Rainforest Cafe v. EklecCo

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-3829
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Rainforest Cafe, Inc., *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
EklecCo, L.L.C., *
*
Appellee. *
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Submitted: June 13, 2003
Filed: August 15, 2003
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Before RILEY, and HEANEY, Circuit Judges, and ERICKSEN,1 District Judge.
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HEANEY, Circuit Judge.
Rainforest Cafe, Inc. (Rainforest) appeals from the district court’s order
dismissing its declaratory judgment action against EklecCo L.L.C. (EklecCo) on the
ground that the proper venue for the suit was New York Supreme Court. We affirm.
1
The Honorable Joan N. Ericksen, United States District Judge for the District
of Minnesota, sitting by designation.
BACKGROUND
Rainforest is a Minnesota corporation that operates a chain of theme
restaurants. EklecCo is a real estate development company that operates the Palisades
Center Mall in Clarkstown, New York. In 1996, Rainforest and EklecCo agreed that
Rainforest would open one of its restaurants at the Palisades Center Mall. On August
7, 1996, EklecCo and a wholly owned subsidiary of Rainforest named Rainforest
Cafe, Inc.-Lightning (Lightning) entered into a ten-year lease agreement. Rainforest
guaranteed the first three years of Lightning’s obligations under the lease. The lease
contained a forum selection clause which states:
This Lease, and any dispute concerning this Lease, shall be governed by
the laws of the state of New York and any dispute concerning the
application or any interpretation of any portion of the Lease or the
conduct of the parties shall be brought in the New York Supreme Court,
Onondaga County.
(Appellee’s App. at 47.)
On December 29, 1996, EklecCo and Lightning entered into an assignment
agreement whereby another Rainforest subsidiary, Rainforest Cafe, Inc.-Mist (Mist)
assumed Lightning’s rights and obligations under the Palisades Center lease.2 On
April 15, 1998, a number of Rainforest subsidiaries, including Lightning, were
merged into Mist, leaving Mist as the surviving corporation. On September 21, 2000,
Rainforest merged Mist and another subsidiary into itself, leaving Rainforest as the
surviving corporation.
2
Mist limited its liability under this assumption agreement to only those assets
and accounts receivable related to the operation of its Palisades Center restaurant. As
part of the agreement, however, Lightning continued to have full, unlimited liability
under the lease as if no assignment had been made.
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Meanwhile, the restaurant operating in the Palisades Center Mall was not
performing as Rainforest had hoped. Eventually, a dispute arose as to what
Rainforest’s obligations were under the lease. EklecCo advised Rainforest that as a
result of its corporate restructurings, it was now in the position of Lightning, the
original tenant. Thus, EklecCo maintained that Rainforest had become fully liable
for the entire ten-year lease, rather than simply a guarantor for the first three years of
the term.3
After receiving word of EklecCo’s position, Rainforest filed Articles of
Correction with the Minnesota Secretary of State, contending that it had mistakenly
merged Lightning into Mist, and seeking to correct the matter by deleting reference
to Lightning in its 1998 merger documents. Once the Secretary of State certified
Rainforest’s Articles of Correction, Rainforest instituted this declaratory judgment
action in Minnesota state court, naming EklecCo as the sole defendant.4 For relief,
Rainforest requested “[a] declaration that Rainforest is not the successor by merger
to the liabilities and obligations of Lightning including those arising from the lease
with EklecCo.” (Appellant’s App. at 107.)
3
The issue of the parties’ obligations under the lease is not before this court.
4
EklecCo timely removed the matter to the district court based on the parties’
diversity of citizenship.
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EklecCo moved to dismiss based on improper venue.5 The matter was referred
to a magistrate who recommended that EklecCo’s motion be granted because the case
was essentially about the obligations of the parties under a lease for New York
property. The magistrate also recognized that the lease stated the proper forum for
lease disputes or issues concerning the conduct of the parties was Onondaga County,
New York. The district court adopted the magistrate’s report and recommendation
and dismissed the suit. This appeal followed.
ANALYSIS
Both the magistrate and the district court determined Minnesota was not the
appropriate venue for this action pursuant to 28 U.S.C. § 1391. Rainforest does not
argue that the lower court erred generally in its analysis under § 1391, but instead
limits its argument to the applicability of the forum selection clause in the lease.6
Thus, “[t]he only issue on appeal is a legal issue of contract construction,” Dunne v.
Libbra, 330 F.3d 1062, 1063 (8th Cir. 2003), which we review de novo, Terra Int’l,
Inc. v. Miss. Chem. Corp., 119 F.3d 688, 691-92 (8th Cir. 1997).
5
Rainforest moved to dismiss under Rules 12(b)(3) and 12(b)(6) of Civil
Procedure. Although not addressed below, we recognize that there is some
controversy as to whether Rule 12(b)(3) or 12(b)(6) is the proper vehicle for bringing
a motion to dismiss based on improper venue when the issue turns on a forum
selection clause in the parties’ underlying contract. See Kerobo v. Southwestern
Clean Fuels, Corp., 285 F.3d 531, 534-36 (6th Cir. 2002) (noting circuit split as to
whether motion to dismiss based on forum selection clause should be brought
pursuant to 12(b)(3) or 12(b)(6)). The question appears to be open in this circuit, and
we need not address it in this appeal since EklecCo has moved under both subsections
of Rule 12.
6
Rainforest does not argue to this court that the forum selection clause is
invalid or unenforceable. It solely contends that this declaratory judgment suit is
beyond the scope of the clause.
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In this case, both parties operate under the assumption that federal law controls
the question of whether this forum selection clause applies. We are inclined to agree,
see Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 31-32 (1988) (holding that in
diversity cases, federal law governs determination of what effect to give forum
selection clause in contract), but acknowledge that this appears to be an open
question, see M.B. Rests., Inc. v. CKE Rests., Inc., 183 F.3d 750, 752 n.4 (8th Cir.
1999) (noting circuit split on issue of whether interpretation of forum selection
clauses in diversity cases is substantive or procedural issue and leaving matter
undecided in Eighth Circuit); see also Excell, Inc. v. Sterling Boiler & Mech., Inc.,
106 F.3d 318, 320-21 (10th Cir. 1997) (leaving open the question of whether state or
federal law controls validity and interpretation of forum selection clauses). Because
the parties have not argued that state law would result in a materially different
outcome, we indulge their suggestion that we interpret the forum selection clause
under federal law. Accord M.B. Rests., Inc., 183 F.3d at 752.
Rainforest, through its subsidiary Lightning, entered into a lease that contains
a mandatory forum selection clause. The clause requires that “any dispute concerning
the application or any interpretation of any portion of the Lease or the conduct of the
parties shall be brought in the New York Supreme Court, Onondaga County.”
(Appellee’s App. at 47 (emphasis added).) Rainforest asserts that this declaratory
judgment action is not about the lease, nor about the conduct of the parties, but rather
only concerns what effect Rainforest’s myriad restructurings have had on its
obligations. This argument is specious at best. First, Rainforest is not merely asking
the court to define the scope of its general obligations. In its complaint, its only
specific prayer for relief is “[a] declaration that Rainforest is not the successor by
merger to the liabilities and obligations of Lightning including those arising from the
lease with EklecCo.” (Appellant’s App. at 107 (emphasis added).) The complaint is
captioned as an action between only two parties: Rainforest as plaintiff, and EklecCo
as defendant, seeking to resolve a dispute between those parties. Essentially,
Rainforest commenced a lawsuit concerning the parties conduct vis-a-vis the lease,
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and sought a declaration that directly deals with the lease. These issues are squarely
covered by the forum selection clause, and we thus hold the district court did not err
in dismissing the suit for improper venue.
CONCLUSION
For the reasons stated herein, we affirm the district court. Having considered
EklecCo’s pending motion to strike sections of Rainforest’s brief, we deny the
motion.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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