Off-Spec Solutions, LLC v. Transp. Investors, LLC
| Decision Date | 19 May 2021 |
| Docket Number | Docket No. 47940 |
| Citation | 168 Idaho 734,487 P.3d 326 |
| Court | Idaho Supreme Court |
| Parties | OFF-SPEC SOLUTIONS, LLC, Claimant-Cross Respondent, and Daniel R. Salvador, and Christopher A. Salvador, Respondents-Cross Claimants-Respondents on Appeal, v. TRANSPORTATION INVESTORS, LLC, The Central Valley Fund Ii, L.P., and The Central Valley Fund III, L.P., Cross Respondents-Appellants on Appeal. |
Andersen & Schwartzman, PLLC, Boise, and Weintraub Tobin Chediak Coleman Grodin Law Corporation, Sacramento, California, for appellants. Nicole C. Hancock argued.
Hawley Troxell Ennis & Hawley, LLP, Boise, for respondents. Dane A. Bollinger argued.
This appeal involves the enforceability of two forum selection clauses governed by California law. The questions presented are: (1) whether a forum selection clause is unenforceable under California law if enforcement would contravene a strong public policy of the forum where suit is brought (in this case, Idaho); and, if yes, then (2) whether the forum selection clauses at issue must be invalidated based on the public policy set forth in Idaho Code section 29-110(1). We hold that California law requires an examination of the public policy of the forum in which suit is brought, and that the forum selection clauses at issue violate the strong public policy of the State of Idaho. We affirm the district court's ruling that claims arising from the parties’ purchase agreement and LLC agreement must be arbitrated in Idaho.
Off-Spec Solutions LLC is a trucking company located in Nampa, Idaho, that was formed by two brothers—Christopher Salvador and Daniel Salvador. The Salvadors sold 51 percent of their ownership interest in Off-Spec Solutions to Transportation Investors LLC. To implement the transaction, the Salvadors and Transportation Investors entered into a purchase agreement and an LLC agreement. The purchase agreement identifies "The Central Valley Fund II" and "The Central Valley Fund III" as affiliates of Transportation Investors. Off-Spec Solutions also entered into separate employment agreements with the Salvadors.
The purchase agreement states that all disputes concerning the agreement shall be governed by California law. More specifically, section 13.14 of the purchase agreement states:
This Agreement is subject to, and shall be construed in accordance with and governed by the laws of the State of California applicable to contracts executed and performed in such State without giving effect to conflicts of laws principles. The state and federal courts of California located in the County of Sacramento, State of California shall have exclusive jurisdiction over any action at law, suit in equity or judicial proceedings relating [sic] the enforcement of this Agreement or any disputes or claims arising out of or in connection with this Agreement, the interpretation, performance, breach, termination or invalidity thereof or of any provision contained herein.
Further, section 13.2(b) of the purchase agreement states: "The law applicable to the arbitration of any dispute shall be the law of the State of California, excluding its conflicts of law rules."
Similarly, section 19.19 of the LLC agreement states that California law shall apply to most legal proceedings:
[T]o the extent that reference need be made to the law of any state to enforce the decision made in any legal proceeding brought pursuant hereto, the internal laws of the State of California (without reference to the rules regarding conflict or choice of laws of such State) shall be utilized for such purpose.
Additionally, section 19.20.2 of the LLC agreement states: "The law applicable to the arbitration of any dispute shall be the law of the State of California, excluding its conflicts of law rules." In contrast, the employment agreements both state that they have been "drawn to be effective in the State of Idaho, and shall be construed in accordance with Idaho law."
The purchase agreement and the LLC agreement both state: "Any arbitration hearing shall be conducted in Sacramento County, California." Similarly, the employment agreements for Christopher and Daniel both state: "The exclusive jurisdiction and venue of any arbitration under this Agreement shall be the County of Sacramento, California."
After disputes arose between the parties, Off-Spec Solutions filed an application with the district court in Canyon County to compel the Salvadors to arbitrate claims relating to the employment agreements in Idaho—as opposed to California. The Salvadors subsequently filed a cross-application with the district court seeking to compel Off-Spec Solutions and Transportation Investors and its affiliates to arbitrate all claims between the parties in a consolidated arbitration in Idaho. While those applications were pending, Transportation Investors and its affiliates filed a petition in the California Superior Court for the County of Sacramento seeking to compel the Salvadors to arbitrate all claims arising from the purchase agreement and the LLC agreement in Sacramento County. They also filed a motion with the district court seeking to dismiss the Salvadors’ cross-application to compel arbitration in Idaho or, in the alternative, to compel the Salvadors to arbitrate claims concerning the purchase agreement and the LLC agreement in California. Transportation Investors and its affiliates later filed a second motion with the district court seeking to stay the Idaho proceedings pending a ruling by the California court concerning their petition to compel arbitration in California. The Salvadors subsequently filed a similar motion with the California court seeking to stay the California proceedings pending a ruling by the district court in Idaho.
The Idaho district court conducted a hearing in January 2020 to consider Off-Spec Solutions’ application, the Salvadors’ cross-application, the motion to dismiss, and the motion to stay, but it did not immediately issue a ruling. About a month later, the California court stayed the proceedings in California pending a decision by the district court in Idaho. The district court issued its memorandum decision three weeks later and denied the motion to dismiss and the motion to stay filed by Transportation Investors and its affiliates. The district court held that: (1) claims concerning the employment agreements must be arbitrated in Idaho applying Idaho law; and (2) claims pertaining to the purchase agreement and the LLC agreement must be arbitrated in Idaho applying California law. Contending the district court erred when it ruled that claims involving the purchase agreement and the LLC agreement must be arbitrated in Idaho, Transportation Investors and its affiliates timely appealed to this Court.
When a court is tasked with determining whether a choice-of-forum provision in an arbitration clause is enforceable, it involves a question of arbitrability. T3 Enterprises, Inc. v. Safeguard Bus. Sys., Inc. , 164 Idaho 738, 748, 435 P.3d 518, 528 (2019) (quoting Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) ). This Court exercises free review over questions of arbitrability. Id. at 745, 435 P.3d at 525 (quoting Wattenbarger v. A.G. Edwards & Sons, Inc. , 150 Idaho 308, 317, 246 P.3d 961, 970 (2010) ).
It is undisputed that California law governs the purchase agreement and the LLC agreement. Thus, we need not address the choice-of-law provisions in the agreements. Rather, this Court is tasked with determining whether a forum selection clause is unenforceable under California law if enforcement would contravene a strong public policy of the forum where suit is brought. See Cerami-Kote, Inc. v. Energywave Corp. , 116 Idaho 56, 58–59, 773 P.2d 1143, 1145–46 (1989) (). If we answer that question in the affirmative, we must then determine if enforcement of the forum selection clauses in the purchase agreement and the LLC agreement would contravene Idaho's public policy as set forth in Idaho Code section 29-110(1).
The district court determined that, under California law, a forum selection clause is unenforceable if the clause would violate the strong public policy of the forum where suit is brought. In reaching its decision, the district court analyzed the seminal case from California concerning forum selection clauses, Smith, Valentino & Smith, Inc. v. Superior Ct. , 17 Cal.3d 491, 131 Cal.Rptr. 374, 551 P.2d 1206 (1976), and its progeny. The district court concluded that "California courts look to the public policy of the forum where the suit is brought to determine whether to enforce forum selection clauses in contracts." Transportation Investors and its affiliates contend the district court erred. They argue that, under California law, forum selection clauses are presumed valid unless enforcement would subvert a party's substantive rights or contravene a strong California public policy. In addition, they contend that California law will not invalidate a forum selection clause merely because the clause contravenes a strong public policy of another state where suit is brought.
California law favors forum selection clauses when parties enter into them voluntarily. Am. Online, Inc. v. Superior Ct. , 90 Cal.App.4th 1, 108 Cal. Rptr. 2d 699, 707 (2001). Consequently, California courts will generally enforce a forum selection clause unless enforcement would be unreasonable or bring about a result contrary to the public policy of the "forum":
Given the significance attached to forum selection clauses, the courts have placed a substantial burden...
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