Outek Caribbean Distributors, Inc. v. Echo, Inc., No. CIV.01-1684(HL).

• Decision Date: 30 May 2002
• Docket Number: No. CIV.01-1684(HL).
• Citation: 206 F.Supp.2d 263
• Parties: OUTEK CARIBBEAN DISTRIBUTORS, INC. Plaintiff, v. ECHO, INC., Defendant.
• Court: U.S. District Court — District of Puerto Rico

206 F.Supp.2d 263

OUTEK CARIBBEAN DISTRIBUTORS, INC. Plaintiff, v. ECHO, INC., Defendant.

No. CIV.01-1684(HL).

United States District Court, D. Puerto Rico.

May 30, 2002.

Francisco Radinson-Perez, Eric Perez-Ochoa, O'Neill Fernandez Gilmore & Perez Ochoa, P.S.C., San Juan, for Outek Caribbean Distributors, Inc., plaintiffs.

Richard Schell-Asad, Francisco M. Troncoso-Cortes, Troncoso & Becker, San Juan, Steven L. Katz, Laurence P. Becker, Masuda, Funai, Eifert & Mitchell, Ltd., Chicago, IL, for Echo Incorporated, defendants.

OPINION AND ORDER

LAFFITTE, Chief Judge.

Before the Court is a motion by Defendant Echo, Inc., for change of venue pursuant to 28 U.S.C. § 1404(a). Echo is an Illinois corporation with a product line that includes chainsaws, pruners, hedge clippers, and other yard maintenance power tools. Plaintiff Outek Caribbean Distributors, Inc., is a Puerto Rico corporation. Outek alleges that in July 1998 it entered into an agreement with Echo by which Outek would sell Echo's products in Puerto Rico. Outek further alleges that it promoted Echo's products in Puerto Rico and developed a market for them here. Outek claims that Echo subsequently threatened to terminate the parties' contract, refused to timely ship its products to Outek, and began to use other distributors in Puerto Rico to sell its products. Outek then brought this claim against Echo under Puerto Rico's Law 75¹ seeking monetary and injunctive relief.²

The present dispute revolves around the following clause in the parties' July 1998 agreement:

Jurisdiction and Governing Law. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF ILLINOIS, AND SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THAT STATE. Distributor consents to the jurisdiction of any court of general jurisdiction located within the Counties of Cook or Lake and the State of Illinois with respect to any legal proceedings arising out of this Agreement, and agrees that the mailing to its last known address by registered mail of any process shall constitute lawful and valid service of process in any such proceeding, suit or controversy. Distributor shall bring any legal proceeding arising out of this Agreement only in the federal or state courts located in the Counties of Cook or Lake and the State of Illinois. In the event Distributor institutes any legal proceedings in any other court other than those specified above, it shall assume all of the Company's costs in connection therewith, including, but not limited to, reasonable attorney's fees.

Docket no. 9, exhibit I, at 12. Echo argues that, based upon this clause, this case must be transferred to the United States District Court for the Northern District of Illinois. Outek has opposed this request. For the reasons set forth below, the Court grants Echo's motion.

DISCUSSION

On its surface, the question of a forum-selection clause's enforceability appears to be a straightforward one. If a contract provides that disputes must be resolved in a given forum, then it would seem a facile enough matter to give effect to the clause. The resolution of this apparently simple question, however, is fraught with complications and often requires a court to consider federalism questions, choice of law issues, and the haunting specter of Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The case law on this topic provides little succor: at times it seems that each circuit has crafted its own unique set of rules for enforcing these provisions. To make matters worse, the two leading Supreme Court cases on this area use different standards in determining what weight to give these clauses. Compare Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29-31, 108 S.Ct. 2239, 2244-45, 101 L.Ed.2d 22 (1988) with M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 10-13, 92 S.Ct. 1907, 1913-15, 32 L.Ed.2d 513 (1972).

Given this convoluted scenario, it is not surprising that parties will often be confused as to what standard to apply. Such is the case here. In its brief, Echo relies on one line of cases applying the standard set forth in Stewart, as well as another line of cases applying Bremen. Echo's motion, however, is one for a change of venue pursuant to 28 U.S.C. § 1404(a). The type of motion that a party uses to enforce a forum-selection clause is significant. If the motion is one to dismiss, the criteria in Bremen should be applied; if the motion is one to transfer under section 1404(a), then Stewart will control. Int'l Software Systems, Inc. v. Amplicon, 77 F.3d 112, 114-15 (5th Cir.1996); Jones v. Weibrecht, 901 F.2d 17, 19 (2nd Cir.1990); Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 512-13 (9th Cir.1988); Black & Veatch Constr. v. ABB Power Generation, 123 F.Supp.2d 569, 579-81 (D.Kan.2000); Knudsen v. Elite Trading Group, Inc., 2000 WL 488481, at *4 (D.Or. Mar.17, 2000); Aviles v. Cantieri De Baia-Mericraft S.P.A., 943 F.Supp. 154, 155 n. 1 (D.P.R.1996); Stereo Gema, Inc. v. Magnadyne Corp., 941 F.Supp. 271, 276 n. 10 (D.P.R.1996). Therefore, in the present case the Court will apply the standard set forth in Stewart.

The question of whether to enforce a forum-selection clause and transfer a case is one of federal law. Stewart, 487 U.S. at 32, 108 S.Ct. at 2245. The decision to transfer should be made on a case-by-case basis. In its analysis, a court must balance the convenience of the parties, the convenience of the witnesses, and public interest factors which are generally subsumed under the category "the interest of justice." Id. at 29-31, 108 S.Ct. at 2244; Kerobo v. Southwestern Clean Fuels, Corp., 285 F.3d 531, 537 (6th Cir.2002); Terra Int'l, Inc. v. Mississippi Chem. Corp., 119 F.3d 688, 691 (8th Cir.1997).

While a plaintiff's choice of forum is ordinarily given deference by the courts, this deference is inappropriate when the parties have entered into a contract providing for a different forum. Jumara v. State Farm Ins. Co., 55 F.3d 873, 880 (3rd Cir.1995); In re Ricoh Corp., 870 F.2d 570, 573 (11th Cir.1989); Knudsen, 2000 WL 488481, at *5; Strategic Marketing & Communications v. Kmart, 41 F.Supp.2d 268, 273 (S.D.N.Y.1998); Micro-Assist, Inc. v. Cherry Communications, Inc., 961 F.Supp. 462, 465 (E.D.N.Y.1997). The existence of a forum-selection clause is "a significant factor that figures centrally in the district court's calculus." Stewart, 487 U.S. at 29, 108 S.Ct. at 2244; Royal Bed and Spring Co. v. Famossul Industria, 906 F.2d 45, 51 (1st Cir.1990). Such a clause should be given considerable weight in the balance of factors. Jumara, 55 F.3d at 882; In re Ricoh, 870 F.2d at 573; Black & Veatch, 123 F.Supp.2d at 581 (Deeming as the "most important factor" the forum-selection clause); REO Sales, Inc. v. Prudential Ins. Co., 925 F.Supp. 1491, 1492-93 (D.Colo.1996); see also Stewart, 487 U.S. at 33, 108 S.Ct. at 2246 (A valid forum-selection clause should be "given controlling weight in all but the most exceptional cases.") (Kennedy, J., concurring).

At least two circuits and a majority of district courts that have considered the issue have held that a valid forum-selection clause will shift the burden to the nonmovant to demonstrate why the clause should not be enforced. See Jumara, 55 F.3d at 880; Ricoh, 870 F.2d at 573; Miró González v. Avatar Realty, Inc., 177 F.Supp.2d 101, 104 (D.P.R.2001); CableLa, Inc. v. Williams Communications, Inc., 104 F.Supp.2d 569, 574 (M.D.N.C. 1999); BRM Industries v. Mazak Corp., 42 F.Supp.2d 176, 180 (D.Conn.1999); Strategic Marketing, 41 F.Supp.2d at 273; Micro-Assist, 961 F.Supp. at 465; REO Sales, 925 F.Supp. at 1492-93; Terra Int'l, Inc. v. Mississippi Chemical Corp., 922 F.Supp. 1334, 1370 (N.D.Iowa 1996), aff'd without resolving this issue by 119 F.3d 688 (8th Cir.1997); Huntingdon Eng'g v. Platinum Software Corp., 882 F.Supp. 54, 57 (W.D.N.Y.1995); P and J G Enterprises v. Best Western Int'l, 845 F.Supp. 84, 88 (N.D.N.Y.1994); but see Brock v. Baskin-Robbins USA Co., 113 F.Supp.2d 1078, 1085 (E.D.Tex.2000) (burden is on the party moving to enforce the forum-selection clause); Choice Equipment Sales v. Captain Lee Towing, 43 F.Supp.2d 749, 754 (S.D.Tex.1999) (same); Hoffman v. Minuteman Press Int'l, Inc., 747 F.Supp. 552, 554 (W.D.Mo.1990).³ The First Circuit has held, in the context of a motion to dismiss on forum non conveniens grounds, that the burden is on the non-movant to show why a forum-selection clause should not be enforced. See Royal Bed, 906 F.2d at 49, 52-53. And in the context of a motion to dismiss based on the clause, the First Circuit has stated that the clause is prima facie valid and must be enforced unless the opposing party can show the clause to be unreasonable. See Silva v. Encyclopedia Britannica Inc., 239 F.3d 385, 386 (1st Cir.2001) (quoting Bremen, 407 U.S. at 10, 92 S.Ct. at 1913). Therefore, based upon the jurisprudence both in the First Circuit and in other courts, the Court holds that Outek has the burden to demonstrate why the forum-selection clause should not be enforced.

1. Bargaining power

Outek argues that the clause is not valid because there was unequal bargaining power between the two sides and Echo engaged in overreaching in the contract. In support of this argument, Outek asserts that Echo is a "multi-million dollar manufacturing company with far-flung operations;" that Outek is a small family-owned company with limited resources; that the parties' agreement was a form contract; and that Echo refused to negotiate any of the clauses, including the forum-selection clause.⁴ These arguments misconstrue the law on when unequal bargaining power can invalidate a contract.

Mere inequality of bargaining power between two sides will not be enough to render a contract unenforceable. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33, 111 S.Ct. 1647, 1655, 114 L.Ed.2d 26 (1991); see also Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593-95, 111 S.Ct. 1522, 1527-28, 113 L.Ed.2d 622 (1991) (Find...