Opinion
C/A No. 3:17-2286-DCC-PJG
07-23-2018
Industrial Services Group, Inc., Plaintiff, v. Jon Kensington, Defendant.
REPORT AND RECOMMENDATION
The plaintiff, Industrial Services Group, Inc., filed this diversity action against the defendant, Jon Kensington, for breach of contract based on a covenant not to compete and nondisclosure agreement. This matter is before the court pursuant to 28 U.S.C. § 636(b) on the defendant's motion to dismiss for improper venue or, in the alternative, to transfer venue. (ECF No. 7.) The motion has been fully briefed and is ready for a Report and Recommendation. (See ECF Nos. 7-1, 10, 12, 16.) For the reasons that follow, the court recommends that the defendant's motion be granted and this action be dismissed.
The plaintiff's Complaint raises causes of action for breach of contract arising out of the parties' August 16, 2013 employment agreement. (Compl. ¶ 2, ECF No. 1 at 1.) The plaintiff is a South Carolina corporation that provides services to businesses throughout the central and eastern United States. (Id. ¶ 5, ECF No. 1 at 2.) The plaintiff asserts that the defendant was employed by the plaintiff from August 16, 2013 to January 3, 2017, during which time he was a citizen and resident of Michigan, and that the defendant currently resides in Michigan where he is employed by a new company. (Id. ¶ 6.)
The defendant moves to dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(3) for improper venue or, in the alternative, to transfer venue to the United States District Court for the Western District of Michigan. (Def.'s Mem. Supp. Mot. to Dismiss, ECF No. 7-1 at 5.) According to the defendant, venue is improper in this court pursuant to 28 U.S.C. § 1391(b) because the defendant lives in Michigan and all of the relevant acts and events giving rise to the plaintiff's breach of contract claims occurred in Michigan. (Id. at 6-7.)
In response, the plaintiff contends that the defendant spent some time in South Carolina for his job, and further argues that venue is proper in this district because the parties' employment agreement contains a forum selection clause that requires this action be filed in either a state or federal court in Richland County, South Carolina, making venue in Michigan improper. (Pl.'s Resp. Opp'n Mot. to Dismiss, ECF No. 10 at 12-13.) The clause at issue provides:
Governing Law; Venue; Jurisdiction. This Agreement shall be governed by the laws of the State of South Carolina. Any controversy or claim arising out of this Agreement or the breach thereof, shall be settled in a court of competent jurisdiction in the Circuit Court of Richland County. All parties agree that venue shall be proper in said court and agree to submit to the personal jurisdiction of the court.(Compl., Ex. 1 ¶ 20, ECF No. 1-2 at 7.)
The plaintiff's reliance on the forum selection clause misses the mark because it invokes the clause prematurely in the analysis required under the federal statutory framework. As the Supreme Court has held, "The structure of the federal venue provisions confirms that they alone define whether venue exists in a given forum." Atl. Marine Const. Co. v. U.S. Dist. Ct. for Western Dist. of Tx., 571 U.S. 49, 56 (2013). The first step in resolving a venue challenge, therefore, is to determine "whether the case falls within one of the three categories set out in § 1391(b)." Id. "If it does, venue is proper; if it does not, venue is improper, and the case must be dismissed or transferred under § 1406(a). Whether the parties entered into a contract containing a forum-selection clause has no bearing on whether a case falls into one of the categories of cases listed in § 1391(b) ." Id. (emphasis added).
Thus, before considering the effect of any contractual forum selection clause, a court must first determine whether venue in the forum at issue properly lies under § 1391(b). The court easily concludes that it does not. The plaintiff's contention that the defendant had contact with some South Carolina customers, traveled to South Carolina on occasion, and produced work product intended for projects in South Carolina is insufficient to show that a substantial part of the events or omissions giving rise to the claim occurred here under § 1391(b)(2). See, e.g., Jenkins Brick Co. v. Bremer, 321 F.3d 1366, 1373 (11th Cir. 2003) (discounting similar facts in a non-compete breach of contract case because those "facts do not have a close nexus with the cause of action for breach of contract, and they are therefore irrelevant"). Facts establishing minimum contacts with a forum that could give rise to personal jurisdiction over a defendant do not necessarily establish venue. Id. at 1372. And, while the focus of the venue inquiry should not center only on matters in dispute or that directly led to the filing of the case, the record presented shows that the entire sequence of events giving rise to the plaintiff's claim for breach of the non-compete clause and nondisclosure agreement occurred in Michigan. Cf. Mitrano v. Hawes, 377 F.3d 402, 405-06 (4th Cir. 2004) (reversing the district court's dismissal for improper venue in the Eastern District of Virginia in a breach of contract claim to collect unpaid legal fees because the plaintiff's performance of the legal services at issue was the event that allegedly entitled him to payment and remanding for a determination as to whether the work he performed in Virginia constituted a "substantial" part of the events giving rise to his claim); MuscleDriver USA, LLC v. Smith, C/A No. 0:11-1777-MBS-PJG, 2012 WL 1825231, * 4-5 (D.S.C. Apr. 17, 2012) (considering the entire sequence of events underlying the claim and noting that the plaintiff had specifically alleged wrongful acts occurring within the District of South Carolina). The plaintiff has failed to make even a prima facie showing otherwise. Mitrano, 377 F.3d at 405.
The defendant disputes the plaintiff's characterization of his contacts in South Carolina, but for purposes of this motion, the court accepts the plaintiff's version as true. See Delong Equip. Co. v. Washington Mills Abrasive Co., 840 F.2d 843, 845 (4th Cir. 1988) (holding that controverted facts as to jurisdiction and venue must be construed with all reasonable inferences in favor of the plaintiff). Nonetheless, even viewed in the light most favorable to the plaintiff, these facts are insufficient to establish venue in the District of South Carolina. See Mitrano, 377 F.3d at 405 (holding that where no evidentiary hearing is held, the plaintiff need only make a prima facie showing that venue is proper); (see generally Def.'s Reply at 2-4, ECF No. 12 at 6-8).
Therefore, as Atlantic Marine shows, here the proper procedure to address the defendant's venue motion is governed by 28 U.S.C. § 1406(a): "The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." Atl. Marine Const. Co., 571 U.S. at 56 (emphasis added). As Atlantic Marine makes clear, a "wrong" venue is one that is contrary to § 1391(b), not one that violates a contractual forum selection clause. Id. at 55, 58 (holding that the language of § 1391 cannot reasonably be read to allow judicial consideration of other, extra-statutory limitations on the forum in which the case may be brought and that if the venue statutes establish that a suit may be brought in a particular district, a contractual bar cannot render venue in that district "wrong"). Once venue is determined to properly lie in a particular federal district court, the remedy for violation of the forum selection clause is found in § 1404(a)—not § 1406(a). Id. at 60; Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 32 (1988) ("[F]ederal law, specifically 28 U.S.C. § 1404(a), governs the District Court's decision whether to give effect to the parties' forum-selection clause.").
Because venue is wrong in the District of South Carolina, the case must be dismissed or transferred in accordance with § 1406(a). Here, dismissal is appropriate, because transfer would not be "in the interest of justice." 28 U.S.C. § 1406(a). If the case were transferred to the Western District of Michigan, it appears likely that the plaintiff could properly invoke § 1404(a) at that time—or, more precisely, the doctrine of forum non conveniens. See Atl. Marine Const. Co., 571 U.S. at 60 ("[T]he appropriate way to enforce a forum-selection clause pointing to a state or foreign forum is through the doctrine of forum non conveniens. Section 1404(a) is merely a codification of the doctrine of forum non conveniens for the subset of cases in which the transferee forum in within the federal court system . . . ."). The forum selection clause in this case expressly provides for venue "in a court of competent jurisdiction in the Circuit Court of Richland County," South Carolina, which would appear to be the Court of Common Pleas. See S.C. Const. Art. V, § 11 ("The Circuit Court shall be a general trial court with original jurisdiction in civil and criminal cases, except those cases in which exclusive jurisdiction shall be given to inferior courts, and shall have such appellate jurisdiction as provided."); S.C. Code Ann. § 14-1-70(4) ("The following are courts of justice in this State: . . . the circuit courts, to wit: (a) a court of common pleas and (b) a court of general sessions."). The law is clear that forum selection clauses should generally be enforced. "[W]hen parties to a contract confer jurisdiction and venue on a particular court, as a general matter federal common law directs courts to favor enforcement of the agreement, so long as it is not unreasonable." Albemarle Corp. v. AstraZeneca UK Ltd., 628 F.3d 643, 649 (4th Cir. 2010) (citing The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972)). Here, the defendant has advanced no argument that the agreement is unreasonable. Consequently, it appears that transfer to the Western District of Michigan solely for dismissal in favor of the bargained-for forum under § 1404(a) would not be in the interest of justice. Section 1406(a), therefore, demands dismissal of this action.
Although the plaintiff argues that the forum selection clause permits venue in the United States District Court for the District of South Carolina, this seems doubtful. Cf. FindWhere Holdings, Inc. v. Sys. Env't Optimization, LLC, 626 F.3d 752, 755 (4th Cir. 2010) (holding that a forum selection clause expressed in terms of sovereignty, i.e., "shall lie exclusively in . . . the courts of the State of Virginia," as opposed to terms of geography, excluded jurisdiction in federal courts in Virginia); Nahigian v. Juno-Loudoun, LLC, 661 F. Supp. 2d 563, 568 (E.D. Va. 2009) (finding a forum selection clause was "plainly geographic" because it contained only a reference to a location, rather than a reference to a specific court, court system, or sovereign); see also Submersible Sys. Tech., Inc. v. 21st Century Film Corp., Inc., 767 F. Supp. 266, 268 (S.D. Fla. 1991) (finding that a forum selection clause mandating an action be brought "in the Circuit Court in and for Palm Beach County, Florida" clearly and unequivocally required the action be brought in the state circuit court and precluded federal court as a venue). In any event, as Atlantic Marine instructs, even if the plaintiff's interpretation of the clause were a permissible one, venue must still be proper under the federal statutory framework, and that determination must be made initially without regard to the forum selection clause. See Atl. Marine Const. Co., 571 U.S. at 57 ("[V]enue is proper so long as the requirements of § 1391(b) are met, irrespective of any forum-selection clause . . . .").
The court mentions the forum selection clause and its likely enforceability only to the degree that it is relevant to assess whether transfer—rather than dismissal—would be in the interest of justice under § 1406(a). A determination of its actual enforceability should be left to the proper court.
RECOMMENDATION
Accordingly, the defendant's motion to dismiss should be granted. (ECF No. 7.)
/s/_________
Paige J. Gossett
UNITED STATES MAGISTRATE JUDGE July 23, 2018
Columbia, South Carolina
The parties' attention is directed to the important notice on the next page.
Notice of Right to File Objections to Report and Recommendation
The parties are advised that they may file specific written objections to this Report and Recommendation with the District Judge. Objections must specifically identify the portions of the Report and Recommendation to which objections are made and the basis for such objections. "[I]n the absence of a timely filed objection, a district court need not conduct a de novo review, but instead must 'only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation.' " Diamond v. Colonial Life & Acc. Ins. Co., 416 F.3d 310 (4th Cir. 2005) (quoting Fed. R. Civ. P. 72 advisory committee's note).
Specific written objections must be filed within fourteen (14) days of the date of service of this Report and Recommendation. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b); see Fed. R. Civ. P. 6(a), (d). Filing by mail pursuant to Federal Rule of Civil Procedure 5 may be accomplished by mailing objections to:
Robin L. Blume, Clerk
United States District Court
901 Richland Street
Columbia, South Carolina 29201
Failure to timely file specific written objections to this Report and Recommendation will result in waiver of the right to appeal from a judgment of the District Court based upon such Recommendation. 28 U.S.C. § 636(b)(1); Thomas v. Arn, 474 U.S. 140 (1985); Wright v. Collins, 766 F.2d 841 (4th Cir. 1985); United States v. Schronce, 727 F.2d 91 (4th Cir. 1984).