Opinion
CIVIL ACTION NO. 3:03-CV-1380-K
January 30, 2004
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant Netopia Incorporated's ("Netopia") Motion to Dismiss. Having considered the merits of the motion, and for the reasons stated below, the motion is GRANTED.
I. The Court Lacks Subject Matter Jurisdiction Due to Lack of Diversity.
This case is before the Court pursuant to its diversity jurisdiction under 28 U.S.C. § 1332(a). Plaintiff alleges that because it is a defunct corporation, the Court may only consider its state of incorporation for diversity purposes. Defendant, however, contends that both Plaintiff and Defendant are citizens of California, thus destroying the diversity jurisdiction of the Court.
Under § 1332, a corporation is a citizen of both its state of incorporation and the state where it has its principal place of business for diversity purposes. See Harris v. Black Clawson Co., 961 F.2d 547,549 (5th Cir. 1992). In determining a corporation's principal place of business, the Court applies the "total activity" test, taking into account (1) the place where the corporation's business is ultimately directed and controlled and (2) the place at the center of the corporation's production or service activities. See id. The Court applies the two factors in light of the particular circumstances of a corporation's organization, and balances the facts of the case to determine the corporation's principal place of business.
In this case, Defendant submits two documents to demonstrate that Plaintiff's principal place of business was in California: (1) a California state court pleading in which Plaintiff states that its principal place of business is in California, and (2) a record on file with the Texas Secretary of State which lists Plaintiff's contact information as a San Francisco, California address. Plaintiff responds to Defendant's evidence through four documents which it argues show that its principal place of business was in Texas. First, Plaintiff presents the affidavit of Henry Van Buren, one of Plaintiff's officers, which states that "Netopia and eTRADESHOW had no agreement for any performances to deliver any software or any other performances in the State of California." Additionally, Plaintiff submits several documents involving a licensing agreement between itself and SEMI Corporation, a non-party to this suit, in which Plaintiff's address was shown to be in Southlake, Texas. These documents include (1) the licensing agreement itself, (2) a letter from Jeremy M. Goodell, the President of Plaintiff, on stationary which shows Plaintiff's address as being located in Southlake, Texas, and (3) a check from SEMI Corporation to Plaintiff which shows Plaintiff's address as being located in Southlake, Texas.
While a corporation's statements made to a state's secretary of state are not binding on the Court, they are relevant to its inquiry. See id. at 550. Plaintiff represented to the State of Texas that its address was in San Francisco. Additionally, in its First Amended Complaint in Case No. C 00-02403 SBA, filed by Plaintiff on July 20, 2000, in the Northern District of California, Plaintiff admitted that its principal place of business was in California. This evidence is even more compelling than the information filed with the State of Texas, as Plaintiff volunteered in a judicial forum what it seeks to deny here.
In this case, the evidence shows that the agreement between the parties was negotiated and carried out in California. Plaintiff's only evidence that its principal place of business was in Texas are several documents regarding a licensing agreement with a non-party in this suit, none of which state that its principal place of business was in Texas, and a self-serving affidavit of one of Plaintiff's officers. Considering the evidence before the Court, and aware that Plaintiff affirmatively stated that its principal place of business was in California in a United States District Court in that state, the Court determines that under the "total activities" test, Plaintiff's principal place of business was in California. Nevertheless, if the Court finds that a corporation has been inactive for a "substantial period of time," then as a matter of law that corporation's only state of citizenship for diversity purposes is the corporation's state of incorporation. See id. at 551. Whether a corporation has been inactive for a substantial period of time is decided on a case-by-case basis. See id. n. 10. According to Plaintiff's evidence, it has been inactive since at least the beginning of 2002, and Defendant does not dispute that Plaintiff is an inactive corporation.
In Harris, the corporation was a defendant, and had been inactive for five years at the time the suit was filed. See id. at 549. In this case, however, Plaintiff has not been inactive for so long a period. Even more importantly, this case is distinguishable from Harris, because here Plaintiff is the party seeking relief from the Court. Allowing Plaintiff it to sit idly by while it becomes further and further removed from active status, thus allowing it to avoid this Court's consideration of its principal place of business for diversity purposes, would go against the spirit of the diversity jurisdiction statute. Such results are disfavored. See id. at 550-51 (holding that a rule allowing inactive corporations to avoid inquiry into where they were last active would give them a benefit Congress never planned for them) (quoting WM. Passalacqua Builders, Inc. V. Resnick Developers S., Inc., 933 F.2d 131, 141 (2nd Cir. 1991)).
Therefore, the Court may properly consider Plaintiff's principal place of business in analyzing whether the Court has diversity jurisdiction. Because both Plaintiff and Defendant are citizens of California for diversity purposes, this Court does not have subject matter jurisdiction over this case under § 1332.
II. The Court Lacks Subject Matter Jurisdiction Due to the Forum-selection Clause.
Defendant also moves to dismiss this case based on Federal Rule of Civil Procedure 12(b)(3), arguing that a forum-selection clause included in the Assignment Agreement on which this case in based makes this District an improper venue. Rule 12(b)(3) is the proper procedural vehicle for seeking dismissal based on a forum-selection clause. See Albany Ins. Co. v. Almacenadora Somex, S.A., 5 F.3d 907, 909 (5th Cir. 1993); Marengo Films, Inc. v. Koch Intern. LLC, 2003 WL 21435728, *5 (N.D. Tex. June 16, 2003). Once a defendant raises a 12(b)(3) motion, the plaintiff has the burden of sustaining venue. See Langton p. Cbeyond Communication, L.L.C., 282 F. Supp.2d 504, 508 (E.D. Tex. 2003). When no evidentiary hearing takes place, a plaintiff may sustain its burden by presenting facts, taken as true, which establish venue. See id. The Court accepts uncontroverted facts in a plaintiff's pleadings as true, and resolves any conflicts in the plaintiff's favor. See id. In determining whether to apply a forum-selection clause, the Court looks to the language of the parties' contract to determine which causes of action are governed by the forum-selection clause. See Marinechance Shipping, Ltd. v. Sebastian, 143 F.3d 216, 222 (5th Cir. 1998).
A. Plaintiff is Judicially Estopped from Denying the Validity of the Assignment Agreement.
To support its motion, Defendant relies on an Assignment Agreement dated January 14, 2000, which states that "[a]ll parties agree that the exclusive venue and jurisdiction for any action involving the subject matter of this Assignment shall be the United States District Court for the Northern District of California, San Francisco. Division." Defendant argues that the Assignment Agreement containing this clause is the basis of Plaintiff's suit against Defendant. Plaintiff's sole defense to Defendant's attempt to invoke the forum-selection clause in the Assignment Agreement is that Plaintiff never signed the Agreement, meaning it is not bound by the Agreement.
Defendants concede that Plaintiff never signed the Assignment Agreement, but contend that Plaintiff is judicially estopped from denying its validity, thus making the forum-selection clause effective. Judicial estoppel prevents a party from asserting a position in one legal proceeding which is contrary to a position it previously took in the same or an earlier proceeding. See Hall v. GE Plastic Pacific PTE Ltd., 327 F.3d 391, 396 (5th Cir. 2003). The party seeking to invoke judicial estoppel must establish two bases for the doctrine to apply: (1) it must shown that the position of the party to be estopped is clearly inconsistent with its previous position, and (2) that party must have convinced the court to accept that position. See id. Statements made in the previous proceeding by a party's attorney before the court can be imputed to the party and subject to judicial estoppel. See id.
In its pleadings before the Court, Plaintiff states that "Mr. Van Buren never signed the January 14 agreement that contained the alleged forum-selection clause . . . and there exists no other agreement with a forum-selection clause binding upon plaintiff." However, in Case No. 3-02-CR-088-L, a criminal proceeding in this District, Mr. Van Buren's attorney sought to have his client released on bond, in part, because of the Assignment Agreement. Specifically, Mr. Van Buren was seeking release from custody in order to pursue claims against numerous parties, alleging that if he was successful, he would be able to pay restitution to the United States. On July 2, 2002, Mr. Van Buren's attorney, George Benetatos, filed an affidavit with the court in which he stated that Mr. Van Buren had a claim for $725,000 against Netopia based on nonperformance of an agreement between the parties. As exhibits to his affidavit, Mr. Benetatos attached (1) the check for $725,000 Mr. Van Buren paid to Netopia which is the basis of the present suit; (2) a copy of the letter from Netopia to Mr. Van Buren dated January 14, 2000, which accompanied the Assignment Agreement containing the forum-selection clause; and (3) a copy of a letter from Mr. Benetatos to Netopia dated July 6, 2001, in which Mr. Benetatos sought to rescind the Assignment Agreement dated January 14, 2000, containing the forum-selection clause. Therefore, through his affidavit to the court, Mr. Benetatos clearly admitted the validity of the agreement dated January 14, 2000, which contained the forum-selection clause.
On July 5, 2002, Mr. Van Buren was in fact released on bond in order to pursue his claims against Netopia. The court, in granting the motion for release, stated that Mr. Van Buren was released "for the purpose of facilitating his ability to make restitution in this case." While Mr. Van Buren's release was not a final disposition of his criminal case, a final disposition need not be made in order for judicial estoppel to take effect. See id. at 399 (holding that the previous court's acceptance of a party's representations could be either as to a preliminary issue, or as part of a final disposition). Indeed, when a court necessarily accepts, and relies on, a party's position in making a determination, then the prior success requirement is satisfied. See id.
Both requirements of judicial estoppel are satisfied in this case. Through his attorney's affidavit, Mr. Van Buren, an officer of Plaintiff and the person who paid the $725,000 at issue between the parties, clearly represented to a court in this District that the Assignment Agreement between Plaintiff and Defendant dated January 14, 2000, which contained the forum-selection clause, was valid and enforceable. Mr. Van Buren's position in that case and Plaintiff's position in this case are clearly inconsistent. Additionally, by releasing Mr. Van Buren in order to seek funds to pay restitution to the United States, the court in the criminal case relied on that assertion. Therefore, Plaintiff is judicially estopped from denying the validity of the Agreement dated January 14, 2000.
B. The Forum-Selection Clause is Valid.
As the Agreement is enforceable against Plaintiff, the Court now turns to whether the forum-selection clause itself is valid and enforceable. Forum-selection clauses are presumptively valid, and a party wishing to avoid one has the burden to show that enforcing the clause would be unreasonable. See Mitsui Co. (USA), Inc. v. Mira M/V, 111 F.3d 33, 35 (5th Cir. 1977). The burden of proving unreasonableness is a heavy one, which a party can meet only by a showing that the clause results from (1) fraud or overreaching, (2) that it violates a strong public policy, or (3) that enforcement of the clause deprives the plaintiff of his day in court.
Plaintiff has presented no evidence to the Court showing the forum-selection clause to be unreasonable, and the Court finds no reason to make such a holding. Therefore, the forum-selection clause is valid, and Plaintiff is bound to its terms. As the controversy in this case deals with the Agreement itself, the forum-selection clause applies, and this Court does not have subject matter jurisdiction to hear this case. III. Conclusion
For the reasons stated above, the Court lacks subject matter jurisdiction to hear this case. Both parties are citizens of California for diversity purposes, and even if the Court had subject matter jurisdiction on diversity grounds, the forum-selection clause in the parties' agreement applies. Therefore, this case cannot be heard in this District. Defendant's Motion to Dismiss is GRANTED, and this case is DISMISSED with prejudice.
SO ORDERED.