817 F.2d 1047 (3rd Cir. 1987), 86-5198, In re Diaz Contracting

Docket Nº:86-5198.
Citation:817 F.2d 1047
Party Name:In re DIAZ CONTRACTING, INC., A New Jersey Corporation (Debtor). DIAZ CONTRACTING, INC., A New Jersey Corporation v. NANCO CONTRACTING CORP., A New York Corporation; Quickway, Inc., A Pennsylvania Corporation. Appeal of NANCO CONTRACTING CORP.
Case Date:April 30, 1987
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 1047

817 F.2d 1047 (3rd Cir. 1987)

In re DIAZ CONTRACTING, INC., A New Jersey Corporation (Debtor).

DIAZ CONTRACTING, INC., A New Jersey Corporation

v.

NANCO CONTRACTING CORP., A New York Corporation; Quickway,

Inc., A Pennsylvania Corporation.

Appeal of NANCO CONTRACTING CORP.

No. 86-5198.

United States Court of Appeals, Third Circuit

April 30, 1987

Argued Dec. 15, 1986.

As Amended May 12, 1987.

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Michael A. Mulqueen, (argued), Ross and Cohen, New York City, for appellant.

Joseph Lubertazzi, Jr. (argued), Richard W. Hill, McCarter and English, Newark, N.J., for appellee.

Before HIGGINBOTHAM and BECKER, Circuit Judges, and DUMBAULD, District Judge. [*]

OPINION

A. LEON HIGGINBOTHAM, JR., Circuit Judge.

This action began as an adversary proceeding before the United States Bankruptcy Court for the District of New Jersey (Camden Division) to recover monies owed. Defendant-appellant Nanco Contracting Corporation ("Nanco") appeals from the order of the district court affirming the prior order of the bankruptcy court that, in pertinent part, denied Nanco's motion to dismiss the complaint of plaintiff-appellee Diaz Contracting, Incorporated ("Diaz"). We must determine whether the district and bankruptcy courts erred in refusing to enforce a forum selection clause in the parties' contract requiring that all actions arising under the contract be brought in the courts of the State of New York. For the reasons set forth below, we will reverse the judgment of the district court.

I.

"[O]rders denying a pretrial motion to enforce a forum selection clause are reviewable by courts of appeals on three grounds: as interlocutory decisions under 28 U.S.C. Sec. 1291(a)(2) (1982), as collaterally final orders under 28 U.S.C. Sec. 1291, and under the All Writs Act, 28 U.S.C. Sec. 1651 (1982)." General Eng'g Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352, 355-56 (3d Cir.1986) (citing Coastal Steel Corp. v. Tilghman Wheelabrator, Ltd., 709 F.2d 190, 193-97 (3d Cir.), cert. denied, 464 U.S. 938, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983)). Accordingly, we may properly exercise appellate jurisdiction over the order of the district court upholding the non-enforcement in the bankruptcy court of the contractual forum selection clause between Nanco and Diaz.

This appeal arises out of an adversary proceeding instituted by Diaz in connection with its petition under Chapter 11 of the

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Bankruptcy Code, 11 U.S.C. Secs. 541 & 542 (1982), against Nanco. In that proceeding, Diaz moved to recover, as property of the debtor's estate, certain monies allegedly owed to it by Nanco. 1 Nanco filed a cross-motion for an order dismissing the proceeding on the basis of the forum selection clause in the parties' subcontract that requires actions arising thereunder to be brought in the courts of the State of New York. Nanco relied upon this Court's opinion in Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir.), cert. denied, 464 U.S. 938, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983), wherein now Chief Judge Gibbons noted the rule, first articulated by the Supreme Court in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), "that a forum selection clause is presumptively valid." 709 F.2d at 202. Acknowledging the applicability of Coastal Steel and The Bremen, the bankruptcy court nevertheless apparently concluded that Diaz had overcome the presumption of enforceability by demonstrating financial difficulty. See Appendix ("App.") at A37-38. Specifically, the bankruptcy court stated:

As I read the Coastal Steel case, I believe it does leave the Court with a certain degree of discretion and certainly allows them to take into account certain mitigating or equitable factors.

* * *

I am familiar with the financial difficulty of this particular Chapter 11 debtor. Mr. Diaz, both by way of his corporate filing and by several other related filings, is before this Court and has experienced great difficulties so far as cash flow of the estate is concerned and I think I am bound to take that into consideration.

App. at A37-38. The bankruptcy judge, accordingly, refused to direct the parties' dispute to the courts of New York.

Nanco subsequently moved before the United States District Court for the District of New Jersey for leave to appeal the bankruptcy court's denial of its motion to dismiss. The district court granted Nanco's motion for leave to appeal. The order of the bankruptcy court was subsequently affirmed by the district court which noted that it "[could] not find on the record before it that [the bankruptcy court] abused [its] discretion and th[us would] not second-guess [that] decision." App. at A63.

On appeal, Nanco argues that the district court erroneously applied an abuse of discretion standard of review to the bankruptcy court's determination that the forum selection clause need not be enforced, and that both courts erred as a matter of law in refusing to enforce the clause. Diaz responds that this Court's decision in Zimmerman v. Continental Airlines, Inc., 712 F.2d 55 (3d Cir.1983), cert. denied, 464 U.S. 1038, 104 S.Ct. 699, 79 L.Ed.2d 165 (1984), modified our prior holding in Coastal Steel and renders forum selection clauses non-binding on bankruptcy courts. Based on Zimmerman, Diaz maintains that the purposes underlying the broad jurisdiction of the bankruptcy courts require that their decisions to enforce forum selection clauses be discretionary. Thus, Diaz argues, the district court properly reviewed the bankruptcy court's determination that the forum selection clause not be enforced for an abuse of discretion. Finally, Diaz argues that under whatever standard the enforceability determination is reviewed, it carried its burden of establishing that, on the facts of this case, litigation in another jurisdiction would be unreasonable. We turn first to a review of the law governing

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the enforceability of forum selection clauses.

II.

A.

A preliminary concern in determining the enforceability of a forum selection clause is what law, state or federal, governs that determination. In General Eng'g Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352 (3d Cir.1986), this Court "correct[ed] the assumption that federal courts are bound as a matter of federal common law to apply The Bremen standard to forum selection clauses." Id. at 356. Instead, we noted that the law of the state or other jurisdictions whose law governs the construction of the contract generally applies to the enforceability determination unless "a significant conflict between some federal policy or interest and the use of state law [exists]." Id. (quoting Miree v. DeKalb County, Georgia, 433 U.S. 25, 31-32, 97 S.Ct. 2490, 2494-95, 53 L.Ed.2d 557 (1977) (emphasis in original)); cf. Coastal Steel, 709 F.2d at 201 ("It is not entirely clear why, absent a [federal] statute ..., the enforceability of a contractual forum selection clause should properly be divorced from the law which in other respects governs the contract.").

In the instant appeal, the parties' Subcontract Agreement provides that "[t]he rights of the parties shall be construed pursuant to the laws of the state of New York." App. at A-22. 2 Under New York law, the enforceability of forum selection clauses is governed by the standard enunciated in The Bremen. See Bense v. Interstate Battery Sys. of Am., 683 F.2d 718, 721 (2d Cir.1982) (quoting The Bremen, 407 U.S. at 15, 92 S.Ct. at 1916) (forum selection clauses generally enforced absent a strong 'show[ing] that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching'). Moreover, this Court, in Coastal Steel, held that The Bremen standard was applicable even in a bankruptcy proceeding. 3 See Coastal Steel, 709 F.2d at 202. Similarly, the Second Circuit has recognized the applicability of that standard in bankruptcy courts as well as district courts exercising federal question jurisdiction. 4 See Envirolite Enter. v. Glastechnische Indus. Peter Lisec Gesellschaft M.B.H., 53 B.R. 1007 (S.D.N.Y.1985) (applying The Bremen ), aff'd, 788 F.2d 5 (2d Cir.1986). Thus, the determination whether the forum selection clause in the instant action should be enforced must be made in accordance with the standard enunciated in The Bremen. 5

B.

In The Bremen, the Supreme Court...

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