Signal Capital Corpooration, et a.,l v. Signal One, LLC ( 2000 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
May 2000 Session
SIGNAL CAPITAL CORPORATION, ET AL. v. SIGNAL ONE, LLC, ET AL.
Appeal from the Chancery Court for Hamilton County
No. 99-0899 W. Frank Brown, III, Chancellor
FILED SEPTEMBER 7, 2000
No. E2000-00140-COA-R3-CV
This appeal questions whether a forum selection clause is valid and enforceable against the Plaintiffs,
Larry Wells and Signal Capital Corporation. Pursuant to the forum selection clause, Signal One LLC
and NationsBanc Capital Corporation filed a motion to dismiss for improper venue. The Trial Court
granted the motion to dismiss by finding the forum selection clause was valid. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed and
Remanded
HOUSTON M. GODDARD , P.J., delivered the opinion of the court, in which CHARLES D. SUSANO, JR.
and D. MICHAEL SWINEY, JJ. joined.
John W. Murrey, III and Hugh J. Moore, Jr., Chattanooga, Tennessee, for the appellants, Signal
Capital Corporation and Larry Wells
Roger W. Dickson and C. Crews Townsend, Chattanooga, Tennessee, and Cory Hohnbaum,
Charlotte, North Carolina, for the appellees, Signal One, LLC and NationsBanc Capital Corporation
OPINION
Larry Wells and Signal Capital Corporation filed a complaint against Signal One LLC
and NationsBanc Capital Corporation alleging that two agreements, the First Amendment to the
Acquisition Agreement and the First Amendment to the Employment Agreement, were induced
by fraud and duress. The Plaintiffs sought rescission of the amendments and reinstatement of the
original Acquisition and Employment agreements. Signal One and NationsBanc filed a motion
to dismiss for improper venue because the original Acquisition Agreement contained a forum
selection clause requiring all disputes arising from the agreement to be resolved in Charlotte,
North Carolina. The Trial Court found the forum selection clause valid and dismissed the
complaint without prejudice.
On appeal, the Plaintiffs raise the following issues, which we restate:
I. Whether the trial court erred in dismissing a cause of action for rescission of an
employment contract based upon a forum selection clause contained in a separate
and independent acquisition agreement.
II. Whether the trial court erred in dismissing a cause of action for enforcement of
the provision of a limited liability company agreement based upon a forum
selection clause contained in a separate and independent acquisition agreement.
III. Whether the trial court erred in not applying North Carolina law and public policy
opposing forum selection clauses.
IV. Whether the trial court erred by finding none of the exceptions to enforcement of
the forum selection clause applied.
We affirm the Trial Court.
FACTS
Larry Wells, a Tennessee resident, was the founder and sole shareholder of Signal Capital
Corporation. Mr. Wells formed and managed Signal Capital beginning in 1992. Signal
Capital’s business consisted of acquiring, constructing, developing, owning and leasing wireless
communication towers. Signal Capital is a Tennessee corporation with its offices located in
Chattanooga.
On July 8, 1998, Mr. Wells and NationsBanc Capital Corporation, a Texas corporation,
entered into three agreements, an Acquisition Agreement, an Employment Agreement and a
Limited Liability Company Agreement. The Limited Liability Company Agreement created
Signal One LLC, a Delaware limited liability company with its offices located in Chattanooga.
The Acquisition Agreement transferred Signal Capital’s operating assets to Signal One LLC in
exchange for $1,000,000 in cash and 46,320 Voting Common Units of Signal One LLC. The
amount of $4,000,000 was placed in escrow to be released at a later time. NationsBanc received
53,680 Nonvoting Common Units of Signal One LLC. In the Employment Agreement, Mr.
Wells agreed to serve as Signal One’s Chief Executive Officer until June 30, 2001, in exchange
for an annual salary of $250,000 with benefits.
Each of the three original agreements contained a clause regarding either the forum
selected or the governing law for any disputes. The Limited Liability Company Agreement
provided that the governing law would be the law of the State of Delaware and that disputes may
be brought in the courts of the State of North Carolina or the United States District Court for the
Western District of North Carolina. The Employment Agreement stated the governing law was
the law of North Carolina, but there was no forum selection provision. The Acquisition
Agreement contained a governing law section and the forum selection clause which is relied
upon by the Defendants. The governing law under the Acquisition Agreement was the law of the
State of North Carolina. The forum selection clause in the Acquisition Agreement provided the
following:
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Except to the extent a claim is subject to arbitration as provided in Section 11.3(b)
hereof, any and all actions arising under or in respect of this Agreement (but
excluding any Third Party Action) shall be litigated exclusively in the federal or
state courts in the City of Charlotte, State of North Carolina. . . .By execution and
delivery of this Agreement, each Party to this Agreement irrevocably submits to
the personal jurisdiction of such courts for itself, himself, or herself and in respect
of its, his or her property with respect to such action with respect to any actions
arising under or in respect of this Agreement (including Third Party Actions).
Each party to this Agreement agrees that venue would be proper in any of such
courts, and hereby waives any objection that any such court is an improper or
inconvenient forum for the resolution of any such action.
On September 1, 1998, the Acquisition Agreement and Employment Agreement were
amended. The First Amendment to the Acquisition Agreement reduced the number of Voting
Common Units received by Signal Capital from 46,320 to 21,930.8 units. The First Amendment
to the Employment Agreement changed Mr. Wells’ responsibilities as Signal One’s Chief
Executive Officer, but his salary and benefits remained the same. Neither amendment contained
a clause regarding any changes to the governing law or forum selected.
THE AGREEMENTS
The Plaintiffs’ first two issues question whether the three agreements are separate and
distinct or one transaction. In interpreting a contract, a court must ascertain and give effect to the
parties’ intentions. See Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W.2d
578, 580 (Tenn. 1975). In this case, the parties entered into more than one contract. “The terms
of separate contracts forming integral parts of a single transaction may be considered together.”
The Realty Shop, Inc. v. RR Westminster Holding, Inc., 7 S.W.3d 581, 599 (Tenn. Ct. App.
1999) (citing McCall v. Towne Square, Inc., 503 S.W.2d 180, 182-83 (Tenn. 1973); Stovall v.
Dattel, 619 S.W.2d 125, 127 (Tenn. Ct. App. 1981)). The Trial Court found the three original
agreements constituted one transaction and applied the forum selection clause to all the
Plaintiffs’ claims.
The Plaintiffs argue that the three agreements are separate and independent documents.
In support of their argument, Plaintiffs cite the governing law and permissive forum selection
provisions in the Employment Agreement and Limited Liability Company Agreement. These
provisions do not conflict with the mandatory forum selection clause in the Acquisition
Agreement, but the Plaintiffs argue that these provisions prove the documents are separate and
independent. We disagree.
The parties signed the Limited Liability Company Agreement, Acquisition Agreement
and Employment Agreement on the same day. The Acquisition Agreement incorporates both the
Employment Agreement and Limited Liability Company Agreement as part of the parties’ entire
agreement. Furthermore, the Acquisition Agreement conditioned the obligations of the parties
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upon their entering into the Limited Liability Company Agreement and the Employment
Agreement. The Acquisition Agreement, which transferred assets to Signal One LLC, and the
Employment Agreement, which employed Mr. Wells as CEO of Signal One LLC, would be
meaningless without the Limited Liability Company Agreement, which created Signal One LLC.
We find the three agreements are interrelated and must be read together as one transaction.
Accordingly, the Trial Court correctly found that the forum selection clause, if valid, applied to
all the Plaintiffs’ claims.
FORUM SELECTION CLAUSE
The Plaintiffs’ last two issues involve the enforceability of the forum selection clause.
They argue that the forum selection clause violates North Carolina public policy. In the
alternative, they argue that the forum selection clause is unenforceable under Tennessee law
because four exceptions apply.
The Plaintiffs cite North Carolina General Statutes Section 22B-3 in support of their
argument that the forum selection clause in this case violates North Carolina public policy. The
Acquisition Agreement’s governing law section states that the law of North Carolina applies.
North Carolina General Statutes Section 22B-3 provides that “any provision in a contract entered
into in North Carolina that requires the prosecution of any action or the arbitration of any dispute
that arises from the contract to be instituted or heard in another state is against public policy and
is void and unenforceable.” N.C. Gen. Stat. § 22B-3 (1999). However, this statute would not
apply to the forum selection clause in this case because the contract was not “entered into in
North Carolina.”
Forum selection clauses are generally enforced in Tennessee. In Dyersburg Machine
Works, Inc. v. Rentenbach Engineering Company, 650 S.W.2d 378 (Tenn. 1983), the Tennessee
Supreme Court provided the following exceptions to the enforceability of a forum selection
clause: “(1) the plaintiff cannot secure effective relief in the other state, for reasons other than
delay in bringing the action; (2) or the other state would be a substantially less convenient place
for the trial of the action than this state; (3) or the agreement as to the place of the action was
obtained by misrepresentation, duress, abuse of economic power, or other unconscionable means;
(4) or it would for some other reason be unfair or unreasonable to enforce the agreement.”
Dyersburg, 650 S.W.2d at 380. The Court further stated: “We conclude that the courts of this
state should give consideration to the above mentioned factors and any others which bear upon
the fundamental fairness of enforcing such a forum selection clause, and should enforce such a
clause unless the party opposing enforcement demonstrates that it would be unfair and
inequitable to do so.” Dyersburg, 650 S.W.2d at 380.
In reviewing the exceptions to the enforceability of forum selection clauses, the Trial
Court found North Carolina has jurisdiction to hear this action, North Carolina is a convenient
place for this action, the agreement as to the place of the action was not obtained by fraud or
duress and there was no other reason that would be unfair or inequitable to enforce the clause.
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The first exception involves the question of whether a party can secure effective relief in
the other state. First, the Plaintiffs assert they will not receive effective relief because their
claims would have to be split between a North Carolina court and Tennessee court. However, the
claims would only have to be split if we found the agreements were separate and independent.
By finding the three agreements were one transaction, all the Plaintiffs’ claims would remain
together in one court.
Second, the Plaintiffs argue that they can receive no relief in North Carolina because
North Carolina does not have a reasonable relationship to the parties and their agreements.
According to the Plaintiffs, North Carolina would not have subject matter jurisdiction over this
dispute without having a reasonable relationship. We find both Tennessee and North Carolina
have a reasonable relationship to this contract dispute.
Tennessee Code Annotated Section 47-1-105(1) provides: “Except as provided hereafter
in this section, when a transaction bears a reasonable relation to this state and also to another
state or nation the parties may agree that the law either of this state or of such other state or
nation shall govern their rights and duties.” Tenn. Code Ann. § 47-1-105(1) (1999). The parties
chose to litigate any disputes in the courts of Charlotte, North Carolina. NationsBanc conducts
business in Charlotte and maintains an office there. All correspondence arising from the parties’
business relationship was to be sent to the NationsBanc office in Charlotte. Most importantly,
Mr. Binkowski, one of the individuals representing NationsBanc, works and resides in North
Carolina. Mr. Binkowski signed all the agreements as a Vice President of NationsBanc and he is
a material witness to the circumstances surrounding the contract negotiations. North Carolina
has a reasonable relationship to this dispute and can provide relief to the Plaintiffs.
The second exception relates to the convenience of having a trial in the other state as
compared to Tennessee. The other state must be a substantially less convenient place for the trial
than Tennessee. The convenience is evaluated from the perspective of all the parties, not just the
Plaintiffs. The Plaintiffs argue that many witnesses and all the business records of Signal Capital
and Signal One LLC are located in Chattanooga, Tennessee. However, the NationsBanc’s
representatives involved in this action are located in Texas and North Carolina. All
correspondence regarding the business activities between the parties was sent to North Carolina.
Therefore, business records are located in North Carolina as well as Tennessee. The record
contains no information regarding the difference in Plaintiffs’ expenses for litigating in
Tennessee compared to litigating in North Carolina. The Plaintiffs only argue that they may have
to take “expensive depositions.” There is no proof that these “expensive depositions” would not
have occurred if the litigation was in Tennessee. The Plaintiffs have not shown a substantial
inconvenience to all the parties.
The third exception is whether “the agreement as to the place of the action was obtained
by misrepresentation, duress, abuse of economic power, or other unconscionable means”
(emphasis added). The Plaintiffs allege they were fraudulently induced into signing the First
Amendment to the Acquisition Agreement. The First Amendment to the Acquisition Agreement
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did not change the effect of the forum selection clause in the original Acquisition Agreement.
Therefore, the Plaintiffs have not alleged the original Acquisition Agreement containing the
forum selection clause was obtained by fraud or duress. The third exception does not apply.
The fourth exception encompasses any other reason that is unfair or unreasonable to
enforce the agreement. We find no other reasons not to enforce the forum selection clause.
For the foregoing reasons the judgment of the Chancery Court is affirmed and the cause
remanded for the collection of costs below. Costs of appeal are adjudged against Signal Capital
Corporation, Larry Wells and their sureties.
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HOUSTON M. GODDARD, PRESIDING JUDGE
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