Opinion
Civil Nos. SA-05-CA-0342-XR, SA-05-CA-0450-XR.
August 31, 2005
ORDER
On this date, the Court considered Defendant Argyll Equities' Amended Motion to Dismiss for Improper Venue (docket no. 18) in case number SA-05-CA-342-XR and Argyll Equities' Motion to Remand (docket no. 5) in case number SA-05-CA-450-XR.
I. Facts Procedural Background
According to the Complaint, Paolino is the President, CEO, and Chairman of the Board of Mace Security International, Inc., a publicly traded company. Before the transaction giving rise to this suit, Paolino was the beneficial owner of approximately 19.7% of the issued and outstanding shares of Mace. On April 15, 2004, Paolino and his broker approached Defendant Jeffrey Spanier, the President of Amerifund. Spanier directed Paolino to Argyll Equities. Further, according to Paolino's Complaint, Spanier assured Paolino that his stock would be held in escrow during the loan term so long as Paolino was not in default and that Argyll would provide Paolino with notices in advance of the date of each quarterly interest payment. Paolino alleges that this promise to provide notice of interest payments due was repeated by Argyll's then-Chief Financial Officer following execution of the loan.
On April 20, 2004, Paolino entered into a Private Collateralized Loan Agreement (with an amendment), and two related agreements (the Pledge Agreement and Nonrecourse Promissory Note) with Argyll Equities, Inc. Under these agreements, Argyll agreed to loan Paolino approximately $4.1 million in exchange for his pledge of 1.19 million shares of Mace as collateral. The loan documents contained a forum selection clause providing that Paolino "consents to the exclusive jurisdiction of the courts sitting in Kendall County, Texas, United States of America . . . for the purpose of any suit, action or other proceeding by any party to this Agreement, arising out of or related in any way to this Agreement."
On July 12, 2004, Argyll provided Paolino with the amount of his first quarterly interest payment, which Paolino then timely paid. Paolino's next payment was due October 15, 2004. However, Paolino did not receive notice regarding the interest amount due. On November 22, 2004, Argyll provided Paolino with a Notice of Event of Default based on his failure to timely pay the October 15 interest payment. The notice further indicated that Argyll was terminating the loan agreement and that Argyll could seize and sell the Mace stock. Paolino responded to the notice of default, advising Argyll that he deemed the notice to be notice of the interest amount due, and tendered the interest payment. According to the Complaint, though Argyll accepted the payment, it refused to rescind the default and continued to claim an ability to dispose of the Mace stock.
On November 5, 2004, Argyll, through its attorney, sent a letter to Paolino offering to defer Argyll's exercise of its right to dispose of the stock on the condition that Paolino execute a modified loan agreement. Argyll's attorney also stated that Argyll would take no action with regard to the stock until at least the close of business on November 8. Negotiations were extended by agreement through December 23, 2004. Paolino alleges Argyll never intended to reach an agreement but was simply trying to delay and increase Paolino's costs in the hopes that he would withdraw and not learn of the stock sale.
On December 16, 2004, Paolino filed suit in the 216th District Court for Kendall County, Texas against Argyll, eventually amending his complaint to add the remaining Defendants. Paolino alleges that, upon learning of a similar fraudulent scheme involving a borrower in Hong Kong, Paolino voluntarily dismissed the suit on April 25, 2005 and filed suit in this Court (case number SA-05-CA-342-XR). Plaintiff brings numerous counts against Defendants, including Breach of Contract (Argyll), Unjust Enrichment (all Defendants), Civil Conspiracy (all Defendants), Fraud and Fraudulent Inducement (all Defendants), RICO/RICO conspiracy (all Defendants), DTPA (Argyll), Usury (Argyll), Accounting (Argyll), Conversion (Argyll), and violations of Texas Business and Commerce Code § 27.01 (Argyll, Spanier, and Amerifund). Paolino seeks compensatory and exemplary damages. Paolino alleges federal jurisdiction based on federal question (RICO) and supplemental jurisdiction over the state-law claims. Plaintiff further alleges that venue is proper under 28 U.S.C. § 1391 because Defendant Argyll Equities has its principal place of business in Texas and, pursuant to 18 U.S.C. § 1965(b), RICO's nationwide service of process provision, the ends of justice require that the other parties be brought before this Court.
Siko Ventures Limited sued Argyll Equities in the High Court of the Hong Kong Administrative Region. Siko has filed suit in this Court to enforce the judgment rendered in its favor. See SA-05-CA-100-OG.
On April 27, 2005, Argyll filed suit in the county court at law in Kendall County against Paolino, seeking a declaratory judgment. Paolino removed that suit to this Court on May 17, resulting in case number SA-05-CA-450-XR. Argyll has filed a motion to remand based on the forum selection clause.
II. Argyll Equities' Amended Motion to Dismiss for Improper Venue (docket no. 18)
Defendant Argyll Equities moves to dismiss pursuant to Rule 12(b)(3), arguing that this case has been improperly filed in this Court because there are mandatory forum selection clauses in the contracts between the parties that set exclusive jurisdiction in Kendall County, Texas.
A.
For a contractual clause to prevent a party from exercising its right to proceed in federal court, the clause must give a "clear and unequivocal" waiver of that right. City of New Orleans v. Municipal Administrative Servs., Inc., 376 F.3d 501, 504 (5th Cir. 2004). A party may waive its rights by explicitly stating that it is doing so, by allowing the other party the right to choose venue, or by establishing an exclusive venue within the contract. Id. A waiver of rights does not have to include explicit words such as "waiver." See Waters v. Browning-Ferris Industries, Inc., 252 F.3d 796, 797 (5th Cir. 2001).
The forum selection clause in the contract provides:
Consent to Jurisdiction: Venue: Jury Trial Waiver. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, United States of America applicable to the contract between residents of Texas that are to be wholly performed within such state. Borrower hereby consents to the exclusive jurisdiction of the courts sitting in Kendall County, Texas, United States of America, as well as to the jurisdiction of all courts from which an appeal may be taken from the aforesaid courts for the purpose of any suit, action or other proceeding by any party to this Agreement, arising out of related in any way to this Agreement. Borrower hereby irrevocably and unconditionally waives any defense of an inconvenient forum to the maintenance of any action or proceeding in any such court, any objection to venue with respect to such action or proceeding and any right of jurisdiction on account of the place of residence or domicile of any party thereto. . . .
Private Collateralized Loan Agreement dated April 15, 2004 ¶ 8.14 (emphasis added). Identical language is contained in section 23 of the Pledge Agreement.
It is undisputed that Plaintiff's claims are within the scope of the forum selection clause, which covers any action "arising out of or related in any way" to the parties' agreement. The first issue, then, is whether the forum selection clause is mandatory or permissive. An agreement conferring jurisdiction in one forum will not necessarily be interpreted as excluding jurisdiction elsewhere. City of New Orleans, 376 F.3d at 504. "For a forum selection clause to be exclusive, it must go beyond establishing that a particular forum will have jurisdiction and must clearly demonstrate the parties' intent to make that jurisdiction exclusive." Id. It is important to distinguish between jurisdiction and venue when interpreting such clauses. Id. Although it is not necessary for such a clause to use the word "venue" or "forum," it must do more than establish that one forum will have jurisdiction. Id. The use of the phrase "exclusive jurisdiction" and the irrevocable and unconditional waiver of any objection to venue indicate that this is a mandatory forum selection clause, and thus venue is proper only in "courts sitting in Kendall County, Texas." Thus, the key issue is whether this Court is a court "sitting in Kendall County, Texas."
The Fifth Circuit has taken a rather strict approach when construing forum selection clauses. For example, in Dixon v. TSE Int'l, Inc., 330 F.3d 396 (5th Cir. 2003), the Fifth Circuit construed a forum selection clause providing that "[t]he Courts of Texas, U.S.A., shall have jurisdiction over all controversies with respect to the execution, interpretation or performance of this Agreement, and the parties waive any other venue to which they may be entitled by virtue of domicile or otherwise" as an agreement to litigate all disputes in Texas state courts. The Court consulted Black's Law Dictionary for the meaning of the word "of," which was defined as "denoting that from which anything proceeds; indicating origin, source, descent." The Court then concluded that federal courts indisputably proceed from, and find their origin in, the federal government, though located in particular geographic regions, and therefore a federal court located in Texas is not a court "of Texas." Accordingly, the Court held that the parties had waived their right to proceed in federal court.
As was done in Dixon, Plaintiff urges us to consider Black's Law Dictionary's definition of "sit" to construe the clause. Plaintiff cites to the fifth edition, which defines "sitting" to be "the part of the year in which judicial business is transmitted." BLACK'S LAW DICTIONARY 1244 (5th ed. 1979). Plaintiff contends that, "[c]ertainly, the citizens of Kendall County, Texas can avail themselves of this court during the year and thus, this Court is `sitting' in Kendall County, Texas." The Court does not view the temporal definition of "sitting" as being appropriate, given that the forum selection clause was meant to designate a location. Moreover, a more recent edition of Black's Law Dictionary defines the verb to sit as "to hold court or perform official functions" or "to hold proceedings." BLACK'S LAW DICTIONARY 1392 (7th ed. 1999). It also defines "sitting" as "[a] court session." Id. Though Kendall County is located within the San Antonio Division of the Western District of Texas, see 28 U.S.C. § 124(d)(4), this Court does not hold proceedings, hold court, have court sessions, or perform official functions in Kendall County. Rather, by statute, "[c]ourt for the San Antonio Division shall be held at San Antonio." Id. The Court concludes that the clause is unambiguous and designates only courts sitting in Kendall County, Texas. Because this Court is not a court sitting in Kendall County, Texas, this is not a proper forum. As discussed below, this conclusion is supported not only by the plain language of the contract, but by the weight of legal authority.
B.
A number of courts addressing forum selection clauses designating venue in a particular county have ruled that the clause specified only state district court or, where venue is specified in a county that has no federal court, have held that the clause cannot reasonably be interpreted to permit suit in a federal court located in a different county. See, e.g., Excell, Inc. v. Sterling Boiler Mech., 106 F.3d 318 (10th Cir. 1997) (construing forum selection clause that "[j]urisdiction shall be in the State of Colorado, and venue shall lie in the County of El Paso, Colorado" as requiring that action be brought and litigated in the state district court of El Paso County, Colorado and rejecting argument that the clause could be reasonably interpreted to allow removal of the case to federal district court that sits in El Paso County because, for federal court purposes, venue is not stated in terms of counties but in terms of judicial districts and "[b]ecause the language of the clause refers only to a specific county and not to a specific judicial district, . . . venue is intended to lie only in state district court"); Milk `n' More, Inc. v. Beavert, 963 F.2d 1342, 1346 (10th Cir. 1992) (construing forum selection clause that "venue shall be proper under this agreement in Johnson County, Kansas" as a mandatory forum selection clause the wording of which "strongly points to the state court of that county"); Docksider, Ltd. v. Sea Tech., 875 F.2d 762, 764 (9th Cir. 1989) (holding that a clause providing that "Licensee hereby agrees and consents to the jurisdiction of the courts of the State of Virginia. Venue of any action brought hereunder shall be deemed to be in Gloucester County, Virginia" was a mandatory clause requiring dismissal of the action from federal court because the clause "clearly designates the state court in Gloucester County, Virginia as the exclusive forum"); Sompo Japan Ins., Inc. v. Alarm Detection Sys., Inc., 2003 WL 21877615 (N.D. Ill. Aug. 6, 2003) (holding that forum selection clause providing that "venue shall be proper in Kane County, Illinois should any portion of this contract have to be legally enforced" was a mandatory forum selection clause and because there is no federal court located in Kane County, suit should be dismissed; the court stated "[a] forum selection clause that specifies venue in a county that has no federal court cannot reasonably be interpreted to permit suit in a federal court located in a different county" and because venue in the federal system is stated in terms of judicial districts rather than counties, "where a forum selection clause merely designates a particular county, venue lies only in the state courts in that county"); Relm Wireless Corp. v. C.P. Allstar Corp., 265 F. Supp. 2d 523 (E.D. Pa. 2003) (granting motion to dismiss based on forum selection clause providing that "[t]his Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania with venue in Chester County," reasoning that though the clause does not on its face mandate that suit be brought in state court, venue was clearly laid in Chester County, and though federal court has jurisdiction over Chester County, it is not a court that has venue in Chester County); Navickas v. Aircenter, Inc., 2003 WL 21212747 (E.D. Tenn. April 10, 2003) (construing clause that the "laws of the State of Tennessee shall govern this contract and transaction, and the parties further agree that venue for any matter relating to this contract shall be in Marion County, Tennessee" and holding that the clause was unambiguous, referred to a specific county, contained no reference to the federal courts or to any federal judicial district, and because there is no federal court in Marion County, the clause mandates venue in the state courts sitting in Marion County); First Nat'l of N. Am., LLC v. Peavy, 2002 WL 449582 (N.D. Tex. March 21, 2002) (holding that forum selection clause providing that "all claims shall be litigated only in Collin County, Texas" was a mandatory clause requiring venue in state court in Collin County because there is no federal district court located in Collin County, Texas and because the clause merely designated a county rather than a judicial district); Greenville Elec. Util. Sys. v. N. Pac. Group, Inc., 2001 WL 804521 (N.D. Tex. July 6, 2001) (finding that clause providing that "venue for any litigation arising from this contract shall lie in Greenville, Hunt County, Texas" precluded removal to federal court because there is no federal courthouse in Greenville); Infinite Tech. v. Rockwell Elec. Commerce Corp., 2001 WL 527357 (N.D. Ill. May 16, 2001) (noting that interpreting a forum selection clause designating the "courts of DuPage County" to include a federal court located in Cook County would be a strained interpretation); N. Am. Air Force v. Rose, 2001 WL 1155078 (N.D. Cal. 2001) (holding that because there are no federal courts located in Newton County, a forum selection clause stating that "[v]enue for any disputes between the parties will be in Newton County, Mississippi" clearly intended to limit venue to the state court in Newton County); Double A Home Care, Inc. v. Epsilon Sys., Inc., 15 F. Supp. 2d 1114, 1116 (D. Kan. 1998) (finding that a clause providing that any "action shall be venued in the County of Ramsey, State of Minnesota" was mandatory and "clearly require[d] venue in Minnesota state court"); Intermountain Sys., Inc. v. Edsall, 575 F. Supp. 1195, 1198 (D. Colo. 1983) (explaining that "[t]o include the federal district court for the district of Colorado within the ambit of Adams County, CO, [when there is no district court physically located in that county] would be a severe catachresis").
This Court would not necessarily go so far as to say that a forum selection clause that designates a county refers only to state district courts even if there is a federal district court located in the county. However, it need not decide that issue because there is no federal district court in Kendall County. When there is no federal district court located in or "sitting in" the county, as in this case, this Court agrees with those cases concluding that venue is limited to the state district courts actually located in the county.
The Court is not persuaded by Plaintiff's attempt to distinguish Milk'n' More and Docksider based on the use of the term "venue." Plaintiff states that, "[u]nlike the clause at issue here, the clause in Milk-n-More used the required term `venue,' which City of New Orleans indicates clearly specifies exclusivity. This is consistent with City of New Orleans. Indeed, City of New Orleans describes another clause between the same parties in that case that properly used the term venue as the paradigm example of what is required to properly limit venue to state court." Plaintiff also states that Docksider "is identical to Milk-n-More in that the clause at issue there used the term venue to describe the state court action." Further, Plaintiff argues, "[t]o be sure, the term venue does appear in [the] forum selection clause at issue here, but not in the operative sentence respecting the courts of Kendall County. Rather, it is in the sentence respecting objections to actions brought by the parties. Here, Paolino, a plaintiff, is not objecting to venue either here or in the related removed action."
In City of New Orleans, the Fifth Circuit made clear that it is "not necessary for [a forum selection] clause to use the word `venue' or `forum.'" City of New Orleans, 376 F.3d at 504. Thus, it is not the use of the word "venue" that makes a forum selection clause mandatory or that exclusively establishes a particular forum. Rather, the clause must clearly demonstrate the parties' intent to make a particular forum exclusive, and must do so in a clear and unequivocal manner. Although the clause in this case uses the term "jurisdiction" rather than "venue," by designating the exclusive jurisdiction of courts sitting in Kendall County, Texas, and waiving objections to venue, the parties clearly and unequivocally designated the courts sitting in Kendall County as the exclusive and mandatory forum. Further, as explained in this Order, this Court is not a court sitting in Kendall County, and thus maintaining suit here violates the forum selection clause.
There are two recent cases in which the courts were faced with forum selection clauses designating a court "sitting in" a particular county. However, in both these cases, the courts did not resolve the issue of whether such language precluded litigation in federal court if no federal court was located in the designated county.
In Carematrix of Mass., Inc. v. Kaplan, 2005 WL 14086 (S.D.N.Y. Jan. 3, 2005), the federal district court considered a forum selection clause providing that "[a]ll actions and proceedings arising out of or relating to this Agreement shall be heard and determined in a New York state or federal court sitting in Nassau County in the State of New York, and the parties hereto hereby irrevocably submit to the exclusive jurisdiction of such courts. . . ." At the time the contract was signed, there was a United States District Court for the Eastern District of New York located in Nassau County, but that court had since closed. The court gave the parties the option of dismissal or transfer to the federal district court for the Eastern District of New York. The court in Travelers Property Cas. Co. of Am. v. Centimark Corp., 2005 WL 1038842 (S.D. Ohio May 3, 2005), considered a clause stating that "[j]urisdiction and venue of any dispute arising under or pursuant to the terms of this Warranty shall be vested in courts sitting in Washington County, Pennsylvania." The court noted that "[a]ccording to the weight of authority, [the] clause might well be interpreted as mandating that disputes arising out of the written warranty be brought in state courts in Washington County, Pennsylvania." However, the court concluded that dismissal would be contrary to the interests of justice and "absent the issue concerning whether any federal court should hear this case, a transfer to the Western District of Pennsylvania is warranted. . . . If the parties continue to dispute whether that Court may hear the case under the forum selection clause, that Court may determine whether the case should proceed or be dismissed in favor of litigation in the courts located in Washington County, Pennsylvania."
A few courts have found similar forum selection clauses to be ambiguous and construed them against the drafter so as to include a federal court with jurisdiction over the county even though the federal court was not located in the county. See Truserv Corp. v. Prices Ilfeld Hardward Co., Inc., 2001 WL 1298718 (N.D. Ill. Oct. 24, 2001) (holding that clause providing that the agreement shall be enforced "only in courts located in Cook County or any Illinois county contiguous to Cook County, Illinois" was ambiguous and thus venue was proper in federal court whose division's limits extended to and included a county contiguous to Cook County); Links Design, Inc. v. Lahr, 731 F. Supp. 1535, 1536 (M.D. Fla. 1990) (holding that a clause stating that "the proper venue for [an] action shall be in Polk County, Florida" was ambiguous and therefore its meaning should be construed against the drafter so as to include the federal court for the district including Polk County); Int'l Ass'n of Bridge, Structural, and Ornamental Iron Workers Local Union 348 v. Koski Constr. Co., 474 F. Supp. 370, 372 (W.D. Pa. 1979) (holding that clause that "proper venue for the institution of any action . . . shall be in Erie County, Pennsylvania" was permissive rather than mandatory and noting that venue is proper in the Erie Division of the U.S. District Court for the Western District of Pennsylvania under the literal terms of the provision).
The Court is persuaded by the weight of authority on this issue and agrees that when a forum selection clause sets exclusive venue in a county in which no federal court is located, the clause cannot reasonably be interpreted to include a federal district court located in another county even though the designated county is within the district or division served by the federal court.
C.
In a footnote, Plaintiff asserts that "Argyll's own counsel has made a judicial admission that there is a Federal court sitting in Kendall County and now should not be heard to argue otherwise." The Court construes this as an argument that Argyll is judicially estopped from arguing that this Court does not sit in Kendall County. Judicial estoppel "prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding." Ergo Science, Inc. v. Martin, 73 F.3d 595, 600 (5th Cir. 1996). The Fifth Circuit requires that (1) the position of the party to be estopped be clearly inconsistent with its previous position, and that (2) the party convinced the court originally hearing the matter to accept that previous position. Aherns v. Perot Sys. Corp., 205 F.3d 831, 833 (5th Cir. 2000). The second prong is satisfied when a court has "necessarily accepted and relied on" a party's position in making a determination. Id. at 836. The previous court's acceptance of a party's argument could be "either as a preliminary matter or as part of a final disposition." In re Coastal Plains, 179 F.3d 197, 206 (5th Cir. 1999).
Plaintiff notes that the forum selection clause in Siko Ventures, Ltd. v. Argyll Equities, LLC provides "[t]he Pledgor hereby expressly consents to the non-exclusive jurisdiction of all Federal and State Courts sitting in Kendall County," and that "Argyll's own sentence would make no sense if it did not think there was a Federal court sitting in Kendall County, Texas." Further, the High Court of Hong Kong quoted the argument of Argyll's counsel as stating that the Siko clause "can only mean non-exclusive in the sense that any federal or state court sitting in Kendall County has appropriate jurisdiction and venue" and "that pledgor can only sue in a federal or state court sitting in Kendall County, Texas."
The Court concludes that this is insufficient to result in a judicial estoppel. Argyll's position in Siko is not clearly inconsistent with its position in this case. Argyll did not take the position that this Court is a court sitting in Kendall County, Texas. Rather, it argued that the clause limits jurisdiction and venue to any federal or state court sitting in Kendall County, which is consistent with its position in this case. Moreover, the Hong Kong Court did not accept Argyll's argument. Thus, Argyll is not judicially estopped.
D.
In sum, the plain language of the forum selection clause limits the forum to courts sitting in Kendall County. The Court concludes that the clause is not ambiguous, and that, as this Court is not a court sitting in Kendall County, venue is not properly laid here. Rather, venue with regard to Plaintiff's claims against Argyll is proper only in the state courts in Kendall County, Texas pursuant to the forum selection clause. Argyll is not judicially estopped from arguing that position. Further, Paolino has not argued that the clause is unenforceable for any reason. See The Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). Accordingly, Argyll's Amended Motion to Dismiss for Improper Venue (docket no. 18) is GRANTED and all claims against Defendant Argyll Equities, LLC are DISMISSED.
III. Argyll's Motion to Remand (docket no. 5) in SA-05-CA-450
Argyll has moved to remand case number SA-05-CA-450, arguing that Paolino waived his right to removal by agreeing to the forum selection clause designating courts sitting in Kendall County, Texas. Accordingly, Argyll seeks a remand to the county court at law in Kendall County. Paolino argues that remand is not proper because the forum selection clause does not designate solely state court, and argues that this Court should stay this action until his suit against the Defendants is resolved. For the same reasons discussed in Part II, above, Argyll's Motion to Remand (docket no. 5) is GRANTED and case number SA-05-CA-450-XR is REMANDED to the County Court at Law in Kendall County, Texas.
Argyll further seeks an award of costs, expenses, and attorney's fees. Section 1447(c) provides that "[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." 28 U.S.C. § 1447(c). An award under this section is discretionary, and the court does not consider the Defendant's motive. Valdes v. Wal-Mart Stores, Inc., 199 F.3d 290, 292 (5th Cir. 2000). The application of § 1447(c) requires consideration of the propriety of the removing party's actions based on an objective view of the legal and factual elements in each particular case. Id. The Court evaluates the objective merits of removal at the time of removal, irrespective of the fact that it might ultimately be determined that removal was improper. Id. The Court finds that Paolino had objectively reasonable grounds to believe that removal was proper, and thus Plaintiff's request for costs, expenses, and attorney's fees is DENIED.
IV. Conclusion 05-CA-342 Paolino v. Argyll Equities
Defendant Argyll Equities' Motion to Dismiss for Improper Venue (docket no. 6) is DISMISSED AS MOOT. Defendant Argyll Equities' Amended Motion to Dismiss for Improper Venue (docket no. 18) is GRANTED and all claims against Defendant Argyll Equities LLC are DISMISSED WITHOUT PREJUDICE. Docket no. 5, Plaintiff's Motion for Prejudgment Writ of Attachment against Argyll and Request for Expedited Hearing, is DISMISSED AS MOOT.
05-CA-450 Argyll Equities v. Paolino
Plaintiff Argyll Equities' Motion to Remand (docket no. 5) is GRANTED. All other pending motions are DISMISSED AS MOOT. This case is remanded to the County Court at Law in Kendall County, Texas. Plaintiff's request for costs, expenses, and attorney's fees is DENIED.