Opinion
CIVIL ACTION NO. 3:03-CV-0369-P
June 16, 2003
ORDER
Now before the Court is Defendants' 12(b) Motions to Dismiss Plaintiff's Original Petition for Lack of Personal Jurisdiction, Improper Venue, and Improper Service filed February 25, 2003. Plaintiff filed a response March 17, 2003, and Defendants replied April 1, 2003. After considering the parties' briefing and applicable law, for the reasons set forth below, the Court GRANTS Defendants' Motion to Dismiss Plaintiff's Original Petition.
BACKGROUND
Plaintiff Marengo Films, Inc. ("Marengo" or "Plaintiff') filed its Original Petition against Defendant Koch International LLC d/b/a Koch Entertainment Distribution LLC ("Koch-USA") and Defendant Koch International Inc. d/b/a Koch Entertainment Inc. ("Koch-Canada") (collectively "Defendants") on January 14, 2003 in the County Court at Law No. 4, Dallas County, Texas. In the Original Petition, Plaintiff alleged breach of contract, request for an accounting, tortious interference with contract, and attorney's fees against Defendants.
Plaintiff Marengo, an independent film distributor, executed a Distribution Agreement with Koch-USA on or about September 8, 2000 and with Koch-Canada on or about August 25, 2000. Pursuant to these agreements, Koch-USA agreed to distribute Marengo's films to retail outlets throughout the United States for a distribution fee while Koch-Canada agreed to distribute Marengo's films to retail outlets throughout Canada for a distribution fee. Pl's Orig. Pet. ¶ 7. In Paragraph 18 of the Distribution Agreement between Marengo and Koch-USA, both parties agreed to a mandatory forum selection clause which states:
This agreement shall be governed exclusively by the laws of the State of New York applicable to contracts made and to be performed entirely in such State. The parties agree to the exclusive jurisdiction of the Southern District Court of New York, New York.
Pl.'s Orig. Pet. Exh. A.
Likewise in Paragraph 18 of the Distribution Agreement between Marengo and Koch-Canada, both parties agreed to a mandatory forum selection clause which states:
This agreement shall be governed exclusively by the laws of the Province of Ontario and the laws of Canada applicable to contracts made and to be performed entirely in such Province. The parties agree to the exclusive jurisdiction of the Ontario courts.
Pl.'s Orig. Pet. Exh. B.
Shortly after the parties began to operate under the contractual agreements, it was apparent that Defendants would not be able to fulfill their obligations under the contracts. Consequently, Plaintiff filed suit on January 14, 2003 in Dallas County Court for the reasons stated above. On February 20, 2003, Defendants removed the action to this Court based upon diversity. Following removal, Defendants collectively filed this 12(b) Motion to Dismiss for Lack of Personal Jurisdiction, Improper Venue, and Improper Service. In this motion, Defendants Koch-USA and Koch-Canada move to dismiss Plaintiff's Original Petition pursuant to Federal Rule of Civil Procedure 12(b)(3) for Improper Venue. Defendant Koch-Canada also moves to dismiss Plaintiff's Original Petition pursuant to Federal Rule of Civil Procedure 12(b)(2) for Lack of Personal Jurisdiction, 12(b)(4) for Insufficiency of Process, and 12(b)(5) for Insufficiency of Service of Process.
DISCUSSION
I. Koch-Canada's 12(b)(2) Motion to Dismiss for Lack of Personal Jurisdiction
When determining whether a foreign corporation is required to defend itself in Texas court when a suit is brought against them by a Texas corporation, each case must be decided individually on its own facts. Southwest Offset, Inc. v. Hudco. Pub. Co., 622 F.2d 149, 151 (5th Cir. 1980). This Court will have personal jurisdiction over a foreign defendant if the defendant (1) was amenable to service of process under the Texas long-arm statute; and (2) the exercise of jurisdiction under Texas law is consistent to due process. Holt Oil Gas Corp. v. Harvey, 801 F.2d 773, 777 (5th Cir. 1986). Since the Texas long-arm statute extends to the limits of due process, this Court's exercise of personal jurisdiction over a foreign defendant must be compatible with the constitutional requirements of due process. Id. In order to satisfy the constitutional requirements of due process, the Plaintiff must (1) demonstrate that the nonresident defendant has purposely established minimum contacts with Texas, and (2) show that the exercise of personal jurisdiction comports with the notions of fair play and substantial justice. See Jones v. Petty-Ray Geophysical, Geosource, Inc., 954 F.2d 1061, 1068 (5th Cir. 1992).
In analyzing the first step of the due process requirements, the plaintiff must establish that the defendant "purposely availed himself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws." Holt Oil, 801 F.2d at 777. Furthermore, the defendant should reasonably expect to be called into court in the specific forum because of his conduct and connection with that state. Id. The Supreme Court has refined this minimum contacts test into specific and general jurisdiction. The Court exercises specific jurisdiction when personal jurisdiction over a defendant is based on contacts with the forum that arise from the particular controversy. Id. The Court can exercise the more broad standard of general jurisdiction if the defendant engages in continuous and systematic activities within the forum that are unrelated to the specific controversy. See Jones, 954 F.2d at 1068.
Once the Court establishes (hat the defendant has minimum contacts with the forum state, the Court must satisfy the second requirement of due process and show that the exercise of personal jurisdiction over the nonresident defendant conforms with the notions of fair play and substantial justice. Id. In doing so, the Court will weigh the following factors: (1) the burden on the defendant; (2) the interest of the forum state in adjudicating the dispute; (3) the Plaintiff's interest in obtaining convenient and effective relief; (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several states in furthering fundamental substantive social policies. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1997).
Plaintiff Marengo does not demonstrate by either specific or general jurisdiction that Defendant Koch-Canada's contacts with Texas rise to a level of purposeful activity thus invoking the benefits and protections of Texas laws. Koch-Canada had fewer contacts with Texas than the defendants in Hydrokinetics, Inc. v. Alaska Mechanical, Inc. In Hydrokinetics, the Fifth Circuit affirmed the district court's decision not to exercise personal jurisdiction over the defendant. See Hydrokinetics, Inc. v. Alaska Mechanical, Inc., 700 F.2d 1026, 1029 (5th Cir. 1983). The Defendant Alaska Mechanical agreed to purchase specific goods that were manufactured in Texas. During negotiations, Defendant in Alaska communicated with Plaintiff in Texas via telex, phone and letter. Representatives of Defendants traveled to Texas before the contract and then after the contract was entered into to discuss certain problems. Id. at 1027. In affirming the decision of the district court, the Fifth Circuit focused on the fact that Alaska Mechanical did not regularly engage in business in Texas nor in any other state. The Court also noted that the Defendant would not perform any activities within the state of Texas except when paying for the goods. Furthermore, the Court found significant the clause expressly stating that the contract would be governed by Alaska law. Id. at 1029. In Holt Oil, the Court also discussed the relevance of the choice of law provisions when holding that the defendant did not establish minimum contacts with Texas. Holt Oil, 801 F.2d at 778.
In this case, Defendant Koch-Canada does not have an office in Texas, does not conduct any business within the state of Texas, and does not have any employees, agents, and servants within Texas. Koch-Canada entered into the contract in order to distribute Plaintiff's videos throughout Canada and did not agree to perform any activities within Texas. All negotiations took place over the phone, and Koch-Canada never even traveled to Texas before or after the execution of the contract. Def. Mot. Dismiss at 9. Koch-Canada did not reasonably expect to be called into court in Texas because of their minimum contacts with Texas as well as the forum selection clause within the contract that held that the agreement was to be governed exclusively by the laws of the Province of Ontario and the laws of Canada. The Fifth Circuit has held on several occasions that "merely contracting with a resident of the forum state is insufficient to subject the nonresident to the forum's jurisdiction." Holt Oil, 801 F.2d at 778. The fact that Koch-Canada was to make payment, provide inventory reports, and return goods to Marengo in Texas does not establish minimum contacts because Koch-Canada would merely be fulfilling the contract and not purposely availing itself of the privileges and benefits of doing business in Texas. The evidence shows that Marengo's activities in entering into the contract with Koch-Canada were primarily unilateral, and court's have held that "the unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State." Hydrokinetics, 700 F.2d at 1028.
Plaintiff Marengo relies on Entek Corp. v. Southwest Pipe Supply Co. as well as Fish v. Tandy Corp. in alleging that this Court should have personal jurisdiction over Koch-Canada. However, the main differences between both of these cases and the case at hand are the fact that Koch-Canada never traveled to Texas to visit with Marengo, and a forum selection clause was present within the Distribution Agreement between Marengo and Defendants. Furthermore, Marengo claims that the numerous e-mails and other correspondence between Plaintiff in Texas and Defendant in Canada established the minimum contact needed for personal jurisdiction. The Fifth Circuit however has concluded that the quality, nature, and extent of the nonresident's activity with the forum state is more important than the number of contacts. See Hydrokinetics, 700 F.2d at 1028. Plaintiff also claims that personal jurisdiction over Koch-Canada is necessary because Marengo will suffer harm in Texas because of the breach of the agreement. Marengo, however, fails to show that Koch-Canada's breach is an activity purposely directed towards Texas. Therefore, for the reasons stated above, this Court will not have personal jurisdiction over the Defendant Koch-Canada.
Entek Corp. v. Southwest Pipe Supply Co., 683 F. Supp. 1092 (N.D. Tex. 1988).
Fish v. Tandy Corp., 948 S.W.2d 886 (Tex.App.-Fort Worth 1997, pet. denied).
Since Koch-Canada did not establish minimum contacts with Texas, the Court does not need to analyze the second requirement of due process to determine if personal jurisdiction conforms with the notions of fair play and substantial justice. For the foregoing reasons stated above, the Court GRANTS Defendant Koch-Canada's Motion to Dismiss pursuant to Rule 12(b)(2) for Lack of Personal Jurisdiction.
Since this Court has GRANTED Koch-Canada's Motion to Dismiss Pursuant to Rule 12(b)(2), the Court does not need to rule on the issue of Koch-Canada's Motion to Dismiss Pursuant to Rule 12(b)(4) and 12(b)(5) for Improper Service.
II. Koch-USA's 12(b)(3) Motion to Dismiss for Improper Venue
Defendants Koch-USA and Koch-Canada allege that venue is improper in this Court because a forum selection clause existed in each Distribution agreement. Plaintiff Marengo however claims that venue is proper despite the clauses because Defendants removed the case to this Court. The United States Supreme Court has explained that 28 U.S.C. § 1391 governing venue does not apply to a case removed from state to federal court. See Polizzi v. Cowles Magazines, Inc., 345 U.S. 663, 665(1953). Venue in a removed action will be governed by 28 U.S.C. § 1441(a). Id. Accordingly, Plaintiff alleges that venue is proper in the Dallas Division of the United States District Court for the Northern District of Texas because it is the district and division embracing the place where the action was pending at the time of removal. 28 U.S.C. § 1441(a). Furthermore, Plaintiff relies on the assertion that a "defendant who removes an action waives his objection to venue." See Burlington Northern Santa Fe Railway Co. v. Herzog Services, Inc., 990 F. Supp. 503, 504 (N.D. Tex. 1998).
After reviewing the Burlington and Hakemy v. Jackson cases carefully, this Court has determined that the defendant in each of those cases waived their right to object to venue after removal pursuant to § 1391 objections. Neither of these cases involved an objection based upon a forum selection clause within a contract. The Fifth Circuit has however affirmed a district court's holding to dismiss a case for improper venue when the case had been removed from state to federal court and a forum selection clause requiring venue in another location existed within the contract. See Int'l Software Systems, Inc. v. Amplicon, Inc., 77 F.3d 112, 114 (5th Cir. 1996). In that case, the defendant was allowed to object to venue based on a forum selection clause after removal. Generally, federal courts have upheld forum selection clauses instead of relying on § 1441(a) standards when an objection to venue arises after removal. See IBC Aviation Services, Inc. v. Compania Mexicana De Aviacion, S.A. DE C.V., 125 F. Supp.2d 1008, 1013 (N.D. Cal. 2000) (holding that an objection to venue based on a forum selection clause after removal is allowed); Soil Shield Int'l Inc. v. Lilly Industries, Inc., No. C-98-1353-SC, 1998 WL 283580, at *l-2 (N.D. Cal. May 29, 1998) (same); Lambert v. Kysar, 983 F.2d 1110, 1113-114 (1st Cir. 1993) (same). After thorough consideration and review, the Court finds that Defendant Koch-USA may object to venue after removal on the grounds of the forum selection clause found in the Distribution Agreement between Koch-USA and Marengo.
Hakemy v. Jackson, No. Civ.A. 3:01-CV-0272-P, 2001 WL 492378, at *2 (N.D. Tex. May 4, 2001).
Defendant Koch-Canada would also have the right to object to venue after removal on the grounds of the forum selection clause found in the Distribution Agreement between Koch-Canada and Marengo.
However, before the motion to dismiss for improper venue can be granted, the Court must determine the validity of the forum selection clause. Because the forum selection clause includes language that is clear and unequivocal limiting actions thereunder to the courts of a specified locale, the forum selection clause is mandatory. Caldas Sons, Inc. v. Willingham, 17 F.3d 123, 128 (5th Cir. 1994). Thus, the Court must focus on whether or not the forum selection clause is enforceable. Forum selection clauses are considered prima facie valid and should be enforced unless enforcement is shown to be unreasonable under the circumstances. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). When there is a forum selection clause, the party who seeks to avoid the clause bears a heavy burden of proof justifying its avoidance. Bonded Inspections v. Northrop Grumman Corp., No. Civ.A. 3:98-CV-0214-D, 1998 WL 185518, at *2 (N.D. Tex. Apr. 10, 1998). Thus, a party seeking to avoid a forum selection clause must establish unreasonableness. According to the Fifth Circuit,
Unreasonableness potentially exists where (1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement "will for all practical purposes be deprived of his day in court" because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy of the forum state.Haynsworth v. Corporation, 121 F.3d 956, 963 (5th Cir. 1997).
Here, Koch-USA and Plaintiff agreed to submit all controversies arising under the contract to the exclusive jurisdiction of the Southern District Court of New York, New York. Since the Plaintiff has failed to raise any argument of unreasonableness as to the forum selection clause, the clause shall be enforced as written. Therefore, since this case was filed in Texas in contravention of the forum selection clause contained in the contract, venue is improper.
When venue is improper, 28 U.S.C. § 1406(a) applies, and (he district court shall dismiss, or in the interest of justice, transfer the case to an appropriate court. In Int'l Software Systems, the Fifth Circuit affirmed the district court's decision to dismiss the case for improper venue rather than transfer the case when a forum selection clause was present. 77 F.3d at 114. The Fifth Circuit in affirming the decision noted that the case involved a motion to dismiss and not a motion to transfer venue. Here, Koch-USA has also filed a motion to dismiss. Since, the petition against Koch-Canada has already been dismissed for lack of personal jurisdiction, it is not within the interest of justice to transfer the case. The Court will hereby GRANT Koch-USA's Motion to Dismiss pursuant to Rule 12(b)(3) for Improper Venue.
Had the Court not already dismissed Plaintiff's petition against Koch-Canada for lack of personal jurisdiction, the Court would have granted Koch-Canada's motion to dismiss pursuant to Rule 12(b)(3) for improper venue. Based on the same reasoning articulated in the Court's decision to grant Koch-USA's motion to dismiss, the Court would likewise dismiss rather than transfer the case since Plaintiff Marengo would need to re-file the case in New York as to Koch-USA and in Canada as to Koch-Canada.
CONCLUSION
Accordingly, after a thorough review of the evidence, the parties' briefs, and the applicable law, for the reasons set forth above, the Court hereby GRANTS Defendants' Motion to Dismiss. Therefore, the Court GRANTS the 12(b)(2) Motion to Dismiss for Lack of Personal Jurisdiction as to Defendant Koch-Canada and GRANTS the 12(b)(3) Motion to Dismiss for Improper Venue as to Defendant Koch-USA.IT IS SO ORDERED.
FINAL JUDGMENT
Pursuant to the Court's Order filed June 16, 2003, Plaintiff's claims against Koch International LLC and Koch International Inc. are dismissed without prejudice.Each party is to bear its own costs.