Snider v. Lone Star Art Trading Co., Inc.

• Decision Date: 25 August 1987
• Docket Number: Civ. A. No. 86-CV-72652-DT.
• Citation: 672 F. Supp. 977
• Parties: Ira L. SNIDER, Plaintiff, v. LONE STAR ART TRADING CO., INC., a Texas corporation; Art Realties Trading Co., Inc., a Texas corporation; Samuel Shuman: London Arts, Inc., a Michigan corporation; David N. Zelmon: Arnold Klein: Ivo Kirschen: Eugene Schuster and Monis Schuster, Jointly and Severally, Defendants.
• Court: U.S. District Court — Western District of Michigan

672 F. Supp. 977

Ira L. SNIDER, Plaintiff, v. LONE STAR ART TRADING CO., INC., a Texas corporation; Art Realties Trading Co., Inc., a Texas corporation; Samuel Shuman: London Arts, Inc., a Michigan corporation; David N. Zelmon: Arnold Klein: Ivo Kirschen: Eugene Schuster and Monis Schuster, Jointly and Severally, Defendants.

Civ. A. No. 86-CV-72652-DT.

United States District Court, E.D. Michigan, S.D.

August 25, 1987.

Mayer-Morganroth, Southfield, Mich., for Snider.

Richard A. Rossman, Detroit, Mich., for Klein.

Noel A. Gage, John K. Parker, Ivy O. Giller, Southfield, Mich., for Lone Star, Art Realties and Shuman.

Richard E. Zuckerman, Thea Marie Sankiewicz, Troy, Mich., for London Arts, Zelmon and Schusters.

MEMORANDUM OPINION AND ORDER

JULIAN ABELE COOK, Jr., District Judge.

Two sets of Defendants have filed a total of eight motions,¹ all of which challenge the "Memorandum Opinion and Order" that was entered by this Court on April 9, 1987, 659 F.Supp. 1249.² Plaintiff, Ira L. Snider, has brought suit under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq., and under the Michigan common law of fraud. In essence, Snider alleges that he was sold certain art plates which were worth far less than had been represented to him by the Defendants. The Court will address each pending motion separately.

1. The Lone Star Group's Motion for Reconsideration

The Lone Star group seeks reconsideration of two parts of the Opinion. First, they challenge this Court's view that Snider's claim is not outside the relevant statute of limitations. Second, the Lone Star group claims that this Court did not give effect to a forum selection clause in one of six purchase agreements.

Pursuant to Local Rule 17(m) of the Eastern District of Michigan, this Court can grant reconsideration when the movant:

shall not only demonstrate a palpable defect by which the Court and the parties have been misled but also show that a different disposition of the case must result from a correction thereof.

(Emphasis added). Because the Lone Star group has not satisfied this stringent burden, the motion must be denied.

a. The Forum Selection Clause

In the April 9th Opinion, this Court declined to give effect to a forum selection clause³ in the Purchase Agreement between Snider and Defendant Lone Star for a number of reasons. First, the Court held that the scope of the forum's selection clause with one defendant clearly did not encompass a RICO action against multiple defendants. Memorandum Opinion at 1257. The Court also concluded that the enforcement of this clause would not be appropriate here under the laws of Michigan or Texas or the standards which were enumerated in The Bremen v. Zapata Off Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972).

The Lone Star group contends that the April 9th Order failed to incorporate the teachings of Friedman v. World Transport, 636 F.Supp. 685 (N.D.Ill.1986), in which the court enforced a contractual forum selection clause between the plaintiff and one of the several defendants whom he subsequently sued in a RICO action. Thereafter, the court granted a motion to transfer venue to the district which had been referred to in the clause.

There are several major problems with any reliance on Friedman.⁴ The first problem with Friedman is that it is only a district court case and it is almost directly contradicted by the only appellate court to have addressed a similar issue. In Farmland Industries v. Frazier-Parrott Commodities, 806 F.2d 848-852 (8th Cir.1986), the Court of Appeals for the Eighth Circuit refused to enforce a forum selection clause which was found in a contract between plaintiff and only one of the defendants whom he had sued for fraud. It found that the lawsuit was broader than the intended scope of the clause. As a result, the clause, which called for the transfer or dismissal of the action, was not given any enforcement.

The Farmland court expressly adopted the reasoning of the district court:

The court found that

this matter involves more than a dispute between plaintiff, Heinold, and those associated with Heinold. Plaintiff has alleged an elaborate scheme of fraud involving not only Heinold and individuals associated with Heinold, but also involving other individuals outside the securities brokerages, sham corporations, and other matters not subject to the agreement between plaintiff and Heinold.

Farmland Industries, Inc. v. Frazier-Parrott Commodities, No. 86-0135-CV-W-8, slip op. 7-8 (W.D.Mo. June 17, 1986).

The district court stated that Farmland's causes of action do not all arise directly or indirectly from the agreement and that Farmland could not have anticipated having to litigate these claims in Illinois. The court also found that Farmland's multiple claims were not in tended to evade the forum selection clause. We agree.

Id.

This reasoning is identical to that which was employed by this Court in its April 9th Opinion:

This Court notes only one of the Six Purchase Agreements had such a provision. Equity, as well as an efficient administration of justice, militate against requiring a RICO claim involving six Defendants (and not a claim in contract) to be brought in the location which is specified in a contract with one of the Defendants.

Memorandum Opinion at 1257.

The Friedman court never adequately addressed these issues. Instead, it gave an overly rigid formalistic analysis, asserting that the RICO action arose out of the purchase agreement and named the seller as a defendant. 636 F.Supp. at 691. Thus, the Court there opined that Friedman was bound by the agreement to sue the seller wherever the clause specified. This reasoning ignores the fact that there is no evidence in this record to support a claim that the forum selection clause was included in contemplation of a RICO action in which individuals, in addition to Lone Star, were allegedly engaged in fraud.

The Defendants seek to distinguish Farmland by saying (1) that the case involved a fiduciary relationship whereas here there was an arms-length transaction and (2) the Eighth Circuit Court of Appeals relied on a Missouri public policy. These arguments are not persuasive because the Court determined that "... we hold that ... the suit is broader than the forum selection clause." Id. at 852. Thus, the limited scope of the forum clause is obviously the key to the holding—not the other arguments.

Even if this Court ignored Farmland, and accepted Friedman on its own terms, the reasoning therein would require this Court not to enforce the forum selection clause. The Friedman court repeatedly emphasized that enforcing the forum selection clause was reasonable because the clause was contained in the "controlling document," i.e., the central document in the dispute. 636 F.Supp. at 691. It was in the "one document which logically connects all the defendants to the plaintiffs in this action." Id. The court attempted to distinguish Lulling v. Barnaby's Family Inns, Inc., 482 F.Supp. 318, 321 (E.D.Wisc.1980) by stating that the forum selection clause was not enforced there because it was not in "the basic contract" between the parties.

However, in the instant cause and unlike Friedman, the forum selection clause is not in the one central document. The clause was inserted in one of six equally important Purchase Agreements. There is no basis for giving that document more controlling weight than the other five documents with regard to the appropriate venue for a RICO action. Thus, Friedman mandates that the clause not be enforced.

Defendants also argue that the legal standards of The Bremen, supra, should govern this issue. They then assert that the fundamental defect in this Court's position is that it did not impose The Bremen's stringent burden of proof on Snider to show why the clause should not be enforced. Defendants are incorrect.

In retrospect, this Court's only error in its April 9th Opinion was to accept the assertions of Plaintiff and Defendants that the Michigan law regarding forum selection clauses was applicable. However, this Court did not, and does not, (1) accept Defendants' somewhat changed assertion on reconsideration that The Bremen sets forth the governing standards as a matter of federal law or (2) governs Michigan law. Moreover, any error in following Michigan law is harmless, and would not justify any modification of the April 9th Order.⁵

The reasons why Bremen does not set forth the governing standards have been accurately stated by the Third Circuit Court of Appeals in General Engineering Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352, 356 (3d Cir.1986), in which it was stressed that (1) the enforceability of a forum selection clause was a contract question and (2) state law applied in its interpretation. Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The Court of Appeals for the Third Circuit held:

We must correct the assumption that federal courts are bound as a matter of federal common law to apply The Bremen standard to forum selection clauses. The construction of contracts is usually a matter of state, not federal, common law. Federal courts are able to create federal common law only in those areas where Congress or the Constitution has given the courts the authority to develop substantive law, as in labor and admiralty, or where strong federal interests are involved, as in cases concerning the rights and obligations of the United States. See Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 640-43, 101 S.Ct. 2061, 2066-68, 68 L.Ed.2d 500 (1981). Only rarely will federal common law displace state law in a suit between private parties. As the Court in Miree v. DeKalb County, Georgia, 433 U.S. 25, 97 S.Ct. 2490, 53 L.Ed.2d 557 (1977), observed, in a suit between private parties where federal common law is sought to be applied, "normally the guiding principle is that a significant conflict between

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