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finding that a similarly word forum-selection clause was "clearly mandatory"
Summary of this case from Pinnacle Interior Elements, Ltd. v. Panalpina, Inc.Opinion
No. 3-04-CV-1695-L.
November 12, 2004
FINDINGS AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
Defendant Mama Fu's Noodle House, Inc. has filed a motion to dismiss for improper venue or, in the alternative, to transfer venue to a federal district court in Atlanta, Georgia. Plaintiffs Larry Klinghoffer and James Hammond have filed a motion to stay this litigation and compel arbitration. For the reasons stated herein, defendant's motion to dismiss should be granted and plaintiff's motion to stay and compel arbitration should be denied.
I.
This is a civil action arising out of misrepresentations allegedly made by defendant in connection with the presentment of a Uniform Franchise Offering Circular ("UFOC") for the operation of certain Mama Fu's Noodle House restaurants in the Dallas/Fort Worth area. The gravamen of plaintiffs' complaint is that defendant understated the initial investment expenses and food and labor costs required to develop, construct, open, and operate the franchise restaurants. ( See Plf. Am. Compl. at 2-6, ¶¶ 7-24 12-14, ¶¶ 53-73).
On July 18, 2003, in reliance on the UFOC and other representations allegedly made by defendant, plaintiffs, through their limited partnership, Asian-American Casual Dining, L.P., executed a Market Development Agreement ("MDA") with defendant. ( Id., Exh. D). The MDA contains a forum selection clause which provides, in pertinent part:
A Second Amendment to the Franchise Offering Circular for Mama Fu's Noodle House, dated January 24, 2004, explains that "[n]othwithstanding anything to the contrary set forth in the [MDA], the Franchisee and the Developer pursuant to the [MDA] is intended to mean and refer to James Hammond and Larry Klinghoffer, collectively, and not Asian-American Casual Dining, L.P." (Plf. Am. Compl., Exh. C at 2, ¶ 1.2).
[AACD] hereby submits to the non-exclusive jurisdiction of the courts having jurisdiction in the County of Fulton State of Georgia, and agrees not to raise and waives any objection based upon forum non conveniens.
( Id., Exh. D at 51, ¶ 26). On the same day the parties executed the MDA, they entered into a Franchise Agreement giving plaintiffs the right to operate a single Mama Fu's Noodle House restaurant at an undetermined location. ( Id., Exh. E). As part of the Franchise Agreement, the parties agreed that:
Except to the extent MAMA FU'S seeks injunctive or other equitable relief to enforce provisions of this Agreement, and except as otherwise provided in this Agreement, any dispute between MAMA FU'S and Franchisee arising out of or relating to this Agreement shall, on request of MAMA FU'S or Franchisee, be determined by arbitration . . . The arbitration proceeding conducted hereunder shall be conducted in the City of Atlanta, Georgia, and each party shall bear its own costs.
( Id., Exh. E at 74, ¶ 31). An Amendment to the Franchise Agreement, also dated July 18, 2003, clarifies that the MDA and Franchise Agreement are subject to the terms and conditions of an earlier agreement between plaintiffs and an affiliate of defendant, Moe's Southwest Grill, L.L.C., dated April 25, 2003 ("Supplemental MDA"). ( See id., Exh. F). The Supplemental MDA contains the following forum selection clause:
Each party agrees that any legal action or proceeding against the other party that arises out of or is related to this Agreement may only be brought in the courts of the State of Georgia or of the United States of America for the Northern District of Georgia and by entering into this Agreement each party accepts and consents to the jurisdiction of the aforesaid courts.
(Def. App. at 12-13, ¶ 18). The Amendment specifically provides that the Supplemental MDA "supersedes any inconsistent provisions in the Franchise and Market Development Agreements, including but not limited to all building and completion schedules for restaurant development." (Plf. Am. Compl., Exh. F).
On June 16, 2004, plaintiffs filed a demand for arbitration with the American Arbitration Association in Atlanta, Georgia, asserting claims for violations of the Texas Business Opportunity Act and the Georgia Fair Business Practices Act, fraud, negligent misrepresentation, breach of contract, breach of the duty of good faith and fair dealing, promissory and equitable estoppel, unjust enrichment, and recoupment. ( See Def. App. at 29-46, ¶¶ 66-158). Less than two months later, plaintiff asserted "nearly identical" claims against defendant in this lawsuit filed in Dallas federal court. ( See Plf. Resp. Br. at 3). The case is before the court on defendant's motion to dismiss for improper venue and plaintiffs' motion to stay and compel arbitration. In support of its motion to dismiss, defendant relies on the forum selection clause contained in the Supplemental MDA, which requires that "any legal action or proceeding against the other party . . . may only be brought in the courts of the State of Georgia or of the United States of America for the Northern District of Georgia[.]" Defendant maintains that this forum selection clause applies to the instant litigation by virtue of the Amendment to the Franchise Agreement, which provides that the Supplemental MDA "supersedes any inconsistent provisions in the Franchise and Market Development Agreements[.]" Plaintiffs counter that the forum selection clause governs only disputes arising out of or relating to the Supplemental MDA. Because their claims relate to the MDA and Franchise Agreement, plaintiffs seek an order staying this litigation and requiring the parties to arbitrate their dispute in accordance with the arbitration provision of the Franchise Agreement. Both motions have been fully briefed by the parties and are ripe for determination.
Plaintiff filed this action in federal court "to pursue claims that were ultimately determined to be non-arbitrable and to secure an appropriate forum for enforcement of its arbitration award." (Plf. Br. at 5).
II.
The threshold question presented by both motions is whether the forum selection clause contained in the Supplemental MDA applies to disputes arising under or relating to the MDA and Franchise Agreement. This issue of contract construction is governed by Georgia law.
Both the MDA and Franchise Agreement specify that "[t]he terms of this agreement shall be interpreted and construed in accordance with the laws of the State of GEORGIA." (Plf. Am. Compl., Exh. D at 51, ¶ 26; Exh. E at 74, ¶ 31). The Supplemental MDA provides that "[t]his Agreement shall be governed by and construed in accordance with the laws of the State of Georgia." (Def. App. at 12, ¶ 18).
The Supplemental MDA requires "that any legal action or proceeding against the other party that arises out of or is related to this Agreement may only be brought in the courts of the State of Georgia or of the United States of America for the Northern District of Georgia[.]" (Def. App. at 12-13, ¶ 18) (emphasis added). By contrast, the Franchise Agreement mandates the arbitration of any dispute "arising out of or relating to this Agreement[.]" (Plf. Am. Compl., Exh. E at 74, ¶ 31) (emphasis added). Although the claims made the basis of this suit arise out of the MDA and Franchise Agreement and do not appear to implicate the Supplemental MDA in any way, the Amendment to the Franchise Agreement makes clear that the terms and conditions of the Supplemental MDA "supersede any inconsistent provisions in the Franchise and Market Development Agreements[.]" ( Id., Exh. F). The dispute resolution provisions of the Supplemental MDA, which contemplate litigation in Georgia state or federal court, plainly conflict with the dispute resolution provisions of the Franchise Agreement, which require arbitration. The court therefore concludes that the forum selection clause contained in the Supplemental MDA applies to this dispute and trumps the arbitration provision of the Franchise Agreement.
Plaintiffs argue that the Amendment to the Franchise Agreement, which they drafted, was never intended to "alter the fact that any dispute between the parties arising out of or relating to the Franchise Agreement would go to arbitration." (Plf. Resp. Br. at 5). Whatever their intent in drafting the Amendment, plaintiffs cannot escape the effect of the unambiguous language they chose. See Eastside Gardens of Snellville, LLC v. Sims, 547 S.E.2d 383, 385 (Ga.App. 2001), citing Eichelkraut v. Camp, 513 S.E.2d 267, 269 (Ga. 1999) ("Parol evidence is not admissible to contradict or construe an unambiguous contract."); Marjon Associates, Inc. v. Leasing International, Inc., 331 S.E.2d 20, 22 (Ga. 1985) ("[C]ontents of a contract are to be construed most strongly against the drafter if construction of any part is in doubt").
III.
Having determined that the forum selection clause in the Supplemental MDA controls, the court must decide whether the clause is enforceable and, if so, what deference it should be given in the venue analysis. These issues are governed by federal law. See Haynsworth v. The Corporation, 121 F.3d 956, 962 (5th Cir.), reh'g denied, 129 F.3d 614 (5th Cir. 1997), cert. denied, 118 S.Ct. 1513 (1998), citing International Software Systems, Inc. v. Amplicon, Inc., 77 F.3d 112, 114-15 (5th Cir. 1996) (federal law provides rule of decision on issues related to enforceability of forum selection clause).A.
Forum selection clauses may be classified either as mandatory or permissive. Where the agreement contains clear language showing that jurisdiction is appropriate only in a designated forum, the clause is mandatory. See, e.g. Excell, Inc. v. Sterling Boiler Mechanical, Inc., 106 F.3d 318, 321 (10th Cir. 1997) (forum selection clause provided that "jurisdiction shall be in the State of Colorado, and venue shall lie in the County of El Paso, Colorado"); Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762, 763-64 (9th Cir. 1989) (contract specified that "venue of any action brought hereunder shall be deemed to be in Gloucester County, Virginia"); First National of North America, LLC v. Peavy, 2002 WL 449582 at *1 (N.D. Tex. Mar.21, 2002) (parties agreed that "all claims shall be litigated only in Collin County, Texas"). A permissive forum selection clause authorizes jurisdiction in a designated forum, "but do[es] not prohibit litigation elsewhere." Excell, 106 F.3d at 321 (internal quotation marks and citation omitted). See, e.g. Keaty v. Freeport Indonesia, Inc., 503 F.2d 955, 956 (5th Cir. 1974) ("This agreement shall be construed and enforceable according to the law of the State of New York and the parties submit to jurisdiction of the courts of New York.").
The forum selection clause contained in the Supplemental MDA provides that "any legal action or proceeding against the other party . . . may only be brought in the courts of the State of Georgia or of the United States of America for the Northern District of Georgia[.]" (Def. App. at 12-13, ¶ 18) (emphasis added). This language, which requires a party to file suit only in Georgia state or federal court, is clearly mandatory. See Excell, 106 F.3d at 321.
B.
The deference accorded to a forum selection clause depends on whether the movant files a motion to dismiss for improper venue pursuant to 28 U.S.C. § 1406(a) or a motion to transfer venue pursuant to 28 U.S.C. § 1404(a). See Amplicon, 77 F.3d at 115; BeautiControl, Inc. v. Burditt, 2001 WL 1149360 at *2 (N.D. Tex. Sept. 26, 2001). Where, as here, a party seeks dismissal under section 1406(a), 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." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513 (1972). Enforcement may be unreasonable when: (1) 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, 121 F.3d at 963, citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S.Ct. 1522, 1528, 113 L.Ed.2d 622 (1991) and Bremen, 92 S.Ct. at 1917. (internal quotation marks and citation omitted). The Fifth Circuit has consistently upheld dismissal of a suit as an appropriate means of enforcing a forum selection clause. See Amplicon, 77 F.3d at 114 (citing cases).
Section 1406(a) provides that "[t]he 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." 28 U.S.C. § 1406(a). 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." Id. § 1404(a).
Plaintiffs present no argument, much less evidence, that the forum selection clause is unreasonable in any respect. The plain language of this clause requires the parties to litigate their dispute only in Georgia state court or a federal court in the Northern District of Georgia. Consequently, venue is improper in the Northern District of Texas.
RECOMMENDATION
Defendant's motion to dismiss for improper venue should be granted. Plaintiffs' motion to stay litigation and compel arbitration should be denied.
A copy of this report and recommendation shall be sent to all counsel of record. Any party may file written objections to this recommendation by November 29, 2004. The failure to file written objections shall bar the aggrieved party from appealing the factual findings and legal conclusions of the magistrate judge that are accepted or adopted by the district court, except upon grounds of plain error. See Douglass v. United Services Automobile Ass'n, 79 F.3d 1415, 1417 (5th Cir. 1996).