D.A. Schoggin, Inc. v. Arrow Elecs., Inc.
| Decision Date | 30 November 2020 |
| Docket Number | Civil Action No. 3:19-CV-02830-L |
| Parties | D.A. SCHOGGIN, INC, d/b/a TECHLIGHT, Plaintiff, v. ARROW ELECTRONICS, INC., Defendant. |
| Court | U.S. District Court — Northern District of Texas |
Before the court are Defendant's Amended Motion to Transfer Case out of District/Division (Doc. 19) and Defendant's Amended Motion to Dismiss Counts I, II, and III (Doc. 22), filed January 20, 2020. After careful consideration of the motions, briefs of the parties, pleadings, and applicable legal authority, the court denies Defendant's Amended Motion to Transfer (Doc. 19) and grants Defendant's Amended Motion to Dismiss (Doc. 22).
On November 29, 2019, D.A. Schoggin, Inc. d/b/a Techlight ("Plaintiff" or "Techlight") filed Plaintiff's Original Complaint ("Complaint") against Arrow Electronics, Inc. ("Defendant" or "Arrow"), asserting four causes of action: Count I (Breach of Implied Warranty of Merchantability Under Tex. Bus. & Comm. Code § 2.314); Count II (Breach of Implied Warranty of Fitness Under Tex. Bus. & Comm. Code § 2.315); Count III (Violation of the Texas Deceptive Trade Practices Act); and Count IV (Breach of Contract). The Complaint alleges that:
Techlight manufactures high-quality outdoor lighting products called luminaires. In 2016, Arrow agreed to sell Techlight 10,000 printed circuit boards ("PCBs"), each containing eight (8) mounted light-emitting diodes ("LEDs"), Techlight part number 101027 (the "Arrow PCBs"), at $34.90 each. Techlight incorporated the Arrow PCBs into certain of its luminaires that were sold to customers beginning in late 2016. By December 2018, Techlight was notified that a large number of its luminaires had stopped functioning. Upon inspecting a number of these failed luminaires, Techlight discovered that the LEDs on the Arrow PCBs had stopped functioning, and in many cases had released from the PCB itself. A third-party lab's 3-D x-ray inspection of over thirty (30) of the failed Arrow PCBs revealed them to contain massive solder voids behind the LED thermal pads as well as on the anode and cathode pads. These solder voids made the Arrow PCBs fatally defective and caused Techlight's luminaires to fail. To address the situation with its customers, Techlight was forced to replace the defective Arrow PCBs at significant cost. In addition, Techlight's reputation was harmed with at least one of its customers as a result of the failed Arrow PCBs, causing Techlight to lose significant additional sales. Despite being given the opportunity to correct its mistake and make the situation right with Techlight, Arrow has refused to take responsibility for its defective Arrow PCBs, forcing Techlight to bring this suit to recoup its losses.
Pl.'s Compl., Doc. 1 at 1-2, ¶ 1.
On January 7, 2020, Defendant filed a Motion to Dismiss Counts I, II, and III. Defendant also filed a Motion to Transfer Venue as to Count IV on the ground that, pursuant to the terms of their contract, the parties agreed to resolve any matter arising out of or related to their contract under the exclusive jurisdiction of New York courts and according to New York law. The court dismissed Defendant's motions without prejudice, ordering that Defendant seek to transfer the entire action rather than an individual claim. On January 20, 2020, Defendant proceeded with two amended motions. First, Defendant filed an Amended Motion to Transfer, seeking to transfer the entire case to the Southern District of New York. Second, Defendant filed an Amended Motion to Dismiss Counts I, II, and III, seeking dismissal for failure to state a claim under New York law. For the reasons set forth herein, the court determines that Defendant's Amended Motions to Transfer is denied and Defendant's Motion to Dismiss is granted.
In its Amended Motion to Transfer, Defendant argues that the terms of the parties' contract were formed by Arrow's Custom Product Proposal ("Arrow's Proposal" or "the Proposal"), which included an enforceable and mandatory forum selection clause. Def.'s Am.Mot., Doc. 20 at 12. Defendant argues that, pursuant to the forum selection clause and the Supreme Court's holding in Atlantic Marine Construction Company v. United States District Court for Western District of Texas, 571 U.S. 49 (2013), this case requires adjudication in a New York federal court and should be transferred under 28 U.S.C. § 1404(a). Id.
In response, Plaintiff argues that the contract between the parties did not incorporate the alleged forum selection clause. Plaintiff argues that the terms of the parties' contract were determined by an oral agreement that was then confirmed by a written purchase order from Plaintiff to Defendant. Pl.'s Opp'n, Doc. 27 at 2. Plaintiff argues that Defendant's Proposal contained "proposed additional terms" that Plaintiff did not accept. Id. at 1. The alleged forum selection clause was one of those additional terms, and, according to Plaintiff, the clause, thus, did not become part of any contract between the parties. Id. at 2.
The Supreme Court held that the proper procedural mechanism for enforcing a valid forum selection clause to which the parties have agreed is through the transfer provision under 28 U.S.C. § 1404(a). Atlantic Marine Constr. Co., 571 U.S. at 59. The Court expressly held that § 1404(a)'s transfer provision provides a mechanism for enforcement of forum selection clauses only when the clause points to a particular federal district court. Id. Further, when the parties' contract contains a valid forum selection clause pointing to a particular federal district court, the typical calculus of private and public interest factors relevant in a § 1404(a) motion changes. Id. at 63. In conducting its § 1404(a) analysis, the district court: (1) may not give the plaintiff's choice of forum any weight because Plaintiff, as the party contesting the forum-selection clause, bears the burden of establishing that transfer to the forum for which the parties bargained is unwarranted; (2) mayonly consider arguments about the public interest factors, as the court must deem the private interest factors to weigh entirely in favor of the preselected forum; and (3) recognize that a transfer of venue will not carry with it the original venue's choice of law rules. Id.
A threshold determination in the enforcement of a forum selection clause is determining whether the clause has been validly incorporated into the contract. When the existence of a contractually valid forum-selection clause is in dispute, "the Court must first determine whether a contractually valid forum-selection clause exists that applies to the present case." Brown v. Federated Capital Corp., 991 F. Supp. 2d 857, 860 (S.D. Tex. 2014) (citing Atlantic Marine, 571 U.S. at 62 n.5). This determination "involves two separate inquiries: (1) whether the parties agreed to a contractually valid forum-selection clause, and (2) whether the present case falls within the scope of the forum-selection clause." Id. When answering these inquiries, "courts generally . . . should apply ordinary state-law principles that govern the formation of contracts." Stinger v. Chase Bank, USA, NA, 265 F. App'x 224, 226-27 (5th Cir. 2008) (per curiam) (citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
"When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause" Atlantic Marine, 571 U.S. at 62. "Only under extraordinary circumstances unrelated to the convenience of the parties should a § 1404(a) motion be denied." Id. A strong presumption exists in favor of the enforcement of mandatory forum-selection clauses. Weber v. PACT XPP Techs., AG, 811 F.3d 758, 773 (5th Cir. 2016) (citing Haynsworth v. The Corp., 121 F.3d 956, 962-63 (5th Cir. 1997)). "The presumption of enforceability may be overcome, however, by a clear showing that the clause is 'unreasonable' under the circumstances." Haynsworth, 121 F.3d at 963 (citing The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972)). "Unreasonableness potentially exists when:
(1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement will for all practical purposes be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy of the forum state.
Id. (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991); The Bremen, 407 U.S. at 12-13, 15, 18). The existence of a mandatory and valid forum selection clause, therefore, requires the court to consider arguments about public-interest factors. The public-interest factors include: "(1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws of the application of foreign law." In re Volkswagen AG, 371 F.3d 201, 203 (5th Cir. 2004) (citing Piper Aircraft Co v. Reyno, 454 U.S. 235, 241 n.6 (1981).
To defeat a motion to dismiss filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Reliable Consultants, Inc. v. Earle, 517 F.3d 738, 742 (5th Cir. 2008); Guidry v. American Pub. Life Ins. Co., 512 F.3d 177, 180 (5th Cir. 2007). A claim meets the plausibility test ...
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