Opinion
C090215
05-11-2020
CAP CALL, LLC, Petitioner, v. THE SUPERIOR COURT OF SACRAMENTO COUNTY, Respondent; FREDERICK SAUL et al., Real Parties in Interest.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 34-2018-00226760-CU-BT-GDS)
Real Parties in Interest Frederick Saul and Phoenix Logistics Supply Chain Solutions, Inc. (collectively, PLSCS), filed a lawsuit in California against petitioner Cap Call, LLC (Cap Call), alleging they were the victims of unlawful, unfair, and fraudulent business lending activities. Cap Call moved to dismiss the action on forum non conveniens grounds, citing a contractual forum selection clause requiring any lawsuit to be instituted in New York. The trial court denied the motion, concluding the forum selection clause is permissive, not mandatory. Cap Call filed a petition for writ of mandate challenging the trial court's order. We issued an alternative writ of mandate and now grant the petition. We conclude the forum selection clause is mandatory and must be given effect absent a determination on remand that enforcement of the clause would be unreasonable under the circumstances of this case.
BACKGROUND FACTS AND PROCEDURE
Cap Call is a financial services company incorporated in Delaware and headquartered in New York which provides financing to businesses. PLSCS is a freight forwarding company with its principal place of business in Dublin, California.
Beginning in 2015 and continuing through 2016, Cap Call extended financing to PLSCS through a series of five "merchant agreements." By the terms of the merchant agreements, Cap Call agreed to advance money to PLSCS in exchange for the sale and assignment of PLSCS's future accounts receivable. In total, Cap Call agreed to purchase $1,648,900 in future receivables for $1,100,000 (or about 67 percent of their face value).
Such an arrangement is commonly referred to as "factoring." (See Aalfs v. Wirum (In re Straightline Invs.) (9th Cir. 2008) 525 F.3d 870, 876, fn. 1.) Under the traditional form of a factoring agreement, the seller gives up the possibility of receiving the face value of the accounts receivable in exchange for a discounted but unconditional sum certain, and the purchaser assumes the risk of collection on the accounts. (Nickey Gregory Co., LLC v. AgriCap, LLC (4th Cir. 2010) 597 F.3d 591, 601.)
Each merchant agreement states, in relevant part: "This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regards to any principals [sic] of conflicts of law. Any suit, action or proceeding arising hereunder, or the interpretation, performance or breach hereof, shall, if [Cap Call] so elects, be instituted in any court sitting in New York, (the 'Acceptable Forums'). [PLSCS] agrees that the Acceptable Forums are convenient to it, and submits to the jurisdiction of the Acceptable Forums and waives any and all objections to jurisdiction or venue. Should such proceeding be initiated in any other forum, [PLSCS] waives any right to oppose any motion or application made by [Cap Call] to transfer such proceeding to an Acceptable Forum."
PLSCS successfully paid the amounts owed under the first four merchant agreements, but ultimately missed payments and defaulted under the fifth and final agreement.
Relying on a confession of judgment signed by PLSCS in connection with the merchant agreement, Cap Call obtained a judgment against PLSCS in New York. Cap Call then filed an action to domesticate the New York judgment in Contra Costa County Superior Court. The Contra Costa court entered a sister-state judgment against PLSCS in the amount of $436,343.67 on March 1, 2018.
PLSCS did not seek to vacate the sister-state judgment under Code of Civil Procedure section 1710.40. Further undesignated statutory references are to the Code of Civil Procedure.
On February 7, 2018, PLSCS filed a lawsuit against Cap Call in Sacramento County Superior Court. In its second amended complaint, PLSCS alleges that despite Cap Call characterizing its financing as "merchant cash advances," the agreements were in fact secured loans. PLSCS alleges that Cap Call intentionally made false representations to induce PLSCS to accept loans made in violation of the state's finance lending laws. PLSCS asserts three causes of action against Cap Call, alleging (1) violation of state usury laws, (2) fraud and deceit, and (3) violation of Business and Professions Code section 17200.
Cap Call filed a motion to dismiss the action on forum non conveniens grounds, arguing that the forum selection clause contained in the merchant agreements requires the action be litigated in New York rather than California. The trial court denied the motion. The court ruled that the forum selection clause contained in the merchant agreements is permissive, not mandatory. Applying the traditional forum non conveniens analysis, the trial court ruled that Cap Call failed to meet its burden to show that the action should be tried elsewhere.
Cap Call filed a petition for writ of mandate challenging the trial court's order denying its motion. We issued an alternative writ of mandate ordering the parties to show cause why a peremptory writ of mandate should not issue. PLSCS filed a return to the alternative writ, to which Cap Call filed a reply.
DISCUSSION
I
The Forum Selection Clause is Mandatory
Cap Call claims the trial court misconstrued the parties' forum selection clause as merely permissive, not mandatory, and therefore erroneously placed the burden of proof on Cap Call instead of PLSCS. We agree.
Forum non conveniens is an equitable doctrine under which a trial court has discretion to decline to exercise jurisdiction over a transitory cause of action that it believes may be more appropriately and justly tried elsewhere. (Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744, 751 (Stangvik).) California has codified this principle in section 410.30, which provides: "When a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just." (§ 410.30, subd. (a), see also § 418.10.)
In determining whether to grant a motion based on forum non conveniens, courts usually apply a two-step process. (Stangvik, supra, 54 Cal.3d at p. 751.) In the first step, the court must determine whether the alternate forum is a suitable place for trial. (Ibid.) If it is, the next step is to decide whether the private and public interests, on balance, favor retaining the action in California. (Ibid.; Animal Film, LLC v. D.E.J. Productions, Inc. (2011) 193 Cal.App.4th 466, 473 (Animal Film).) The motion is addressed to the trial court's discretion and the court retains a " 'flexible power' to consider and weigh all the factors." (Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 198 (Intershop).) The moving party bears the burden of proof. (Stangvik, at p. 751.)
A motion based on a forum selection clause, however, is a special type of forum non conveniens motion. (Berg v. MTC Electronics Technologies Co. (1998) 61 Cal.App.4th 349, 358.) Consistent with the modern trend, California favors enforcement of a forum selection clause appearing in a contract entered into freely and voluntarily by parties negotiating at arm's length. (Cal-State Business Products & Services, Inc. v. Ricoh (1993) 12 Cal.App.4th 1666, 1679 (Cal-State Business Products).) When a case involves a mandatory forum selection clause, the traditional forum non conveniens analysis does not apply. (Intershop, supra, 104 Cal.App.4th at p. 198; Cal-State Business Products, supra, at pp. 1679, 1682-1683.) Instead, a mandatory forum selection clause is presumed valid and will be enforced unless enforcement of the clause would be unreasonable under the circumstances of the case. (Smith, supra, 17 Cal.3d at p. 496; Intershop, at p. 198.) In contrast to a motion on traditional grounds of forum non conveniens, the burden of proof is on the party challenging enforcement of the forum selection clause. (Intershop, at p. 198.)
Mere inconvenience or additional expense is not the test of unreasonableness. (Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 496 (Smith); accord, Cal-State Business Products, supra, 12 Cal.App.4th at p. 1679; but see The Bremen v. Zapata Off-Shore Co. (1972) 407 U.S. 1, 18 [32 L.Ed.2d 513, 525] [a forum clause may be unreasonable if the forum is so gravely difficult and inconvenient that the party will for all practical purposes be deprived of his day in court].) In general, enforcement of a forum selection clause has been considered unreasonable only when the forum has no logical nexus to the parties or their transaction, the forum is unavailable or unable to accomplish "substantial justice," deferring to the selected forum would substantially diminish the rights of California residents in a manner that violates our state's public policy, or the clause itself was obtained by fraud. (Cal-State Business Products, supra, at pp. 1679-1680; Verdugo v. Alliantgroup, L.P. (2015) 237 Cal.App.4th 141, 147 (Verdugo); CQL Original Products, Inc. v. National Hockey League Players' Assn. (1995) 39 Cal.App.4th 1347, 1354 (CQL Original Products); Scherk v. Alberto-Culver Co. (1974) 417 U.S. 506, 519, fn. 14 [41 L.Ed.2d 270, 281]; Moses v. Business Card Express, Inc. (6th Cir. 1991) 929 F.2d 1131, 1138.)
Thus, the threshold question in a case involving a forum selection clause is whether the clause is mandatory or permissive. (Animal Film, supra, 193 Cal.App.4th at p. 471.) If the clause is mandatory, it is presumed valid and will be enforced unless the party opposing the motion proves enforcement of the clause would be unreasonable. (Intershop, supra, 104 Cal.App.4th at p. 198.) In contrast, if the clause is permissive, the traditional forum non conveniens analysis applies and the existence of the clause is merely one factor to be considered in determining whether the action should be heard in a different forum. (Animal Film, at p. 471.)
A clause is mandatory if it requires the parties to litigate their disputes exclusively in the designated forum. (Verdugo, supra, 237 Cal.App.4th at p. 147, fn. 2.) A clause is permissive if it merely requires the parties to submit to jurisdiction in the designated forum. (Ibid.)
Here, the trial court decided this threshold issue in favor of PLSCS. It ruled that the forum selection clause in the merchant agreement was permissive, and therefore placed the burden on Cap Call to show that a stay or dismissal was appropriate under the traditional forum non conveniens factors. Finding that Cap Call failed to meet that burden, the court denied the motion.
The controlling issue here is the trial court's construction of the terms of a written contract, without any assessment of conflicting extrinsic evidence. This is a legal question which we review de novo. (Bushansky v. Soon-Shiong (2018) 23 Cal.App.5th 1000, 1006.)
The relevant contract language states: "Any suit, action or proceeding arising hereunder, or the interpretation, performance or breach hereof, shall, if [Cap Call] so elects, be instituted in any court sitting in New York, (the 'Acceptable Forums')." It further provides that PLSCS agrees to submit to "the jurisdiction of the Acceptable Forums" and, should a proceeding be initiated in any other forum, PLSCS "waives any right to oppose any motion or application . . . to transfer such proceeding to an Acceptable Forum."
In addition to a forum selection clause, the parties' agreements also include a choice-of-law provision stating that the agreements "shall be governed by and construed in accordance with the laws of the State of New York . . . ." However, because both parties have assumed California law applies as to the issue before us, and have relied almost exclusively on California law in their briefs, without any discussion of New York law, we treat the choice-of-law issue as forfeited and apply California law. (Fuentes v. TMCSF, Inc. (2018) 26 Cal.App.5th 541, 547.)
PLSCS argues that this language is permissive because it (1) does not limit where PLSCS may file suit, and (2) is nonmutual, placing no restrictions of any kind on the location in which Cap Call could file suit. The trial court was persuaded by PLSCS's arguments. We are not.
Taking the phrase "if [Cap Call] so elects" out of the sentence, the meaning of the forum selection clause is clear: any suit arising under the agreement "shall . . . be instituted" in any court sitting in New York. This is mandatory and exclusive language requiring the parties to litigate their claims in New York. (People v. Municipal Court (Hinton) (1983) 149 Cal.App.3d 951, 954 [the word "shall" in ordinary usage means "must"].) Inclusion of the phrase "if [Cap Call] so elects" makes the requirement conditional, but no less mandatory when the condition is triggered. Properly construed, the forum selection clause requires that suit be instituted in New York if Cap Call so chooses, as it has in this case.
The Fourth District Court of Appeal's decision in CQL Original Products, supra, 39 Cal.App.4th 1347 is instructive. In that case, a California corporation sued a Canadian nonprofit association for breach of contract in California state court. (CQL Original Products, supra, 39 Cal.App.4th at pp. 1351-1352 & fn. 2.) The defendant moved to dismiss the complaint on ground of forum non conveniens, asserting that the plaintiff's claims were subject to a mandatory forum selection clause stating that "any claims arising hereunder shall, at the [defendant's] election, be prosecuted in the appropriate court of Ontario[, Canada]." (CQL Original Products, at pp. 1352, 1353.) The trial court granted the motion. The court held that the forum selection clause was mandatory and that the plaintiff failed to meet its burden of proving the selected forum was unreasonable. (Id. at p. 1353.)
On appeal, the plaintiff argued that the forum selection clause is ambiguous because it does not "unequivocally mandate" the plaintiff prosecute its claims "exclusively in Ontario." (CQL Original Products, supra, 39 Cal.App.4th at p. 1358.) The appellate court disagreed, concluding the clause unambiguously mandates that "claims arising under the license agreement be prosecuted in Ontario, at [defendant's] election." (Ibid.) The reasoning of CQL Original Products is persuasive.
Our conclusion finds additional support in two federal district court decisions: Fleetwood Servs., LLC v. Complete Bus. Sols. Grp., Inc. (N.D.Tex., Jan. 22, 2018, No. 3:17-CV-2272-G) 2018 U.S.Dist. LEXIS 9491 (Fleetwood), and Contract Transp. Servs. v. New Era Lending LLC (N.D.Ohio, Oct. 2, 2017, No. 1:17 CV 1322) 2017 U.S.Dist. LEXIS 217433 (Contract Transport).)
The limitations on citing unpublished California cases (see Cal. Rules of Court, rule 8.1115) do not apply to unpublished federal cases. (Farm Raised Salmon Cases (2008) 42 Cal.4th 1077, 1096, fn. 18.) We may rely on unpublished federal court decisions as persuasive authority. (Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 64, fn. 4; Aguirre v. Amscan Holdings, Inc. (2015) 234 Cal.App.4th 1290, 1298, fn. 5.)
In Fleetwood, a Texas company and two Texas residents filed suit in Texas state court alleging they were victimized by predatory lenders based in Pennsylvania. (Fleetwood, supra, 2018 U.S.Dist. LEXIS 9491 at pp. *1-3.) After removing the case to federal court, the defendants sought to transfer the case to Pennsylvania based on a forum selection clause in the parties' agreement. (Id. at pp. *3-4.) The language of that clause is nearly identical to the one at issue here: "Any suit, action or proceeding arising hereunder, or the interpretation, performance or breach hereof, shall, if [defendant] so elects, be instituted in any court sitting in Pennsylvania, (the 'Acceptable Forums'). . . . Should such proceeding be initiated in any other forum, [plaintiff] waives any right to oppose any motion or application made by [defendant] to transfer such proceeding to an Acceptable Forum." (Fleetwood, supra, at pp. *12-13, italics omitted.)
The issue before the court was whether this language was mandatory or permissive. (Fleetwood, supra, 2018 U.S.Dist. LEXIS 9491 at pp. *10-11.) The court concluded that the plain meaning of the language showed the clause is mandatory, requiring suit to be instituted in Pennsylvania if the defendant so elects. (Id. at pp. *16-17.) The court construed the last sentence of the clause, waiving the plaintiff's right to oppose any transfer motion, as enforcing the defendant's right to elect a Pennsylvania forum should the plaintiff attempt to file suit elsewhere. (Id. at p. *18.)
Contract Transport, supra, 2017 U.S.Dist. LEXIS 217433, involves similar facts. In that case, plaintiffs filed suit in Ohio against New York businesses and Ohio residents alleging agreements purporting to be sales of accounts receivable were in fact illegal loans. (Id. at pp. *2-3.) The defendants moved to dismiss or transfer the case to New York, relying on a forum selection clause in the parties' agreements stating that any action arising under the contract " 'shall, if [defendant] so elects, be instituted in any court sitting in New York.' " (Id. at pp. *4-7.) The court granted the motion, concluding that the "New York forum was mandatory if [the defendant] requested it." (Id. at p. *7, fn. 2.)
The forum selection clause at issue here uses the same language as the clauses found to be mandatory in CQL Original Products, Fleetwood, and Contract Transport. Thus, we conclude, as did those courts, that the language is mandatory, requiring suit to be instituted in the selected forum at the defendant's election.
In reaching this conclusion, we reject PLSCS's argument that a mandatory forum selection clause must be reciprocal. PLSCS has cited no authority to support this contention, and our research suggests a contrary result—that leaving the choice of forum to the discretion of one party does not render a forum selection clause permissive or unenforceable. (See Karl Koch Erecting Co. v. New York Convention Center Dev. Corp. (2d Cir. 1988) 838 F.2d 656, 659-660; Silverman v. Carvel Corp. (W.D.N.Y. 2001) 192 F.Supp.2d 1, 5; AGR Fin., L.L.C. v. Ready Staffing, Inc. (S.D.N.Y. 2000) 99 F.Supp.2d 399, 402-403; Koninklijke Philips Elecs. v. Digital Works, Inc. (S.D.N.Y. 2005) 358 F.Supp.2d 328, 334-335; Argonaut P'shp., L.P. v. Bankers Trustee Co. (S.D.N.Y., Feb. 4, 1997, Nos. 96 Civ. 1970 (MBM), 96 Civ. 2222 (MBM)) 1997 U.S.Dist. LEXIS 1092, pp. *42-43; Contract Transport, supra, 2017 U.S.Dist. LEXIS 217433 at p. *7, fn. 2.)
We are similarly unpersuaded by PLSCS's argument that the forum selection clause does not apply because Cap Call filed a motion to dismiss, rather than a motion to transfer. Federal courts have broader discretion to grant forum non conveniens motions than do state courts because of their statutory authority to transfer venue to a federal court in another state, rather than simply stay or dismiss the action. (Cal-State Business Products, supra, 12 Cal.App.4th at p. 1675; 28 U.S.C. § 1404.) But even in federal court, the appropriate way to enforce a forum selection clause pointing to a state or foreign forum is through the equitable doctrine of forum non conveniens, using the traditional remedy of dismissal. (Atl. Marine Constr. Co. v. United States Dist. Court (2013) 571 U.S. 49, 60-61 [187 L.Ed.2d 487, 499-500].) The parties' forum selection clause states that at Cap Call's election, suit shall be instituted "in any court sitting in New York" and that, should such proceeding be initiated "in any other forum," PLSCS waives the right to oppose "any motion or application" to transfer such proceeding to an "Acceptable Forum." We cannot accept that the parties intended this broadly worded language to apply only to a transfer motion filed in federal court, and not an equivalent forum non conveniens motion filed in state (or federal) court.
II
Whether Enforcement of the Forum Selection Clause Would be Unreasonable
PLSCS argues that if the forum selection clause is mandatory, this matter should be remanded to the trial court for a determination of reasonableness. We agree.
Although the parties obliquely discussed reasonableness in their briefing below, the trial court did not reach the question of whether enforcement of the clause would be unreasonable. After concluding that the forum selection clause was permissive, the court placed the burden on Cap Call to show that the case should be tried elsewhere using the traditional forum non conveniens analysis. It instead should have concluded that the forum selection clause was mandatory and placed the burden on PLSCS, as the party opposing enforcement of the selected forum, to prove that enforcement of the clause would be unreasonable under the circumstances of the case. (See Cal-State Business Products, supra, 12 Cal.App.4th at p. 1679.) Owing to this error, the court did not reach the issue of reasonableness. We conclude therefore that this matter should be remanded to the trial court to reconsider its ruling in light of the legal principles we have discussed in this opinion. (See The Bremen v. Zapata Off-Shore Co., supra, 407 U.S. at p. 15.)
DISPOSITION
We grant the petition for the reasons discussed above. When reconsidering the motion, the trial court is not precluded from considering other factors that might be relevant to a determination whether enforcement of the forum selection clause would be unreasonable under the circumstances of this case. Let a peremptory writ of mandate issue directing the trial court to set aside its order denying the motion to dismiss on grounds of forum non conveniens and to reconsider the motion in light of this order. The alternative writ previously issued is discharged. Petitioner Cap Call shall recover its costs for its writ petition and proceedings in this court. (Cal. Rules of Court, rule 8.493(a)(1)(A).)
KRAUSE, J. We concur: RAYE, P.J. MURRAY, J.