VARSITY GOLD, INC. v. ROB LUNENFELD RND, INC.

Full title: VARSITY GOLD, INC. v. ROB LUNENFELD RND, INC

Court: United States District Court, D. Maryland

Date published: Dec 12, 2008

Civil Action No. CCB-08-550 (D. Md. Dec. 12, 2008)

Opinion

Civil Action No. CCB-08-550.

December 12, 2008

MEMORANDUM

CATHERINE BLAKE, District Judge

Now pending before the court is a motion to dismiss for improper venue, filed by defendants Rob Lunenfeld and RND, Inc. (collectively "defendants") against plaintiff Varsity Gold, Inc ("Varsity Gold"). Varsity Gold is suing the defendants for tortious interference with contractual or business relations and unjust enrichment. The issues in this case have been fully briefed and no hearing is necessary. For the reasons stated below, the defendants' motion to dismiss will be granted.¹

1 Defendants also seek to dismiss this suit on the ground that Varsity Gold's claims were compulsory counterclaims in a prior case, and as such cannot now be raised in a separate suit. Because venue is improper, the court need not reach this issue. See, e.g., United States v. Stewart, 256 F.3d 231, 241 n. 4 (4th Cir. 2001).

BACKGROUND

Varsity Gold is an Arizona corporation with its principal place of business in Maricopa County, Arizona. It is engaged in the development, promotion, and marketing of fundraising products for school organizations and programs, particularly athletic programs, nationwide. To promote its products, it relies on a network of sales representatives across several states. These sales representatives develop business relationships with school programs in their vicinity, and Varsity Gold then supplies these programs with its fundraising products. Rob Lunenfeld is a citizen and resident of Maryland who solely owns and operates RND, Inc., a business also engaged in the promotion and marketing of fundraising products for school programs.

From March 2000 to December 2007, Mr. Lunenfeld and his corporation worked as a Varsity Gold sales representative in Maryland, pursuant to a Sales Representative Agreement ("SRA"). This SRA set out the profit-sharing arrangement between the defendants and Varsity Gold and also included several non-compete clauses, ² as well as a forum selection clause.³ In December 2007, the defendants terminated their relationship with Varsity Gold and — along with several other former sales representatives — filed suit against it in the Superior Court of Maricopa County, Arizona, seeking a declaratory judgment that the non-compete clauses in the SRA were unreasonable and therefore unenforceable. Varsity Gold filed the present suit against the defendants in February 2008, less than one month after the defendants and other former sales representatives filed their second amended complaint in the Maricopa County suit. It also sent written notice to the defendants that it would not seek to enforce the non-compete clauses in its SRA. Consequently, the Maricopa County suit was dismissed as moot.

2 These clauses, set forth in Paragraphs 9 through 15 of the SRA, include covenants against: disclosure of confidential information; customer solicitation; accepting business from former customers; and solicitation of sales representatives. (Defs.' Mot. at Ex. 2, Sample Sales Rep. Agreement ¶¶ 9, 11, 12, 13.)

3 The forum selection clause reads, in relevant part: "All lawsuits, claims or other legal proceedings arising from or related to this Agreement, including all claims for declaratory or injunctive relief, shall be governed by the law of Arizona, and shall be venued in Maricopa County, Arizona." (Defs.' Mot. at Ex. 2, Sample Sales Rep. Agreement ¶ 24.) The parties also agreed they were subject to personal jurisdiction in the Maricopa County courts.

In the suit before this court, Varsity Gold alleges that: (1) the defendants have tortiously interfered with Varsity Gold's contractual or business relations with all of the school programs and merchants that the defendants cultivated on their behalf while under contract; and (2) the defendants have been and/or will be unjustly enriched by their "subversion" of these previously established business relationships with Varsity Gold "in favor of their competing business." (Compl. ¶¶ 15-21.) Defendants contend that these allegations "aris[e] from" or are "related to" the SRA, and therefore are precluded from this court's consideration by the SRA's forum selection clause.

ANALYSIS

When faced with a forum selection clause, federal courts must first determine which law governs the enforceability and applicability of the clause. Eisaman v. Cinema Grill Systems, Inc., 87 F. Supp. 2d 446, 448 (D. Md. 1999); see also Koch v. America Online, Inc., 139 F. Supp. 2d 690, 692 (D. Md. 2000). If the underlying action is based on federal question jurisdiction, federal law applies. Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 590 (1991). If the action is based on diversity jurisdiction, as it is here, the relevant state law likely would apply, although there appears to be a Circuit split on this issue. See Eisaman, 87 F. Supp. 2d at 448 n. 2. When both relevant states have adopted federal standards governing forum selection clauses, though, those standards control the analysis. Koch, 139 F. Supp. 2d at 693. Because this case involves a dispute between an Arizona-based plaintiff and Maryland-based defendants, and both states have adopted standards that are equivalent to the federal standards governing forum selection clauses, see Davis Media Grp. v. Best Western Int'l, Inc., 302 F. Supp. 2d 464, 466 (D. Md. 2004), I will apply federal law to this analysis.⁴ See Varsity Gold, Inc. v. Cron, 2008 WL 4831418, at *1 (E.D. N.C. Nov. 5, 2008) (applying federal law in a case involving the same plaintiff and same forum selection clause).

4 The parties do not argue that a different standard applies.

It is now well established that federal law presumes mandatory forum selection clauses to be prima facie enforceable for claims within their scope "unless enforcement is shown by the resisting party to be `unreasonable' under the circumstances." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972); Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204, 213 (4th Cir. 2007); Belfiore v. Summit Fed. Credit Union, 452 F. Supp. 2d 629, 631 (D. Md. 2006); Eisaman, 87 F. Supp. 2d at 449. Accordingly, this court's task in determining the enforceability and applicability of the forum selection clause at issue is threefold. First, it must establish whether the clause is mandatory. If so, the clause is presumptively enforceable. Id. Second, the court must establish whether the clause is presumptively enforceable against the particular claims in dispute, i.e. whether the claims fall within the scope of the clause. If it finds that they do fall within the clause's scope, then that clause presumptively applies to bar their adjudication outside its designated forum. See, e.g., Hitachi Credit America Corp. v. Signet Bank, 166 F.3d 614, 628 (4th Cir. 1999) (examining whether contract-related tort claims were within the scope of an agreement's choice of law clause); Belfiore, 452 F. Supp. 2d at 632 (determining that plaintiff's several non-contract claims were within the scope of a contract's forum selection clause, thus barring adjudication in Maryland). Third and finally, the court must decide whether the party opposing the clause's enforcement has rebutted the presumption of enforceability by proving that enforcement would be unreasonable. If it has not, the clause will be enforced. M/S Bremen, 407 U.S. at 15 ("The correct approach [is] . . . to enforce the forum clause specifically unless [the resisting party can] clearly show that enforcement would be unreasonable and unjust. . . .").

In Cron, the District Court of the Eastern District of North Carolina applied substantially this analysis to a dispute involving the same plaintiff, the same forum selection clause, and nearly identical claims, and found that the forum selection clause applied to those claims; it therefore dismissed those claims for improper venue. Cron, 2008 WL 4831418, at *2. I agree with that court's conclusion.

First, the forum selection clause here is mandatory. Mandatory forum selection clauses are those that contain "clear language showing that jurisdiction is appropriate only in the designated forum." Koch, 139 F. Supp. 2d at 693 (internal quotations and citation omitted). Here the forum selection clause states that disputes arising from or related to the SRA "shall be venued in Maricopa County, Arizona." This language is both quite clear, naming a specific state court venue, and unequivocally mandatory, using the word "shall." See Sterling Forest Associates, Ltd. v. Barnett-Range Corp., 840 F.2d 249, 252 (4th Cir. 1988), overruled on other grounds by Lauro Lines S.R.L. v. Chasser, 490 U.S. 495 (1989) (stating that lawyers who prepared a forum selection clause with the word "shall" knew or should have known that "`shall' generally indicates a mandatory intent"); Davis Media Grp., 302 F. Supp. 2d at 467-68 (finding a forum selection clause with the word "shall" to be mandatory); Eisaman, 87 F. Supp. 2d at 450 (same). Therefore, this clause is presumptively enforceable.

Second, the claims brought by Varsity Gold fall within the scope of the forum selection clause. Varsity Gold argues that its two tort claims — tortious interference with contractual or business relations and unjust enrichment — are outside the scope of the SRA's forum selection clause because that clause "does not facially apply to tort actions." (Pl.'s Opp. at 12.) Moreover, it contends that its claims are not "claims . . . arising from or related to" the SRA, as required for the forum selection clause to apply, but rather are claims based on entirely distinctive issues of fact and law. Regarding the first point, however, the language of the forum selection clause here is broad enough to encompass more than pure contract claims, and courts in this circuit have consistently found facially contractual forum selection clauses to apply to related tort claims. Belfiore, 452 F. Supp. 2d at 632 (finding a forum selection clause with similar language to the one here to encompass related tort claims); In re Eternity Shipping, Ltd., Eurocarriers, S.A. for Exoneration from or Limitation of Liability, 444 F. Supp. 2d 347, 384 (D. Md. 2006) (finding a forum selection clause in a seaman's employment contract to encompass plaintiff's tort claims related to that seaman's death); Berry v. Soul Circus, Inc., 189 F. Supp. 2d 290, 294 (D. Md. 2002) (finding a forum selection clause in a performer's employment contract to encompass plaintiff's tort claims, including a claim for unjust enrichment).⁵

5 Nearly every circuit to have considered the issue has concluded that facially contractual forum selection clauses apply to related tort claims. See, e.g., Ginter ex rel. Ballard v. Belcher, Prendergast Laporte, 536 F.3d 439, 444-45 (5th Cir. 2008); Kochert v. Adagen Med. Int'l, Inc., 491 F.3d 674, 680 (7th Cir. 2007); Terra Int'l, Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 693-94 (8th Cir. 1997); General Elec. Co. v. G. Siempelkamp GmbH Co., 29 F.3d 1095, 1096 (6th Cir. 1994); Stewart Organization, Inc. v. Ricoh Corp., 810 F.2d 1066, 1070 (11th Cir. 1987). This conclusion extends to the tort of tortious interference, see, e.g., Hugel v. Corp. of Lloyd's, 999 F.2d 206, 209 (7th Cir. 1993); Crescent Int'l, Inc. v. Avatar Communities, Inc., 857 F.2d 943, 944 (3d Cir. 1988) (per curiam); Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 511-12 (9th Cir. 1988), as well as the tort of unjust enrichment, see, e.g., In re Exide Technologies, 544 F.3d 196, 206 (3d Cir. 2008); Interamerican Trade Corp. v. Companhia Fabricadora De Pecas, 973 F.2d 487, 490 (6th Cir. 1992).

Regarding the second point, these tort claims are clearly related to the SRA. The tortious interference claim consists of allegations that the defendants used the knowledge and relationships they had built as former Varsity Gold sales representatives to solicit and accept business for themselves, business that formerly flowed to Varsity Gold. These allegations are all directly related to the non-compete provisions of the SRA. The allegation of improper use of knowledge acquired while a Varsity Gold sales representative relates to Paragraph 9 of the SRA, which prohibits use of client lists and "business know-how" provided to the sales representative by Varsity Gold "at any time after the termination" of the agreement unless "specifically authorized" by Varsity Gold. (Defs.' Mot. at Ex. 2, Sample Sales Rep. Agreement ¶ 9.) The allegation that the defendants solicited and accepted business for themselves at Varsity Gold's expense relates to Paragraphs 11 and 12 of the SRA, which expressly bar contact with Varsity Gold customers for a period of two years after the termination of the agreement for purposes of soliciting or accepting business.

This close relationship to the SRA holds for Varsity Gold's unjust enrichment claim as well. That claim consists of allegations that the defendants were unjustly enriched by taking business away from Varsity Gold "in favor of their competing business, all without authorization from Varsity Gold." (Compl. ¶ 20.) These allegations directly relate to the SRA. Logically, to allege a wrong based on unauthorized activity is to imply the breach of an underlying agreement that sets out authorization parameters. Here, as mentioned above, the SRA set out which activities former sales representatives were or were not allowed to carry out vis-a-vis existing Varsity Gold customers once they ceased working for Varsity Gold, specifying when authorization was required. (Defs.' Mot. at Ex. 2, Sample Sales Rep. Agreement ¶¶ 9-14.) The defendants' alleged violation of these non-compete provisions is precisely what gave rise to Varsity Gold's current unjust enrichment claim. These observations, and the fact that the remedies Varsity Gold seeks include remedies specifically contemplated by the forum selection clause, ⁶ lead this court to conclude that Varsity Gold's claims, despite being non-contractual, fall within the scope of the forum selection clause. See Belfiore, 452 F. Supp. 2d at 632 ("[P]leading alternate non-contractual theories is not alone enough to avoid a forum selection clause if the claims asserted arise out of the contractual relation and implicate the contract's terms.") (quoting Crescent Int'l, Inc. v. Avatar Communities, Inc., 857 F.2d 943, 944 (3d Cir. 1988). Therefore, the forum selection clause is presumptively enforceable for these claims.

6 For instance, Varsity Gold seeks injunctive relief and the forum selection clause states that "all claims for declaratory or injunctive relief[] . . . shall be venued in Maricopa County, Arizona." (Defs.' Mot. at Ex. 2, Sample Sales Rep. Agreement ¶ 24.)

Finally, Varsity Gold has not attempted to rebut the presumption of enforceability by showing that enforcement of the clause would be unreasonable.⁷ Accordingly, as in Cron, 2008 WL 4831418, at *1, reasonableness is not at issue here.

7 If Varsity Gold had attempted to rebut this presumption, it likely would have failed. To rebut this presumption, Varsity Gold would have had to make a clear showing that: (1) the clause was "induced by fraud or overreaching"; (2) its enforcement would "for all practical purposes . . . deprive[] [the complaining party] of [its] day in court because of the grave inconvenience or unfairness of the selected forum"; (3) the selected forum's applicable law contains a "fundamental unfairness" that would "deprive the plaintiff of a remedy"; or (4) enforcement of the clause "would contravene a strong public policy of the forum state." Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir. 1996) (citing Carnival Cruise Lines, 499 U.S. at 595; M/S Bremen, 407 U.S. at 12-13) (internal quotations removed); see Davis Media Grp., 302 F. Supp. 2d at 469 (using these four factors).

CONCLUSION

For the foregoing reasons, this court finds the forum selection clause in the SRA between Varsity Gold and the defendants to be enforceable and applicable to Varsity Gold's claims. Venue is therefore not proper in Maryland, and the defendants' motion to dismiss will be granted. A separate Order follows.

ORDER

For the reasons stated in the accompanying Memorandum, it is hereby ORDERED that:

1. The defendants' motion to dismiss (docket entry no. 11) is GRANTED; and

2. This case is DISMISSED without prejudice.