Summary
noting that when an agreement contains clear language showing that jurisdiction is appropriate only in a designated forum, the clause is mandatory
Summary of this case from Sirius Computer Solutions, Inc. v. SparksOpinion
NO. 3-02-CV-0033-BD (R).
March 20, 2002
MEMORANDUM OPINION AND ORDER
Defendants Carver Dan Peavy, Eugene Oliver, and their respective spouses have filed a motion to dismiss this case for improper venue. For the reasons stated herein, the motion is granted.
I.
On September 22, 1999, Peavy and Oliver entered into an agreement with John H. Meyer and Ron Wilson whereby they agreed to pay Meyer and Wilson 5% of all settlement proceeds recovered in five different lawsuits. The agreement provides, in relevant part:
[T]he undersigned Carver D. Peavy Gene Oliver ("the Promisor(s)") promises [sic] to pay to pay [sic] to the order of John H. Meyer Ron Wilson ("the Payee(s)") a 5% (five percent) of the total Gross (before Tax and attorney fee deduction) settlement moneys and AOVC of each of the 5 current cases they have filed upon full and final settlement. The money and AOVC shall be paid by the Promisor(s) in funds as directed by the Payee(s). The total of payment paid for the Payees shall not exceed a dollar value of 5 million dollars for the 5 total cases.
(Plf. Orig. Compl., Exh. A). The same agreement obligates Peavy and Oliver to pay off a line of credit loan from First National of North America ("FNNA") to Money Power, LLC, which Meyer had guaranteed. ( Id.).
Peavy and Oliver subsequently settled two lawsuits against WFAA-TV, Inc. for a total of $5 million. ("WFAA litigation"). By order dated January 8, 2002, the settlement funds were deposited into the registry of the court pending the resolution of competing claims to the proceeds. One such claim was asserted by FNNA under a collateral assignment from Meyer. This assignment provides, in relevant part:
Both cases were pending in the United States District Court for the Northern District of Texas. Peavy v. WFAA-TV Inc., et al., No. 3-96-CV-2945-R and Oliver v. WFAA-TV Inc., No. 3-96-CV-3436-R.
This assignment was made after FNNA filed suit in Texas state court against Money Power, Meyer, Wilson, Peavy, and Oliver to foreclose on the loan to Money Power.
Meyer hereby collaterally assigns to FNNA, and grants to FNNA a security interest in, all of Meyer's rights in and to, but not any of his obligations under, the Agreement [of September 22, 1999]. This Assignment is made to secure Meyer's obligations under the Loan including, without limitation, his liability for payment of amounts due under the Loan Agreement, the Note and the Guaranty.
( Id., Ext. B). After FNNA was denied leave to intervene in the WFAA litigation, it filed this action against Peavy and Oliver to recover a portion of the gross settlement proceeds. Federal jurisdiction is based on diversity of citizenship.
Peavy and Oliver now move to dismiss this case based on a forum selection clause in the underlying agreement which provides that "all claims shall be litigated only in Collin County, Texas." ( Id., Ext. A). The parties have briefed the issues and the motion is ripe for determination.
II.
A threshold issue is whether state or federal law should apply when determining the enforceability of this forum selection clause. The Fifth Circuit has squarely held that, regardless of the basis of federal jurisdiction, federal law provides the rule of decision. See Haynsworth v. The Corporation, 121 F.3d 956, 962 (5th Cir. 1997), citing International Software Systems, Inc. v. Amplicon, Inc., 77 F.3d 112, 114-15 (5th Cir. 1996).
A.
Forum selection clauses may be classified as either mandatory or permissive. Where the agreement contains clear language showing that jurisdiction is appropriate only in a designated forum, the clause is mandatory. See Excell, Inc. v. Sterling Boiler Mechanical, Inc., 106 F.3d 318, 321 (10th Cir. 1997) (forum selection clause provided that "jurisdiction shall be in the State of Colorado, and venue shall lie in the County of El Paso, Colorado"); Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762, 764 (9th Cir. 1989) (contract specified that "venue of any action brought hereunder shall be deemed to be in Gloucester County, Virginia"). By contrast, permissive forum selection clauses authorize jurisdiction in a designated forum, "but do not prohibit litigation elsewhere." Excell, 106 F.3d at 321. See, e.g. Keaty v. Freeport Indonesia, Inc., 503 F.2d 955, 956 (5th Cir. 1974) ("This agreement shall be construed and enforced according to the law of the State of New York and the parties submit to jurisdiction of the courts of New York.").
The forum selection clause in this case provides that "all claims shall be litigated only in Collin County, Texas." (Plf. Orig. Compl., Exit. A). Clearly, the language of this clause is mandatory. FNNA suggests otherwise because the forum selection clause does not specify whether a lawsuit may be filed in state or federal court. This argument fails for at least two reasons. First, there is no federal district court located in Collin County, Texas. A forum selection clause that specifies venue in a county that has no federal court cannot reasonably be interpreted to permit suit in a federal court located in a different county. See Infinite Technology, Inc. v. Rockwell Electronic Commerce Corp., 2001 WL 527357 at *2 (N.D. Ill. May 16, 2001) (contract requiring suit to be brought in "courts of DuPage County, State of Illinois" could not be interpreted to include federal court located in Cook County, Illinois); Intermountain Systems, Inc. v. Edsall Construction Co., 575 F. Supp. 1195, 1197-98 (D. Col. 1983) (interpreting a forum selection cause which mandated venue in Adams County, Colorado to include the federal district court for Colorado "would be a severe catachresis"). Moreover, venue in the federal system is stated in terms of judicial districts, not counties. Thus, where a forum selection clause merely designates a particular county, venue lies only in the state courts in that county. Excell, 106 F.3d at 321; Docksider, 875 F.2d at 764; Genesis Services Group, Inc. v. Cull-Services, Inc., 1999 WL 1939986 at *2 (E.D.N.C. Mar. 30, 1999).
For these reasons, the forum selection clause must be interpreted to permit suit only in state district court in Collin County, Texas. The court now must determine whether the clause should be enforced.
B.
Under federal law, forum selection clauses are " prima facie valid and should be enforced 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, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513 (1972). Enforcement may be unreasonable when:
(1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement 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 will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy of the forum state.Haynsworth, 121 F.3d at 963 (internal quotation marks and citation omitted). The party seeking to avoid enforcement of the clause bears a "heavy burden of proof" Id., quoting M/S Bremen, 92 S.Ct. at 1917; see also Marklyn Controls Supply v. Pall Trinity Micro Corp., 862 F. Supp. 140, 141 (W.D. Tex. 1994).
FNNA presents no evidence or argument that the forum selection clause is unreasonable. Consequently, the clause must be enforced according to its terms.
III.
In the alternative, FNNA seeks an order transferring this case to the United States District Court for the Eastern District of Texas. Not only does the forum selection clause preclude venue in any federal court, but FNNA has failed to demonstrate that transfer is warranted in any event. See State Street Capital Corp. v. Dente, 855 F. Supp. 192, 197 (S.D. Tex. 1994) (party seeking transfer must show that balance of convenience and justice weighs heavily in favor of transfer). Indeed, FNNA adamantly maintains that the Eastern district is not a convement forum for resolution of this dispute. (See Plf. Resp. at 4, ¶ 6). Accordingly, the motion to transfer venue is denied.
CONCLUSION
Defendants' motion to dismiss for improper venue is granted. By separate order, the court will dismiss this case without prejudice.
SO ORDERED.