SRC is a corporation organized and existing under the laws of
the State of Texas, with its principal place of business in
Defendants Shelton Ranches, SRC Hotels, SRC Inns, Shelton
Land and Shelton Holdings are affiliates of SRC and are
corporations organized and existing under the laws of the State
of Texas with their principal places of business in Kerrville,
Texas. Each of the corporate defendants has a common set of
officers holding identical positions (Shelton), president, F.
Shelton, vice president and secretary, James Bobbitt
("Bobbitt") executive vice president and assistant secretary,
Mark Stark ("Stark") treasurer and assistant secretary, Ned
Hartline ("Hartline"), assistant secretary.
Robert Shelton is a citizen and resident of the State of
Texas, and is the president of each of SRC, SR Inns, SRC
Hotels, Shelton Ranches, Shelton Land, and Shelton Holdings.
Shelton is the sole director of each of the other corporate
F. Shelton, is a citizen and resident of the State of Texas
and is the spouse of Shelton. F. Shelton is the vice-president
and secretary of all of the corporate defendants.
Paribas instituted this suit on August 18, 1989. Both the
12(b) defendants and the 1404 defendants (collectively the
"Shelton Parties") filed this motion to dismiss on October 20,
1989. After adjournment by the parties this oral argument was
heard on March 16, 1990 and the motion was considered fully
submitted as of that date.
In 1988, Shelton, a Texas businessperson, developed a project
(the "Project") to grow and market "contra-seasonal" apples.
Shelton's idea was to grow and harvest apples in Texas in the
early summer months in the hope that fresh apples would bring
a premium over apples stored for long periods under controlled
atmospheric conditions. Shelton proposed to support the Project
with existing sugarcane and vegetable operations in Florida. To
attract investors to finance the Project, Shelton prepared a
brochure and began to contact possible sources of financing
throughout the country, including New York.
In the Spring of 1988 Shelton met several times with
representatives of Paribas to discuss his proposal. These
meetings took place in New York, Florida, and Texas.
1. The Engagement Letter
On May 13, 1988, Paribas and SRC signed an engagement letter
(the "Engagement Letter") whereby Paribas agreed to identify
and contact potential sources of financing and provide other
advisory and investment banking services in exchange for the
payment of certain fees and the reimbursement of Paribas'
out-of-pocket expenses. Shelton also agreed to pay Paribas'
attorneys' fees in the event of litigation.
The Engagement Letter specifically provides that any dispute
arising out of the agreement shall be governed by New York law,
that any such dispute shall be adjudicated in the state or
federal courts in the Southern District of New York, and that
Shelton consents to service of process by certified mail. The
Engagement Letter was signed by Shelton as president of SRC.
The Engagement Letter was negotiated. On May 6, Paribas sent
a proposed engagement letter to Shelton and On May 12, the
letter, with a number of handwritten changes by Shelton, his
executives or his attorney, was telecopied to Paribas for
retyping and incorporated in the final Engagement Letter signed
by the parties on May 13.
2. The June 17 Term Sheet
In late May and early June, Paribas' officers and
representatives toured the proposed orchard sites in Florida
and Texas and met with Shelton and his representatives to
obtain information regarding Shelton's operations. Paribas
alleges that, because of Shelton's financial condition, the
financing of the Project would be more difficult than
originally anticipated. In early June, Shelton and his
executive vice president Bobbitt went to Paribas' office in
New York for two days to continue the discussions.
Paribas' concerns led to a demand for a higher fee agreement
and adequate security for its fees and expenses in order to
continue to work on the proposal. The negotiations between the
parties ultimately led to the signing of a term sheet (the
"Term Sheet"), dated June 17, 1988, which described and
memorialized the parties' understanding of the proposed
Among other things, the Term Sheet described that the
property to be contributed to the proposed partnership included
approximately 17,000 acres in Palm Beach County, Florida for
the production of sugarcane and vegetables, and approximately
21,750 acres in Texas to be devoted to apple production. The
Term Sheet also sets forth the obligations of the parties.
The Term Sheet was signed four times by Shelton, on behalf of
himself, SRC, Shelton Land, and Shelton Ranches. The Term Sheet
also purports to bind "Senior Shelton Group Members", including
F. Shelton and each of the corporate defendants in that the
Term Sheet defines "Senior Shelton Group Members" to include F.
Shelton, and any entity which she substantially owns. The Term
Sheet also discusses that the newly formed subsidiary of SRC
was to be the general partner of the Texas Orchards limited
partnership. Shelton was to be the Chief Executive Officer of
this company and Shelton and F. Shelton were the only named
employees. At that time F. Shelton was also an employee of SRC.
The Term Sheet contains choice of law and forum selection
clauses identical to those contained in the May 13, Engagement
This Term Sheet shall be governed by the laws of
the State of New York. Any dispute arising out of
this Agreement shall be adjudicated exclusively in
the courts of the State of New York, and SRC
hereby agrees that service of process upon it by
registered mail at the address shown herein shall
be deemed adequate and lawful service.
The forum selection clause in the Term Sheet was the subject
of discussion and negotiation between the parties. SRC and
Shelton promised in the Term Sheet to cause Paribas to be
granted a security interest in art work or other collateral
with a value of at least $2 million to secure Paribas' fees and
3. June 17 Security Agreement
In response to this last provision in the Term Sheet, the
parties contemporaneously signed a guaranty and security
agreement (the "Security Agreement") which guaranteed, among
other things, payment to Paribas and gave Paribas security in
certain works of art, specifically, a Remington painting,
"Death of Wascind" owned by Shelton, and a painting by Charles
M. Russell, "Free Trader", owned by SRC.
To fully secure Paribas' right to these paintings, the
Security Agreement is signed by Shelton seven times, once on
his own behalf, and once on behalf of each of the corporate
defendants, and by F. Shelton. The Agreement provides that F.
Shelton shall not have any personal liability for the
obligation; however, each of the signatories, including F.
Shelton warrant that the works of art listed are free and clear
of any lien and that the Security Agreement creates a valid and
perfected security interest in them, prior to any other
interest. The June 17 Security Agreement also provides that
Paribas' rights are not impaired by the failure of investors to
invest or the failure of the deal to go forward.
Moreover, the Security Agreement provides that it is to be
governed and construed under New York law. The Agreement states
that all notices and communications should be sent to SRC to
the attention of Shelton; notice to the other defendants is
4. The Amended Engagement Letter
On June 24, 1988, the parties also signed a letter amending
the Engagement Letter (the "Amended Engagement Letter"), which
provides for an additional fee to Paribas in the amount of
$250,000. The Amended Engagement Letter provides that it will
be governed by the internal law of
New York and incorporates the last three paragraphs of the Term
Sheet, which include the forum selection clause granting
exclusive jurisdiction to the federal and state courts in New
York. The Amended Engagement Letter is signed by Shelton on
behalf of SRC.
5. September 29 Amended Security Agreement
On September 29, 1988 the parties signed an amendment to the
Security Agreement (the "Amended Security Agreement") which,
among other things, gave Paribas a security interest in eight
additional works of art. The Amended Security Agreement again
provides that it is to be governed by and construed in
accordance with the internal laws of the State of New York.
This Agreement is signed by Shelton and F. Shelton personally,
and by Bobbitt as executive vice president of each of SRC,
Shelton Ranches, SRC Hotels, and SRC Inns.
6. September 29 Art Custody Agreement
In connection with the Amended Security Agreement, the
Shelton parties also entered into an Art Custody Agreement
dated September 29, 1988 which secured Paribas' right to the
agreed-upon pieces of art in the Kerrville Cowboy Artist
Museum. The Art Custody Agreement relates both to the Security
Agreement and Amended Security Agreement. It provides that it
shall be governed by the internal laws of the State of New
York. It also provides that any dispute relating to the Art
Custody Agreement, the Security Agreement or the Amended
Security Agreement shall be adjudicated in the federal or state
courts of New York. The signatories further agreed to submit to
the jurisdiction of the New York courts and affirmatively
agreed not to contest New York jurisdiction:
Each of the Museum and each Grantor hereby agrees
(i) that if the Secured Party should so elect, all
questions arising among all or any two or more of
the parties relating to the Security Agreement or
this Amendment shall be resolved by any state or
federal court located in the State of New York
which the Secured Party may select, (ii) to the
jurisdiction of any such court and not to contest
(on grounds of forum non conveniens, lack of venue
or otherwise) the right of such court to resolve
any such issue and (iii) that personal delivery by
any person or by return receipt requested
registered mail of papers relating to any such
court proceeding shall constitute adequate service
of such papers on the Museum or any Grantor.
Shelton, F. Shelton, and Bobbitt, on behalf of the corporate
defendants, signed the Art Custody Agreement.
A. Motion to Dismiss is Denied
1. Forum Selection Clauses
In this circuit it is well-settled that forum-selection
clauses regularly are enforced under the principles the Supreme
Court announced in M/S Bremen v. Zapata Off-Shore Co.,
407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), and applied to federal
jurisdiction cases in Scherk v. Alberto-Culver Co.,
417 U.S. 506, 519, 94 S.Ct. 2449, 2457, 41 L.Ed.2d 270 (1974) and
Stewart Org. Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239,
101 L.Ed.2d 22 (1988); see Luce v. Edelstein, 802 F.2d 49, 57
(2d Cir. 1986); Bense v. Interstate Battery Sys. Inc.,
683 F.2d 718, 721 (2d Cir. 1982); 600 Grant Street Assoc. Ltd.
Partnership v. Leon-Dielmann Invest. Partnership, 681 F. Supp. 1062,
1064 (S.D.N.Y. 1988); Karl Koch Erecting Co. v. New York
Convention Center Dev. Corp., 656 F. Supp. 464, 467 (S.D.N Y
1987), aff'd, 838 F.2d 656 (2d Cir. 1988). Forum selection
clauses are valid and enforceable consents to jurisdiction in
the New York courts. Luce, 802 F.2d at 57; Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Lecopulos, 553 F.2d 842, 844
(2d Cir. 1977); In re Ultracashmere House Ltd., 534 F. Supp. 542,
545 (S.D.N.Y. 1982).
2. The 12(b) Defendants
Each defendant signed at least three of the agreements
underlying the transaction: the Security Agreement, the Amended
Security Agreement and the Art Custody Agreement. Each contract
signed by each
of these defendants contains or incorporates a forum selection
clause. In the Art Custody Agreement, defendants not only
consented to jurisdiction and to service of process by
registered mail, but also affirmatively agreed not to contest
jurisdiction and venue in New York. All three contracts also
provide a clause stating that the contracts should be governed
and construed in accordance with New York law.
Defendants do not contest the validity of the agreements.
There is no claim of fraud with respect to the making of the
jurisdictional and forum selection clauses of the agreements.
The Shelton Parties contest merely the jurisdictional contacts
of the 12(b) defendants.
Although the underlying dispute may require construction
initially only of the obligations under the Engagement
Agreement, the Term Sheet and the Amended Engagement Letter,
there is no question that the Security Agreement, its amendment
and the Art Custody Agreement all were part of the bargain
contracted for and contemplated during negotiations between the
parties to induce Paribas' continued engagement, see Faberge
USA, Inc. v. Ceramic Glaze, 87 Civ. 5780, slip op. at 4, 1988
WL 31853 (March 1988 S.D.N.Y.) (forum selection clause in main
agreement enforceable against party who signed separate
guaranty when clause was part of "bargain"), and that the
Security and Art Custody Agreements were contemplated by the
Term Agreement and executed pursuant to the obligations set
forth in the Term Sheet.
Even if the 12(b) defendants' contention were adopted and the
court only looked to the Agreements which purportedly govern
the liability of the particular claims at issue, the Term Sheet
— an Agreement all concede is at issue — contains a New York
forum selection clause and a New York choice of law provision
and was signed by Shelton, on behalf of himself, SRC, Shelton
Land, Shelton Ranches. The 12(b) defendants contest
jurisdiction because they did not sign this or either of the
other two "underlying agreements."
The terms of the Term Sheet Agreement, however, purport to
bind Shelton Senior Group Members. The Term Sheet defines
"Senior Shelton Group Members" to include Fronie Shelton and
each of the corporate defendants. Moreover the Term Sheet
This Term Sheet shall be governed by the laws of
the State of New York. Any dispute arising out of
this Agreement shall be adjudicated exclusively in
the courts of the State of New York or in the
federal courts sitting in the Southern District of
New York, and SRC hereby agrees that service of
process upon it by registered mail at the address
shown herein shall be deemed adequate and lawful.
None of the 12(b) defendants have set forth any argument that
Shelton was not entitled to bind them to the Term Sheet
provisions. Shelton signed the Term Sheet as president of three
Shelton corporate entities who do not contest jurisdiction.
However, Shelton also acted as the 12(b) defendants agent at
least in connection with Term Sheet Agreement and that
Agreement is both at issue in the underlying dispute and
contains a New York forum selection clause.
Section 302 of the New York Civil Practice Law and Rules, the
long-arm statute providing jurisdiction over a foreign
defendant who "transacts any business" within the state if the
cause of action arises from the transaction of business,
provides that "a court may exercise personal jurisdiction over
any nondomiciliary . . . who in person or through an agent 1.
transacts any business within the state". N.Y.C.P.L.R. §
302(a)(1) (emphasis added). The transaction of business
standard is less demanding than the doing business standard for
jurisdictional purposes under C.P.L.R. § 301.
Shelton and the 1404 defendants do not and cannot contest
they transacted business in New York, only that they are not
"doing business" for § 301 purposes. There is no dispute over
whether the cause of action arose out of events that took
place, at least in part, in New York. The 12(b) parties only
contend that neither Shelton nor Bobbitt ever acted as their
agent or engaged in purposeful activities in New York on their
behalf, or with the consent of
the 12(b) defendants, and that none of the 12(b) defendants
stood to gain directly from the 1404 defendants' entry into the
The New York Court of Appeals recently has addressed what
constitutes agency for purposes of § 302. "Plaintiff need not
establish a formal agency relationship. . . . He need only
convince the court that [the agent] engaged in purposeful
activities in this State in relation to his transaction for the
benefit of and with the knowledge and consent of [the]
defendants and that they exercised some control over [the
agent] in the matter. . . ." Kreutter v. McFadden Oil Corp., 71
N Y2d 460, 467, 527 N.Y.S.2d 195, 199, 522 N.E.2d 40, 44
The Term Sheet, one of the principal agreements, purports to
bind these very 12(b) defendants and the negotiations and
discussions giving rise to this and all the agreements took
place in part in New York. Additionally, the Term Sheet
promises Paribas a security interest in art work or other
collateral to secure Paribas' fees and expenses and thereby
contemplates the obligations incorporated in the Security
Agreement, its Amendment, and the Art Custody Agreement, all
signed by the 12(b) defendants. None of the 12(b) defendants
contest that Shelton had the power to obligate them through the
Term Sheet agreement either to the provisions binding the
Senior Shelton Group members or to the provision contemplating
the collateralization through the Security and Art Custody
Agreements, signed by all of the 12(b) defendants. It would be
pure fiction to conclude that all of the 12(b) defendants,
without knowledge, consent, or benefit, allowed Shelton to bind
them to the Term Sheet agreement and to bind them to the
foreseeable exercise of the various security Agreements which
they all in turn signed. On the contrary, the 12(b) defendants,
as evidenced by their signatures on half of the documents in
connection with this dispute, were no less than joint
participants in the transaction and as such demonstrated the
necessary relationship to Shelton to support a finding of
agency on their behalf with respect to Shelton's activities in
New York. See Cutco Indus. Inc. v. Naughton, 806 F.2d 361, 366
(2d Cir. 1986) (discussing New York cases establishing the test
for agency to satisfy the jurisdictional requirements under
CPLR § 302(a)(1) and concluding joint venturers are agents of
Accordingly, taking Paribas' allegations as true on this
motion to dismiss, Shelton and the persons or corporations he
acted as agent for are subject to jurisdiction in New York
under § 302 on the basis of Shelton's contacts constituting the
transaction of business, including multiple visits and
communications with Paribas in New York, because the present
dispute arises, at least in part, out of those contacts.
3. The 1404 Defendants
The 1404 defendants have raised no objection to the forum
selection clauses they contracted for except their own
inadvertence. Shelton's affidavit states:
Confident that no litigation with Paribas would
arise, unaware of the fraudulence by which we had
been induced to engage it, and seriously pressed
for time, both I and the corporations I
represented could afford to concern ourselves only
with the substantive terms of the two agreements.
We therefore simply did not focus on the location
of the forum Paribas had chosen, having been
drawn, unwittingly, into a fraud.
Nonetheless, a sophisticated business person with practice in
contractual negotiation cannot escape the effect of a forum
selection clause by claiming lack of focus. See Leasing Serv.
Corp. v. Graham, 646 F. Supp. 1410, 1415 (S.D.N.Y. 1986) ("a
business man acting in a commercial context . . . is held to
have understood the consequences of his having signed the
[forum selection clause]"); First Interstate Leasing Serv. v.
Sagge, 697 F. Supp. 744, 747 (S.D.N.Y. 1988) (business people
are presumed to understand the consequences of their acts and
understand a simple contract).
Finally, although defendants appear to allege fraud by
Paribas, because there has been no allegation that any of the
selection clauses in any of the agreements was obtained through
fraud, the clauses will be enforced. See Scherk, 417 U.S. at
519 n. 14, 94 S.Ct. at 2457 n. 14 (forum selection clause
unenforceable only if it is shown that "the inclusion of that
clause in the contract was the product of fraud or coercion").
B. The Motion to Transfer is Denied
Both the 1404 defendants and the 12(b) defendants in the
alternative have moved for transfer under Title 28 U.S.C. § 1404(a)
to Texas.*fn1 That provision states: "For the
convenience of parties and witnesses, in the interest of
justice, a district court may transfer any civil action to any
other district or division where it might have been brought."
The burden is on the defendant when it is the moving party to
establish that transfer is warranted. Factors Etc., Inc. v. Pro
Arts, Inc., 579 F.2d 215, 218 (2d Cir. 1978), cert. denied,
440 U.S. 908, 99 S.Ct. 1215, 59 L.Ed.2d 455 (1979). As this court
[t]hat burden is heavy: "unless the balance is
strongly in favor of the defendant, the
plaintiff's choice of forum should rarely be
Rackman v. Texas Instruments, Inc., 712 F. Supp. 448, 450
(S.D.N.Y. 1989) (quoting Gulf Oil Corp. v. Gilbert,
330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947)).
The factors relevant in determining whether transfer is
(1) the convenience of the parties, (2) the
convenience of material witnesses, (3) the
availability of process to compel the presence of
unwilling witnesses, (4) the cost of obtaining
willing witnesses, (5) the relative ease of access
to sources of proof, (6) where the events at issue
took place, (7) the practical problems indicating
where the case can be tried more expeditiously and
inexpensively, and (8) the interests of justice in
National Union Fire Ins. Co. v. Landry, 677 F. Supp. 704, 708
(S.D.N.Y. 1987) (citations omitted).