O'Neill Farms, Inc. v. Reinert

• Decision Date: 10 March 2010
• Docket Number: No. 25302.,25302.
• Citation: 780 N.W.2d 55,2010 SD 25
• Parties: O'NEILL FARMS, INC., Plaintiff and Appellant, v. Todd REINERT d/b/a Rockin' R Farms, Defendant and Appellee.
• Court: South Dakota Supreme Court

780 N.W.2d 55

2010 SD 25

O'NEILL FARMS, INC., Plaintiff and Appellant, v. Todd REINERT d/b/a Rockin' R Farms, Defendant and Appellee.

No. 25302.

Supreme Court of South Dakota.

Considered on Briefs January 11, 2010.

Decided March 10, 2010.

Stanley E. Whiting, Winner, South Dakota, Attorney for plaintiff and appellant.

J.M. Grossenburg, Hill City, South Dakota, Attorney for defendant and appellee.

SEVERSON, Justice.

¶ 1. Tony O'Neill, a South Dakota resident and vice president of O'Neill Farms, Inc. (O'Neill Farms), commenced this breach of contract action against Todd Reinert in Todd County, South Dakota. The suit was based on disputes arising from a written agreement under which O'Neill Farms, a South Dakota corporation, leased to Reinert a 2007 John Deere combine. Reinert contacted O'Neill in response to a "combine for lease" advertisement and, after negotiations, signed a lease agreement that included a forum-selection clause. The clause stated: "if any legal action is taken it will be in Todd Co. SD." Despite this clause, Reinert, a resident of Texas, filed a motion to dismiss for lack of personal jurisdiction. The circuit court granted this motion and dismissed O'Neill Farms' action. The circuit court concluded: (1) the forum-selection clause was unreasonable, and therefore, unenforceable; and, (2) because the forum-selection clause was unreasonable, imposing personal jurisdiction on Reinert would violate due process. O'Neill Farms appeals.

FACTS AND BACKGROUND

¶ 2. O'Neill Farms is a South Dakota corporation that farms in Bennett County and Todd County, South Dakota, and also leases farm equipment to farmers and commercial harvesters. Tony O'Neill is the vice president and registered agent of the corporation. The farming operation is near the Nebraska/South Dakota border, and the mailing address of O'Neill Farms and Tony O'Neill is HC 77 Box 33A, Cody, Nebraska, 69211. As part of O'Neill Farms' combine rental business, it places advertisements in the High Plains Journal, a farm magazine published in Dodge City, Kansas. Todd Reinert, who had previously leased from O'Neill, read an advertisement in the Journal and contacted O'Neill at the South Dakota phone number listed.

¶ 3. Without assistance of counsel, O'Neill drafted a two-page combine lease. The lease was written on O'Neill Cattle Company, Inc. letterhead. O'Neill Cattle Company is also a South Dakota company, but is a separate corporation from O'Neill Farms. The letterhead for O'Neill Cattle Company included the Cody, Nebraska, address and the same South Dakota phone number as the advertisement. The letterhead also included a fax number with the South Dakota area code. Neither party challenges the existence or validity of the lease between O'Neill Farms and Reinert. The lease also included a forum-selection clause. The parties conceded that they have transacted business before and that the prior lease was similar. It is undisputed that the parties conducted conversations over the phone with Reinert initiating at least two of the conversations. As a result of these negotiations, at least one term of the lease was amended.

¶ 4. On August 10, 2007, O'Neill signed the lease and sent it to Reinert. On August 19, O'Neill shipped the combine from South Dakota to Ness City, Kansas, where it remained until Reinert signed the lease and paid the rent. Reinert signed the lease in Texas on September 15, 2007. Once O'Neill received payment, the combine was shipped from Ness City, Kansas, to Dumas, Texas. Various problems arose with the combine, and disputes developed regarding each party's responsibilities under the lease. Ultimately, O'Neill sent a truck to transport the combine back to South Dakota. O'Neill Farms subsequently served a summons and complaint on Reinert in Texas for breach of the lease claiming non-payment of numerous obligations. Reinert responded with an answer and counterclaim also alleging breach of contract.

¶ 5. On December 9, 2008, Reinert filed a SDCL 15-6-12(b)(2) motion to dismiss for lack of personal jurisdiction and submitted an affidavit in support. The circuit court conducted a review of the record and issued a memorandum decision on May 15, 2009, granting Reinert's motion. The circuit court concluded that the forum-selection clause was unreasonable, and therefore, unenforceable. Based upon its decision that the forum-selection clause was unreasonable, the circuit court also decided that "to impose personal jurisdiction on Defendant would necessarily deprive Defendant of fair play and substantial justice" and would "run afoul" of Reinert's due process guarantee under the Fourteenth Amendment. O'Neill Farms appeals the circuit court's ruling. We reverse.

ISSUES

¶ 6. We restate the issues:

1. Whether the circuit court erred in concluding Reinert made a strong showing that the forum-selection clause was unreasonable under the circumstances.

2. Whether the circuit court erred in concluding that imposing in personam jurisdiction on Reinert would deprive him of fair play and substantial justice.

STANDARD OF REVIEW

¶ 7. "`We review issues regarding a court's jurisdiction as questions of law under the de novo standard of review.'" Daktronics, Inc. v. LBW Tech Co. Inc., 2007 SD 80, ¶ 2, 737 N.W.2d 413, 416 (quoting Grajczyk v. Tasca, 2006 SD 55, ¶ 8, 717 N.W.2d 624, 627). In Guthmiller v. Deloitte & Touche, LLP, we discussed the proper standard of review for a motion to dismiss under SDCL 15-6-12(b):

A motion to dismiss under SDCL 15-6-12(b) tests the legal sufficiency of the pleading, not the facts which support it. For purposes of the pleading, the court must treat as true all facts properly pled in the complaint and resolve all doubts in favor of the pleader. "Our standard of review of a trial court's grant or denial of a motion to dismiss is the same as our review of a motion for summary judgment-is the pleader entitled to judgment as a matter of law?" Thus, all reasonable inferences of fact must be drawn in favor of the non-moving party and we give no deference to the trial court's conclusions of law.

2005 SD 77, ¶ 4, 699 N.W.2d 493, 496 (quoting Vitek v. Bon Homme County Bd. of Com'rs, 2002 SD 100, ¶ 7, 650 N.W.2d 513, 516).

ANALYSIS AND DECISION

¶ 8. 1. Whether the circuit court erred in concluding Reinert made a strong showing that the forum-selection clause was unreasonable.

¶ 9. Our prior case law makes clear that parties "may contractually specify and consent to a state's jurisdiction over legal actions which arise under a contract." Baldwin v. Heinold Commodities, Inc., 363 N.W.2d 191, 194 (S.D.1985) (citing Nat'l Equip. Rental v. Szukhent, 375 U.S. 311, 84 S.Ct. 411, 11 L.Ed.2d 354 (1964)); see Green v. Clinic Masters, Inc., 272 N.W.2d 813, 815 (S.D.1978) (holding forum-selection clauses are enforceable unless unreasonable); see also Burger King v. Rudzewicz, 471 U.S. 462, 473 n. 14, 105 S.Ct. 2174, 2182 n. 14, 85 L.Ed.2d 528 (1985) ("Parties frequently stipulate in advance to submit their controversies for resolution within a particular jurisdiction. Where such forum-selection provisions have been obtained through `freely negotiated' agreements and are not `unreasonable and unjust,' their enforcement does not offend due process.") (internal citations omitted). Furthermore, "forum-selection clauses are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be unreasonable' under the circumstances." Klenz v. AVI Intern., 2002 SD 72, ¶ 36, 647 N.W.2d 734, 741 (Konenkamp, J., concurring in result) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513, 520 (1972)), Additionally, a forum-selection clause should be enforced unless "the clause was invalid for such reasons as fraud or overreaching," or "if enforcement would contravene a strong public policy of the forum in which it is brought." Bremen, 407 U.S. at 15, 92 S.Ct. at 1916. The burden is on the resisting party to make a "strong showing ... that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching." Id. (emphasis added).

¶ 10. The parties do not dispute the presumption of validity of the forum-selection clause. Furthermore, Reinert does not dispute his knowledge of the clause in the agreement, contend he was the victim of fraud or overreaching, or argue that enforcement would violate strong public policy of South Dakota. See Bremen, 407 U.S. at 15-18, 92 S.Ct. at 1916-17. Rather, Reinert relies on the circuit court's balancing of the Baldwin factors and conclusion that because more factors weighed in favor of Texas, enforcement of this clause would be unreasonable. On appeal, O'Neill Farms contends that the circuit court erred in concluding that Reinert made a "strong showing" of unreasonableness and takes issue with the circuit court's analysis and application of the Baldwin factors. Specifically, O'Neill asserts that the circuit court: gave too much weight to the location of witnesses; erroneously concluded Texas law controlled construction of the contract; and, improperly applied the place of execution or performance factor.

¶ 11. Because fraud, overreaching, and contravention of public policy are not at issue in this case, we review this issue to determine whether Reinert rebutted the presumption of enforceability by making a "strong showing" that the forum selected, South Dakota, is "unreasonable," i.e., that trial in the contractual forum will be "so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court." Klenz, 2002 SD 72, ¶ 36, 647 N.W.2d at 741 (Konenkamp, J., concurring in result) (quoting Bremen, 407 U.S. at 18, 92 S.Ct. at 1917). In reviewing the reasonableness of a forum-selection clause, the following factors have been considered:

1. The law which governs the formation and construction of the contract;

2. The residency of the parties;

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