earlier case involving the interpretation of an insurance contract. See American Nat'l Bank at Indianapolis v. Service Life Ins. Co., 120 F.2d 579, 582 (7th Cir. 1941). In American National Bank, the parties disputed how to calculate the time period for which the insured was covered. The parties each relied on case law that supported their positions. The court held that the contract provision was not ambiguous and reasoned:
The proposition that ambiguities in insurance contracts are to be resolved in favor of the insured is well known and firmly established, but ambiguity does not arise in every instance where there is a controversy. A mere assertion on the one hand and denial on the other must not be understood as creating doubt. Contention without reason does not spell ambiguity.Id. at 582.
In the case at bar, Navair argues that the clause is ambiguous because it does not specify whether venue is in the state courts or the federal courts of Marion County. Aircenter, on the other hand, argues that the clause is unambiguous and relies on case law to support its position. Not unlike the dispute in American National Bank, there is case law that supports both positions. Nevertheless, an ambiguity does not exist merely because the parties disagree as to the meaning of the Clause. Likewise, an ambiguity does not exist just because other courts have interpreted similar clauses differently. See Park-Ohio Indus., Inc. v. Home Indem. Co., 975 F.2d 1215, 1220 (6th Cir. 1992).
The Park-Ohio court held:
The Supreme Court of Ohio has held that when the language of an insurance policy has a plain and ordinary meaning, it is unnecessary and impermissible for this court to resort to construction of that language. if we were to accept plaintiffs' argument that a contract provision is ambiguous as a matter of law because other jurisdictions have chosen to apply a provision differently, then we would be rejecting a well-settled Ohio rule of construction to apply the plain language of the contract where that language is clear and unambiguous.Id. at 1220 (internal citations and quotation marks omitted) (emphasis in original). This reasoning also applies to Tennessee law.
Courts that have faced the task of interpreting similarly-worded forum-selection clauses usually have found no ambiguity and have concluded that venue is not permitted in the federal court of the district encompassing that county named in the clause. See Excell, Inc. v. Sterling Boiler Mech., Inc., 106 F.3d 318, 321 (10th Cir. 1997) ("Jurisdiction shall be in the State of Colorado, and venue shall lie in the County of El Paso, Colorado."); Docksider, Ltd. v. Sea Tech., Ltd., 875 F.2d 762, 764 (9th Cir. 1989) ("Venue of any action brought hereunder shall be deemed to be in Gloucester County, Virginia."); Double A Home Care, Inc. v. Epsilon Sys., Inc., 15 F. Supp.2d 1114, 1116 (D.Kan. 1998) (". . . said action shall be venued in the County of Ramsey, State of Minnesota"); Intermountain Sys., Inc. v. Rockwell Elec. Commerce Corp., 575 F. Supp. 1195, 1197-98 (D.Colo. 1983) ("It is agreed for purposes of this agreement, venue shall be in Adams County, Colorado."); First Nat'l of North Am., LLC, v. Peavy, 2002 WL 449582, at *2 (N.D. Tex. Mar. 21, 2002) (". . . all claims shall be litigated only in Collin County, Texas."); North Am. Air Force v. Rose, 2001 WL 1155078, at *2 (N.D. Cal. Sept. 17, 2001) (" . . . venue for any disputes between the parties will be in Newton County, Mississippi."); but see Links Design, Inc. v. Lahr, 731 F. Supp. 1535, 1536 (M.D. Fla. 1990) (holding that forum-selection clause designating specific county also includes the federal court for the district encompassing said county), Int'l Ass'n of Bridge, Structural Ornamental Iron Workers v. Koski Const. Co., 474 F. Supp. 370, 371-72 (W.D. Pa. 1979) (same).
The Court finds the Clause unambiguous. Here, the Clause provides that "venue for any matter relating to this contract shall be in Marion County, Tennessee." The clause refers to a specific county and contains no reference to the federal courts or to any federal judicial district. The parties clearly intended that any dispute be resolved in Marion County, Tennessee. Additional words, such as "federal court," cannot be read into the Clause which import an intent unexpressed when it the contract was executed. See Oman Const. Co. v. Tennessee Valley Auth., 486 F. Supp. 375, 382 (D.C. Tenn. 1979) (citation and quotation marks omitted).
Because there is no federal court in Marion County, the Court concludes that the Clause mandates venue in the state courts sitting in Marion County, Tennessee.
D. Enforceability of the Clause
To reiterate the appropriate standard, forum-selection clauses should be enforced absent a showing that to do so "would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." M/S Bremen, 407 U.S. at 15. Navair must make a clear showing that enforceability of the Clause is unreasonable.
Navair argues that if the Court interprets the Clause to require venue only in the state courts of Marion County, the Clause "should not be enforced as it lacks fundamental fairness, is unreasonable, unjust, and would serve no other end but to frustrate justice and to place obstacles in the way of plaintiffs' right to redress a wrong."
In addition to this conclusory statement, Navair alleges several counts of fraudulent behavior in the complaint and reasons that this fraudulent behavior would render the Clause unreasonable.
Navair further argues that Marion County has no relationship to the parties or to the events giving rise to this lawsuit. According to Navair, Aircenter's principal place of business is located in Chattanooga, Hamilton County, Tennessee, and "the acts or omissions giving rise to the lawsuit occurred in Hamilton County, Tennessee."
Navair also argues that "because witnesses and proof are located in Tennessee, Ohio, North Carolina, Minnesota, Georgia, and Washington, D.C.," forcing "the plaintiffs to discover and collect this evidence through a state court system with limited power over individuals in other states would be so inconvenient and unjust as to effectively deny plaintiffs their day in court."
The Court would like to consider these arguments; however, Navair has not cited to any authority supporting its argument. Navair has not fully explained the alleged fraudulent circumstances underlying the contract negotiations or contended that agreement to the Clause was due to fraud or overreaching. Navair has not identified the witnesses and evidence located outside of Tennessee. Navair has not fully explained the manner in which the state court has limited power over non-residents and how the federal system can remedy that alleged lack of power. Having neglected to reply to Navair's argument or otherwise brief this issue, Aircenter offers little assistance to the Court. Aircenter has not addressed why it drafted the Clause to mandate venue in Marion County, Tennessee, or whether the state courts in Marion County are required to hear this case even though Aircenter does not reside in Marion County and the cause of action arose in Hamilton County.
III. CONCLUSION
The federal venue statutes do not render venue in this Court improper. However, the Court has determined that the intent of the Clause is to vest venue in the state courts of Marion County, Tennessee. The next step in this analysis is the determination of whether the Clause ought to be enforced. The prevailing federal law requires the Court to enforce the Clause unless to do so would be unreasonable or unjust. Because this issue needs further briefing, the Court RESERVES ruling on the motion to dismiss [Court File No. 6]. Each party shall fully brief this issue in accordance with this memorandum and file said brief with the Court on or before Thursday, April 17, 2003.