Opinion
No. 2:02CV685DAK
January 30, 2003
MEMORANDUM DECISION AND ORDER
This matter is before the court on Defendants' Motion to Dismiss for improper venue pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure. A hearing on the motion was held on January 29, 2003. At the hearing, Plaintiff was represented by Cass C. Butler, and Defendants were represented by John A. Pearce. The court took the matter under advisement. The court has considered carefully the memoranda and other materials submitted by the parties, as well as the law and facts relating to the motion. Now being fully advised, the court renders the following Memorandum Decision and Order.
BACKGROUND
Plaintiff Datacentered LLC is a Utah limited liability company with its principal place of business in Salt Lake City, Utah. SonicWALL is a Delaware corporation with its principal place of business in Sunnyvale, California. Defendant Michael J. Sheridan is a resident of California. On or about June 28, 2001, Datacentered and SonicWALL entered into a License Agreement, which inter alia granted Datacentered a worldwide license to use, develop, market, sub-license, and resell certain computer software and hardware owned by SonicWALL and contained an agreement for Datacentered to purchase certain products in connection with the license agreement. The License Agreement contains a forum selection provision providing that "[v]enue shall be in San [sic] Clara County, California and both parties shall consent to personal jurisdiction within such venue."
Data centered has filed the instant action in this court, alleging causes of action for breach of contract under the License Agreement, breach of warranty relating to the products delivered pursuant to the License Agreement, and fraud in connection with the condition of the products delivered pursuant to the License Agreement. Defendants responded by filing the motion to dismiss for improper venue that is now before the court.
DISCUSSION Defendants' Motion to Dismiss
Defendants seek to enforce the forum selection clause in the License Agreement pursuant to Federal Rule of Civil Procedure 12(b)(3). Forum selection clauses are prima facie valid and will be enforced by a court if the forum selection clause is (1) mandatory, and (2) not invalid due to fraud or overreaching. See Riley v. Underwriting Agencies, Ltd., 969 F.2d 953, 957 (10th Cir. 1992), cent. denied, 506 U.S. 1021 (1992).
1. Mandatory/Permissive
For a forum selection clause to be considered mandatory, it must contain "clear language showing that jurisdiction is appropriate only in the designated forum." Excell, Inc. v. Sterling Boler Mechanical, Inc., 106 F.3d 318, 321 (10th Cir. 1997). In contrast, a permissive clause, empowers the named forum with jurisdiction without making that jurisdiction exclusive. Utah Pizza Service, Inc. v. Heigel, 784 F. Supp. 835, 837-38 (D. Utah 1992). "If there is any ambiguity in the clause, [the court] should construe it against the drafter." Milk `N' More, Inc. v. Beavert, 963 F.2d 1342, 1346 (10th Cir. 1992).
The forum selection clause in this case states that "[v]enue shall be in San [sic] Clara, California and both parties shall consent to personal jurisdiction within such venue." The Tenth Circuit has recognized that "[t]he use of the word `shall' indicates a mandatory intent unless a convincing argument to the contrary is made." Milk `N' More, 963 F.2d at 1346. In Excell, Inc. v. Sterling Boler Mechanical, Inc., 106 F.3d 318 (10th Cir. 1997), the Tenth Circuit found that a clause stating that "venue shall lie in the County of El Paso, Colorado" was mandatory. Id. at 321.
Plaintiff asserts that the language of the forum selection clause is more similar to the language found permissive in Utah Pizza Service, Inc. v. Heigel, 784 F. Supp. 835, 837 (D. Utah 1992). In Utah Pizza Service, the forum selection clause provided that "[t]he parties agree that in the event of litigation between them, Franchise Owner stipulates that the courts of Michigan shall have personal jurisdiction over its person, that it shall submit to such personal jurisdiction, and that venue is proper in Michigan." Id. The Utah Pizza Service court found that nothing in this language evidenced a clear intent to prohibit litigation outside Michigan. Id. at 838.
Plaintiff also relies on Pendelton Enterprises, Inc. v. IAMS Co., 851 F. Supp. 1503 (D. Utah 1994), because the forum selection clause in that case used the term "any" in addition to "shall." Plaintiff argues that absent additional language making it clear that the selected forum was intended to be an exclusive forum, the word "shall" alone does not make the clause mandatory.
The forum selection clause at issue in Utah Pizza Service is significantly different than the clause at issue in this case. The Utah Pizza Service court was not addressing a clause stating that venue "shall be in" a particular county. Rather, the clause in Utah Pizza Service stated only that "venue is proper in Michigan." in Utah Pizza Service, the word shall was used only with respect to whether the state of Michigan would have personal jurisdiction over the parties and whether the parties would submit to personal jurisdiction in Michigan. In that regard, Utah Pizza Service is more in line with the Tenth Circuit's distinction in KV Scientific Co. v. Bayerische Motoren Werke Attiengesellschaft, 314 F.3d 494 (10th Cir. 2002) between forum selection clauses speaking to jurisdiction and those speaking to venue. Id. at 499 "[W]here venue is specified with mandatory or obligatory language, the clause will be enforced; where only jurisdiction is specified, the clause will generally not be enforced unless there is some further language indicating the parties' intent to make venue exclusive." Id. (citations omitted). Therefore, neither Utah Pizza Service nor KV Scientific mandate a finding that the forum selection clause in this case is permissive. The clause in this case specifically states venue and includes the mandatory term "shall" specifically in conjunction with venue. Although Plaintiff asserts that another term demonstrating exclusivity is necessary for a forum selection clause to be mandatory, the decisions from this district and the Tenth Circuit do not so hold.
The clause in this case is nearly identical to the clause found mandatory in Excell, Inc. v. Sterling Boler Mechanical, Inc., 106 F.3d 318 (10th Cir. 1997), stating that "venue shall lie in the County of El Paso, Colorado." Id. at 321. Plaintiff argues that the Tenth Circuit cases of Excell and Milk `N' More are factually distinguishable because the cases involved a defendant seeking to remove a case from state court to federal court. The courts concluded that because the clauses stated a specific county and venue in the federal system is not stated by county, the clauses only permitted suits in state court. See Excell, 106 F.3d at 321. The dispute in this case does not involve an attempt to remove a case to federal court. This distinction, however, is not relevant to whether the given clauses are mandatory or permissive in nature.
The court concludes that the forum selection clause in this case, stating that "[v]enue shall be in San [sic] Clara County, California," manifests a clear and unambiguous intent to make Santa Clara County, California the exclusive forum for disputes arising in connection with the License Agreement. The forum selection clause in the License Agreement is, therefore, mandatory.
2. Fraud or Unreasonableness
As to whether issues of fraud or unreasonableness prevent enforcement of the forum selection clause, Plaintiff must demonstrate that the "(1) forum selection clause is invalid for fraud or overreaching or (2) forcing [it] to proceed in the selected forum will be so gravely difficult or inconvenient that the clause, for all practical purposes, will deprive [it] of [its] day on court." Zions First National Bank v. Allen, 688 F. Supp. 1495, 1498 (D. Utah 1988).
Plaintiff argues that, in this case, it would not have agreed to any of the terms of the License Agreement had it known of SonicWALL's allegedly fraudulent representations concerning its production capabilities and express warranties. The type of fraud that invalidates a forum selection clause is fraud "specifically related to the inclusion of the forum selection clause." Id.; see also KV Scientific Co. v. Bayerische Motoren Werke Aktiengesellshaft, 164 F. Supp.2d 1260, 1264 n. 4 (D.N.M. 2001) ("In order to circumvent the forum selection clause, however, KV must plead that the specific clause, as opposed to the entire contract, was obtained by fraud."), rev'd on other grounds, 314 F.3d 494 (10th Cir. 2002). While Datacentered has raised fraud claims in its Complaint, those claims attack the License Agreement as a whole and the condition of the goods provided under the License Agreement. Datacentered makes no claim that the forum selection clause itself was obtained by fraud.
Plaintiff asserts that there is a split in authority on the issue of whether the fraud must be specific to the forum selection clause in order to invalidate the clause. Plaintiff relies on a case from the Western District of Missouri instead of the Zions decision issued from a court in this district. In Zions, Judge Winder held that a contract's forum selection clause was not invalid where the alleged fraud induced a party to enter into the entire contract but did not induce that party to enter into the forum selection clause specifically. 688 F. Supp. 1495, 1499 (D. Utah 1988). In Hoffman v. Minuteman Press International, Inc., 747 F. Supp. 552 (W.D. Mo. 1990), the court held that where an entire franchise agreement was void for fraud in the inducement, the forum selection provision was also void. Id. at 558.
This court finds no persuasive reason to deviate from Judge Winder's opinion in Zions, which is in line with Tenth Circuit and United States Supreme Court authority. See Scherk v. ALberto0Culver Co., 417 U.S. 506 (1974) ("A forum selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion"); Riley v. Kingsley Underwriting Agencies, 969 F.2d 953, 960 (10th Cir.), cert. denied, 506 U.S. 1021 (1992) ("A plaintiff seeking to avoid a choice provision on a fraud theory must . . . plead fraud going to the specific provision; the teachings of Scherk, interpreting M.S. Bremen, require no less."). Moreover, the Hoffman decision appears to be a jurisprudential anomaly and other courts have expressly refused to follow it. See, e.g., REO Sales, Inc. v. Prudential Ins. Co., 925 F. Supp. 1491, 1495 (D. Colo. 1996). Because Datacentered has no claim that it was fraudulently induced to enter into the forum selection clause, the court concludes the clause is valid.
Furthermore, Datacentered provides no argument to suggest that it would be deprived of its day in court if this litigation were to proceed in the agreed upon forum. Datacentered is a sophisticated business that negotiated the License Agreement with a California-based company. Having previously agreed to litigate disputes in California, there is no basis for this court to reform the Agreement. Accordingly, the Complaint is dismissed pursuant to Federal Rule of Civil Procedure 12(b)(3) for improper venue.
CONCLUSION
Defendants' Motion to Dismiss is GRANTED, and Plaintiff's Complaint is dismissed without prejudice pursuant to Federal Rule of Civil Procedure 12(b)(3) for improper venue.