McCloud Const., Inc. v. Home Depot Usa, Inc., 01-C-0058.

Decision Date09 July 2001
Docket NumberNo. 01-C-0058.,01-C-0058.
Citation149 F.Supp.2d 695
CourtU.S. District Court — Eastern District of Wisconsin
PartiesMC CLOUD CONSTRUCTION, INC., Plaintiff, v. HOME DEPOT USA, INC., Defendant.

Thad W Jelinske, Matthew Robert Falk, Domnitz Mawicke & Goisman, Milwaukee, WI, for plaintiff.

Daniel G Nienhuis, von Briesen Purtell & Roper, Milwaukee, WI, for defendant.


ADELMAN, District Judge.


Plaintiff McCloud Construction, Inc. ("McCloud") brings this breach of contract action against defendant Home Depot USA, Inc. ("Home Depot"), alleging that defendant failed to pay the full amount due plaintiff under a contract for constructing a Home Depot store in Wauwatosa, Wisconsin. McCloud filed suit in Milwaukee County Circuit Court, and Home Depot removed the case to federal court pursuant to 28 U.S.C. § 1441(a) based on diversity of citizenship. McCloud is a Wisconsin corporation with its principal place of business in Wisconsin, and Home Depot is incorporated and has its principal place of business in Georgia.

The contract includes the following choice of law and forum selection provision:

To the extent that there is a dispute regarding the terms [of this contract] or relating to the Work performed hereunder, the law of the State of Georgia shall control and any civil action in furtherance thereof shall be brought in either the U.S. District Court for the Northern District of Georgia, Atlanta Division, or the Superior Court of Cobb County, Georgia.

Based on the forum selection clause, Home Depot moves to dismiss for improper venue or alternatively to transfer the case to the Northern District of Georgia. McCloud opposes the motion, arguing that the forum selection clause is invalid because it violates the public policy of Wisconsin as expressed in Wis. Stat. § 779.135, which provides that certain "provisions in contracts for the improvement of land in this state are void," including "[p]rovisions ... requiring that any litigation, arbitration or dispute resolution process on the contract occur in another state." Wis. Stat. Ann. §§ 779.135 & 779.135(2) (West Supp.2000).

A. Appropriate Vehicle to Enforce Forum Selection Clause

The venue of removed actions is governed by 28 U.S.C. § 1441(a), Polizzi v. Cowles Magazines, Inc., 345 U.S. 663, 665, 73 S.Ct. 900, 97 L.Ed. 1331 (1953). Venue is proper here because this is the district embracing the place where the action was pending prior to removal. § 1441(a). Home Depot argues, however, that venue in this district is nevertheless improper because the forum selection clause specifies that actions regarding the contract shall be brought in courts in Georgia.

Federal law does not presently provide for a motion expressly designed for forum selection clause enforcement, and attorneys have had to invoke an assortment of rules and concepts that were not designed with forum selection clauses in mind. Leandra Lederman, Note, Viva Zapata: Toward a Rational System of Forum-Selection Clause Enforcement in Diversity Cases, 66 N.Y.U. L.Rev. 422, 433 (1991); James P. George, Parallel Litigation, 51 Baylor L.Rev. 769, 941 (1999). For example, attorneys have moved to transfer cases under 28 U.S.C. § 1404(a), to dismiss or transfer under § 1406(a), to dismiss under the doctrine of forum non conveniens, to dismiss for improper venue under Fed.R.Civ.P. 12(b)(3), to dismiss for failure to state a claim under Rule 12(b)(6), and under other Federal Rules of Civil Procedure. Lederman, supra, at 434-35. All of these vehicles are ill-designed in one way or another. Lederman, supra, at 445-47.

Home Depot seeks to enforce the present forum selection clause under 28 U.S.C. § 1406(a). This statute permits a case to be transferred or dismissed when venue is laid in the "wrong" district.1 The Seventh Circuit has not addressed whether venue is "wrong" under § 1406(a) merely because laid in a forum other than that specified in a contractual forum selection clause. In Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 28 n. 8, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988), the Supreme Court implied that when there was a statutory basis for venue in the district where suit was filed, a motion to dismiss under § 1406(a) was properly denied. Relying upon Stewart's footnote eight, several courts and commentators have held that venue is "wrong" under § 1406(a) only when there is no statutory basis for venue. See, e.g., Salovaara v. Jackson Nat'l Life Ins. Co., 246 F.3d 289, 298 (3d Cir.2001); Jumara v. State Farm Ins. Co., 55 F.3d 873, 877-79 (3d Cir.1995); BHP Int'l Inv., Inc. v. OnLine Exchange, Inc., 105 F.Supp.2d 493, 496 (E.D.Va.2000); Lederman, supra, at 440-43; Walter W. Heiser, Forum Selection Clauses in Federal Courts: Limitations on Enforcement after Stewart and Carnival Cruise, 45 Fla. L.Rev. 553, 593 n. 197 and cases cited therein, 594-95 (1993); see also 15 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 3803.1 at 10 n. 24.1 and accompanying text (2d ed. Supp.2001) ("the Supreme Court's decision in the Stewart case has made it clear that a forum-selection clause is to be considered on a motion to transfer under 28 U.S.C.A. § 1404(a)") (footnote omitted). Thus, § 1406(a) does not appear to be an appropriate vehicle to enforce a forum selection clause.

This leaves the question of how to consider Home Depot's motion. In Stewart, the Supreme Court approved a party's seeking to enforce a forum selection clause by moving for a discretionary transfer under § 1404(a). However, I will not consider whether such a discretionary transfer would be appropriate here, because Home Depot expressly states in its reply brief that it does not rely upon § 1404(a). Motions to enforce forum selection clauses brought as motions to dismiss for improper venue under Rule 12(b)(3) arguably rest on the same questionable assumption as do motions brought under § 1406(a), namely, that a forum selection clause somehow creates "improper venue" notwithstanding that venue is properly laid under the governing venue statute. Lederman, supra, at 445. However, the Seventh Circuit has approved using Rule 12(b)(3) to enforce a forum selection clause. Frietsch v. Refco, Inc., 56 F.3d 825, 830 (7th Cir.1995). Therefore, I will deem Home Depot's motion to have been brought under Rule 12(b)(3), notwithstanding that Home Depot characterizes the motion as brought under § 1406(a). I note, however, that whether I treat the motion as brought under § 1406(a) or Rule 12(b)(3), the enforceability analysis is very similar.

B. Applicable Law

As previously stated, McCloud argues that the forum selection clause at issue here is unenforceable under the law of the forum state, Wisconsin. The Supreme Court ruled in an admiralty case, The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), that under federal law forum selection clauses are presumed valid unless shown to be unreasonable. McCloud's argument therefore raises the question of whether a forum selection clause's enforceability is determined by federal or state law. The circuits are divided on this question, and the Seventh Circuit has not yet resolved the issue. Northwestern Nat'l Ins. Co. v. Donovan, 916 F.2d 372, 374 (7th Cir.1990).

1. Relevance of Stewart

In Stewart, 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22, the Supreme Court addressed the question in the context of § 1404(a). Stewart involved a breach of contract action brought in Alabama in contravention of a forum selection clause in which the parties agreed that any suits on the contract would be filed in New York. Alabama law disfavored forum selection clauses. The lower court in Stewart held that federal law governed forum selection clauses, applied the Bremen standard, and enforced the clause. The Supreme Court affirmed the lower court's decision but rejected its reasoning. The Supreme Court characterized the issue as a conflict between a federal venue statute and state law. Stewart, 487 U.S. at 30, 108 S.Ct. 2239. Section 1404(a) authorizes a court to transfer venue "for the convenience of parties and witnesses, in the interest of justice."2 The Court held that this language was sufficiently broad to enable a court in determining proper venue under § 1404(a) to consider a number of factors, including both the parties' contractual forum selection clause and any state policy disfavoring forum selection clauses. Id. at 30-31, 108 S.Ct. 2239. Thus, in motions brought under § 1404(a), the enforceability of a contractual forum selection clause is governed by federal law, specifically, the considerations dictated by § 1404(a) itself; these considerations in turn require giving some weight to a state policy disfavoring forum selection clauses, but do not allow such a state policy to be dispositive. Id. at 32, 108 S.Ct. 2239.

Unlike the other statutes and rules utilized to enforce forum selection clauses, § 1404(a) is discretionary and requires the court to consider multiple factors. Because Stewart relies heavily upon the language of § 1404(a), it is likely that its holding that federal law governs applies only to motions made under that statute. Stewart, 487 U.S. at 29, 108 S.Ct. 2239 ("[a] motion to transfer under § 1404(a) thus calls on the district court to weigh in the balance a number of case-specific factors"); see also Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir.1990) (per curiam) (holding that because Stewart decided whether state or federal law governed only in the context of a § 1404(a) motion, its reasoning is not applicable to motions to dismiss or remand case to state court). Thus, Stewart is not helpful in determining whether federal or state law governs the enforceability of the present forum selection clause.

2. Erie v. Tompkins

Determining whether state or federal standards govern the enforceability of a forum selection clause in a diversity action must begin with Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58...

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