Charles Martin, Curtis Martin, and Bennett Machine & Fabricating, Inc. v. Jose G. Espinoza and Deere and Company

IN THE COURT OF APPEALS OF IOWA
No. 21-0541
Filed April 13, 2022
CHARLES MARTIN, CURTIS MARTIN, and BENNETT MACHINE &
FABRICATING, INC.,
Plaintiffs-Appellants,
vs.
JOSE G. ESPINOZA and DEERE AND COMPANY,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Jones County, Paul D. Miller, Judge.
The plaintiffs appeal the dismissal of their petition due to a forum-selection
clause. REVERSED AND REMANDED.
Nick Critelli of CritelliLaw, P.C., Des Moines, and Joseph A. Peiffer and
Austin J. Peiffer of Ag & Business Legal Strategies, Cedar Rapids, for appellants.
Richard J. Sapp and Spencer S. Cady of Nyemaster, Goode, P.C., Des
Moines, and Kenneth E. Rechtoris of Sheppard, Mullin, Richter and Hampton, LLP,
Chicago, Illinois, for appellees.
Considered by Schumacher, P.J., Ahlers, J., and Mullins, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
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AHLERS, Judge.
Charles Martin and Curtis Martin are shareholders of Bennett Machine &
Fabricating, Inc. (Bennett Machine). The Martins and Bennett Machine filed this
suit in Iowa against Deere & Company (Deere) and one of Deere’s managers, Jose
Espinoza. There is no claim that Iowa does not have personal jurisdiction over
Deere and Espinoza. According to the petition, Bennett Machine and Deere had
a business relationship for more than forty years, with Bennett Machine fabricating
and supplying essential parts to Deere for use in final production of Deere’s
products. The petition also alleges that Espinoza, acting on behalf of Deere, made
several false statements to the Martins and Bennett Machine to induce Bennett
Machine to continue the business relationship and share proprietary information
with Deere. These statements are alleged to include false assurances that Deere
intended to continue purchasing parts from Bennett Machine for the foreseeable
future. As part of the alleged scheme being perpetrated by Espinoza on behalf of
Deere, the parties executed a promissory note (note) in 2019 whereby Bennett
Machine and the Martins agreed to repay a $2,750,830.81 loan to Deere over
seven years beginning in 2020. The petition alleges that in October 2019, Deere
terminated the parties’ business relationship, forcing Bennett Machine to cease
operations and causing Bennett Machine and the Martins to default on the note.
The petition asserts causes of action against Espinoza and Deere for fraudulent
misrepresentation; fraudulent concealment; negligent misrepresentation; vicarious
liability; breach of fiduciary relationship; breach of contract; and equitable
rescission and restitution.
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Deere and Espinoza filed a pre-answer motion to dismiss. They asserted
the parties’ relationship is governed by one or more forum-selection clauses that
require all legal disputes to be addressed in the courts of Illinois. The district court
agreed and dismissed the action. The Martins and Bennett Machine filed a motion
to reconsider, which the court denied, and this appeal followed.
“We review rulings on motions to dismiss for correction of errors at law.”
Karon v. Elliott Aviation, 937 N.W.2d 334, 339 (Iowa 2020). Before addressing the
merits of the motion to dismiss, we must first determine what information we are
permitted to consider. We start with the general rule, which is that “[i]n determining
whether to grant the motion to dismiss, a court views the well-pled facts of the
petition in the light most favorable to the plaintiff, resolving any doubts in the
plaintiff’s favor.” Turner v. Iowa State Bank & Tr. Co. of Fairfield, 743 N.W.2d 1, 3
(Iowa 2007). There is a corollary to this rule, which is that, when a petition
references a document, the document can be considered in ruling on a motion to
dismiss even when the document is not attached to the petition. See Karon, 937
N.W.2d at 347–48 (citing King v. State, 818 N.W.2d 1, 6 n.1 (2012)). Because the
Martins and Bennett Machine reference the note in the petition, we are permitted
to consider the terms of the note—including its forum-selection clause—even
though the note was not attached to the petition. Based on this corollary, all parties
agree that we can consider the terms of the note.
Deere and Espinoza seek to stretch this corollary by asking us to consider
multiple other documents not referenced in the petition. They argue that the
petition seeks damages stemming from the shutdown of Bennett Machine and the
loss of anticipated future profits. They claim these allegations implicate the entire
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business relationship between the parties, thus triggering consideration of other
documents setting forth agreements of the parties, even though the other
documents are not directly mentioned in the petition. In particular, Deere and
Espinoza want us to consider (1) a long-term agreement signed by the parties in
2015, which included attached terms and conditions with a forum-selection clause
requiring disputes to be resolved in Illinois courts; (2) past purchase orders that
were subject to Deere’s “General Terms and Conditions”; and (3) a document
entitled “John Deere Terms and Conditions for the Purchase of Goods and/or
Services,” which Deere and Espinoza claim is the document incorporated by
reference in the purchase orders and which includes a forum-selection clause
requiring disputes to be resolved in Illinois courts. All these documents, coupled
with affidavits explaining them, were submitted by Deere and Espinoza as
attachments to their motion to dismiss.
Deere and Espinoza seek to stretch the corollary too far. We start by noting
that, ordinarily, “[a] court cannot consider factual allegations contained in the
motion [to dismiss] or the documents attached to the motion.” See Turner, 743
N.W.2d at 3. We are not particularly concerned about Deere and Espinoza’s
sidestepping of this rule, because we recognize that the rule is relaxed and some
evidence is permitted when the motion to dismiss is based on jurisdictional issues
such as the validity of a forum-selection clause. See, e.g., Hotchkiss v. Int’l Profit
Assocs., Inc., No. 09-1632, 2011 WL 1378926, at *1 (Iowa Ct. App. Apr. 13, 2011).
But we are concerned with how far Deere and Espinoza seek to stretch. This is
not a case in which the parties agree that the documents Deere and Espinoza
present for our consideration apply and are in effect. See Karon, 937 N.W.2d at
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336 n.2 (noting that, in giving consideration to the forum-selection clause of a
purchase agreement in ruling on a motion to dismiss, the parties did not dispute
that the document at issue was the parties’ purchase agreement, possibly
suggesting a different outcome if that fact were disputed). To the contrary, the
Martins and Bennett Machine deny that any of the disputed documents apply to
the allegations in the petition. They point out that the long-term agreement, by its
terms, expired before the events occurred that form the basis of this lawsuit, so
that agreement arguably has no applicability to the issues in this case. Deere and
Espinoza respond by noting that, even after the long-term agreement expired,
Deere continued to purchase parts from Bennett Machine using purchase orders
that are subject to Deere’s “General Terms and Conditions.” Deere and Espinoza
assert that this ongoing practice makes the purchase orders and the “General
Terms and Conditions” available for consideration.
We disagree with Deere and Espinoza. The petition makes no claim based
on past purchase orders, such as those submitted by Deere and Espinoza.
Instead, the petition seeks damages for lost future profits based on future
purchases that never came to be. As those future purchases never took place,
there is only speculation on what terms would have been agreed to by the parties
regarding those purchases.
Given the factual disputes over the applicability of the extra documents
Deere and Espinoza ask us to consider, we cannot consider them at this motion-
to-dismiss stage. We express no opinion on the merits of any of the disputed
issues over the applicability of the documents Deere and Espinoza seek to have
us consider. We merely hold that, in following our rules for addressing a motion to
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dismiss, we cannot and will not consider documents over which there is a factual
dispute. Those issues will need to be addressed through the litigation process. As
the note is the only document over which there is no dispute as to its applicability
and that is mentioned in the petition, that is the only document we consider in
reviewing the district court’s ruling on the motion to dismiss.
We turn now to the note. The note contains the following forum-selection
clause:
10.4 Submission to Jurisdiction.
(a) The Borrowers hereby irrevocably and unconditionally (i)
agree[] that any legal action, suit, or proceeding arising out of or
relating to this Note may be brought in the state or federal court of
competent jurisdiction sitting in the State of Illinois and (ii) submit[] to
the non-exclusive jurisdiction of any such court in any such action,
suit, or proceeding.
Deere and Espinoza assert that this clause requires dismissal of this Iowa suit
because the parties are required to resolve their dispute in Illinois. The Martins
and Bennett Machine disagree. They claim the forum-selection clause was
fraudulently induced. In order to set aside a contractual forum-selection clause
based on fraud, “the fraud must relate to the clause itself.” Id. at 335. Even at an
early motion-to-dismiss stage, “general allegations of fraud in the inducement are
insufficient to avoid enforcement of” a forum-selection clause. Id. at 346–47;
accord Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.14 (1974) (stating every
allegation of fraud does not render a forum-selection clause unenforceable; rather,
a “forum-selection clause in a contract is not enforceable if the inclusion of the
clause in the contract was the product of fraud or coercion”).
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We need not decide whether the note’s forum-selection clause is valid and
enforceable. Even if it is, it does not prohibit this suit in Iowa. A forum-selection
clause may be mandatory or permissive—also known as exclusive or non-
exclusive. Ostrem v. Prideco Secure Loan Fund, LP, 841 N.W.2d 882, 901 (Iowa
2014). “Mandatory forum-selection clauses require a case to be brought in an
identified venue based on specific language indicating the parties’ intent to make
jurisdiction exclusive.” High Plains Const., Inc. v. Gay, 831 F. Supp. 2d 1089, 1102
(S.D. Iowa 2011) (citation omitted). “Permissive forum-selection clauses, on the
other hand, constitute nothing more than a consent to jurisdiction and venue in the
named forum and do not exclude jurisdiction or venue in any other forum.” Id.(citation omitted).1
The note contains a permissive forum-selection clause, as it provides that
suit “may be brought in the state or federal court of” Illinois. By the clause’s own
terms, Illinois courts have “non-exclusive jurisdiction” over any matter “arising out
of or relating to” the note. The note’s forum-selection clause only authorizes the
parties to pursue claims in Illinois; it does not mandate it. Nothing in the clause
prevents the parties from filing in Iowa to litigate an issue “arising out of or relating
1 The district court referred to the respective “weight” given to a mandatory or
permissive forum-selection clause. See High Plains Const., 831 F. Supp. 2d at
1102 (“[A] forum selection clause that is mandatory is given greater weight than a
permissive one.” (alteration in original) (citation omitted)). The clause’s “weight” is
a consideration under a request to transfer venue to another federal court under
28 U.S.C. section 1404. See id. (“When determining the appropriate venue, ‘courts
have determined that a valid and applicable forum selection clause in a contract is
a significant factor that figures centrally in the district court’s calculus.’” (citation
omitted)). For purposes of our analysis, a forum-selection clause either does or
does not allow a party to pursue a claim in Iowa, and the clause’s “weight” for
federal venue purposes is not a factor in our analysis. See id.
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to” the note. Therefore, at this stage of the proceeding, we must reverse the
district court’s dismissal of the suit and permit it to continue in Iowa. However, we
want to note the limited scope of our ruling. All we are saying is that, at this point
in the litigation, the Martins and Bennett Machine are entitled to pursue and
develop their claims in Iowa courts. Based on the record we have, the note
provides no bar to doing so. As the litigation develops, additional facts may come
to light that demonstrate that other documents influence the claims, and the claims
may be limited or dismissed to the extent they are controlled by forum-selection
clauses in other documents or for other reasons. We express no opinion on such
future events.
We reverse the district court’s order dismissing the petition. We remand for
further proceedings accordingly.
REVERSED AND REMANDED.