Preferred Capital, Inc. v. Associates in Urology

• Decision Date: 12 July 2006
• Docket Number: No. 05-3584.,05-3584.
• Citation: 453 F.3d 718
• Parties: PREFERRED CAPITAL, INC., Plaintiff-Appellant, v. ASSOCIATES IN UROLOGY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

453 F.3d 718

PREFERRED CAPITAL, INC., Plaintiff-Appellant, v. ASSOCIATES IN UROLOGY, Defendant-Appellee.

No. 05-3584.

United States Court of Appeals, Sixth Circuit.

Argued: June 6, 2006.

Decided and Filed: July 12, 2006.

ARGUED: Tamara A. O'Brien, Roderick Linton, Akron, Ohio, for Appellant. Dante C. Rohr, Mattioni, Ltd., Philadelphia, Pennsylvania, for Appellee. ON BRIEF: Tamara A. O'Brien, Roderick Linton, Akron, Ohio, for Appellant. Dante C. Rohr, John Mattioni, Mattioni, Ltd., Philadelphia, Pennsylvania, Gene B. George, Thomas M. Wynne, Ray, Robinson, Carle & Davies, Cleveland, Ohio, for Appellee.

Before: SILER, CLAY, and McKEAGUE, Circuit Judges.

OPINION

CLAY, Circuit Judge.

Plaintiff, Preferred Capital, Inc., appeals the district court Order granting Defendant, Associates in Urology's Fed.R.Civ.P. 12(b)(2) motion to dismiss for lack of jurisdiction. The district court found that the forum selection clause in the contract between Defendant and Plaintiff, whose interest was assigned to Plaintiff by non-party NorVergence, was unenforceable for being unjust. For the reasons set forth below, we hold that the district court improperly found the forum selection clause to be invalid, and erred in granting Defendant's motion to dismiss. We therefore REVERSE the district court.

I.

Plaintiff, Preferred Capital, Inc., is an Ohio company. Defendant, Associates in Urology, is a medical practice group with its principal place of business in Ridley Park, Pennsylvania. Defendant also operates in Delaware and eastern Pennsylvania. It is undisputed that Defendant does not do business in, nor has any contacts with, the state of Ohio.

On February 16, 2004, Defendant entered into three lease agreements with NorVergence, Inc.,¹ a New Jersey company for the rental of telecommunications equipment, and agreed to make monthly payments on said equipment for a period of sixty months. Defendant accepted delivery of the equipment and signed the lease agreements on May 10, 2004, each of which contained the following forum selection clause:

This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which Rentor's principal offices are located or, if this Lease is assigned by Rentor, the State in which the assignee's principal offices are located, without regard to such State's choice of law considerations and all legal actions relating to this Lease shall be venued exclusively in a state or federal court located within that State, such court to be chosen at Rentor or Rentor's assignee's sole option. You hereby waive right to a trial by jury in any lawsuit in any way related to this rental.

(J.A. at 49.) Unbeknownst to Defendant, its agreements with NorVergence had already been assigned to Plaintiff.² Defendant was notified of the assignments via three individual letters dated May 11, 2004. The letters identified Plaintiff as the assignee and Plaintiff's business address as 6860 West Snowville Road in Brecksville, Ohio. Following the assignments, Defendant failed to make timely rental payments, thereby defaulting on the agreements.

On October 19, 2004, Plaintiff filed suit against Defendant in the Court of Common Pleas for Summit County, Ohio, claiming damages in the amount of $76, 724.01. Defendant removed the case to the U.S. District Court for the Northern District of Ohio on November 29, 2004. In its Answer, Defendant denied all liability and raised affirmative defenses, including lack of jurisdiction, improper venue, and forum non conveniens.

On January 14, 2005, Defendant filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(2) for lack of jurisdiction over the person, or in the alternative for summary judgment pursuant to Rule 56. The district court granted Defendant's 12(b)(2) motion to dismiss on April 5, 2005. Plaintiff timely appealed to this Court on April 28, 2005.

II.

This Court reviews de novo the district court's dismissal of a case for lack of personal jurisdiction under rule 12(b)(2). Nationwide Mut. Ins. Co. v. Tryg Int'l Ins. Co., Ltd., 91 F.3d 790, 793 (6th Cir.1996). If the Court grants the defendant's motion without holding an evidentiary hearing, then the Court must consider the pleadings and affidavits in a light most favorable to the plaintiff; and the plaintiff need only make a prima facie showing of jurisdiction to defeat such a motion. Dean v. Motel 6 Operating L.P., 134 F.3d 1269, 1272 (6th Cir.1998). Dismissal is proper where the facts taken together fail to establish a prima facie case for personal jurisdiction. CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir.1996).

We also note that "the enforceability of a forum selection clause is a question of law that we review de novo." Baker v. LeBoeuf, Lamb, Leiby & Macrae, 105 F.3d 1102, 1104 (6th Cir.1997) (citing Shell v. R.W. Sturge, Ltd., 55 F.3d 1227, 1229 (6th Cir.1995)). We need not consider whether to apply state or federal law to decide this issue because Ohio law and federal law treat forum selection clauses similarly. General Electric Co. v. G. Siempelkamp, 29 F.3d 1095, 1098 n. 3 (6th Cir.1994).

III.

"[T]he requirement that a court have personal jurisdiction over a party is a waivable right and there are a variety of legal arrangements whereby litigants may consent to the personal jurisdiction of a particular court system." Kennecorp Mortgage Brokers, Inc. v. Country Club Convalescent Hospital, Inc., 66 Ohio St.3d 173, 610 N.E.2d 987, 988 (Ohio 1993). The use of a forum selection clause is one way in which contracting parties may agree in advance to submit to the jurisdiction of a particular court. See generally M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972).

A forum selection clause contained in an agreement in connection with an arm's length commercial transaction between two business entities is valid and enforceable. Kennecorp, 610 N.E.2d at 988 (upholding the validity of a forum selection clause in a contract between a California company and an Ohio-based company which designated Ohio as the forum and Ohio law as the choice of law). The Supreme Court has stated that in light of present-day commercial realities, a forum selection clause in a commercial contract should control, absent a strong showing that it should be set aside. M/S Bremen, 407 U.S. at 15, 92 S.Ct. 1907; see also General Electric Co., 29 F.3d at 1099 (rejecting Plaintiff's attempts to avoid litigating in Germany, the forum identified in the forum selection clause, as opposed to Ohio, on the grounds that Plaintiff, a sophisticated business had agreed to the deal and because Germany was where the deal was signed and negotiated, the goods were manufactured, much of the contract was performed and presumably where witnesses would be located); Kennecorp, 610 N.E.2d at 989.

In determining the validity of a particular forum selection clause, we thus consider the following factors: (1) the commercial nature of the contract; (2) the absence of fraud or overreaching; and (3) whether enforcement of the forum selection clause would otherwise be unreasonable or unjust. Info. Leasing Co. v. Jaskot, 151 Ohio App.3d 546, 784 N.E.2d 1192, 1195-96 (Ohio Ct.App.2003); see also M/S Bremen, 407 U.S. at 15, 92 S.Ct. 1907; and Kennecorp, 610 N.E.2d at 989. In deciding this appeal, we address each of the three factors below:

1. Commercial Nature of the Contract

The commercial nature of a contract is a vital factor weighing in favor of enforcement of a forum selection clause. Info. Leasing Corp., 784 N.E.2d at 1195. Commercial forum selection clauses between for-profit business entities are prima facie valid. "[S]uch clauses are prima facie valid in the commercial context, so long as the clause has been freely bargained for." Kennecorp, 610 N.E.2d at 989; Info. Leasing Corp., 784 N.E.2d at 1195 (finding that defendant sole proprietorship was not in the same position as a consumer who enters into an agreement with a commercial entity, and was presumed "to have some experience in contractual and business matters.").

The commercial nature of the agreements is not in dispute. Both parties agree that the forum selection clause at issue here is part of a commercial contract between business entities.

2. Fraud or Overreaching

A valid forum selection clause must not be the product of fraud or over-reaching. See Info. Leasing Corp., 784 N.E.2d at 1196; Kennecorp, 610 N.E.2d at 989. Defendant claims that the forum selection clause at issue here is invalid because "Preferred Capital along with NorVergence fraudulently induced Associates into accepting the forum-selection clause." (Defendant's Br. at 14.) Defendant further alleges that the forum selection clause was fraudulent because Plaintiff and NorVergence, unbeknownst to Defendant, had already agreed to the assignment at the time that Defendant entered into the original contract with NorVergence. Plaintiff argues, and the district court held, that no matter what NorVergence may have intended, the forum selection clause itself was not the product of fraud. We agree that Defendant has produced no evidence which would indicate that Defendant was fraudulently induced to enter into the forum selection clause with NorVergence.

In Moses v. Bus. Card Express, 929 F.2d 1131 (6th Cir.1991), this Court reviewed the validity of forum selection and choice of law clauses in a franchise agreement. The plaintiff in that case appealed the district court's enforcement of the clauses, arguing that the defendant's fraudulent intent invalidated the clauses. This Court affirmed the district court, holding that:

[U]nless there is a showing that the alleged fraud or misrepresentation induced the party opposing a forum selection clause to agree to inclusion of that clause in a contract, a general claim of fraud or misrepresentation as to the entire contract does not affect the validity of the forum selection clause.

Moses, 929 F.2d at 1138 (citing Scherk v....