United States District Court, S.D. New York
March 5, 2004.
MERCURY WEST A.G., INC., Plaintiff, -against- R.J. REYNOLDS TOBACCO COMPANY, Defendant
The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge
ORDER & OPINION
Plaintiff Mercury West A. G., Inc. ("Mercury West") brought this action
seeking compensatory and punitive damages from Defendant R.J. Reynolds
Tobacco Company ("Reynolds"). Mercury West accuses Reynolds of breaching
a series of contracts, being unjustly enriched at Mercury West's
detriment, tortuously converting one of Mercury West's trademarks and
willfully engaging in deceptive business practices. Mercury West
initiated this action by filing a Summons and Complaint in New York State
Supreme Court. Reynolds timely removed the action to this Court. Reynolds
subsequently brought the present motion to dismiss the Complaint pursuant
to Rule 12(b)(3) of the Federal Rules of Civil Procedure ("Rule 12(b)
(3)") and 28 U.S.C. § 1406(a) (" § 1406(a)").
According to Mercury West, in October of 2001, Reynolds's Manager
Purchasing Operations Gregory Feron ("Feron") approached Mercury
West executives about doing business with Mercury West. Reynolds, claims
Mercury West, was interested in Mercury West's familiarity with overseas
markets. In particular, Reynolds was interested in taking advantage of
Mercury West's contacts in Russia, the Republic of Georgia and the Far
East to market Reynolds's cigarettes in those regions. See
Godelman Aff. ¶ 6. Reynolds disputes Mercury West's characterization
of the initial
contacts between the two companies, both with regard to how they
were initiated and their purpose. See Feron Decl. ¶ 4. In
light of the fact that this is a motion to dismiss, however, Mercury
West, as the party in opposition to the motion, is entitled to have all
of the relevant facts viewed in the light most favorable to it. See
New Moon Shipping Co., Ltd, v. Man B & W Diesel AG, 121 F.3d 24,
29 (2d Cir. 1997).
Shortly after October, 2001, Mercury West and Reynolds began some type
of business relationship. Representatives from each company attended
meetings in Moscow, Vienna and Washington, B.C. in 2002 in order to
discuss business possibilities. See Godelman Aff. ¶ 6. It
appears as though the relationship centered on Reynolds's production and
sale of cigarettes to Mercury West for Mercury West's distribution in
targeted overseas markets under the trademark of "Senator". Exactly how
it is claimed the business arrangement was structured is unclear from
Mercury West's submissions.
In April of 2002, Feron informed Mercury West that Reynolds wanted
Mercury West to enter into a Master Purchasing Agreement ("MFA"). Mercury
West Vice-President Alex Godelman claims that Feron told him the
agreement was one that Reynolds required all of its business partners to
sign and was little more than a mere "formality." See id. ¶
ll. On April 15, 2002, Godelman signed the MPA on Mercury West's behalf.
According to Godelman, he signed
the agreement without seeking the assistance of counsel. See
id. L. Joe Inman, Reynolds's Vice-President of Manufacturing,
signed the MFA on his company's behalf.
Among the provisions included in the MFA is what is commonly referred
to as a forum selection clause. In pertinent part, Section 11.3, entitled
The parties hereto hereby agree that all actions
or proceedings initiated by any party hereto
arising directly or indirectly out of this
Agreement shall be litigated only in the Superior
Court for Forsyth County, North Carolina with a
request that the case be assigned to the Honorable
Ben F. Tennille (or his successor), The Special
Superior Court Judge For Complex Business Cases.
Each party hereto hereby expressly submits and
consents in advance to such jurisdiction and venue
in any action or proceedings commenced by any
party hereto in such Court; agrees that
jurisdiction and venue is proper in such
Court; . . . . Each party hereto waives any claim
that said court is an inconvenient forum or an
improper forum based on lack of venue.
Relying on this clause, Reynolds contends that this Court is not
the appropriate forum for Mercury West's causes of action to be
prosecuted. By this motion, Reynolds seeks to enforce the forum selection
clause and have Mercury West's complaint dismissed.
I. Proper Procedural Framework
The initial issue that must be resolved is to determine what is the
proper framework within which to examine this motion. A motion to dismiss
a complaint based on the enforcement of a forum selection clause does not
fit neatly within any of the mechanisms
prescribed by the Federal Rules of Civil Procedure or the United
States Code. Although several courts have confronted this question, a
clear and definitive answer has not emerged. See New Moon Shipping
Co., Ltd., 121 F.3d at 28 (finding a lack of consensus on this issue
among circuit courts); Jockey Int'l, Inc. v. M/V "Leverkusen
Express", 217 F. Supp.2d 447, 450 (S.D.N.Y. 2002) ("The Second
Circuit has not decided what rule governs dismissals based on a forum
selection clause."). Motions to enforce forum selection clauses have been
brought pursuant to each of Rules 12(b)(1), 12(b)(3), 12(b)(6) and
§ 1406(a). Each provides a logical basis for supporting such a
motion, but none provide a perfect fit for a party seeking to enforce a
forum selection clause. Importantly, the scope of materials a court may
consider in reaching its decision differ depending upon which provision
governs. Nonetheless, courts of this circuit have made clear that courts
do possess the ability under either Rule 12(b)(3) or § 1406(a) to
dismiss a case upon a motion that a forum selection clause renders venue
in a particular court improper. Id.; Tech. Express, Inc.
v. FTF Bus. Sys. Corp., 2000 WL 222628 (S.D.N.Y. Feb. 25, 2000).
The instant motion is framed as both a Rule 12(b)(3) and § 1406(a)
motion and each side has offered supporting materials that go beyond the
original pleadings. Were the Court to deem the motion one governed by
Rule 12(b)(6), consideration of materials
not included as part of the pleadings would be prohibited. Mercury
West has not objected to the Court considering the additional materials
or treating the motion as one brought pursuant to Rule 12(b)(3) or §
1406(a). The motion will, therefore, be treated as such and all of the
supporting materials will be considered.
II. The Forum Selection Clause is Valid and Enforceable
At one time forum selection clauses were routinely greeted with
hostility by courts that viewed them as attempts to "oust" courts of
proper jurisdiction. Driven by the growth and development of
international commerce, this is no longer the case. See Bense v.
Interstate Battery Sys, of Am., Inc., 683 F.2d 718, 721 (2d Cir.
1982) (stating that "any such `general hostility' towards forum
selection clauses is today simply a vestigial remainder of an outmoded
doctrine."). In fact, in what represents a 180 degree turn, now when
confronted with forum selection clauses courts presume them to be valid.
See Ferraro Foods. Inc. v. M/V Izzet Incekara, 2001 WL 940562,
at *2 (S.D.N.Y. Aug. 20, 2001). The seminal case in terms of the current
presumption in forum selection clauses/ favor is M/S Bremen v.
Zapata Off Shore Co., 407 U.S. l (1972). In
Bremen, the Supreme Court held forum selection to be prima
facie valid and enforceable unless the party opposing the
clause can demonstrate that enforcement would be, JJP, unreasonable under
the circumstances Id., at 10; see also Roby v.
Corp, of Lloyds, 996 F.2d 1353, 1362 (2d Cir. 1993);
Baosteel Am., Inc. v. M/V "Ocean Lord", 257 F. Supp.2d 687,
688 (S.D.N.Y. 2003).
Initially after Bremen was decided there existed some debate
as to whether its holding was limited solely to the field of admiralty
cases. The Second Circuit has since determined that the Bremen
holding applies with equal force to cases brought pursuant to diversity
jurisdiction. See Jones v. Weibrecht, 901 F.2d 17, 18 (2d Cir.
1990) ("[The Bremen] rule has been extended in this and other
circuits to diversity and other non admiralty cases."); see
also Tech Express, Inc., 2000 WL 222628, at *2. Moreover, the Second
Circuit has developed a policy of honoring forum selection clauses.
See Strategic Mktg. & Communications. Inc. v. Kmart Corp.,
41 F. Supp.2d 268, 270 (S.D.N.Y. 1998). Underlying this policy is an
understanding that forum selection clauses carry an economic benefit to
at least one of the parties *that is typically reflected in the overall
economics of the contract. As such, these clauses are bargained for terms
of the contract that deserve to be honored by courts. See Carnival
Cruise Lines v. Shute, 499 U.S. 585, 594 (1991); Ins. Corp, of
Hanover, Inc. v. Latino Americana de Reaseguros, S.A.,
868 F. Supp. 520/1 529 (S.D.N.Y. 1994).
Parties seeking to avoid enforcement of a forum selection
clause bear the heavy burden of making a "strong showing" in order
to overcome the presumption of validity from which these clauses
benefit. See New Moon Shipping Co., Ltd., 121 F.3d at 29. More
specifically, the party must convince the court that enforcement would be
unreasonable and unjust, or that the clause is the result of fraud or
overreaching. See Id.; Bense, 683 F.2d at 721-22;
Jockey Int'l, Inc., 217 F. Supp.2d at 451; U.S. West Fin.
Servs., Inc. v. Cipriano, 1990 U.S. Dist. Lexis 7364, *5-6. A forum
selection clause may be found, unreasonable or unjust if its enforcement
will for all practical purposes deprive the complaining party of its day
in court due to the grave inconvenience or unfairness of the selected
forum, or if the clause contravenes a strong public policy of the forum
state. Roby, 996 F.2d at 1363; Ins. Corp, of Hanover, Inc., 868
F. Supp at 529.
Mercury West contends that enforcement of this particular selection
clause would be unreasonable because it would effectively eliminate the
company's opportunity to obtain a remedy. According to Mercury West, it
is a small and financially destitute company unable to litigate in North
Carolina. As discussed, Mercury West must demonstrate that
requiring it to litigate in North Carolina would be so gravely difficult
and impractical as to effectively deprive it of its day in court.
See Bremen, 407 U.S. 18 (stating that when a party
has contracted to litigate in a forum "it should be incumbent
on the party seeking
to escape his contract to show that trial in the contractual forum
will be so gravely difficult and inconvenient that he will for all
practical purposes be deprived of his day in court.").
Mercury West has failed to convince the Court that it could not
prosecute its claims in North Carolina. Simply claiming financial
distress does not warrant setting aside a valid forum selection clause.
See generally Envirolite Enters., Inc. v. Glastechnishe Industrie
Peter Lisec Gesechaft M.B.H., 53 B.R. 1007 (S.D.N.Y. 1985) (refusing
to find that enforcement of a forum selection clause would be
unreasonable simply because the plaintiff was bankrupt). Although certain
costs relative to travel and temporary lodging would have to be incurred,
those costs can be controlled and are not significant enough to be
considered a barrier to the prosecution of its claims. Mercury West was
able to send representatives to North Carolina to negotiate and do
business with Reynolds. See Blynn Aff. ¶ 5. Litigating
claims in North Carolina that it alleges to be worth at least $7.5
million should not be so onerous as to deprive the company of its day in
court, even in Mercury West's claimed weak financial circumstances.
In addition to being unreasonable, Mercury West alleges the clause
should be deemed a product of overreaching. According to the plaintiff,
the forum selection clause is the result of a bigger, more company
exerting its strength to take
advantage of an unequal business partner in a lesser bargaining
position. This is an argument that carries extremely little weight with
the Court. Mercury West is a corporation engaged in significant
international commerce. Despite what Mercury West seems to want
this Court to believe, there is no evidence that Mercury West is a naive
company unschooled in the ways of business that was taken advantage of.
Of equally little weight is Mercury West's argument that enforcement
of the forum selection clause would be unjust because the company was
directed to sign the contract as a mere "formality" required of those
doing business with Reynolds. For starters, presumably Mercury West has
been involved in enough business contracts to know that it should
carefully review the terms of any contract it is asked to sign.
Cf. Feron Decl. ¶ 4. Being told that the contract
represented a mere formality does not translate into an example of fraud
or overreaching. Even if the Court were inclined to view terming the
contract a "formality" an act akin to fraudulent inducement which
the Court is by no means inclined to do in order to invalidate
the forum selection clause, the clause itself would have to have been the
product of fraud. See Gen. Elec. Capital Corp, v. Mehta, 2002
WL 511553, *2, n.6 (S.D.N.Y. Apr. 4 2002); Envirolite Enters.,
Inc., 53 B.R. at 1012. Mercury West has not alleged that the forum
selection clause is the product of fraud.
It also should be noted that the forum selection clause was in no way
hidden from Mercury West or buried in contract minutia. Rather, the
clause was its own paragraph, set off by a title clearly
indicating its purpose. See MPA ¶ 11.3, attached as Ex. A
to Blynn Aff. Far less clear and significantly more camouflaged forum
selection clauses have been upheld by courts. See, e.g., Carnival
Cruise Lines, Inc., 499 U.S. 585 (1991); Effron v. Sun Line
Cruises, Inc., 67 F.3d 7 (2d Cir. 1995); Gen. Elec. Capital
Corp., 2002 WL 511553. The plainly obvious presence of the provision
within the contract was enough to both provide Mercury West with the
requisite notice and to have prompted Mercury West's option to reject the
provision or the contract had it so desired. See Computer Servs.
Group, Inc. v. Apple Computer. Inc., 2002 WL 575649, at *1 (S.D.N.Y.
Apr. 16, 2002). Mercury West did not object to the forum selection
clause, and did sign the MPA.
To ignore the forum selection clause even though it is unambiguously
set forth in the body of a binding contract between two corporations
would be the unreasonable and unjust act. Not only would such a decision
allow Mercury West to pick and choose which contract terms it wants
enforced, it would deprive Reynolds of a bargained for benefit of
the MPA. See Princeton Pike Park, Inc. v. High-Tec. Inc., 1990
U.S. Dist. Lexis 8163, at *15-16 (S.D.N.Y. July 3, 1990). Even assuming,
as Mercury West claims, the terms of the MPA and specifically the
forum selection clause
were not the subject of actual bargaining, the clause is still
valid and enforceable. The forum selection clause need not have been the
subject of express negotiation to be considered a bargained for benefit
of the contract. A forum selection clause included in a non
negotiated form contract has the power to bind parties. See Karl
Koch Erecting Co., Inc. v. N.Y. Convention Ctr. Dev. Corp.,
838 F.2d 656, 659 (2d Cir. 1988) (holding that the absence of negotiation
over the terms of a contract does not render a forum selection clause
unenforceable); Computer Servs. Group, Inc., 2002 WL 575649, at
*1 (stating that a forum selection clause can bind the contracting
parties even where the agreement is a form contract and not subject to
negotiation); Strategic Mktg. & Communications. Inc.,
41 F. Supp.2d at 272 (same); see also Vitricon, Inc. v. Midwest
Elastomers, Inc., 148 F. Supp.2d 245, 247 (E.D.N.Y. 2001) ("Where a
company conducts business in many states, a non negotiated forum
selection clause included in a sales contract may be enforced even if it
was not the subject of bargaining."). All the Court need believe in order
to find the forum selection clause valid is that the clause and the
contract are the products of an arm's length business agreement.
See Bremen, 407 U.S. at 10; Medoil Corp, v. Citicorp,
729 F. Supp. 1456, 1459 (S.D.N.Y. 1990). Such is the case with respect to
the MPA, regardless of the fact that it is essentially a form contract
and was presented to Mercury West as a formality required of doing
business with Reynolds.
Although Mercury West does not offer it as an explicit argument, the
company does make a few references to the fact that North Carolina is the
home venue of Reynolds. This fact is not determinative, nor is it even
persuasive in the present circumstance. Mercury West bears the heavy
burden of having to show that the selected forum would treat it unfairly
and deny it a chance to gain a remedy. See Roby, 996
F.2d at 1363. Simply alleging a belief that the forum would be hosfile to
its claims because the forum is its opponent's home forum does not
satisfy this burden. See Medoil Corp., 729 F. Supp. at 1460.
Mercury West does not dispute that the Superior Court for Forsyth County,
North Carolina "offer[s] an attractive court system," capable of handling
this matter. Godelman Aff. ¶ 23. Considering that Mercury West
concedes the attractiveness of the selected forum, it is reasonable to
believe as Reynolds suggests that the forum was selected
as a capable court with a degree of expertise in the types of claims that
might be raised. So long as a party had such a good faith basis
in selecting the forum it did, selecting its home forum is
acceptable. See GMAC Commercial Credit, LLC v. Dillard Dep't Stores.
Inc., 198 F.R.D. 402, 408 (S.D.N.Y. 2001); Composite Holdings.
L.L.C. v. Westinghouse Elec. Corp., 992 F. Supp. 367, 370 (S.D.N.Y.
Having considered each of Mercury West's arguments as to why
the forum selection clause should be deemed invalid and enforcement
considered unreasonable and unjust, the Court believes the clause to be
valid and enforceable. The plaintiff's arguments are not persuasive.
III. The Forum Selection Clause Covers Mercury West's Causes
Mercury West argues that even if the forum selection clause is valid,
it is not relevant to the causes of action raised in this action. It is
Mercury West's contention that the instant claims for relief do not
relate to the MPA, but rather are based upon prior agreements' between
the company and Reynolds and torts committed by Reynolds. According to
the plaintiff, prior to engaging in the MPA, Mercury West and Reynolds
had entered into other agreements. It is the violation of those prior
contracts that Mercury West claims form the basis of its breach and
deceptive business practices actions. The other cause of action
in the complaint is for tortuous conversion, a claim the company does
not believe to be within the scope of the forum selection clause.
The notion that the breach and deceptive business practices claims are
predicated upon prior agreements is fatally flawed by the fact that no
prior agreements exist. The MPA contains a merger clause that explicitly
establishes that the MPA represents the entirety of Mercury West and
Reynolds's contractual relationship and that any prior agreements are
Section 11.4, entitled "Entire Agreement; Amendments," of the MPA
This Agreement, including Appendices and Exhibits
hereto, constitutes the entire agreement between
the Parties, and supercedes any prior oral and
written agreements entered into by the Parties.
There are no prior or contemporaneous agreements
or representations affecting the same subject
matter other than those expressly stated in this
This clause, in no uncertain terms, states that no other agreements
exist. In addition, case law holds that if one agreement expressly
supersedes others, any prior agreements relating to the same subject
matter are, by definition, extinguished. See Health-Chem Corp, v.
Baker, 915 F.2d 805
, 811 (2d Cir. 1990); Kreiss v. McCown De
Leeuw & Co., 37 F. Supp.2d 294, 301 (S.D.N.Y. 1999).
Even if it were to ignore the merger clause, the Court would be hard
pressed to accept Mercury West's argument in the face of a near
complete lack of evidence as to the existence of actual prior contracts.
Mercury West has not offered any legitimate evidence that any such
agreements existed prior to the MPA. The letters attached to the Godelman
affidavit are demonstrative of the fact that Mercury West and Reynolds
had some sort of business relationship that pre-dated the signing of the
MPA, but they are not examples or proof of contracts. Although Mercury
West is entitled to the benefit of all inferences, its assertions must
have a basis in. fact supportable by evidence.
Turning to the tort claim, forum selection clauses are not restricted
solely to breach of contract claims. See Roby, 996
F.2d at 1361 ("There is ample precedent that the scope of clauses similar
to those at issue here is not restricted to pure breaches of the
contracts containing the clauses."). In some circumstances, forum
selection clauses are construed to cover tort claims. See New Moon
Shipping Co., Ltd., 121 F.3d at 33. "[T]he circuit courts have held
that a contractually based forum selection clause will also
encompass tort claims if the tort claims ultimately depend on the
existence of a contractual relationship between the parties, or if
resolution of the claims relates to interpretation of the contract or if
the tort claims involve the same operative facts as a parallel claim for
breach of contract." Direct Mail Prod. Servs. Ltd, v. MBNA
Corp., 2000 WL 1277597, at *6 (S.D.N.Y. Sept. 7, 2000) (internal
quotations and citations omitted).
In the instant case, it is readily apparent that the causes of action
are the products of the contractual relationship contemplated in and
memorialized by the MPA. The claimed tort relates directly to the subject
of the MPA the production of cigarettes marketed
under the trademark of "Senator". In fact, Mercury West ties its claim
regarding the conversion of the Senator trademark to the termination of
the MPA. See Godelman Aff. ¶ 14. With respect
the contract and unjust enrichment claims,
the MFA covers the same countries as those involved in Mercury
West's causes of action. See MFA Ex. A; Godelman Aff. ¶ 12.
The undeniable nexus between the claims and the subject matter of the MFA
bring this action within the purview of the forum selection clause. This
reality is underscored by the fact that the forum selection clause covers
actions arising both "directly" and "indirectly" from the MFA.
See MFA § 11.3. Artful pleading should not be allowed to
frustrate the purpose and benefit of a forum selection clause. See
Direct Mail Servs. Ltd., 2000 WL 1277597, at *6.
IV. A § 1404(a) Analysis is Not Warranted
Mercury West premises a great deal of its opposition to Reynolds' s
motion on the argument that New York is a more convenient forum than
North Carolina. Mercury West attempts to usher the Court through an
analysis of the factors set forth for the consideration of a motion to
transfer pursuant to 28 U.S.C. § 1404 (a). This is not a motion to
transfer pursuant to 28 U.S.C. § 1404 (a), however. The instant
motion is one to dismiss and enforce a valid forum selection clause.
As already discussed, courts in this circuit have recognized a court's
ability to dismiss a complaint under Rule 12(b)(3) and § 1406(a)
when the court is not an appropriate forum by reason of a valid and
enforceable forum selection clause. Because this motion is one to dismiss
and the court has found a valid and enforceable
forum selection clause to exist, a S 1404(a) analysis is not
warranted. Furthermore, even if the Court were inclined to transfer,
which it is not, compliance with the forum selection clause would require
a transfer to the Superior Court for Forsyth County, North Carolina.
Remands aside, federal courts do not have the power to transfer a case to
a state court. Section 1406(c) makes apparent that "district", as used in
§ 1406, does not include state courts. Thus, having found the forum
selection clause to be valid and enforceable, the Court has no option but
to dismiss. This dismissal, however, is without prejudice so as to allow
Mercury West to bring the suit in the proper, designated forum.
For the reasons set forth herein, the Complaint is hereby dismissed.
This dismissal is without prejudice toward refiling in the Superior Court
for Forsyth County, North Carolina. The Court orders this case closed and
directs the Clerk of Court to remove it from the Court's active docket.
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