Jones v. Weibrecht

Decision Date11 April 1990
Docket NumberNos. 932,D,933,s. 932
Citation901 F.2d 17
PartiesNettie Marie JONES, Plaintiff-Appellant, v. Edwin H. WEIBRECHT, Jr., Defendant-Appellee. Edwin H. WEIBRECHT, Jr., Plaintiff-Appellee, v. Nettie Marie JONES, Defendant-Appellant. ockets 89-9079, 89-9081.
CourtU.S. Court of Appeals — Second Circuit

Michael J. Hutter, Albany, N.Y. (Henry Neal Conolly, Thuillez, Ford, Gold & Conolly, of counsel), for plaintiff-appellant.

J. Michael Naughton, Albany, N.Y. (Shanley, Sweeney & Reilly, Albany, N.Y., James M. Brooks, Brooks & Meyer, Lake Placid, N.Y., of counsel), for defendant-appellee.

Before TIMBERS, MESKILL and ALTIMARI, Circuit Judges.

PER CURIAM:

The issue on appeal is, in light of the Supreme Court's decision in Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988), what standard governs the enforceability of contractual forum selection clauses in diversity cases. Appellant Jones appeals from two judgments entered in the United States District Court for the Northern District of New York, Munson, J., dismissing Jones' complaint seeking recision of two agreements between the parties and remanding to state court appellee Weibrecht's action seeking damages for breach of the same agreements. Because we conclude that the district court applied the appropriate standard derived from THE BREMEN v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), we affirm.

BACKGROUND

These actions arise out of a dispute involving two agreements entered into by the parties on August 10, 1983. The two agreements were the product of a series of developments between the parties beginning with the 1977 sale by Jones to Weibrecht of the stock of Culspar, Inc. (Culspar) and followed by the alleged default by Weibrecht and his partner, Henry Gelles, on the promissory note executed as part of the Culspar transaction and the sale by Jones of her interests in Culspar's assets to third parties. The first agreement purports to be a release of Weibrecht by Jones of any liability resulting from the Culspar stock transaction. In the second agreement, Jones purportedly agreed to indemnify Weibrecht from any liability or claim in any action Jones had brought or would bring involving the Culspar sale. Both agreements contain identical forum selection clauses, designating the Supreme Court of New York, Essex County, as the exclusive venue for any action between the parties on the basis of the agreements.

On July 11, 1989, Jones commenced an action in the federal district court in the Northern District of New York against Weibrecht, seeking recision of the two agreements, a declaration that the indemnity agreement was void, and damages. In her complaint, Jones alleges that the agreements lack legally sufficient consideration, that Weibrecht failed to satisfy a condition subsequent and that the indemnity agreement was the product of fraud and compulsion.

Weibrecht then filed an action on July 25, 1989 in the Supreme Court of New York, Essex County, against Jones for breach of the two agreements. Weibrecht's complaint alleges that Jones violated the agreements by failing to pay and by causing him to incur legal fees in Jones' unsuccessful state action against him and Gelles for default on the promissory note. Jones removed Weibrecht's state action to federal court. Subject matter jurisdiction in both cases is premised on diversity of citizenship.

On Weibrecht's motions, the district court dismissed Jones' complaint for improper venue and remanded Weibrecht's action to state court, concluding that the agreements' forum selection clauses, which designated the state court in Essex County as the exclusive venue for litigation, were enforceable.

DISCUSSION

The sole issue on appeal is what standard should govern contractual forum selection clauses in diversity cases. In THE BREMEN v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), the Supreme Court held that a court sitting in admiralty should enforce a contractual forum selection clause unless it is clearly shown that enforcement would be unreasonable and unjust or that the clause was obtained through fraud or overreaching. Id. at 15, 92 S.Ct. at 1916. This rule has been extended in this and other circuits to diversity and other non-admiralty cases. E.g., Karl Koch Erecting Co. v. New York Convention Center Dev. Corp., 838 F.2d 656, 659 (2d Cir.1988) (diversity); Pelleport Investors Inc. v. Budco Quality Theatres Inc., 741 F.2d 273, 279 (9th Cir.1984) (diversity); AVC Nederland B.V. v. Atrium Inv. Partnership, 740 F.2d 148, 156 (2d Cir.1984) (federal securities fraud); Mercury Coal & Coke, Inc. v. Mannesmann Pipe and Steel Corp., 696 F.2d 315, 317-18 (4th Cir.1982) (diversity); Bense v. Interstate Battery Sys. of America, Inc., 683 F.2d 718, 720-21 (2d Cir.1982) (federal antitrust). But see General Engineering Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352, 356-57 (3d Cir.1986) (holding that state law applies to forum selection clauses in diversity cases).

Jones argues that the continued propriety of the Bremen rule in diversity cases had been called into question by the Supreme Court's decision in Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988). As alternatives to the Bremen rule, Jones contends that either a broad discretionary standard under federal law similar to that set forth in Stewart or the standard provided by state law should control the enforceability of forum selection clauses in diversity cases.

In Stewart, the Supreme Court was presented with the question whether state or federal law controlled the resolution of a motion to transfer an action pursuant to 28 U.S.C. Sec. 1404(a) to the venue provided in a contractual forum selection clause. The forum selection clause at issue provided that any action arising out of the parties' agreement would be brought in either state or federal court in Manhattan. 487 U.S. at 24 & n. 1, 108 S.Ct. at 2241 & n. 1. The Court held that federal law governed the disposition of a section 1404(a) motion. Id. at 32, 108 S.Ct. at 2245. Furthermore, it held that the presence of a forum selection clause was but one factor in the district court's consideration of fairness and convenience under section 1404(a). Id....

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