Koninklijke Philips Electronics v. Digital Works

• Decision Date: 25 February 2005
• Docket Number: No. 04 CIV. 9636(WCC).,04 CIV. 9636(WCC).
• Citation: 358 F.Supp.2d 328
• Parties: KONINKLIJKE PHILIPS ELECTRONICS, Plaintiff, v. DIGITAL WORKS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

358 F.Supp.2d 328

KONINKLIJKE PHILIPS ELECTRONICS, Plaintiff, v. DIGITAL WORKS, INC., Defendant.

No. 04 CIV. 9636(WCC).

United States District Court, S.D. New York.

February 25, 2005.

Sullivan & Cromwell, LLP, New York City (Garrard R. Beeney, Maura Miller, Edward D. Johnson, Patricia Cyr, Of Counsel), for Plaintiff.

Mark A. Siesel, White Plains, NY, Law Offices of Richard McKnight, P.C., Las Vegas, NV (David Mincin, Of Counsel) Robert C. Isenberg, Esq., Malibu, CA, for Defendant.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

This diversity action arises from a breach of contract dispute between plaintiff Koninklijke Philips Electronics N.V. ("Philips") and defendant Digital Works Inc. ("Digital Works").¹ The parties had entered into a Compact Disc ("CD") Patent License Agreement (the "Agreement"), under which Philips granted Digital Works a non-exclusive license to use Philips' patents in the manufacture of CDs. The Agreement contains a forum selection clause which provides that any dispute under the Agreement "shall be submitted to any state or federal courts in The State of New York," and also that Philips has "sole discretion [to] submit any such dispute... to any of the state or federal courts in the Territory having jurisdiction." Alleging breach of contractual obligations, plaintiff commenced the present lawsuit in New York State Court and defendant removed it to this Court. Plaintiff now seeks remand of the action to state court, while defendant moves for dismissal of plaintiff's claims on the basis of lack of personal jurisdiction and improper venue. For the reasons discussed hereinafter, defendant's motion to dismiss is denied and plaintiff's motion to remand is granted. Both parties' motions to strike are denied as moot.

BACKGROUND

Philips, a Dutch corporation having an office and principal place of business in Eindhoven, The Netherlands, licenses rights under numerous patents to manufacture CDs in standard agreements with various companies. (Complt.¶¶ 2, 7.) In September 2002, Philips entered into the Agreement with Digital Works, a Nevada corporation with an office and principal place of business in Nevada.² (Id. ¶¶ 4, 8.) The Agreement grants Digital Works "a non-exclusive, non-transferable license under the patents specified to manufacture, sell or otherwise dispose of CDs." (Id. ¶ 22.) In consideration for the rights granted, Digital Works "agreed to pay Philips royalties for all CDs manufactured, sold or otherwise disposed of by Digital Works in which a licensed patent is utilized." (Id. ¶ 23.) The Agreement also contains a forum selection clause which provides:

This Agreement shall be governed by and construed in accordance with the laws of The State of New York.

Any disputes between the parties hereto in connection with this Agreement (including any question regarding its existence, validity or termination) shall be submitted to any state or federal courts in The State of New York, provided always that, in case Philips is the plaintiff, Philips may at its sole discretion submit any such dispute either to the state or federal courts in the venue of Licensee's registered office, or to any of the state or federal courts in the Territory having jurisdiction. Licensee hereby irrevocably waives any objection to the jurisdiction, process and venue of any such court and to the effectiveness, execution and enforcement of any order or judgment (including, but not limited to, a default judgment) of any such court in relation to this Agreement, to the maximum extent permitted by the law of any jurisdiction, the laws of which might be claimed to be applicable regarding the effectiveness, enforcement or execution of such order or judgment.

(Agreement, Pl. Mem. Opp. Mot. Dismiss, Ex. 1A ¶ 13.06 (emphasis added).) The Agreement also provides that Digital Works was required to send a copy of "[a]ny notice required under this Agreement" to "U.S. Philips Corporation; 580 White Plains Road; Tarrytown, New York 10591." (Id. ¶ 13.01.) In addition, plaintiff contends that Digital Works submitted Royalty Reporting Forms to Philips pursuant to the Agreement addressed to this New York location; however, defendant contests this point. (Pl. Mem. Opp. Mot. Dismiss at 3; Def. Mot. to Strike at 1-2.)

Philips alleges that Digital Works breached its obligations under the Agreement by, inter alia, failing to pay Philips royalties due. Consequently, Philips filed suit in the Supreme Court of the State of New York against Digital Works on November 5, 2004, seeking, inter alia, monetary damages to recover the amount due under the Agreement. (Pl. Mem. Opp. Mot. Dismiss at 3.) Philips maintains that the suit was filed in New York Supreme Court pursuant to the above-quoted forum selection clause in the Agreement. (Id.)

On December 8, 2004, Digital Works removed the action to this Court on the basis that this Court has subject matter jurisdiction because of the diversity of citizenship of the parties. (Notice of Removal.) Shortly thereafter, the present motions were filed by the respective parties.³

DISCUSSION

I. Validity of Forum Selection Clause

The central question surrounding both parties' motions is whether the forum selection clause provided for in the Agreement is valid. When deciding diversity cases in federal court, the validity of a contractual forum selection clause is determined by federal, not state law. Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir.1990) (noting that because "[q]uestions of ... the enforcement of forum selection clauses are essentially procedural, rather than substantive, in nature," federal law applies in diversity cases).⁴ In any case, forum selection clauses, such as the one found in the Agreement in question, are enforceable under both federal and New York law. See Starad, Inc. v. Lawson Software, Inc., No. 04 Civ. 5554, 2004 WL 2093512, at *1 (S.D.N.Y. Sept.16, 2004) (citing Stewart Org. Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988); M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972)).

The Supreme Court, in M/S Bremen, held that a contractual forum selection clause should be enforced "unless it is clearly shown that enforcement would be unreasonable and unjust or that the clause was obtained through fraud or overreaching." Jones, 901 F.2d at 18 (citing M/S Bremen, 407 U.S. at 15, 92 S.Ct. 1907). This rule has been followed in the Second Circuit and applied in diversity cases. See generally id. Furthermore, although, as compared to the federal courts, the New York state courts afford "a somewhat broader degree of discretion regarding the enforcement of forum selection clauses, see, e.g., Rokeby-Johnson v. Kentucky Agricultural Energy Corp., 108 A.D.2d 336, 340-41, 489 N.Y.S.2d 69, 72-72 (1st Dep't 1985), the New York courts have on several occasions applied a similar if not identical standard" for determining the validity of forum selection clauses. Jones, 901 F.2d at 19 (citing Nat'l Union Fire Ins. Co. v. Weir, 131 A.D.2d 380, 381, 517 N.Y.S.2d 141, 142 (1st Dep't 1987) (acknowledging that "[i]n the absence of a showing of contrary public policy, or fraud, or mistake" a forum selection clause should be enforced)). Accordingly, the forum selection clause provided for in the Agreement in the present case will be enforced "unless there is a showing that enforcement would be unjust or unreasonable, or that the provision is invalid for some reason such as fraud or undue influence." Mastec Latin America v. Inepar S/A Industrias E Construcoes, No. 03 Civ. 9892, 2004 WL 1574732, at *3 (S.D.N.Y. July 13, 2004) (citing M/S Bremen, 407 U.S. at 1, 92 S.Ct. 1907; New Moon Shipping Co. v. MAN B & W Diesel AG, 121 F.3d 24, 29 (2d Cir.1997); Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1363 (2d Cir.1993)).

The `unreasonable' exception is construed narrowly, and renders a forum selection clause unenforceable in the following limited circumstances: (1) if [its] incorporation into the agreement was the result of fraud or overreaching; (2) if the complaining party `will for all practical purposes be deprived of his day in court,' due to the grave inconvenience or unfairness of the selected forum; (3) if the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) if the clauses contravene a strong public policy of the forum state.

HNY Assocs., L.L.C. v. Summit Resort Properties, Inc., No. 01 Civ. 0428, 2001 WL 456250, at * 1-2 (S.D.N.Y. Apr. 30, 2001) (citing Roby, 996 F.2d at 1363).

Pursuant to the Agreement, defendant agreed to submit itself irrevocably to the jurisdiction of any New York state or federal court and waived its right to object to such venue. (Agreement, Pl. Mem. Opp. Mot. Dismiss, Ex. 1A ¶ 13.06.) "There exists a strong presumption favoring enforcement of freely negotiated choice of forum provisions, and a litigant must make a strong showing to overcome this presumption." Mastec Latin America, 2004 WL 1574732, at *3 (citing Mitsubishi Motor Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)). It has been recognized that "[e]specially in the commercial context, a party can contractually agree to resolution of a dispute in a particular forum thereby waiving its right to assert a defense of lack of personal jurisdiction." Id. (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 n. 14, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)).

In the case at bar, defendant has failed to make any showing that enforcement of the forum selection clause would be unjust or unreasonable, or that the provision is invalid on the basis of fraud or undue influence. Defendant's principal argument in asserting that the clause is unreasonable is that New York lacks personal jurisdiction over defendant. However, New York does have personal jurisdiction over defendant provided that the forum selection clause is valid; thus, we are not convinced by defendant's...