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ALOHA LEASING v. CRAIG GERMAIN CO.

July 15, 1986

ALOHA LEASING, a Division of THE BENNETT FUNDING GROUPS, INC., Plaintiff,
v.
CRAIG GERMAIN COMPANY, CRAIG GERMAIN, DAVIDSON DEVELOPMENT, INC., JRJ CONSTRUCTION, INC., CRAIG GERMAIN COMPANY RELATORS, INTERIOR PLAN, INC., RESERVE MORTGAGE CORPORATION, PROPERTY INCOME MANAGEMENT, INC., HOWE BUILDER SERVICE AND WARRANTY, INC., GERMAIN BUSINESS BROKERAGE, FIRST SOUTHWEST REAL ESTATE SECURITIES, INC., TROPIC SOUTH, INC., Defendants



The opinion of the court was delivered by: MUNSON

MEMORANDUM-DECISION AND ORDER

This action arises out of a series of business transactions between plaintiff Aloha Leasing ("Aloha") and defendant Craig Germain Company ("Germain") negotiated and consummated in late 1984 and early 1985. Specifically, Aloha is seeking to enforce its rights under several equipment leases and a credit agreement whereby Aloha loaned approximately $ 800,000 to Germain. The loans in question are evidenced by two promissory notes which are guaranteed by all of the other defendants in this action. Aloha has also asserted claims against the defendants alleging fraud, securities violations, and RICO violations.

 Aloha commenced this action on September 9, 1985, by filing a complaint. Service of the summons and complaint was made on the defendants on September 19, 1985. Three days prior to said service, Germain commenced an action against Aloha in state court in Texas alleging, inter alia, that Aloha had breached an agreement to loan Germain $1,300,000 under the same agreements that gave rise to Aloha's claims in this action. Soon after commencement of Germain's action in Texas (the "Texas action"), Aloha removed the case to the United States District Court for the Northern District of Texas. At the present time, Aloha's motion to transfer the Texas action to this Court or to stay that action pending resolution of this action is pending before the Texas court.

 Similarly, this Court now has before it a motion by the defendants to transfer this action to the Northern District of Texas or to stay this action pending resolution of the Texas action. *fn1" Both the plaintiff and the defendants concede that the issues raised in the New York and the Texas actions are essentially identical. The defendants contend, however, that the Northern District of Texas is a more appropriate forum for the resolution of this controversy because almost all of the prospective witnesses in this case reside there. Moreover, Germain maintains that because of financial difficulties, it is unable to defend against Aloha's claims in this Court.

 Aloha disputes each of these contentions. More importantly, however, Aloha opposes the defendants' motion on the grounds that the agreements between Aloha and Germain contain a choice of forum provision designating either the New York State Supreme Court for Onondaga County or the United States District Court for the Northern District of New York as the forum for the resolution of disputes arising out of the transaction between Aloha and Germain. *fn2" Aloha maintains that this provision is binding upon the defendants regardless of the difficulty they might encounter defending this action before this Court. The defendants vigorously contest this issue and assert that it would be unreasonable and unfair for this Court to enforce the choice of forum provision contained in the "form" agreement between Aloha and Germain. For the reasons set forth below, this Court concludes that under the circumstances present herein, the choice of forum provision contained in the parties' agreement should be honored. Accordingly, the defendants' motion is denied in its entirety.

 DISCUSSION

 Prior to the Supreme Court's decision in The Bremen v. Zapata Off-Shore Co, 407 U.S. 1, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972), contractual choice of forum provisions were generally disfavored by the courts. In The Bremen, the Supreme Court upheld a choice of forum provision in the context of an admiralty controversy arising under an

 agreement between two international corporations. Id. at 13-15. The Court's reasoning in that case has since been extended beyond the scope of admiralty cases and the rule currently applied in this Circuit is as follows:

 Agreements entered into by knowledgeable parties in an arm's-length transaction that contain a forum selection provision are enforceable absent a showing of fraud, overreaching, unreasonableness or unfairness.

 City of New York v. Pullman, Inc., 477 F. Supp. 438, 441 n. 10 (S.D.N.Y. 1979). See also Bense v. Interstate Battery System of America, Inc., 683 F.2d 718 (2d Cir. 1982); Dukane Fabrics International, Inc. v. Jugolinija, 600 F. Supp. 202 (S.D.N.Y. 1985); Continental Grain Export Corp. v. Ministry of War-Etka Co., Ltd., 603 F. Supp. 724, 729 (S.D.N.Y. 1984); General Development Corp. v. Thomas W. Starke & Associates, Inc., Docket No. 77-CV-138, slip op. (N.D.N.Y. May 22, 1979) (Munson, D.J.).

 In the present case, the agreements between Aloha and Germain contain a provision designating either the New York State Supreme Court for Onondaga County or the United State's District Court for the Northern District of New York as the forum for the resolution of disputes arising under the parties' agreement. Both Aloha and Germain are sophisticated corporate entities that conduct substantial amounts of business, including the transactions at issue in this case. When two corporate entities like Aloha and Germain agree in an arm's length transaction that disputes arising under their agreement will be resolved in a particular forum, that agreement should be honored in the absence of a showing of fraud, overreaching, unreasonableness or unfairness.

 The defendants do not maintain that they were defrauded by Aloha. Their primary contention is that it would be unreasonable and unfair to require them to defend this action in the Northern District of New York. In this regard, Germain, the principal defendant, maintains that as a result of the events giving rise to this lawsuit, it is in the midst of severe financial problems which make it virtually impossible for it to defend this action some 1,500 miles from its center of operations in Texas. In addition, the defendants contend that the transactio at issue occurred in Texas, the majority of witnesses reside in Texas, and the relevant documentary evidence is located in Texas. Finally, Germain claims that with regard to the forum selection provision, it was overreached in its negotiations with Aloha because of Aloha's superior financial position and its insistence on the inclusion of the clause in the parties' agreement. It is the defendants' position that all of these facts militate against this case being litigated before this Court.

 Were this Court applying a traditional change of venue analysis, it might be more persuaded by the defendants' arguments. In this case, however, the parties have previously agreed that disputes arising under their agreement will be resolved in either this Court or the local state court. The defendants have failed to demonstrate that they will not receive a full and fair hearing in this district. Cf. Rockwell International Systems, Inc. v. Citibank, N.A., 719 F.2d 583, 587-88 (2d Cir. 1983) (post-revolutionary Iranian judicial system would not afford an adequate remedy). Moreover, their allegations of compelling hardship, financial or otherwise, are unsubstantiated. If anything, the record in this case indicates that regardless of the forum where this action proceeds, some hardship will befall one party or the other simply by virtue of the fact that the parties are headquartered in different parts of the country. *fn3" Under these circumstances, there is nothing unreasonable or unjust about holding Germian to its agreement. Cf. Leasing Service Corp. v. Broetje, 545 F. Supp. 362, 369-70 (S.D.N.Y. 1982).

 In the Leasing Service case, Leasing Service Corporation ("LSC"), the assignor of a lease of a water well drilling rig, was suing to recover the unpaid balance of the lease, late charges and attorney's fees. The rig was originally leased by LSC's assignor to defendant Don Chappel who later transferred the lease to defendant Ralph Broetje. When Broetje failed to make required payments, LSC repossessed the rig and sold it at an auction. It then brought suit in the Southern District of New York to recover the deficiency from Broetje, Chappel, and the individual guarantors of the original lease, each of whom approved the transfer of the lease to Broetje. All of the defendants were residents of either the State of Washington or Idaho. Soon ...


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