Jalee Consulting Grp., Inc. v. Xenoone, Inc.

• Decision Date: 29 September 2012
• Docket Number: No. 11 Civ. 4720 (RJS)(JCF).,11 Civ. 4720 (RJS)(JCF).
• Parties: JALEE CONSULTING GROUP, INC., Plaintiff, v. XENOONE, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

908 F.Supp.2d 387

JALEE CONSULTING GROUP, INC., Plaintiff,

v.XENOONE, INC., et al., Defendants.

No. 11 Civ. 4720 (RJS)(JCF).

United States District Court,

S.D. New York.

Sept. 29, 2012.

Robert Scott DeLuca of Schrader, Israely, DeLuca & Waters LLP, Williamsville, NY, for Plaintiff.

John B. Zefutie, Jr. of Patton Boggs, LLP (NJ), Newark, NJ and Ugo Alfredo Colella of Patton Boggs, LLP (DC), Washington, DC, for Defendants.

OPINION AND ORDER

RICHARD J. SULLIVAN, District Judge.

Plaintiff Jalee Consulting Group, Inc. brings this action under the Federal Arbitration Act, 9 U.S.C. § 4, and New York State common law against Defendants XenoOne Co., Ltd. (“XenoOne Korea”) and XenoOne Inc. (“XenoOne USA”). Plaintiff seeks injunctive relief requiring that any arbitration proceedings under Plaintiff's contract with XenoOne Korea occur in New York City, rather than in Seoul, South Korea, the location specified by the contract's terms. Plaintiff also seeks monetary relief against XenoOne USA for breach of different contracts, or, in the alternative, unjust enrichment or quantum meruit.

Before the Court is Defendants' motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, Defendants' motion is granted in part and denied in part.

I. Background

A. Facts ¹

Plaintiff is a technology consulting and software development firm organized under New York State law and operating in New York City. Defendant XenoOne Korea is a foreign technology corporation organized under the laws of the Republic of Korea (“Korea”). Defendant XenoOne USA is a corporation chartered in Delaware and operating in New York City. (Am. Compl. ¶¶ 5–9.)

On October 5, 2010, Plaintiff entered into a contract (the “Agreement”) with XenoOne Korea to develop software for computers and mobile devices. ( Id. ¶ 15.) The Agreement, which appears on Plaintiff's letterhead, referred to the work as “Project Mu.” (Decl. of John J. Zefutie, Jr., dated Nov. 9, 2011, Doc. No. 20 (“Zefutie Decl.”), Ex. C.) In addition to the primary task of developing a “fully functioning application,” Plaintiff agreed to undertake “related supportive tasks” as part of Project Mu. ( Id.) The Agreement gave several nonexclusive examples of such supportive tasks, and, in vague language, it identified several other tasks that it explicitly did not cover, namely “Marketing Model,” “Business Model,” and “Operation Model.” ( Id.) The Agreement also contained an arbitration and forum selection clause providing: “Any dispute, controversy, or difference which may arise between the parties hereto, out of or in relation to or in connection with this Agreement, or any breach hereof ... shall be finally settled by arbitration in Seoul, Korea” according to “the laws of [the] Republic of Korea.” ( Id.)

This litigation arises, in part, from disputes between Plaintiff and XenoOne Korea over the amounts XenoOne Korea owes Plaintiff under the contract. (Am. Compl. ¶ 20.) At the time Plaintiff initiated this action, it was contemplating an arbitration proceeding against XenoOne Korea to resolve those disputes. ( Id. ¶ 23.) Plaintiff also alleges that XenoOne Korea was contemplating initiating an arbitration proceeding against Plaintiff for the same purpose. ( Id. ¶ 24.) Plaintiff now seeks to invalidate the provision in the Agreement requiring that any arbitration occur in Seoul so that arbitration can proceed in New York. ( Id. ¶ 35.)

Plaintiff also alleges that, besides its work for XenoOne Korea, it began working with Defendant XenoOne USA on “additional matters related to the scope of work established by the Agreement.” ( Id. ¶ 36.) Significantly, Plaintiff alleges that its work with XenoOne USA on those additional matters was pursuant to contracts separate from and independent of the Agreement governing Plaintiff's work with XenoOne Korea. ( Id. ¶¶ 37, 42.) Those contracts allegedly were memorialized in “numerous e-mails and correspondence” between Plaintiff and XenoOne USA. ( Id. ¶¶ 36–38, 40–42.) For its services, Plaintiff issued at least five invoices directly to XenoOne USA demanding payments totaling over $400,000. ( Id. ¶ 39.) Plaintiff's contract and quasi-contract claims against XenoOne USA arise from unpaid fees and expenses totaling $389,559.18. ( Id. ¶¶ 43–45, 55–60.)

B. Procedural History

Plaintiff initially brought this action in the New York State Supreme Court, New York County, on June 27, 2011. Defendants removed the action to federal district court pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 203, 205 and to 28 U.S.C. §§ 1331, 1332, 1441(a), 1441(b), and 1446. (Notice of Removal ¶¶ 8–17.) On October 11, 2011, with the Court's leave, Plaintiff filed an Amended Complaint. (Doc. No. 18.) Defendants then jointly filed a motion to dismiss on November 9, 2011, and the motion was fully briefed on December 22, 2011.

II. Legal Standard

Neither the Second Circuit nor the Supreme Court has specifically designated a single clause of Rule 12(b) as the proper procedural mechanism for seeking dismissal of a suit based upon a valid forum selection clause. See Asoma Corp. v. SK Shipping Co., 467 F.3d 817, 822 (2d Cir.2006); Cfirstclass Corp. v. Silverjet PLC, 560 F.Supp.2d 324, 326–27 (S.D.N.Y.2008) (“There is a split of authority in the Second Circuit regarding the appropriate procedural mechanism by which to enforce a forum selection clause.”). At various times, the Second Circuit has considered such motions on grounds of lack of subject matter jurisdiction pursuant to Rule 12(b)(1), improper venue pursuant to Rule 12(b)(3), and failure to state a claim pursuant to Rule 12(b)(6). See Cfirstclass Corp., 560 F.Supp.2d at 327 (collecting cases). Defendants bring their motion to dismiss under Rule 12(b)(6), and Plaintiff does not challenge that choice.

To survive a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint must “provide the grounds upon which [the] claim rests.” ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.2007). Plaintiffs must also allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In reviewing a Rule 12(b)(6) motion to dismiss, a court must accept as true all factual allegations in the complaint and draw all reasonable inferences in favor of the plaintiff. ATSI Commc'ns, 493 F.3d at 98. However, that tenet “is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Thus, a pleading that only offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. If the plaintiff “ha[s] not nudged [its] claims across the line from conceivable to plausible, [its] complaint must be dismissed.” Id. at 570, 127 S.Ct. 1955.

III. Discussion

A. Enforceability of the Forum Selection Clause

Federal law has a strong presumption in favor of enforcing forum selection clauses. The presumption is particularly powerful in cases, like this one, that involve international commerce and arbitral dispute resolution. See Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 631, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); M/S Bremen v. Zapata Off–Shore Co., 407 U.S. 1, 9, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972). 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, 407 U.S. at 10, 92 S.Ct. 1907. The Second Circuit has recognized four circumstances in which arbitral forum selection clauses may be unenforceable due to their unreasonableness:

(1) if their incorporation into the agreement was the result of fraud or overreaching; (2) if the complaining party will for all practical purposes be deprivedof his day in court, due to the grave inconvenience or unfairness of the selected forum; (3) if the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) if the clauses contravene a strong public policy of the forum state.

Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1363 (2d Cir.1993) (citations and internal quotation marks omitted).

Plaintiff seeks to invalidate the Agreement's forum selection clause on each of the four grounds established in Roby.² For the reasons set forth below, the Court finds that Plaintiff has not stated a claim for relief on any grounds and grants Defendants' motion to dismiss Plaintiff's claim for injunctive relief.

1. Fraud and Overreaching

Plaintiff offers two factual allegations in support of its claim that XenoOne Korea obtained the forum selection clause through fraud and overreaching. First, Plaintiff alleges that it was “forced” to accept inclusion of the clause “[g]iven the scope and breadth of the work to be performed by [Plaintiff] pursuant to the Agreement, as well as the fact that the Agreement was a significant injection of funding into Plaintiff.” (Am. Compl. ¶ 18.) Second, it alleges that it “could not possibly receive a fair, reasonable, and impartial arbitral hearing” in Seoul because personnel from Samsung Group, a Korean electronics corporation headquartered there, are board members and/or part owners in XenoOne Korea, and Samsung Group exercises “disproportionate and unfair influence” in Seoul. ( Id. ¶¶ 30–32.)

Plaintiff's allegations are insufficient to plead either fraud or overreaching. Rule 9(b) of the Federal Rules of Civil Procedure establishes heightened pleading requirements for allegations of fraud. A party alleging fraud must “state with particularity the circumstances constituting fraud.”...