The opinion of the court was delivered by: KAPLAN
LEWIS A. KAPLAN, District Judge.
The question presented by this motion is whether the plaintiffs (collectively "Composite") have alleged a legally sufficient basis for avoiding a forum selection clause contained in an agreement by which they purchased a business from defendants (collectively "Westinghouse").
"Exclusive Jurisdiction and Consent to Service of Process. The parties agree that any legal action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby shall be instituted in a Federal or state court sitting in Allegheny County, Pennsylvania which shall be the exclusive jurisdiction and venue of said legal proceedings and each Party hereto waives any objection which such party may now or hereafter have to the laying of venue of any such action, suit or proceeding, and irrevocably submits to the jurisdiction of any such court in any such action, suit or proceeding."
Composite now claims that it was induced to enter into the Agreement by fraudulent representations and omissions in consequence of which the purchase price was overstated by more than $ 13 million.
It contends that Westinghouse misrepresented Wittnauer's financial condition, concealed such facts as a declining sales trend in order to overstate Wittnauer's value, manipulated the recognition of revenues and expenses to portray Wittnauer as more profitable than in fact it was, short circuited and concealed an internal audit which would have disclosed facts indicative of significant overstatement of value, and provided Composite with false and misleading financial statements.
Obviously mindful of the presumptive validity of forum selection clauses but nevertheless now dissatisfied with the contractual requirement that any dispute arising out of the transaction be litigated in Allegheny County (i.e., Pittsburgh), Pennsylvania, Composite has included in the complaint allegations the object of which is to defeat enforcement of that provision of the Agreement. It alleges that Westinghouse induced Composite to agree to the forum selection clause "as part of the scheme to defraud" in an effort "to limit Westinghouse's liability and make plaintiffs' efforts to be made whole more difficult if defendants' fraudulent scheme were discovered."
It contends that the forum selection "is unenforceable as an aspect of the fraudulent scheme that cannot be countenanced by law."
There is no allegation, however, that Westinghouse (1) made any representation, true or false, relating to the forum selection clause, much less any such misrepresentation upon which Composite relied in agreeing to it, or (2) failed to disclose any fact that it was under a duty to disclose that was material to Composite's determination to accept that provision of the Agreement.
It is equally clear that fraud in the inducement of a contract containing a forum selection clause governed by federal law is insufficient to avoid such a provision. Rather, such a forum selection clause will stand against a claim of fraud unless the party resisting enforcement alleges and proves that "the inclusion of that clause in the contract was the product of fraud"
-- in other words, that the fraud was directed to the forum selection clause itself.
Moreover, Rule 9(b)
requires that allegations of fraud with respect to a forum selection clause -- just as any other allegations of fraud -- be made with particularity.
Composite's effort to avoid the forum selection clause in the Agreement fails on both counts.
To begin with, Composite does not claim that it was defrauded with respect to the forum selection clause itself. It claims no misrepresentation about or omission material to the clause. Rather, crediting Composite's allegations, as the Court must on this motion, Composite's theory is that Westinghouse sought the clause in order to improve its litigation position in the event that Composite discovered that Westinghouse had overstated the value and financial condition of Wittnauer. In other words, Composite urges that the clause be ignored because Westinghouse's motive in seeking it was impure, not because Composite was deceived about the clause or anything closely related to the clause itself.
Composite's argument is insufficient as a matter of law. These "were sophisticated parties contracting voluntarily."
Composite knew, as would anyone in its position, that litigation concerning the transaction was a possibility -- that is why the Agreement contained provisions dealing with forum selection, governing law, consent to jurisdiction and the like. It voluntarily agreed that any such litigation, even an action for fraud, would take place in Pittsburgh. There is no reason to disregard this undertaking on the ground that Westinghouse had an evil motive in seeking it as long as Westinghouse did not procure this specific agreement by deception.
To be sure, the Supreme Court in Carnival Cruise Lines, Inc. v. Shute,16 in rejecting a challenge by a cruise ship passenger to a forum selection clause contained on the passenger ticket, noted that there was no suggestion that the cruise line had designated the particular forum in order to discourage legitimate claims.
Although Composite has not relied upon it, that comment, taken alone, would lend some ...