Fleming v. Matco Tools Corp., Case No. 19-cv-00463-WHO

• Decision Date: 03 May 2019
• Docket Number: Case No. 19-cv-00463-WHO
• Citation: 384 F.Supp.3d 1124
• Parties: John FLEMING, Plaintiff, v. MATCO TOOLS CORPORATION, et al., Defendants.
• Court: U.S. District Court — Northern District of California

384 F.Supp.3d 1124

John FLEMING, Plaintiff,

v.MATCO TOOLS CORPORATION, et al., Defendants.

Case No. 19-cv-00463-WHO

United States District Court, N.D. California.

Signed May 3, 2019

Valerie Jean Brender, Dylan Thomas Cowart, Peter Scott Rukin, Jessica Lee Riggin, Rukin Hyland & Riggins LLP, Oakland, CA, for Plaintiff.

Christian Joseph Rowley, Eric Michael Lloyd, Matthew A. Goodin, Seyfarth Shaw LLP, San Francisco, CA, for Defendants.

ORDER DENYING MOTION TO DISMISS OR TRANSFER VENUE; DENYING MOTION TO FILE SUR-REPLY

Re: Dkt. Nos. 16, 25

William H. Orrick, United States District Judge

Plaintiff John Fleming brings suit on behalf of himself and a putative class of other distributors that he asserts were misclassified as independent contractors, rather than employees, by defendants Matco Tools Corporation, NMTC, Inc., d/b/a Matco Tools, and Fortive Corporation (collectively "Matco"). Complaint ("Compl.") at ¶¶ 1,5 [Dkt. No. 1]. Matco moves to dismiss or transfer this case pursuant to a forum selection clause contained in an agreement between it and Fleming. There is a state statute that would invalidate the forum selection clause contained in the agreement, but Matco argues that I must enforce the forum selection clause because the statute is preempted by the Federal Arbitration Act ("FAA"). Fleming responds that the FAA does not apply because the arbitration agreement is void by its own terms and that I must apply the state statute invalidating the forum selection clause. I agree with Fleming and will deny Matco's motion to dismiss or transfer.

BACKGROUND

Matco manufactures and distributes mechanic's tools and service equipment. Id. at ¶ 6. It relies on distributors to make sales and service calls to existing and prospective customers through mobile distributorship stores. Id. Fleming was a distributor for Matco from July of 2012 through December of 2018. Id. at ¶ 9. He claims that, by allegedly misclassifying him and similarly situated distributors as independent contractors, Matco has sought to avoid various duties and obligations owed to employees under California's Labor Code and Industrial Welfare Commission wage orders, including: the duty to indemnify employees for all expenses and losses necessarily incurred in connection with their employment; the duty to pay overtime compensation for hours worked in excess of eight hours in a day or forty hours a week; the duty to provide off-duty meal periods; the duty to authorize and permit paid rest periods; the duty to furnish accurate wage statements; the duty to pay employees all wages owed upon termination; and unlawful collection and receipt of earned wages. Id. at ¶ 6.

According to Matco, Fleming entered into two distributorship agreements with it in July 2012 and October 2013.¹ Declaration of Mike Swanson at ¶¶ 4, 5 [Dkt. No. 16-1]. The July 2012 distributorship agreement was amended in October 2013 and November 2016. Id. The October 2013 distributorship agreement was terminated in September 2015. Id. at ¶ 5. For the purposes of this motion, both the July 2012 agreement and October 2013 are functionally the same and will be collectively referred to as the "Distribution Agreement." The Distribution Agreement contains a forum selection clause which states:

Unless this requirement is prohibited by law, all arbitration hearings must and will take place exclusively in Summit or Cuyahoga County, Ohio. All court actions, mediations or other hearings or proceedings initiated by either party against the other party must and will be venued exclusively in Summit or Cuyahoga County, Ohio. Matco (including its employees, agents, officers or directors and its parent, subsidiary or affiliated companies) and the Distributor (including where applicable the Distributor's Spouse, immediate family members, owners, heirs, executors, successors, assigns, shareholders, partners, and guarantors) do hereby agree and submit to personal jurisdiction in Summit or Cuyahoga County, Ohio in connection with any Arbitration hearings, court hearings or other hearings, including any lawsuit challenging the arbitration provisions of this Agreement or the decision of the arbitrator, and do hereby waive any rights to contest venue and jurisdiction in Summit or Cuyahoga County, Ohio and any claims that venue and jurisdiction are invalid. In the event the law of the jurisdictions in which Distributor operates the Distributorship require that arbitration proceedings be conducted in that state, the Arbitration hearings under this Agreement shall be conducted in the state which the principal office of the Distributorship is located, and in the city closest to the Distributorship in which the American Arbitration Association has an office. Notwithstanding this Article, any actions brought by either party to enforce the decision of the arbitrator may be venued in any court of competent jurisdiction.

July 2012 Distributorship Agreement at ¶ 12.10 [Dkt. No. 16-2]; October 2012 Distributorship Agreement at ¶ 12.10 [Dkt. No. 16-4].

Matco moves to dismiss the complaint or, in the alternative, to transfer this case to the Northern District of Ohio in light of the above forum selection clause and the arbitration clause contained in the Distribution Agreement. Motion to Dismiss ("Mot.") [Dkt. No. 16]. If this case is transferred, Matco will move to compel arbitration once the matter is lodged in the Northern District of Ohio. Id.

LEGAL STANDARD

Forum selection clauses are "presumptively valid," and "honored" "absent some compelling and countervailing reason." Murphy v. Schneider Nat'l Inc. , 362 F.3d 1133, 1140 (9th Cir. 2004). "The party challenging the clause bears a heavy burden of proof and must clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or over-reaching." Id. at 1140 (internal quotation marks and citation omitted). A forum selection clause may be unreasonable if: (1) "the inclusion of the clause in the agreement was the product of fraud or overreaching"; (2) "the party wishing to repudiate the clause would effectively be deprived of his day in court were the clause enforced"; or (3) "enforcement would contravene a strong public policy of the forum in which suit is brought." Id.

"[T]he appropriate way to enforce a forum-selection clause pointing to a state or foreign forum is through the doctrine of forum non conveniens." Atl. Marine Constr. Co. v. U.S. Dist. Ct. , 571 U.S. 49, 60, 134 S.Ct. 568, 187 L.Ed.2d 487 (2013). When a motion to dismiss is based on a forum selection clause, rather than solely on the doctrine of forum non conveniens, the Supreme Court has held that a district court cannot consider the "private interest" factors, such as the plaintiff's choice of forum and the convenience of parties and witnesses. See id. at 62–64, 134 S.Ct. 568. Instead, the court may only weigh the "public interest" factors, which "may include the administrative difficulties flowing from court congestion; the local interest in having localized controversies decided at home; [and] the interest in having the trial of a diversity case in a forum that is at home with the law." Id. at 62 n.6, 134 S.Ct. 568.

"For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented." 28 U.S.C. § 1404(a). When a case concerns an enforcement of a forum selection clause, section 1404(a) provides a mechanism for its enforcement and "a proper application of § 1404(a) requires that a forum-selection clause be given controlling weight in all but the most exceptional cases." Marine , 571 U.S. at 59-60, 134 S.Ct. 568 (internal quotation marks omitted). Plaintiff bears the burden of showing these exceptional circumstances that make transfer inappropriate. Id. at 64, 134 S.Ct. 568. Plaintiff must show either that the forum selection clause is not valid or that the public interest factors recognized under section 1404(a) make transfer inappropriate. Id. at 64, 134 S.Ct. 568 ; see also Bayol v. Zipcar, Inc. , No. 14-cv-02483-TEH, 2014 WL 4793935, at *1 (N.D. Cal. Sept. 25, 2014).

DISCUSSION

I. THE APPLICABILITY OF CALIFORNIA BUSINESS AND PROFESSIONS CODE § 20040.5 AND THE FEDERAL ARBITRATION ACT

The success of Matco's motion to dismiss or transfer this case depends on the applicability of California Business and Professions Code § 20040.5. The statute makes void any "provision in a franchise agreement restricting venue to a forum outside this state ... with respect to any claim arising under or relating to a franchise agreement involving a franchise business operating within this state." Cal. Bus. & Prof. Code § 20040.5. The Ninth Circuit has held that it "expresses a strong public policy of the State of California to protect California franchisees from the expense, inconvenience, and possible prejudice of litigating in a non-California venue." Jones v. GNC Franchising, Inc. , 211 F.3d 495, 498 (9th Cir. 2000). A forum selection clause "that requires a California franchisee to resolve claims related to the franchise agreement in a non-California court[,]" such as the one here, "directly contravenes this strong public policy and is unenforceable under the directives of Bremen. " Id. (citing M/S Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972) ).

Matco argues that California Business and Professions Code § 20040.5 does not apply because the Distribution Agreement contains a valid arbitration provision and, as a result, the state statute is preempted by the FAA. Mot. at 10-11 (citing Bradley v. Harris Research, Inc. , 275 F.3d 884, 890 (9th Cir. 2001) ).² In Bradley , the Ninth Circuit analyzed the Supreme Court's decisions in Doctor's Associates, Inc. v. Casarotto , 517 U.S. 681, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) and Perry v. Thomas , 482 U.S. 483, 107...