Summary
holding the clause enforceable under Minnesota law and noting that defendant has failed to demonstrate that the clause itself was a product of fraud
Summary of this case from Secure Financial v. Popular LeasingOpinion
Civil No. 04-4383 ADM/AJB.
March 4, 2005
Charles F. Webber, Esq., Faegre Benson, LLP, Minneapolis, MN, argued for and on behalf of Plaintiff.
Douglas L. Elsass, Esq., Fruth, Jamison Elsass, P.A., Minneapolis, MN, argued for and on behalf of Defendants.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On February 4, 2004, oral argument before the undersigned United States District Judge was heard on Will H. Hall Son Builders, Inc. and Will H. Hall, Jr.'s (collectively, "Defendants") Motion to Dismiss, Or, In the Alternative, To Transfer Venue [Docket No. 2]. In its Complaint [Docket No. 1], Plaintiff Lyon Financial Services, Inc., doing business as U.S. Bancorp Business Equipment Finance Group ("Lyon Financial" or "Plaintiff") seeks to enforce an agreement with Defendants. Because the forum selection clause contained in the agreement is valid, and Defendants do not meet the requirements of 28 U.S.C. § 1404(a), the Motion is denied.
II. BACKGROUND
For purposes of the instant Motion, the facts are viewed in the light most favorable to the nonmoving party. See Digi-Tel Holdings, Inc. v. Proteq Telecommunications, 89 F.3d 519, 522 (8th Cir. 1996); Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994).
The Lease included a forum-selection clause in fine print which read:
This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which [NorVergence's] principal offices are located or, if this Lease is assigned by [NorVergence], the State in which the assignee's principal offices are located . . . and all legal actions relating to this Lease shall be venued exclusively in a state or federal court within that State, such court to be chosen at [NorVergence's] or [the] assignee's sole option.Id. Lyon Financial is headquartered in Marshall, Minnesota. Compl. ¶ 1.
Following the assignment of the Lease to Lyon Financial, NorVergence filed for bankruptcy. Elsass Aff. [Docket No. 6] ¶ 2; Ex. A. A number of state attorneys general and the Federal Trade Commission have filed actions against NorVergence, based on allegations of fraud by customers. Id. at Exs. C, E-I.
III. DISCUSSION
A. Standard of Review"To survive a motion to dismiss for lack of personal jurisdiction, the plaintiff need only make a prima facie showing of personal jurisdiction over the defendant." Digi-Tel Holdings, 89 F.3d at 522. In considering a motion to dismiss, the pleadings are construed in the light most favorable to the nonmoving party, and the facts alleged in the complaint must be taken as true. Hamm v. Groose, 15 F.3d at 112; Ossman v. Diana Corp., 825 F. Supp. 870, 879-80 (D. Minn. 1993). Any ambiguities concerning the sufficiency of the claims must be resolved in favor of the nonmoving party. Ossman, 825 F. Supp. at 880.Dakota Industries, Inc. v. Dakota Sportswear, Inc. 946 F.2d 1384, 1387 (8th Cir. 1991). "A motion to dismiss should be granted as a practical matter . . . only in the unusual case in which the plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief."Frey v. City of Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995).
B. Personal Jurisdiction
Defendants argue the instant case should be dismissed based on a lack of personal jurisdiction, as both Defendants are residents of Michigan. Because Defendants are residents of Michigan, jurisdiction is proper only if Minnesota's long-arm statute is satisfied and the exercise of personal jurisdiction does not offend due process. Stanton v. St. Jude Med., Inc., 340 F.3d 690, 693 (8th Cir. 2003). As Minnesota's long-arm statute extends jurisdiction over nonresident defendants to the fullest extent allowed by the Due Process Clause, the only determination to be made is whether the exercise of personal jurisdiction violates due process considerations. Guinness Import Co. v. Mark VII Distribs., Inc., 153 F.3d 607, 614 (8th Cir. 1998). Due process requires minimal contacts with the forum state. Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). The Eighth Circuit has set forth a five factor test to determine whether minimal contacts exist sufficient to meet due process considerations:
(1) The nature and quality of contacts with the forum state; (2) the quantity of such contacts; (3) the relation of the cause of action to the contacts; (4) the interest of the forum state in providing a forum for its residents; and (5) the convenience of the parties.Guinness Import Co., 153 F.3d at 614.
The parties dispute whether Defendants waived personal jurisdiction as a result of the forum selection clause in the Lease. Eighth Circuit precedent establishes a party may consent to jurisdiction when it signs a contract containing a forum selection clause. St. Paul Fire and Marine Ins. Co. v. Courtney Enters., Inc., 270 F.3d 621, 624 (8th Cir. 2001). Moreover, a valid forum selection clause satisfies due process concerns.Dominium Austin Partners, L.L.C. v. Emerson, 248 F.3d 720, 726 (8th Cir. 2001). Defendants dispute the validity of the forum selection clause in the Lease.
Defendants argue the Court should apply Minnesota law, as opposed to federal law, in its determination of the validity of the clause. Because this is an open question under Eighth Circuit law, both state and federal law will be analyzed. Rainforest Cafe, Inc. v. EklecCo, L.L.C., 340 F.3d 544, 546 (8th Cir. 2003).
1. State Law
Under Minnesota law, a forum selection clause may be invalidated if: "(1) the chosen forum is a seriously inconvenient place for trial; (2) the choice of forum agreement is one of adhesion; or (3) the agreement is otherwise unreasonable."Hauenstein Bermeister, Inc. v. Met-Fab Indus., Inc., 320 N.W.2d 886, 890 (Minn. 1982). Defendants do not contest whether Minnesota is a seriously inconvenient place for trial, but instead aver the forum selection clause is one of adhesion and the agreement is otherwise unreasonable.
To demonstrate a contract is one of adhesion, "[t]here must be a showing that the parties were greatly disparate in bargaining power, that there was no opportunity for negotiation and that the services could not be obtained elsewhere." Schlobohm v. Spa Petite, Inc., 326 N.W.2d 920, 924 (Minn. 1982) (emphasis in original). Here, there has been no showing of a great disparity in bargaining power between the two parties. In fact, it appears Defendants are a small but sophisticated company that is ably represented. Defendants claim, however, that they did not have the opportunity to negotiate the forum selection clause, as it was boilerplate language in the Lease. Finally, Defendants argue the product NorVergence was offering — telephone and internet services at a savings of 25 percent — was not available elsewhere. This argument, however, misses the mark. While Defendants may not have been able to acquire the services NorVergence offered for the same price, no allegation is made that telephone and internet services were not available from other sources. Defendants have not demonstrated a great disparity in bargaining power or that the services could not be obtained elsewhere. Therefore, the Schlobohm test is not met, and a finding that the Lease is a contract of adhesion is inappropriate.
Defendants also contend the forum selection clause is unenforceable because the entire Lease is unreasonable. However, the proper inquiry is whether the forum selection agreement, not the entire Lease, is unreasonable. Hauenstein, 320 N.W.2d at 890. Defendants aver that because the entire Lease was obtained through fraud, the forum selection clause is also invalid.Hoffman v. Minuteman Press Int'l, Inc., 747 F. Supp. 552 (W.D. Mo. 1990). This authority, however, does not interpret Minnesota law. Additionally, Defendants fail to allege that the forum selection clause itself was obtained as a product of fraud, nor do they argue the forum selection agreement itself is unreasonable. Rather, Defendants contend that NorVergence fraudulently induced Defendants into signing the contract on the substantive portions of the agreement. Because the allegations do not address the forum selection clause and no authority or facts have been proffered to suggest the clause is unreasonable, Defendants' argument fails.
Finally, Defendants argue enforcement of the forum selection clause is unreasonable because the agreement contravenes the policies of the Minnesota Consumer Fraud Act ("MCFA").Hauenstein, 320 N.W.2d at 891. While there is no dispute that the MCFA is designed to protect consumers in commercial transactions, there is no authority providing for extending its application to the provisions of a forum selection clause. Again, Defendants have made no allegations that the forum selection clause itself was procured through fraud. As a result, it can not be determined that enforcement of the forum selection clause is contrary to Minnesota public policy.
2. Federal Law
"Forum selection clauses are prima facie valid and are enforced unless they are unjust or unreasonable or invalid for reasons such as fraud or overreaching." M.B. Rests., Inc. v. CKE Rests., Inc., 183 F.3d 750, 752 (8th Cir. 1999). Defendants argue the entire Lease was a product of fraud. Unless the clause "would actually deprive the opposing party of his fair day in court," a forum selection clause will be upheld in the face of a challenge that it is "unjust or unreasonable." Id. at 752. Although Defendants argue the Lease was a product of fraud, fraud will only render a forum selection clause unenforceable "`if the inclusion of that clause in the contract was the product of fraud or coercion.'" Marano Enters. of Kansas v. Z-Teca Rests., L.P., 254 F.3d 753, 757 (8th Cir. 2001) (emphasis in original) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n. 14 (1974)). Defendants do not specifically allege the forum selection clause was obtained through fraud; rather, Defendants rely on their allegation that the entire Lease was obtained by fraud. Defendants' only allegation targeted to the forum selection clause is that Defendants were unaware the forum selection clause was included in the Lease and NorVergence failed to mention its inclusion. However, as Plaintiff correctly notes, neither of these instances constitute fraud. As a result, Defendants have failed to show the inclusion of the forum selection clause was the product of fraud or coercion, and the clause is presumed valid.
Defendants also contend the "floating venue" provision of the forum selection clause renders it permissive, as opposed to mandatory, thus invalidating the provision. Midwest Oil Seeds, Inc. v. Limagrain Genetics Corp., No. 4-00-CV-90695, 2001 WL 741738, at *1 (S.D. Iowa Feb. 14, 2001) ("For a forum selection clause to be mandatory, the clause must contain language that clearly designates one forum that is to be the exclusive forum"). Defendants argue that because the "floating venue" provision allows the forum to change upon assignment of the Lease, the clause does not designate one exclusive forum. The "floating venue" provision, however, does not nullify the clause. Under the Lease, only one forum is proper at any given time — the state in which the lessor is located. Although that state may indeed change upon assignment of the Lease, it does not give the lessor or assignee freedom to choose its forum. Rather, it must bring suit in its home state. As a result, the "floating venue" provision is valid. See Lyon Fin. Servs., Inc. v. Powernet, Inc., No. 01-1089, 2001 WL 1640099, at *3 (D. Minn. Nov. 19, 2001) (finding a similar "floating venue" provision valid).
Because both Minnesota and federal law analysis demonstrate the enforceability of the forum selection clause, it is found to be valid and enforceable.
C. Venue Transfer to Michigan
In the alternative to their Motion to Dismiss for lack of personal jurisdiction, Defendants argue for venue in Michigan. 28 U.S.C. § 1404(a) provides: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." However, a plaintiff's choice of forum is given presumptive weight, and therefore, motions to transfer "should not be freely granted." In re Nine Mile Ltd., 692 F.2d 56, 61 (8th Cir. 1982) (overruled on other grounds). Although a forum selection clause is not dispositive of a motion to transfer, "[t]he presence of a forum-selection clause . . . will be a significant factor that figures centrally in the district court's calculus." Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988). In analyzing a motion to transfer, federal courts employ a three factor balancing test: "(1) the convenience of the parties, (2) the convenience of the witnesses, and (3) the interests of justice." Terra Int'l, Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 691 (8th Cir. 1997).
1. Convenience of the Parties
Defendants argue they are more significantly inconvenienced by litigating in Minnesota than would be the Plaintiff if the case were moved to Michigan. However, Defendants have a high bar to clear to demonstrate inconvenience. "Since it may be assumed that parties consider the inconvenience of the forum at the time they enter a contract, it is `incumbent on the party seeking to escape his contract to show that . . . the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court.'" Dominium, 248 F.3d at 727 (citations omitted). Defendants aver that, in comparison to Plaintiff, they are a very small company likely to incur significant costs from travel and business disruptions if the case remains in Minnesota. However, no allegation is made that, should venue remain in Minnesota, Defendants will be unable to adequately defend their rights, much less be deprived of their day in court. Both parties agree that any trial that might result from this litigation would be no longer than a day or two. Furthermore, Plaintiff notes that if they seek to depose Defendants, they must do so in Michigan. Therefore the inconvenience to Defendants will not be great. As a result, this factor does not strongly favor either party.
2. Convenience of the Witnesses
Defendants argue the convenience of the witnesses weighs in their favor. However, only one witness for Defendants, Will H. Hall, Jr., has been identified by Defendants. Moreover, although NorVergence employees might be subpoenaed, it is not clear where these employees reside. Plaintiff's witnesses, meanwhile, reside in Minnesota. Again, this factor also does not strongly favor either party.
3. Interests of Justice
Finally, Defendants argue the interests of justice favor a transfer to Michigan. Five factors are to be considered in the interests of justice determination: "(1) judicial economy, (2) the plaintiff's choice of forum, (3) the comparative costs to the parties of litigating in each forum, (4) each party's ability to enforce a judgment, (5) obstacles to a fair trial, (6) conflict of law issues, and (7) the advantages of having a local court determine questions of local law." Terra Int'l, 119 F.3d at 696.
As to the first factor, Defendants contend judicial economy suggests Michigan is a more appropriate forum because the Michigan Attorney General has been investigating numerous complaints against NorVergence. Hall Aff. Ex. A. Defendants do not state how transferring this suit to Michigan would aid the Attorney General's investigation, much less provide efficiency for the judicial system.
As to the second factor, Defendants claim Plaintiff's choice of forum should not be given significant weight because the underlying transaction and events did not occur in Minnesota. This may be accurate, however, the finding that the forum selection clause is valid trumps Defendants' argument. As noted above, a forum selection clause, while not dispositive, is to be accorded significant weight. Stewart, 487 U.S. 29. Thus, this factor weighs in favor of Plaintiff.
Defendants argue the costs to the parties will be lowered by litigating in Michigan. As discussed previously, should this case reach trial, it is not expected to be a long trial, few witnesses are needed, and the cost to Defendants should be minimal. This is another neutral factor.
The fourth factor, enforcement of a judgment, favors neither party, as a judgment obtained in either state should be easily enforced in the other. Defendants concede the final factors do not favor either party. Because none of the seven factors considered in the interests of justice analysis strongly favor Defendants, and neither the costs to the parties or witnesses strongly favor Defendants, the Court finds transfer to Michigan to be inappropriate in this action, particularly in light of the forum selection clause.