In re N. Parent, Inc., Bankruptcy No. 97-42411-HJB
| Decision Date | 26 June 1998 |
| Docket Number | Bankruptcy No. 97-42411-HJB,Adversary No. 97-4254. |
| Citation | 221 BR 609 |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
| Parties | In re N. PARENT, INC., Debtor. N. PARENT, INC., Plaintiff, v. COTTER & COMPANY, Defendant. |
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Jonathan R. Goldsmith, Springfield, MA, for Debtors.
Paul Salvage, Springfield, MA, for Defendant.
Before the Court for determination is the "Defendant's Motion to Dismiss" this adversary proceeding filed by Cotter & Company ("Cotter").1 In its complaint, the Debtor N. Parent, Inc. (" " or the "Debtor") makes various claims against Cotter. Those claims are set forth in fourteen (14) different counts. Cotter argues that dismissal of all of Cotter's claims is required under Fed. R.Civ.P. 12(b)(3)2 for improper venue, and relies on a forum selection clause allegedly contained in a franchise agreement between the parties (the "Member Agreement"). Alternatively, Cotter argues that, pursuant to a choice of law provision present in the Member Agreement, the relationship between the parties is governed by Illinois law, and seven of the counts in the Debtor's complaint, all based on Massachusetts state law, must be dismissed under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted.
Initially, this Court must consider whether a motion to dismiss under Fed. R.Civ.P. 12(b)(3) for improper venue is the appropriate method to enforce a forum selection clause in a pre-petition agreement. Although several courts have enforced forum selection clauses by granting motions to dismiss for improper venue,3 the United States Court of Appeals for the First Circuit has not followed suit. Instead, the First Circuit has held that dismissal of a complaint based on a forum selection clause falls under Rule 12(b)(6) for failure to state a claim, rather than under Rule 12(b)(3) for improper venue. Lambert v. Kysar, 983 F.2d 1110, 1112 n. 1 (1st Cir.1993); LFC Lessors, Inc. v. Pacific Sewer Maintenance Corp., 739 F.2d 4, 7 (1st Cir.1984); see also Brandt v. Hicks, Muse & Co. Inc. (In re Healthco Int'l, Inc.), 195 B.R. 971, 988 n. 69 (Bankr.D.Mass.1996). The First Circuit has maintained that a forum selection clause does not render venue improper per se, but "merely constitutes a stipulation in which the parties join in asking the court to give effect to their agreement by declining to exercise its jurisdiction." LFC Lessors, 739 F.2d at 6 (citing Central Contracting Co. v. Maryland Casualty Co., 367 F.2d 341, 345 (3d Cir.1966)). Therefore, this Court must treat Cotter's motion to dismiss based on the forum selection clause as a request for dismissal under Rule 12(b)(6).
Before the Court then is a motion under Rule 12(b)(6) to dismiss (1) the entire complaint because of the forum selection clause in the Member Agreement and/or (2) certain counts of the complaint grounded on Massachusetts law because of the choice of law provision in the Member Agreement. However, as set forth below, each of the parties has submitted affidavits and/or additional writings. This Court's reliance on those submissions requires yet another recharacterization of Cotter's Motion. Where, as in this case, materials outside the pleadings are presented to and not excluded by the court, Rule 12(b) requires that the Court treat the motion as one for summary judgment, and provide all parties with notice and the opportunity to present opposing materials. Fed.R.Civ.P. 12(b); see Motzkin v. Trustees of Boston Univ., 938 F.Supp. 983, 992 (D.Mass.1996) (citing Whiting v. Maiolini, 921 F.2d 5, 6-8 (1st Cir.1990)); see also Desrosiers v. Transamerica Financial Corp. (In re Desrosiers), 212 B.R. 716, 719 n. 1 (Bankr.D.Mass.1997). Those conditions have been satisfied here. As a result, with the dust settled, the motion before the Court is one for summary judgment, and will be determined under the standards of Fed. R.Civ.P. 56, made applicable to these proceedings by Fed. R. Bankr.P. 7056.
A motion for summary judgment should be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56; Fed. R. Bankr.P. 7056; DeNovellis v. Shalala, 124 F.3d 298, 305 (1st Cir.1997). "The moving party bears the burden of showing the `absence of evidence to support the non-moving party's position."' M-R Sullivan Mfg. Co., Inc. v. Sullivan (In re Sullivan), 217 B.R. 670, 673 (Bankr.D.Mass.1998) (quoting Weiss v. Blue Cross Blue Shield of Delaware, 206 B.R. 622, 624 (1st Cir. BAP 1997)). If the moving party has properly supported its motion, the burden shifts to the non-moving party who must produce sufficient evidence to demonstrate a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Any disputed facts and inferences must be resolved by the court in favor of the party opposing summary judgment. Fleet Nat'l Bank v. H & D Entertainment, Inc., 96 F.3d 532, 537 (1st Cir.1996). This Court must therefore review the record in the light most favorable to the Debtor to determine whether the Debtor has set forth sufficient evidence to raise a triable issue with respect to any of the fourteen counts raised in its complaint. See Motzkin, 938 F.Supp. at 992. In that light, the Court now sets forth the factual background presented by the parties.
Cotter is a Delaware corporation with its national headquarters and principal place of business located in Chicago, Illinois. Mot. to Dismiss at 2. Cotter is a cooperative enterprise, with its membership being the individual True Value® hardware store owners ("Members"). Id. Over 99.9% of Cotter's voting stock and voting power is held by "True Value Retailer Members," and of its seventeen directors, fifteen are Members. Id. Further, Cotter's yearly profits are distributed to the Members, based on a percentage of their annual purchases of inventory from Cotter, in the form of promissory notes (payable or redeemable in credits and/or cash) or stock. Id.
On March 11, 1985, the Debtor's principal, Nancy L. Parent, and Francis Parent, "d/b/a Ludlow True Value Hardware," executed a Member Agreement with Cotter in order to establish a True Value hardware store in Ludlow, Massachusetts. Debtor's Suppl. Opp'n to Cotter's Mot. to Dismiss, Ex. A. The 1985 Member Agreement was accepted by the duly authorized agent of Cotter on April 29, 1985, id., and generally reflected the corporate structure outlined above. It further provided:
This Agreement shall be automatically modified upon notice from the Company to the Member of any relevant change in the Certificate of Incorporation and/or By-Laws of the Company provided such change in each instance receives the affirmative vote of a majority of stockholders entitled to vote at the regular or special stockholder\'s meeting duly called and held for such purpose, and as modified, shall continue in force in aforesaid,
(the "Modification Provisions"). The 1985 Member Agreement did not contain either a choice of law provision or a forum selection clause.
In 1990, Nancy Parent entered into another Member Agreement with Cotter in order to open up a second True Value hardware store in Chicopee, Massachusetts. Compl. at 4. Nancy Parent operated the Chicopee hardware store from 1990 to 1992. Id. That store closed in 1992, as it was operating at a loss and was indebted to Cotter for approximately $65,000.00. Id. at 5.
In 1991, the Debtor, N. Parent, was formed as a Massachusetts corporation, with Nancy Parent as the President, Treasurer, and sole Director. Debtor's Br., Ex. A. On August 19, 1991, Nancy Parent, acting now as President of the corporation, executed a new Member Agreement with Cotter. Debtor's Suppl. Opp'n to Cotter's Mot. to Dismiss, Ex. B. The effect of the 1991 Member Agreement was to make N. Parent, as opposed to Nancy Parent individually, the new owner of the Ludlow True Value store and a Member.4 Id. The 1991 Member Agreement was substantially similar to the 1985 Member Agreement, except that in the last line above Nancy Parent's signature the following language was included: "This Agreement shall be governed and interpreted in accordance with the laws of the State of Illinois."
Pursuant to the Modification Provisions of the 1991 Member Agreement, Cotter's Members have agreed to amend the Member Agreement in a fashion relevant to these proceedings on three separate occasions. In 1993, the Member Agreements were amended to provide that they could "only be enforced against either Member or Cotter, in courts in Cook County or any Illinois county contiguous to Cook County, Illinois." In 1995, the Member Agreements were amended to provide that "the current form of the . . . Member Agreement shall govern all past and present relations, actions or claims arising between Cotter and the Member." Finally, in 1997, the Member Agreements were amended to provide that: "This Agreement shall be enforced against either Member or Cotter, only in courts located in Cook County or any Illinois county contiguous to Cook County, Illinois, and only be interpreted in accordance with the substantive laws of Illinois without giving effect to its conflict of laws principles."5
On April 11, 1997, the Debtor, N. Parent, filed a Chapter 11 petition in this Court. On July 10, 1997, the Debtor filed a "Motion to Compel Performance Pursuant to an Executory Contract" ("Motion to Compel Performance"), seeking an order of this Court requiring Cotter to continue selling and delivering hardware inventory to the Debtor. After two hearings on the said motion attended by counsel for the Debtor and counsel for Cotter, the...
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