Starlight Compy.v.Arlington Plastics

United States District Court, N.D. CaliforniaJun 11, 2002
No. C 01-1121 SI (N.D. Cal. Jun. 11, 2002)

No. C 01-1121 SI

June 11, 2002


ORDER DENYING DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S COMPLAINT; GRANTING DEFENDANTS' MOTION FOR TRANSFER OF VENUE; AND TRANSFERRING ACTION TO THE NORTHERN DISTRICT OF ILLINOIS

SUSAN ILLSTON, United States District Judge.

On June 8, 2001, this Court heard argument on defendants' motion to dismiss plaintiffs complaint or, alternatively, motion for transfer of venue. Having considered the arguments of the parties and the papers submitted, the Court hereby DENIES defendants' motion to dismiss the complaint and GRANTS defendants' motion for transfer of venue for the reasons set forth below.

BACKGROUND

Plaintiff Starlight Company, Inc., successor in interest to Johnny Gu dba Starlight Company, is engaged in the business of recycling plastic bags in Oakland, California. Complaint at ¶ 1, 6. Defendant Arlington Plastics Machinery Inc., ("Arlington") is an Illinois corporation with its primary place of business in Elk Grove Village, Illinois. Arlington employs defendant Louis Baccarini ("Baccarini") as a sales executive. Complaint at ¶ 2-3.

Plaintiffs business uses a machine known as a "pelletizing line" to transfonn plastic bags into small plastic pellets that can then be used to make new plastic bags. Complaint at ¶ 6. Arlington sells new and used industrial machinery, including pelletizing lines. Id. at ¶ 7. In or around August 2000, Arlington, through its authorized agent Baccarini, entered into negotiations with Gu for the sale ofa used pelletizing line. 14. at ¶¶ 8-9.

The parties executed a sales order (the "Contract") on October 2, 2000. Id. at ¶ 10. The Contract is a one-page double-sided document on yellow paper. Stanwyck Decl. Ex. A. Among the information included on the front of the Contract is a description of the machine, the extended price ofS 130,000, and the signatures of both parties. Id. The following language appears at the bottom of the page:

"We offer to purchaser the following articles for the purchase price specified above and subject to the terms and conditions set forth on the reverse side of this Agreement and Offer. This Agreement shall become effective upon, but not until, execution by ARLINGTON PLASTICS MACHINERY, INC. AND PURCHASER. Terms and conditions on reverse side are part of this agreement as effectively as though they precede the signature of purchaser." Id.

On the backside of the Contract the Terms and Conditions appear in blue print. Id. Paragraph 10 of the Terms and Conditions contains a forum-selection clause:

"MISCELLANEOUS. This contract and all causes of action relating to the sale and the terms hereof, or arising by virtue hereof shall be construed solely according to the laws of the State of Illinois. The Buyer and Seller agree that the courts shall be the sole, exclusive and only forum in which disputes arising hereunder or as a consequence hereof shall be adjudicated. The Buyer and Seller also agree that venue for all claims arising hereunder or by virtue hereof shall, at all times, be solely and exclusively in Cook County, Illinois. Buyer and Seller shall not be amenable to suit or other action in any forum or jurisdiction other than in the courts of Illinois regardless of the circumstances or facts of any claim hereunder or as a result hereof" Id.

In the months following the Contract date, disputes arose between the parties regarding the performance of various provisions of their agreement, including the machine's delivery date, inspection of the machine, and parts included in the machine. Complaint at ¶¶ 14-22. The parties attempted to resolve the matter informally via telephone conversations. Id. at ¶¶ 21-22, Stanwyck Decl. ¶ 3, Clarke Decl. ¶¶ 3-4. Plaintiff alleges that during one conversation between Plaintiffs attorney, Peter Stanwyck, and Arlington President Jack Clarke, Clarke told Stanwyck "if you want the expense of coming to Chicago and proving your case here, then go ahead." Stanwyck Decl. ¶ 3. Clarke explains that he was merely expressing "confusion as to why Plaintiff would be pursuing litigation in Chicago when we had already reached an understanding to resolve this dispute." Clarke Decl., ¶ 4.

On March 19, 2001, plaintiff filed suit alleging breach of contract, fraud, negligent misrepresentation, recission and declaratory relief. Defendants now move to dismiss the complaint for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3), based on the parties' contractual forum-selection clause which requires adjudication of all disputes arising from the Contract in Illinois. In the alternative, defendants move for transfer to the Northern District of Illinois for improper venue pursuant to 28 U.S.C. § 1406 (a).

LEGAL STANDARD

Federal law governs the enforceability of forum-selection clauses in diversity actions. Manetti| Farrow, Inc. v. Gucci America. Inc., 858 F.2d 509, 513 (9th Cir. 1988). Furthermore, motions to dismiss based on a forum-selection clause are treated as a Rule 12(b)(3) motion to dismiss for improper venue. Arguetta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996). Therefore, the pleadings are not accepted as true, as would be required under a Rule 12(b)(6) analysis. Id. A forum-selection clause is prima facie valid and should not be set aside unless the party challenging enforcement can show it is "`unreasonable' under the circumstances." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 1913 (1972). The Supreme Court re-interpreted the Bremen standard of "unreasonable under the circumstances" as a standard of "fundamental fairness." Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S.Ct. 1522, 1528 (1991). Such unfairness has been given a narrow interpretation and a party seeking to avoid a forum-selection clause must satisfy a "heavy burden of proof." Id. Unfairness can be proven only in limited circumstances, such as showing bad faith in the choice of venue or that the party signing the contract had inadequate notice of the provision. Id.

If a forum-selection clause is found valid and enforceable, courts have discretion to dismiss an action commenced in a forum other than that specified in the forum-selection clause or transfer the action to the district court located in the specified forum. 28 U.S.C. § 1406 (a). Courts should consider the basic equities of the case in deciding whether to transfer or dismiss, including any statute of limitations bar and the harshness of dismissal in light of such a bar, and the relative injustice imposed on the parties. King v. Russell, 963 F.2d 1301, 1304-05 (9th Cir. 1992).

DISCUSSION

A. Validity of the Forum-Selection Clause

Defendants argue that the forum-selection clause is valid and enforceable and therefore the Complaint should be dismissed. Plaintiff argues that the forum-selection clause should be invalidated due to inadequate notice and defendants' bad faith. Bad faith can be demonstrated by showing that a choice of forum is designed to discourage plaintiffs from pursuing legitimate claims or by showing that defendant obtained plaintiffs accession to the forum clause by fraud or overreaching. Carnival. 499 U.S. at 595, 111 S.Ct. at 1528.

Defendants operate their business out of Elk Grove, Illinois and selected Illinois as the forum state in order to "consolidate litigation involving far-flung operations." Reply at 7:24-26. As in Carnival, the clause here operates to provide Arlington with a forum in its principal place of business, which suggests a motive other than bad faith. Carnival, 499 U.S. at 595, 111 S.Ct. at 1528. While plaintiff offers some evidence (i.e., Clarke's statement made during telephone conversation with Stanwyck) that defendants believed their choice of forum would discourage the pursuit of plaintiff's lawsuit, this is not sufficient to overcome the presumption of validity courts traditionally give to forumC selection clauses when there is a reasonable basis, such as principal place of business, for the forum selected. See Carnival, 499 U.S. at 595, 111 S.Ct. at 1528; Effron v. Sun Line Cruises, 67 F.3d 7, 10 (2nd Cir. 1995).

Plaintiffs claims that the forum-selection clause was obtained through fraud or overreaching are unconvincing. A forum-selection clause is unenforceable for fraud only "if the inclusion of that clause in the contract was the product of fraud or coercion." Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 2457 n. 14 (1974). The party seeking to invalidate a forum-selection clause must show that the clause itself was fraudulently included in the agreement, not claim the entire agreement was a product of fraud. Batchelder v. Kawamato, 147 F.3d 915, 919 (9th Cir. 1998). Plaintiff claims that "including the forum-selection clause under the heading "Miscellaneous', in and of itself could be considered to be a fraud." Opp. at 7:1-2. However, this does not satisfy the high bar for proving fraud in a contract which requires a showing of intent to mislead. Restatement (Second) of Contracts § 162 (1978). Particularly given that the Contract contained a warning directly above the signature line to read the terms and conditions on the reverse side, it does not appear that defendants' use of the heading "Miscellaneous" was an attempt to intentionally mislead plaintiff.

Plaintiff also argues that it was not given reasonable notice of the forum-selection clause. In Deiro v. American Airlines, 816 F.2d 1360 (9th Cir. 1987), the Ninth Circuit employed a two-pronged analysis in determining whether airline passengers are bound by "boilerplate" conditions located on passenger tickets. "The "proper test of reasonable notice is an analysis of the overall circumstances on a case-by-case basis, with an examination not only of the ticket itself, but also of any extrinsic factors indicating the passenger's ability to become meaningfully informed of the contractual terms at stake."' Id. at 1364 (quoting Shankles v. Costa Armatori, S.P.A., 722 F.2d 861, 866 (1st Cir. 1983)). In this case, both the physical attributes of the contract and the extrinsic factors pertaining to plaintiff's ability to inform itself of the contractual terms indicate that plaintiff had adequate notice of the forum-selection provision. A statement directly above the signature line on the face of the Contract clearly explains that the terms on the backside are binding. Although the forum-selection provision was included under the relatively vague heading of "Miscellaneous," this is not sufficient to demonstrate that plaintiff was unaware of the clause's existence. The "Terms and Conditions" are only one-page in length and this was an arms-length transaction between two commercial parties. Parties dealing at arms length have no duty to explain to each other the terms written in a contract. Cohen v. Wedbush, Noble4 Cookc. LneZ, 841 F.2d 282, 287 (9th Cir. 1988). It is not unreasonable to expect that when negotiating for the purchase of $130,000 worth of machinery, a party should familiarize itself with the relatively short terms of the agreement despite the color of the print, the font size, or the vague heading.

The adhesive nature of the terms and conditions does not render a forum-selection provision invalid. The Carnival court upheld a forum-selection provision, even though the non-negotiated contract was purely routime and doubtless nearly identical to every other commercial passage contract issued by petitioner and most other cruise lines." Carnival, 499 U.S. at 593, 111 S.Ct. at 1527. Sec also Fireman's Fund Insurance Company v. M.V. DSR Atlantic, 131 F.3d 1336, 1338 (9th Cir. 1997) (finding that if a forum-selection clause is unambiguous it is irrelevant if the contract is one of adhesion), Silva Encyclopedia Britannica, 239 F.3d 385, 386 (1st Cir. 2001) (upholding "boilerplate" forum-selection clause in an encyclopedia sales contract that appeared in small print on the back of the contract), Lambert v. Kysar, 963 F.2d 1110, 1113 (1st Cir. 1993) (upholding "boilerplate" forum-selection clause appearing on backside of form contract).

Finally, plaintiff argues that due to defendants' fraudulent conduct the entire Contract should be rescinded and the forum-selection clause should be found unenforceable. Plaintiff alleges that defendants intentionally made false promises during the Contract's formation and fraudulently induced plaintiff's assent. However, plaintiff presents no cases where a court has rescinded an entire contract for the purpose of invalidating a forum-selection clause. Granting a rescission of the Contract to invalidate the forum-selection clause would essentially give plaintiff the relief it seeks without requiring it to prove its case. As noted above, courts require that a party must plead specifically that a forum| selection clause was fraudulently ogtained to invalidate the provision. This requirement ensures that the effect of a court's ruling on a forum-selection clause is limited to the clause itself and will not deprive parties of a full opportunity to litigate other issues. When a contract includes a valid forum| selection clause, a court in the selected forum must determine whether rescission of the entire contract is ultimately appropriate.

The Court concludes the forum-selection clause is valid and enforceable. Any causes of action arising out of or implicating the contract containing the forum-selection clause are subject to that clause. Mimetti-Farrow, Inc., Gucci America, Inc., 858 F.2d 509, 514 (9th Cir. 1988). All causes of action alleged in the Complaint arise out of the September 2000 contract containing the forum-selection clause, therefore all causes are subject to it.

B. Dismissal or Transfer

During oral argument, plaintiffs counsel indicated that transfer would be preferred over dismissal in the event that the Court upheld the forum-selection clause. The Court accepts plaintiff's request and finds that transfer to the Northern District of Illinois is appropriate in this case.

CONCLUSION

For the foregoing reasons, the Court DENIES defendants' motion to dismiss for improper venue and GRANTS defendants' motion for transfer of venue. [Docket No. 9] This action is TRANSFERRED to the Northern District of Illinois pursuant to the forum-selection clause in the Contract at issue.