Karlberg European Tanspa v. JK-Josef Kratz Vertriebsgesellschaft mbH

• Decision Date: 23 September 1985
• Docket Number: No. 85 C 4605.,85 C 4605.
• Citation: 618 F. Supp. 344
• Parties: KARLBERG EUROPEAN TANSPA, INC., Plaintiff, v. JK-JOSEF KRATZ VERTRIEBSGESELLSCHAFT MBH, Defendant.
• Court: U.S. District Court — Northern District of Illinois

618 F. Supp. 344

KARLBERG EUROPEAN TANSPA, INC., Plaintiff, v. JK-JOSEF KRATZ VERTRIEBSGESELLSCHAFT MBH, Defendant.

No. 85 C 4605.

United States District Court, N.D. Illinois, E.D.

September 23, 1985.

George P. McAndrews, Charles W. Shifley, Gregory J. Vogler, Allegretti, Newitt, Witcoff & McAndrews, Ltd., Chicago, Ill., for plaintiff.

Detlef G. Lehnardt, Joseph P. Garland, Lehnardt & Miller, P.C., New York City, and Lawrence R. Levin, Wilson P. Funkhouser, Nancy R. Gamburd, Kenneth A. Grady, Levin & Funkhouser, Ltd., Chicago, Ill., for defendant.

MEMORANDUM AND ORDER

MORAN, District Judge.

This case involves a contract dispute between Karlberg European Tanspa, Inc. (KETS), an American company in the business of selling tanning salon franchises and equipment, and JK-Josef Kratz Vertriebsgesellschaft mbH (JK), a German company which manufactures and sold KETS sun-tanning equipment. JK has moved to dismiss the action for improper venue under Rule 12(b)(3) of the Federal Rules of Civil Procedure.¹ For the following reasons, the court grants defendant's motion.

I.

The relationship between KETS and JK started in 1982, when JK approached Ann and Stig Karlberg, sole owners of KETS, to establish an American distributorship of its products. After several negotiating sessions in the States, JK went back to Germany and drafted a contract. The contract, in German, was signed by the Karlbergs on November 8, 1982, even though neither Ann nor Stig Karlberg reads nor understands German. The contract was later translated into English by the Karlbergs. The 1982 contract contained a forum selection clause and an applicable law clause which the Karlbergs now claim JK included in the contract without their knowledge.

In 1983, before the 1982 distributorship agreement ended, JK again contacted the Karlbergs to negotiate another agreement. Ann Karlberg met with JK officers Udo Sommerkamp and Walter Kratz in Germany in September 1983. They discussed trouble KETS had encountered with the Federal Drug Administration concerning safety requirements for the sun-tanning beds, quotas and sales forecasts for the upcoming year. JK's lawyers drafted a new agreement which Mr. Sommerkamp and Mr. Katz brought to the States in October 1983. After further negotiation, during which Ann Karlberg made requests for specific changes in the draft contract, the Germans returned to Germany and wrote the final draft. On November 19, 1983, Ann Karlberg signed this agreement which was in German, and on November 24, 1983, she signed an English version.

The current dispute is based on the 1983 distributorship agreement. The contract basically gives KETS exclusive distributorship in the United States of JK's Soltron products and a discount on any such products, in return for which KETS promised not to distribute any other manufacturer's sun-tanning products or sell other products to its franchisees. Numerous provisions cover responsibility for advertising, meeting safety regulations, and making repairs on the equipment, as well as terms of supply and inventory. While the core of the contract dispute is how these provisions were implemented over the course of the contract, they are irrelevant to the current motion.

Central to the current motion are the third and second-to-last provisions of the 1983 agreement, which state:

Applicable Law

The laws of the Federal Republic of Germany are to be applied in interpretations of this contract. The German text is binding.

Court of Venue

The courts exercising jurisdiction over the district in which JK is headquartered are responsible for hearing litigation in any and all disputes which may arise from this contract or the individual delivery agreements.

JK argues that these provisions clearly establish that the current contract dispute should be heard in West Germany. KETS argues that venue is proper in Illinois because the forum selection clause is ambiguous and that, even if it is read to name West Germany as the forum, its inclusion in the contract was the result of unequal bargaining power and its implementation would be grossly unreasonable given the circumstances of the two companies.

II.

Before turning to the validity of the forum selection clause we address the issue of its interpretation. KETS argues that the clause is ambiguous because a person (specifically an unsophisticated business person, which Ann Karlberg claims to be) could interpret the phrase, "the district in which JK is headquartered," as meaning either JK's American or German offices. To show that JK had offices or headquarters in the United States, KETS submitted incorporation documents for JK subsidiary corporations, filed in Arizona. These documents fail to convince the court that the contract called for venue in the United States. First, the phrase, "JK is headquartered," plainly refers to JK-Joseph Kratz Vertriebsgesellschaft mbH, the party to the contract and the present defendant, not to JK International, Inc. or any other subsidiary corporation. Second, JK is an international corporation with headquarters in West Germany. Third, West German law controls. Finally, Arizona revoked JK International, Inc. and J.K. of Arizona, Inc.'s corporate status on September 18, 1983, for failure to file an annual report, and no evidence has been presented to show that these companies are or were substantial operating entities during the contract period. From all these indications the court has concluded that the forum selection clause contained in the 1983 Agreement refers all contract disputes to West Germany.²

Forum selection clauses are presumptively valid unless the party opposing the clause can "clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 1916, 32 L.Ed.2d 513 (1972); see also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., ___ U.S. ___, 105 S.Ct. 3346, 87 L.Ed.2d 444, Trade Reg.Rep. (CCH) par. 66,669 (U.S.1985); Snyder v. Smith, 736 F.2d 409 (7th Cir. 1984); Coastal Steel Corporation v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir.1983); Hoes of America, Inc. v. Hoes, 493 F.Supp. 1205 (C.D.Ill.1979); Gaskin v. Stumm Handel GmbH, 390 F.Supp. 361 (S.D.N.Y.1975). The "concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes" strongly favor enforcement of forum selection clauses in international contracts. Mitsubishi, supra, ___ U.S. at ___, 105 S.Ct. at 3355, Trade Reg.Rep. (CCH) at 63,149; see also In Re Oil Spill by Amoco Cadiz, 659 F.2d 789, 795 (7th Cir.1981) ("special deference is owed to forum-selection clauses in international contracts").

KETS has a heavy burden of proving that despite the prima facie validity of the clause in the 1983 Agreement, its enforcement should be denied. KETS must show that the contract was invalid due to fraud or overreaching, or that the contractual forum would be "so gravely difficult and inconvenient that KETS will for all practical purposes be deprived of its day in court." Bremen, 407 U.S. at 18, 92 S.Ct. at 1917; Coastal Steel Corporation, 709 F.2d at 202.

Turning to the validity of the contract, KETS argues that the contract is invalid for several reasons. KETS insists that it is a small, unsophisticated "mom and pop" operation that was no match in negotiations with JK, and that JK took advantage of its bargaining position to write in the forum selection clause. The court disagrees with KETS' self-description. At the time of the 1983 Agreement KETS sales were in excess of $2,500,000, and it had 170 franchisees. KETS projected 302 franchisees in 48 states by 1984. In this very contract action, KETS is demanding at least $20,000,000 in damages. KETS is by no means a small local business.

KETS claims it is unsophisticated compared to JK, in that Ann Karlberg did not have a lawyer involved in the negotiations or the signing of the 1983 Agreement, and without a legal expert to advise her she simply did not read or notice the forum selection clause. She also claims that the clause was never discussed in any of the meetings between KETS and JK. We find these arguments unpersuasive for several reasons. First, basic contract law establishes a duty to read the contract which the Karlbergs cannot escape. See Calamari & Perillo, Law of Contracts, secs. 9-42 to 9-46 (2d Ed.1977); Hoffman v. National Equipment Rental, Ltd., 643 F.2d 987, 991 (4th Cir.1981); Gaskin v. Stumm Handel GmbH, 390 F.Supp. at 366-367 (duty to read upheld even when contract written in German, a language the party could not read or understand).

The contract involved was not a form contract or a contract of adhesion, but rather one freely negotiated between business people. Ann Karlberg had a chance to review the proposed terms and she recommended changes in the draft that were incorporated into the final agreement. The forum selection clause in the final agreement was clearly visible to its signers, being the longest of three provisions on the last page of the agreement, above where the parties signed. See The Bremen, 407 U.S. at 13 n. 14, 92 S.Ct. at 1914 n. 14 ("The forum clause could hardly be ignored.") Given these facts, KETS' arguments that it did not negotiate or discuss the forum selection clause and that it was not explained to Ann Karlberg do not "rise to the level of fraud, overreaching, or unconscionability." Richardson Greenshields Securities v. Metz, 566 F.Supp. 131, 133 (S.D.N.Y.1983).

The cases KETS cites as support for its "contract of adhesion" theory involved significantly different facts. They all involved form contracts with the forum selection clause buried in boilerplate language in fine print. Colonial Leasing Co. of New England v. Pugh Bros. Garage, 735 F.2d 380 (9th Cir.1984)...