National Union Fire Ins. Co. v. Frasch
Citation | 751 F. Supp. 1075 |
Decision Date | 23 January 1990 |
Docket Number | No. 89 Civ. 2210 (LLS).,89 Civ. 2210 (LLS). |
Parties | NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff, v. Dwayne A. FRASCH and Bobbie Frasch, Defendants. |
Court | U.S. District Court — Southern District of New York |
Richard Russell, D'Amato & Lynch, New York City, for plaintiff.
Dwayne A. Frasch and Bobbie Frasch, pro se.
National Union Fire Insurance Company of Pittsburgh ("National Union"), an issuer of financial guarantee bonds, sues to enforce an indemnity agreement between itself and limited partners in a tax shelter limited partnership, and to enforce its rights as subrogee on the limited partners' promissory notes which it honored on their behalf. National Union issued a bond which guaranteed, to the limited partnership and to the bank which financed the limited partnership, that the limited partners would make all of their capital contributions represented by the promissory notes. When the limited partners stopped making their required contributions, National Union made them on their behalf. Now it seeks reimbursement, under the indemnity agreement it claims defendants gave them at the time it guaranteed their payments, and as subrogee on the notes on which they defaulted.
The defendant limited partners, Dwayne and Bobbie Frasch, move to dismiss for lack of personal jurisdiction under Fed.R. Civ.P. 12(b)(2), improper venue under Fed. R.Civ.P. 12(b)(3), failure to name indispensable parties under Fed.R.Civ.P. 19(b), or to transfer this action to the United States District Court for the District of Colorado under 28 U.S.C. § 1404(a) or § 1406(a). The motion to transfer under section 1404(a) is granted.
National Union, a Pennsylvania corporation, has its principal place of business in New York City and does business in many states. Dwayne and Bobbie Frasch are both residents of Colorado.
The Fraschs allege that Trujillo and Blitstein were National Union's agents.
The promissory notes state that they shall be governed by, and interpreted under, the laws of the State of New York applicable to contracts made and to be performed therein without giving effect to the principles of conflict of laws. The parties hereto consent to the jurisdiction of the courts of the State of New York to resolve any controversy or claim arising out of or relating to this Note. For such purposes, venue shall be in the County of New York, which shall be the place of trial.
National Union issued a financial guarantee bond in favor of Intercontinental Monetary Corporation, and The Connecticut National Bank, as the permitted assignee, guaranteeing payment of the limited partners' notes.1 The Connecticut National Bank assigned the Bond to the Gulf Bank, K.S.C., New York Agency. That bank assigned the Bond to Credit du Nord (the "Bank").
In return, the Fraschs executed an indemnity agreement whereby they agreed to reimburse National Union for any payments made on their behalf. The indemnity agreement contains a permissive forum selection clause which states:
Any action or proceeding of any kind against the Undersigned arising out of or by reason of this Indemnification and Pledge Agreement may be brought in any state or federal court of competent jurisdiction in any County in the State of New York, in addition to any other court in which such action might properly be brought.
The Fraschs failed to make payments on their notes and National Union paid the Bank $11,294.90 on their behalf. National Union commenced this action in the Supreme Court of the State of New York, New York County, to recover the amount it paid the Bank under the terms of the indemnity agreement, and as subrogee of the Bank's rights under their notes. The Fraschs removed the action to this court pursuant to 28 U.S.C. § 1441(a), which permits removal when citizenship of the parties is diverse.
The Fraschs have also commenced an action in Colorado state court against SOPA, the general partner of SOPA, Charterhouse Capital Investment Corp. ("Charterhouse"), the distributor of SOPA, Rothschild Registry International, Inc., and others seeking rescission of their investment and damages. Frasch v. Pro-Financial Securities, Inc. et al., 88-Cv-697 (Larimer County Dist.Ct., filed June 8, 1988). They state that they "are in the process of filing a motion to join National Union as an indispensable party pursuant to Rule 19(a) of the Colorado Rules of Civil Procedure." (Defendants' memo in support of motion to change venue, p. 5).
The Fraschs argue that this court lacks personal jurisdiction over them, and venue is improper here, because they were fraudulently induced into signing the indemnity agreement. They also claim that SOPA, Charterhouse, the Bank, Trujillo, and Blitstein are indispensable parties to this action.
Jurisdiction by consent satisfies constitutional requirements of due process, National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 84 S.Ct. 411, 11 L.Ed.2d 354 (1964), and will be enforced unless it would be unreasonable or unjust to do so. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n. 14, 105 S.Ct. 2174, 2182 n. 14, 85 L.Ed.2d 528 (1985). A clause consenting to a given jurisdiction will be invalidated only if it was the product of fraud or overreaching, or if the agreed forum is so inconvenient as to deprive the litigant of his day in court. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 18, 92 S.Ct. 1907, 1917, 32 L.Ed.2d 513 (1972); Bense v. Interstate Battery System of America, Inc., 683 F.2d 718, 721-22 (2d Cir.1982). Failure to negotiate or explain the terms of an agreement does not constitute such fraud, overreaching or unconscionability as to void such a clause. Richardson Greenshields Securities, Inc. v. Metz, 566 F.Supp. 131, 133 (S.D.N.Y.1983).
The Fraschs claim that the forum selection clause was the product of fraud. They state that Trujillo and Blitstein had them sign the indemnity agreement, and later filled it out on their behalf, without informing them that they were applying for a bond to guarantee their credit. Presumably, Trujillo and Blitstein also did not inform them that the indemnity agreement contained a forum selection clause.
The Fraschs, however, do not allege that they were prevented by National Union, Trujillo or Blitstein from reading the indemnity agreement they signed. Thus, even assuming that Trujillo and Blitstein did not inform them that they were signing an indemnity agreement, they could have discovered the forum selection clause by simply reading the agreement. See National Union v. Hubl, 87 Civ. 8841, slip op. at 6, 1988 WL 108437 (S.D.N.Y. Oct. 4, 1988).
Accordingly, defendants have failed to establish that their consent to jurisdiction in the indemnity agreement was procured by fraud. Thus, their consent is valid and enforceable, and this court has personal jurisdiction over them.
The federal venue statute provides that in a diversity action, venue lies "in the judicial district where all plaintiffs or defendants reside, or in which the claim arose." 28 U.S.C. § 1391(a). Although the Fraschs reside in Colorado and "a corporate plaintiff is for venue purposes a resident only in the state in which it is incorporated," Rosenfeld v. S.F.C. Corp., 702 F.2d 282, 283 (1st Cir.1983) (emphasis in original), "individuals are free to regulate their purely private disputes by means of contractual choice of forum." Red Bull Associates v. Best Western International, Inc., 862 F.2d 963, 967 (2d Cir.1988).
Having consented to jurisdiction in this court, the Fraschs have also consented to venue here. See 15 Wright & Miller 2d, Federal Practice & Procedure, § 3803.1, p. 17 ( ).
Accordingly, venue is proper here.
Since venue is proper here, the Fraschs' motion to transfer is governed by 28 U.S.C. § 1404(a).2 That section provides: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought."
The threshold question is whether the action could have been brought in the transferee forum in the first place. Schutte v. Armco Steel Corp., 431 F.2d 22 (3d Cir.), cert. denied, 401 U.S. 910, 91 S.Ct. 871, 27 L.Ed.2d 808 (1970). The Fraschs are Colorado residents. National Union sues for over $10,000.3 Thus, since citizenship is diverse, there is federal subject matter jurisdiction, 28 U.S.C. § 1332, and venue in the District of Colorado where the Fraschs reside would be proper under 28 U.S.C. § 1393(a).
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