Opinion
No. CIV 05-3247-PHX RCB.
August 29, 2006
ORDER
In August 2005, Plaintiff Best Western International, Inc. ("Best Western") brought suit against Defendants Kantilal J. Govan and Aruna K. Govan in the Superior Court of the State of Arizona in Maricopa County. Complt. (doc. 1) at Exbt. 1. Defendants promptly removed the action to this federal forum, Notice of Removal (doc. 1), and now moves to dismiss the action for improper venue, or, alternatively, moves for a transfer of venue to the Eastern District of California (doc. 5). Best Western opposes Defendants' motion. Resp. (doc. 7). This motion was fully briefed on November 11, 2005. Reply (doc. 9). Having carefully considered the arguments raised, the court now rules.
In their motion, Defendants request oral argument on this matter. Motion (doc. 5). Finding oral argument unnecessary, the Court shall deny this request.
I. Background Facts
Best Western is an Arizona non-profit corporation organized under the laws of the State of Arizona. It is a non-profit association pursuant to A.R.S. § 10-3601, et seq.
On or about February 9, 2001, Defendants became Best Western members. At that time, Defendants entered into a Membership Application and Agreement (the "Agreement") with Best Western. As such, Defendants enjoyed the right to use Best Western's trade name, trademarks, service marks, logos and other similar identification symbols (the "Best Western Marks") in connection with the operation of a hotel that they owned known as the Madera Valley Inn, located in Madera, California (the "Hotel"). In addition to their right to use the Best Western Marks in connection with the Hotel, Best Western provided to Defendants various services, including a worldwide satellite reservation system and worldwide marketing campaigns, as well as the option to participate in collective purchasing of hotel services. Best Western employs a large number of employees worldwide, but mostly in Arizona, who provide Best Western's members with its hotel services.
Contained within the Agreement are "Application of Law and Choice of Forum" clauses. Exbt. A (doc. 7) at ¶¶ 37, 38. Under the Application of Law clause, the contract states:
This Membership Application and Agreement shall be governed and construed according to the laws of the State of Arizona, unless any obligations under this Membership Application and Agreement shall be invalid or unenforceable under such laws, in which event the laws of the jurisdiction whose law can apply to and validate the obligations under this Membership Application and Agreement shall apply. This Membership Application and Agreement shall be deemed executed in Phoenix, Arizona.Id. at ¶ 37. Under the Choice of Forum clause, the contract states:
Applicant acknowledges that Best Western is headquartered in Phoenix, Arizona, that the majority of Best Western's records and employees are in Phoenix, Arizona, and that Phoenix, Arizona is the most convenient locale for actions between Best Western and Applicant.Id. at ¶ 38.
On or about April 12, 2005, Best Western notified Defendants that their membership was terminated. Thereafter, on May 17, 2005, Best Western demanded that Defendants pay certain amounts that allegedly remained due and owing to Best Western after the termination of Defendants' membership, which represented certain fees, dues and charges imposed on Defendants as Best Western members, as well as the costs of goods and services provided by or through Best Western, including interest.
Pursuant to the Agreement, Defendants were obligated to cease use of the Best Western Marks within 15 days following the termination of their membership. However, Best Western asserts that Defendants continued to use the Best Western Marks in connection with the Hotel. Best Western claims that, as a consequence of Defendants' alleged continued use of the Best Western Marks, they are liable to Best Western for liquidated damages to be calculated utilizing the formula contained in the Agreement. Consequently, on August 25, 2005, Best Western filed a Complaint in the Superior Court of the State of Arizona in Maricopa County against Defendants for breach of contract, unjust enrichment, breach of implied covenant of good faith and fair dealing, and for liquidated damages. Exbt. 1 (doc. 1) at 8-12.
II. Discussion
In their motion, Defendants request, pursuant to 28 U.S.C. § 1406(a) and Rule 12(b)(3), that this case either be dismissed for improper venue or, in the alternative, transferred to the Eastern District of California. Mot. (doc. 5) at 1. Defendants argue that California is the only proper venue in this case because (1) under the restrictions of 28 U.S.C. § 1391(a), California is the only appropriate venue, and (2) the forum selection clause in the parties' contract is void and unenforceable. Id. at 2-5.
A. Motion to Dismiss
Federal Rule of Civil Procedure 12(b)(3) allows a defendant to move for dismissal of a case on the basis of improper venue. Fed.R.Civ.Pro. 12(b)(3). Where venue is improper, the district court has the discretion to dismiss the case under Rule 12(b)(3) or transfer the case in the interests of justice to an appropriate jurisdiction under 28 U.S.C. § 1406(a). See King v. Russell, 963 F.2d 1301, 1304 (9th Cir. 1992).
Title 28, United States Code, section 1391(a) provides in pertinent part:
A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, 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 subject 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.Id. "Under federal law, a forum selection clause is prima facie valid and should be enforced unless enforcement is shown by the resisting party to be `unreasonable' under the circumstances."Sarmiento v. BMG Entertainment, 326 F. Supp. 2d 1108, 1110 (C.D. Cal. 2003) (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). A forum selection clause may be found to be unreasonable if (1) its incorporation into the contract was induced by fraud, undue influence, or overweening bargaining power; (2) the complaining party "will for all practical purposes be deprived of his day in court" because of the grave inconvenience or unfairness of the selected forum; or (3) its enforcement would contravene a strong public policy of the forum in which the suit is brought. Id.; see also Bremen, 407 U.S. at 18. However, a forum selection clause is not unconscionable, despite the fact that the clause may now be disadvantageous to Defendants, even if it was presented to them on a take it or leave it basis or in a form contract. See Fireman's Fund Ins. Co. v. M.V. DSR Atlantic, 131 F.3d 1336, 1338-39 (9th Cir. 1997). Any inconvenience a party "would suffer by being forced to litigate in the contractual forum as it agreed to do was clearly foreseeable at the time of contracting."Bremen, 407 U.S. at 17-18.
In the case at bar, Defendants assert that, under 28 U.S.C. § 1391(a), venue in this matter is only proper in California because "Defendants are both California residents, because the hotel at issue in this case is located in California, and because all of Defendants' alleged actions/inactions, as well as Plaintiff's investigation thereof, took place in California." Mot. (doc. 5) at 2. Additionally, Defendants maintain that all of their witnesses that will testify at trial live in California. Id. at 3.
In regard to the Agreement's forum selection clause, which provides that "Phoenix, Arizona is the most convenient locale for actions between [Plaintiff] and [Defendants]," Defendants contend that the clause is unconscionable because it is one-sided and invalid under the California Franchise Relations Act. Mot. (doc. 5) at 3, n. 3; see also Exbt. A (doc. 7) at 7. As to the latter point, Defendants specifically assert that enforcement of the forum selection clause would contravene a "strong public policy" of California, and is therefore invalid. Id. They note that the court in Jones v. GNC Franchising, Inc., 211 F.3d 495 (9th Cir. 2000), found that the California Franchise Relations Act (the "Act") evinces the "strong public policy" necessary to override an otherwise enforceable contractual forum selection clause. Id. at 4.
Under the Act, "[a] provision in a franchise agreement restricting venue to a forum outside [California] is void with respect to any claim arising under or relating to a franchise agreement involving a franchise business operating within [California]." CAL. BUS. PROF. CODE § 20040.5 (West 1997). Defendants note that in Jones, the Ninth Circuit upheld a district court's denial of a franchisor's motion to dismiss or transfer venue of the case based on a contractual forum selection clause. Mot. (doc. 5) at 4. The Court, applying the Supreme Court's "strong public policy" test for forum selection clauses as outlined in Bremen, held that the Act "expresses a strong public policy of the State of California to protect California franchisees from the expense, inconvenience, and possible prejudice of litigating in a non-California venue." Jones, 211 F.3d at 498. Thus, the court concluded that the forum selection clause contained in the parties' franchise agreement, which required the California franchisee to resolve claims related to the franchise agreement in a non-California court, directly contravened California's strong public policy and was thus unenforceable under the directives of Bremen. Id. Consequently, Defendants argue that, "[b]ecause the Ninth Circuit has already held that § 20040.5 reflects the `strong public policy' that overrides a forum selection clause, the Court must reach the same conclusion in this case." Mot. (doc. 5) at 4.
In opposition to Defendants' motion, Plaintiff asserts that, under 28 U.S.C. 1441(a) venue is proper in Arizona, and, in any event, argues that Jones is irrelevant to this analysis and does not make the Agreement's forum selection clause unreasonable. Resp. (doc. 7) at 4-10. First, Plaintiff asserts that Defendants' contention that venue is improper is erroneous because, "[w]hen a case is removed to federal court, venue in the court embracing the place where the action is pending is automatically proper." Id. at 5. Plaintiff cites Thermal Components Company v. Griffith, 98 F. Supp. 2d 1224 (Dist. Kan. 2000) and Polizzi v. Cowles Magazines, Inc., 345 U.S. 663 (1953), in support of its argument. Plaintiff notes that inPolizzi, the Supreme Court held that venue of an action removed from state court properly lies in the district court of the United States for the district and division embracing the place where such action is pending. 343 U.S. at 665. Moreover, it notes that in Thermal Components, the court determined that the removal statute, 28 U.S.C. § 1441(a), and not the ordinary federal venue statute, governs venue in removed cases. 98 F. Supp. 2d 1231-32. In their reply, Defendants respond to this argument by construing it to allege that they waived their right to raise any venue objection. Reply (doc. 9) at 1-3.
Second, Plaintiff responds that Arizona is the proper venue for this matter due to the Agreement's forum selection clause. Resp. (doc. 7) at 7-10. Plaintiff argues that Jones is irrelevant to the case at bar because, in Jones, the court followed the analysis of Bremen and analyzed whether enforcement of the forum selection clause "contravenes the strong public policy of the forum in which the suit is brought." Resp. (doc. 7) at 10. Thus, because this matter was originally filed in Arizona, even if the Court were to follow Jones, it would have to review whether the Agreement's forum selection clause contravenes a strong public policy of the State of Arizona. Id. With no evidence indicating such, Plaintiff maintains that Arizona is a proper venue for this case. Id.
The Court has considered the arguments of the parties and concludes that venue is proper in the District of Arizona. At the outset, the Court concurs with Plaintiff's assertion that venue in cases removed from state court are governed by 28 U.S.C. § 1441(a), rather than 28 U.S.C. § 1391. See Polizzi, 343 U.S. at 665. Under 28 U.S.C. § 1441(a), venue is proper in the judicial district encompassing the state court where the action was brought. Defendants argue that, despite their removal of this case to the federal district court, they have not waived their right to challenge the venue of this case based on the contested forum selection clause. Reply (doc. 9) at 2-3. Defendants note that inTanzman v. Midwest Express Airlines, Inc., 916 F. Supp. 1013, 1018 (S.D. Cal. 1996), the court stated that neither Polizzi nor 28 U.S.C. § 1441(a) stands for waiver of venue objections due to removal. Id. at 2.
The statements by the Polizzi Court do not mention waiver and the case does not hold that waiver of a venue objection based on other federal venue statutes is necessarily implied from the mere act of removal. Without more, Polizzi and § 1441(a) simply stand for the proposition that the initial venue of a removed action lies in the district court where the action had been pending.Tanzman, 916 F. Supp. at 1018.
Other courts have found that, despite removal, a defendant may seek dismissal where a forum selection clause renders venue improper in the forum state. See Tokio Marine Fire Ins. Co., Ltd. v. Nippon Express U.S.A., Inc., 118 F. Supp. 2d 997, 1000 (C.D. Cal. 2000); IBC Aviation Services, Inc. v. Compania Mexicana de Aviacion, 125 F. Supp. 2d 1008, 1013 (N.D. Cal. 2000); Lambert v. Kysar, 983 F.2d 1110, 1113 n. 2 (1st Cir. 1993). However, these cases generally discussed the enforcement of a contracted forum selection clause or challenges based on state court venue requirements. See Tokio Marine, 118 F. Supp. 2d at 1000; IBC, 125 F. Supp. 2d at 1013; Lambert, 983 F.2d at 1112. In contrast, Defendants here seek to have the forum selection clause deemed unenforceable, not enforced.
Recognizing this deficiency, Defendants, in their reply, assert that "the rationale applied in those cases for transferring venue after removal, rather than merely sticking to the initial § 1441 venue, applies with equal force in this case." Reply (doc. 9) at 3. Specifically, they argue that courts enforce the forum selection clauses in light of the public policy underlying them, therefore in California, where the Act "reflects a `strong public policy' that overrides forum selection clauses," the clause should be deemed unenforceable. Id. The Court disagrees.
Venue in cases removed from state court are governed by 28 U.S.C. § 1441(a), rather than 28 U.S.C. § 1391. See Polizzi, 343 U.S. at 665. Under 28 U.S.C. § 1441(a), venue is proper in the judicial district encompassing the state court where the action was brought. Defendants do not challenge the venue of this matter under the provisions of 28 U.S.C. § 1441(a). In light of this conclusion, the Court need not analyze Defendants' argument regarding whether the enforcement of the forum selection clause would contravene a "strong public policy" of California. Defendants' motion to dismiss shall be denied.
B. Motion to Transfer
Alternatively, Defendants contend that relevant factors support a change of venue to the Eastern District of California. On a motion to transfer, the burden is on the defendant to show that the convenience of parties and witnesses and the interest of justice require transfer to another district. See CFA Northern Cal., Inc. v. CRT Partners LLP, 378 F. Supp. 2d 1177, 1185 (N.D. Cal. 2005). Title 28, United States Code, section 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." The Ninth Circuit has held that a fourth factor for the court to consider is the plaintiff's choice of forum. CFA, 378 F.Supp.2d at 1185; see also Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309, 1317 (9th Cir. 1985). The purpose of Section 1404(a) is to "prevent the waste `of time, energy, and money' and `to protect litigants, witnesses and the public against unnecessary inconvenience and expense[.]'" Van Dusen v. Barrack, 376 U.S. 612, 616 (1964). However, "unless the balance of factors is strongly in favor of the defendants, the plaintiff's choice of forum should rarely be disturbed."Securities, 764 F.2d at 1317.
Determination of a motion to transfer lies within the broad discretion of the district court and is based on individualized considerations of convenience and fairness. See Jones, 211 F.3d at 498. The party moving for transfer of venue must establish (1) that venue is proper in the transferor district; (2) that the transferee district is one where the action might have been brought; and (3) that the transfer will serve the convenience of the parties and witnesses and will promote the interest of justice. Goodyear Tire Rubber Co. v. McDonnell Douglas Corp., 820 F. Supp. 503, 506 (C.D. Cal. 1992).
In their motion, Defendants argue that venue in this matter is only proper in California because "Defendants are both California residents, because the hotel at issue in this case is located in California, and because all of Defendants' alleged actions/inactions, as well as Plaintiff's investigation thereof, took place in California." Mot. (doc. 5) at 2. Additionally, Defendants assert that the transfer will serve the convenience of their witnesses. Id. at 3. Defendants maintain that all of their witnesses that will testify at trial live in California.Id. However, these factors alone do not sufficiently support a change of venue to the Eastern District of California.
It is undisputed that Best Western is an Arizona non-profit corporation, which is organized under the laws of Arizona and employs most of its employees in Arizona. It is also undisputed that the Agreement, which is at the crux of this lawsuit, was executed in Arizona. Moreover, Plaintiff chose the present forum for this litigation and the Court must give weight to Plaintiff's choice of forum. Defendants agreed to this forum and venue pursuant to the terms of the Agreement. According to the agreement, Defendants also acknowledged and agreed that "the majority of Best Western's records and employees are in Phoenix, Arizona, and that Phoenix, Arizona is the most convenient locale for actions between [the parties]." Exbt. A (doc. 7) at ¶ 38. Upon consideration of these relevant factors, and in the interest of the administration of justice, the Court has determined that Defendants' motion to transfer venue to the Eastern District of California, shall be denied.
Therefore,
IT IS ORDERED Defendants' Motion to Dismiss or Transfer Venue (doc. 5) is DENIED.