Long Beach Auto Auction, Inc. v. United Security Alliance, Inc.

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2005-CA-00729-SCT
LONG BEACH AUTO AUCTION, INC.
v.
UNITED SECURITY ALLIANCE, INC.
DATE OF JUDGMENT: 01/13/2005
TRIAL JUDGE: HON. STEPHEN B. SIMPSON
COURT FROM WHICH APPEALED: HARRISON COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANT: JOHN PAUL BARBER
WILLIAM E. WHITFIELD, III
ATTORNEYS FOR APPELLEE: MICHAEL ANDREW McDONALD
JAMES WILLIAM WILLIAMS
LAUREN CARSON WILLIAMS
NATURE OF THE CASE: CIVIL - CONTRACT
DISPOSITION: REVERSED AND REMANDED - 08/17/2006
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
BEFORE WALLER, P.J., CARLSON, AND RANDOLPH, JJ.
RANDOLPH, JUSTICE, FOR THE COURT:
¶1. On December 20, 2001, Long Beach Auto Auction, Inc. (“LBAA”) and United Security
Alliance, Inc. (“United”) entered into an agreement for United to install and operate a video
surveillance system at LBAA’s auction facility. On January 8, 2002, the system was installed.
Following installation of the equipment, finalization of formal agreements, and LBAA’s
payment of the security deposit and first month’s lease payment, United provided its warranty
agreement to LBAA. The warranty required written acceptance by LBAA and contained a
forum selection clause limiting jurisdiction to Florida courts and sole venue to Hillsborough
County, Florida. LBAA signed United’s warranty on January 15, 2002.
¶2. Thereafter, LBAA alleges the system failed to operate properly, and after several
unsuccessful attempts to contact United to void the agreement, it filed a complaint against
United in the Circuit Court of the First Judicial District of Harrison County, Mississippi, on
June 25, 2004. LBAA’s complaint alleged, inter alia, that United was guilty of (1) breach of
contract; (2) breach of express warranty; (3) breach of implied warranty of merchantability;
and (4) breach of implied warranty of fitness for a particular purpose. LBAA’s certified letter
containing the summons and complaint, along with discovery requests, was mailed to United
on June 25, 2004. Within the discovery requests was “Request for Admission No. 1," which
asked United to admit that jurisdiction was proper in the Mississippi court. LBAA received
a domestic return receipt of the certified letter, signed by Donna Moon. United did not file
responsive pleadings or respond to discovery requests. LBAA sent a second summons with
a copy of the original complaint to United on July 29, 2004. United responded by filing a
motion to dismiss on September 8, 2004, contesting the Mississippi court’s jurisdiction,
relying on the forum selection clause contained in its warranty.
¶3. On January 13, 2005, the circuit court granted United’s motion and dismissed the action
without prejudice. Following denial of its motion for reconsideration, LBAA filed this appeal.
FACTS
¶4. In December 2001, LBAA and United entered into negotiations for United to install a
video surveillance system at LBAA’s auction facility in Long Beach, Mississippi. On
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December 18, 2001, LBAA paid $1,495.86 to United for a security deposit and first month’s
payment on the system. On December 20, 2001, the agreement was finalized as LBAA
financed the transaction by entering into three-year lease agreements for the equipment
through three separate companies. On December 20, 2001, J. Terry Ottinger, United’s
President, wrote to M.C. Morris of LBAA, stating that “[y]our business not only will benefit
from 15 years of experience, specializing in the design and installation of Closed Circuit
Television Systems, but you will also enjoy our ‘World Class’ service and warranty program
combined with the best overall value available anywhere.”
¶5. The system was installed on January 8, 2002. However, United did not provide its
“Exclusive CCTV System Warranty,” until January 15, 2002. According to Bryan Morris, an
LBAA manager, “[b]y the time I received the Express Warranty form, [LBAA] had already
entered into the lease agreement and paid the security deposit and first months rent on the
system.” (Emphasis added). The warranty contained this forum selection clause:
[t]he undersigned mutually agree this warranty is offered by [United Security]
a Florida Corporation in accordance with the Laws of the State of Florida,
therefore any dispute whatsoever arising from this agreement or any other
agreement between the parties shall be the subject matter jurisdiction of the
Courts of the State of Florida and it is specifically agreed that venue shall
be proper solely in Hillsborough County, Florida.
(Emphasis added). Although the warranty was issued by United, it had a signature line for the
purchaser/lessor of the equipment warranted.
¶6. Thereafter, LBAA alleges that the system repeatedly failed to operate properly. On
September 3, 2003, LBAA wrote to United complaining of defects in the system and
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“request[ing] that the equipment be removed and that all contracts ... be cancelled.” After no
response from United, LBAA wrote to United on November 11, 2003, stating:
[w]e have not heard from you since [September 3, 2003], and continue to be
plagued with difficulties and inconveniences of the equipment that [LBAA]
purchased from your firm. ... On behalf of [LBAA], demand is hereby made that
the equipment installed by your firm be immediately removed and that an
appropriate adjustment be made with American Express on their continued
efforts to collect from LBAA.
¶7. Still receiving no response from United, LBAA filed a complaint against United in
circuit court. That same day, a certified letter1 was sent to Ottinger2 containing the summons
and complaint, the combined interrogatories, requests for production of documents, and
requests for admissions.3 “Request for Admission No. 1" reads, “[p]lease admit that the Circuit
Court for the First Judicial District of Harrison County, Mississippi has jurisdiction of the
parties and the subject matter of this lawsuit.” On June 28, 2004, a domestic return receipt of
LBAA’s certified letter was executed by Donna Moon, an employee of United.
¶8. After receiving no response from United, LBAA sent another summons and complaint
to United on July 29, 2004.4 In this instance, the record does not reveal the service of the
1
The letter and attachments were served by first class mail, postage prepaid, and
required a return receipt according to Melissa Townsley, a secretary at the law firm
representing LBAA.
2
Ottinger was United’s registered agent.
3
Notice of service was filed in the circuit court on June 25, 2004, pursuant to Uniform
Local Rule 6(e)(2), providing that United was served by mail with combined interrogatories,
requests for production of documents, and requests for admissions. The notice to defendant
of summons and complaint sent to United on June 25, 2004, was filed on July 8, 2004.
4
The Notice to Defendant of Summons and Complaint sent to United on July 29, 2004
was filed on August 31, 2004.
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accompanying discovery requests. On August 11, 2004, the summons was served upon
United.5 United filed a motion to dismiss challenging venue and jurisdiction. LBAA filed a
response and motion to stay motion to dismiss pending discovery on jurisdiction and venue
issues. LBAA asserted that it “has propounded discovery relative to jurisdictional and venue
issues and [United’s] response to this discovery is due on September 27, 2004.” (Emphasis
added). On September 27, 2004, United filed a motion to quash and objection to discovery
requests asserting “[i]n the event that the Court determines that [United’s] response to the
Request for Admissions is due on September 27, 2004,” United “hereby denies each and every
Request for Admission propounded on it by [LBAA].”
¶9. United’s motion to dismiss was granted, and the action was dismissed without prejudice.
The circuit court found:
[t]he Warranty Agreement which is part of the contract entered into between the
parties contains a forum selection clause. By signing the agreement the parties
stipulated that any dispute arising between them relative to this system would
proceed in Florida state court with venue in Hillsborough County, Florida.
There was no showing that this agreement was fraudulent or overreaching and
therefore it will be upheld. See Tel-Com Mgmnt., Inc. v. Waveland Resort
Inns, Inc., 782 So. 2d 149, 153 (Miss. 2001). The Court finds there is no need
for discovery on this issue. It is therefore, ORDERED AND ADJUDGED, that
the Motion to Dismiss of [United Security] is granted and the complaint is
dismissed without prejudice.
After denial of its motion for reconsideration, LBAA filed this appeal.
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According to Ottinger:
[o]n August 11, 2004, I was served with the Complaint and the exhibits attached
thereto by [LBAA] in the [circuit court]. However, I did not receive discovery
requests of any kind whatsoever at the time the Complaint was served nor have
I received any discovery requests from [LBAA] or its counsel at any time
thereafter.
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ISSUES
¶10. LBAA raises four issues:
(1) Whether United waived the choice of forum clause and consented to
jurisdiction in the circuit court by failing to respond to certain Requests for
Admission served by LBAA?
(2) Whether a choice of forum clause in the express warranty issued by United
operates to deny LBAA’s access to Mississippi Courts for lack of in personam
jurisdiction over United?
(3) Alternatively, whether discovery is needed to determine the enforceability
and/or applicability of the forum selection clause to this lawsuit?
(4) Alternatively, whether the choice of forum clause in the express warranty is
supported by consideration sufficient to make it applicable to the entire
agreement of the parties and thus to all of LBAA’s claims or whether it is
limited only to breach of express warranty claims?
This Court finds Issue (2) to be dispositive and addresses only that issue.
STANDARD OF REVIEW
¶11. “[I]ssues pertaining to the interpretation and enforcement of a forum selection clause
should be deemed to be questions of law and subject to de novo review.” Titan Indem. Co.
v. Hood, 895 So. 2d 138, 145 (Miss. 2004) (emphasis added).
ANALYSIS
Whether a choice of forum clause in the express warranty issued by United
operates to deny LBAA’s access to Mississippi Courts for lack of in
personam jurisdiction over United?
¶12. The forum selection clause states, in part:
any dispute whatsoever arising from this agreement or any other agreement
between the parties shall be the subject matter jurisdiction of the Courts of the
State of Florida and it is specifically agreed that venue shall be proper solely in
Hillsborough County, Florida.
¶13. Forum selection clauses are “presumptively valid and enforceable,” unless the
resisting party can show:
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(1) Its incorporation into the contract was the result of fraud, undue influence
or overweening bargaining power;
(2) The selected forum is so gravely difficult and inconvenient that the resisting
party will for all practical purposes be deprived of its day in court; or
(3) The enforcement of the clause would contravene a strong public policy of
the forum in which the suit is brought, declared by statute or judicial decision.
Id. at 146 (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-13, 92 S. Ct. 1907,
1914, 1916-17, 32 L. Ed. 2d 513 (1972) (emphasis added)). Moreover, “the resisting party
bears the burden of showing that the enforcement of the clause is unreasonable.” Titan
Indem., 895 So. 2d at 146 (citing Zapata, 92 S. Ct. at 1917).
¶14. United asserts that fraud was first raised by LBAA in its response to the motion to
dismiss and motion to stay motion to dismiss pending discovery on jurisdiction and venue
issues, filed on September 22, 2004, and has yet to be pled with particularity. See Miss. R.
Civ. P. 9(b). Assuming arguendo that the fraud claim is properly raised, United maintains that
the forum selection clause is enforceable because it was clearly stated in a warranty agreement
which was signed by both LBAA and United. United argues that there was no overweening
bargaining power because both parties were commercial entities freely entering into an
agreement.
¶15. LBAA persuasively posits that United “fraudulently inserted the forum selection clause
into the express warranty document ... weeks after the parties had finalized their agreement for
leasing the surveillance system and United had installed the defective surveillance system” and
it was “contractually bound in the financing agreement[s] and had no bargaining leverage to
negotiate the terms of the express warranty.” LBAA has amply satisfied the burden of showing
enforcement of the clause to be unreasonable. The undisputed facts that the system had
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previously been installed, leases were finalized and enforceable, and the deposit and first
month’s rent had been paid, all before LBAA was given the warranty, are more than sufficient
to overcome the presumptive validity and enforceability of the forum selection clause, as
LBAA was a victim of United’s overweening bargaining power. There was no meaningful
opportunity to object to the forum selection clause.
¶16. The circuit court cited Tel-Com as the basis for its decision to enforce the forum
selection clause. Tel-Com held:
[t]he contract in the present case consisted of only two pages, and it was signed
by the president of Waveland. ... The contract between the parties in the
present case and the record show no signs of fraud, unfair dealing, or
overreaching on the part of either party. Instead, the record reflects a
commercial contract made between two commercial parties for their mutual
benefit. ... The forum selection clause did not include a separate heading entitled
‘Forum Selection Clause,’ yet the language of the clause was not in fine print.
It was included in the same manner as the other paragraphs of the contract on the
second page. Both parties contracted at arm’s length. If Waveland found the
terms of the forum selection clause objectionable, it had ample time to object
and negotiate for more favorable terms.
782 So. 2d at 152-53 (emphasis added).
¶17. Here, the warranty was signed by two commercial parties via their respective
representatives. Moreover, the form leaves no doubt regarding its substance, i.e. the presence
of a forum selection clause. However, there are glaring distinctions between this case and Tel-
Com, which this Court cannot ignore. Here, the system had been installed, the lease
agreements concluded and binding, consideration passed with the deposit and first month’s rent
paid, all before the warranty was delivered. The window of opportunity to negotiate more
favorable terms was already closed. Refusal to sign would leave the purchaser/lessor with no
written express warranty. At this juncture, United possessed overweening bargaining power
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to effect its will regarding forum selection. Therefore, this Court conclusively finds the forum
selection clause violates the first prong of the Zapata test.
CONCLUSION
¶18. For these reasons, this Court concludes the forum selection clause is unenforceable.
Accordingly, this Court reverses the circuit court’s order of dismissal and remands this case
to the Circuit Court of the First Judicial District of Harrison County for further proceedings
consistent with this opinion.
¶19. REVERSED AND REMANDED.
SM ITH, C.J., WALLER AND COBB, P.JJ., DIAZ, EASLEY AND CARLSON, JJ.,
CONCUR. GRAVES, J., CONCURS IN RESULT ONLY. DICKINSON, J., NOT
PARTICIPATING.
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