Paper Exp., Ltd. v. Pfankuch Maschinen GmbH

Citation972 F.2d 753
Decision Date11 August 1992
Docket NumberNo. 90-3589,90-3589
PartiesPAPER EXPRESS, LIMITED, an Illinois corporation, Plaintiff-Appellant, v. PFANKUCH MASCHINEN GmbH, a German corporation, Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

James McConnell, Beverly L. Bailey (argued), Peter I. Mason, Thomas W. Flannigan, Freeborn & Peters, Chicago, Ill., for plaintiff-appellant.

Michael T. Brody, Jenner & Block, Chicago, Ill., Richard J. Sankovitz (argued), Bruce G. Arnold, Whyte & Hirschboeck, Milwaukee, Wis., for defendant-appellee.

Before CUDAHY, COFFEY and MANION, Circuit Judges.

CUDAHY, Circuit Judge.

Paper Express, Ltd., an Illinois company, appeals from the dismissal for want of proper venue of a breach of warranty action brought in the district court. The principal issue on appeal is whether the parties' contract included a valid forum-selection clause providing for exclusive venue in Germany. We affirm.

I.

In late 1987, an employee of Paper Express traveled to Canada to discuss the possibility of purchasing copying equipment manufactured by Pfankuch Maschinen, a German company, with Loach Systems, Inc., a Pfankuch agent. 1 In March 1988, Paper Express negotiated to purchase a collating machine from Pfankuch for approximately $200,000. There was nothing exceptional about the negotiation process: Pfankuch prepared several price quotations and on March 21 issued its final quotation; on March 31, Paper Express responded by sending a purchase order to Pfankuch, along with a check for $75,000 which Pfankuch promptly cashed. Pfankuch later sent an acknowledgment of the order to Paper Express. In November 1988, the collating equipment was delivered and installed at Paper Express's plant in Des Plaines, Illinois. The equipment never worked as promised, and Paper Express commenced this action in the district court seeking damages in an amount in excess of $872,000.

Pfankuch filed a counterclaim for the balance of the purchase price Paper Express had refused to pay. 2 At the same time it moved to dismiss the complaint for improper venue pursuant to Fed.R.Civ.P. 12(b)(3) relying on a clause asserted to be a forum-selection clause contained in all of the relevant documents--the price quotations, the purchase order issued by Paper Express and the acknowledgment issued by Pfankuch. The clause reads: "Warranty: 6 months according to the rules of VDMA and ZVEI. The warranty includes six months parts and three months labor from the time the machine is erected in Paper Express's factory." The VDMA, or the Verband Deutscher Maschinen-und Anlagenbau e.V., is an association of German machine manufacturers that promulgates a set of standard commercial terms. According to the rules of the VDMA, the supplier's principal place of business is the forum for resolving all contractual disputes; in this case that would be Ahrensburg, the town in northern Germany where Pfankuch is located. 3 The district court granted the motion to dismiss, finding that the clause incorporated the VDMA venue rule.

II.

Before examining the validity of the purported forum-selection clause, we must consider whether the clause is indeed a forum-selection clause. Paper Express contends that the clause, which on its face does not refer to venue, is nothing more than a warranty provision and that the words "according to the rules of VDMA" relate only to the length of the warranty. But surely this cannot be correct. In construing contracts, every provision should be given effect and the words should be read with their ordinary meaning. First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1014 (7th Cir.1985); Hanley v. James McHugh Constr. Co., 444 F.2d 1006, 1009 (7th Cir.1971). The clause in this case specifically details the length of the warranty ("Warranty: 6 months ...") so Paper Express's reading would render the additional words "according to the rules of VDMA" surplusage. Nor is "warranty" so narrow a term as to be incompatible with the concept of venue. Indeed, frequently warranty provisions do include terms that specify how and where warranty claims are to be resolved. See, e.g., Wick v. Atlantic Marine, Inc., 605 F.2d 166, 167 (5th Cir.1979); Martin Marietta Aluminum, Inc. v. General Elec. Co., 586 F.2d 143, 145 (9th Cir.1978). The words "according to the rules of VDMA" add something to this provision in addition to the length of the warranty. "According to" is commonly defined as "agreeing with, consistent with, or answering to." I Oxford English Dictionary 83 (2d ed.1989). Thus, the parties agreed that the warranty is to be read in a manner consistent with "the rules of VDMA." It is apparent from this language and the use of the plural "rules" that the parties agreed to incorporate more than just the VDMA rule regarding the length of the warranty. The only meaningful reason for including the provision in question was to incorporate the VDMA rules, including the VDMA venue provision.

Having established that there is a forum-selection clause, we now consider its specific requirements. The VDMA venue provision states:

In all disputes arising out of the contractual relationship, the action shall be filed in the court which has jurisdiction for the principal place of business of the supplier, or its branch office which is carrying out the delivery, if the purchaser is a qualified businessman, a legal entity created by law, or a fund created by public law. The supplier also has the right to commence an action against the purchaser at the purchaser's principal place of business.

The central issue is whether the clause is permissive or mandatory. Paper Express argues that the language is permissive, being only a consent to litigate in Germany, and thus may be read to permit venue in Illinois. Pfankuch contends that the clause is mandatory, vesting jurisdiction and venue exclusively in Germany.

We note first that Paper Express did not argue in the district court that the VDMA provision is permissive, but only that it was not part of the parties' contract. While this might ordinarily result in a waiver of the argument, Pfankuch has not argued that the issue has been waived, and we proceed to consider it on the merits.

Paper Express relies on several cases that have interpreted similar clauses as permissive. In All-Tech Industries, Inc. v. Freitag Elec., GmbH, No. 87 C 10690, 1988 WL 84719, at *2, 1988 U.S. Dist. LEXIS 8856, at * 5 (N.D.Ill. Aug. 5, 1988), the court considered a clause that read "Place of jurisdiction is Bad Segeberg, F.R.G." and held it permissive, noting that the clause "does not state that West Germany is the exclusive jurisdiction for adjudicating disputes arising under the contract; it merely declares a consent to the venue and jurisdiction of a West German court if either party is sued there." In Pioneer Life Ins. Co. v. Anderson, No. 88 C 20249, 1988 WL 143726, at *1, 1988 U.S. Dist. LEXIS 15320, at * 5 (N.D.Ill. Dec. 21, 1988), the court held the clause "Winnebago County, Illinois shall be the place of jurisdiction for service and legal purposes" permissive, noting that "the clause does not state that Illinois is the 'exclusive' place to bring a suit under the contract." 4

The forum-selection clauses in All-Tech Industries and Anderson are distinguishable from the forum-selection clause presently under scrutiny because of the additional sentence in the present provision stating that "[t]he supplier also has the right to commence an action against the purchaser at the purchaser's principal place of business." This language supports a finding that the clause confers exclusive jurisdiction because the sentence in question would be appropriate and meaningful only if the clause were in fact mandatory. Thus, if the clause were permissive, the additional sentence would be redundant. The specific reservation of the supplier's right to file suit at the purchaser's place of business demonstrates that the clause was in all other respects mandatory and exclusive.

The very language of the VDMA venue provision further supports a finding that the clause is mandatory. The language is obligatory. The phrase "shall be filed," coupled with the phrase "all disputes," clearly manifests an intent to make venue compulsory and exclusive. In Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762, 763-64 (9th Cir.1989), the court construed the language "[v]enue ... shall be deemed to be in Gloucester County, Virginia" as mandatory and exclusive. In Sterling Forest Assoc., Ltd. v. Barnett-Range Corp., 840 F.2d 249, 250 (4th Cir.1988), the court held the following provision mandatory: "This Agreement shall be construed and enforced in accordance with the laws of the State of California and the parties agree that in any dispute jurisdiction and venue shall be in California." Numerous other courts have construed similar language as conferring exclusive jurisdiction. See, e.g., In re Fireman's Fund Ins. Cos., 588 F.2d 93, 94 (5th Cir.1979) ("venue ... shall be laid in the County of Essex"); Intermountain Sys., Inc. v. Edsall Constr. Co., 575 F.Supp. 1195, 1197 (D.Colo.1983) ("venue shall be in Adams County, Colorado"); Gordonsville Industries v. American Artos Corp., 549 F.Supp. 200, 204 (W.D.Va.1982) ("the place for litigation shall be the [Civil Court] in Bochum, Germany"); Hoes of Am., Inc. v. Hoes, 493 F.Supp. 1205, 1206 (C.D.Ill.1979) ("[a]ny court procedures shall be held in Bremen"); Taylor v. Titan Midwest Constr. Corp., 474 F.Supp. 145, 148 (N.D.Tex.1979) ("venue shall be ... [where] the principal offices of the Contractor are located"); Public Water Supply Dist. No. 1 v. American Ins. Co., 471 F.Supp. 1071, 1071 (W.D.Mo.1979) ("venue shall lie in Mercer County, State of Missouri"); Full-Sight Contact Lens Corp. v. Soft Lenses, Inc., 466 F.Supp. 71, 72 n. 3 (S.D.N.Y.1978) ("suit ... shall be brought in either San Diego or Los Angeles County"); General Elec. Co. v. City of Tacoma, ...

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