Opinion
Civil No. 03-686 (JBS)
August 25, 2003
Joseph A. Osefchen, Esquire, Law Firm of Philip Steven Fuoco, Haddonfield, NJ, for Plaintiff Spectracom, Inc.
Philip Stephen Fuoco, Esquire, Law Firm of Philip Steven Fuoco, Haddonfield, NJ, for Plaintiff Spectracom, Inc.
Shabel DeNittis, P.C., Mt. Laurel, NJ, for Plaintiff Spectracom, Inc.
Karen Dyer, Esquire, Boies, Schiller Flexner LLP, Orlando, FL, for Defendants ADT Security Services, Inc., Tyco International US, Inc., and Tyco International Ltd.
Paul Kachevsky, Esquire, Boies, Schiller Flexner, LLP, Orlando, FL, for Defendants ADT Security Services, Inc., Tyco International US, Inc., and Tyco International Ltd.
Stuart Singer, Esquire, Boies, Schiller Flexner, LLP, Ft. Lauderdale, FL, for Defendants ADT Security Services, Inc., Tyco International US, Inc., and Tyco International Ltd.
David S. Stone, Esquire, Boies, Schiller Flexner, LLP, Short Hills, NJ, for Defendants ADT Security Services, Inc., Tyco International US, Inc., and Tyco International Ltd.
David Boies, Esquire, Boies, Schiller Flexner, LLP, Armonk, NY, for Defendants ADT Security Services, Inc., Tyco International US, Inc., and Tyco International Ltd.
OPINION
This matter is before the Court upon the motion to transfer venue to the United States District Court for the District of Colorado, or, alternatively, to dismiss the action, by defendants ADT Security Services, Inc. ("ADT") and Tyco International US, Inc. and Tyco International Ltd. Plaintiff Spectracom filed this action on behalf of a class of independent dealers who sold ADT security systems under a contract with ADT, which sells private home security systems, and who allegedly lost hundreds of thousands of dollars as a result of interference with that contract by Tyco.
Plaintiff filed this action in New Jersey Superior Court, Camden County, on or about December 23, 2002, initially alleging breach of contract against ADT and tortious interference against Tyco. After defendants removed the action to federal court on February 12, 2003, defendants filed a motion to transfer venue to the United States District Court for the District of Colorado on April 2, 2003, alternatively seeking dismissal based on the forum selection clause, and this Court held oral argument on the motion on June 20, 2003.
For reasons discussed herein, the motion to transfer venue, or alternatively, to dismiss will be granted so that plaintiff's claims can be refiled in state court in Arapahoe County, Colorado, consistent with the forum selection clause in this case. Defendants' motion to dismiss will be dismissed without prejudice to refiling in Colorado state court.
I. BACKGROUND
Plaintiff Spectracom, a New Jersey corporation with its principal place of business in Camden County, New Jersey, brings this action on behalf of a class of independent dealers who sold ADT security systems under an exclusive form contract with ADT, a Delaware corporation with principal place of business in Florida, which sells private home security systems. (Amended Compl. ¶¶ 1, 7, 13, 14.) Tyco is allegedly the parent company of ADT. (Id. ¶ 28.) In December 1998, plaintiff Spectracom and ADT entered into a written form contract, an "Authorized Dealer Agreement," under which plaintiff, as an independent authorized dealer of ADT, sold ADT security systems to customers and assigned those homeowner contracts exclusively to ADT for a fee. (Id. ¶¶ 4, 5.) In November 2002, plaintiff voluntarily terminated the agreement by declining to renew the Dealer Agreement. (Id. ¶¶ 8, 15-16.)
Tyco International (US) Inc. (identified as Tyco International, Inc.) is a Nevada corporation, with its principal place of business in Exeter, New Hampshire, while Tyco International LTD is a Bermuda corporation with its principal place of business in Bermuda. ( Id. ¶¶ 10, 11.) Notably, it has been announced that West Windsor, New Jersey, is the home of the new corporate headquarters of defendant Tyco International (US), Inc. See Article, Pl.'s Opp. Br. Ex. C.
The Authorized Dealer Agreement, which governed ADT and Spectracom's relationship from December 1998 to November 2002, provides the following forum selection clause:
Applicable Law, Jurisdiction and Venue. This Agreement shall be construed and enforced in accordance with the laws of the state of Colorado applicable to agreements wholly executed and wholly performed therein. Any action or proceeding brought by either party against the other arising out of or relating to this agreement shall only be brought in a court of competent jurisdiction located in Arapaho County, Colorado. Authorized Dealer and Owner hereby irrevocably consent to the in-personam jurisdiction of such court for purposes of any such action or proceeding, and Authorized Dealer and Owner further agree that service of process via reputable courier shall be deemed personal service sufficient for all purposes.
(Authorized Dealer Agreement, Brahmstedt Decl. Ex. A, § 18.8 (emphasis added).) In this case, the Dealer Agreement was forwarded to plaintiff and signed by plaintiff at Spectracom's offices in Pennsauken, New Jersey. See Carvin Aff. ¶ 16. The installation of security systems sold by plaintiff and governed by the above contract was conducted in homes in New Jersey. (Carvin Aff., Pl.'s Br. Ex. J, ¶ 4.) In addition, ADT maintains offices in New Jersey, namely Regional Director William Donahue's office, located in Ocean County, New Jersey, (id. ¶ 6), and ADT's Territory Manager, located in Moorestown, Burlington County, New Jersey. (Id. ¶ 15.)
According to defendants, all consumer alarm services agreements are "offered" by Authorized Dealers to ADT in Aurora, Colorado, and all consumer alarm agreements which meet certain minimum criteria and which ADT ultimately purchases, are purchased by ADT in Aurora. (Brahmstedt Decl. ¶ 4.) ADT's independent dealer program, and all management, financial, and operational functions are based in Aurora, Colorado. (Id.) All Authorized Dealer Agreements, including the 1998 Agreement between ADT and Spectracom at issue in this case, are housed in Colorado. (Id.) In addition, all consumer alarm service agreements are offered by Authorized Dealers, including plaintiff, to ADT in Aurora, and all consumer alarm services agreements which ADT ultimately purchases, are purchased by ADT in Aurora, with all consumer alarm agreements and associated documentation being sent to and retained in Colorado. (Id.) Moreover, all financial data and due diligence material relating to ADT's authorized dealers, as well as all other dealer-related documents for ADT Authorized Dealers throughout the United States are generated at ADT's offices in Aurora, Colorado and are housed in Colorado. (Id. ¶ 5.)
Plaintiff contends that ADT was induced by its parent company Tyco to breach its form contracts with authorized dealers. (Amended Compl. ¶ 28.) Specifically, plaintiff alleges that publications such as Wall Street Journal and Reuters reported questionable accounting practices relating to the way in which Tyco reported income and expenses associated with Tyco Fire Security Division, the corporate manager of ADT home security contract purchases. (Id. ¶ 31.) For example, plaintiff alleges that Tyco did not actually pay $1,000 to the dealer to purchase the home security contract; rather, the dealer would be charged a connection fee of $200, reducing the $1,000 expense to $800. (Id. ¶¶ 32-34.) Then, Tyco would list the $200 connection fee as a reduction in its current expenses, thereby boosting its claimed profits by that same amount. (Id. ¶ 35.) According to these newspaper reports, Tyco added hundreds of millions of dollars a year to its claimed pre-tax profits, and allegedly wrote off between $265 and $325 million because of these accounting practices. (Id. ¶¶ 36, 37.)
As a result, plaintiff alleges, ADT breached the form contracts by sending out a form notice on August 23, 2002, limiting the number of qualified accounts that it would purchase, stating it would purchase no more than 172 qualified accounts from plaintiff's dealership through September 2002, thus modifying the Dealer Program Guidelines. (Id. ¶ 41.) This form notice was sent to all dealerships, the only change being the specified number of accounts. (Id. ¶ 42.) Plaintiff contends that this reduction was additional to the universal 40% reduction of the home security sales made by the dealers prior to August 2002. (Id. ¶ 43.) After the modification of the Guidelines, the dealers could not sell the remaining 40% of the home security contracts to other security companies. (Id. ¶ 51.)
Plaintiff filed this action in New Jersey Superior Court, Camden County, Law Division, on December 23, 2002. (Compl., Notice of Removal Ex. A.) Plaintiff alleged that Tyco International, Inc. intentionally interfered with the contract entered into by plaintiff and ADT (Count I), and that ADT breached the contract (Count II). (Id. ¶¶ 60-64.)
On February 12, 2003, defendants removed the action to federal court under 28 U.S.C. § 1446 by filing a Notice of Removal on the basis of diversity jurisdiction pursuant to 28 U.S.C. § 1332. (Notice of Removal, ¶ 2.) Plaintiff subsequently filed an Amended Complaint on March 25, 2003, which dropped Tyco International, Inc. as a party but which added RICO claims against the two entities of Tyco International (US) Inc. and Tyco International, Ltd. (Amended Compl.) In the Amended Complaint, plaintiff alleges intentional interference with contract against Tyco International (US) Inc. and Tyco International, LTD. (Count I); breach of contract against ADT (Count II); a violation under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(b) and (d) against Tyco International (US) Inc. and Tyco International, Ltd., and ADT (Count III); and additional RICO violations, 18 U.S.C. § 1962(c) and (d), against Tyco International (US) Inc. and Tyco International, Ltd. (Count IV). (Id.) The RICO claims allege that defendants engaged in a pattern of racketeering activity, including mail and wire fraud to acquire the ADT enterprise and Authorized Dealer Program. (Id. ¶¶ 79-95.) Certain officers of defendants, plaintiff alleges, embezzled millions of dollars through false loans, unauthorized bonuses and various accounting practices designed to conceal their actions (id. ¶ 86.), and used ADT to generate some or part of this apparent income, thereby requiring and encouraging plaintiff and the class to obtain large numbers of customers for ADT security services. (Id. ¶¶ 86-89.) Thus, defendants allegedly induced the class members to increase their sales force, expand operations, and open new locations. (Id. ¶ 100.)
Defendants filed a notice of motion to transfer the case to United States District Court for the District of Colorado on April 2, 2003. (Notice of Intent, 4/2/03; Docket Item 7-1.) On April 17, 2003, defendants additionally filed a Notice of Intent to submit a motion to dismiss, and that complete motion package was filed on July 11, 2003. (Docket Item No. 8-1, 25-1; Notice of Intent, Pl.'s Br. Ex. B.) An Amended Scheduling Order issued by Magistrate Judge Ann Donio on May 13, 2003, allowed the parties to conduct discovery only as to class and venue issues, and set the date for submitting dispositive motion packages by July 2, 2003. (Amended Scheduling Order, 5/13/03.) This Court held oral argument on the motion to transfer on June 20, 2003. At that proceeding, the Court requested clarification regarding whether ADT is a defendant under Count Three of the Amended Complaint, and whether RICO relief is sought against ADT in any RICO count. Mr. Osefchen submitted a letter dated June 26, 2003, in which he represented that plaintiff does not seek RICO relief from ADT and that Counts III and IV are not brought "against" ADT, and reiterated plaintiff's argument that such claims do not fall within the scope of the forum selection clause. (Osefchen Letter, 6/26/03.)
That motion makes no reference to dismissal based on forum selection clause grounds.
II. DISCUSSION
Defendants argue that 28 U.S.C. § 1404 requires that this action be transferred to the United States District Court for the District of Colorado, stating that the forum selection clause is valid and enforceable, and applies to all claims asserted in this case, and that the § 1404(a) balancing factors fully support transfer to Colorado. In the alternative, defendants argue for dismissal of the action in favor of a Colorado state forum, in the event the Court construes the forum in the forum selection clause to be a state court.
Plaintiff argues in its opposition that defendants have moved to transfer the action to a forum other than the one specified in the forum selection clause, and that ADT has waived its contractual right to enforce the forum selection clause because it has acted in a manner inconsistent with the clause. In addition, plaintiff asserts that its RICO claims against Tyco International, Ltd. and Tyco International (US), Inc. should not be transferred. Finally, plaintiff asserts that Colorado is not the most convenient forum for the litigation of plaintiff's claims.
A. Rule 12(b)(6) Dismissal
Though not thoroughly argued in their moving papers, defendants' motion for dismissal, as advanced at oral argument, must be discussed initially. Defendants asserts that dismissal is appropriate if the Court construes the forum in the forum selection clause to be that of a state court. Determination of the appropriate forum is important because, while the Third Circuit has stated that it is clear that a party may bring a motion to transfer from the initial federal forum to another federal court based on a valid forum selection clause under 28 U.S.C. § 1404(a), "[t]ransfer is not available, however, when a forum selection clause specifies a non-federal forum." Salovaara v. Jackson Nat'l Life Ins. Co., 246 F.3d 289, 298 (3d Cir. 2001). In such a case, the Third Circuit stated that "it seems the district court would have no choice but to dismiss the action so it can be filed in the appropriate forum so long as dismissal would be in the interests of justice." Id. (citing Instrumentation Assoc., Inc. v. Madsen Elec. (Canada) Ltd., 859 F.2d 4, 6 n. 4 (3d Cir. 1988); Central Contracting Co. v. Maryland Cas. Co., 367 F.2d 341 (3d Cir. 1966); Moore's Federal Practice, § 111.04[4][c] (Matthew Bender 3d ed.)); see also Penn-Mont Benefit Servs., Inc. v. Crosswhite, No. CIV. A. 02-1980, 2003 WL 203570, *4 (E.D. Pa. Jan. 29, 2003) ("a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is the appropriate mechanism for enforcing a forum selection clause in the Third Circuit") (citing Salovaara, 246 F.3d at 298-300). If the forum selection clause specifies a non-federal forum in this case, transfer is inappropriate with respect to the claims arising out of the forum selection clause, and defendants' motion to transfer would therefore be inapplicable.
Here, neither party argues that the forum selection clause is prima facie invalid. The Supreme Court held in The Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 10 (1972), that a forum selection clause is prima facie valid and should be enforced in the absence of a compelling reason making enforcement unreasonable, such as procurement by fraud, undue influence or unequal bargaining power, or contravention of strong public policy. In this case, there is no showing by either party that such circumstances exist, nor that the clause was somehow invalidly negotiated.
1. Forum Selection Clause
In federal court, "the effect to be given a contractual forum selection clause in diversity cases is determined by federal not state law." Jumara v. State Farm Ins. Co., 55 F.3d 873, 877 (3d Cir. 1995); see also Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 28 n. 8 (1988) (holding that federal law governed decision whether to grant motion to transfer a diversity case to venue in contractual forum selection clause). "Because `questions of venue and the enforcement of forum selection clauses are essentially procedural, rather than substantive, in nature,' federal law applies in diversity cases irrespective of Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938)." Jumara, 55 F.3d at 877 (quoting Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir. 1991)).
Generally, when a forum selection clause references the courts located in a specific county, and there is no federal court in that county, the clause will be construed to refer to the state court system only. See Excell, Inc. v. Sterling Boiler Mechanical, 106 F.3d 318 (10th Cir. 1997) (holding that "venue shall lie in the County of El Paso, Colorado" references only Colorado state courts); Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762 (9th Cir. 1989) (holding that "venue of any action brought hereunder shall be deemed to be in Gloucester County, Virginia" refers to the state court of Gloucester County, Virginia); Air Ion Devices, Inc. v. Air Ion, Inc., No. C. 02-1717 SI, 2002 WL 1482665 (N.D. Cal. July 5, 2002) (holding that "any action . . . shall be brought in the County of Marin, State of California" refers to state courts of California, since state courts are broken up by county, but federal courts are divided by judicial districts); First Nat'l of North America, LLC, v. Peavy, 2002 WL 449582 (N.D. Tex. Mar. 21, 2002) (holding that "all claims shall be litigated in Collin County, Texas" references only state courts in Texas); Infinite Tech., Inc. v. Rockwell Elec. Commerce Corp., 2001 WL 527357 (N.D. Ill. May 16, 2001) (holding that "the courts of DuPage County" references state courts); Intermountain Sys. v. Edsall Constr., 575 F. Supp. 1195 (D. Col. 1983) (holding that "venue shall be in Adams County, Colorado" references only Colorado state courts). But see Jumara, 55 F.3d at 882 (holding that "a court of record" of Luzerne County includes district court in Middle District of Pennsylvania because federal courts are "courts" within meaning of Pennsylvania UAA which was incorporated within insurance contracts). According to one case addressing the issue, "to include the federal district court for the District of Colorado within the ambit of Adams County, Colorado, would be a severe catachresis." Edsall, 575 F. Supp. at 1198.
In this case, the forum selection clause in the ADT Authorized Dealer Agreement provides:
Any action or proceeding brought by either party against the other arising out of or relating to this agreement shall only be brought in a court of competent jurisdiction located in Arapaho County, Colorado. Authorized Dealer and Owner hereby irrevocably consent to the in-personam jurisdiction of such court for purposes of any such action or proceeding[.] Authorized Dealer Agreement, § 18.8. Stephen DeNittis's Affidavit provides that the United States District Court for the District of Colorado is located in Denver, Denver County, Colorado. DeNittis Aff. ¶ 5. The parties, at oral argument, agreed that there was no federal court sitting in Arapahoe County, and there is no indication that anything but a state court is located in that county. Thus, the federal district court for the District of Colorado is not located in Arapahoe County, Colorado.
Here, where the forum selection clause provides for any action to be brought "in a court of competent jurisdiction located in Arapaho [sic] County, Colorado," it refers to the state court in Arapahoe County, Colorado, not the federal district court that may encompass that county. Although defendants argued that Jumara requires a construction of a federal court forum, the Third Circuit held in Jumara that a "court of record" in Luzerne County includes the federal district court in the Middle District of Pennsylvania because federal courts are "courts" within meaning of Pennsylvania UAA which was incorporated within the insurance contract at issue. Unlike Jumara, there is no UAA provision in the contract between the parties in this case specifically providing that federal courts are encompassed within the meaning of "courts." Consistent with federal law, the forum selection clause identifies a state court in Arapahoe County, Colorado, in this case.
2. Scope of Forum Selection Clause
The scope of the forum selection clause and whether it applies to all claims asserted by plaintiff must be considered. Defendants maintain that the forum selection clause applies to all claims asserted in this case because § 18.8 of the Dealer Agreement encompasses all disputes "arising out of or relating to this Agreement," citing to Crescent Int'l, Inc. v. Avatar Cmtys., 857 F.2d 943, 944 (3d Cir. 1988), National Micrographics Sys., Inc. v. Canon U.S.A., Inc., 825 F. Supp. 671, 677 (D.N.J. 1993) (plaintiff alleged claims for breach of contract, accounting, estoppel, fraudulent inducement, tortious interference, breach of duty of good faith, equitable and promissory estoppel, and injunctive relief); and Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 193 (3d Cir.), cert. denied, 464 U.S. 938 (1983).
The Third Circuit has held that a forum selection clause may be enforced as to all claims involving allegations arising out of the contract, including RICO claims, tort claims, and fraud claims. See Crescent Int'l, 857 F.2d at 944; Coastal Steel Corp., 709 F.2d at 193 (applying forum selection clause to related tort claims as well as contract claims of third party beneficiary); Cinema Laser Tech., Inc. v. Hampson, Civ. A. No. 91-1018, 1991 WL 90913 (D.N.J. May 30, 1991). InCrescent, the plaintiff brought claims alleging breach of contract and related RICO claims, fraud, unfair competition, and tortious interference against the same defendant. The Third Circuit affirmed the district court's dismissal of the claims on forum selection clause grounds, stating that "[a]lthough only one of Crescent's claims is based on a breach of contract theory, all of them involve allegations arising out of the agreement implicating its terms." Id. The Third Circuit also admonished the apparent attempt to plead non-contract related claims to avoid the contractual choice of forum: "[P]leading alternate non-contractual theories is not alone enough to avoid a forum selection clause if the claims asserted arise out of the contractual relation and implicate the contract's terms." Id. at 944-45 (citing cases).
With respect to whether the forum selection clause may be applied to the RICO claims against Tyco (US) International, Inc. and Tyco International, Ltd., which are not parties to the ADT Authorized Dealer Agreement, courts in this jurisdiction have held that non-contract related claims may apply to individuals not party to the contract, see Cinema Laser, 1991 WL 90913, at *3. In Cinema Laser, plaintiff asserted breach of contract, misrepresentation, negligence, and RICO claims, arising out of plaintiff's Joint Venture Agreement with certain defendants. The district court held that the forum selection clause applied to all of the claims because the claims were based on the Joint Venture Agreement and "[a]ll of the claims in this suit involve the activities of the Joint Venture and [plaintiff] is seeking to enforce its rights `arising out' of this agreement by means of fraud, conversion, negligence and RICO claims," relying on the Third Circuit's decisions inCrescent, supra, and Coastal Steel. Id. at *2. The court also stated that "[t]he one document which logically connects all the defendants to the plaintiffs, in this action,' is the Joint Venture Agreement." Id. (quotingFriedman v. World Transp. Inc., 636 F. Supp. 685, 691 (N.D. Ill. 1986) (in case involving several contracts, court applied forum selection clause that was central in dispute)). As for plaintiff's claims against individual defendants who were not parties to the Joint Venture Agreement, the court found that the individuals were all directors of the defendant corporation, which was a party to contract, and reasoned that the Third Circuit had previously applied a forum selection clause to a third party beneficiary in Coastal Steel. The court reasoned that these directors could have foreseen that if the company entered into a contract with a non-Florida corporation, it might be compelled to litigate in a forum outside Florida. Therefore, the district court held that it had jurisdiction over the dispute where the forum selection clause specified a court of competent jurisdiction in Essex County, New Jersey, which includes the city of Newark, New Jersey, in which a federal district court is located.
Plaintiff cites Union Steel America Co. v. M/V Sanko Spruce, 14 F. Supp.2d 682 (D.N.J. 1998); Snider v. Lone Star Art Trading Co., Inc., 672 F. Supp. 977, 979 (E.D. Mich. 1987), for the proposition that the forum selection clause should not be applied to anyone other than the defendant who actually contracted with plaintiff. In Union Steel, plaintiff Union Steel and defendant Yukong Line had entered into a bills of lading, the forum selection clause of which required disputes to be decided in "the country where the Carrier has his principal place of business." The district court first determined that Yukong Line was the "carrier" referred to in the bill of lading, rather than the vessel owner, and therefore dismissed the action as against Yukong Line to be refiled in Korea, where it had its principal place of business. The court then found that the bills of lading were contracts between Union Steel and Yukong Line, and that the forum selection clause gave only Yukong Line the right to have disputes between it and Union Steel resolved in a particular forum, and did not give Union Steel the right to require that its disputes with other entities to be litigated in the foreign forum. With respect to the other defendants against whom the complaint was brought, the district court determined that plaintiff was free to pursue its claims against them in that forum. The district court distinguished itself from Bison Pulp Paper Ltd. v. M/V Pergamos, 1996 AMC 2022, 1995 WL 880775 (S.D.N.Y. Nov. 29, 1995), which did enforce the forum selection clause as to non-parties to the contract. The district court inBison Pulp had rejected plaintiff's contention that the claims do not "arise under" the bills of lading, stating that the alternative legal claims for bailment and negligence against non-contract bound defendants "are commonly asserted in cargo cases." Id. at *15. Furthermore, the court stated that
There is no reason to infer, however, that by the simple stratagem of alternative pleading the plaintiffs may evade the plain intendment of the forum-selection clause. Such a reading would, as already suggested, yield the untenable result that related — and indeed parallel — claims would be litigated in different parts of the world, a consequence unlikely to have been contemplated either by the drafters or by the signatories of the Bills of Lading.Id. The Union Steel court rejected this reasoning outright, stating that "[w]here two parties contract to litigate any dispute arising under their contract in a specified forum, this Court presumes that they are speaking only of disputes with each other in the absence of language about disputes with third parties." Union Steel, 14 F. Supp.2d at 693.
In Snider, the court denied reconsideration of its previous order declining to give effect to a forum selection clause for a number of reasons, one of which was that the scope of the clause with one defendant did not encompass a RICO claim asserted against multiple defendants. The multiple defendants were individual entities not directly related to the contracting defendant. Although the court noted that the Friedman court enforced the forum selection clause against all defendants, some not party to the contract, which was the "one document which logically connects all the defendants to the plaintiffs in this action," the contract in Snider was not the "one central document." Rather, the forum selection clause was inserted in one of six equally important Purchase Agreements. For reasons of equity, as well as the efficient administration of justice, the court did not enforce the forum selection clause against all defendants in that case.
The Snider court also relied on Farmland Indus. v. Frazier-Parrott Commodities, 806 F.2d 848, 848-52 (8th Cir. 1986), in which the Eighth Circuit refused to enforce a forum selection clause in a contract entered into by plaintiff and only one of the defendants, finding that the suit was broader than the intended scope of the clause. In Farmland, the Eighth Circuit concurred with the reasoning of the district court below:
This matter involves more than a dispute between plaintiff, Heinold, and those associated with Heinold. Plaintiff has alleged an elaborate scheme of fraud with Heinold, but also involving other individuals outside the securities brokerages, sham corporations, and other matters not subject to the agreement between plaintiff and Heinold.Id. at 852 (citing Farmland Indus., Inc. v. Frazier-Parrott Commodities, No. 86-0135-CV-W-8, slip op. at 7-8 (W.D. Mo. June 17, 1986)). The Eighth Circuit thus affirmed the denial of defendants' motion to dismiss for improper venue based on forum selection clause, or to transfer.
In this case, unlike Snider, there is one Authorized Dealer Agreement to which plaintiff and ADT contracted. Although the multiple defendants in Snider were apparently unrelated entities against whom RICO relief was sought, this case involves RICO claims against the parent corporations which allegedly directly affected plaintiff's contractual relationship with ADT. Also, unlike Union Steel, this case does not implicate defendant corporations or companies entirely independent of the contractually-related entities that would favor non-enforcement of the forum selection clause. Unlike Farmland, no other unassociated parties, individuals outside the companies, nor sham corporations are involved. The RICO claims asserted against the Tyco entities as parent companies of the ADT defendant are causally related to the breach of contract claims in this case, as plaintiff claims that Tyco's actions induced ADT to breach the contract, and that Tyco's fraudulent activities encouraged and essentially forced ADT to breach its contractual obligations to plaintiff. Plaintiff's RICO claims and tortious interference claims, which allege that Tyco's actions caused ADT to breach the Authorized Dealer Agreement with plaintiff by inducing and encouraging increased sales through such contracts in order to cover up Tyco's embezzlement and fraudulent schemes, emanate from plaintiff's rights under the Authorized Dealer Agreement with defendant ADT. Since there are no additional named parties that are outside these associations, the suit as maintained is not broader than the forum selection clause.
Moreover, similar to Cinema Laser and Friedman, cited therein, "[t]he one document which logically connects all the defendants to the plaintiff, in this action," is the ADT Authorized Dealer Agreement. Where plaintiff alleges interference with contract and RICO claims that allegedly altered its contractual relationship with ADT and resulted in the breach of contract, it is by virtue of having signed the Authorized Dealer Agreement that the plaintiff seeks relief for the harms it has suffered. Like Cinema Laser, Tyco International (US) Inc. and Tyco International, LTD., are not so removed as to escape liability. The Tyco entities are alleged parent companies of ADT, the effect of which on ADT was so pronounced as to alter and modify, according to plaintiff, its business and contractual relations.
Furthermore, this Court is counseled by the Third Circuit's admonition, much like that of Bison Pulp, against use of pleadings to avoid the application of a forum selection clause. See Crescent, 857 F.2d at 944-45 ("[P]leading alternate non-contractual theories is not alone enough to avoid a forum selection clause if the claims asserted arise out of the contractual relation and implicate the contract's terms."); Bison Pulp, 1995 WL 880775, at *15. The fact that plaintiff amended its complaint on March 25, 2003, to add RICO claims against the Tyco entities after defendants notified plaintiff on March 4, 2003 that it would seek transfer or dismissal, as represented at oral argument, lends substantial force to this conclusion.
Plaintiff additionally argues that its RICO claims against Tyco International, Ltd. and Tyco International (US), Inc. should not be transferred or dismissed because plaintiff has not waived its statutory right to bring its RICO claims against Tyco in the District of New Jersey. Plaintiff contends that there is a special grant of venue under 18 U.S.C. § 1965, which provides that "[a]ny civil action under this chapter against any person may be instituted in the district court of the United States for any district in which such person resides, is found, has an agent, or transacts his affairs." 18 U.S.C. § 1965(a). Notwithstanding this statute, the Supreme Court has explicitly held that state courts have concurrent jurisdiction over civil RICO claims, see Tafflin v. Levitt et al., 493 U.S. 455, 465-68 (1990). Thus, plaintiff's citation to the statutory grant of venue does not require denial of defendants' motion in this case.
According to the above, because plaintiff's RICO claims directly relate to and arise out of plaintiff's contract with ADT, the forum selection clause will be enforced as to all claims against all named defendants in this case. This result is further supported by the Third Circuit's directive against pleading to avoid a contractual choice of forum.
3. Waiver
In the event of transfer or dismissal, Spectracom additionally argues that ADT acted inconsistently by removing the case to an improper federal court under the forum selection clause, and consequently waived its rights to enforce the clause. Plaintiff's Memorandum at 4-5. Spectracom relies on Excell, Inc. v. Sterling Boiler Mech., 106 F.3d 318, 322 (10th Cir. 1997), Intermountain Sys., Inc. v. Edsall Constr. Co., 575 F. Supp. 1195, 1198 (D. Colo. 1983), and Air Ion Devices, Inc v. Air Ion, Inc., No. C 02-1717 SI, 2002 WL 1482665 (N.D. Cal. July 5, 2002) to support its claim. Pl.'s Opp. Br. at 4. However, these cases do not address whether a party waives the enforcement of a forum selection clause through removal to an improper forum; rather, they only demonstrate that a party waives its right to remove a case that has been filed in a proper forum under the forum selection clause.
Both Excell and Intermountain Systems, while not specifically discussing waiver, support the contention that a party cannot remove a claim to a jurisdiction inconsistent with the language in the forum selection clause. Excell, 106 F.3d 318 at 322; Intermountain Sys., 575 F. Supp. at 1198. In Excell, the plaintiff filed a breach of contract claim in the District Court of El Paso County, Colorado against the defendant for the alleged failure to pay for consulting services. Id. at 320. The defendant later removed the action to the United States District Court for the District of Colorado, also in El Paso County, based on diversity of citizenship. Id. Upon motion by the plaintiff, the district court remanded the claim back to Colorado state court, based on the express forum selection clause in the parties' contract, which provided that "jurisdiction shall be in the state of Colorado, and venue shall lie in the County of El Paso, Colorado." Id. The United States Court of Appeals for the Tenth Circuit affirmed the district court's decision to grant the plaintiff's motion to remand, interpreting the language of the forum selection clause as referring only to a specific county, and not to a specific judicial district. Id. at 321. Since venue is not stated in terms of "counties" for federal court purposes, rather in terms of "judicial districts," it held that the language intended jurisdiction only in state court. Id. Intermountain Systems is similar in both its procedural history and result. 575 F. Supp. at 1195. In that case, the United States District Court for the District of Colorado remanded a case on motion by the plaintiff that had been previously removed from the District Court of Adams County, Colorado based on diversity of citizenship. Id. at 1196. The Court held that the forum selection clause, which stated that "it is agreed for purposes of this agreement, venue shall be in Adams County, Colorado," was unambiguously referring to the state court, and could not be interpreted as also referring to the federal district court in Colorado. Id. at 1198. Thus, the defendant could not remove a case to one inconsistent with the forum selection clause.
In neither of these cases did the court expressly discuss whether a party can waive its right to removal based on the forum selection clause. In Air Ion Devices, however, the United States District Court for the Northern District of California explicitly stated that, depending on its language, a forum selection clause can establish a waiver of the right of removal. 2002 WL 1482665, at *1. In this breach of contract action brought by Air Ion Devices ("AID"), the district court granted a motion by the plaintiff to remand a case previously removed from Marin County Superior Court, California. Id. The forum selection clause in that contract stated that "the parties agree that any action commenced by AID to enforce its rights against [Air Ion] shall be brought in the County of Marin, State of California. California law shall govern and control such actions." Id. at *2. AID argued that because the forum selection clause was mandatory, Air Ion ("AI") contractually waived its right to consent to removal. Id. AID on the other hand, claimed that the forum selection clause was permissive and with no clear and unequivocal waiver of the right to removal. Id. In addition to construing the language of the forum selection clause as mandatory and permitting only jurisdiction in state court, the district court established that "a clause that established a mandatory choice of venue will be enforced unless the resisting party can show that enforcement would be `unreasonable under the circumstances.'"Id. at *3 (quoting Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir. 1988)). The court concluded by stating that unless defendants prove such unreasonableness, the mandatory language of the forum selection clause establish that they have waived their right to removal. Air Ion Devices, 2002 WL 1482665, at *3 n. 3. Since AI was not able to prove the enforcement of the clause was unreasonable, the court held that AI had thus waived its right to remove. Id.
In applying the above cases, Spectracom claims that because the forum selection clause was mandatory, ADT's removal to federal court in New Jersey was inconsistent with the clause. Pl.'s Opp. Br. at 4. Such inconsistency, Spectracom alleges, waives ADT's contractual right to enforce this clause. Id. However, none of these cases cited by Spectracom actually stand for the proposition that a defendant waives the right to enforce a forum selection clause. Rather, these cases provide only that a defendant waives the right to remove the case from a valid forum. This is not the case here. The case was filed by the plaintiff in an invalid forum under the forum selection clause, and the defendant subsequently removed the case to another invalid forum and then asserted its right to enforce the forum selection clause. These cases do not support plaintiff's position, and the Court's conclusion to dismiss of the complaint is not altered.
None of the cases in this memorandum cited by the defendants or the plaintiff speak to the issue of whether by removing to an invalid forum, defendant has waived his right to later assert the forum selection clause.
Additionally, Spectracom argues that ADT waived its rights by making a separate motion to dismiss. Here, defendants filed a separate motion to dismiss on July 11, 2003. Plaintiff cites Licensed Practical Nurses, Technicians Health Care Works of New York, Inc. v. Ulysses Cruises, Inc., in which plaintiff union purchased tickets from defendant cruise line, intending to hold business meetings during the course of the cruise. 131 F. Supp.2d 393, 395 (S.D.N.Y. 2000). After many of the passengers became sick with a bacteria infection, plaintiff sued defendant in the New York state courts for breach of its agreement and warranty to provide "a safe and reasonable environment." Id. at 395. Defendant removed the action to the United States District Court for the Southern District of New York alleging diversity of citizenship. Id. Defendant then moved to dismiss, arguing that the plaintiff was bound, and did not meet, the clauses in the contract which required lawsuits between the parties to be brought (1) within one year of the incident giving rise to the action and (2) either in a state court located in Dade County, Florida or in the United States District Court for the Southern District of Florida. Id.
In adjudicating the dispute, the district court needed to determine whether it could consider and dismiss the plaintiff's case for violating the statute of limitations as stipulated correctly by the defendant, or whether it would have to first enforce the forum selection clause, either by dismissing the claim or transferring it, therefore never addressing the statute of limitations issue. Id. at 409. However, in order to do so, both parties would have had to waive their rights to a particular venue under the forum selection clause at least to the extent of submitting the issue of limiting clause to the court. Id. at 410. The district court held that it was quite clear that by bringing suit in New York in violation of the forum selection clause, the plaintiff had "waived any right to insist on its enforcement." Id. Additionally, the district court found that the defendant, by submitting the limitation issue to the court, had waived the forum-selection clause to the extent of seeking adjudication of the issue in the motion to dismiss. Id. at 410. Thus, both parties had waived the forum selection clause and agreed to submit the statute of limitations issue to the court for resolution. However, the court noted the following:
The court also discussed at length the choice of law that applied in forum selection clause cases, the validity and application of the forum selection clause, and the remedy the defendant is entitled to due to the breach of the forum selection clause by the plaintiff.
Under the Federal Rules of Civil Procedure, venue can be waived, and consequently a party with a contractual right to block litigation in a particular forum can also waive any right the contract confers on it. Id. (citing Fed.R.Civ.P. 12(h)(1) (waiver of objection to venue if untimely); 28 U.S.C. § 1406(b) (same) ; Hoffman v. Blaski , 363 U.S. 335 (noting venue is a personal privilege that may be waived)).
If the defendant sought to waive the forum-selection clause in order to present a complex motion addressing the merits of the case, for example, while still arguing in the alternative that if the motion were denied, the court should apply the forum-selection clause and transfer the case elsewhere, neither fairness or efficient judicial administration would be served by deciding the motion first.Id. Thus, Licensed Practical Nurses makes clear that where the threshold matter at issue is a complex motion addressing the merits of the case, transfer must occur prior to deciding that motion. Id.
Spectracom's argument that defendant has waived its right under the forum selection clause by making a separate motion to dismiss is inconsistent with the conclusion in Licensed Practical Nurses, which limits waiver to only simple and conclusive alternative motions to dismiss. Under such a theory, the motion to transfer should be decided before determining ADT's motion to dismiss, as long as ADT did not waive its rights by removing to the federal court. Furthermore, the motion to transfer is inapplicable here, where the appropriate mechanism for enforcing the forum selection clause specifying a state forum is a motion to dismiss that does not address the merits of the case.
Rugumbwa v. Betten Motor Sales is also distinguishable from the present case. 136 F. Supp.2d 729 (W.D. Mich. 2001). In Rugumbwa, plaintiff filed a class action complaint in the United States District Court for the Western District of Michigan against the defendant, alleging that Betten Motors had made false representations to consumers regarding the cost of vehicle service contracts. Id. at 731. Defendant sought to enforce the arbitration clause which was required under the contracts. Id. After determining that the arbitration clause did not apply to the litigants, the district court examined in dicta whether the defendant had waived its right to arbitration by acting inconsistently with the clause. Id. at 734. The district court noted that instead of raising the arbitration defense in its original answer, defendant actively participating in the litigation, and did not raise the issue despite several opportunities to do so, and even filed a motion to add third-party defendants before filing its motion to compel arbitration. Id. Furthermore, the district court pointed out that even after filing its motion to compel arbitration, defendant actively sought to litigate its case in the judicial forum, including engaging in significant discovery and submitting a motion for summary judgment well before the deadline. Id. Thus, the court concluded from the defendant's acts that if the clause had been applicable, defendant had waived its right to proceed with arbitration.
Rugumbwa is distinguishable from the present case. ADT, unlike the defendant in Rugumbwa, raised the transfer issue prior to even responding to the complaint. Defs.' Reply Br. at 14. ADT also continuously raised the issue to each of its responses to Spectracom's discovery requests, and sought an extension to file its motion to dismiss until after the transfer motion was decided. See Stone Letter, Defs.' Ex. K. It waited until the last possible day to file its motion to dismiss, and has not sought to engage in any discovery. Moreover, other courts have determined that a party does not waive its rights to enforce a forum selection clause or an arbitration clause even despite a long delay. See Carcich v. Rederi A/B Nordie, 389 F.2d 692, 695 (2d Cir. 1968) (participation in litigation and long delay does not constitute waiver unless other party is prejudiced); Steel Warehouse Company, Inc. v. Abalone Shipping Limited of Nicosai, 141 F.3d 234, 238 (5th Cir. 1998) (no waiver found in substantial participation in litigation process; "The Appellants had to participate in the litigation in order to protect themselves if the district court chose not to stay the proceedings."). Thus, by filing the motion to dismiss, ADT has not waived its right to enforce the forum selection clause.
Although defendants also seek transfer of this case to the United States District Court for the District of Colorado pursuant to 28 U.S.C. § 1404(a), which provides that "[f]or 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," 28 U.S.C. § 1404(a), defendants' motion to dismiss in the alternative will be granted on the grounds discussed above. Because "[t]ransfer is not available . . . when a forum selection clause specifies a non-federal forum," Salovaara, 246 F.3d at 298 ("[I]t seems the district court would have no choice but to dismiss the action so it can be filed in the appropriate forum so long as dismissal would be in the interests of justice."), defendants' motion seeking transfer under § 1404(a) need not be addressed.
III. CONCLUSION
In conclusion, the Court will grant defendants' motion to transfer, or alternatively, to dismiss the case under Rule 12(b)(6) to enforce the forum selection clause which specifies for suit to be filed in Colorado state court. Although plaintiff claims that defendants waived their rights to enforce the forum selection clause, the authorities cited do not support plaintiff's position, nor has it been demonstrated that defendants have been anything other than forthright in their intentions in seeking dismissal or transfer. Defendants' subsequent motion to dismiss, submitted on July 11, 2003, will be dismissed without prejudice to refiling in Colorado state court. The accompanying Order will be entered.
ORDER
THIS MATTER having come before the Court upon the motion to transfer plaintiff Spectracom's Amended Complaint to the United States District Court for the District of Colorado under 28 U.S.C. § 1404(a) or, in the alternative, to dismiss plaintiff's Amended Complaint under Fed.R.Civ.P. 12(b)(6), by defendants ADT Security Services, Inc., Tyco International (US) Inc., and Tyco International, Ltd.; and the Court having heard oral argument on June 20, 2003; and the Court having considered the parties' submissions, including Mr. Osefchen's letter dated June 26, 2003; and for the reasons discussed in the Opinion of today's date; and for good cause shown;
IT IS on this day of August, 2003, hereby
ORDERED that defendants' motion to transfer under § 1404(a) or, alternatively, to dismiss under Rule 12(b)(6), Fed.R.Civ.P., [Docket Item 7-1, 20-1] be, and hereby is DENIED as to transfer and GRANTED as to dismissal, and plaintiff's Amended Complaint is hereby DISMISSED without prejudice to refiling in state court in Arapahoe County, Colorado; and
IT IS FURTHER ORDERED that defendants' motion to dismiss [Docket Item 8-1, 25-1] be, and hereby is, DISMISSED without prejudice to refiling in Colorado state court.