Summary
noting that while a mandatory clause would favor transfer to the specified forum, a permissive clause would not
Summary of this case from Flight Solutions, Inc. v. Club Air, Inc.Opinion
Case No. 5:07CV2001.
February 20, 2008
MEMORANDUM OPINION AND ORDER
This matter comes before the Court upon the motion of Defendants to Dismiss (Doc. No. 11). For the reasons that follow, the Court construes the motion to dismiss as a motion to transfer and GRANTS the motion.
I. Factual and Procedural Background
This dispute arises out of a franchising relationship. Plaintiffs each contracted with Defendants to franchise a Quiznos restaurant. Plaintiffs each signed a contract ("Franchise Agreement") with Defendants to govern their relationship. Each plaintiff also paid an initial franchise fee of $20,000.00 to $25,000.00. Plaintiffs claim that the Defendants made fraudulent misrepresentations to induce them to contract, including failing to disclose information regarding the risks involved with purchasing a Quiznos franchise. Plaintiffs also claim that Defendants denied Plaintiffs' attempts to secure locations for their Quiznos locations in contravention of the terms of the Franchise Agreement. The Franchise Agreement contains the following clause, which is the subject of this motion:
21.1 Governing Law/Consent to Venue and Jurisdiction . Except to the extent governed by the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. §§ 1051 et seq.) or other federal law, this Agreement shall be interpreted under the laws of the State of Colorado, and any dispute between the parties, whether arising under this Agreement or from any other aspect of the parties' relationship, shall be governed by and determined in accordance with the substantive laws of the State of Colorado, which laws shall prevail in the event of any conflict of law. Franchisee and Franchisor have negotiated regarding a forum in which to resolve any disputes arising between them and have agreed to select a forum in order to promote stability in their relationship. Therefore, if a claim is asserted in any legal proceeding involving Franchisee or any Bound Party and Franchisor, the parties agree that the exclusive venue for disputes between them shall be in the District Court for the City County of Denver, Colorado, or the United States District Court for the District of Colorado, and each party waives any objection it might have to the personal jurisdiction of or venue in such courts.
Because Plaintiffs allege that each of the six corporate entities they have sued are inter-related affiliates of the Quiznos brand, this Court will refer to the Defendants collectively as "Quiznos."
Plaintiff Brad Braman executed two franchise agreements for the purposes of opening multiple stores.
(Motion to Dismiss, Ex. A, at 33.)
Defendants have moved to dismiss due to, among other reasons, lack of proper venue. (Doc. No. 11.) Plaintiffs moved to amend their complaint and also opposed the motion to dismiss. (Docs. No. 18 19.) The Court stayed the briefing schedule relative to the motion to dismiss on October 2, 2007, pending briefing on the motion for leave to amend the complaint. On November 30, 2007, the Court granted the parties leave to file briefs solely regarding the issue of venue and to consider the effect, if any, analyzing the 12(b)(3) motion as a motion to transfer under 28 U.S.C. 1404(a) would have on this motion in light of Kerobo v. Southwestern Clean Fuels, Corp., 285 F.3d 531 (6th Cir. 2002). The parties have filed their appropriate briefs and the motion is now ripe for consideration.
The Plaintiffs filed a motion for leave to amend their complaint (Doc. No. 18) which included their First Amended Complaint as an attachment. The parties then argued about whether the Court should grant Plaintiffs' motion and whether amending the complaint would have any effect on the motion to dismiss. Because leave to amend is to be freely given and because the Court concludes that the Amended Complaint does not affect the Court's decision regarding the transfer of this case, the Court GRANTS Plaintiffs' motion and will consider the contents of Plaintiffs' First Amended Complaint.
II. Law Analysis
This motion to enforce the forum selection clause was originally styled a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(3). Fed.R.Civ.P. 12(b)(3) provides the procedural vehicle by which to challenge improper venue, but does not contain any venue provision or requirement. Kerobo, 285 F.3d at 538. Venue requirements are set by 28 U.S.C. § 1391, which includes a subsection deeming venue proper in a judicial district in which a corporation is doing business. 28 U.S.C. § 1391(c). Quiznos indisputably does business in the Northern District of Ohio, so venue is proper here.
Since venue is technically proper, dismissal of the case for improper venue is not the proper procedure for the enforcement of a forum selection clause. See Kerobo, 285 F.3d at 536. Instead, the venue dispute is governed by 28 U.S.C. 1404(a). Id. Section 1404(a) provides: "[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." Determination of whether transfer is appropriate under § 1404(a) is a matter of federal law. Id. at 534 (citing Stewart Org. Inc. v. Ricoh Corp., 487 U.S. 22, 28 (1988)). The decision rests within the discretion of the district court. Duha v. Agrium, Inc., 448 F.3d 867, 886 (6th Cir. 2006). The Court, therefore, treats Defendants' Rule 12(b)(3) motion as a motion to transfer pursuant to 28 U.S.C. § 1404(a). See Kerobo, 285 F.3d at 538.
Neither party addresses the preliminary question whether the action could have been brought initially in the District of Colorado. The Court concludes that it could have. Diversity jurisdiction would exist in the District of Colorado, as it does here, under 28 U.S.C. § 1332. Civil cases under diversity jurisdiction may be brought in a judicial district where any defendant resides. 28 U.S.C. § 1391(a). Quiznos maintains its principal place of business in Colorado, where it is unquestionably subject to personal jurisdiction, so it is a resident of that judicial district. 28 U.S.C. § 1391(c).
A. Waiver
As an initial matter, the Court must address Plaintiffs' argument that Defendants have somehow waived any objection to venue in the Northern District of Ohio. Plaintiffs cite to the motions for admission pro hac vice to practice in the Northern District of Ohio filed by Defendants' counsel as a waiver of Defendants' ability to contest venue. (Docs. No. 9 10.) Plaintiffs also cite the stipulated motion for an extension of the time in which Defendants had to file their responsive pleading to the complaint (Doc. No. 3), and Defendants' motion for leave to allow its client representative to attend the Case Management Conference by telephone (Doc. No. 6). According to Plaintiffs, because these motions were filed without contesting venue in the Northern District of Ohio, Defendants have waived any such objection.
Fed.R.Civ.P. 12(h) states that a defense of improper venue is waived if a party (1) omits the venue argument from a motion containing other defenses under Rule 12; (2) fails to make a motion under Rule 12; or (3) fails to include the venue argument in a responsive pleading. Defendants included their venue argument in their first and only Rule 12 motion, which was the first responsive pleading they filed. (Doc. No. 11.) Motions for extension of time, to excuse physical attendance at court conferences, and for pro hac vice admission are not "pleadings," nor are they "responsive" to the complaint. See Fed.R.Civ.P. 7(a) (listing the only permissible pleadings as (1) a complaint; (2) an answer to a complaint; (3) an answer to a counterclaim designated as a counterclaim; (4) an answer to a crossclaim; (5) a third-party complaint; (6) an answer to a third-party complaint; and (7) if the court orders one, a reply to an answer. None of these preliminary motions, therefore, could serve to waive Defendants' venue arguments. See S D Trading Acad., LLC v. AAFIS Inc., No. G-06-739, 2007 U.S. Dist. LEXIS 79839, at *14-15 (S. D. TX Oct. 26, 2007) ("A motion to extend the time to answer is neither a Rule 12 motion nor an answer, and it does not therefore cause the moving party to waive objections [. . .] under the rubric of Rule 12.").
Defendants likewise did not waive their venue objection, despite Plaintiffs' argument to the contrary, merely due to the time they took to file its motion to dismiss. This Court granted leave for, and Plaintiffs consented to, Defendants filing their motion to dismiss on or before August 23, 2007. (Doc. No. 3.) They did so, and have not waived their arguments regarding the forum selection clause.
Plaintiffs rely on a First Circuit case holding that a defendant waived its objection to venue by actively submitting itself to the venue. Manchester Knitted Fashions, Inc. v. Amalgamated Cotton Garment and Allied Industries Fund, 967 F.2d 688, 692 (1st Cir. 1992). The Court premised its decision on the defendant twice requesting a hearing upon a motion for preliminary injunction, stipulating to cease certain practices, stipulating to expedited discovery before the Court, and filing pro hac vice motions prior to contesting venue. This nonbinding authority is distinguishable on its facts, as Defendants here have not submitted themselves to this venue by requesting hearings before the Court or actively litigating the case's merits prior to disputing venue. In addition, the First Circuit recognized that "a motion for an enlargement of time in which to file a responsive pleading [like the one Plaintiffs argue was a waiver in this case] does not constitute a waiver of venue." Id. at 692 n6. Thus, the only similarity among the laundry list of acts that together constituted a waiver in Manchester and the facts of this case are the motions for admission pro hac vice. The First Circuit did not hold that the mere filing of motions for admission pro hac vice alone creates a waiver, and this Court likewise declines to do so. See also S D Trading Acad., LLC, 2007 U.S. Dist. LEXIS 79839 at *14-15 (Lack of proper venue, personal jurisdiction, or sufficient process is "only waived if a party files a Rule 12 motion or an answer without asserting that defense.")
B. Forum Selection Clause
Federal law governs the validity of a forum selection clause. Kerobo, 285 F.3d at 534. Forum selection clauses are presumed valid. Stewart, 487 U.S. at 29-30; M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12 (1972). A Forum selection clause should be enforced unless (1) it was obtained by fraud, duress, abuse of economic power, or other unconscionable means; (2) the chosen forum would be closed to the suit or would not handle it effectively or fairly; or (3) the transferee forum would be so seriously inconvenient that to require the plaintiff to bring suit there would be unjust. Security Watch Inc. v. Sentinel Sys., Inc., 176 F.3d 369, 374-75 (6th Cir. 1999).
Plaintiffs do not argue that the District of Colorado would be closed to suit or would not handle it effectively. Instead, they argue that the forum selection clause should be disregarded because the complaint states fraud in the inducement of the contract. The Sixth Circuit has repeatedly made clear that "unless there is a showing that the alleged fraud or misrepresentation induced the party opposing the forum selection clause to agree to the 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." Preferred Capital, Inc. v. Aetna Maint., Inc., 207 F. App'x 562, 564 (6th Cir. 2006) (emphasis in original); Preferred Capital, Inc. v. Assocs. in Urology, 453 F.3d 718, 722 (6th Cir. 2006); Moses v. Bus. Card Express, 929 F.2d 1131, 1138 (6th Cir. 1991) cert. denied, 502 U.S. 821 (1991).
The Amended Complaint makes two references to the forum selection clause. It first alleges in ¶ 40, "These misleading and deceptive franchise agreements give Quiznos unilateral control over all significant aspects of franchisee operations [. . .] to restrict the ability of franchisees to litigate in their home states [. . .]." It also alleges,
The Franchise Agreements also attempt to restrict venue to Colorado. Given the prior allegations in this Complaint, these venue selection clauses are unenforceable to the plaintiffs. The Franchise Agreements and the provision selecting venue in Colorado are unreasonable and unjust. The plaintiffs are individuals, material information was concealed from them, the occurrences complained of happened substantially if not exclusively in Ohio, and the witnesses are mostly in Ohio. Further, the venue selection clauses are not an arm's length transaction. It [sic] was part of the scheme used by Quiznos to extract money from unsuspecting franchisees and to attempt to virtually eliminate those franchisees from having any meaningful right or opportunity to seek judicial redress of their injuries.
¶ 63.
Plaintiffs have not alleged that any Quiznos agent misrepresented to them the venue in which they could bring claims arising out of the contract. Broad allegations that forum selection clauses are "part of the scheme used by Quiznos to extract money from unsuspecting franchisees" are insufficient to show that the alleged fraud induced the Plaintiffs to specifically agree to the inclusion of the forum selection clause. See Scherk v. Alberto-Culver Co., 417 U.S. 506 519 n. 14 (1974) (The applicable rule is not that any time a dispute arising out of a transaction is based on fraud, the forum selection clause in an agreement is unenforceable. "Rather, it means that an arbitration or 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.") (emphasis in original). See also Moses, 929 F.2d at 1138 (addressing a specific type of forum selection clause and explaining that "there must be a well-founded claim of fraud in the inducement of the clause itself, standing apart from the whole agreement" to render it unenforceable) (emphasis in original). Plaintiffs do not show that the alleged fraud induced them to agree to the inclusion of that clause in the contract. Instead, they state general claims of fraud as to the entire contract, and allege misrepresentations regarding risks of opening a Quiznos franchise. The allegations thus fail to invalidate the forum selection clause.
Plaintiffs also argue that enforcement of the forum selection clause would be unreasonable because, notwithstanding the fact that they are business owners who were able to expend over $20,000 on a franchise, they do not possess the financial resources to litigate in Colorado. Invalidating a forum selection clause must be based on more than mere inconvenience. Plaintiffs must show that enforcement "would be manifestly and gravely inconvenient to the party seeking to avoid enforcement such that it will effectively be deprived of a meaningful day in court." Preferred Capital, 453 F.3d at 722 (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 19 (1972)). The Sixth Circuit has previously rejected a claim of financial inconvenience as a basis for denying enforcement of a forum selection clause, explaining,
With respect to the claim of financial hardship [. . .] [o]f course the plaintiffs rather than the defendants would be required to bear the expense of travel. This is inherent in a forum selection clause. Unless all parties reside in the selected jurisdiction, any litigation will be more expensive for some than for others. This is not a reason for declaring such clauses invalid.Moses, 929 F.2d at 1138-39. See also Preferred Capital, 453 F.3d at 722; MSDG Mobile, LLC v. American Federal, Inc., No. 1:05CV-123, 2006 U.S. Dist. LEXIS 7787, *14 (W.D. KY Feb. 28, 2006). Plaintiffs have not offered any evidence of their alleged hardship, and have not met their "heavy burden" of showing that the forum selection clause should be invalidated. Bremen, 407 U.S. at 19.
The presence of a valid forum selection clause negates the presumption given to the plaintiff's choice of forum and shifts to the plaintiffs the burden of proving that the transferee district is a superior venue to the transferor district. Bacik v. Peek, 888 F.Supp. 1405, 1414 (N.D. Ohio 1993); Travelers Property Cas. Co. of Am. v. Centimark Corp., No. 2:04-CV-0916, 2005 WL 1038842 (S.D. Ohio May 3, 2005). See also Stewart, 487 U.S. at 29-30. The presence of a forum selection clause is a "significant factor that figures centrally in the district court's calculus." Stewart, 487 U.S. at 29. The validity of the forum selection clause is not dispositive, however, so the Court must analyze the transfer factors under § 1404(a).
C. Transfer Pursuant to 28 U.S.C. § 1404(a)
In addition to the forum selection clause, the district court must "weigh a number of case-specific factors" reflecting both public and private interests when conducting an analysis under § 1404(a). Kerobo, 285 F.3d at 537-38. These factors reflect the statutory language, which requires courts to consider the convenience of parties and witnesses, public interest factors of systemic integrity, and the interest of justice. See Id., 285 F.3d at 537-38. See also Moses, 929 F.2d at 1137. In performing this analysis, the Court must remain cognizant that "while other factors might 'conceivably' militate against a transfer [. . .] the venue mandated by a choice of forum clause rarely will be outweighed by other 1404(a) factors." In re Ricoh Corp., 870 F.2d 570, 573 (10th Cir. 1989) citing Stewart, 487 U.S. at 30.
1. Convenience of Parties and Witnesses
Plaintiffs are Ohio residents. Defendants' headquarters is located in Colorado. Plaintiffs brought this action in the Northern District of Ohio, but signed contracts stating that they had chosen the District of Colorado as their preferred venue. See Tieman, 2007 U.S. Dist. LEXIS 7036 (a "forum selection clause is treated as a manifestation of the parties' preferences as to a convenient forum"). Plaintiffs argue that many of the witnesses they plan to call are Quiznos' agents who have presented seminars in Ohio. Plaintiffs do not specify, though, who these witnesses are or whether they reside in Colorado, Ohio or elsewhere. Defendants claim that Quiznos' representatives, who Plaintiffs will likely call as witnesses, reside in Colorado. Defendants also claim that their own witnesses reside in Colorado, where Quiznos' headquarters is located. The Court thus concludes that, at a minimum, witnesses are located in both states. Where potential witnesses are located in various states, one venue is not necessarily preferable to another. Delta Casket Enters. v. York Group, No. Civ.A. 05-313-C, 2005 WL. 28987514, at *4 (W.D. Ky. Oct. 31, 2005). Due to the valid forum selection clause, the burden rests with Plaintiffs to persuade the Court that transfer would not be appropriate. The convenience of the parties and witnesses does little to aid Plaintiffs' attempts to carry their burden.
2. Interest of Justice
Analysis of the private concerns comprising the "interest of justice" factor includes consideration of whether the forum selection clause at issue is mandatory or permissive. First Solar, LLC v. Rohwedder, Inc., No. 3:04CV7518, 2004 WL 2810105, at *2 (N.D. Ohio Dec. 8, 2004). "If the contract has a permissive forum selection clause, then the interest of justice factor would weigh against transfer. However, if the forum selection clause is mandatory, then, the interest of justice would weigh toward transfer." Id. A forum selection clause is mandatory if it clearly indicates that jurisdiction is proper only in the selected forum. By contrast, a permissive forum selection clause merely authorizes jurisdiction in the specified forum, but does not require that forum to be the exclusive venue for litigation. K V Scientific Co. v. Bayerische Motoren Werke Aktiengesellschaft, 314 F.3d 494, 498 (10th Cir. 2002). By virtue of the parties' use of the word "exclusive," the forum selection clause in this case is explicitly mandatory, not permissive. Plaintiffs offer no argument to the contrary.
Other private interest factors that fall under the heading of "interests of justice" include the "relative ease of access to sources of proof, availability of compulsory process for attendance of unwilling [witnesses] [. . .] and all other practical problems that make trial of a case easy, expeditious and inexpensive." Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947); see also AmerisourceBergen Drug Corp. v. Meijer, Inc., No. 2:05-CV-0199, 2005 WL 1630843 (S.D. Ohio July 8, 2005). In this case, Plaintiffs acknowledge that they will call several Quiznos agents. Defendant has argued that these unidentified witnesses likely reside in Colorado. To the extent that these agents are unwilling to testify, the Court finds that Plaintiffs would be better able to compel them to testify if this case was proceeding in the District of Colorado. See Fed.R.Civ.P. 45(b)(2). The parties agree that the relevant documents may be duplicated and used in either court. Plaintiffs do not, therefore, carry their burden of overcoming the valid forum selection clause through considerations deemed the "interest of justice."
3. Public Interest Factors
"Public interest factors include the issues of congested dockets, concerns with resolving controversies locally, and, in a diversity case, having the trial in a forum that is at home with the state law that must govern the case." Wm. R. Hague, Inc. v. Sandburg, 468 F. Supp. 2d 952, 963 (N.D. Ohio 2006) (citing Gulf Oil, 330 U.S. at 508-509).
The parties have submitted evidence that shows that this court and the District of Colorado have similarly congested dockets, which does not weigh in Plaintiffs' favor. Both states thus have an interest in trying this case locally because, while the alleged misrepresentations occurred in Ohio, Quiznos is a Colorado corporation which allegedly executed the contracts in Colorado. Familiarity with the governing law also does not aid Plaintiff's attempts, as the Franchise Agreement contains a choice of law provision mandating that Colorado law governs "any dispute between the parties, whether arising under this Agreement or from any other aspect of the parties' relationship." Plaintiffs claim that the clause only pertains to Plaintiffs' contract claims, not those sounding in tort. The Court need not decide which law applies to each of the claims, though, because even if the Court adopted Plaintiffs' position, Colorado law would still govern a portion of this action while Ohio law governed the rest. Under Plaintiffs' contention, therefore, this Court still would be unfamiliar with portions of the governing law, just as the District of Colorado would. This factor therefore does not aid Plaintiffs' attempts to override the forum selection clause.
Between September 30, 2006, and September 30, 2007, the Northern District of Ohio saw 366 civil filings per judge, while the District of Colorado addressed 401 civil filings per judge.
The Court notes that the Ohio Supreme Court and the Sixth Circuit have rejected the argument that, under Ohio choice of law rules, a contractual choice of law provision cannot govern causes of action other than for breach of contract. See Schulke Radio Prod., LTD. v. Midwestern Broadcasting Co., 6 Ohio St. 3d 436, 438-39 (1983); Jarvis v. Ashland Oil, Inc, 17 Ohio St. 3d 189 (1985); Tele-Save Merchandising Co. v. Consumers Distributing Co., 814 F.2d 1120, 1122 (6th Cir. 1987). The District of Colorado, as the transferee court following a § 1404(a) transfer, will apply these precedents detailing Ohio's choice of law rules. Van Dusen v. Barrack, 376 U.S. 612 (1964).
Ultimately, denying transfer would require the Court to ignore the valid and enforceable mandatory forum selection clause. It also would fail to accord the forum selection clause the central role in the 1404(a) calculus which the Supreme Court has prescribed. See Stewart, 487 U.S. at 29. The public has a strong interest in applying contracts as they are written, First Solar, LLC v. Rohwedder, Inc., No. 3:04CV7518, 2004 U.S. Dist. LEXIS 24600, *8 (N.D. Ohio Dec. 8, 2004), and Plaintiffs have failed to sustain their burden of showing that enforcement of the forum selection clause would be unreasonable or fundamentally unfair. Based on the Court's assessment of the relevant factors, including the forum selection clause, transfer of this action to the United States District Court for the District of Colorado is appropriate.
III. Conclusion
For the foregoing reasons, Defendants' motion to dismiss (construed as a motion to transfer venue) (Doc. No. 11) is GRANTED. This action is TRANSFERRED to the United States District Court for the District of Colorado pursuant to 28 U.S.C. § 1404(a).
IT IS SO ORDERED.