Hoffman v. Burroughs Corp.

• Decision Date: 21 December 1982
• Docket Number: Civ. A. No. CA-3-81-1415-D.
• Citation: 571 F. Supp. 545
• Parties: Gary S. HOFFMAN, et al., Plaintiffs, v. BURROUGHS CORPORATION and CCH Computax Systems, Inc., Defendants.
• Court: U.S. District Court — Northern District of Texas

571 F. Supp. 545

Gary S. HOFFMAN, et al., Plaintiffs, v. BURROUGHS CORPORATION and CCH Computax Systems, Inc., Defendants.

Civ. A. No. CA-3-81-1415-D.

United States District Court, N.D. Texas, Dallas Division.

December 21, 1982.

Jerome H. Ferguson, III, Dallas, Tex., Hamman, Benn & Miller, George W. Hamman, Marvin N. Benn, Chicago, Ill., for plaintiffs.

Sara J. Gourley, Sidley & Austin, Chicago, Ill., for defendants; Peter I. Ostroff, Sidley & Austin, Los Angeles, Cal., of counsel.

Theodore W. Daniel, William D. Sims, Jr., Jenkens & Gilchrist, Dallas, Tex., for CCH Computax Systems.

Morris Harrell, Rain, Harrell, Emery, Young & Doke, Dallas, Tex., Marshall M. Searcy, Dallas, Tex., for Burroughs Corp.

ORDER

ROBERT M. HILL, District Judge.

This matter comes before the Court on the motion of defendant CCH Computax Systems, Inc. ("Computax") to transfer this action to the Southern District of California, pursuant to a forum selection clause contained in each of the several written agreements between Computax and the plaintiffs. Defendant Burroughs Corporation ("Burroughs"), by letter of counsel to the Court, has joined in Computax's motion and would consent to a transfer of the case to California. Having reviewed the parties' briefs and affidavits and the applicable law, this Court has concluded that Computax's motion for transfer should be granted.

I.

This action concerns a computer system which, it is alleged, did not work. The plaintiffs are Gary Hoffman, Joe Pederson, Marion McBryde and Campbell Scott, and they are partners in HPMS Joint Venture, a partnership based in Dallas, Texas ("HPMS"), and the shareholders of Hoffman Pederson & McBryde, a Texas professional corporation engaged in public accounting ("HP & M"). Burroughs is a Michigan-based corporation engaged in the manufacture and selling of computer hardware and related software. Computax is a corporation based in San Diego County, California which, among other things, designs and licenses computer software for use by accountants on Burroughs computer equipment. According to the plaintiffs' complaint, in early 1979 Burroughs and Computax made a joint sales effort to HP & M regarding a computer system it could use, in the course of which they made certain representations. Plaintiffs allege that on the basis of these representations, HPMS purchased a certain computer system from Burroughs and Computax, and then leased it to HP & M. It appears that HPMS purchased the computer hardware from Burroughs, and entered license agreements with Computax for accompanying software.

Later that year, HPMS arranged with Burroughs to purchase a larger, related computer system to replace the one previously acquired. HPMS entered into an agreement with Burroughs in October 1979. Subsequently, HPMS entered another license agreement with Computax for use of computer software to accompany the Burroughs equipment.

The agreement between HPMS and Burroughs contains a clause which provides that "the laws of the State of Michigan shall govern this Agreement." Each of the license agreements between HPMS and Computax contains a clause which provides:

It is mutually understood and agreed that this Agreement shall be understood and interpreted in all respects according to the law of the State of California. Further, it is understood that this Agreement shall be treated as though it were executed in the County of San Diego, State of California, and to have been performed in the County of San Diego, State of California. The parties agree that any action relating to this License Agreement shall be instituted and prosecuted in the Courts of San Diego County, California.... Emphasis supplied.

Plaintiffs contend that the computer system was never fully effective and that it was subject to repeated breakdowns, and that they suffered damages as a result. They brought suit in this Court, with jurisdiction based on the diversity of citizenship of the parties. The complaint alleges causes of action for false, misleading or deceptive acts or practices pursuant to the Texas Deceptive Trade Practices-Consumer Protection Act, for fraudulent misrepresentations as inducement into contract, and for breach of implied warranties.

Computax, in its original answer and counterclaim, claimed that venue was improper in this district because of the forum selection clause in the license agreements, and that this Court should transfer the case to the Southern District of California in San Diego. In a later filed reply memorandum, Computax argues that this Court has authority to effect a transfer pursuant to either 28 U.S.C. § 1404(a) or 28 U.S.C. § 1406(a).

II.

The question before this Court is whether to enforce the forum selection clause in the agreements between Computax and HPMS and to transfer the entire action¹ to the Southern District of California. Before reaching this question, however, there are two preliminary matters to attend to.

First, it is clear that the present action is "related to" the agreements between Computax and HPMS, within the language used in the forum clause. Despite the plaintiffs' contention to the contrary, claims for fraudulent inducement into contract and breach of warranties impliedly made upon entering an agreement are undoubtedly related to that agreement. Cf. Scherk v. Alberto-Culver Co., 417 U.S. 506, 508-09, 94 S.Ct. 2449, 2451-2452, 41 L.Ed.2d 270 (1974) (claim of fraudulent representations concerning status of trademark rights was one "arising out" of contract for transfer to certain enterprises).

Second, plaintiffs argue that Computax has waived its venue defense by including a counterclaim to recover attorneys' fees in its answer. The argument lacks merit. As this Court has previously held, a defendant does not waive a venue defense by simultaneously filing a counterclaim. Happy Mfg. Co. v. Southern Air & Hydraulics, Inc., 572 F.Supp. 891 (N.D.Tex.1982); see Neifeld v. Steinberg, 438 F.2d 423 (3d Cir.1971).

Proceeding, then, to a consideration of whether to enforce the forum clause, it may be observed at the outset that, at least in this district,² the issue is governed by federal law. Taylor v. Titan Midwest Const. Corp., 474 F.Supp. 145, 147 (N.D.Tex. 1979). Specifically, the rules to follow in deciding whether to enforce a private agreement between parties as to choice of forum have been established by federal common law. On the other hand, the authority of a district court to transfer a cause is conferred by federal statute. The relevant provisions are 28 U.S.C. §§ 1404(a) and 1046(a). See discussion infra.

The leading case which discusses the standards for determining the enforceability of a forum selection clause is The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972).³ There, the Supreme Court held that such clauses are prima facie valid, 407 U.S. at 10, 92 S.Ct. at 1913. The Court further held that the clauses should be enforced unless the resisting party can "clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching .... or that enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision." 407 U.S. at 15, 92 S.Ct. at 1916. The Bremen decision thus firmly established what had until that point been a trend of increasing judicial acceptance and hospitality towards the forum selection clause, as an acceptable private arrangement between contracting parties.

The consideration of whether fraud or overreaching was involved deals with whether the agreement was in fact freely bargained for. The court should look to the relationship between the parties to determine whether "overweening bargaining power" was exercised in the formation of the contract. 407 U.S. at 12, 92 S.Ct. at 1914; see Taylor, 474 F.Supp. at 149. Where there is an allegation of fraud in a dispute arising out of a transaction, this does not necessarily mean the forum clause is unenforceable, the Supreme Court stated in a refinement of that aspect of its Bremen opinion. Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 2457 n. 14, 41 L.Ed.2d 270 (1974). Rather, a forum clause will be unenforceable only if it is shown that "the inclusion of that clause in the contract was the product of fraud or coercion." Id.

The consideration of whether the enforcement of a forum clause might be "unreasonable" appears to be a variation on the doctrine of forum non conveniens, with the burden placed on the party seeking to avoid enforcement of the clause. The Supreme Court ruled in this connection that the chosen forum must be shown to be "seriously inconvenient for the trial of the action" (emphasis in original), 407 U.S. at 16, 92 S.Ct. at 1916, and that the resisting party should bear "a heavy burden of proof." 407 U.S. at 17, 92 S.Ct. at 1917. Since the claimed inconvenience would generally be foreseeable at the time the freely negotiated agreement was entered, "it should be incumbent on the party seeking to escape his contract to show that trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court." 407 U.S. at 18, 92 S.Ct. at 1917.

In applying the Bremen "reasonableness" standard, courts have looked at several factors. These have included (1) inconvenience of the parties and witnesses; (2) the governing law, and (3) the availability of remedies in the chosen forum. See Full-Sight Contact Lens Corp. v. Soft Lens, Inc., 466 F.Supp. 71, 73 (S.D.N.Y.1978); cf. Gordonsville Industries, Inc. v. American Artos Corp., 549 F.Supp. 200, 206 (W.D.Va.1982); Leasing Service Corp. v. Broetje, 545 F.Supp. 362 (S.D.N.Y.1982). Again, the hardship must be significant for the enforcement of the clause to be unjust. "Mere inconvenience or additional expense" will not suffice, Anastasi Bros. Corp. v. St....