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INDUSTRIAL WOODWORKING CORP. v. KOMO MACHINE, INC.

United States District Court, W.D. Michigan
Apr 5, 2004
Case No. 1:04-CV-21 (W.D. Mich. Apr. 5, 2004)

Opinion

Case No. 1:04-CV-21

April 5, 2004


ORDER


In accordance with the Opinion filed on this date,

IT IS HEREBY ORDERED that Defendant's Motion to Dismiss (docket no. 7) is DENIED. IT IS FURTHER ORDERED that this action shall be transferred to the United States District Court for the District of Minnesota.

OPINION

Plaintiff, Industrial Woodworking Corporation ("IWC"), sued Defendant, Komo Machine, Incorporated ("Komo"), alleging fraudulent inducement of a contract for the purchase of a machine and seeking rescission and damages. Now before the Court is Komo's Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Komo contends that IWC's action is precluded by the economic loss doctrine, and also that the contract's forum selection clause requires the action to be litigated in Minnesota. For the reasons stated below, the Court will deny Komo's Motion to Dismiss but will transfer this matter to the United States District Court for the District of Minnesota because of the forum selection clause.

I. Background

Plaintiff IWC is a Michigan corporation located in Zeeland, Michigan that produces wood furniture components as well as complete wood products such as store displays, fixtures, and furniture. In 1997, IWC decided to purchase a computer numerically controlled (CNC) machining center in order to increase its production capabilities. IWC entered into talks with salespersons from Defendant Komo, a Minnesota corporation located in Sauk Rapids, Minnesota that manufactures, among other things, heavy industrial machinery. On March 26, 1998, IWC entered into a contract to purchase a Vectora CNC machine for $120,000 from Komo, as well software to run the Vectora for $9,500 from Komo's wholly-owned subsidiary CM-TECH. The Vectora was delivered on May 14, 1998, and put in place at IWC's factory on May 16, 1998.

IWC alleges that soon after its delivery, the Vectora machine repeatedly failed and required numerous replacement parts. A warranty covered the Vectora for the first year of its use by IWC, during which time the machine frequently broke down. After the warranty expired, the Vectora allegedly continued to have chronic problems, causing it to be out of service for days and sometimes weeks at a time. IWC claims that it incurred significant repair costs and production losses due to these problems.

In January 2003, the Vectora's Z-axis amplifier and Z-axis servometer allegedly both failed. IWC removed the Z-axis servometer and shipped it to Custom Servomotors, which had originally manufactured the motor and supplied it to Komo. According to IWC, a Custom Servomotors representative stated that according to the motor's identification plate, the motor had been built in 1995, sent to Komo, then returned to Custom Servomotors for repairs in 1997, and then shipped back to Komo once again. IWC claims that further inspection revealed that other major Vectora components such as the Z-axis amplifier, the other amplifiers, and the Colombo spindle were also manufactured in 1995.

Based on these discoveries, IWC alleges that the Vectora machine it bought from Komo was either (a) a used machine that had been previously sold or leased to some other Komo customer and later returned to Komo, where it was reconfigured for sale to IWC, or (b) comprised of used, rebuilt, or older components such that it should never have been sold as a "new" machine. IWC contends that Komo fraudulently misrepresented and concealed material facts regarding the Vectora's newness, which wrongfully induced IWC to purchase the machine. As relief, IWC seeks rescission of the contract and compensatory and exemplary damages.

IWC initially filed this action in the Circuit Court for Ottawa County, Michigan. Komo removed the action to this Court, which has diversity jurisdiction.

II. Motion to Dismiss Standard

An action may be dismissed if the complaint fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The moving party has the burden of proving that no claim exists. Although a complaint is to be liberally construed, it is still necessary that the complaint contain more than bare assertions of legal conclusions. Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993) (citing Schied v. Fanny Farmer Candy Shops. Inc., 859 F.2d 434, 436 (6th Cir. 1988)). All factual allegations in the complaint must be presumed to be true, and reasonable inferences must be made in favor of the non-moving party. 2 Moore's Federal Practice, § 12.34[l][b] (Matthew Bender 3d ed. 2003). The Court need not, however, accept unwarranted factual inferences. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02 (1957)).

III. Discussion

Komo's motion to dismiss rests on two grounds. First, Komo seeks dismissal based on the economic loss doctrine, which instructs that no action exists in tort for claims arising out of a purely commercial contract where the alleged damages amount to economic losses. See, e.g., Bailey Farms, Inc. v. NOR-AM Chem. Co., 27 F.3d 188.190(6th Cir. 1994). Neibarger v. Universal Coops., Inc., 439 Mich. 512, 521, 486 N.W.2d 612, 615 (1992). Komo argues that IWC's tort claims of fraud and misrepresentation arise from the Vectora sale contract and that IWC has alleged purely economic losses. Therefore, Komo maintains, the economic loss doctrine applies so that the Uniform Commercial Code and contract law, not tort law, govern the parties' rights and remedies. IWC responds by arguing that courts have recognized an exception to the economic loss doctrine for the intentional tort of fraudulent misrepresentation, and that this exception governs in this case. See, e.g., TIBCO Software, Inc. v. Gordon Food Serv., Inc., No. 1:03-CV-25, 2003 WL 21683850, at *4 (W.D. Mich. July 3, 2003); Huron Tool Eng'g Co. v. Precision Consulting Servs., Inc., 209 Mich. App. 365, 368, 532 N.W.2d 541, 543 (1995). Fraud in the inducement, IWC argues, renders the Vectora sales contract voidable.Whitcraft v. Wolfe, 148 Mich. App. 40, 52, 384 N.W.2d 400, 405 (1985).

Second, Komo seeks dismissal based on the forum selection provision in the contract whereby the parties agreed to litigate any dispute arising out of the transaction in Minnesota. That provision states:

16. RESOLUTION OF DISPUTES: This agreement shall be construed and enforced according to the laws of the State of Minnesota. Any action in regard to the contract or arising out of its terms and conditions shall be instituted and litigated in the State of Minnesota and no other. In accordance, the parties submit to the jurisdiction of the courts of the State of Minnesota.

(Def.'s Br. Supp. Mot. Dismiss Ex. A at 6.)

As the discussion below explains, IWC has failed to meet its burden of showing that the forum selection clause should not be respected. See REO Sales, Inc. v. Prudential Ins. Co. of Am., 925 F. Supp. 1491, 1492 (D. Colo. 1996). The Court concludes that the forum selection clause is enforceable and requires this case to be litigated in Minnesota. It is therefore unnecessary to address the economic loss doctrine issue.

A. The Court May Consider the Contract's Forum Selection Clause

The Court rejects IWC's assertion that Komo may not invoke the forum selection clause in its motion to dismiss. IWC protests that "the purported contract terms [i.e., the forum selection clause in the Vectora contract] which Defendant has attached to its motion are not part of the pleadings in this action, have not been authenticated, and have not been supported by any affidavit of a witness under oath, and therefore cannot be the basis of its motion to dismiss." (Pl.'s Br. Resp. Mot. Dismiss at 1-2.) Yet, IWC itself apparently attached the Vectora contract — or at least a portion of it — to its Complaint: "A copy of the contract and the related documents thereto are attached and marked as Exhibit 1 to this complaint." (Compl. ¶ 39.) Komo points out that IWC's Complaint leaves out the page containing the forum selection clause, which appears at the very end of the contract.

The Court cannot determine how much of the Vectora contract IWC attached to the Complaint because the exhibits were not included when this action was removed to this Court.

IWC cannot attach to and discuss in its Complaint a portion of the contract and then challenge Komo's effort to present the document in full. A written document attached as an exhibit to a complaint is deemed part of the complaint and may be considered in a Rule 12(b)(6) dismissal. Fed.R.Civ.P. 10(c); Hall v. Bellmon, 935 F.2d 1106, 1112 (10th Cir. 1991). When a plaintiff attaches only selected portions of a document such as a contract, courts may consider the entire agreement and need not limit their review to the selected portions.See Berg v. Empire Blue Cross Blue Shield, 105 F. Supp.2d 121, 126 (E.D.N.Y. 2000). See also In re Hunter Envtl. Servs. Inc., 921 F. Supp. 914, 917-18 (D. Conn. 1996) ("If a plaintiff has selectively introduced material in the complaint but has omitted critical portions of the documents, the defendant is allowed to introduce the full text of the material for the court's consideration."). Therefore, the Court will base its ruling upon a view of the entire contract, including the forum selection clause.

That the forum selection clause comprises a genuine part of the contract is not disputed; IWC conceded as much at oral argument on this motion.

B. IWC's Claim of Fraud Does not Render the Forum Selection Clause Voidable

IWC mistakenly argues that simply filing a Complaint claiming fraudulent inducement renders the contract, including its forum selection clause, voidable. Fraudulent inducement, of course, vitiates a contract.Provident Life Ace. Ins. Co. v. Bertman, 151 F.2d 1001, 1005 (6th Cir. 1945). See also Langley v. FDIC, 484 U.S. 86, 94, 108 S.Ct. 396, 402 (1987) ("fraud in the inducement . . . renders [a contract] voidable"). However, courts render forum selection clauses unenforceable at the motion to dismiss stage only if the plaintiff proffers a well-founded claim of fraud in the inducement of the forum selection provision itself, standing apart from the whole contract.Arnold v. Arnold Corp., 920 F.2d 1269, 1278 (6th Cir. 1990).See also Moses v. Bus. Card Express. Inc., 929 F.2d 1131, 1138 (6th Cir. 1991) (stating that it is "settled law that unless there is a showing that the alleged fraud or misrepresentation induced the party opposing a forum selection clause to agree to inclusion of that clause in the contract, a general claim of fraud or misrepresentation as to the entire contract does not affect the validity of the forum selection clause") (italics in original) (citing Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 2457 n. 14 (1974)). In this case, IWC claims only that Komo fraudulently induced the contract by falsely representing the Vectora machine as new. IWC makes no allegation that it was fraudulently induced into agreeing to the forum selection provision of the contract. Consequently, that clause remains operative.

C. The Interests of Justice and Public Policy do not Render the Forum Selection Clause Unenforceable

Enforcing the forum selection clause would not, as IWC argues, contravene the interests of justice and public policy. See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 1916 (1972) (stating that a contractual choice of forum clause should be held unenforceable if enforcement would be contrary to the strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision). A Michigan statute sets forth the state's policy on forum selection clauses, providing in pertinent part:

If the parties agreed in writing that an action on a controversy shall be brought only in another state and it is brought in a court of this state, the court shall dismiss or stay the action, as appropriate, unless any of the following occur:
(a) The court is required by statute to entertain the action.
(b) The plaintiff cannot secure effective relief in the other state for reasons other than delay in bringing the action.
(c) The other state would be a substantially less convenient place for the trial of the action than this state.
(d) The agreement as to the place of the action is obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means.
(e) It would for some other reason be unfair or unreasonable to enforce the agreement.

M.C.L. § 600.745(3).

None of the factors listed in the statute militate against enforcement of the forum selection clause. IWC argues that the contract was fraudulently induced, but as the Court has already determined, that allegation does not vitiate the forum selection clause because the fraudulent inducement claim pertains to the contract as a whole, not the clause in particular. IWC also argues that Minnesota would be a less convenient forum because bringing its employees there from Michigan for trial would cause additional expense and lost productivity, compounding the losses IWC has already incurred. However, trying the case in Minnesota would not "effectively deprive [IWC] of its day in court." M/S Bremen, 407 U.S. at 18, 92 S.Ct. at 1918; see also Shell v. R.W. Sturge. Ltd., 55 F.3d 1227, 1229-30 (6th Cir. 1995) (instructing that forum selection clauses are presumptively valid but may be set aside if trial in the contractual forum will be "so gravely difficult and inconvenient" that the plaintiffs will for all practical purposes be deprived of their day in court). Conducting this case in Michigan would merely shift the inconvenience to Komo, and what is more, would unjustifiably require disregarding a plainly stated, freely bargained-for contractual provision evidencing that the parties contemplated Minnesota to be the proper forum. See Interamerican Trade Corp. v. Companhia Fabricadora de Pecas, 973 F.2d 487, 490 (6th Cir. 1992).

D. Transfer is the Appropriate Remedy

Rather than dismissing this case, the Court will enforce the forum selection clause by transferring the case to the United States District Court for the District of Minnesota. In a diversity action where the defendant moves to enforce a forum selection clause, the standard for determining whether transfer is appropriate is the same as for a transfer of venue motion made pursuant to 28 U.S.C. § 1404(a). Stewart Ore., Inc. v. Ricoh Corp., 487 U.S. 22, 29, 108 S.Ct. 2239, 2243 (1988). 28 U.S.C. § 1404(a) 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." "It is well established that the decision whether to transfer venue is vested in the sound discretion of the trial court." Midwest Motor Supply Co., Inc. v. Kimball, 761 F. Supp. 1316, 1318(S.D. Ohio 1991). When making a transfer decision pursuant to 28 U.S.C. § 1404(a), "an enforceable forum-selection clause will often carry the day." REO Sales, Inc. v. Prudential Ins. Co. of Am., 925 F. Supp. 1491, 1493 (D. Colo. 1996).

The Court notes that the contract's forum selection clause states that "the parties submit to the jurisdiction of the courts of the State of Minnesota." (Def.'s Br. Supp. Mot. Dismiss Ex. A at 6.) The Court will leave it to the federal court in Minnesota to decide whether the parties intended this language to restrict litigation regarding the contract to Minnesota state courts only, as opposed to federal courts located in Minnesota. During oral argument before this Michigan federal court, Defendant seemed to agree that a federal court in Minnesota would have jurisdiction.

Transfer, rather than dismissal, is the appropriate remedy where, as here, a forum selection clause applies. See REO Sales, 925 F. Supp. at 1495-96 (citing Visicorp. v. Software Arts. Inc., 575 F. Supp. 1528, 1533 (N.D. Cal. 1983)). IWC notes that dismissing the action could leave it without a remedy, as refiling the Complaint in a Minnesota federal or state court following a dismissal may render the action time barred under Minnesota's six year statute of limitations for fraud. In addition, transferring this action to Minnesota would in no way prejudice Komo and would not destroy diversity.

IV. Conclusion

For the reasons stated above, the Court concludes that the Vectora sale contract between IWC and Komo contains an enforceable forum selection clause. Accordingly, the Court will not dismiss the case, but instead will transfer it to the United States District Court for the District of Minnesota pursuant to 28 U.S.C. § 1404(a).

An Order consistent with this Opinion will be entered.


Summaries of

INDUSTRIAL WOODWORKING CORP. v. KOMO MACHINE, INC.

United States District Court, W.D. Michigan
Apr 5, 2004
Case No. 1:04-CV-21 (W.D. Mich. Apr. 5, 2004)
Case details for

INDUSTRIAL WOODWORKING CORP. v. KOMO MACHINE, INC.

Case Details

Full title:INDUSTRIAL WOODWORKING CORP., Plaintiff, v. KOMO MACHINE, INC., Defendant

Court:United States District Court, W.D. Michigan

Date published: Apr 5, 2004

Citations

Case No. 1:04-CV-21 (W.D. Mich. Apr. 5, 2004)