Intl Software v. Amplicon Inc ( 1996 )

United States Court of Appeals,
Fifth Circuit.
No. 95-50286.
INTERNATIONAL SOFTWARE SYSTEMS, INC., Plaintiff-Appellant,
v.
AMPLICON, INC., doing business as Amplicon Financial, Defendant-
Appellee.
March 7, 1996.
Appeal from the United States District Court for the Western
District of Texas.
Before REAVLEY, HIGGINBOTHAM and BARKSDALE, Circuit Judges.
REAVLEY, Circuit Judge:
By what criteria should a federal court, acting under
diversity jurisdiction, decide a motion to dismiss on grounds of a
forum selection clause? The district court employed the Bremen1
analysis, and we affirm.
International Software Systems, Inc. (ISSI) originally sued
Amplicon, Inc. in Texas state court, claiming that certain lease
agreements with Amplicon had been fraudulently induced, and seeking
damages or in the alternative rescission of the leases. The case
was removed to federal court based on diversity jurisdiction.
Amplicon filed a motion to dismiss the case on grounds of improper
venue, relying on a forum selection clause found in the lease
agreements. The clause states that "[t]he lessee agrees that all
litigation arising out of this lease or any breach thereof shall be
1
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct.
1907, 32 L. Ed. 2d 513 (1972).
1
filed and conducted in the California Superior Court for the County
of Orange, unless the Lessor or its assignee selects an alternative
venue of litigation."
The district court dismissed the case based on this forum
selection clause alone, noting that the claims arose out of the
written contract and that the forum selection clause is "reasonable
and unfortunately necessary in a commercial world where litigation
is the norm."
DISCUSSION
Amplicon made no claim of lack of personal jurisdiction. Its
only objection to venue in the Texas federal court was based on the
forum selection clause.2 Furthermore, Amplicon did not move, even
in the alternative, to transfer the case to another district court.
In light of this posture of the case, our analysis centers on two
questions. The first is whether a district court may dismiss (as
opposed to transfer) a case based solely on a forum selection
clause, where personal jurisdiction exists and venue is otherwise
proper. Second, if dismissal is allowed in such a case, what test
or standards should the court employ in deciding the motion to
dismiss.
A. May the Court Dismiss?
In M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct.
1907, 32 L. Ed. 2d 513 (1972), the Court held that in admiralty cases
2
Under 28 U.S.C. § 1391(a) and (c), venue in a diversity
suit lies against a corporate defendant in any district where the
corporation "resides," and a corporation is deemed to reside in
any district in which it is subject to personal jurisdiction.
2
forum selection clauses "are prima facie valid and should be
enforced unless enforcement is shown by the resisting party to be
"unreasonable' under the circumstances," and that courts should
enforce such clauses unless the resisting party "could clearly show
that enforcement would be unreasonable and unjust, or that the
clause was invalid for such reasons as fraud or overreaching." Id.
at 9-11, 15, 92 S. Ct. at 1913, 1916. We have applied Bremen to
transfer motions in nonadmiralty cases. E.g., Seattle-First Nat'l
Bank v. Manges, 900 F.2d 795, 799 (5th Cir.1990); In re Fireman's
Fund Ins. Cos., 588 F.2d 93, 95 (5th Cir.1979). The district court
applied the Bremen case here.
We see no justification for regarding the scope of 28 U.S.C.
§ 1406(a)3 as to dismissal any narrower than § 1404(a)4 as to
transfer. This court has upheld dismissal of a suit as an
appropriate means of enforcing a forum selection clause under
Bremen. Zapata Marine Serv. v. O/Y Finnlines, Ltd., 571 F.2d 208
(5th Cir.1978). In another admiralty case the Supreme Court
implicitly approved of dismissal of a case as a means of enforcing
a forum selection clause. In Carnival Cruise Lines, Inc. v. Shute,
499 U.S. 585, 111 S. Ct. 1522, 113 L. Ed. 2d 622 (1991), two
3
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."
4
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."
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passengers on a cruise brought a negligence action against the
cruise operator. The plaintiffs sued in their home state of
Washington. The defendant moved for summary judgment, claiming
that the forum selection clause on the cruise tickets required suit
to be brought in Florida, and alternatively that the Washington
court lacked personal jurisdiction over defendant. Id. at 586-88,
111 S.Ct. at 1524. The district court granted summary judgment
based on the personal jurisdiction argument. Id. The court of
appeals reversed, holding that personal jurisdiction existed, and
that the forum selection clause should not be enforced. Id. at
586-90, 111 S.Ct. at 1524-25. The Supreme Court reversed the court
of appeals without reaching the personal jurisdiction issue, in
effect reinstating the dismissal of the suit based on the forum
selection clause. Id. at 588-90, 596-98, 111 S. Ct. at 1525, 1529.
B. Determining the Dismissal Motion
We return to the question of whether the Bremen test or
something different should be applied in a diversity case upon a
motion to dismiss. In Stewart Org., Inc. v. Ricoh Corp., 487 U.S.
22, 108 S. Ct. 2239, 101 L. Ed. 2d 22 (1988), an action filed in
federal court under diversity jurisdiction, the defendant moved to
dismiss or transfer venue based on a forum selection clause. The
Court held that federal rather than state law governed this issue,
and that under federal law the decision whether to transfer venue
is governed by 28 U.S.C. § 1404(a). Id. at 27-29, 108 S.Ct. at
2243. The Court instructed that under this statute the court must
make an "individualized, case-by-case consideration of convenience
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and fairness." Id. at 29, 108 S.Ct. at 2244 (citation omitted).
It should "weigh in the balance a number of case-specific factors,"
of which the forum selection clause is "a significant factor that
figures centrally in the district court's calculus." Id. The
court should also consider "the convenience of the witnesses and
those public-interest factors of systemic integrity and fairness
under the heading of "the interest of justice.' " Id. Stewart has
been described as a response to "lower courts' overly broad
application of The Bremen result[ing] in overenforcement of
forum-selection clauses." Leandra Lederman, Note, Viva Zapata!:
Toward a Rational System of Forum-Selection Clause Enforcement in
Diversity Cases, 66 N.Y.U.L.REV. 422, 447 (1991).5
Although we would prefer to apply the same Stewart balancing
in diversity cases to motions to dismiss and motions to transfer,
the other federal courts have decided otherwise and continue to
apply Bremen to motions to dismiss based on a forum selection
clause. In Jones v. Weibrecht, 901 F.2d 17 (2d Cir.1990), the
court reasoned that ("[t]here is no basis ... to import the
discretionary federal standard of section 1404(a) discussed in
Stewart to the instant cases. A motion to transfer an action to
another federal district pursuant to section 1404(a) calls for an
"individualized, case-by-case consideration of convenience and
fairness.' The same broad-based balancing is not appropriate
where, as here, a party seeks to have an action dismissed or
5
If this explains the Court's different treatment in
Stewart, we might expect in a proper case for Bremen to be
modified to match Stewart.
5
remanded to state court, rather than transferred, on the basis of
a forum selection clause that purports to preclude litigation from
a venue other than a specific state court.") (citations omitted).
Id. at 19. In Manetti-Farrow, Inc. v. Gucci America, Inc., 858
F.2d 509, 512 n. 2 (9th Cir.1988) the court explained that ("[o]ur
case involves a motion to dismiss, rather than to transfer venue,
and because there is no federal rule directly on point the Stewart
analysis is inapplicable."). Id. at 512 n. 2 The Second and Ninth
Circuits hold that Bremen applies to such motions to dismiss.
Jones, 901 F.2d at 18-19; Manetti-Farrow, 858 F.2d at 513. The
Fourth Circuit has looked to state law to determine the motion to
dismiss. Nutter v. Rents, Inc., 1991 WL 193490, at **5-7 (4th Cir.
Oct. 1, 1991). The First and Third Circuit have ruled that they
need not reach the issue of whether state or federal law should
govern the motion to dismiss, since under either Bremen or
applicable state law the result is the same. Lambert v. Kysar, 983
F.2d 1110, 1116-22 (1st Cir.1993); Instrumentation Assocs., Inc.
v. Madsen Elecs. (Canada) Ltd., 859 F.2d 4, 6-8 (3d Cir.1988);
Crescent Int'l, Inc. v. Avatar Communities, Inc., 857 F.2d 943, 945
(3d Cir.1988). Still other courts have suggested that a motion to
dismiss is not an appropriate means of enforcing a forum selection
clause, and that instead the motion should be treated as a motion
to transfer. Haskel v. FPR Registry, Inc., 862 F. Supp. 909, 915-16
(E.D.N.Y.1994); National Micrographics Sys., Inc. v. Canon U.S.A.,
Inc., 825 F. Supp. 671, 679 (D.N.J.1993); Page Constr. Co. v.
Perini Constr., 712 F. Supp. 9, 10-11 (D.R.I.1989). However, these
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cases, unlike our own, did not involve a forum selection clause
that limited the agreed venue to a state court.
We choose to join the other courts rather than to make a
circuit split and further complicate this area of the law.
C. Arguments For Reversal
ISSI urges this court to decide venue in its favor and
sustain venue in the Western District of Texas, but we reject its
arguments. It contends that this case does not really arise out of
the contract since it is not suing for breach of contract. We
agree with the district court that even though ISSI is not
technically suing for breach of contract, the entire controversy
centers around which party's interpretation of the contract is the
correct one, and whether ISSI was fraudulently induced to enter
into the contract.
ISSI then argues that it is a small company with only twenty
employees and no business ties to California. This is not a
persuasive argument for several reasons. First, despite its size,
ISSI appears to be a fairly sophisticated business with experience
in negotiating complex government and private contracts. Second,
it is disingenuous to argue that ISSI has no ties to California,
since in this very case it did business with Amplicon, makes
payments to Amplicon in California, agreed in writing that the
leases shall be governed by California law, and agreed to return
the equipment in issue to California upon the termination of the
lease, if it chose not to purchase the equipment. Third, while
litigation in California may be inconvenient for ISSI, Amplicon
7
points out that it would be equally inconvenient for Amplicon to
have to litigate in Texas. Fourth, a forum selection clause was
upheld in Carnival Cruise Lines even where the plaintiffs were
individuals. ISSI's David versus Goliath argument is not
persuasive.
ISSI also argues that the forum selection clause here is
different from those enforced in other cases, since it applied only
to ISSI; Amplicon was not bound to litigate the agreement only in
California. We fail to see how this distinction matters. There
was still a meeting of the minds that ISSI should have to sue in
California.
AFFIRMED.
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