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determining forum-selection clause was enforceable under Allen test, without applying the eleven factors listed in Rice
Summary of this case from Bassett Seamless Guttering, Inc. v. Gutterguard, Inc.Opinion
Civil No. 1:02CV00796
January 8, 2003
MEMORANDUM OPINION
This matter is before the court on a motion filed by Defendant Integrated Informatics, Inc. ("Defendant") to dismiss or, in the alternative, to transfer Plaintiff Scotland Memorial Hospital, Inc.'s ("Plaintiff") suit against it to the Northern District of Georgia, Atlanta Division, based on the presence of a forum-selection clause in the contract giving rise to their dispute. For the reasons set forth below, the court will grant Defendant's motion to transfer.
FACTS
The facts relevant to the resolution of Defendant's motion to dismiss are not in dispute and can be stated briefly. Plaintiff is a North Carolina not-for-profit corporation which, among other things, operates an acute-care hospital in Laurinburg, Scotland County, North Carolina. Defendant is a Georgia corporation engaged in the business of designing, selling, implementing, and installing software, including interface software for health care providers.
On January 25, 2000, Plaintiff and Defendant entered into an agreement pursuant to which Defendant was to sell to and install certain computer equipment and interface software for Plaintiff's laboratory. The following "forum-selection clause" was incorporated into the agreement under the heading "Timeless System/Popular, Exhibit-A, Other Terms and Conditions," paragraph 11:
Governing Law. This Contract shall be governed and interpreted in accordance with the Federal Laws of the United States of America. The venue will be the courts in Atlanta, Georgia.
(Def.'s Br. Supp. Mot. Dismiss, Ex. A, at 8.)
After a dispute arose between the parties over performance of the contract, Plaintiff filed this action in state court in Scotland County, North Carolina, on August 16, 2002, asserting various causes of action based on Defendant's alleged breach of the agreement. After removing the case to federal court pursuant to 28 U.S.C. § 1441 on the basis of diversity jurisdiction, under 28 U.S.C. § 1332, Defendant brought the present motion to dismiss or, in the alternative, to transfer based on the above-referenced forum-selection clause.
DISCUSSION
A. Rule 12(b)(3): Motion to Dismiss for Improper Venue
Defendant contends that the presence of a forum-selection clause in the January 2000 agreement renders any district other than the forum specified in the clause improper. Defendant concludes that Plaintiff's failure to respect the forum-selection clause constitutes a breach of contract and warrants dismissal of this matter under 12(b)(3). The court disagrees.
A defendant's motion to dismiss for improper venue is governed by 28 U.S.C. § 1406 (a), which provides that: "The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought."
The United States Supreme Court has suggested that Section 1406(a) does not apply when the forum court meets the venue requirements set out in 28 U.S.C. § 1391, even if a valid forum-selection clause exists. See Stewart Org., Inc. v. Ricoh Corp, 487 U.S. 22, 28 n. 8 (1988) (analyzing enforcement of forum-selection clause under Section 1404(a), where parties did not dispute that district court properly denied Defendant's motion to dismiss under 1406(a)). Although the matter has been subject to considerable debate, many courts which have addressed the issue since Stewart have held that a forum-selection clause specifying a forum other than a plaintiff's choice does not render venue improper. See Jumara v. State Farm Ins. Co., 55 F.3d 873, 877-79 (3d Cir. 1995) (analyzing factors listed in Section 1391 to determine whether Section 1404(a) or 1406(a) applied, despite presence of forum-selection clause);P.M. Enter. v. Color Works. Inc., 946 F. Supp. 435, 439 (S.D.W. Va. 1996) ("Section 1406 dismissal, however, is not the correct procedural vehicle for enforcing a forum-selection clause."); Mead v. Future Med. Publ'g. Inc., 1999 WL 1939256 (M.D.N.C. 1999) (holding that forum-selection clause does not make venue improper). Without Fourth Circuit guidance to the contrary, this court will do as it has done before and follow this approach. See Mead, 1999 WL 1939256, at *2.
See generally 17 James W. Moore et al., Moore's Federal Practice ("Moore's") § 111.04 [4] (Matthew Bender 3d ed. 2002)
The rationale for this rule appears to be that dismissal for improper venue under Rule 12(b)(3) depends on whether the requirements of venue as set out in Section 1391 are met. See National Micrographics Sys., Inc. v. Canon U.S.A., Inc., 825 F. Supp. 671, 678 (D.N.J. 1993). Section 1391 does not call for courts to consider the parties' private contractual agreements when determining if venue is proper.
It is well settled, however, that venue of removed actions is determined by Section 1441(a) as opposed to Section 1391. See e.g.,Polizzi v. Cowles Magazines. Inc., 345 U.S. 663, 665-66 (1953); Kerobo v. Southwestern Clean Fuels Corp., 285 F.3d 531, 534 (6th Cir. 2002); PT United Can Co. v. Crown Cork Seal Co., 138 F.3d 65, 72 (2d Cir. 1998); Warren Bros. Co. v. Community Bldg. Corp. of Atlanta, 386 F. Supp. 656, 662 (M.D.N.C. 1974); Tanglewood Mall. Inc v. Chase Manhattan Bank (Nat. Ass'n), 371 F. Supp. 722, 725 (W.D. Va. 1974),aff'd without opinion, 508 F.2d 838 (4th Cir. 1974)
In Polizzi, the Supreme Court rejected Section 1391(c) as the appropriate statute to determine proper venue of a removed action. 345 U.S. at 665. The Court held that Section 1441(a) governs venue in this type of case because removed actions are not "brought' in the District Court, nor [i]s Respondent "sued' there . . . Section 1441(a) expressly provides that the proper venue of a removed action is "the district court of the United States for the district and division embracing the place where such action is pending.'" Id. at 666. As the Court noted, the fact that the federal court to which the action is removed might not have been an appropriate venue if the action had been brought there initially is irrelevant. Id.
Here, Plaintiff originally filed this case in the North Carolina General Court of Justice, Superior Court Division, Scotland County. While the action was "pending" in that court, Defendant timely removed the case to this court pursuant to 28 U.S.C. § 1441 and 1446. Because the Middle District of North Carolina embraces Scotland County pursuant to 28 U.S.C. § 113 (b), this court is the proper venue for this action. Therefore, this court will deny Defendant's motion to dismiss for improper venue.
B. Section 1404(a): Motion to Transfer
Because the court cannot dismiss Plaintiff's suit for improper venue, Defendant must look elsewhere if the forum-selection clause in the contract is to be enforced. A defendant's motion to transfer a case out of a district where venue is proper is governed by 28 U.S.C. § 1404 (a) which provides that "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." Defendant argues that transfer is warranted because Plaintiff has not sufficiently demonstrated that transferring this matter to the Northern District of Georgia, Atlanta Division pursuant to the forum-selection clause would be unreasonable and unjust. The court agrees.
1. Venue proper in transferee court
The first step in addressing a motion to transfer under Section 1404(a) is a determination of whether the proposed transferee court is one in which the action originally "might have been brought." See Knight Med., Inc. v. Nihon Kohden Am., Inc., 765 F. Supp. 291, 292 (M.D.N.C. 1991). This requirement is met if the transferee court "has jurisdiction over the subject matter of the action, if venue is proper there, and if the defendant is amenable to process issuing out of the transferee court."Miot v. Kechijian, 830 F. Supp. 1460, 1465 (S.D. Fla. 1993); see also 17Moore's § 111.12[1] [a]. When the contract in question was negotiated and consummated, Defendant's principal place of business was located in Atlanta, Georgia, and Defendant continues to be a Georgia corporation. These facts suggest, and Plaintiff does not argue otherwise, that Defendant would be subject to process in the State of Georgia. The court also notes that the forum-selection clause itself suggests that venue and personal jurisdiction are appropriate in Atlanta, Georgia. Finally, subject matter jurisdiction is no less proper in the Northern District of Georgia than it is in the Middle District of North Carolina.
2. Forum-selection clauses and burden shifting
After finding the proposed transferee court to be an available destination, ordinarily the transferor court places the burden upon the party seeking transfer to show that under a multi-factor test the transferee court is the more convenient forum. See In re Ricoh Corp., 870 F.2d 570, 573 (11th Cir. 1989). Although no definitive list of factors to be considered by the transferor court has been established, typically courts consider a variety of factors which can be loosely labeled either as "public interests" or "private interests." See Jumara, 55 F.3d at 879-80; Plant Genetic Sys., N.V. v. Ciba Seeds, 933 F. Supp. 519, 527 (M.D.N.C. 1996) (listing factors); see also 17Moore's § 111.13 [1] [b]. The presence of a valid forum-selection clause alters the flexible analysis employed in a typical Section 1404(a) transfer case, however. If valid, the clause causes the burden to shift from the party seeking transfer (and enforcement of the clause) to the party opposing enforcement of the clause. Once the burden shifts, in order to avoid transfer the plaintiff must demonstrate that enforcing the clause would be unreasonable and unjust. See Jumara, 55 F.3d at 880 ("Where the forum-selection clause is valid . . . the plaintiffs bear the burden of demonstrating why they should not be bound by their contractual choice of forum."); Weiss v. Columbia Pictures Television. Inc., 801 F. Supp. 1276, 1278 (S.D.N.Y. 1992) ("[o]nce a mandatory choice of forum clause is deemed valid, the burden shifts to the plaintiff to demonstrate exceptional facts explaining why he should be relieved from his contractual duty.").
Although unpublished dispositions are not binding authority in this circuit, the court notes that the Fourth Circuit has adopted a position consistent with that reflected in the cases cited. See Nizam's Inst. of Med. Sciences v. Exchange Tech., Inc., 1994 WL 319187, at *2-3 (4th Cir. 1994) (holding party opposing forum-selection clause must meet "heavy burden" by demonstrating clearly that enforcement would be unreasonable and unjust).
In the present case, the burden shift is triggered because Plaintiff has not shown the forum-selection clause to be invalid. In the context of a motion to transfer under Section 1404(a), the validity of a forum-selection clause is determined with reference to federal law,Stewart, 487 U.S. at 28, and the Supreme Court has held that such clauses are prima facie valid. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972). Plaintiff does not contend that the forum-selection clause's existence is the product of fraud or overreaching. Plaintiff does contend, however, that the forum-selection clause is not "mandatory," but merely "permissive."
3. Forum-selection clause is mandatory
Forum-selection clauses can be either "permissive" or "mandatory." A permissive forum-selection clause, which is perhaps more appropriately known as a "consent to jurisdiction" clause, specifies the court empowered to hear any litigation arising from the contracting parties, in effect waiving any objection to personal jurisdiction in a venue. S D Coffee, Inc. v. GEI Autowrappers, 995 F. Supp. 607, 609 (M.D.N.C. 1997) Alternatively, a mandatory forum-selection clause, "identifies a particular state or court as having exclusive jurisdiction over disputes arising out of the parties' contract and their contractual relationship." Id.
As a general rule, "when a jurisdiction is specified in a provision of contract, the provision generally will not be enforced as a mandatory selection clause without some further language that indicates the parties' intent to make jurisdiction exclusive," such as "exclusive," "sole," or "only." MarK Group Int'l, Inc. v. Still, 566 S.E.2d 160, 162 (N.C.App. 2002) (emphasis added). The language of each forum-selection clause is important in that "[a] crucial distinction between mandatory and permissive clauses is whether the clause only mentions jurisdiction or specifically refers to venue." Arguss Communications Group. Inc. v. Teletron. Inc., 2000 WL 36936 at *7 (D.N.H. 1999) (citations omitted) (emphasis added). To simplify, "a forum selection clause designates the venue [and] a consent to jurisdiction clause waives personal jurisdiction and venue."See Corbin Russwin. Inc. v. Alexander's Hardware. Inc., 556 S.E.2d 592, 596 (N.C.App. 2001) (emphasis added)
The forum-selection clause in the contract at issue in the present case provides that "This Contract shall be governed and interpreted in accordance with the Federal laws of the United States of America. Thevenue will be the courts in Atlanta, Georgia." (Def.'s Br. Supp. Mot. Dismiss or Alternative Transfer, Ex. A, at 8, ¶ 11) (emphasis added). While the jurisdiction is generally noted to be the United States, the venue is specifically noted as Atlanta, Georgia. Although language such as "exclusive" or "sole" is not used, the specific reference to the venue indicates mandatory language. The crucial difference here is that while the language of the general rule refers to situations in which jurisdiction is generally referred to in the forum-selection clause, the language of the contract deals with an exactvenue and indicates specific intent. "When mandatory venue language is also employed . . . then courts will enforce the provision as a mandatory forum selection clause assuming it is otherwise enforceable." S D Coffee, 995 F. Supp. at 610.
In fact, the Fourth Circuit upheld a very similar clause in Sterling Forest Assocs. Ltd. v. Barnett-Range Corp., 840 F.2d 249 (4th Cir. 1988), overruled on other grounds, Lauro Lines S.R.L. v. Chasser, 490 U.S. 495 (1989). In Sterling Forest, the court was asked to determine whether the phrase "the parties agree that in any dispute jurisdiction and venue shall be in California" was mandatory or permissive. Id. at 250-52. The court focused on the phrase "venue shall be in California" and determined that it would follow many other courts and hold that the language was mandatory and not permissive. Id. at 252 (citing cases). In holding this, the Fourth Circuit rejected the district court's holding that this language meant "only that "jurisdiction and venue shall exist in California' and "elsewhere as well'" because that interpretation would make "the forum selection clause meaningless and redundant." Id. at 251. As in Sterling Forest, the clause "venue will be in the courts in Atlanta, Georgia" is mandatory and not permissive.
Sterling Forest "continues to govern the distinction between mandatory and permissive forum selection clauses in this circuit, because the Supreme Court's subsequent overruling of the case was limited to a holding on an unrelated issue." Cable-La Inc. v. Williams Communications Inc., 104 F. Supp.2d 569, 575 n. 3 (M.D.N.C. 1999).
The phrase "will be," like the phrase "shall be," indicates mandatory intent. Mead, 1999 WL 1939256, at *4 n. 7 (citing Black's Law Dictionary 1433 (5th ed. 1979)) (defining ""will' as "auxiliary verb commonly having the mandatory sense of "shall' or "must'")
4. Enforcement not "unreasonable and unjust"
Given that the parties' forum-selection clause is mandatory and valid, this court must enforce it by transferring the matter unless Plaintiff demonstrates that enforcement would be unreasonable and unjust. Plaintiff has not done this. The Supreme Court modified the standard for determining whether enforcement of a forum-selection clause would be unreasonable and unjust in Stewart. In that case the Court rejected the notion that a forum-selection clause should be afforded dispositive weight in the context of Section 1404(a) analysis in diversity cases.Stewart, 487 U.S. at 31. Instead, the Court directed lower courts to consider the presence of a valid forum-selection clause to be a "significant factor that figures centrally" within its multi-factor test. Id. at 29. Unless the court is presented with exceptional facts which show the clause to be unreasonable, the presumption in favor of its enforceability will apply. Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir. 1996) (discussing presumption of enforceability as enunciated in The Bremen); In re Ricoh, 870 F.2d at 573 (noting that presence of forum-selection clause requires its opponent to show that "the contractual forum is sufficiently inconvenient to justify retention of the suit").
According to the Fourth Circuit, forum-selection clauses are unreasonable if
(1) their 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) their enforcement would contravene a strong public policy of the forum state.Allen, 94 F.3d at 928 (citing Carnival Cruise Lines, 499 U.S. 585, 595, and The Bremen, 407 U.S. at 12-13). As stated above, Plaintiff does not maintain that the provision in question was procured by fraud or overreaching, nor does it allege that Georgia law would deprive it of a remedy. Instead, Plaintiff rests most of its opposition to enforcement of the clause on the notion that the clause is permissive not mandatory and that Defendant failed to support its argument for transfer on any other reason. As discussed above, the forum-selection clause is mandatory not permissive. Also noted above is the fact that with a valid forum-selection clause the burden of persuasion shifts from Defendant to Plaintiff. Plaintiff is the party responsible for showing that enforcement would be unreasonable and unjust.
Plaintiff also contends that transferring this matter to the Northern District of Georgia would be a "great hardship" on its staff and clients due to travel distance and time absent from work. (Pl.'s Br. Opp'n Mot. Dismiss or Transfer, Ex. A, Strickland Aff. at ¶ 6). However, "` [n]o matter which forum is selected, one side or the other will be burdened with bringing themselves and their witnesses from [another state].'" Republic Mortgage Ins. Co. v. Brightware. Inc., 35 F. Supp.2d 482, 487 (M.D.N.C. 1999) (quoting Brock v. Entre Computer Ctrs., Inc., 933 F.2d 1253, 1258 (4th Cir. 1991). In fact, any inconvenience Plaintiff might suffer as a result of being forced to litigate in Georgia as opposed to North Carolina "was clearly foreseeable at the time of contracting." The Bremen, 407 U.S. at 17-18. Simply put, the "great hardship" which Plaintiff claims it would suffer due to its "essential personnel" being absent "for an extended period of time" is insufficient to establish the grave inconvenience essentially depriving Plaintiff of its day in court. Other than the conclusory statement included in the Strickland affidavit, Plaintiff supplies no other information about this alleged "hardship." Without more, "[m]ere allegations of "serious inconvenience' are insufficient to meet the "heavy burden' of showing why enforcement would be unreasonable." Eisaman v. Cinema Grill Sys., Inc., 87 F. Supp.2d 446, 452 (D. Md. 1999)
CONCLUSION
Defendants prevail on their motion to transfer because Plaintiff's evidence of inconvenience is insufficiently strong to overcome the "counterweight' of the parties' private expression of their venue preference." Creditors Collection Bureau. Inc. v. Access Data. Inc., 820 F. Supp. 311, 313 (W.D. Ky. 1993). At best, the convenience of the witnesses in this action is no less impaired by suit in Atlanta than it would be by suit in Greensboro. Based on the facts before the court, the traditional convenience factors to be examined pursuant to Section 1404(a) point neither to Atlanta, Georgia, nor to Greensboro, North Carolina, as the more appropriate forum. For this reason, Plaintiff has failed to persuade the court that it should not enforce the forum-selection clause to which it agreed to be bound. See In re Ricoh Corp., 870 F.2d at 573-74; Shaw Group, Inc. v. Natkin Co., 970 F. Supp. 201, 205-06 (M.D. La. 1995); Creditors Collection Bureau, 820 F. Supp. at 313; 17 Moore's § 111.13[1][p][ii][A].
For the foregoing reasons, the court will grant Defendant's motion to transfer this matter to the Northern District of Georgia, Atlanta Division.
An order in accordance with this memorandum opinion shall be entered contemporaneously herewith.