O'BRIEN ENGINEERING CO. v. Continental Machines, Inc.

• Decision Date: 11 June 1999
• Parties: O'BRIEN ENGINEERING COMPANY, INC. v. CONTINENTAL MACHINES, INC., et al.
• Court: Alabama Supreme Court

738 So.2d 844

O'BRIEN ENGINEERING COMPANY, INC. v. CONTINENTAL MACHINES, INC., et al.

1971445.

Supreme Court of Alabama.

June 11, 1999.

Joseph B. Mays, Jr., and Matthew W. Cooper of Bradley, Arant, Rose & White, L.L.P., Birmingham, for appellant.

George G. Lynn, Tony G. Miller, and Kevin W. Patton of Maynard, Cooper & Gale, P.C., Birmingham, for appellees.

PER CURIAM.

This appeal concerns the application of an "outbound" forum-selection clause.

On April 4, 1997, O'Brien Engineering Company, Inc. ("O'Brien"), sued Continental Machines, Inc. ("Continental"), a Minnesota corporation; Control and Power, Inc. ("Control"), an Alabama corporation; and Larry A. Sichmeller, Continental's vice president for sales and marketing. O'Brien alleged that Continental and Sichmeller had committed promissory fraud by terminating O'Brien as an authorized distributor of Continental products. The trial court dismissed O'Brien's complaint, without prejudice, based on the forum-selection clause set out in the contract entered into by the parties. The trial court's April 13, 1998, judgment of dismissal stated:

"The defendants have filed a Motion for Summary Judgment which, in light of amendments to the complaint, must be treated as a motion for partial summary judgment. While the Court is inclined to believe that the motion is well taken, the Court declines to rule upon the motion. Instead, the Court chooses to enforce the `outbound' forum-selection clause found in the relevant distribution agreement and, therefore, dismisses this action without prejudice to the plaintiff's right to file suit in the appropriate court in Minnesota. The enforcement of the clause does not appear to be unfair or unreasonable under the circumstances."

(C.R.492.) O'Brien appealed.

O'Brien was an authorized distributor for Continental's hydraulic pumps and valves, under a 1984 distribution agreement. The agreement contained a choice-of-law provision and an outbound forum-selection clause.¹ The agreement stated that the parties specifically intended that the interpretation of the agreement would be governed by the laws of Minnesota and that, in the event of any dispute arising out of or in connection with the agreement, the complaining party would sue in the United States District Court for the District of Minnesota or in the District Court for Hennepin County, Minnesota. The outbound forum-selection clause was set out in paragraph 24 of the distribution agreement; it provided in pertinent part:

"GOVERNING LAW, JURISDICTION, VENUE AND STATUTE OF LIMITATIONS. This Agreement shall be governed by the laws of the State of Minnesota and any and all rights and obligations under this Agreement, including matters of construction, validity and performance, shall be governed by the laws of the State of Minnesota and no other jurisdiction. If any dispute arises out of or in connection with this Agreement or the termination thereof, or the relationship created by or described in this Agreement, the parties agree to bring suit upon all such matters then in dispute only in the United States District Court for the District of Minnesota or, if said Court lacks diversity jurisdiction, in the District Court for the County of Hennepin, State of Minnesota."

(Deposition of J.A. O'Brien, defendant's exhibit 3.)

On October 10, 1996, Continental terminated its distributorship agreement with O'Brien. On April 4, 1997, O'Brien filed a complaint in the Circuit Court of Jefferson County, Alabama, against Continental and Sichmeller, alleging promissory fraud; and against Control, claiming tortious interference with business relations. The defendants answered on May 12, 1997. On May 19, 1997, Continental filed a counterclaim against O'Brien, alleging a breach of the 1984 distribution agreement. The defendants moved for a summary judgment on February 9, 1998. O'Brien amended its complaint on February 19, 1998, to include claims based on promissory estoppel and breach of an oral contract. In response to O'Brien's amended complaint, the defendants immediately moved to dismiss the action, pursuant to the forum-selection clause contained in the parties' 1984 distribution agreement. On April 14, 1998, the trial court dismissed the case, without prejudice.

Initially, we must determine the applicable standard of review for an appeal from a trial court's order dismissing a case because of a forum-selection clause. Relying on M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), this Court has held that forum-selection clauses are not against the public policy of Alabama and "that such a provision should be enforced unless to do so would be unfair or unreasonable under the circumstances." Professional Insurance Corp. v. Sutherland, 700 So.2d 347, 348 (Ala.1997). However, we did not explicitly state in Professional Insurance Corp. v. Sutherland what standard of review we would use in reviewing a dismissal based on a forum-selection clause. A number of other jurisdictions have addressed this issue, but have reached no consensus concerning the correct standard of review. Some courts apply the "abuse-of-discretion" standard² or the "de novo" standard³ in reviewing a lower court's order dismissing a case because of a forum-selection clause. The rule we consider to be the better-reasoned rule, which is followed by a majority of the state appellate courts, is that an order dismissing a case because of a forum-selection clause will be reviewed on appeal for an abuse of discretion. For that reason, we will apply the "abuse-of-discretion" standard in this case.

O'Brien argues that the trial court erred in determining that its claims against the defendants are governed by the forum-selection clause in the parties' 1984 distribution agreement. This Court has held that it is not unfair or unreasonable to enforce a forum-selection clause if the clause is part of a contract that "[has] been freely entered into, without the existence of fraud, undue influence, or overweening bargaining power; and [if] the chosen forum [is] reasonable and not seriously inconvenient." Professional Insurance Corp. v. Sutherland, 700 So.2d at 350 (citing M/S Bremen, 407 U.S. at 13, 17-18, 92 S.Ct. 1907). O'Brien does not argue, and the record does not reflect, that O'Brien entered into the contract against its will, that O'Brien was subject to undue influence in the negotiation or execution of the contract, or that Continental had overweening bargaining power over O'Brien. Further, the chosen forum—Minnesota—is not unreasonable or seriously inconvenient, because Minnesota is the home state of Continental, several witnesses live and work in Minnesota, and a substantial number of the documents related to the case are located in Minnesota. Accordingly, we are unable to say that the trial court abused its discretion by enforcing the forum-selection clause.

O'Brien also argues that the defendants waived their right to invoke the forum-selection clause. It is undisputed that when O'Brien filed its action in the Jefferson Circuit Court, forum-selection clauses were considered to be void and unenforceable in Alabama. Redwing Carriers, Inc. v. Foster, 382 So.2d 554 (Ala. 1980). During the pendency of O'Brien's case, however, this Court decided Professional Insurance Corp., supra, reversing the rule stated in Redwing Carriers. On February 19, 1998, in open court, the trial judge granted O'Brien's motion to amend its complaint to include claims based on the doctrine of promissory estoppel and alleging breach of an oral contract. Immediately, Continental moved to dismiss the case pursuant to the forum-selection clause, and the court subsequently granted Continental's motion. O'Brien argues that Continental waived its right to enforce the forum-selection clause by not objecting to venue or otherwise raising an objection to the Alabama lawsuit in its first responsive pleading or in a motion filed before the first responsive pleading. See Rule 12(b), Ala.R.Civ.P.; Ex parte Till, 595 So.2d 871, 872 (Ala.1992). However, "a party can waive only an objection `"then available to him."'" Ex parte Till, 595 So.2d at 872. Because an objection based on the forum-selection clause was not available to Continental when its first responsive pleading was due, it necessarily could not have waived such an objection. However, O'Brien's filing the amended complaint, after the release of our decision in Professional Insurance Corp. v. Sutherland, made the objection available to Continental. Continental timely made the objection in its motion to dismiss the case. The trial court did not abuse its discretion in holding that the defendants had not waived their right to invoke the forum-selection clause. Rule 12(b), Ala.R.Civ.P.; Ex parte Till, 595 So.2d at 872.

The judgment of the Jefferson Circuit Court dismissing O'Brien's case is affirmed.

AFFIRMED.

HOOPER, C.J., and MADDOX, KENNEDY, COOK, BROWN, and JOHNSTONE, JJ., concur.

HOUSTON, J., concurs specially.

SEE and LYONS, JJ., dissent.

HOUSTON, Justice (concurring specially).

Forum-selection clauses are not always enforceable. To be enforceable, such a clause must have been freely entered into, without the existence of fraud, undue influence, or overweening bargaining power; and the chosen forum must be reasonable and not seriously inconvenient. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 13, 17-18, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972); Professional Insurance Corp. v. Sutherland, 700 So.2d 347, 350 (1997). For that reason, in addition to the reasons stated in the per curiam opinion, I am of the opinion that the standard of review applicable to the trial court's decision to enforce the forum-selection clause is the abuse-of-discretion standard rather than the de novo standard.

SEE, Justice (dissenting).

This Court holds that the defendants did not waive their defense of improper venue, which is premised on a contractual forum-selection provision. I...