489 F.3d 303 (6th Cir. 2007), 06-3063, Preferred Capital, Inc. v. Sarasota Kennel Club, Inc.

Docket Nº:06-3063.
Citation:489 F.3d 303
Party Name:PREFERRED CAPITAL, INC., Plaintiff-Appellant, v. SARASOTA KENNEL CLUB, INC. and Jack Collins, Jr., Defendants-Appellees.
Case Date:May 29, 2007
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 303

489 F.3d 303 (6th Cir. 2007)

PREFERRED CAPITAL, INC., Plaintiff-Appellant,

v.

SARASOTA KENNEL CLUB, INC. and Jack Collins, Jr., Defendants-Appellees.

No. 06-3063.

United States Court of Appeals, Sixth Circuit

May 29, 2007

Argued: April 19, 2007

Appeal from the United States District Court for the Northern District of Ohio at Cleveland. No. 04-02063-John M. Manos, District Judge.

Page 304

ARGUED:

Tamara A. O'Brien, Roderick Linton LLP, Akron, Ohio, for Appellant.

Holly Marie Wilson, Reminger & Reminger Co., L.P.A., Cleveland, Ohio, for Appellee.

ON BRIEF:

Tamara A. O'Brien, Roderick Linton LLP, Akron, Ohio, for Appellant.

Holly Marie Wilson, Reminger & Reminger Co., L.P.A., Cleveland, Ohio, for Appellee.

Before: MERRITT and MARTIN, Circuit Judges; FORESTER, District Judge.[*]

OPINION

MERRITT, Circuit Judge.

Preferred Capital brought this diversity action to enforce a rental agreement between Norvergence, Preferred Capital's assignor, and Sarasota Kennel Club. The district court dismissed the claim because of a lack of personal jurisdiction over the defendants, and Preferred Capital appeals, arguing that the district court erred in refusing to enforce the forum selection clause in the Norvergence contract. Since that decision, a clear distinction has

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emerged between the federal and state (Ohio) law concerning the enforcement of such clauses. We are thus presented with the question of whether federal or state law controls the interpretation of a forum selection clause when the clause is raised as the sole basis for personal jurisdiction over the defendant. For the reasons discussed below, we hold that state law applies to this question and therefore affirm the District Court's decision to dismiss the case for lack of personal jurisdiction, albeit on different grounds.

I.

In April 2004, the defendants, a Florida resident and his corporation, executed an Equipment Rental Agreement with Norvergence, Inc., a New Jersey corporation that is not a party to this case. The agreement called for Norvergence to supply the Sarasota Kennel Club with telecommunications equipment and services including land-line and cellular telephone service and high-speed internet access. Norvergence never actually provided the services.

The rental agreement contained the following forum selection and choice of law provision:

This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which the Rentor's principal offices are located or, if this Lease is assigned by the Rentor, the State in which the assignee's principal offices are located, without regard to such states 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 the Rentor or Rentor's assignee's sole option.

J.A. 16, 266 (emphasis added).

Unbeknownst to the defendants, in September 2003, Norvergence had executed a Master Program Agreement with the plaintiff, Preferred Capital, Inc., a financial services company located in Brecksville, Ohio. This agreement established terms under which Norvergence could, and presumably would, assign the rights to rental payments from future equipment rental agreements to Preferred Capital.

One day after Sarasota Kennel executed the Equipment Rental Agreement, it received notice that the agreement had been assigned, and that all future payments should be made to Preferred Capital. This was the first time the defendants had heard of Preferred Capital. After making the first few payments, Sarasota Kennel stopped paying because Norvergence had failed to provide the services promised in the rental agreement. Sarasota Kennel's experience is not unique; hundreds of other parties entered into similar agreements with Norvergence, had their contracts assigned to finance companies, and never received the promised telecommunications services.

Norvergence is now in bankruptcy. Its conduct has spawned a wave of litigation throughout the country, including suits against it and its finance company assignees. The private actions include a class action...

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