Hall v. Superior Court

• Court: California Court of Appeals
• Writing for the Court: CROSBY; SONENSHINE; WALLIN
• Citation: 150 Cal.App.3d 411,197 Cal.Rptr. 757
• Parties: , Blue Sky L. Rep. P 71,929 Thomas L. HALL, Lloyd C. Howard, and Thomas L. Hall Corporation, a California corporation, Petitioners, v. SUPERIOR COURT of the State of California In and For the COUNTY OF ORANGE, Respondent, IMPERIAL PETROLEUM, INC., a Nevada corporation, Lloyd T. Rochford, Virden L. Parker, Real Parties in Interest. Civ. 30591.
• Decision Date: 30 December 1983

Page 757

197 Cal.Rptr. 757 150 Cal.App.3d 411, Blue Sky L. Rep. P 71,929 Thomas L. HALL, Lloyd C. Howard, and Thomas L. Hall Corporation, a California corporation, Petitioners,
v.
SUPERIOR COURT of the State of California In and For the COUNTY OF ORANGE, Respondent,
IMPERIAL PETROLEUM, INC., a Nevada corporation, Lloyd T. Rochford, Virden L. Parker, Real Parties in Interest. Civ. 30591. Court of Appeal, Fourth District, Division 3, California. Dec. 30, 1983.

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[150 Cal.App.3d 413] Schumacher & Evans, Costa Mesa, Wenke, Taylor, Evans & Ikola and Richard A. Derevan, Newport Beach, for petitioners.

Larry W. Kreig and William R. Bickford, Sacramento, for Franklin Tom, Commissioner of Corporations of the State of Cal., as amici curiae on behalf of petitioners.

Buchalter, Nemer, Fields, Christie & Younger and Frank A. Conner, Newport Beach, for real parties in interest.

OPINION

CROSBY, Acting Presiding Justice.

In this case of first impression, we consider whether a choice of forum provision in a private California securities agreement is enforceable. Because the choice of law provision in the same agreement violates the Corporations Code and the public policy of this state, we hold enforcement of the choice of forum provision is unreasonable.

I

Thomas L. Hall and Lloyd C. Howard are California residents and officers of Thomas L. Hall Corporation, a California corporation. Imperial Petroleum, Inc. is apparently a Utah corporation. ¹ In 1981 Imperial's principal[150 Cal.App.3d 414] place of business was Laguna Hills, California; its principal officers and shareholders, Lloyd T. Rochford and Virden L. Parker, were California residents.

Hall and Howard were limited partners and Imperial the general partner in two California oil and gas limited partnerships. The 1979 agreement for one limited partnership is part of the record before us; it provides for the application of California law to settle any dispute arising out of the partnership.

In June and July 1981, the parties discussed exchanging the interests of Hall and Howard in one of the limited partnerships for 100,000 restricted shares of Imperial common stock. These discussions occurred in Imperial's California corporate headquarters and culminated in an oral agreement to proceed with the transaction. On August 13, 1981, Howard met Rochford and Parker at McCarran Airport in Las Vegas, Nevada. Once there, Rochford and Parker offered Howard an additional 50,000 shares of Imperial stock for the interest of Hall and Howard in the second limited partnership. This offer was conveyed by telephone to Hall in California and accepted.

Howard executed the exchange agreement on behalf of himself, Hall, and Thomas L. Hall Corporation at the airport and immediately returned to Southern California. The agreement included the following provisions: "[4(h) ](7) Purchasers represent that no offer to sell the securities of Issuer was made in any state other than Nevada and that no substantial or serious negotiations regarding this investment were conducted other than in Nevada and this investment

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was made, contracted for, and delivered in Nevada. [p] ... (f) This Agreement shall be deemed to have been made in and shall be governed by and enforced in accordance with the laws of the State of Nevada, and any litigation regarding the Agreement may only be brought in the State of Nevada." Over the next several weeks formal assignments by Hall and Howard of their interests in the limited partnerships were drafted and executed and the stock certificates physically delivered to Hall and Howard in California.

Hall, Howard, and Thomas L. Hall Corporation filed suit against Imperial, Rochford, and Parker in August 1982. They allege violations of California's Corporations Code in the first three causes of action and seek rescission of the stock transaction, restitution of their interest in the limited partnerships, and reimbursement of partnership income. The remaining five causes of action pertain to defendants' alleged fraud in handling the limited partnerships. In those counts plaintiffs seek a partnership accounting and general and punitive damages for fraudulent misrepresentation, breach of fiduciary duty, and conspiracy.

[150 Cal.App.3d 415] Defendants did not demur to the complaint or raise any affirmative defenses in the answers but subsequently moved for dismissal or a stay of any California litigation based on the forum selection and choice of law provisions in the exchange agreement. In opposition to the motion Hall and Howard submitted declarations asserting all negotiations for the proposed transaction occurred in California and Howard traveled to the Las Vegas airport solely to sign the agreement. These statements conflict with the recitations in paragraph 4(h)(7) of the agreement, but Rochford's declaration does not contradict plaintiffs or affirm that paragraph. The trial court stayed proceedings as to all defendants on all causes of actions, including the five alleging defendants' tortious conduct in fraudulently handling the limited partnerships; and plaintiffs brought this proceeding in mandate. (Diowchi v. Superior Court (1963) 216 Cal.App.2d 525, 528, 31 Cal.Rptr. 214; Code Civ.Proc. § 904.1.)

II

The petition is easily resolved as to the five causes of action arising out of the 1979 limited partnership agreements. The forum selection provision of the 1981 agreement has no application to the 1979 agreements. They contain no forum selection clause and are expressly governed by California law. There is nothing in the 1981 agreement to suggest plaintiffs were then negotiating away or waiving the existing right to settle partnership issues under California law in a California forum. And the contention by real parties in interest that conduct occurring in 1979 through 1981 nevertheless "arises out of" the August 1981 agreement, and thus falls within the forum selection clause, is wholly without support on this record. Consequently, the court erred in staying California proceedings as to the fourth through eighth causes of action.

III

The issue presented by the first three causes of action alleging defendants made fraudulent misrepresentations and sold unregistered securities requires considerably more analysis, however. Real parties in interest argue the sole issue before us is whether the forum selection clause is "reasonable" under the standards established in Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 131 Cal.Rptr. 374, 551 P.2d 1206; they assert the choice of law issue is severable and premature. We disagree with both contentions.

In enforcing the forum selection clause, the trial court relied on Smith, Valentino. There, the plaintiff California corporation and managing general agent for defendant, a Pennsylvania life insurance corporation, brought a [150 Cal.App.3d 416] breach of contract and tort action in California despite a reciprocal forum selection clause which permitted it to sue only in Pennsylvania. The Supreme Court rejected the common law view disfavoring forum selection clauses and held the alleged

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inconvenience and expense of litigation in Pennsylvania did not render the provision before it unenforceable: "we conclude that forum selection clauses are valid and may be given effect, in the court's discretion and in the absence of a showing that enforcement ... would be unreasonable." (Id., at p. 496, 131 Cal.Rptr. 374, 551 P.2d 1206.) The court held mere inconvenience and additional expense do not make a negotiated and voluntary choice of forum unreasonable (ibid.), and tort causes of action arising out of the contractual relationship should also be subject to the clause. (Id., at p. 497, 131 Cal.Rptr. 374, 551 P.2d 1206.)

In this case, balancing only the factors of inconvenience and expense against "the parties' free and voluntary choice of a different forum ..." (id., at p. 495, 131 Cal.Rptr. 374, 551 P.2d 1206), the agreement to bring all litigation in Nevada is not unreasonable in our view, especially since the agreement was executed in that state. But the analysis cannot end there. The Supreme Court in Smith, Valentino did not give blanket approval to forum selection clauses; the holding was limited to cases where "[n]o satisfying reason of public policy has been suggested ..." to deny enforcement of the forum selection clause. (Ibid.) The court specifically advised the result might very well be different in cases which "rest upon policy considerations not involved in [Smith, Valentino ]" (id., at p. 496, 131 Cal.Rptr. 374, 551 P.2d 1206), and Justice Mosk's dissent argued there were policy reasons to deny enforcement of the provision.

The trial court here found Nevada to be a reasonable forum under Smith, Valentino, apparently without reaching the policy issues of protection of securities investors and potential evasion of the Corporate Securities Law of 1968. ² In our view, contrary to the position of real parties in interest, these considerations are inextricably bound up in the question of the validity of the choice of law provision; and a determination as to the validity of the choice of law provision is prerequisite to a determination of whether the forum selection clause should be enforced. Contrary to our concurring colleague's position, the choice of law question was discussed extensively before the trial court and was obviously considered in the ultimate decision.

IV

While "California does not have any public policy against a choice of law provision, where it is otherwise appropriate" (Gamer v. DuPont Glore Forgan, Inc. (1976) 65 Cal.App.3d 280, 286, 135 Cal.Rptr. 230) [150 Cal.App.3d 417] and "choice of law provisions are usually respected by California courts ..." (Smith, Valentino & Smith, Inc. v. Superior Court, supra, 17 Cal.3d at 494, 131 Cal.Rptr. 374, 551 P.2d 1206), "an agreement designating [a foreign] law will not be given effect if it would violate a...