Berrett v. Life Ins. Co. of the Southwest

• Decision Date: 04 December 1985
• Docket Number: Civ. No. C85-669G.
• Citation: 623 F. Supp. 946
• Parties: Sherrell K. BERRETT and University Financial Concepts, Inc., a Utah corporation, Plaintiffs, v. LIFE INSURANCE COMPANY OF THE SOUTHWEST, a Texas corporation, Richard Lee, Douglas Neill and John Lancaster, Defendants.
• Court: U.S. District Court — District of Utah

623 F. Supp. 946

Sherrell K. BERRETT and University Financial Concepts, Inc., a Utah corporation, Plaintiffs, v. LIFE INSURANCE COMPANY OF THE SOUTHWEST, a Texas corporation, Richard Lee, Douglas Neill and John Lancaster, Defendants.

Civ. No. C85-669G.

United States District Court, D. Utah, C.D.

December 4, 1985.

Kent Murdock, Thomas Kay, Salt Lake City, Utah, for plaintiffs.

Michael L. Deamer, Salt Lake City, Utah, for defendants.

MEMORANDUM DECISION AND ORDER

J. THOMAS GREENE, District Judge.

This matter came on regularly for hearing on October 3, 1985, on defendants' Motions to Dismiss. Kent Murdock and Thomas L. Kay appeared on behalf of all defendants, and Michael L. Deamer appeared on behalf of all plaintiffs. The issues were thoroughly briefed, counsel presented extensive oral argument, and the Court took the matter under advisement.

FACTS

Plaintiff Berrett and his insurance agency, University Financial Concepts, Inc., ("UFC") entered into an agency agreement with defendant Life Insurance Company of the Southwest ("Southwest") which authorized plaintiffs to write insurance policies for Southwest. The agency agreement contained a so-called "forum selection" clause which provided as follows:

Situs. This agreement is made and performable in Dallas, Dallas County, Texas. The parties agree that any action at law or in equity hereunder shall be brought in Dallas County, Texas....

Pursuant to the said agency agreement, plaintiffs sold numerous Southwest insurance policies to residents of Utah. Southwest became aware of alleged wrongful conduct on the part of plaintiffs in connection with sales in Utah, whereupon certain employees of Southwest in Texas telephonically contacted various Southwest policyholders in Utah. In substance and effect, the policyholders were told that plaintiffs no longer were authorized to sell Southwest insurance, and were encouraged to discontinue relations with plaintiffs. Plaintiffs claim that Southwest personnel also telephoned the Utah Insurance Commission and made false representations concerning plaintiffs.

Plaintiffs brought this action for breach of the agency agreement and failure to pay commissions and renewal commissions. The action also contains counts alleging tortious interference with contractual relations and defamation based upon the telephone calls placed from Texas to Utah by three Southwest personnel. Jurisdiction is based upon diversity of citizenship. Service of process upon the individual defendants who are residents of Texas was effected pursuant to Utah's "long arm" statute.

The issues here presented are:

(1) Is the forum selection clause here applicable and enforceable against the defendants as to (a) contract claims and (b) tort claims?

(2) Does this court have personal jurisdiction over the persons of the individual defendants?

(3) Are the individual defendants shielded as a matter of law by the "fiduciary shield doctrine"?

I. Forum Selection Clause

Defendants argue that this lawsuit should be brought, if at all, in Dallas County, Texas, the principal place of business for defendant Southwest, under the terms of the forum selection clause set forth above. Defendants concede that the clause does not deprive this court of jurisdiction, but assert that it creates proper venue in Texas.

The Complaint herein sets forth eight (8) claims sounding in both contract and tort. Counts 1, 2 and 3 have to do with alleged breach of the agency agreement and Count 8 is a claim under the theory of quantum meruit for value of services rendered thereunder. The remaining counts sound in tort for intentional interference with existing business relations (Count 4), wrongful inducement to breach the agency agreement (Count 5), defamation (Count 6), and punitive damages (Count 7).

A. Enforceability. Historically, forum selection clauses were disfavored by the courts. See, e.g., Benson v. Eastern Bldg. & Loan Assn., 174 N.Y. 83, 66 N.E. 627 (1903). In the landmark decision of Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), however, the Supreme Court held that in the context of an international commercial agreement forum selection clauses are presumed valid unless proven unreasonable. Most courts which have addressed the issue have extended the Bremen rationale to the context of agreements between domestic corporations. See, e.g., Bense v. Interstate Battery System of America, 683 F.2d 718 (2d Cir.1982), Mercury Coal & Coke, Inc. v. Mannesmann Pipe & Steel Corp., 696 F.2d 315 (4th Cir.1982); D'Antuono v. CCH Computax Systems, Inc., 570 F.Supp. 708 (D.R.I.1983).

Under the Bremen analysis, a party challenging the validity of a forum selection clause must demonstrate that the clause is either invalid as a matter of contract law, or that enforcement would be unreasonable under the circumstances of the particular case. Id. 407 U.S. at 15, 92 S.Ct. at 1916. Applying the Bremen standard to this case, plaintiffs have failed to meet the burden placed upon them to demonstrate the unreasonableness of the forum selection clause, or that the clause is invalid as a matter of law. Plaintiffs did not file affidavits in connection with their motion, and rely on general statements to the effect that conducting this litigation in Texas would be more burdensome than in Utah. Even if this is true, plaintiffs must show more than mere inconvenience. Plaintiffs have failed to make a showing of facts on the record before us that the clause was the result of fraud, duress, overwhelming bargaining power or any other circumstance to come within the Bremen test of unreasonable enforcement.¹

B. Applicability. Whether tort claims are to be governed by forum selection provisions depends upon the intention of the parties reflected in the wording of particular clauses and the facts of each case. Some courts have held on public policy grounds that tort as well as contract claims may be governed by forum selection clauses. See, e.g., Coastal Steel Corp. v. Tilghman Wheelabrator, Ltd., 709 F.2d 190 (3d Cir.1983), cert. denied, 464 U.S. 938, 104 S.Ct. 349, 78 L.Ed. 315 (1983), Clinton v. Janger, 583 F.Supp. 284 (N.D. Ill.1984). But compelling factual considerations may dictate that claims otherwise governable by forum selection clauses be retained for disposition in the District where filed. See Bankers Trust Company v. Worldwide Transportation, Inc., et al., 537 F.Supp. 1101, 1112 (E.D.Ark.1982). In this case, plaintiffs allege tortious acts by the individual defendants unrelated to the interpretation of the agency agreement which caused direct damage to plaintiffs' business and reputation. It is claimed that defendants contacted large numbers of plaintiffs' clients to whom plaintiffs had already sold Southwest insurance products and encouraged them not to renew their policies through plaintiffs.² In addition, it is alleged that defendants defamed plaintiffs by informing these policyholders and the Utah Division of Insurance that plaintiffs were engaged in fraudulent business practices. It is highly unlikely that in entering into the agency agreement the parties contemplated that tort claims such as are here alleged would be governed by the forum selection clause. Neither do we consider that such claims arise "hereunder" so as to come within the scope of the language of this forum selection clause. We therefore hold that plaintiffs' claims for intentional interference with business relations, wrongful inducement to breach and defamation are not governed by the forum selection clause. We also rule that the forum selection clause is applicable to and governs plaintiffs' contract and quantum meruit claims under the agreement, absent a showing of unreasonableness as to enforcement thereof. Accordingly, those claims are dismissed, without prejudice to refiling in the forum District in Texas, or in the alternative with leave to conduct discovery and move for reinstatement of those claims here conditioned upon a proper showing of unreasonableness as to enforcement.

II. Personal Jurisdiction

The Utah long arm statute provides in pertinent part:

Any person ... whether or not a citizen of this state, who in person or through an agent does any of the following enumerated acts, submits himself, and if an individual, his personal representative, to the jurisdiction of the courts of this state as to any claim arising from:

... (3) the causing of any injury within this state whether tortious or by breach of warranty; ... (Emphasis added).

Utah Code Ann. § 78-27-24 (1953 Supp. 1985).

Plaintiffs contend that regardless of where the acts occurred, if such cause injury in this state, defendants are subject to suit in this state. Defendants argue that both the acts causing injury and the injury itself must occur in this state in order to invoke the statute.

In determining applicability of the Utah long arm statute, we must determine whether the language of the act is broad enough to create jurisdiction as to the individual defendants based solely upon the alleged telephone conversations initiated by defendants in Texas. Then, assuming the Utah statute is broad enough to reach the defendants in this case, we must determine whether application of the statute here comports with due process requirements. We conclude that the Utah Long Arm Statute reaches the individual defendants and that its application does not violate due process of law.

A. Utah Long Arm Statute

Are telephone conversations initiated outside the State of Utah alone sufficient to create personal jurisdiction under the facts of this case? The question is a difficult one, especially in the context of "non-impact" torts such as defamation and tortious interference with contractual relations. Unlike auto accidents, for instance, these torts do not necessarily require physical presence within the state. Under one line of cases construing long arm statutes which provide for personal jurisdiction over persons who...