Orix Credit Alliance v. Mid-South Materials, 92 Civ. 4972 (RWS).

• Decision Date: 19 March 1993
• Docket Number: No. 92 Civ. 4972 (RWS).,92 Civ. 4972 (RWS).
• Citation: 816 F. Supp. 230
• Parties: ORIX CREDIT ALLIANCE, INC., Plaintiff, v. MID-SOUTH MATERIALS CORPORATION, Pavement Planing, Ltd., C & F Contracting Co. Inc., John B. Pittman and Merrill E. Johnston, Defendants.
• Court: U.S. District Court — Southern District of New York

816 F. Supp. 230

ORIX CREDIT ALLIANCE, INC., Plaintiff, v. MID-SOUTH MATERIALS CORPORATION, Pavement Planing, Ltd., C & F Contracting Co. Inc., John B. Pittman and Merrill E. Johnston, Defendants.

No. 92 Civ. 4972 (RWS).

United States District Court, S.D. New York.

March 19, 1993.

Lewis M. Smoley, Orangeburg, NY, for plaintiff.

Hughes Hubbard & Reed, New York City, for defendants Merrill E. Johnston and John B. Pittman; John G. McCarthy, of counsel.

Phelps Dunbar, by David W. Mockbee, Jackson, MS.

OPINION

SWEET, District Judge.

Defendants John B. Pittman ("Pittman") and Merril E. Johnston ("Johnston") have moved to dismiss the complaint of Orix Credit Alliance, Inc. ("Orix")¹ for lack of subject matter jurisdiction pursuant to Rule 12(b)(2), F.R.Civ.P., or in the alternative, to transfer this action from the Southern District of New York to the Northern District of Mississippi pursuant to 28 U.S.C. § 1404(a). For the reasons given below, this motion is hereby denied.

Prior Proceedings

In 1981 in the state of Mississippi, Pittman and Johnston became incorporators and minority stock holders of C & F Contracting Co., Inc. (C & F) together with W.G. Cook, Jr. ("Cook"), majority stock holder and President of C & F. In 1983, Cook formed another Mississippi construction company, Pavement Planing Ltd. ("PPL"), again enlisting Pittman and Johnston as minority interest holders. In 1984, Cook expanded into the business of running both a gravel pit in northern Mississippi and a washing plant for it, and created Mid-South Materials Corporation (Mid-South), currently a defendant in this action. As with C & F, Cook was President of Mid-South and majority shareholder, and Pittman and Johnston were minority stockholders.

Mid-South was incorporated on July 16, 1984, by Cook, Pittman and Johnston. Part of the financing for Mid-South was secured through four separate notes executed in favor of Orix, which has previously extended credit to C & F. Orix secured its loan with security agreements and personal guaranties, and on September 26, 1984, Pittman and Johnston signed the originals of the Guaranty Agreements (the "Guaranties") at issue in this case. These identical guaranties provide that Pittman and Johnston are personally liable for "the payment of any and all debts of Mid-South of whatever nature ... whether now or hereinafter existing or arising...." (emphasis added). According to the Guaranties, each guarantor would appoint an agent for service of process in New York and would agree to the exercise of jurisdiction of New York courts under a forum-selection clause which states that "the undersigned does hereby agree to the venue and jurisdiction of any court in the State and County of New York regarding any matter arising hereunder." The agreement also states that "this instrument cannot be changed orally, shall be interpreted according to the laws of the State of New York, and shall" survive the death of the Guarantor.

Both Pittman and Johnston allege they neither negotiated nor participated in any of the financing arrangements with Orix which led to the execution of the Guaranties. Pittman and Johnston sold their interests in Mid-South on July 24, 1985, in partial consideration for an indemnification and "hold harmless" agreement from Mid-South and C & F. They sold their stock in C & F and their interests in PPL in 1985, and by letter dated August 19, 1985, Cook wrote Orix requesting that it release them from their continuing guaranties on behalf of C & F. He did not mention Mid-South in the letter, which he now states was due to an oversight (Cook Aff. at 4). Pittman and Johnson also allege that they received the originals of their Guaranties after a telephone conversation with Orix assured them that they had no further liability to Orix under any personal guaranty.

Cook received more credit from Orix for equipment for Mid-South in August, 1987, in exchange for a promissory note of $1.6 million. Orix took a security interest, labeled a mortgage by the parties, in the equipment. The company Mid-South itself executed a Guaranty (the "Cook Guaranty") of all the obligations then existing or thereafter personally incurred by its president, Cook. Cook executed two more Promissory Notes for Mid-South for equipment added to Orix's security agreement: the first for $248,760 (August 29, 1988), and the second for $400,054.78 (April 27, 1989). Cook also guaranteed all of the obligations of PPL to Orix on June 12, 1989, a guaranty which Orix now could enforce directly against Mid-South as a result of the Cook Guaranty. Despite the additional financing, however, business did not go well: Mid-South and PPL filed for protection under Chapter 11 of the United States Bankruptcy Code on November 3, 1989, and subsequently were liquidated under Chapter 7.

Orix repossessed Mid-South's and PPL's equipment and sold all at a public auction on April 26, 1990. After the sale of Mid-South's equipment, Orix sued that company for a deficiency of $1,181.16, plus interest. After the sale of PPL's equipment, however, Orix brought suit in diversity in the Southern District of New York for a deficiency of $255,513.70 plus interest — a sum guarantied by Cook, whose debts were guarantied by Mid-South, whose debts in turn were guarantied by Pittman and Johnston.

As defenses in the underlying action, Pittman and Johnston allege that they were released from their guaranties and that the auction sale price of PPL's equipment was commercially unreasonable. They have moved for dismissal due to lack of subject-matter jurisdiction, or at least a transfer of this action to Mississippi under 28 U.S.C. § 1404(a).

Discussion

The contacts of Orix with this jurisdiction, the choice by the parties of New York law to govern the transaction, and the permissive forum-selection clauses unquestionably give this court both subject-matter jurisdiction and venue. The defendants' motion to transfer for "lack of venue" is really closer to an argument of "forum non conveniens": they essentially allege that the court should transfer this action because Mississippi would be the better forum for a variety of reasons than New York.

Orix responds with two arguments: first, that the forum selection clause is binding; second, that even if it is not, the equally balanced convenience of the parties, the presumption in favor of the forum chosen by the plaintiff, and the public policy of New York all tilt in favor of retaining this action in New York. This Court shall examine each factor in turn.

Forum-Selection Clause

Although defendants Pittman and Johnston allege that the forum selection clauses in the Guaranties does not represent a valid contract between the parties since the defendants neither read nor negotiated them, this argument is without merit. The law in New York, like the law in many jurisdictions, requires parties to read the documents they sign. Leasing Services Corp. v. Graham, 646 F.Supp. 1410, 1415 (S.D.N.Y.1986); British West Indies Guaranty Trust Co. v. Banque Internationale A Luxembourg, 172 A.D.2d 234, 567 N.Y.S.2d 731, 732 (1st Dep't 1991); DiRuocco v. Flamington Beach Hotel & Casino, Inc., 163 A.D.2d 270, 557 N.Y.S.2d 140 (2d Dep't 1990). Absent a showing of bad faith or fraud (neither of which are alleged here), a forum selection clause need not be negotiated to be binding. Carnival Cruise Lines v. Shute, ___ U.S. ___, ___-___, 111 S.Ct. 1522, 1527-28, 113 L.Ed.2d 622 (1991). Defendants' arguments that they should not be held liable under their Guaranties since they neither negotiated nor participated in any of the financing arrangements with Orix which led to the execution of their guaranties is likewise unavailing under Carnival.

The real question is what weight the Court should give to this particular contract allowing for a New York forum for the parties' dispute. It must be noted at the outset that courts in New York have consistently held that forum selection clauses are prima facie valid absent a showing they was signed as a result of fraud or overreaching, that they are unreasonable or unfair, or that enforcing them would contravene a strong public policy of the forum. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513 (1972); General Electric Credit Corp. v. Toups, 644 F.Supp. 11, 13 (S.D.N.Y.1986) (Sweet, D.J.). The Bremen, however, is an admiralty case; and while it may prove "instructive" in resolving the parties' dispute, the factors for deciding transfer as set out in § 1404(a) control a federal court sitting in diversity jurisdiction. Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 28-29, 108 S.Ct. 2239, 2243, 101 L.Ed.2d 22 (1988). A motion to transfer under § 1404(a) is governed by the terms of the statute itself, and a court should consider the preferences of the parties, as embodied in a contractual forum selection clause, only to the extent that the federal statute itself permits. Red Bull Assoc. v. Best Western Int'l., Inc., 862 F.2d 963, 966-67 (2d Cir.1988) (denying effect to mandatory forum-selection clause because of strong public policy of civil rights law).

However, clauses establishing ex ante the forum have the salutary effect of dispelling any confusion about where suit may be brought (Carnival, ___ U.S. at ___, 111 S.Ct. at 1527), and if the venue chosen is proper and both parties expect the clause to be binding, the contract by its terms should be enforced. See Paribas Corp. v. Shelton Ranch Corp., 742 F.Supp. 86, 90 (S.D.N.Y. 1990) (enforcing contract stating that disputes shall be adjudicated in New York courts).

Here the terms are not mandatory, however, and therefore this agreement should be given less weight under § 1404(a) than an agreement phrased in more compelling terms. The language in the Guaranties merely states that Pittman and Johnston agree to the jurisdiction of a court located in the state and county of New York, not such a court shall have...