Opinion
C.A. No. 04C-02-020(THG).
Submitted: December 6, 2005.
December 21, 2005.
John A. Sergovic, Esquire, Sergovic Ellis, P.A., Georgetown, DE.
John E. O'Brien, Esquire, The Law Offices of John E. O'Brien, P.A., Dover, DE.
Dear Counsel:
In my letter of December 12, 2005, I advised you of the Court's ruling as to Defendant Jim Lee, Inc.'s motion for summary judgment. This is the formal decision promised in that letter. For the reasons stated herein, this case is dismissed based on the sale contract's forum selection clause.
Statement of Facts
On approximately November 10, 2000 Jim Lee, Inc. (Jim Lee) and Addison Tatman, the Defendants, signed a contract with Cloverland Farms Dairy, Inc. (Cloverland) for the purchase and sale of land. The Plaintiff, Two Farms, Inc. (Two Farms) is the legal successor to Cloverland.
The subject property is located at the intersection of Route 13 and Route 404 in Sussex County, Delaware. The contract included an indemnification clause which stated that the "Seller shall indemnify and hold Buyer harmless from any or all expenses of whatever kind (including reasonable attorney's fees) arising out of any environmental contamination which exists on the premises as of the date of settlement, whether known or unknown." The sale of the property closed on December 5, 2001.
Found on Page 1 of the 1 1/10/2000 Con tract Paragraph A-2.
Plaintiff began to develop this property in preparation for building a convenience store. Plaintiff alleges that during the development of the property, contractors discovered underground storage tanks. The Department of Natural Resources and Environmental Control (DNREC) was contacted when an odor of petroleum was detected coming from the ground surrounding the tanks.
DNREC issued a letter to Two Farms providing what actions were necessary to remedy the environmental contamination on the property. Two Farms approved and commenced the remediation plan at its own cost.
Two Farms requested indemnification from the Defendants for the environmental problems created by the underground tanks on the property. There was no response from the Defendants to Two Farms' indemnification request. Two Farms then filed an action against Defendants for breach of contract seeking indemnification for its costs.
Two Farms seeks a declaratory judgment to determine Jim Lee and Tatman's obligations for indemnification as set out in the contract. Two Farms also seeks damages for fraud, breach of express warranty, and indemnification under several Delaware statutes. In Jim Lee, Inc.'s initial pleading he raised the issue of the forum selection clause, which was contained in the aforementioned contract, which was drafted by the Plaintiff. The forum selection clause states that all litigation as to the contract shall occur in Baltimore, Maryland.
On July 8, 2005, the cut-off date for dispositive motions, Defendant Jim Lee, Inc., moved for summary judgment based on three theories. First, the contract contained a "time is of the essence" clause requiring a closing by November 30, 2001. However, the closing did not actually take place until December 5, 2001.
The next theory is that there was a lack of privity of contract between Two Farms and Jim Lee. This theory is based on the fact that the contract had "Jimmy Lee, Incorporated" as a party to the contract instead of "Jim Lee, Incorporated."
The final theory states that this Court lacks subject matter jurisdiction over this action because of the forum selection clause in the sale contract. The clause states: "Buyer and Seller mutually waive any right to trial by jury and agree that any litigation resulting from this Contract shall be brought in Baltimore City, Maryland."
Found on page 3 of the 11/10/2000 Contract Paragraph H.
Defendant Tatman also filed a motion for summary judgment on August 1, 2005 based on multiple theories. Tatman first argues that he was not the owner of the property at issue because the property at issue in the complaint belonged to Defendant Jim Lee.
Second, Tatman claims that Plaintiff did not show that Tatman made any false representations about the condition of the land that would cause Plaintiff to rely on such representation to its detriment. Further, Tatman states that discovery made clear the fact that Plaintiff suspected that both Defendants' properties had some form of petroleum contamination before taking title to the properties.
Third, Tatman claims that he has no liability under 7 Del. C. 60 or 7 Del. C. 74 because there is no evidence that Tatman was engaged in any activity that required the disposal of contaminants as defined under 7 Del. C. § 6002. Further, Tatman never owned, operated, or caused any underground storage tank to be placed on the property in issue so he does not qualify as a responsible party under 7 Del. C. § 7402.
Finally, Tatman claims to have no indemnification liability under 7 Del C. 91 because he never owned, operated or was responsible for the hazardous substance on the property in issue.
Defendant Tatman then filed an amendment to his motion for summary judgment on September 6, 2005 adding that this action should be dismissed because of the forum selection clause contained in the sale contract. Defendant Jim Lee filed an amendment to his motion for summary judgment on September 8, 2005 stating that Plaintiff failed to join indispensable parties.
Plaintiff filed a motion for partial summary judgment on September 26, 2005. Plaintiff claims that partial summary judgment is warranted based on the plain meaning of the contract. It is asserted that Defendants have not presented any evidence that the contract is ambiguous in any way and thus the Court should rely solely on the clear meaning of the contract. Plaintiff specifically is addressing the indemnification language in the contract. Plaintiff argues that there is no genuine issue of material fact because liability is established by the contract and it is undisputed that environmental contamination was found on the property in issue following settlement, and state regulation requires remediation. Thus, Plaintiff alleges according to the plain language of the contract Defendants must indemnify Plaintiff for any costs of cleaning up the property so summary judgment is warranted.
Prior to the Court entering a decision and at the Court's direction, the parties took their dispute to mediation in November of 2005. Plaintiff and Defendant Tatman settled their dispute. ("Defendant" shall mean Jim Lee unless stated from now on in this decision) However, Plaintiff and Defendant Jim Lee did not settle so their motions for summary judgment will be reviewed and decided by the Court.
Analysis
I. Validity of the Forum Selection Clause
The first issue the Court will examine is whether the forum selection clause contained in the sale contract is valid under Delaware law. The forum selection clause is a valid mandatory selection clause for the reasons discussed below.
Delaware courts generally "give effect to the terms of private agreements to resolve disputes in a designated judicial forum out of respect for the parties' contractual designations." For a party to invalidate a forum selection clause, the party must show that enforcement of the clause "is unreasonable under the circumstances." Further, absent fraud, the forum selection clause should be specifically enforced. However, to invalidate a forum selection clause based on fraud, the challenging party must show specifically that the clause itself was procured by fraud, and not the contract as a whole, was procured by fraud. There has been no showing of fraud and Plaintiff, who now opposes the enforcement of the forum selection clause, was the party who drafted it.
Prestancia Mgmt. Group v. Va. Heritage Found., II LLC, 2005 W L 1364616 (Del.Ch.) quoting DONALD J. WOLFE, JR. MICHAEL A. PITTINGER, CORPORATE AND COMMERCIAL PRACTICE IN DELAWARE COURT OF CHANCERY § 5-4 [a] at 5-53 to 5-54.
Double Z Enterprises, Inc. v. General Marketing Corp., 2000 WL 970718 (Del.Super.).
Id. at *2.
Id. at *3.
The first step in analyzing a forum selection clause is to determine whether it is permissive or mandatory. To be considered mandatory, the express language used in the clause must clearly state that the clause excludes all courts in which the parties may properly bring an action except the one named in the clause. If the language is not sufficiently clear, then the Court will find that an exclusive jurisdiction was not created. Thus, when a permissive clause is included, an action may be brought in the stated forum, but is not required to be.
Prestancia, at *7.
Id. citing Eisenbud v. Omnitech, 1996 WL 162245 (Del. Ch.).
Id.
Id.
In Prestancia Mgmt Group v. Va. Heritage Found., II LLC, the Chancery Court stated that the use of the word "any" in the contract's forum selection clause, together with the specific context of the situation, makes the clause a mandatory one instead of a permissive one. This case was dismissed for lack of subject matter jurisdiction.
2005 WL 1364616 (Del.Ch.).
Id.
Id.
The forum selection clause in the contract between Cloverland and Defendants Jimmy Lee and Addison Tatman is mandatory because the clause clearly states that the only jurisdiction that a dispute may be brought based on this contract is Baltimore City, Maryland. The clause in the sale contract states that "any litigation resulting from this Contract shall be brought in Baltimore City, Maryland." The terms "any" and "shall" leads to the conclusion that the parties intended that there will only be one forum for disputes arising from the contractual relationship to be resolved and that forum is Baltimore City, Maryland. Therefore, the forum selection clause is a valid mandatory clause.
Found on page 3 of the 11/10/2000 Contract Paragraph H.
II. Statutory Claims Governed by Forum Selection Clause
Plaintiff has included statutory claims against the Defendants. Thus, the Court will determine whether these claims are also governed by the forum selection clause contained in the sale contract.
Here, the forum selection clause should be applied to the statutory indemnification claims as well as the contractual claims. "A forum selection clause should not be defeated by artful pleading of claims not based on the contract containing the clause if those claims grow out of the contractual relationship, or if the gist of those claims is a breach of that relationship." The statutory claims do grow out of the contract because indemnification is addressed specifically in paragraph A-2 of the contract. Further, the contract states "that any litigation resulting from this Contract shall be brought in Baltimore City, Maryland." The forum selection clause controls because the contract addresses indemnification, and the forum selection clause states that it applies to any litigation resulting from this contract.
Simon v. The Navellier Series Fund, 2000 WL 1597890 (Del.Ch.).
Contract attached to Plaintiff's Response to Defendant's Motion for Summary Judgment.
Tort and statutory claims can be controlled by a forum selection clause if the claims arise out of the parties' contractual relationship. Here, the statutory claims do arise out of the contractual relationship of parties because without the contract Plaintiff would not own the property at issue and there would be no need for indemnification for remediation. If forum selection clauses did not apply to statutory claims then parties "could escape a forum selection clause merely by adding some non-contractual claim to his pleadings."
In re GNC Fran chising, Inc., 22 S.W.3d 929, 930 (Tex. 2000).
Id.
"The mere fact that [the] remaining claims allege statutory violations . . . does not mean that they are not subject to the forum selection clause chosen by the parties" as long as nexus exist between the statutory claims and the contract. Here, a nexus clearly exists between the claims and the contract. If there was not a contract that transferred the property between the parties, Plaintiff could not bring these statutory claims and this contract specifically includes the issue of indemnification.
Id.
"[T]he existence of multiple remedies for wrongs arising out of a contractual setting does not obliterate the contractual setting . . . [or] make the dispute any less [of] one arising . . . out of the contract, and does not point to a better forum for adjudicating the parties' dispute than the [forum] . . . selected." Finally, it makes no common sense to split the claims between this court and the Maryland chosen venue. Therefore, the forum selection clause of the contract in this case should include all claims.
Dexter Axle Co. v. Baan USA, Inc., 833 N.E.2d 43, 50 (Ind.Ct.App. 2005) citing Am. Patriot Ins. Agency, Inc. v. Mut. Risk mgmt., Ltd., F.3d 884, 889 (7th Cir. 2004).
III. Waiver of an Affirmative Defense
The Court must determine whether Defendant has waived its forum selection clause defense. Defendant has not waived its forum selection clause defense because it raised the forum selection clause as required by the Superior Court Civil Rules. Defendant raised the forum selection defense in its answer to Plaintiff's complaint and again in its motion for summary judgment, which was filed in accordance with the Court's scheduling order.
Plaintiff alleged that Defendant has waived its right to raise the forum selection clause as a defense because Defendant waited over 12 months to raise the defense again after raising it in the answer. Plaintiff claims that Defendant has waived its challenge to the Court's jurisdiction over this matter. Plaintiff cited Hornberger Management Co. v. Haws Tingle Gen. Contractors to support the proposition that Defendant has waived its forum selection clause defense.
768 A.2d 983 (Del.Super. 2000).
In Hornberger, the Court held "that the defendant waived its personal jurisdiction defense by implication[.]" Further, the Court stated that "[t]here is a substantial body of law which holds that a defendant can waive a defense of lack of personal jurisdiction because the defendant's conduct did `not reflect a continuing objection to the power of the court to act over the defendant's person.'" The Court found that even though the defendant complied with Rule 12 by raising the personal jurisdiction defense in its answer, "defendant's conduct was inconsistent with its defense of lack of personal jurisdiction." The defendant's conduct, cited by the Court, that was inconsistent with the personal jurisdiction defense and resulted in the waiver of defense, included "participating in the arbitration process without raising jurisdiction, filing a motion for a trial de novo, entering into a case scheduling order, participating in discovery, stipulating to an extension of time for filing case dispositive motions, and failing to file the motion before the deadline for the filing of case dispositive motions." A personal jurisdiction defense and a venue or forum selection clause defense are procedurally similar.
Id. at 989.
Id. at 988 citing various federal cases, see footnote 17.
Id. at 989.
Id. (Underline added).
Here, Defendant has participated in the case without objection based on the forum selection clause similar to the defendant in Hornberger. Also similar to the defendant in Hornberger, Defendant took part in mediation, attended and participated in scheduling conferences, filed a cross-claim against Defendant Tatman (although it was more in the form of a counter-claim against Tatman who filed his cross-claim first), and proceeded with discovery. Thus, Plaintiff argues that Defendant has waived its forum selection clause defense based on its conduct and participation without objection in the case.
However, the case before this Court can be distinguished from Hornberger. In Hornberger, the defendant filed his motion over three weeks after the deadline for filing case dispositive motions. Here, Defendant filed its motion for summary judgment on the last day that such motions could be filed. Therefore, the case before this Court is distinguishable from the Hornberger case.
The Supreme Court of Delaware also provided guidance. In Parker v. Gadow, the Court held that a defendant does not waive an affirmative defense if the defendant included such a defense in its answer to the complaint. The Court recognized "that it would have been prudent, and indeed preferable and less wasteful of judicial resources" for defendants to raise affirmative defenses such as a statute of limitations defense earlier in a case rather than sitting on it. However, there is no procedural obligation that the defendant must raise such defenses at any other stage than required by the Superior Court Civil Rules. The Superior Court Rules 12 (b) and 8 (c) require a defendant to raise certain defenses in a motion to dismiss or in the first responsive pleading. Therefore, this defense cannot be waived when a defendant has raised it in the first responsive pleading and then prosecuted it in the time frame permitted under the scheduling order.
865 A.2d 515 (Del. 2005).
Id. at 516.
Id. at 519.
Id.
Id. at 516.
Id. at 519.
Further, the Supreme Court held that if an affirmative defense could be held waived by a court when it was contained in either a responsive pleading or a motion to dismiss, then a new procedural requirement would be created that does not exist in any of the Superior Court Civil Rules. Such a requirement would do more harm than good because it "would render the otherwise clear procedural map provided by the Court Rules unreliable, and would result in unnecessary litigation over what procedural point in the lawsuit represents the earliest possible time to raise an affirmative defense." Thus, an affirmative defense cannot be waived when it is raised "in compliance with the procedural rules.'
Parker, 865 A.2d at 520.
Id.
Id.
Here, Defendant raised its defense in both its answer and in its motion for summary judgment. It is granted that Defendant did waste judicial resources by sitting on this defense from May 13, 2004 until July 8, 2005, but Plaintiff can not be heard to complain that it was ambushed because Plaintiff drafted the contract and was aware of Jim Lee, Inc.'s initial pleading. Although the Court is frustrated, under these facts, I do not find that a waiver has occurred. If I did so, when did it occur? In other words, when would a party in Jim Lee, Inc.'s circumstances know where the "too late, you have waived" line is located?
Therefore, Defendant did not waive its forum selection clause defense.
Conclusion
The forum selection clause is enforced and this case is dismissed to allow it to be pursued in Baltimore, Maryland.