Appliance Sales & Service, Inc. v. Command Electronics Corp.

443 S.E.2d 784 (1994)

APPLIANCE SALES & SERVICE, INC., Plaintiff,
v.
COMMAND ELECTRONICS CORPORATION and Issac Shephard Funderburk, III and All Other Officers, Directors and Stockholders of Command Electronics Corporation, Defendants.

No. 939SC551.

Court of Appeals of North Carolina.

June 7, 1994.

Zollicoffer & Long by John H. Zollicoffer, Jr., Henderson, for plaintiff-appellee.

Bobby W. Rogers, Henderson, for defendants-appellants.

EAGLES, Judge.

Defendants argue that the trial court erred in denying their motion to dismiss "pursuant to the forum selection clause of the contract." We disagree.

I.

In Perkins v. CCH Computax, Inc., 333 N.C. 140, 141, 423 S.E.2d 780, 781 (1992), our Supreme Court upheld the validity of a forum selection clause contained in a commercial contract to purchase software entered into between a North Carolina certified public accountant and a California-based software company. In Perkins, our Supreme Court stated:

Recognizing the validity and enforceability of forum selection clauses in North Carolina is consistent with the North Carolina rule that recognizes the validity and enforceability of choice of law and consent to jurisdiction provisions. Johnston County v. R.N. Rouse & Co., 331 N.C. 88, 414 S.E.2d 30. For the foregoing reasons, we embrace the modern view and hold that forum selection clauses are valid in North Carolina. A plaintiff who executes a contract that designates a particular forum for the resolution of disputes and then files suit in another forum seeking to avoid enforcement of a forum selection clause carries a heavy burden and must demonstrate that the clause was the product of fraud or unequal bargaining power or that enforcement of the clause would be unfair or unreasonable. The dissent argues that this Court's decision in this case "place[s] tens of thousands of our citizens at the mercy of those who will take advantage of them by the use of forum selection clauses." We disagree. Under our decision, the trial court retains the authority to hear the case when it determines that the forum selection clause was the product of fraud or unequal bargaining power or that the clause would be unfair or unreasonable.

333 N.C. at 146, 423 S.E.2d at 784. After Perkins, in Bell Atlantic Tricon Leasing Corp. v. Johnnie's Garbage Serv., 113 N.C.App. 476, 439 S.E.2d 221 (1994), this Court analyzed a consent to jurisdiction clause in a standardized lease agreement purporting to bind a North Carolina corporation to litigate in a New Jersey trial court. Id. at 479, 439 S.E.2d at 224. There, in determining whether the agreement was unfair or unreasonable, this Court examined the "circumstances surrounding the defendant's signing of the lease agreement" and stated:

When he [the North Carolina corporation's president] signed the lease agreement, defendant was a 79-year-old man who ran a small family business. There was no bargaining over the terms of the contract between the parties, who were far from equal in bargaining power. The lease agreement itself was a one page pre-printed form with type on the front and back. The forum selection and consent to jurisdiction provisions were on the back side of the paper, where there was no place for defendant to sign or initial. The provisions were in fine print under a paragraph labeled "Miscellaneous," and were never called to defendant's attention or explained to him. Plaintiff made no showing whatsoever that defendant was actually aware or made aware of the significance of the consent to jurisdiction clause.

Considering all of these factors, we find that defendant did not knowingly and intelligently consent to the jurisdiction of the New Jersey courts. Therefore, enforcement of this provision would be both unfair and unreasonable.

Id. at 480-81, 439 S.E.2d at 224-25.

Here, the trial court, after reviewing "the totality of the circumstances reflected in the court files," found that the enforcement of the forum selection clause "would be unfair and unreasonable." Neither Perkins, nor any subsequent reported decision of the North Carolina appellate courts that we have discovered, has explicitly stated the standard of appellate review for orders assessing the enforceability of forum selection clauses. We note that the federal circuits are divided between the abuse of discretion standard, see Pelleport Investors, Inc. v. Budco Quality Theatres, Inc., 741 F.2d 273, 280 n. 4 (9th Cir.1984); Sun World Lines, Ltd. v. March Shipping Corp., 801 F.2d 1066, 1068 n. 3 (8th Cir.1986); and the de novo standard of review, see Hugel v. Corporation of Lloyd's, 999 F.2d 206, 207 (7th Cir.1993); Lambert v. Kysar, 983 F.2d 1110, 1112 (1st Cir.1993); Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 956 (10th Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 658, 121 L. Ed. 2d 584 (1992); Instrumentation Assocs., Inc. v. Madsen Electronics (Canada) Ltd., 859 F.2d 4, 5 (3d Cir.1988). Given that the disposition of each case is highly fact-specific, we conclude that the abuse of discretion standard is the more appropriate standard. See State v. Locklear, 331 N.C. 239, 248, 415 S.E.2d 726, 732 (1992) ("The abuse of discretion standard of review is applied to situations, such as this, which require the exercise of judgment on the part of the trial court. The test for abuse of discretion requires the reviewing court to determine whether a decision ``is manifestly unsupported by reason,' or ``so arbitrary that it could not have been the result of a reasoned decision.' Little v. Penn Ventilator, Inc., 317 N.C. 206, 218, 345 S.E.2d 204, 212 (1986)"); Greenwood v. Tillamook Country Smoker, Inc., 857 S.W.2d 654, 656 (Tex.App.1993); Personalized Marketing Service, Inc. v. Stotler & Co., 447 N.W.2d 447, 450 (Minn.App. 1989), review denied (12 January 1990). Cf. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 7, 92 S. Ct. 1907, 1911-1912, 32 L. Ed. 2d 513, 519 (1972) (abuse of discretion standard applicable to forum non conveniens determination). However, we note that the trial court's order here would also be affirmed under the de novo standard of review.

II.

We now address whether the trial court abused its discretion by declining to enforce the contract's forum selection clause which provided:

9. Place of Execution: The parties hereto agree that this Agreement shall be deemed to have been executed in the State of South Carolina, and that the laws of said State shall govern any interpretation or construction of this Agreement. In the event of a disagreement between the parties, the Courts in Charleston County, South Carolina shall have exclusive jurisdiction and venue and the Company shall be entitled to reasonable attorney fees and collection costs.

In Johnston County v. R.N. Rouse & Co., 331 N.C. 88, 92-93, 414 S.E.2d 30, 33 (1992), our Supreme Court stated:

Historically, parties have endeavored to avoid potential litigation concerning judicial jurisdiction and the governing law by including in their contracts provisions concerning these matters. Although the language used may differ from one contract to another, one or more of three types of provisions (choice of law, consent to jurisdiction, and forum selection), which have very distinct purposes, may often be found in the boilerplate language of a contract. The first type, the choice of law provision, names a particular state and provides that the substantive laws of that jurisdiction will be used to determine the validity and construction of the contract, regardless of any conflicts between the laws of the named state and the state in which the case is litigated. The second type, the consent to jurisdiction provision, concerns the submission of a party or parties to a named court or state for the exercise of personal jurisdiction over the party or parties consenting thereto. By consenting to the jurisdiction of a particular court or state, the contracting party authorizes that court or state to act against him. A third type, a true forum selection provision, goes one step further than a consent to jurisdiction provision. A forum selection provision designates a particular state or court as the jurisdiction in which the parties will litigate disputes arising out of the contract and their contractual relationship....

Due to the varying language used by parties drafting these clauses and the tendency to combine such clauses in one contractual provision, the courts have often confused the different types of clauses. One commentator recognizing this confusion has offered the following guidance:

A typical forum-selection clause might read: "[B]oth parties agree that only the New York Courts shall have jurisdiction over this contract and any controversies arising out of this contract." ...

A ... "consent to jurisdiction" clause[] merely specifies a court empowered to hear the litigation, in effect waiving any objection to personal jurisdiction or venue. Such a clause might provide: "[T]he parties submit to the jurisdiction of the courts of New York." Such a clause is "permissive" since it allows the parties to air any dispute in that court, without requiring them to do so.

... A typical choice-of-law provision provides: "This agreement shall be governed by, and construed in accordance with, the law of the State of New York."

(Citations omitted.)

Reviewing the contractual provisions at issue here, the language, "[t]he parties hereto agree that this Agreement shall be deemed to have been executed in the State of South Carolina, and that the laws of said State shall govern any interpretation or construction of this Agreement," is a choice of law provision. Id. The second sentence, "[i]n the event of a disagreement between the parties, the Courts in Charleston County, South Carolina shall have exclusive jurisdiction and venue ..." is a forum selection clause. Id.

III.

Here, we cannot say that the trial court's refusal to enforce the forum selection clause is without a rational basis in the facts. The evidence shows that defendants made at least two prior representations to the effect that if plaintiff sought a remedy, plaintiff could sue defendants in the courts of North Carolina. In response to plaintiff's second set of interrogatories, defendants admitted that a "complaint or accusation" had been made against them to the North Carolina Attorney General. One representation was made to the Office of the Attorney General, as noted in John H. Zollicoffer, Jr.'s (plaintiff's counsel's) uncontradicted affidavit which provides in pertinent part as follows:

That the matters raised in the complaint were brought to the attention of the Consumer Protection Division of the Office of the Attorney General of the State of North Carolina. That in its attempt to keep the Attorney General of the State of North Carolina from taking any action on the same, [defendant] Shep Funderburk (Issac Shephard Funderburk, III) wrote a letter on behalf of Command Electronics Corporation dated July 9, 1991 to John H. Zollicoffer, Jr., Attorney for Plaintiff, and further wrote another letter dated July 9, 1991 to the Office of the Attorney General, Consumer Protection Division.

That in the letter to John H. Zollicoffer, Jr., Shep Funderburk stated that:

".... indeed you have available a civil court system in the great [S]tate of North Carolina to your client if indeed your client feels that they were injured in their dealings with Command Electronics Corporation."

In the letter to the North Carolina Attorney General on the same day, Shep Funderburk stated on behalf of Command Electronics Corporation:

"If Appliance Sales & Service and Command Electronics Corporation can't work out their differences, then their attorney has the civil court of North Carolina available to him to file suit."

(Emphasis in original.) Given defendants' prior inconsistent conduct in their communications with plaintiff and the Attorney General, we conclude that the trial court could have found inter alia that defendants are estopped from asserting the forum selection clause as a defense to the filing of the action in North Carolina. We conclude that plaintiff has met its "heavy burden." Perkins, 333 N.C. at 146, 423 S.E.2d at 784. From the record, it is clear that the trial court did not abuse its discretion in refusing to enforce the terms of the forum selection clause.

IV.

For the reasons stated, the trial court's 8 February 1993 order is affirmed.

Affirmed.

MARTIN and McCRODDEN, JJ., concur.