Opinion
Civil Action No. SA: 06-CA-380-XR.
July 17, 2006
ORDER
On this date, the Court considered Defendant's Motion to Dismiss, or in the alternative, Motion to Transfer Venue (docket no. 3), and Plaintiff's Response and Motion for Leave to Join Additional Defendant (docket no. 6).
Facts Procedural Background
Plaintiff William Youngblood opened a Liberty Tax Service franchise in San Antonio in January 2006. After the franchise closed its doors in March 2006, Plaintiff filed this suit on April 7 in state court, asserting causes of action against Liberty for fraudulent inducement, DTPA violations, and negligent misrepresentation. Defendant removed the case to this Court on May 5 on the basis of diversity jurisdiction because Plaintiff is a Texas resident, Defendant is a Delaware corporation with its principal place of business in Virginia, and the amount in controversy exceeds $75,000. On May 11, Liberty Tax filed a separate suit against Youngblood in the Eastern District of Virginia, asserting a claim for breach of the franchise agreement. See JTH Tax, Inc. v. William Youngblood South Texas Finance, Inc., Civ. No. 2:06-CV-00256-JBF-FBS (E.D. Va.).
On May 12, Defendant filed the instant motion to dismiss or, in the alternative, motion to transfer venue. Defendant moves for dismissal for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3) and 28 U.S.C. § 1406, arguing that the franchise agreement contains an exclusive mandatory forum selection clause designating Virginia as the proper forum. In the alternative, Defendant moves for a transfer of venue to Virginia pursuant to 28 U.S.C. § 1404(a) (for the convenience of the parties and in the interests of justice) or § 1406(a) (permitting a federal court to transfer a case to another federal court in the interest of justice if venue is laid in the wrong division or district). Defendant argues that transfer is appropriate under § 1404(a) for the convenience of the parties and witnesses or under § 1406 because the forum selection clause establishes that venue was laid in the wrong district.
Plaintiff admits that this lawsuit and the Virginia lawsuit involve the subject franchise agreement and that the franchise agreement contains a forum selection clause. In the Virginia suit, however, Plaintiff has filed a motion to dismiss for lack of personal jurisdiction, as well as a motion to transfer venue to this district and a motion to join a Texas resident (David Wright) as a third-party defendant. Accordingly, Plaintiff argues that Defendant's motions to dismiss or transfer in this case should be abated until his motions are disposed of by the Virginia court. Plaintiff argues that the case should remain here because this action was filed first and judicial economy predominates in favor of the suit being tried here. Plaintiff also moves to join an additional defendant, David Wright, who is "some sort of employee of or agent for Liberty and served as its primary Texas contact in negotiating the attempted franchise agreement."
Analysis
A. First-to-File Rule and Plaintiff's request to abateThe Fifth Circuit has adopted a first-to-file approach when separate actions are filed in different district courts. In such instances, the principle of comity requires federal district courts to exercise care to avoid interferences with each other's affairs. W. Gulf Maritime Assn. v. ILA Deep Sea Local 24, 751 F.2d 721, 728 (5th Cir. 1985). As between federal district courts, the general principle is to avoid duplicative litigation, and the concerns are to avoid the waste of duplication, to avoid rulings that may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result. Id. In the absence of compelling circumstances, the court initially seized of a controversy should be the one to decide whether it will try the case. Mann Mfg., Inc. v. Hortex, Inc., 439 F.2d 403, 407 (5th Cir. 1971).
Pursuant to the principles embodied in the first-to-file rule, this Court declines Plaintiff's invitation to abate the motions to dismiss or transfer pending resolution of the motions in the Virginia court. It appears undisputed that the two pending actions are so substantially similar that one court should decide the subject matter of both actions or that one action should be stayed pending resolution of the other matter. The question then becomes which of the two courts should consider the case. The answer to this question will depend on the propriety of dismissal or transfer of this action, issues that the Court will address below.
B. The Forum Selection Clause
Because the forum selection clause forms the primary basis for Defendant's motions, the first question to be resolved is whether the clause applies to Plaintiff's claims. The franchise agreement, which was signed by William Youngblood and Carolyn Joyce Youngblood, contains a paragraph entitled "Jurisdiction and Venue." It states: "It any suit brought against us, including our present and former employees and agents, which in any way relates to or arises out of this Agreement, or any of the dealings of the parties hereto, venue shall be proper only in the federal court located nearest our National Office (presently the U.S. District in Norfolk, Virginia), or if neither federal subject matter or diversity jurisdiction exists, in the city or county state court located where our National Office is (presently the City of Virginia Beach, Virginia)." Franchise Agreement ¶ 15b. Because the franchise agreement expressly states that "venue shall be proper only in the federal court located nearest our National Office," the forum selection clause is exclusive and mandatory. Plaintiff's claims "relate to" and "arise out of" the Agreement and the dealings of the parties, and thus fall within the scope of the clause.
The Court next turns to whether the clause should be enforced. The proper law to apply to questions regarding the enforceability of forum selection clauses is federal, whether jurisdiction be based on diversity, federal question, or a combination of the two. Haynsworth v. The Corporation, 121 F.3d 956, 962 (5th Cir. 1997). Under federal law, the forum selection clause is prima facie valid and enforceable, and Plaintiff has not established that it was included in the Agreement as a product of fraud or overreaching or that its enforcement would be otherwise unreasonable. Accordingly, the Court finds that the clause is enforceable.
C. Defendant's Motion to Dismiss
Defendant urges the Court to dismiss the case pursuant to Rule 12(b)(3) based on the existence of the forum selection clause. The Fifth Circuit has held that a motion pursuant to Rule 12(b)(3) is a proper method for seeking dismissal based on a forum selection clause. Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898, 902 (5th Cir. 2005). However, the forum selection clause in Lim designated a foreign jurisdiction, and the Fifth Circuit has not considered the application of Rule 12(b)(3) in a case in which the forum selection clause designates another federal forum rather than a state court or foreign jurisdiction. See Southeastern Consulting Group, Inc. v. Maximus, Inc., 387 F.Supp. 2d 681, 683 (S.D. Miss. 2005) (noting that the Fifth Circuit has not addressed whether dismissal for improper venue pursuant to Rule 12(b)(3) is appropriate where another federal court is an agreed venue under an enforceable forum selection clause). A number of district courts have declined to dismiss a case under either Rule 12(b)(3) or § 1406 when transfer is an alternative. See id. at 684 (holding that when a federal court is the agreed forum under an enforceable forum selection clause, the proper procedure for enforcing the clause is through a motion to transfer pursuant to § 1404 and not a motion to dismiss for improper venue) (listing cases). Because Defendant has moved both to dismiss and to transfer, and because the Court concludes infra that a transfer is in the interest of justice, the Court denies the motions to dismiss under Rule 12(b)(3) and § 1406(a). D. Defendant's Motion to Transfer
Defendant cites this Court's decision in Alternative Delivery Solutions v. Donnelley Sons Co., Civil Action No. SA-05-CV-172-XR, 2005 WL 1862631 (W.D. Tex. July 8, 2005) in support of a Rule 12(b)(3) dismissal. However, that case, unlike this one, involved a forum selection clause designating a foreign forum (Mexico) rather than another federal court in the United States. Thus, there was no issue whether transfer was more appropriate than dismissal.
Thus, the Court need not consider whether the presence of the forum selection clause renders venue "improper" when venue is otherwise proper under § 1441(a). Similarly, the motion to transfer pursuant to § 1406 for improper venue is denied.
The Court thus turns to the propriety of transfer pursuant to § 1404(a). In applying the provisions of § 1404(a), the first determination to be made is whether the judicial district to which transfer is sought would have been a district in which the claim could have been filed. In re Horseshoe Entm't, 337 F.3d 429, 433 (5th Cir. 2003). Under the general venue provision of 28 U.S.C. § 1391(a), a civil action wherein jurisdiction is founded only on diversity of citizenship may be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subjection of the action is situated, or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought. 28 U.S.C. § 1391(a). Defendant has its principal place of business in Virginia, and is subject to personal jurisdiction there, and thus venue is proper there under section 1391(a) as well as under the forum selection clause. Thus, this suit could have been brought in the transferee district. The Court next turns to an examination of the § 1404(a) factors.
Plaintiff argues that transfer is not appropriate because he has challenged personal jurisdiction in the Virginia court. However, this Court is not aware of any case in which transfer was denied on the basis of the plaintiff's objection to personal jurisdiction in the transferee district. Further, Plaintiff consented to personal jurisdiction in the state and federal courts of the city or county of Defendant's national office (Virginia Beach state courts and the United States District Court in Norfolk, Virginia). Franchise Agreement ¶ 15. Cf. Kevlin Servs. Inc. v. Lexington State Bank, 46 F.3d 13, 15 (5th Cir. 1995) (holding that the forum selection clause was prima facie valid and enforceable and granted the district court jurisdiction over the defendant who agreed to the clause); XPEL Technologies Corp. v. Maryland Performance Works Ltd., Civ. Action No. SA-05-0593-XR, 2006 WL 1851703 (W.D. Tex. May 19, 2006) (finding that party to agreement with Texas forum selection clause consented to personal jurisdiction in Texas for suits arising out the agreement). Even if the Virginia court were to dismiss JTH's suit against Plaintiff, that dismissal would not convince this Court to retain this case. Pursuant to the forum selection clause, Plaintiff agreed to litigate his claims against JTH in Virginia or not at all, absent some reason that would prevent the Court from enforcing the forum selection clause. If Plaintiff does not want to pursue his case once it is transferred to Virginia, he may simply dismiss it.
The determination of "convenience" turns on a number of private and public interest factors, none of which is given dispositive weight. In re Volkswagen A.G., 371 F.3d 201, 203 (5th Cir. 2004). The private concerns include: (1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make trial of a case easy, expeditious, and inexpensive. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 n. 6 (1981). The public concerns include: (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws of the application of foreign law. Id. A plaintiff's choice of forum is also "a factor to be considered but in and of itself is neither conclusive nor determinative." In re Horseshoe Entm't, 337 F.3d at 434. Finally, "the flexible and individualized analysis Congress prescribed in § 1404(a) . . . encompasses consideration of the parties' private expression of their venue preferences." Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29-30 (1988). "The presence of a forum-selection clause. . . . will be a significant factor that figures centrally in the district court's calculus." Id. at 29. The clause, which represents the parties' agreement as to the most proper forum, should receive neither dispositive consideration nor no consideration, but rather the consideration for which Congress provided in § 1404(a). Id. at 31.
Considering the private factors, Defendant argues that Virginia is more convenient because it is headquartered there and has its principal place of business in Virginia. Defendant anticipates calling four Virginia Beach employees who reside in Virginia Beach to refute Plaintiff's claims and to establish claims in support of a counterclaim Defendant intends to file. Furthermore, Defendant's books and records are located in Virginia. Plaintiff argues that he and Carolyn Youngblood researched the franchise purchase in Texas, the parties negotiated in Texas, meetings occurred in Texas, the agreement was executed by Plaintiffs in Texas, and the subject franchise was to be owned and operated exclusively in Texas. Further, Plaintiff argues, Carolyn Youngblood, a non-party, is president of South Texas Finance and will serve "as a material witness." Plaintiff argues that David Wright is also a key witness and is a Texas resident, and that another Texas Liberty franchisee and resident of Texas "possesses material knowledge about local franchisees operating in the marketing territory designated as Plaintiff's exclusive territory." Plaintiff contends that his creditors will be witnesses on the issue of damages. Plaintiff also states that he suffered a stroke in 1993 and suffered complete heart failure due to the stress of the recovery. His doctor has recommended that he minimize stress, and thus Plaintiff asks the Court to consider his health as a mitigating factor in favor of venue remaining here. Defendant responds that, though not a party to this case, Carolyn Youngblood also signed the franchise agreement and consented to the forum selection clause.
According to Defendant, David Wright is President of the Area Developer and is an independent contractor with Liberty. Plaintiff has moved to join David Wright as a defendant, which would defeat diversity jurisdiction because Wright is a Texas resident. Defendant Liberty objects to such joinder, arguing that Plaintiff contractually agreed not to bring any claim or lawsuit against the Area Developer, and thus Plaintiff is precluded from asserting claims against Wright. Because the issue of Plaintiff's claims against Wright has also been raised in the Virginia action, the Court will not rule on Plaintiff's motion to join Wright in order to avoid potential conflicts with the Virginia court's determination. However, the Court will still consider Wright as a potential witness in its § 1404(a) analysis. Although Wright is a non-party and apparently not an employee of Liberty, Liberty has provided Wright's affidavit and lists Wright as an expected witness. Thus, it appears that Wright will willingly appear for trial in Virginia, and Wright does not argue that it would be inconvenient or that he would be otherwise unable or unwilling to travel to Virginia.
The Court finds that the relative ease of access to sources of proof appears to be a neutral factor, since both parties will likely have their proof in their respective states. Regarding the availability of compulsory process to secure the attendance of witnesses, it appears that all of Defendant's witnesses will be subject to compulsory process, except for Wright, but he appears to be willing to appear in Virginia. Defendant would undoubtedly incur significant cost in sending its witnesses to litigate this case in Texas. Plaintiff has named his creditors and one other franchisee as possible non-party witnesses who would be outside of the Virginia court's subpoena power and for whom it would be costly to travel to Virginia. However, the Court does not accord the testimony of the creditor witnesses much, if any, weight, given that Plaintiff can testify at trial regarding his debts, and there is no need for his creditors to testify at trial. To the extent any such evidence regarding the debts may be needed, these witnesses may be deposed in Texas. Thus, the Court finds that the private factors do not necessarily militate in favor of venue in either Virginia or Texas.
Considering the public factors, neither side has offered any evidence regarding relative court congestion. Under this Court's scheduling order, trial is set for June 25, 2007. In contrast, the Virginia court has issued a scheduling order setting its case for bench trial on December 12, 2006. Thus, it appears that trial would be more expedient in Virginia. Further, the Virginia court is better equipped to try the case because it is governed by Virginia law. Plaintiff argues that Texas has a compelling interest in protecting its residents from fraud within its borders. However, Virginia also has an interest in suits against its residents and their alleged fraudulent conduct. In addition, Defendant offered affidavit testimony that it has insisted on the inclusion of the forum selection clause in order to reduce its costs and pass its savings on to its franchisees. Affidavit of Carl Khalil ¶ 4. Thus, its numerous franchisees benefit from the savings and certainty inherent in the forum selection clause and its enforcement. Cf. Carnival Cruise Lines v. Shute, 499 U.S. 585, 594 (1991) (noting that passengers of cruise line benefit from reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be sued). The Court concludes that the public factors weigh in favor of transfer.
The Franchise Agreement contains a Virginia choice-of-law provision: "Virginia law governs all claims which in any way relate to or arise out of this Agreement or any of the dealings of the parties hereto." Franchise Agreement ¶ 15a.
Last, the mandatory forum selection clause weighs strongly in favor of a transfer. Though Plaintiff knew of the potential inconvenience of litigating in Virginia and was aware of his health issues at the time he signed the agreement, he voluntarily consented to the designation of a Virginia forum. The clause is an indication that the parties believed Virginia to be the most appropriate and convenient forum, and the Court has been given no compelling reason to refuse to enforce the clause. Accordingly, the Court will grant Defendant's motion to transfer venue pursuant to § 1404(a).
Conclusion
Defendant's motions to dismiss pursuant to Rule 12(b)(3) and 28 U.S.C. § 1406 are DENIED. Defendant's motion to transfer pursuant to § 1406 is DENIED. Defendant's motion to transfer pursuant to § 1404(a) is GRANTED. It is therefore ORDERED that this action be transferred to the United States District Court for the Eastern District of Virginia, Norfolk Division.