Kerobo v. Southwestern Clean Fuels, Corp.

Decision Date09 April 2002
Docket NumberNo. 00-1201.,00-1201.
Citation285 F.3d 531
PartiesCharles O. KEROBO; Clean Fuels of Michigan, Inc., a Michigan Corporation, Plaintiffs-Appellants, v. SOUTHWESTERN CLEAN FUELS, CORP., a California Corporation, d/b/a Clean Fuels; Glen Fernandez; Nicholas Shepis; Norman Goldstein; Joe Ortega, jointly and severally, Defendants-Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

Kenneth J. Bisdorf (argued and briefed), Law Office of Kenneth J. Bisdorf, Troy, MI, for Plaintiffs-Appellants.

Scott G. Hornby (argued and briefed), Esordi, Hornby & Sawicki, Wyandotte, MI, for Defendants-Appellees.

Before: BATCHELDER and MOORE, Circuit Judges; BERTELSMAN, District Judge.*

BATCHELDER, J., delivered the opinion of the court, in which MOORE, J., joined. BERTELSMAN, D.J. (pp. 539-544), delivered a separate dissenting opinion.

OPINION

BATCHELDER, Circuit Judge.

This appeal arises from the district court's enforcement of a forum-selection clause and grant of the defendants' motion for dismissal for improper venue pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure. We conclude venue was not improper, and we therefore hold that the district court erred in granting the motion. Because, as we shall explain, we conclude that this case is governed by Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988), we reverse the judgment and remand the case to the district court for further proceedings consistent with this opinion.

BACKGROUND

Southwestern Clean Fuels, Corp. ("Southwestern") is a California corporation whose principal place of business is in California. Southwestern specializes in cleaning fuel storage tanks, a business that it has attempted to expand by franchising its operations. Charles Kerobo, a Michigan resident who has a master's degree in business administration and a doctorate in chemistry, is the sole shareholder Clean Fuels of Michigan, Inc., a Michigan corporation, whose principal place of business is in Michigan. On July 28, 1998, in Southfield, Michigan, Southwestern and Kerobo, on behalf of Clean Fuels of Michigan, executed a "Licensing Agreement," pursuant to which Clean Fuels of Michigan obtained the exclusive rights to operate under the business and marketing plans of Southwestern in the State of Michigan for a term of twenty years. Article XXI of the Licensing Agreement provides:

This agreement shall be interpreted, construed and governed by the laws of the State of California. Jurisdiction for any action for breach, damages or default shall be within the County of Orange, State of California.

For reasons not entirely clear from the record, the parties had a difficult relationship, and on October 13, 1999, Kerobo and Clean Fuels of Michigan filed a verified complaint in a Michigan state court, alleging that Southwestern and several of its officers and directors, all residents of California or New York, had misrepresented certain aspects of the sale of the franchised fuel storage tank cleaning and servicing business and breached the terms of the franchise agreement. The complaint stated claims for breach of contract, fraudulent inducement, fraud, and violations of the Michigan Franchise Investment Law, Mich. Comp. Laws Ann. § 445.1501 et seq. The defendants removed the case to federal court based solely on diversity of citizenship; they then moved for dismissal of the suit for improper venue pursuant to Rule 12(b)(3), because the forum-selection clause in the franchise agreement established venue in California. In the alternative, the defendants sought transfer of the case to the United States District Court for the Southern District of California pursuant to 28 U.S.C. § 1404(a).

Relying on M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), an admiralty case, the district court concluded that the forum-selection clause was valid unless the plaintiffs could establish that it was unreasonable. Because it viewed the plaintiffs as seeking to litigate in Michigan only for the sake of convenience, the court concluded that the forum-selection clause was reasonable and granted the motion to dismiss. On appeal, the plaintiffs request that the district court's order of dismissal be reversed and the forum-selection clause be invalidated pursuant to Michigan Franchise Investment Law, which voids franchise contract provisions that require litigation to be conducted outside the state of Michigan.

STANDARD OF REVIEW

We review de novo the district court's interpretation of the venue statutes and its determination of whether a case is filed in an improper venue. First of Michigan Corp. v. Bramlet, 141 F.3d 260, 262 (6th Cir.1998). We review for abuse of discretion a district court's decision whether to dismiss or transfer a complaint for improper venue. Id. "A district court abuses its discretion when it relies on clearly erroneous findings of fact, uses an incorrect legal standard, or applies the law incorrectly." United Food & Commercial Workers Union, Local 1099 v. S.W. Ohio Reg'l Transit Auth., 163 F.3d 341, 347 (6th Cir.1998).

ANALYSIS

Because we conclude that in all material respects, this case is indistinguishable from Ricoh, we begin with a brief synopsis — upon which we will expand in a later section of this opinion — of the proceedings in that case. In Ricoh, the plaintiffs brought suit against the defendants in a forum other than that agreed upon in the forum-selection clause of the contract that was the subject of the action. The defendants moved under 28 U.S.C. § 1406(a)1 to dismiss the case because of improper venue or, under 28 U.S.C. § 1404(a)2, to transfer the case to the contractual forum. See Ricoh, 487 U.S. at 24, 108 S.Ct. 2239; accord Stewart Org., Inc. v. Ricoh Corp., 779 F.2d 643, 645 (11th Cir.1986) (noting that "the appellant filed motions to dismiss and to transfer on grounds of improper venue and inconvenient forum"), vacated en banc, 785 F.2d 896 (11th Cir.1986); and Stewart Org., Inc. v. Ricoh Corp., 696 F.Supp. 583, 585 (N.D.Ala.1988) (acknowledging on remand that "[i]n response to the complaint, Ricoh filed its motion to dismiss or to transfer this action to New York on grounds of improper venue and forum non conveniens."). The district court dismissed the § 1406(a) motion because the venue in which the action was filed was proper under 28 U.S.C. § 1391, see id. at 28 n. 8, 108 S.Ct. 2239, and denied the § 1404(a) motion because it concluded that the forum selection clause was unenforceable under state law, id. at 28, 108 S.Ct. 2239. On interlocutory appeal, the defendants raised only the denial of the motion to transfer. The Supreme Court held that the issue of whether the forum-selection clause should be given effect was governed by federal law, specifically 28 U.S.C. § 1404(a). The Court noted in the course of its discussion that "[t]he parties do not dispute that the district court properly denied the motion to dismiss the case for improper venue under 28 U.S.C. § 1406(a) because respondent apparently does business in the Northern District of Alabama. See 28 U.S.C. § 1391(c) (venue proper in judicial district in which corporation is doing business)." Id. at 28 n. 8, 108 S.Ct. 2239.

MOTION TO DISMISS PURSUANT TO RULE 12(b)(3)

This case originated in state court in Michigan and was removed to federal court pursuant to 28 U.S.C. § 1441(a), which provides:

Except as otherwise expressly provided by Act of Congress, any 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 the defendants, to the district court of the United States for the district and division embracing the place where such action is pending. For purposes of removal under this chapter, the citizenship of defendants sued under fictitious names shall be disregarded.

28 U.S.C. § 1441(a). Venue in removed cases is governed solely by § 1441(a). Polizzi v. Cowles Magazines, Inc., 345 U.S. 663, 665, 73 S.Ct. 900, 97 L.Ed. 1331 (1953); see also Lee v. Chesapeake & O. Ry. Co., 260 U.S. 653, 657, 43 S.Ct. 230, 67 L.Ed. 443 (1923) (reviewing history of venue in removed cases from Judiciary Act of 1789 through Comp. St. § 1011 in effect at the time and concluding that "in every instance the removal must be into the District court `in the district where such suit is pending;'" (quoting Comp. St. § 1011)). Here, the action was removed to the district court in the Eastern District of Michigan from state court within the area embraced by the Eastern District of Michigan. Hence, the action was removed to the only venue permitted by § 1441(a).

That the statutory venue was proper, however, does not entirely resolve the question of whether the district court erred in granting the defendants' Rule 12(b)(3) motion. We recognize that the circuits are not in agreement about whether a claim that an action is filed in a forum other than that designated in a contract's forum selection clause may be raised in a Rule 12(b)(3) motion. See, e.g., Lipcon v. Underwriters at Lloyd's, London, 148 F.3d 1285, 1290 (11th Cir.1998) (holding that a motion to dismiss based on a forum-selection clause in international agreement should be brought pursuant to Rule 12(b)(3) rather than Rule 12(b)(1) because the forum-selection clause is unrelated to the basis for federal jurisdiction); Lambert v. Kysar, 983 F.2d 1110, 1112 (1st Cir. 1993) (noting in removed action that the procedural vehicle for urging dismissal under a forum-selection clause is properly Rule 12(b)(6) rather than Rule 12(b)(3)), In essence, this difference of opinion centers around whether the parties' contractual designation of forum can render the venue dictated by statute "improper."

We think that in the case of an action removed from state court to federal court, it cannot. There is only one federal venue into which a state court action may be removed, and...

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