Kubis & Perszyk Associates, Inc. v. Sun Microsystems, Inc.

• Decision Date: 23 July 1996
• Citation: 146 N.J. 176,680 A.2d 618
• Parties: , 65 USLW 2076 KUBIS & PERSZYK ASSOCIATES, INC., d/b/a Entre Computer, Plaintiff-Appellant, v. SUN MICROSYSTEMS, INC., Sun Microsystems Computer Corporation, Karl E. Holzthum, Elliot Mayo, and Robert B. Klopman, Defendants-Respondents.
• Court: New Jersey Supreme Court

Page 176

146 N.J. 176

680 A.2d 618, 65 USLW 2076

KUBIS & PERSZYK ASSOCIATES, INC., d/b/a Entre Computer, Plaintiff-Appellant, v. SUN MICROSYSTEMS, INC., Sun Microsystems Computer

Corporation, Karl E. Holzthum, Elliot Mayo, and

Robert B. Klopman, Defendants-Respondents.

Supreme Court of New Jersey.

Argued Feb. 26, 1996.

Decided July 23, 1996.

Douglas S. Eakeley, Roseland, for appellant (Lowenstein, Sandler, Kohl, Fisher & Boylan, attorneys; Mr. Eakeley and Maureen A. Ruane, on the briefs).

Andrew T. Berry, Newark, for respondents (McCarter & English, attorneys; Mr. Berry and Teresa L. Moore, on the brief).

The opinion of the Court was delivered by

STEIN, J.

In Instructional Systems, Inc. v. Computer Curriculum Corp., 130 N.J. 324, 614 A.2d 124 (1992), we declined to enforce a provision in a franchise agreement subject to the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 to -15 (Franchise Act), mandating that the agreement and the relationships of the signatory parties be governed by California law. We determined that application of California law to the franchise agreement in issue "would be contrary to a fundamental policy of [New Jersey] which has a materially greater interest than [California] in the determination of the particular issue and which * * * would be the state of the applicable law in the absence of an effective choice of law by the parties." Id. at 342, 614 A.2d 124 (quoting Restatement (Second) of Conflict of Laws § 187(2)(b) (1969)).

The franchise agreement involved in this appeal also provides that it shall be governed by California law, and in the same sub-paragraph requires that any suit related to the agreement "be brought exclusively in the United States District Court for Northern California or the California Superior Court for the County of Santa Clara." When the franchisor terminated the agreement in October 1993, the franchisee instituted suit in the Law Division of the Superior Court of New Jersey, and that court dismissed the action on the franchisor's motion, holding that the forum-selection clause was enforceable. In an unreported opinion, the Appellate Division affirmed the dismissal on the condition that the California court apply New Jersey law if it concluded that the agreement between the parties constituted a franchise subject to the Act, and temporarily enjoined termination of the agreement until an application for injunctive relief could be filed with and adjudicated by the designated California court.

We granted plaintiff's petition for certification, 142 N.J. 571, 667 A.2d 189 (1995), to consider the enforceability of forum-selection clauses in franchise agreements subject to the Act. We reverse.

I

Plaintiff, Kubis & Perszyk Associates, Inc., doing business as Entre Computer (Entre), was a New Jersey corporation founded in 1983 by its sole owners, Robert Kubis and Benedict Perszyk. From 1983 to mid-1990, Entre was a franchisee of Entre Computer Centers, Inc., engaging in the sale of personal computers manufactured by IBM, Compaq, and other producers.

Defendant Sun Microsystems, Inc. is a California corporation engaged in the distribution of computing technologies, products, and services. Its subsidiary, defendant Sun Microsystems Computer Corp. (Sun Computer), is primarily responsible for marketing the computer-hardware segment of Sun Microsystems' business, including workstations, servers, central processing units, and operating systems. Sun Computer sells its products through a direct sales force as well as through indirect resellers. Allegedly, Sun Microsystems and Sun Computer (collectively "Sun") command a large share of the growing market for computer workstations and servers. Sun maintains three New Jersey offices.

Sun solicited Entre in 1990 to serve as a reseller of Sun products. Entre elected to become a Sun distributor, committing itself to de-emphasizing the sale of personal computers to concentrate on marketing Sun's more sophisticated workstations and operating systems. Sun and Entre entered into a Value Added Dealer Agreement as of December 21, 1990. That agreement was superseded as of April 9, 1993, by a new Indirect Value Added Reseller Agreement (IVAR Agreement). Pursuant to the IVAR Agreement, Entre was obligated to use its best efforts to promote the sale of Sun products and to market those products in accordance with a Sun-approved business plan. Entre agreed to maintain a prescribed inventory of Sun demonstration products at its sales office, and to employ a Sun-trained sales representative and systems engineer. Entre was also authorized to distribute and sub-license Sun software for use on Sun Central Processing Units sold to Entre customers, and to use the Sun Value Added Reseller logo and Sun trademarks in its advertising and marketing materials. Entre alleges that its sales of Sun products totaled $4,866,490.23 in 1991, constituting 86.3% of Entre's total sales, and $4,052,479.07 in 1992, comprising 85.7% of Entre's sales.

The IVAR Agreement described the contracting parties as independent contractors, stating expressly that no other relationship was contemplated: "The parties are independent contractors under this Agreement and no other relationship is intended, including a partnership, franchise, joint venture, agency, employer/employee, or master/servant relationship."

The critical provision of the IVAR Agreement is subparagraph 17A, entitled Dispute Resolution, which provides:

Any action related to this Agreement will be governed by California law, excluding choice of law rules, and will be brought exclusively in the United States District Court for Northern California or the California Superior Court of the County of Santa Clara. The parties hereby submit to the personal jurisdiction and venue of such courts.

Sun states that Entre's principals did not object to the forum-selection clause before signing the IVAR Agreement and asserts that the clause was negotiable. Entre characterizes the forum-selection clause as a "boilerplate" provision in Sun's standard contract, and Entre's principals assert that they did not believe that the clause was negotiable.

Entre alleges that Sun's decision to terminate their relationship was precipitated by the individual defendants who were employed by Sun as part of its direct sales force in New Jersey. Entre contends that those defendants interfered with a large Entre sale of Sun products to AT & T, disparaged Entre's abilities and services to potential customers, and refused to provide information and assistance contemplated by the IVAR Agreement. According to Entre, those defendants allegedly induced Sun to terminate the IVAR Agreement by letter of October 1, 1993, effective as of December 31, 1993. Entre asserts that the termination was without good cause.

Entre instituted this action against Sun and the individual defendants in December 1993, alleging in part that the termination of the IVAR Agreement violated the Franchise Act and that the defendants tortiously interfered with Entre's business relationships. Entre sought to enjoin termination of its contract, and also sought damages and counsel fees. Sun moved for dismissal of the complaint on the basis of the forum-selection clause. Without addressing whether the underlying contract was subject to the Franchise Act, the Law Division dismissed the complaint, concluding that the forum-selection clause was enforceable. Prior to resolving Entre's appeal, the Appellate Division stayed the order of dismissal and temporarily enjoined Sun from terminating the agreement and from instituting an action against Entre in California.

Before the Appellate Division, Sun contended that its relationship with Entre did not constitute a franchise. However, Sun conceded that if its agreement were determined to create a franchise, the choice-of-law provision would not be enforceable and the rights of the parties would be governed by the Franchise Act. The Appellate Division also took note of Sun's concession that, if the forum-selection clause were to be sustained, dismissal of the New Jersey action could be conditioned on the California court's application of the Franchise Act to the parties' relationship, with the result that the agreement's choice-of-law provision would apply only if the California court determined that no franchise had been created.

The Appellate Division concluded that the forum-selection clause should be enforced, observing that "we should trust the courts of California to be as protective of the rights of the New Jersey litigant under New Jersey law as it would hope another state would protect a California resident under California law, if the case were referred elsewhere." The court stated:

We do not see our enforcement of these clauses as committing our residents to the "tender mercies" of provincial judges. Rather, we are merely permitting the decision to be made by a jurist of a sister state who will fairly and impartially adjudicate the dispute between the parties in accordance with the governing law, which in this case might happen to be the law of New Jersey.

The Appellate Division's affirmance of the dismissal order was conditioned on the California court's applying New Jersey law to ascertain whether a franchise existed and, if so, the rights of the parties, and the court continued its temporary injunction in effect until an application for similar relief could be presented to a California court.

II

A. New Jersey Franchise Practices Act

Primarily, we note our agreement with the assumption implicit in the Appellate Division's decision that the enforceability of the forum-selection clause should be determined prior to final resolution of the question whether Sun's agreement with Entre constitutes a franchise subject to the Franchise Act. In our view, the latter issue should be resolved on remand by the Law Division on the basis of an adequate record, informed by the analysis of the definitional components...