American Performance, Inc. v. Sanford

• Decision Date: 24 August 1990
• Docket Number: Civ. A. No. 90-T-385-S.
• Citation: 749 F. Supp. 1094
• Parties: AMERICAN PERFORMANCE, INC., a Colorado Corporation, Plaintiff, v. Robert S. SANFORD and Bruner R. Dicus, Defendants.
• Court: U.S. District Court — Middle District of Alabama

749 F. Supp. 1094

AMERICAN PERFORMANCE, INC., a Colorado Corporation, Plaintiff, v. Robert S. SANFORD and Bruner R. Dicus, Defendants.

Civ. A. No. 90-T-385-S.

United States District Court, M.D. Alabama, S.D.

August 24, 1990.

Simeon F. Penton, Montgomery, Ala., for plaintiff.

Joe S. Pittman, J. Stafford Pittman, Enterprise, Ala., for defendants.

MEMORANDUM OPINION

MYRON H. THOMPSON, District Judge.

Plaintiff American Performance has brought this action against defendants Robert S. Sanford and Bruner R. Dicus, claiming breach of contract and fraudulent misrepresentation, arising out of a written agreement between the parties. The original jurisdiction of the court has been invoked pursuant to 28 U.S.C.A. § 1332 (diversity of citizenship). The court now has before it defendants' motion to dismiss this case because of a forum selection clause in the contract. The court concludes, based on federal law, that the clause requires the case to be dismissed, albeit without prejudice.¹

I.

Sanford and Dicus entered into a "stock purchase agreement" to sell to American Performance their interest in "Alfab, Inc.," an Alabama Corporation. The agreement contains a clause which requires that any lawsuit arising out of the contract must be brought in the Enterprise Division of the Circuit Court of Coffee County, Alabama. The clause reads as follows:

Any court action made necessary by the failure of the parties to agree shall be brought by the complaining party in the Circuit Court of Coffee County, Alabama, Enterprise Division, and in no other jurisdiction. In such court action the parties agree that the controversy be submitted to the court without the intervention or use of the jury system in order to expedite the settlement of any controversy.²

The defendants contend that this clause requires that the court dismiss this lawsuit which has been bought in the United States District Court of the Middle District of Alabama.

II.

As with other recent decisions in which federal courts in diversity cases have been asked to honor forum selection agreements, this case poses an "Erie choice." Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 26, 108 S.Ct. 2239, 2242, 101 L.Ed.2d 22 (1988). See also Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). It presents a conflict between Alabama law, which disfavors enforcement of all kinds of choice-of-forum clauses, see Keelean v. Central Bank of the South, 544 So.2d 153 (Ala.1989), and federal judge-made law, which considers such clauses presumptively valid. See M/S Bremen v. Zapata Off-Shore Company, 407 U.S. 1, 10, 15, 92 S.Ct. 1907, 1913, 1916, 32 L.Ed.2d 513 (1972). The court concludes that in this case federal law should determine whether this court must honor the forum clause.

A.

Stewart Organization is the Supreme Court's most recent word on the choice between state and federal law in the forum selection context. Although factually distinguishable, it establishes the appropriate framework through which to resolve the choice-of-law problem in this case. There, the Supreme Court found a conflict between Alabama law, which forbade transfer of the case from a federal court in Alabama to one in New York pursuant to enforcement of a forum selection clause, and a federal statute, 28 U.S.C.A. § 1404(a), which grants a federal district court broad discretion to transfer a case to another federal court "for the convenience of parties and witnesses, in the interest of justice." 487 U.S. at 30, 108 S.Ct. at 2244. The Court said that under the test set forth in Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), the federal statute represented a "fair exercise of Congress's authority under the Constitution" and the Rules Enabling Act, 28 U.S.C.A. § 2072, and therefore controlled the issue of the enforceability of the choice-of-forum agreement. Stewart Organization, 487 U.S. at 30-33, 108 S.Ct. at 2242-45.³

The Supreme Court was careful to note, however, that the choice-of-law inquiry there hinged on the fact that the case involved the transfer of venue from one federal court to another and thus specifically imbricated a federal statute. The Court indicated that, absent a federal statute or rule of civil procedure, a district court confronted with a choice-of-law problem should use the two-pronged test originally suggested in Hanna, 380 U.S. at 468 n. 9, 85 S.Ct. at 1142 n. 9. The trial court should apply federal judge-made law, unless it would "disserve the so-called twin aims of the Erie rule," which are: (1) the "discouragement of forum-shopping," and (2) the "avoidance of inequitable administration of the laws." Stewart Organization, 487 U.S. at 27 n. 6, 108 S.Ct. at 2243 n. 6 (citation omitted).

Since Stewart Organization, several lower federal courts have been required to decide whether to apply state or federal law to determine the enforceability of a forum selection clause in cases where no federal statute or rule of civil procedure controlled the issue. As suggested in Stewart Organization, these courts have resorted to the two-pronged Hanna test. See, e.g., Alexander Proudfoot Co. World Headquarters v. Thayer, 877 F.2d 912, 917-18 (11th Cir.1989) (clause according to which defendant consented to personal jurisdiction in particular state); Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 512-13 (9th Cir.1988) (clause requiring litigation in foreign country). As in these cases, here there is no federal statute or rule of civil procedure that directs this court whether to honor the agreement requiring any lawsuit be brought only in the Circuit Court of Coffee County, Alabama. This court will therefore apply the two-part Hanna test.

B.

The scope of the federal and state law sought to be applied and the conflict between them is clear in this case. Federal judge-made law generally favors the enforcement of choice-of-forum clauses, absent exceptional circumstances such as evidence of fraud, unequal bargaining power, or serious inconvenience. Scherk v. Alberto-Culver Co., 417 U.S. 506, 518-19, 94 S.Ct. 2449, 2457, 41 L.Ed.2d 270 (1974) ("a forum clause should control absent a strong showing that it should be set aside"); M/S Bremen, 407 U.S. at 15, 92 S.Ct. at 1916 (forum choice agreement should be enforced unless party challenging it clearly "can show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching").⁴ Because Sanford and Dicus have not presented evidence of such exceptional circumstances, federal law would command that the choice-of-forum agreement between the parties be enforced. On the other hand, under Alabama law, because contractual choice-of-forum provisions of any kind are not enforceable, the clause in this case would be invalidated. See Keelean v. Central Bank of the South, 544 So.2d 153 (Ala.1989).⁵

In resolving the above conflict, the court must, as stated, be guided by the so-called twin aims of Erie. The first prong of this test, involving the concern over forum shopping, demands that the court inquire whether application of state law "would have so important an effect upon the fortunes of one or both of the litigants that failure to enforce it would be likely to cause a plaintiff to choose the federal court." Proudfoot, 877 F.2d at 918, quoting Hanna, 380 U.S. at 468 n. 9, 85 S.Ct. at 1142 n. 9. The risk of "forum shopping" refers to the possibility that application of federal law in a diversity action might make federal court a more attractive forum for such suits than state court, not a less favorable one; federal law does not trench on any state interests when it limits rather than expands the reach of the federal courts sitting in diversity. See Proudfoot, 877 F.2d at 918-19, citing Hanna, 380 U.S. at 468 n. 9, 85 S.Ct. at 1142 n. 9.

It is clear that application of federal law and enforcement of the forum selection agreement in this case would not make the initial choice of federal court a more favorable one in relation to state court, for such a holding would require dismissal of the action by this court. In contrast, American Performance was and is free to initiate litigation in the contractually agreed-upon forum, the Circuit Court of Coffee County, Alabama. American Performance may also attempt to bring suit in a different Alabama state court, relying on Keelean to argue that the forum-choice provision is unenforceable under state law.

The second aim of Erie is the avoidance of inequitable administration of the laws. To analyze the choice-of-law issue in light of this purpose, a court must ask "whether the state law is so important to the litigation that failure to enforce it would unfairly discriminate against citizens of the forum state." Proudfoot, 877 F.2d at 919, quoting Hanna, 380 U.S. at 468 n. 9, 85 S.Ct. at 1142 n. 9. See also Walker v. Armco Steel Corp., 446 U.S. 740, 752-3, 100 S.Ct. 1978, 1986, 64 L.Ed.2d 659 (1980). In this case, the use of federal law to uphold the forum selection clause would bar suit...