Dove Air, Inc. v. Bennett

• Decision Date: 01 October 2002
• Docket Number: No. CIV. 1:02CV96.,CIV. 1:02CV96.
• Citation: 226 F.Supp.2d 771
• Court: U.S. District Court — Western District of North Carolina
• Parties: DOVE AIR, INC., a North Carolina Business Corporation; and Joe Duncan, Plaintiffs, v. William G. BENNETT; "Augusta Packing, L.L.C."; Silver State Aviation, Inc., a Nevada Business Corporation; and Helldiver Aviation, L.L.C., a Nevada Limited Liability Company, Defendants.

Page 771

226 F.Supp.2d 771

DOVE AIR, INC., a North Carolina Business Corporation; and Joe Duncan, Plaintiffs, v. William G. BENNETT; "Augusta Packing, L.L.C."; Silver State Aviation, Inc., a Nevada Business Corporation; and Helldiver Aviation, L.L.C., a Nevada Limited Liability Company, Defendants.

No. CIV. 1:02CV96.

United States District Court, W.D. North Carolina, Asheville Division.

October 1, 2002.

Chester M. Jones, Jones, Key, Melvin & Patton, Franklin, NC, Dana Kirk, Kirk Law Firm, Houston, TX, for plaintiffs.

Marjorie Rowe Mann, Roberts & Stevens, P.A., Asheville, NC, for defendants.

MEMORANDUM AND ORDER

THORNBURG, District Judge.

THIS MATTER is before the Court on the Plaintiffs' objections to the Memorandum and Recommendation of United States Magistrate Judge Max O. Cogburn, Jr.

Pursuant to standing orders of designation and 28 U.S.C. § 636, this Court referred the Defendants' motions to dismiss to the Magistrate Judge for a recommendation as to disposition. Plaintiffs object to the Magistrate Judge's sua sponte recommendation that the action be transferred to the United States District Court for the District of Nevada.

The district court conducts a de novo review of those portions of a Magistrate Judge's Memorandum and Recommendation to which specific objections are filed. See 28 U.S.C. § 636(b). Those parts to which no specific objections are filed are given careful review. Orpiano v. Johnson, 687 F.2d 44, 47 (4th Cir.1982).

I. FACTUAL BACKGROUND

On April 25, 2002, the Defendants removed this action from the General Court of Justice, Superior Court Division of Buncombe County, North Carolina, on the basis of diversity jurisdiction.¹ In the state court complaint, Plaintiffs alleged claims for breach of contract, breach of fiduciary duties, and unfair and deceptive trade practices against the Defendants. The parties' disputes stem from a joint venture beginning in 1996 which was designed to use the knowledge, skill and reputation of Plaintiff Joe Duncan "to acquire and sell aircraft to be owned by Augusta [Packing, LLC] for profit." Exhibit 1, Joint Venture Agreement, dated April 1, 1996, attached to Complaint, at 1.

Among the provisions of the agreement is an acknowledgment that Duncan, acting through Dove Air, Inc. (Dove) "shall use [his] skill, knowledge and expertise in the aircraft market to locate, identify and negotiate the purchase and sale of various aircraft on behalf of Augusta. Aircraft purchased by Augusta which were presented by Dove are subject to the allocation of profits and losses set forth below." Id., at 2. Dove was to pay Augusta eight percent interest on capital invested by Augusta in any aircraft which did not sell within 30 days of purchase. Although profits were to be divided equally within 30 days of the resale of aircraft, Augusta could deduct from the Plaintiffs' profits the eight percent interest accrued. Id., at 3. The agreement also contained the following provision:

The Agreement shall be governed by the laws of the State of Nevada. Any action to enforce any rights under this Agreement or in any way pertaining to this Agreement or the relationship created by this Agreement shall be subject to the exclusive jurisdiction of the Eighth Judicial District Court of the State of Nevada located in Clark County, Nevada.

Id., at 7.

II. DISCUSSION

After removing the case from state court, Defendants moved to dismiss the action for (1) lack of subject matter jurisdiction; (2) lack of personal jurisdiction; (3) improper venue; and (4) failure to state a claim. Based on the above provision in the agreement, the Magistrate Judge sua sponte found the action should be transferred to the federal court in Nevada. Plaintiffs object both to the finding that the above constitutes a forum selection clause which is binding on the parties and to the sua sponte raising of the issue of transfer.

As an initial matter, it is noted that the action was removed from state court based on diversity jurisdiction. 28 U.S.C. § 1441(a) ("[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or defendants, to the district court of the United States ...."). Defendants now attack this Court's subject matter jurisdiction. The federal removal statutes also provide that "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c) (emphasis added). If the Defendants are indeed correct that there is no subject matter jurisdiction, the undersigned is compelled to remand the case to state court and has no authority to dismiss or transfer the action. "The plain language of § 1447(c) gives no discretion to dismiss rather than remand an action removed from state court over which the court lacks subject matter jurisdiction." Roach v. West Virginia Reg'l Jail & Corr. Facility Auth., 74 F.3d 46, 49 (4th Cir.1996) (citations omitted). Thus, whatever disposition is made of this action based on these motions, it may not be dismissal or transferred.

Plaintiffs' first objection is to the Magistrate Judge's exclusion from consideration of matters outside the pleadings which they submitted in opposition to the motion to dismiss for lack of subject matter jurisdiction. See, e.g., Memorandum and Recommendation, filed July 26, 2002, at 2 ("The court ... has disregarded those submissions."). Plaintiffs are correct; indeed, the Magistrate Judge also noted that matters outside the pleadings may be considered on a motion pursuant to Rule 12(b)(1) to dismiss for lack of subject matter jurisdiction. Id., at n. 2 (citing Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999)). Thus, those matters will be considered by the undersigned in ruling on the Plaintiffs' objections.

Plaintiffs' next objection is to the Magistrate Judge's recommendation that the forum selection clause,² quoted above, be enforced by transferring this action to the United States District Court for the District of Nevada.³ The Supreme Court has consistently given presumptive validity to such clauses when made in arms-length transactions absent a compelling reason to do otherwise.⁴ M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). And, the Fourth Circuit has recently reiterated that "absent a showing that the chosen forum is unreasonable or was imposed by fraud or unequal bargaining power, the parties' choice should be enforced." Vulcan Chem. Tech., Inc. v. Barker, 297 F.3d 332, 339 (4th Cir.2002) (citing Bremen, 407 U.S. at 10, 92 S.Ct. 1907).

Choice of forum and law provisions may be found unreasonable if (1) their formation was induced by fraud or overreaching; (2) the complaining party "will for all practical purposes be deprived of his day in court" because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) their enforcement would contravene a strong public policy of the forum state.

Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir.1996) (quoting Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991)).

In the complaint, it is alleged that Plaintiff Duncan was a small aircraft dealer in North Carolina in the fall of 1995 when he was contacted by Defendant Bennett, who is described as a wealthy owner and manager of hotel and casino businesses in Las Vegas, Nevada. Complaint, at 2. Duncan was experiencing severe financial problems at the time, a condition of which Bennett was aware. Id. At Bennett's solicitation, Duncan went to his Las Vegas casino at which time Bennett gave Duncan an opportunity to sell four aircraft under an exclusive brokerage agreement. Id. Pleased with Duncan's success in that venture, Bennett then approached Duncan about a joint venture; however, as a prerequisite to such a venture, Duncan was required to discontinue his business relationship with his associate at the time and to agree that Bennett would have complete control over the venture. Id., at 3. Duncan, who was then 65 years old, alleges that due to his severe financial problems, he was forced to comply with these demands. Id. The joint venture agreement was prepared at Bennett's direction by his employees. Id.

In opposition to the motion to dismiss, Plaintiff Duncan also filed an affidavit in which he averred that although he signed the joint venture agreement in Nevada, he brought the document back to North Carolina for his wife's signature as the President of his company, Plaintiff Dove Air. Exhibit A, Affidavit of Joe Duncan, attached to Plaintiffs' Brief in Opposition to Motion to Dismiss [Plaintiffs' Brief], filed July 17, 2002, at 2. Duncan's wife has also filed an affidavit attesting to the fact that she signed the agreement in North Carolina. Exhibit B, Affidavit of Bonnie Duncan, attached to Plaintiffs' Brief. Duncan also avers that although the agreement refers to Augusta Packing as the entity which would purchase the aircraft, there was no such legal entity and no aircraft were ever purchased by Augusta Packing. Joe Duncan Affidavit, supra. In fact, 17.-planes were purchased by Silver State Aviation, Inc., through the efforts of Plaintiff Duncan. Id.

In addition to those planes, Duncan located and negotiated for the purchase of planes for the personal use of Bennett and his associates. Complaint, at 6. At Bennett's insistence, a "running account" was kept by Bennett's employees of the funds due to Duncan. Id., at 6-7. However, Duncan was not paid in excess of $1 million which is owed to him. Id.

The language of the agreement supports Plaintiffs' arguments of overreaching. Augusta had the sole authority to accept or reject any purchase or sale negotiated by Duncan, who had no authority to bind Augusta in any manner. Joint Venture Agreement, at Section Four....