Leasewell, Ltd. v. Jake Shelton Ford, Inc.

• Citation: 423 F. Supp. 1011
• Decision Date: 28 September 1976
• Docket Number: Civ. A. No. 76-0061-H.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: LEASEWELL, LTD., a corporation, Plaintiff, v. JAKE SHELTON FORD, INC., a corporation, Defendant.

423 F. Supp. 1011

LEASEWELL, LTD., a corporation, Plaintiff, v. JAKE SHELTON FORD, INC., a corporation, Defendant.

Civ. A. No. 76-0061-H.

United States District Court, S. D. West Virginia.

September 28, 1976.

William D. Levine, Huntington, W. Va., for plaintiff.

Menis E. Ketchum, Huntington, W. Va., for defendant.

MEMORANDUM ORDER

HADEN, District Judge.

The Plaintiff, Leasewell, Ltd., a corporation with its principal place of business in New York, entered into a contract with the Defendant, Jake Shelton Ford, Inc., a corporation with its principal place of business in West Virginia, under which the Plaintiff agreed to lease to the Defendant certain items of automotive repair equipment. It is undisputed that the lease was executed and was to be performed in West Virginia. The lease contained the following provision:

"22. STIPULATION THAT AGREEMENT IS A LEASE UNDER NEW YORK LAW; VENUE OF LITIGATION; SERVICE OF PROCESS: It is hereby stipulated by and between the lessor and lessee that this agreement shall be deemed to be a lease. It is further stipulated that said lease was made in New York County, New York, regardless of the order in which the signatures of the parties shall be affixed hereto, and said lease shall be interpreted and the rights and liabilities of the parties here determined in accordance with the laws of the State of New York. As part of the consideration for the lessor's executing this lease, lessee hereby agrees that all actions or proceedings arising directly or indirectly from this lease shall be litigated only in courts located within the State of New York, and lessee hereby consents to the jurisdiction of any court located within the State of New York, and waives the personal service of any and all process upon the lessee herein, and consents that all such service of process may be made by certified or registered mail, return receipt requested, directed to the lessee at the addresses hereinabove stated; and service so made shall be complete five (5) days after the same have been posted as aforesaid."

Defendant received the equipment and made a number of payments. However, in April, 1975, Defendant ceased all payments. Subsequently, Plaintiff instituted suit in New York, sending notice by mail in accordance with the contract, which notice was duly received by the Defendant. The Defendant made no appearance in the New York action, and, accordingly, a default judgment was entered in the amount of $10,127.41. Plaintiff has sued in this Court under diversity jurisdiction, 28 U.S.C. § 1332, to enforce that judgment and has subsequently moved for summary judgment under Rule 56, Federal Rules of Civil Procedure.

Article IV, Section 1 of the United States Constitution requires this Court to extend full faith and credit to the judgment of the court of any state if that court had jurisdiction and if the judgment was not procured by fraud. Milliken v. Meyer, 311 U.S. 457, 61 S.Ct. 339, 85 L.Ed. 278 (1940). Jurisdiction over the person of the Defendant in New York was acquired, if at all, through the provision of paragraph 22 of the contract. Were it not for that contract provision, New York would lack both jurisdiction and venue. The only issue in this proceeding, therefore, is whether or not the contract provision providing for the acquisition of jurisdiction was valid.

The validity of the jurisdiction-giving clause in the contract is open to collateral attack. Axelrod v. Premier Photo Service, Inc., 154 W.Va. 137, 173 S.E.2d 383 (1970). Cf. Williams v. North Carolina, 325 U.S. 226, 65 S.Ct. 1092, 89 L.Ed. 1577 (1945). Plaintiff contends that the Defendant had to voice this defense at the New York proceeding. Had the Defendant appeared in the New York proceeding undoubtedly this would have been true. Durfee v. Duke, 375 U.S. 106, 84 S.Ct. 242, 11 L.Ed.2d 186 (1963).

In Baldwin v. Traveling Men's Ass'n, 283 U.S. 522, 51 S.Ct. 517, 75 L.Ed. 1244 (1931), the United States Supreme Court held that if a foreign corporation makes a special appearance to contest in personam jurisdiction, it is bound by the jurisdictional determination of that court. Nevertheless, that Court added:

"It the foreign corporation had the election not to appear at all. If, in the absence of appearance, the court had proceeded to judgment and the present suit had been brought thereon, respondent could have raised and tried out the issue in the present action, because it would never have had its day in court with respect to jurisdiction." 283 U.S. at 525, 51 S.Ct. at 518.

It is clear that it is within the jurisdiction of this Court to construe the validity of the contract clause.¹

In choosing which law to apply to this clause, it is obvious that the contract should be tested under whichever law is applicable had the questioned provision not been in the contract. See Goff v. AAMCO Transmissions, Inc., 313 F.Supp. 667 (D.Md. 1970). To do otherwise would be to permit the clause to "pull itself up by its own bootstraps." In deciding an issue of conflicts of laws, a federal district court must apply the conflicts rules of the state in which it sits. Klaxon Co. v. Stentor Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). West Virginia conflicts rules require that West Virginia law be applied to the contract since both the place of performance and the place of execution of the contract are in West Virginia. Michigan National Bank v. Mattingly, 212 S.E.2d 754 (W.Va.1975).

Clearly, a provision which merely chooses the applicable law to be applied to the contract is itself not contra to public policy. See W.Va.Code, 1931, 46-1-105(1), as amended. To further restrict the jurisdiction and venue of the action, however, is another matter. In 1898, the West Virginia Supreme Court of Appeals held a clause in a stock certificate, which required any suit brought by a stockholder against the company to be brought in New York, void in that the jurisdiction of West Virginia courts could not be taken away by consent. Savage v. Peoples Building, Loan, and Savings Ass'n, 45 W.Va. 275, 31 S.E. 991 (1898). While never expressly overruled, the holding of this case has been eroded, significantly, over the years. In 1970, the West Virginia Supreme Court reviewed a contract which required any controversy arising thereunder to be submitted to arbitration in New York. The Court held that the arbitration award subsequently confirmed by the Supreme Court of New York was entitled to full faith and credit. Although this case is distinguishable in that the defendants had appeared in New York and participated in the arbitration proceedings, this case demonstrates that West Virginia no longer blindly follows the Savage rule. Axelrod v. Premier Photo Service, Inc., 154 W.Va. 137, 173 S.E.2d 383 (1970).

In a recent case, Board of Education v. W. Harley Miller, Inc., 221 S.E.2d 882 (W.Va.1975), the Court held that provisions in contracts providing submission to arbitration made arbitration a condition precedent to suit in the West Virginia courts. In that decision the Court notes that "the rationale supporting the common-law rule, i. e. to prevent parties by agreements from ousting courts of jurisdiction, is frankly archaic." 221 S.E.2d at 885.

The United States Supreme Court has also commented on rules such as that of the Savage case, stating that

"the argument that such clauses choice of forum clauses are improper because they tend to `oust' a court of jurisdiction is hardly more than a vestigial legal fiction. It appears to rest at core on historic judicial resistance to any attempt to reduce the power and business of a particular court and has little place in an era when all courts are overloaded and when businesses once essentially local now operate in world markets." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12, 92 S.Ct. 1907, 1914, 32 L.Ed.2d 513 (1972).

The above cases amply illustrate that West Virginia, following the modern view, does not subscribe to the rule that "forum selection" clauses are per se void as violative of public policy. These cases do not, however, demonstrate that such clauses are enforceable in all instances. Rather the rule of most jurisdictions and the rule that this Court believes that West Virginia should and would adopt is that such clauses will be enforced only when found to be reasonable and just. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972); Furbee v. Vantage Press, Inc., 150 U.S.App.D.C. 326, 464 F.2d 835 (1972); Matthiessen v. National Trailer Convoy, Inc., 294 F.Supp. 1132 (D.Minn. 1968).²

In determining whether such a provision is reasonable and just in a given situation, various factors have been considered. These include:

(1) The law which governs the formation and construction of the contract;³

(2) The residence of the parties;⁴

(3) The place of execution and/or performance of the contract;⁵

(4) The location of the parties and witnesses probably involved in the litigation;⁶

(5) The inconvenience to the parties;⁷ and (6) Whether the provision was equally bargained for.⁸

Applying these factors to the instant case, this Court finds:

(1) That the formation and construction of the contract, in the absence of the paragraph in controversy, would be governed by the West Virginia law;

(2) That the Plaintiff is a resident of New York; the Defendant of West Virginia;

(3) That the contract was executed and performed in West Virginia until the alleged breach;

(4) That nearly all, if not all, the witnesses probably involved in the litigation are located in West Virginia;

(5) That to require the Defendant to take all witnesses to New York would cause it great inconvenience;

(6) That the provision was not the result of equal bargaining positions.⁹

As the New York District Court stated in Gaskin v. Stumm Handel GmbH, 390 F.Supp. 361 (S.D.N.Y.1975), "In this context, the question is not whether the agreement is, as a matter of law, vitiated by the lack of equality, but...