Bhp Intern. Inv., Inc. v. Online Exchange, Inc.

Decision Date20 July 2000
Docket NumberNo. 2:00CV292.,2:00CV292.
Citation105 F.Supp.2d 493
CourtU.S. District Court — Eastern District of Virginia
PartiesBHP INTERNATIONAL INVESTMENT, INC., Plaintiff, v. ONLINE EXCHANGE, INC., Paul A. Schneider, Defendants.

Philip A. Liebman, Virginia, VA, for plaintiff.

Gregory A. Giordano, Shuttleworth, Ruloff, Giordano & Swain, Virginia Beach, VA, for defendants.

MEMORANDUM OPINION AND ORDER

REBECCA BEACH SMITH, District Judge.

This matter comes before the court on defendants OnLine Exchange, Inc.'s ("OnLine") and Paul A. Schneider's motion to dismiss for improper venue, or in the alternative, to transfer venue to the United States District Court for the Eastern District of Missouri. For the reasons outlined below, defendants' motion to dismiss is DENIED, and motion to transfer is GRANTED.

I. Factual and Procedural History

BHP International Investment, Inc. ("BHP"), at all times relevant to the complaint, was a corporation organized and existing under the laws of the Commonwealth of Virginia, with a principal place of business located in Newport News, Virginia. On May 5, 1997, BHP executed an independent contractor application and agreement with defendant OnLine, a corporation organized and existing under the laws of the State of Missouri, with a principal place of business located in St. Louis, Missouri. This first agreement contained a forum selection clause mandating arbitration in the County of St. Louis, Missouri. (Defs.Mot. Dismiss, Paul A. Schneider Aff.Ex. 1 at 2, ¶ 29). On August 7, 1997, BHP executed a subsequent independent application and agreement with OnLine. The August 7, 1997, agreement, which effected a change to the contractual relationship between the parties, contained the following forum selection and choice of law provision:

This agreement shall be governed by the laws of the state of Missouri, and all claims, disputes and other matters between the parties to this agreement shall be brought in St. Louis County Court, in St. Louis, Missouri, or in the U.S. District Court, in St. Louis, Missouri.

(Defs.Mot. Dismiss, Paul A. Schneider Aff. Ex. 2 at 2, ¶ 24).

On or about December 14, 1999, plaintiff filed a motion for judgment in the Circuit Court for the City of Virginia Beach, alleging that its performance under the agreement constituted participation in an alleged illegal pyramid sales scheme in violation of Mo.Rev.Stat. § 407.400 et seq. The motion for judgment was served on defendants by the Secretary of the Commonwealth of Virginia on or about April 4, 2000. On April 25, 2000, defendants timely removed the action1 to this court based on diversity of citizenship pursuant to 28 U.S.C. § 1332.

Defendants filed a motion to dismiss for improper venue, or in the alternative, to transfer venue, pursuant to Federal Rule of Civil Procedure 12(b)(3), and 28 U.S.C. § 1404(a), respectively. Both motions are based on the forum selection clause in the August 7, 1997. Plaintiff responded to the instant motion.2 The matter is now ripe for review.

II. Motion to Dismiss for Improper Venue.

Defendants argue that this court should dismiss the instant suit for improper venue based on the forum selection clause in the August 7, 1997, agreement between OnLine and BHP, which clearly designates St Louis County Court, in St. Louis, Missouri, or in the U.S. District Court, in St. Louis, Missouri, as the appropriate forum for all claims and disputes arising between the parties. (Defs.Mot. Dismiss, Paul A. Schneider Aff.Ex. 2 at 2, ¶ 24). Essentially, defendants argue that a contract forum selection clause renders venue improper in a district, even where venue is otherwise proper. Plaintiff did not meaningfully respond to defendants' motion.3

It is well-settled law that parties may bargain in advance to select the forum in which their disputes will be adjudicated. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 590-96, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991); M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). The effect to be given to such provisions and the procedural vehicle by which they should be enforced, however, is the subject of some confusion.

In M/S Bremen, the Supreme Court, for the first time, clearly held that forum selection clauses in freely negotiated private agreements, "unaffected by fraud, undue influence, or overwhelming bargaining power ... should be given full effect," unless clearly shown that enforcement would be unreasonable and unjust. M/S Bremen, 407 U.S. at 12-13, 92 S.Ct. 1907. Inconvenience alone is not sufficient grounds to avoid the application of a forum selection clause, unless the party seeking to avoid the clause can show that "trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived his day in court. Absent that, there is no basis for concluding that it would be unfair, unjust, or unreasonable to hold that party to his bargain." Id. at 18, 92 S.Ct. 1907.

Subsequently, in Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988), the Court injected a fairness and convenience component into the enforcement analysis. The Court held that federal law controls a motion pursuant to 28 U.S.C. § 1404(a) to transfer an action to the venue provided in a contractual forum selection clause. Under 28 U.S.C. § 1404(a), a district court can transfer a civil action "for the convenience of the parties and witnesses, in the interest of justice [to] .. any other district ... where it might have been brought." Under federal law, the Court ruled, a forum selection clause should "be a significant factor that figures centrally" in a transfer analysis but that a forum selection clause should be considered "only one relevant factor." Id. at 29, 108 S.Ct. 2239.

While the Court did not directly address the issue of the proper procedural vehicle for enforcing a forum selection clause, it implied that venue is proper in a district as long as the applicable federal venue statute is satisfied, even given a viable forum selection clause that called for suit to be filed in a different district. Essentially, the opinion implies that a forum selection clause requiring the parties to litigate in the state or federal courts of another state did not render venue per se improper in another district. See id. at 28 n. 8, 108 S.Ct. 2239 ("The parties do not dispute that the District Court properly denied that motion to dismiss for improper venue under 28 U.S.C. § 1406(a) because respondent does business in the Northern District of Alabama. See 28 U.S.C. § 1391(c) (venue proper in judicial district in which corporation is doing business)."). Although not technically at issue, the Court in Stewart indicated that the procedural vehicle through which a forum selection clause should be enforced is through a motion to transfer pursuant to § 1404(a).

The analysis of defendants' motion would then be relatively straightforward, but for the Court's decision in Carnival Cruise Lines v. Shute, 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991), rendered just three years after Stewart. In Carnival Cruise Lines, the plaintiffs, injured on the defendant's cruise ship, brought an admiralty action in federal district court in their home state, contrary to a forum selection clause printed on their cruise tickets. The defendant moved for summary judgment on the grounds that the court lacked personal jurisdiction over it and that the forum selection clause required the litigation to be brought in Florida. Alternatively, the defendant moved to transfer the action to a federal district court in Florida under Section 1406(a). The district court granted summary judgment in the defendant's favor for lack of personal jurisdiction and dismissed. The Ninth Circuit reversed, holding that the district court did have personal jurisdiction, and that under Supreme Court authority, the forum selection clause was invalid and should not be enforced since it had not been freely bargained. See Shute v. Carnival Cruise Lines, 897 F.2d 377, 389 (9th Cir.1990).

The Supreme Court reversed, ruling that the contract was enforceable under M/S Bremen, but without either applying or overruling the balancing test set forth in Stewart. See Carnival Cruise Lines, 499 U.S. at 591-95, 111 S.Ct. 1522. The Court held that the inclusion of a reasonable forum selection clause in a form contract benefitted litigants by limiting pretrial motions on the proper forum for litigation and possibly lowering the fares to passengers because of cost savings accruing to the cruise line through the limitation of forums in which it could be sued. See id. at 594, 111 S.Ct. 1522. The Court's reversal of the Ninth Circuit's decision had the effect of dismissing the case, even though the action could have been transferred to Florida; however, the Court in Carnival Cruise Lines never addressed the specific question of reversal versus transfer, nor did it overrule Stewart.

The Court of Appeals for the Fourth Circuit has not specifically addressed the issue of whether a forum selection clause should be enforced by dismissing an action where transfer is possible.4 District courts within the Fourth Circuit have almost uniformly held that a motion to dismiss for improper venue is not the correct procedural vehicle for enforcing a forum selection clause when transfer is proper. Indeed, relying on Stewart, even after the Carnival Cruise Lines decision, courts within this circuit have held that the propriety of venue rests only upon whether an action satisfies the federal venue statutes, not upon the provisions of the litigants' private contractual agreements. See Mead v. Future Medicine Publishing, Inc., No. 1:98cv00554, 1999 WL 1939256, at *2 (M.D.N.C. Feb.22, 1999) ("the court will ... analyze Section 1391 to determine if Section 1404(a) or Section 1406(a) applies"); P.M. Enterprises v. Color Works, Inc., 946 F.Supp. 435, 439 (S.D.W.V.1996...

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