Intrastate Distribs. v. Alani Nutrition, LLC

• Docket Number: 2:21-cv-10369
• Decision Date: 28 May 2021
• Parties: INTRASTATE DISTRIBUTORS INC., Plaintiff, v. ALANI NUTRITION, LLC, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

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INTRASTATE DISTRIBUTORS INC., Plaintiff, v. ALANI NUTRITION, LLC, Defendants.

No. 2:21-cv-10369

United States District Court, E.D. Michigan, Southern Division

May 28, 2021

JUDITH E. LEVY, DISTRICT JUDGE

REPORT AND RECOMMENDATION TO DENY DEFENDANT'S MOTION TO DISMISS OR ALTERNATIVELY TRANSFER VENUE (ECF NO 12)

KIMBERLY G. ALTMAN, UNITED STATES MAGISTRATE JUDGE

I. Introduction

This is a breach of contract case. Plaintiff Intrastate Distributors, Inc., (“IDI”) alleges that defendant, Alani Nutrition, LLC wrongfully terminated the parties' distribution agreement. (ECF No. 1-2). According to the complaint, Alani, a Kentucky-based company, contracted to give IDI, a Michigan-based corporation, the exclusive right to distribute energy drinks within a territory consisting of several counties in Michigan. (Id.). Alani allegedly terminated the agreement without cause and prior to the contractual period in which cause was not needed to terminate the agreement. (Id.).

IDI originally brought suit in a Michigan state court, but Alani removed the case to federal court based on diversity jurisdiction under 28 U.S.C. § 1332(a). (ECF No. 1). Alani now moves to dismiss or, alternatively, transfer the matter to Kentucky, based on the distribution agreement's forum selection clause favoring jurisdiction and venue in that state. (ECF No. 12). IDI argues that the forum selection clause is permissive, not mandatory, and that the traditional transfer analysis favors its choice of Michigan courts. (ECF No. 16). The motion was referred under 28 U.S.C. § 636(b)(1)(B) to the undersigned, and a hearing was held on May 19, 2021. (ECF Nos. 14, 17). After considering the parties' papers and arguments, the undersigned recommends that Alani's motion be DENIED.

II. Background

On June 1, 2020, IDI and Alani entered into a distribution agreement for the marketing, distribution, and sale of Alani's energy drinks. See ECF No. 9-1. The Agreement was effective for three years unless terminated in accordance with the Agreement. (Id., PageID.210). Under the Miscellaneous heading, the agreement contained a provision regarding choice of law, jurisdiction, and venue, which reads as follows:

Applicable Law; Jurisdiction and Venue. This Agreement shall be construed under, and governed by, the laws of the State of Kentucky. The parties agree that jurisdiction and venue for any legal proceedings arising from or in any way connected to this Agreement will lie in the State of Kentucky, and both parties hereby submit and consent to the jurisdiction and venue of said courts. If any portion of this Agreement itself is contrary to law, the remaining provisions shall remain valid.

(ECF No. 9-1, PageID.219).

III. Legal Standard

Where a case is said to be filed in contravention of a forum selection clause, the Court has the discretion to either dismiss the action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, or to transfer the case in accordance with 28 U.S.C. § 1404. Smith v. Aegon Cos. Pension Plan, 769 F.3d 922, 934 (6th Cir. 2014); see also Kelly v. Liberty Life Assurance Co. of Boston, No. CV 17-139-DLB, 2018 WL 558643, at *4 (E.D. Ky. Jan. 25, 2018) (stating that, pursuant to Smith, “this Court is permitted to dismiss the matter under Rule 12(b)(6), but not required to do so. Pursuant to 28 U.S.C. § 1404(a), it may also transfer the matter to the appropriate federal forum”); Transp. Sys., LLC v. Amazon, No. 18-CV-11286, 2018 WL 5043726, at *1 (E.D. Mich. Oct. 17, 2018) (noting discretion to dismiss under Rule 12(b)(6) or forum non conveniens doctrine).

When deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court must “construe the complaint in the light most favorable to plaintiff and accept all allegations as true.” Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir. 2012). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation omitted); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (concluding that a plausible claim need not contain “detailed factual allegations, ” but it must contain more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action ...”). Facial plausibility is established “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation omitted). “The plausibility of an inference depends on a host of considerations, including common sense and the strength of competing explanations for the defendant's conduct.” 16630 Southfield Ltd., P'Ship v. Flagstar Bank, F.S.B., 727 F.3d 502, 503 (6th Cir. 2013).

IV. Analysis

A. Interpretation of the Forum Selection Clause

1. General

Though Alani did not address it, IDI correctly notes that the threshold issue is whether Kentucky law applies to the issue of interpretation of the forum selection clause, or whether it is governed by federal common law or some other source. (ECF No. 16, PageID.300-302). Most Circuits distinguish the interpretation of a forum selection clause - whether it is mandatory or permissive - from its enforceability - “whether compelling compliance with the clause is ‘unreasonable' under the circumstances.”^[1] Collins On behalf of herself v. Mary Kay, Inc., 874 F.3d 176, 181 (3d Cir. 2017) (internal quotation omitted). In making this distinction, the majority of Circuits have ruled that the law governing the contract, generally meaning that of its choice of law provision, governs the interpretation of the forum selection clause. See id.; Martinez v. Bloomberg LP, 740 F.3d 211, 217-18 (2d Cir. 2014); Barnett v. DynCorp Int'l, L.L.C., 831 F.3d 296, 308 (5th Cir. 2016); Albemarle Corp. v. AstraZeneca UK, Ltd., 628 F.3d 643, 643 (4th Cir. 2010); Abbott Labs v. Takeda Pharm. Co., 476 F.3d 421, 423 (7th Cir. 2007); Dunne v. Libbra 330, F.3d 1062, 1064 (8th Cir. 2003); Milanovich v. Costa Crociere, S.P.A., 954 F.2d 763, 767 (D.C. Cir. 1992); but see Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 513 (9th Cir. 1988) (applying federal law to interpret forum selection clauses). No cases were found applying the law of the forum state (here, Michigan) to the interpretation of a forum selection clause.

In the Sixth Circuit, courts have held that “the enforceability of the forum selection clause is governed by federal law.” Wong v. PartyGaming Ltd., 589 F.3d 821, 828 (6th Cir. 2009) (emphasis added). Some courts have interpreted Wong as standing for the application of federal common law to the interpretation of the clause, as well. See 679637 Ontario Ltd. v. Alpine Sign & Printer Supply, Inc., 218 F.Supp.3d 572, 576 (E.D. Mich. 2016); Holtzman v. Vill. Green Mgmt. Co. LLC, 2020 WL 264331, at *6 (E.D. Mich. Jan. 17, 2020); Kessler v. Direct Consulting Assocs. LLC, 2018 WL 7890862, at *3 (E.D. Mich. July 6, 2018). But at least one court found that “the scope or meaning of the forum selection clause in Wong was not at issue” and held that the contract's choice of law would govern. Lanier v. Syncreon Holdings, Ltd., 2012 WL 3475680, at *5-6 (E.D. Mich. Aug. 14, 2012); see also Global Link, LLC v. Karamtech Co., 2007 WL 1343684, at *2 (E.D. Mich. May 8, 2007) (decided before Wong, holding that Korean law applies to interpretation of forum selection clause where the parties agreed that Korean law would govern the contract).

IDI contends that the same result would be reached following either Kentucky or federal law, as the relevant standards of contract interpretation are the same. See, e.g., Kentucky Spirit Health Plan, Inc. v. Commonwealth Fin. & Admin. Cabinet, 2015 WL 510852, at *4 (Ky. Ct. App. Feb. 6, 2015), as modified (Aug. 7, 2015) (“The cardinal rule in the interpretation of contracts is to ascertain the intention of the parties and to give effect to that intention. In the case of a written contract, we first look to the parties' written agreement to ascertain their intent.”); 679637 Ontario Ltd., 218 F.Supp.3d at 576 (“Federal common law directs that forum selection clauses are to be interpreted by reference to ordinary contract principles. Such contract interpretation principles require that courts ‘first look to a contract's plain language.' ”). The Court agrees, and thus need not decide whether Kentucky or federal common law properly applies in this Circuit.^[2]

2. Application

The disagreement between the parties boils down to whether the forum selection clause is mandatory or permissive. See Rivera v. Centro Medico de Turabo, 575 F.3d 10, 17 (1st Cir. 2009) (“Under federal law, the threshold question in interpreting a forum selection clause is whether the clause at issue is permissive or mandatory.”). “Permissive forum selection clauses, often described as ‘consent to jurisdiction' clauses, authorize jurisdiction and venue in a designated forum, but do not prohibit litigation elsewhere, ” whereas “[m]andatory forum selection clauses contain clear language indicating that jurisdiction and venue are appropriate exclusively in the designated forum.” Ross v. Safeco Ins. Co. of Illinois, No. 5:12-CV-151, 2013 WL 12250349, at *2 (W.D. Ky. Jan. 16, 2013) (quoting 8 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3803.1).

The pertinent language of the forum selection clause in question is as follows:

The parties agree that jurisdiction and venue for any legal proceedings arising from or in any way connected to this Agreement will lie in the State of Kentucky, and both parties hereby submit and consent to the jurisdiction and venue of said courts.

(ECF No....