J.B. Harris, Inc. v. Razei Bar Industries, Ltd.

• Decision Date: 11 August 1998
• Docket Number: No. 97-CV-3520 (DRH).,97-CV-3520 (DRH).
• Parties: J.B. HARRIS, INC., Plaintiff, v. RAZEI BAR INDUSTRIES, LTD., Dr. Madeleine Mumcuoglu, Dr. Kostas Mumcuoglu, and Ofer Amit, Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 186

37 F.Supp.2d 186

J.B. HARRIS, INC., Plaintiff, v. RAZEI BAR INDUSTRIES, LTD., Dr. Madeleine Mumcuoglu, Dr. Kostas Mumcuoglu, and Ofer Amit, Defendants.

No. 97-CV-3520 (DRH).

United States District Court, E.D. New York.

August 11, 1998.

Anne F. Pizzo, New Hyde Park, NY (David Schnall, of Counsel), for Plaintiff.

Schwab Goldberg Price & Dannay, New York, NY by Richard Dannay, David O. Carson, for Defendants.

MEMORANDUM & ORDER

HURLEY, District Judge.

Presently before the Court is the motion of Defendants Razei Bar Industries, Ltd. ("Razei Bar"), Dr. Madeleine Mumcuoglu ("Dr.M.Mumcuoglu"), Dr. Kostas Mumcuoglu ("Dr.K.Mumcuoglu"), and Ofer Amit ("Amit") (collectively, "Defendants"), pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(2) and Rule 12(b)(3), as well as 9 U.S.C. §§ 3 and 206, that the Court: (1) dismiss this action for improper venue; (2) compel arbitration; and (3) dismiss for lack of personal jurisdiction. As set forth more fully below, the Court dismisses this action pursuant to Rule 12(b)(3) and thus does not reach the other arguments of Defendants.

BACKGROUND

Plaintiff J.B. Harris, Inc. ("J.B.Harris") is an Illinois corporation in the "business of acquiring the exclusive rights to sell natural health products in the United States." (Sept. 9, 1997 Harris Schnall Decl. ("Schnall Decl.") ¶ 2.) Razei Bar — a manufacturer of health products — is an Israeli corporation with its only offices in Jerusalem, Israel. (Aug. 17, 1997 Dr. Madeleine Mumcuoglu Decl. ("M. Mumcuoglu Decl.") ¶¶ 2, 4.) Dr. M. Mumcuoglu is the President of Razei Bar; Dr. K. Mumcuoglu, her husband, is the Director of Research and Development for Razei Bar and a minority shareholder of that company. (Id. ¶ 1; Aug. 14, 1997 Dr. Kostas Mumcuoglu Decl. ¶ 2.) Amit is Razei Bar's Business Manager. (Aug. 17, 1997 Ofer Amit Decl. ¶ 2.)

Plaintiff and Defendants first came into contact in 1994 when, after reading an article highlighting Razei Bar's product "Sambucol,"¹ the President of J.B. Harris — Harris Schnall — contacted Razei Bar in Israel. (Schnall Decl. ¶ 3.) The parties discussed the distribution of Sambucol by J.B. Harris.

In December 1994, Schnall traveled to Israel to undertake negotiations with Razei Bar. (Id. ¶ 5.) The parties entered into a distribution agreement, a draft of which was presented to Schnall while he was in Israel. That draft included a provision that "any dispute concerning this agreement or deriving therefrom shall be adjudicated in the appropriate legal institutions in the State of Israel." (M. Mumcuoglu Decl. Ex. A ¶ 11(a).) The draft also provided that "in any instance of dispute between [the parties] they will turn to an arbitrator." (Id. ¶ 11(b).)

According to Schnall, the forum selection clause in the draft agreement "especially concerned" him. (Schnall Decl. ¶ 6.) He consulted with his attorney who "confirmed that the forum selection clause limited [his] ability, as a practical matter[,] to enforce the Agreement." (Id. ¶ 7.) Nonetheless, on March 13, 1995, the parties executed a Distribution and Marketing Agreement (the "Agreement"), and J.B. Harris began its efforts at marketing and selling Sambucol in the United States. (Id. ¶ 10.)

In the present action, Plaintiff alleges that Defendants fraudulently misrepresented that Sambucol was a "unique, patented and trademark protected elderberry product." (Id. ¶ 8.) Plaintiff claims that it relied upon this misrepresentation in agreeing to distribute Sambucol, and, as a result, "suffered devastating losses" and "incurred huge legal expenses fighting and defending against competing elderberry products." (Id. ¶ 16.)

Defendants now move on a number of grounds, including under Rule 12(b)(3) to dismiss for improper venue.

DISCUSSION

I. Procedures by Which to Enforce a Forum Selection Clause

The first issue the Court must address is one which the Fifth Circuit has recently described as "enigmatic." Haynsworth v. The Corporation, 121 F.3d 956, 961 (5th Cir.1997). This is the question — not discussed by the parties — whether a motion seeking dismissal based on a forum selection clause should be made pursuant to Rule 12(b)(3) (dismissal for improper venue), Rule 12(b)(6) (dismissal for failure to state a claim), or some other procedural vehicle. The Second Circuit has recently noted the lack of consistency among courts — including courts in this Circuit — as to the proper method by which this issue should be addressed. See New Moon Shipping Co., Ltd. v. MAN B & W Diesel AG, 121 F.3d 24, 29 (2d Cir.1997). Stating that "no consensus developed as to the proper procedural mechanism to request dismissal of a suit based upon a valid forum selection clause," the court did not adopt a particular approach. Id. (collecting cases) (also citing a commentator who opined that "there is no easy answer to the enforcement procedure question because there is no existing mechanism with which forum selection enforcement is a perfect fit") (citing Patrick J. Borchers, Forum Selection Agreements in the Federal Courts After Carnival Cruise: A Proposal for Congressional Reform, 67 Wash. L.Rev. 55 (1992)).

Some courts have held that the enforcement of a forum selection clause is properly addressed on a motion to dismiss under Rule 12(b)(6). See, e.g., Huntingdon Eng'g & Envtl. Inc. v. Platinum Software Corp., 882 F.Supp. 54, 56-57 (W.D.N.Y. 1995); Haskel v. FPR Registry, Inc., 862 F.Supp. 909, 915 (E.D.N.Y.1994) ("Although courts have often enforced forum selection clauses by granting a motion to dismiss for improper venue, the better view is that forum selection clauses do not render venue improper and thus may not be enforced by a motion to dismiss for improper venue.").

On the other hand, the Ninth Circuit has concluded that forum selection clauses are properly addressed under Rule 12(b)(3). See R.A. Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir.1996) (reasoning that because in the Supreme Court cases analyzing such clauses "the pleadings are not accepted as true, as would be required under a Rule 12(b)(6) analysis," Rule 12(b)(6) was not the proper procedural mechanism). The Second Circuit in New Moon also considered materials beyond the pleadings. See New Moon, 121 F.3d at 30.

A number of courts in this Circuit have also dismissed actions under Rule 12(b)(3) based on forum selection clauses. See, e.g., Grace v. Corporation of Lloyd's, No. 96 Civ. 8334, 1997 WL 607543 (S.D.N.Y. Oct. 2, 1997); Medoil Corp. v. Citicorp, 729 F.Supp. 1456, 1457 (S.D.N.Y.1990) ("[A] motion to dismiss pursuant to a forum selection clause is properly considered a motion to dismiss for lack of venue."); Ritchie v. Carvel Corp., 714 F.Supp. 700 (S.D.N.Y.1989) (Leval, J.); cf. Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir.1990) (affirming a district court dismissal of complaint for improper venue and remand to state court where the movant relied on a "forum selection clause that purport[ed] to preclude litigation from a venue other than a specific state court").

Judge Scheindlin in the Southern District of New York was recently presented with a similar scenario whereby a defendant moved to dismiss for improper venue under Rule 12(b)(3) based on a forum selection clause. See Stamm v. Barclays Bank of New York, 960 F.Supp. 724, 730 (S.D.N.Y.1997). Noting that "[t]here appears to be a split among the Courts of Appeal[s] as to whether Rule 12(b)(3) is the proper vehicle to enforce a forum selection clause," Judge Scheindlin determined that she need not "enter this tangled web," id. at 730, as "[w]hichever rule applies, it is well-established that plaintiffs must demonstrate that the [forum selection clauses] were incorporated into [the relevant documents] by fraud or over-reaching to defeat defendants' motion to dismiss." Id. Judge Scheindlin considered matters outside of the pleadings in addressing this issue.

Consistent with the above-cited case law, the Court will address the forum selection clause here as raising a venue issue under Rule 12(b)(3). The Court does not decide whether this issue might more properly have been raised by way of Rule 12(b)(6), as the issue is squarely framed by Defendants under Rule 12(b)(3) and Plaintiff does not argue that this is an improper procedural mechanism. See Weeks Marine, Inc. v. M/V Unimaster, No. Civ. A. 97-1947, 1997 WL 660624, at *2 n. 2 (E.D.La. Oct. 23, 1997) (where parties did not raise issue of whether motion should be addressed under Rule 12(b)(3) or 12(b)(6), the Court treated the motion as parties did). Moreover, the Court will consider the extensive materials outside of the pleadings submitted by the parties.

II. Standards for Enforcement of Forum Selection Clauses

Forum selection clauses are presumptively enforceable. See New Moon, 121 F.3d at 29 (noting plaintiff's burden "to make a `strong showing' in order to overcome the presumption of enforceability" of a forum selection clause). The Supreme Court has stated in a leading case on this issue that forum selection clauses "are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be `unreasonable' under the circumstances." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513 (1972). Indeed, "[t]he Supreme Court has repeatedly upheld the validity of forum selection clauses." Ainsley Skin Care of New York, Inc. v. Elizabeth Grady Face First, Inc., No. 97 CIV. 6716, 1997 WL 742526, at *2 (S.D.N.Y. Dec. 2, 1997) (collecting cases).

"[I]t is well-established that [forum selection] clauses will be enforced unless it clearly can be shown that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." Karl Koch Erecting Co. v. New York Convention Ctr. Dev. Corp., 838 F.2d 656, 659 (2d Cir.1988) (internal quotation marks and citations omitted). The Second Circuit in Roby v. Corporation of Lloyd's, 996 F.2d 1353 (2d Cir.1993), listed the...