Opinion
01 Civ. 2682 (RWS).
August 15, 2001
CHARLES A. JOHNSON, Esq., HILL RIVKINS HAYDEN, New York, NY, for Plaintiff.
KIRK M.H. LYONS, Esq., LYONS, SKOUFALOS, PROIOS FLOOD, New York, NY, for Defendants.
OPINION
In this maritime action to recover for an international shipment of rotten tomatoes, defendants Asil Gida Ve Kimya Sanayi Ve Ticaret A.S., Pinat Gida Sanayi Ve Ticaret A.S., D.B. Deniz Nakliyati T.A.S. and D.B. Turkish Cargo Lines (collectively "the defendants") have moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) based upon the forum selection clause in the bills of lading, which specifies that the dispute shall be heard in Turkey. Plaintiff Ferraro Foods, Inc. ("Ferraro") opposes the motion on the grounds that defendants waived their right to invoke the forum selection clause when they stipulated to transfer this action here from the District of New Jersey pursuant to 28 U.S.C. § 1404(a). For the reasons set forth below, the motion will be granted and the action dismissed.
The Parties
Plaintiff Ferraro is a corporation organized and existing under the laws of New Jersey.
The defendant corporations each have offices in both Turkey and New Jersey.
Background
This action seeks to recover approximately $140,000 as a result of salt water damage to almost 63,000 cartons of peeled tomatoes shipped from Salerno, Italy to New York, New York on defendant ships MV Cumhuriet and Izzet Incekara in October and November of 1999. The bills of lading for these shipments specified that:
Any dispute arising under this Bill of Lading to be decided in Turkey by commercial Courts of Istanbul to the exclusion of the jurisdiction of the Courts of any other country and the decision of such Turkish court shall be deemed binding on the. Carrier, shipper, receiver and/or owner of the goods.
(Lyons Decl. Ex. E, Art. 2.)
Notwithstanding this forum selection clause, Ferraro filed this action in the District of New Jersey on October 25, 2000, seeking remedies under the U.S. Carriage of Goods by Sea Act, 46 U.S.C. § 1300, et seq. ("COGSA").
In facsimile correspondence to Ferraro dated November 27, 2000 and transmitted early the next day, defendants noted the Turkey forum clause in the bill. of lading and proposed that the action be transferred to the Southern District of New York, while "retaining all defenses including the forum clause." (Lyons Reply Decl. Ex. A at 2.)
Meanwhile, defendants filed an answer on February 16, 2001, which raised several affirmative defenses, including lack of personal jurisdiction and subject matter jurisdiction, improper venue, forum non conveniens, and that the action must be dismissed and heard in Turkey pursuant to the terms of the bills of lading. (Lyons Decl. Ex. B ¶¶ 18, 20, 24, 28.)
With Ferraro's consent, defendants drafted a stipulation to transfer the action to this District and submitted it to the court in New Jersey. Invoking 28 U.S.C. § 1404(a), the four-line stipulation justified the transfer as "for the convenience of the parties and witnesses and in the interests of justice." (Lyons Decl. Ex. C.) The New Jersey court endorsed the stipulation on March 8, 2001, and the action was filed here on March 29, 2001.
On June 1, 2001, before any discovery had been conducted, defendants moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) under the forum selection clause. Ferraro opposed the motion on the grounds that the defendants waived the right to invoke the clause by agreeing to transfer the action from New Jersey to the Southern District of New York. The motion was deemed fully submitted after oral argument on June 27, 2001.
Discussion
In short, this motion asks whether, in an action initially filed in a domestic forum but governed by a mandatory foreign forum selection clause, a defendant who has timely raised the existence of the clause as an affirmative defense and then stipulated to transfer to a second domestic forum without explicitly waiving or preserving the foreign forum clause, has thereby waived that defense. Neither party has cited a case directly addressing the legal effect of this rather unique factual scenario.
I. Enforceability of Forum Selection Clauses.
Forum, selection clauses are presumptively valid unless the party resisting the effect of the clause demonstrates that "enforcement is . . . 'unreasonable' under the circumstances." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972). See also Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1362-63 (2d Cir. 1993). The Supreme Court has recently extended this presumption to forum selection clauses in bills of lading governed by COGSA unless the "substantive law to be applied [by the chosen forum] would reduce the carrier's obligations to the cargo on or below what COGSA guarantees." Vimar Seguros v. Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995).
As a forum selection clause is prima facie valid, the party opposing its operation has the burden of proving that it should not be enforced.See Reed Barton Corp. v. M.V. Tokio Exp., NO. 98 CIV. 1079 (LAP), 1999 WL 92608, *2 (S.D.N.Y. Feb. 22, 1999). Even where the forum selected is a foreign one, "'the party claiming [unfairness] should bear a heavy burden of proof.'" Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 592 (1991) (quoting Bremen, 407 U.S. at 17).
Despite bearing the burden of proof, the "party seeking to avoid enforcement of [a forum selection clause is] entitled to have the facts viewed in the light most favorable to it, and no disputed fact should be resolved against that party until it has had an opportunity to be heard."New Moon Shipping Co., Ltd., v. Man BW Diesel Ag, 121 F.3d 24, 29 (2d Cir. 1997).
The forum selection clause in Article 2 of the bills of lading in this action specifies that:
Any dispute arising under this Bill of Lading to be decided in Turkey by the Commercial Courts of Istanbul to the exclusion of the jurisdiction of the Courts of any other country and the decision of such Turkish Court shall be deemed binding on the Carrier, the shipper, receiver and/or owner of the goods.
(Lyons Decl. Ex. 3, Art. 2.) Because it provides for jurisdiction in a specific Turkish court and specifically excludes any other court, the clause is mandatory rather than permissive, and should be enforced unless Ferraro makes a strong showing that an exception exists. See John Boutari and Son, Wines and Spirits, S.A. v. Attiki Importers and Distributors Inc., 22 F.3d 51, 53 (2d Cir. 1994). Specifically, a plaintiff may defeat a mandatory forum selection clause only by clearly demonstrating that it is unreasonable or invalid, see M/S Bremen, 407 U.S. at 15, likely to reduce the carrier's obligations, see Sky Reefer, 515 U.S. 528, or waived, see In re Rationis Enterprises, Inc. of Panama, No. 97 Civ. 9052, 1999 WL 6364 (S.D.N.Y. Jan. 7, 1999), appeal dismissed, 201 F.3d 432 (2d Cir. 1999); Avant Petroleum, Inc. v. Banque Paribas (Two Cases), 652 F. Supp. 542, 545 (S.D.N.Y. 1987).
Ferraro has not argued that the forum selection clause is unreasonable, invalid, or likely to reduce the carrier's legal obligations. Rather, Ferraro argues only that it would not have agreed to the transfer "if defendants' counsel gave any indication that he intended to file a motion to dismiss the case," and maintains that the defendants waived the contractual forum selection clause by "disingenuous(ly]" seeking to the transfer. (Pltf. Br. at 5.)
The Second Circuit has alternately analyzed motions to dismiss forum selection clauses under the competing rubrics of improper venue/forum non conveniens and contract law, compare Jones v. Weibrecht, 902 F.2d 17, 19 (2d Cir. 1990) (affirming district court's dismissal of complaint for improper venue due to the forum selection clause) with Bense v. Interstate Battery system of America, 683 F.2d 718, 721 (2d Cir. 1982) (viewing forum selection clause under contract law as "part of the bargain into which [defendant] freely entered."), and has declined to determine which body of law lower courts should apply, see New Moon, 131 F.3d at 28 ("no consensus developed as to the proper procedural mechanism to request dismissal of a suit based upon a valid forum selection clause. . . . [T]here is no easy answer to the enforcement procedure question because there is no existing mechanism with which forum selection enforcement is a perfect fit."). See also Marra v. Papandreou, 216 F.3d 1119, 1123 (D.C. Cir. 2000) ("while the forum-selection clause defense is a creature that has evaded precise classification, most courts and commentators have characterized it as a venue objection analogous to a forum non conveniens motion or motion for transfer of venue under 28 U.S.C; § 1404(a).").
In light of this procedural ambiguity, the motion will be addressed under both the venue and contract theories. However, because the forum selection clause in this action is mandatory, the heightenedBremen standard of proof will apply.
It should be noted that although courts have typically analyzed such motions as questions of venue rather than forum non conveniens, the latter approach is more appropriate here because the forum selection clause calls for suit in a foreign jurisdiction. See Guidi v. Inter-Continental Hotels Corp., 224 F.3d 142, 148 (2d Cir. 2000) (noting that forum non conveniens, not § 1404(a), is appropriate analytical mechanism where alternate forum is a foreign country). Although Ferraro maintains that a dismissal for forum non conveniens is barred after a defendant has successfully moved for transfer, it cites only Fifth Circuit law, which conflicts with the law of this Circuit. In Evolution Online Sys., Inc. v. Koninklijke PTT Nederland N.V., 145 F.3d 505 (2d Cir. 1998), the Second Circuit held that district courts need not engage in any forum non conveniens analysis if they conclude that a mandatory foreign forum selection clause is binding and enforceable under theBremen standard, 145 F.3d at 509-11. Because the parties agree that the forum selection clause is enforceable, no more forum non conveniens analysis is necessary. While the venue theory is perhaps not applicable under this reasoning, it has been briefed by the parties and therefore will be addressed here.
II. Improper Venue Theory
An objection to venue may be waived under Fed.R.Civ.P. Rule 8(c) or 12(h) by failing to raise it in an answer or initial motion to dismiss. See Satchell v. Dilworth, 745 F.2d 781, 784 (2d Cir. 1984) (venue may be waived under Rule 8(c) if not pleaded as affirmative defense);Avant Petroleum, Inc. v. Banque Paribas (Two Cases), 652 F. Supp. 542, 545 (S.D.N.Y. 1987) (finding waiver of venue defense under forum selection clause because not timely invoked as per Rule 12(h)). However, the defendants timely specified venue, forum non conveniens, and the bills of lading as affirmative defenses in their answer prior to the transfer, they have not waived the claim pursuant to Rules 8(c) or 12(h).
Rule 12(h)(1) provides: "(h) Waiver or Preservation of Certain Defenses. (1) A defense of lack of jurisdiction over the person, improper venue, insufficiency of process, or insufficiency of service of process is waiver (A) if omitted from a motion in the circumstances described in subdivision (g), or (B) if it is neither made by motion under this rule nor included in a responsive pleading or an amendment thereof permitted by Rule 15(a) to be made as a matter of course."
The improper venue defense may also be waived by implication when a party takes actions that are inconsistent with it. See American Motorists Ins. Co. v. Roller Bearing Co. of America, Inc., No. 99 CIV 9133 AGS, 2001 WL 170658, * (S.D.N.Y: Feb. 21, 2001) ("A court may also interpret the defendant's pre-trial conduct as waiving its right to challenge venue."); In re Rationis Enterprises, Inc. of Panama, No. 97 Civ. 9052, 1999 WL 6364 (S.D.N.Y. Jan. 7, 1999) (finding forum selection clause waived where plaintiff had taken actions inconsistent with it); Merz v. Hemmerle, 90 F.R.D. 566, 568 (E.D.N.Y. 1981) (citing Fairhope Fabrics, Inc. v. Mohawk Carpet Mills, Inc., 140 F. Supp. 313 (D. Mass. 1956) (improper venue defense waived where defendant's conduct in defending action indicated venue was not inconvenient)); Sherman v. Moore, 86 F.R.D. 471, 473 (S.D.N.Y. 1980) ("It is clear that a party may waive its objection to venue by its pre-trial conduct") (quoting Altman v. Liberty Equities Corp., 322 F. Supp. 377, 378-79 (S.D.N.Y. 1977) (the federal "Rules are not inclusive of the circumstances in which a defense will be deemed waived. Rule 12(h) simply defines the outer and absolute limits of timeliness. It does not preclude waiver by implication.")).
At the same time, because forum selection clauses may result in a waiver of substantive and procedural rights, it would be unfair to infer such a significant waiver absent a clear indication of intent through a party's actions. See General Instrument Corp. v. Tie Mfg., Inc., 517 F. Supp. 1231, 1235 (S.D.N.Y. 1981).
It should be noted here that the actions of plaintiffs, as well as defendants, may waive the forum selection clause, and that plaintiffs have done so by filing in the District of New Jersey rather than in Turkey. See, e.g., Unity Creations, Inc. v. Trafcon Industries, Inc., 137 F. Supp.2d 108, 111 (E.D.N Y 2001) (finding that plaintiff waived right to invoke forum selection clause by filing in non-selected forum).
Whether a party has impliedly waived objections to venue is a fact-intensive inquiry. See Krape, 194 F.R.D. at 86 (citing Sherman, 86 F.R.D. at 472). Courts have found implied waiver of venue where a party has repeatedly represented that venue is appropriate, see Orb Factory Ltd. v. Design Science Toys, 6 F. Supp.2d 203, 206-07 (S.D.N.Y. 1998) or actively pursued substantive motions, see Altman, 322 F. Supp. at 378 ((collecting cases). In contrast, no waiver has been found where parties merely participated in pretrial motions, see id., moved to dismiss after discovery has been completed, or where the opposing party was not prejudiced by dismissal, see Sherman, 86 F.R.D. at 473-74 (citing cases).
Although the parties agree that defendants initiated the idea of the transfer, neither party briefed the merits of transfer, submitted evidence in support thereof, or presented oral argument to the New Jersey court. Instead, defendants prepared a bare-bones stipulation that Ferraro signed and the court summarily endorsed without further inquiry. Transfer was effected pursuant to 28 U.S.C. § 1404(a) "for the convenience of the parties and witnesses and in the interests of justice." (Lyons Decl. Ex. C.) None of the other § 1404(a) factors or relevant contractual provisions were either raised or addressed, and the stipulation neither explicitly waived nor preserved the forum selection clause defense. In other words, the existence and legal implications of the forum selection clause were not litigated or even considered before the action was transferred to this District.
While the defendants' initiation of and acquiescence to the transfer may appear inconsistent with their attempt to dismiss this action under the forum selection clause, the evidence presented in fact establishes that the defendants notified Ferraro of their intention to pursue the forum selection clause matter at the same time they raised the subject of transfer to this District. (See Lyons Reply Decl. Ex. A.) Moreover, defendants' answer, which raised the forum selection clause defense, was filed after the parties agreed to seek a transfer, but before it was entered. The timing of these filings, and defendants' communication with Ferraro immediately following the transfer (Johnson Aff. Ex. E), suggest that the defendants had every intent to preserve their right to move to dismiss this action under the forum selection clause.
Without a showing that Ferraro has actually been prejudiced, the defendants' alleged "disingenuousness" is insufficient to establish a waiver of the improper venue defense. See Shaw v. United States, 422 F. Supp. 339, 341 (S.D.N.Y. 1976) (finding no waiver of improper venue defense where plaintiffs did not demonstrate prejudice); cf.Interstate Securities Corp. v. Siegal, 676 F. Supp. 54, 57 (E.D.N.Y. 1988) (although delay in invoking contractual arbitration clause after filing answer and participating in discovery may have been "disingenuous," defendant's right to arbitrate was not waived). Nor does mere delay prejudice the plaintiff. See American Motorists, 2001 WL 170658, at *2.
In Krape v. PDK Labs, Inc., 194 F.R.D. 82 (S.D.N Y 1999), the Honorable Robert L. Carter found waiver where the defendant had not filed an affirmative venue defense, repeatedly represented to the transferor court that the Southern District of New York was the proper venue, and had failed to object to transfer or move to dismiss for improper venue of the transferee court until approximately two years after the action was filed. Here, in contrast, defendants specifically raised the forum selection clause defense in their answer before the case was transferred here from New Jersey, and stipulated to transfer the case here without having to make any explicit waiver of the defense.
Similarly, the holding in Altman, that "the failure to raise a venue objection within the context of a section 1404(a) motion constitutes waiver of that particular objection," 322 F. Supp. 377, is not dispositive. Unlike the defendants in this case, the defendant bank inAltman had not yet filed an answer or affirmative defenses when it joined another party's transfer motion. Moreover, the Altman court had already denied a § 1404(a) motion to transfer when the defendant moved to dismiss for improper venue. 322 F. Supp. at 378. Under those circumstances; the Altman court found that "the propriety of venue is a significant consideration in deciding a section 1404(a) motion. . . . Therefore, the failure to assert defective venue effectively concedes it." 322 F. Supp. at 379. Although it may have been preferable to address the venue question before (or contemporaneously with) the transfer motion in this case, the New Jersey court did not require any litigation of venue before approving the stipulation. While this lapse appears to violate the law of the Third Circuit, which reviews New Jersey district court rulings, see White v. Abco Engineering Corp., 199 F.3d 140, 144 (3d Cir. 1999) ("inter-district transfer by stipulation is inappropriate"), this court is not in a position to review another court's decision to transfer, see Starnes v. McGuire, 512 F.2d 918, 924 (D.C. Cir. 1974). In any case, the defendants had clearly raised the venue defense in their answer, which was timely filed before the transfer stipulation was entered by the transferor court. It cannot be said that the defendants in this case "fail[ed] to assert defective venue."
Ferraro next turns to the language of the transfer statute in support of its argument that defendants have consented to venue in this District and are barred from moving to dismiss for forum non conveniens. Title 28, United States Code section 1404(a) specifies that transfers may be effected to any district in which the action "might have been brought." Because this phrase has been interpreted to mean that a court that receives a case transferred under § 1404(a) has proper venue, according to Ferraro's syllogism, the defendants' § 1404(a) transfer stipulation effectively waive objections to venue and personal jurisdiction in this district. (Pltf. Br. at 10-11.)
However, this logic merely presumes its result. That a transfer has been effected does not establish that the action "might have been brought" in the transferee court, particularly where, as here, the transferor court has not analyzed this requirement of § 1404(a) before approving the transfer.
In Hoffman v. Blaski, 363 U.S. 335, 353, 80 S.Ct. 1084, 1095 (1960), the Supreme Court held that the phrase "where it might have been brought" must be determined as of the outset of the litigation, without regard to the defendant's subsequent consent to jurisdiction, even if explicit.See also Invivo Research, Inc. v. Magnetic Resonance Equipment Corp., 119 F. Supp.2d 433, 437 (S.D.N.Y. 2000); Viacom Int'l, Inc. v. Melvin Simon Prods., Inc., 774 F. Supp. 858, 868 (S.D.N.Y. 1991).
The existence of an enforceable forum selection clause in a contract is "a significant factor that figures centrally in the district court's calculus" under § 1404(a). Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29-30, 108 S.Ct. 2239, 2244, 101 L. Ed.2d 22 (1988). See also Ramada Franchise Systems, Inc. v. Cusack Development, Inc., No. 96 Civ. 8085 (MGC), 97 WL 304885, *2 (S.D.N.Y. June 6, 1997). In addition, an action "might have been brought" in a forum if the transferee court would have had personal jurisdiction over the defendant and if venue would have been proper there at the time the action was commenced, in addition to other factors that have not been briefed here. See Hoffman, 363 U.S. at 344, 80 S.Ct. at 1090; NBA Properties, Inc. v. Salvino, Inc., 99 Civ. 11799 (AGS), 2000 WL 323257, at *3 n. 1 (S.D.N.Y. Mar. 27, 2000).
As the parties have not briefed any of these factors, it is impossible to ascertain whether the action "might have been brought" in this District initially. It is sufficient to note that the mere fact that the action was transferred here does not dictate that it "might have been brought" here initially, particularly given that the transfer was effected pursuant to stipulation rather than a careful weighing of the § 1404(a) factors. See, e.g., Roba v. United States, 604 F.2d 215, 219 n. 6 (2d Cir. 1979) (noting that action could not have been brought in transferee district because it lacked personal jurisdiction).
In sum, Ferraro has failed to demonstrate that the defendants waived the venue defense under the heightened standard applicable to mandatory forum selection clauses under Bremen.
III. Contract Theory
"A fortiori, a party with a contractual right to block litigation in a particular forum can waive any rights the contract confers on it."Licensed Practical Nurses, Technicians and Health Care Workers of New York, Inc. v. Ulysses Cruises, Inc., 131 F. Supp.2d 393, 410 (S.D.N.Y. 2000). Ferraro contends that the stipulation to transfer contractually waived the forum selection clause. The heightened Bremen standard applies as well to this approach to the analysis, because the forum selection clause is mandatory.
Ferraro's argument that waiver of the mandatory forum selection clause was an essential element of the stipulation to transfer (Pltf. Br. at 8.) actually proves that the contract theory is inapplicable to this case. Although the stipulation invoked § 1404(a) and an explanation for the transfer, it did not make any reference to the effect of transfer on the substantive or procedural rights of the parties — most importantly the defendants' forum selection clause defense. Under Ferraro's theory, then, the stipulation lacked an essential term, which renders a contract unenforceable, "because an enforceable contract requires mutual assent to the essential term. and conditions thereof."Schurr v. Austin Galleries of Illinois, Inc., 719 F.2d 571, 575 (2d Cir. 1983). Absent a meeting of the minds on what Ferraro contends was an essential term, the stipulation is not enforceable as a contract, but only as a court order of transfer.
Ferraro correctly argues that stipulations are often compared to contracts, see Harvis Trien Beck, P.C. v. Federal Home Loan Mortgage Corp. (In re Blackwood Assocs., L.P.), 153 F.3d 61, 66 (2d Cir. 1998), and that ambiguity in contract language is generally construed against the drafter, Kerin v. U.S. Postal Service, 116 F.3d 988, 992 (2d Cir. 1997). However, the ultimate question in contract interpretation is the intent of the parties. See Hugo Boss Fashions, Inc. v. Federal Ins. Co., 252 F.3d 608, 627 (2d Cir. 2001). Where, as here, a stipulation is ambiguous, courts may to turn to extrinsic evidence to glean the parties' intent. See Scholastic v. Harris, ___ F.3d ___, 2001 WL 855516, *5 (2d Cir. July 25, 2001).
Three pieces of evidence belie the notion that the defendants intended to waive their mandatory foreign forum defense when they entered into the transfer stipulation. First, the communication in which the defendants originally raised the possibility of transfer specifically noted that the defendants would be "retaining all defenses including the forum clause." (Lyons Reply Decl. Ex. A.) Moreover, the defendants filed their answer — which included the affirmative defenses of venue, forum non conveniens, and the mandatory forum selection clause — after raising the transfer issue with Ferraro during the early stage of this litigation. Finally, the defendants sought to have Ferraro voluntarily dismiss the action for refiling in Turkey immediately after the transfer was effected. (Johnson Aff. Ex. E.)
Contracts may be modified by conduct or subsequent writing only upon mutual assent of the parties. See Bensen v. American Ultramar Ltd., No. 92 Civ. 4420 (KMW) (NRB), 1997 WL 66780, *7 (S.D.N.Y. Feb. 14, 1997). Ferraro has failed to make a strong showing that the defendants intended to waive their forum defense by stipulating to transfer.
Conclusion
Under either a venue or contract analysis, defendants did not waive the forum selection clause defense by agreeing to transfer the case to this Court. As Ferraro has not argued that the clause itself is unreasonable or that the contracted-for Turkish forum is either unavailable or lowers the defendants' legal obligations, the defendants' motion to dismiss is granted on the condition that the defendants submit to the jurisdiction of the Commercial Courts of Istanbul.
It is so ordered.