Clippercreek Inc. v. Intelligrated Systems, LLC ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 CLIPPERCREEK, INC., a California No. 2:19-cv-01341 WBS KJN corporation, 13 Plaintiff, 14 ORDER RE: DEFENDANTS’ MOTIONS v. TO DISMISS AND MOTIONS TO 15 TRANSFER VENUE INTELLIGRATED SYSTEMS, LLC, a 16 Delaware limited liability; HONEYWELL INTERNATIONAL, INC., a 17 Delaware corporation, DEPOSCO, INC., a Georgia corporation, and 18 DOES 1 through 50, inclusive, 19 Defendant. 20 21 ----oo0oo---- 22 Plaintiff Clippercreek, Inc. (“Clippercreek”) brings 23 this action against defendants Intelligrated Systems, LLC 24 (“Intelligrated”), Honeywell International, Inc. (“Honeywell”), 25 Deposco, Inc. (“Deposco”), and Does 1 through 50, alleging that 26 defendants fraudulently induced plaintiff into a contract for 27 specialized custom technology and subsequently failed to perform 28 1 their obligations under the agreement. Before the court are 2 defendants’ motions to dismiss, or, in the alternative, to 3 transfer venue. (Docket Nos. 29, 30). 4 I. Factual Allegations and Procedural Background 5 Clippercreek manufactures and sells electric vehicle 6 charging stations. (Compl. ¶ 19.) Honeywell purchased 7 Intelligrated in 2016. (Compl. ¶ 20.) In late 2017 to early 8 2018, Honeywell partnered with Deposco to sell integrated 9 warehouse management solutions, order management solutions, and 10 material handing solutions to Clippercreek. (Compl. ¶ 23.) 11 Defendants toured Clippercreek’s headquarters to study 12 plaintiff’s manufacturing process. (Compl. ¶ 24.) Defendants 13 then held a series of marketing and sales meetings where they 14 represented that defendants could design an automated system that 15 could be integrated into Clippercreek’s manufacturing, material 16 management, and internet sales systems. (Compl. ¶ 25.) 17 The parties subsequently entered into a contract 18 consisting of three documents: (1) the Master Technology 19 Agreement (“MTA”), (2) the Sales Agreement, and (3) the 20 Intelligrated Proposal FQ-18-51002. (Compl. ¶¶ 28-30.) The MTA 21 included a forum-selection clause. (Compl. Ex. 1, at 13, ¶ 22 18.2.) The clause requires the parties to bring any action under 23 the agreement in the Southern District of Ohio. (Id.) Pursuant 24 to the contract, plaintiff paid defendants a deposit. (Compl. ¶ 25 40.) 26 Prior to and after signing the contract, defendants 27 assured plaintiff that defendants’ product would integrate 28 Clippercreek’s manufacturing requirements. (Compl. ¶¶ 33, 35, 1 38.) For example, after the contract was signed, defendants 2 assured plaintiff that the system would have the ability to auto- 3 generate serial labels. (Compl. ¶ 37.) When Deposco sent its 4 engineers to Clippercreek’s headquarters to integrate the 5 technology, however, the engineers told plaintiff that the system 6 would not be able to perform some of the “essential requirements 7 for manufacturing.” (Compl. ¶ 45.) Two days after Deposco sent 8 its engineers to plaintiff’s headquarters, Clippercreek notified 9 defendants of its immediate rescission of the contract. (Compl. 10 ¶ 52). Plaintiffs demanded a return of the deposit, but 11 defendants refused to comply with the demand. (Compl. ¶¶ 52, 12 56.) 13 Plaintiff then filed this action alleging the following 14 six claims under California state law: (1) rescission by mutual 15 and/or unilateral mistake, (2) rescission by lack of 16 consideration, (3) rescission by fraud, (4) negligent 17 misrepresentation, (5) breach of contract, and (6) unfair 18 competition, pursuant to California Business & Professions Code § 19 17200 et seq. Defendants now move to dismiss the complaint under 20 Federal Rule of Civil Procedure 12(b)(6), or, in the alternative, 21 transfer the case to the Southern District of Ohio, pursuant to 22 28 U.S.C. § 1404(a), in accordance with the agreement’s forum- 23 selection clause.1 24 II. Validity of Forum-Selection Clause 25 1 Plaintiff filed its Opposition to each motion one day after the deadline of December 30, 2019. (Docket Nos. 33, 34.) 26 Defendants request for the court to construe plaintiff’s delay as 27 a non-opposition to defendants’ motions. (Docket Nos. 36, 37.) A one-day delay does not prejudice defendants, so the court will 28 consider the plaintiff’s opposition. 1 Forum selection clauses “are presumptively valid” and 2 “should be honored ‘absent some compelling and countervailing 3 reason.’” Murphy v. Schneider Nat’l, Inc., 362 F.3d 1133, 1140 4 (9th Cir. 2004) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 5 U.S. 1, 12 (1972)); see also Atl. Marine Const. Co. v. U.S. Dist. 6 Court for W. Dist. of Texas, 571 U.S. 49, 63 (2013) (“[A] valid 7 forum-selection clause [should be] given controlling weight in 8 all but the most exceptional cases.”). The party opposing the 9 enforcement of a forum selection clause has the “heavy burden” of 10 showing that it is “‘unreasonable’ under the circumstances.” 11 Bremen, 407 U.S. at 10, 18. A forum selection clause is 12 unreasonable under three circumstances: “(1) ‘if the inclusion of 13 the clause in the agreement was the product of fraud or 14 overreaching’; (2) ‘if the party wishing to repudiate the clause 15 would effectively be deprived of his day in court were the clause 16 enforced’; [or] (3) ‘if enforcement would contravene a strong 17 public policy of the forum in which suit is brought.’” Murphy, 18 362 F.3d at 1140 (quoting Richards v. Lloyd’s of London, 135 F.3d 19 1289, 1294 (9th Cir.1998)). 20 Plaintiff does not contend that enforcement of the 21 clause would contravene California public policy. The court 22 therefore evaluates only the first two exceptions to the 23 enforcement of forum-selection clauses. 24 1. Fraud and Overreaching 25 Plaintiff argues that “[t]he [complaint] makes a strong 26 showing that . . . the MTA containing the forum-selection clause 27 . . . was affected by fraud, undue influence and a huge 28 differential in bargaining power.” (Pl.’s Opp. to Mot. to 1 Dismiss at 14 (Docket No. 33).) 2 Plaintiff’s allegations are insufficient to decline 3 enforcement of the forum-selection clause on the grounds of 4 fraud. “For a party to escape a forum selection clause on the 5 grounds of fraud, it must show that ‘the inclusion of that clause 6 in the contract was the product of fraud or coercion.’” 7 Richards, 135 F.3d at 1297 (quoting Scherk v. Alberto–Culver Co., 8 417 U.S. 506, 518 (1974)). To do so, a party “must show that the 9 inclusion of the clause itself into the agreement was improper; 10 it is insufficient to allege that the agreement as a whole was 11 improperly procured.” Mahoney v. Depuy Orthopaedics, Inc., No. 12 2:7-cv-1321 AWI SMS, 2007 WL 3341389, at *7 (E.D. Cal. Nov. 8, 13 2007); see also Scherk, 417 U.S. at 519 n. 14 (The fraud 14 exception in Bremen “does not mean that any time a dispute 15 arising out of a transaction is based upon an allegation of fraud 16 . . . the clause is unenforceable.”); Richards, 135 F.3d at 1297 17 (“[S]imply alleging that one was duped into the signing of the 18 contract is not enough.”). 19 Here, the complaint alleges that defendant fraudulently 20 induced plaintiff into signing the MTA. The complaint does not, 21 however, allege that defendant fraudulently introduced the forum- 22 selection clause into the agreement. Indeed, the complaint does 23 not even mention the forum-selection clause. Plaintiff therefore 24 cannot avoid enforcement of the clause on the grounds of fraud. 25 Cf. Richards, 135 F.3d at 1297 (finding that a forum-selection 26 clause was not the product of fraud where plaintiff made “no 27 allegations as to the inclusion of the choice clauses 28 themselves”). 1 Moreover, “[t]he Ninth Circuit has made it clear that 2 neither power differential between the parties or the non- 3 negotiability of a contract are sufficient to invalidate a forum 4 selection clause.” E. & J. Gallo Winery v. Andina Licores S.A., 5 440 F. Supp. 2d 1115, 1126 (E.D. Cal. 2006) (Ishii, J.) (citing 6 Murphy, 362 F.3d at 1141). Accordingly, the exception to the 7 enforcement of a forum-selection clause for fraud and 8 overreaching does not apply here. 9 2. Deprivation of Day in Court 10 To avoid enforcement of a forum selection clause for 11 deprivation of day in court, “trial in the contractual forum 12 [must] be so gravely difficult and inconvenient that [the 13 plaintiff] will for all practical purposes be deprived of his day 14 in court.” Bremen, 407 U.S. at 18. The Ninth Circuit has held 15 that a plaintiff’s “physical and financial limitations” could 16 show such a deprivation. Murphy, 362 F.3d at 1143. Allegations 17 of such limitations, including allegations related to “travel 18 costs, availability of counsel . . ., location of witnesses, or 19 [plaintiff’s] ability to bear such costs and inconvenience” must 20 be “specific.” Spradlin v. Lear Siegler Mgmt. Servs. Co., 926 21 F.2d 865, 869 (9th Cir. 1991). 22 Plaintiff argues that litigation in the Southern 23 District of Ohio is unreasonable because (1) the single owner of 24 Clippercreek would have to travel “thousands of miles” for trial, 25 (2) the cost for witnesses to travel would be “prohibitive,” (3) 26 subpoena power under Federal Rule of Civil Procedure 45(c)(1)(A) 27 would not reach “essential” witnesses, (4) plaintiff “would not 28 be able to show the trier of fact Plaintiff’s manufacturing and 1 production site in Auburn, CA,” and (5) some of plaintiffs’ 2 claims (e.g., violation of California’s unfair competition law) 3 are not available in Ohio. (Pl.’s Opp. to 4 Honeywell/Intelligrated Mot. to Dismiss at 14.). The court 5 considers each in turn. 6 Plaintiff’s first two allegations related to the 7 ability to travel are not sufficiently specific for the court to 8 find that enforcement of the clause would deprive plaintiff of 9 its day in court. In Murphy v. Schneider National, Inc., the 10 Ninth Circuit evaluated a forum-selection clause in an employment 11 contract that required plaintiff, a resident of Oregon, to 12 litigate all claims under the contract in Wisconsin. 362 F.3d at 13 1142-43. The court found that plaintiff’s “financial troubles 14 and physical limitations would bar him from litigating his claim” 15 in Wisconsin. Id. at 1143. The plaintiff in Murphy submitted an 16 affidavit wherein plaintiff disclosed in detail his income, 17 outstanding bills, and credit card debt. Id. at 1142. He also 18 detailed his physical injuries that “prevent[ed] him from sitting 19 in a position of limited mobility for more than one hour” and 20 “impair[ed] his ability to drive.” Id. The Murphy plaintiff 21 also explained why his wife would not be able to drive him to 22 Wisconsin. Id. Taken together, the court found that enforcement 23 of the clause would deprive plaintiff of his day in court. Here, 24 by contrast, plaintiff Clippercreek merely states that the trip 25 would be long, and the costs would be “prohibitive.” Such 26 allegations are not sufficiently specific to conclude that 27 plaintiff would not be able to litigate in Ohio. 28 Plaintiff’s allegations about the inability to subpoena 1 essential witnesses are similarly conclusory. Plaintiff does not 2 identify who these witnesses are or where they are located. See 3 Spradlin, 926 F.2d 865, 869 (9th Cir. 1991). Importantly, 4 plaintiff does not allege that those witnesses must be physically 5 present for plaintiff to pursue the action. Cf. Argueta v. Banco 6 Mexicano, S.A., 87 F.3d 320, 327 (9th Cir. 1996) (“[E]ven if 7 [plaintiff]’s fear of returning to Mexico is genuine, [plaintiff] 8 do[es] not provide any information showing that [plaintiff]’s 9 physical presence in Mexico is required to pursue the civil 10 action.”). 11 Plaintiff’s assertion that transferring the action to 12 Ohio would prevent plaintiff from showing the jury plaintiff’s 13 manufacturing site is likewise insufficient. The evidence that 14 would be presented in California and Ohio would be the same: 15 plaintiff can rely on experts and pictures to fully describe the 16 site. Further, the court is not aware of any authority requiring 17 a jury field trip for a plaintiff to pursue litigation, and, at 18 any rate, this court is unlikely to consider such an option if 19 requested. 20 Finally, plaintiff’s allegation that plaintiff would 21 not be able to pursue numerous causes of action in Ohio also does 22 not establish that plaintiff would be deprived of their day in 23 court. The prescribed forum need not be identical to plaintiff’s 24 preferred forum –- it need only provide plaintiff with “a 25 meaningful day in court.” Pelleport Inv’rs, Inc. v. Budco 26 Quality Theatres, Inc., 741 F.2d 273, 281 (9th Cir. 1984); id. at 27 325. Plaintiff could bring breach of contract or negligence 28 claims that may entitle plaintiff to relief similar to that 1 sought in California.2 Because plaintiff has failed to carry the 2 “heavy burden of showing that the trial in [Ohio] would be so 3 difficult and inconvenient that [plaintiff] would effectively be 4 denied a meaningful day in court,” the court finds that the 5 forum-selection clause at issue is enforceable. 6 III. Motion to Transfer Venue 7 In deciding a § 1404(a) motion to transfer pursuant to 8 a forum-selection clause, “a district court may consider 9 arguments about public-interest factors only.” Atl. Marine, 571 10 U.S. at 64. The Supreme Court has made it clear that the 11 “plaintiff’s choice of forum merits no weight.” Id. Instead, 12 plaintiff must “establish[] that transfer to the forum for which 13 the parties bargained is unwarranted.” Id. at 63. Further, when 14 a plaintiff has agreed to a forum-selection clause, he may not 15 “challenge the preselected forum as inconvenient or less 16 convenient for themselves or their witnesses, or for their 17 pursuit of the litigation.” Id. Because the Supreme Court has 18 so limited a party’s ability to challenge a forum-selection 19 clause, district courts may deny enforcement of the clause only 20 in “unusual cases.” Id. 21 Plaintiff does not offer reasons additional to those 22 above for the court to deny the transfer of this action to the 23 Southern District of Ohio. The Supreme Court’s decision in 24 Atlantic Marine explicitly forecloses consideration of all of 25 plaintiff’s arguments because all relate to the convenience of 26 2 The MTA includes a choice-of-law provision that 27 mandates the application of Ohio state law. (Compl. Ex. 1, at 13, ¶ 18.2.) Plaintiff has not provided any reason why the laws 28 of Ohio would deprive plaintiff of all possible relief. 1 the forum and none concern the public interest. See 571 U.S. at 2 581-583. Accordingly, the court will enforce the forum selection 3 clause and transfer the action. 4 The court declines defendants’ invitation to dismiss 5 the action pursuant to Federal Rule of Civil Procedure 12(b)(3). 6 (Mot. to Dismiss at 6-7 (Docket No. 30).) Rule 12(b)(3) permits 7 the court to dismiss a case based on improper venue. “[A] forum- 8 selection clause does not render venue in a court ‘wrong’ or 9 ‘improper’ within the meaning of . . . Rule 12(b)(3).” Atl. 10 Marine, 571 U.S. at 59. Rule 12(b)(3) therefore “[is] not [a] 11 proper mechanism[] to enforce a forum-selection clause.” Id. at 12 61. 13 The appropriate vehicle to enforce the clause at issue 14 is § 1404(a). The Supreme Court held that the only “appropriate 15 enforcement mechanisms” are § 1404(a) and the forum non 16 conveniens doctrine. Id. Section 1404(a) applies where, as is 17 the case here, the forum-selection clause points to another 18 federal court. Id. at 60. 19 When considering a § 1404(a) motion involving a valid 20 forum-selection clause, the “district court should ordinarily 21 transfer the case to the forum specified in that clause.” Id. at 22 62. “Only under extraordinary circumstances . . . should a § 23 1404(a) motion be denied.” Id. The court has concluded that 24 such circumstances do not exist here. Accordingly, transfer, and 25 not dismissal, is proper. 26 IT IS THEREFORE ORDERED that defendants’ motions to 27 transfer venue (Docket Nos. 29, 30) be, and the same hereby are, 28 1 GRANTED. 2 This action is hereby TRANSFERRED to the United States 3 District Court for the Southern District of Ohio. 4 | Dated: January 14, 2020 dtd : 4th. 5 WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 3 Because the court has chosen to transfer the case, the court does not reach defendants’ Rule 12(b) (6) challenges to the 28 | sufficiency of the complaint. 11