Gallegos v. Tax Def. Network, LLC, 1:18-CV-00690 LF-JHR

CourtUnited States District Courts. 10th Circuit. District of New Mexico
Writing for the CourtLaura Fashing United States Magistrate Judge Presiding by Consent
PartiesJENNIFER M. GALLEGOS, ARTHUR GALLEGOS, and all New Mexico Residents similarly situated, Plaintiffs, v. TAX DEFENSE NETWORK, LLC, a Delaware limited liability company, RYAN LEE DAVIS, an attorney and resident of Florida, and CATHERINE KING O'CONNOR, an attorney and resident of Florida, Defendants.
Docket Number1:18-CV-00690 LF-JHR
Decision Date19 November 2018

and all New Mexico Residents similarly situated, Plaintiffs,
TAX DEFENSE NETWORK, LLC, a Delaware limited liability company,
RYAN LEE DAVIS, an attorney and resident of Florida,
and CATHERINE KING O'CONNOR, an attorney and resident of Florida, Defendants.

1:18-CV-00690 LF-JHR


November 19, 2018


THIS MATTER comes before the Court on Defendants Tax Defense Network, LLC, Ryan Lee Davis, and Catherine King O'Connor's (collectively "TDN") Motion to Dismiss for Improper Venue or in the Alternative, to Transfer Venue, filed on July 31, 2018. Doc. 3.1 Plaintiffs Jennifer M. Gallegos and Arthur Gallegos filed their response on August 21, 2018. Doc. 11. TDN filed its reply on September 4, 2018. Doc. 14. The parties consented to proceed before me as the presiding judge to conduct dispositive proceedings in this matter, including motions and trial, and order the entry of final judgment. Docs. 5, 7, 9. Having read the submissions of the parties and the relevant law, and being fully advised, the Court finds that the motion is well-taken and will GRANT it.

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I. Background Facts and Procedural Posture

This case arises out of a Client Services Agreement ("Agreement") between plaintiffs and TDN. See Doc. 8-1. Plaintiffs are residents of New Mexico who have tax disputes with the Internal Revenue Service ("IRS"), the State of New Mexico Taxation and Revenue Department ("NMTRD"), and the New Mexico Worker's Compensation Administration ("WCA"). Doc. 1-1 at 1-2, ¶ 2. TDN is a Delaware limited liability company with its primary offices in Jacksonville, Florida. Id. at 2, ¶ 3. Plaintiffs hired TDN to represent them before the IRS, NMTRD, and the WCA in connection with issues involving delinquent taxes.2 Id. at 2, ¶ 2.

Plaintiffs allege that TDN failed to represent them before the NMTRD, including failing to appear at the NMTRD hearing and failing to appeal the decision of the NMTRD. Id. at 6-8. Plaintiffs allege that because of TDN's failures to act on their behalf, they suffered an extra $130,000.00 in tax assessments by NMTRD. Id. at 9, ¶ 70. Consequently, plaintiffs filed their Complaint for Damages and Petition for Injunctive Relief in the State of New Mexico, Second Judicial District Court. Id. TDN removed the case to this Court based on diversity jurisdiction. Doc. 1. Shortly after removal, TDN filed the instant motion to dismiss or to transfer based on the forum selection provision in the Agreement.

In its motion, TDN contends that this case either should be dismissed or alternatively transferred to the Middle District of Florida pursuant to 28 U.S.C. § 1406(a). TDN asserts that the Agreement "contains a valid, unambiguous venue selection clause requiring litigation of all disputes arising from the contract in the courts of Duval County, Florida." Doc. 3 at 1. The Agreement between TDN and plaintiffs includes a clause that states:

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Choice of Law and Attorneys [sic] Fees: The interpretation and enforcement of this Agreement shall be construed in accordance with Florida law. Jurisdiction and venue shall be in the Courts of Duval County, Florida. Should any legal action become necessary, each Party shall be responsible for its own court costs, attorney's fee and any other related fees.

Doc. 8-1 at 4. Because this clause is a valid forum selection provision, the Court will grant TDN's motion and transfer this case to the Middle District of Florida pursuant to 28 U.S.C. § 1406(a).

II. Discussion

"A motion to dismiss based on a forum selection clause frequently is analyzed as a motion to dismiss for improper venue under FED. R. CIV. P. 12(b)(3)." K & V Sci. Co. v. Bayerische Motoren Werke Aktiengesellschaft ("BMW"), 314 F.3d 494, 497 (10th Cir. 2002) (quoting Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 956 (10th Cir.1992)) (internal quotations omitted). The Tenth Circuit has observed that "[f]orum selection provisions are 'prima facie valid' and a party resisting enforcement carries a heavy burden of showing that the provision itself is invalid due to fraud or overreaching or that enforcement would be unreasonable and unjust under the circumstances." Riley, 969 F.2d at 957. A "forum clause should control absent a strong showing that it should be set aside." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972). Thus, "absent some compelling and countervailing reason [a forum selection clause] should be honored by the parties and enforced by the courts." Id. at 12.

The party seeking to avoid the forum selection clause bears "a heavy burden of proof." Id. at 17. "Only a showing of inconvenience so serious as to foreclose a remedy, perhaps coupled with a showing of bad faith, overreaching or lack of notice, would be sufficient to defeat a contractual forum selection clause." Riley, 969 F.2d at 958. Even if some inconvenience

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would result, that inconvenience would not justify non-enforcement of the forum selection clause. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 596-97 (1991).

Plaintiffs argument against enforcement of the forum selection clause can be distilled into two main points. First, plaintiffs argue that the forum selection clause is invalid because enforcing it would be unreasonable and unjust. Doc. 11 at 1-7. Second, plaintiffs argue that the forum selection clause is permissive and not mandatory. Id. at 7-9. The Court will address these two issues in reverse order.

A. The Forum Selection Clause is Mandatory, not Permissive.

"The difference between a mandatory and permissive forum selection clause is that mandatory forum selection clauses contain clear language showing that jurisdiction is appropriate only in the designated forum." Am. Soda, LLP v. U.S. Filter Wastewater Grp., Inc., 428 F.3d 921, 926 (10th Cir. 2005) (internal citation and quotations omitted). "In contrast, permissive forum selection clauses authorize jurisdiction in a designated forum, but do not prohibit litigation elsewhere." Id. at 926-27. In K & V Sci. Co., 314 F.3d at 500, the Tenth Circuit adopted the majority rule for enforcing forum selection clauses. Specifically,

where venue is specified [in a forum selection clause] with mandatory or obligatory language, the clause will be enforced; where only jurisdiction is specified [in a forum selection clause], the clause will generally not be enforced unless there is some further language indicating the parties' intent to make venue exclusive.

Id. at 499 (citations omitted) (brackets in original); see also id. 499-500 (examples of permissive and mandatory language). A forum selection clause is mandatory only when the venue is specified with "mandatory language." See id. at 500. Mandatory language is venue coupled with such terms as "exclusive," "sole," or "only." Id. If the forum selection clause is ambiguous—capable of being construed as either permissive or mandatory—the clause is deemed to be permissive. Id. Further, "if there is ambiguity in the clause [the court] should

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construe it against the drafter." Milk 'N' More, Inc. v. Beavert, 963 F.2d 1342, 1346 (10th Cir. 1992).

The forum selection clause in this case states, "Jurisdiction and venue shall be in the Courts of Duval County, Florida." Doc. 8-1 at 4. This provision is not ambiguous. The language is clear, and the wording points to the courts of Duval County, Florida. See Milk 'N' More, 963 F.2d at 1346 (finding the language "venue shall be proper under this agreement in Johnson County, Kansas" to be "reasonably clear and the wording strongly points to the state court of that county").

Plaintiffs argue that the language of the forum selection clause in this case is permissive because it is ambiguous and non-exclusive. Plaintiffs first argue that the clause is ambiguous because the title of the provision—"Choice of Law and Attorneys Fees"—"does not give fair notice to a reader that this section would limit his or her claims to only one court," and renders the clause ambiguous. Doc. 11 at 8. Plaintiffs cite no legal authority that the title of a provision in a contract creates an ambiguity when the terms set out in the body of the contract are clear and unambiguous. See D.N.M.LR-Civ. 7.3 ("A motion, response or reply must cite authority in support of the legal positions advanced."). The Court could not find any such authority and rejects this contention.

Plaintiffs next argue that although the clause contains the word "shall," it does not state that "venue shall only be in the Courts of Duval County." Doc. 11 at 8. While the Tenth Circuit has explained that "[m]andatory language is venue coupled with such terms as 'exclusive,' 'sole,' or 'only,'" K & V Sci. Co., 314 F.3d at 500, that does not mean that a forum selection provision will be deemed permissive if it does not contain these specific terms. The Tenth Circuit has found that the use of the term "shall" alone is sufficient to find a forum selection

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clause mandatory. "The use of the word 'shall' generally indicates a mandatory intent unless a convincing argument to the contrary is made." Milk 'N' More, 963 F.2d at 1346. The Court is not convinced that the term "only" is necessary in this case. The parties' agreement that "[j]urisdiction and venue shall be in the Courts of Duval County, Florida" is clear language showing the parties' intent that venue will exclusively be in Duval County, Florida. The forum selection provision in this case is, therefore, mandatory.

B. The Forum Selection Provision is Valid and Enforceable.

The Supreme Court has identified three grounds for repudiating a forum selection clause: first, if the inclusion of the clause in the agreement was the product of fraud or overreaching; second, if the party wishing to repudiate the clause would effectively be deprived of his day in court were the clause enforced; and third, "if enforcement would contravene a strong public policy of the

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