Pauly v. Biotronik, GmbH

• Decision Date: 24 May 1990
• Docket Number: Civ. No. 90-100-RE.
• Citation: 738 F. Supp. 1332
• Parties: Guenter PAULY and Jose Pena, Plaintiffs, v. BIOTRONIK, GmbH, a German corporation; Micro Systems Engineering, Inc., an Oregon corporation; and Dr. Max Schaldach, Defendants.
• Court: U.S. District Court — District of Oregon

738 F. Supp. 1332

Guenter PAULY and Jose Pena, Plaintiffs, v. BIOTRONIK, GmbH, a German corporation; Micro Systems Engineering, Inc., an Oregon corporation; and Dr. Max Schaldach, Defendants.

Civ. No. 90-100-RE.

United States District Court, D. Oregon.

May 24, 1990.

H. Paul Montgomery, Acker, Underwood, Norwood & Hiefield, Portland, Or., for plaintiffs.

Sean Donahue, Davis Wright Tremaine, Portland, Or., for defendants.

OPINION

REDDEN, Judge:

BACKGROUND

Plaintiffs Pauly and Pena filed a complaint for breach of contract, fraud and declaratory judgment. The breach of contract claim involves oral and written promises allegedly made by defendants to the effect that if plaintiffs would move to Oregon and start up a company (Micro Systems Engineering—"MSE") to design, develop and fabricate hybrid circuits for pace makers to be sold by MSE to MSE's parent company, defendant Biotronik, plaintiffs would have an ownership interest in MSE; they would be paid a percentage of participation in the sales of MSE; and they would be employed by the corporation for an indefinite period, but for no less than five years and termination would have to be "for cause."

Plaintiffs' fraud claim is against all defendants because defendant Schaldach (principle owner, president and operating officer for Biotronik and MSE) allegedly made these promises to plaintiff with the specific fraudulent intent of inducing plaintiffs to form the company and then, once formed, terminating them.

Plaintiffs' third claim for relief (declaratory judgment) is based on a paragraph in the Employment Agreement whereby plaintiffs allegedly agreed not to compete with MSE for two years following their termination. MSE has allegedly advised plaintiffs it intends to enforce that paragraph.

DISCUSSION

Defendants Schaldach and Biotronik move to dismiss for lack of subject matter jurisdiction. Defendants' motion is based on the October 1988 contract's forum selection and arbitration clause between plaintiffs and Biotronik which establishes jurisdiction over controversies between these parties in the courts of West Berlin and before the International Chamber of Commerce. The issue before the court is whether this clause is enforceable. I find that it is. Defendants state that before plaintiffs' complaint was filed, defendants filed an action for declaratory relief against plaintiffs in West Berlin and in the International Chamber of Commerce in Paris, in compliance with the Agreement's forum selection and arbitration clause. Plaintiffs have appeared before both the West Berlin court and the International Chamber of Commerce.

The clause states:

German law is to be applied to this contract. Place of performance is Berlin (West). Jurisdiction shall be Berlin (West). The parties agree also that controversies in connection with this contract shall be settled by a court of arbitration of the International Chamber of Commerce Paris/France. The proceedings of the court of arbitration shall take place in Bern/Switzerland. German substantive and procedural law is to be applied for the proceedings of the court of arbitration. The decree of the court of arbitration is binding and final.

The Court in M/S Bremen v. Zapata Offshore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), enforced a forum selection clause in an international contract between an American and German corporation. The contract contained a forum selection clause requiring any dispute between the parties to be filed before the London Court of Justice. However, the American company sued the German corporation in the United States. The Court enforced the clause even after finding that the English court could enforce an exculpatory contractual provision an American court would not enforce. The Court held that:

In the light of present day commercial realities and expanding international trade we conclude that the forum selection clause should control absent a strong showing that it should be set aside.

Id. at 15, 92 S.Ct. at 1916.

See also, Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974) (a forum selection and arbitration clause was enforced even though the law of the selected forum was contrary to that of the United States). The contract in Scherk required arbitration before the International Chamber of Commerce in Paris, but plaintiff filed an action in the United States. The Court held:

A contractual provision specifying in advance the forum in which disputes shall be litigated and the law to be applied is, therefore, an almost indispensable and precondition to achievement of the orderliness and predictability essential to any international business transaction. Furthermore, such a provision obviates the danger that a dispute under the agreement might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved. A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages.

Id. at 516-17, 94 S.Ct. at 2455-56.

The strong federal policy in favor of arbitration was recognized in Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). That Court held that even claims arising under the Sherman Act could be arbitrated under a contract requiring arbitration of all disputes in Japan.

I am required to enforce the arbitration clause unless grounds exist for the revocation of the Biotronik Agreement. See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) (agreements to arbitrate controversies arising out of an exiting contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract").

Even if plaintiffs did not read or understand the Biotronik Agreement, the issue of arbitrability under the Agreement is a question to be decided by the court. See AT & T Technologies, Inc. v. Communication Workers of America, 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agree to arbitrate is to be decided by the court, not the arbitrator). The Supreme Court has held that even if plaintiffs were fraudulently induced to sign the Agreement, this claim must be arbitrated. See Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 403, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (a claim of fraud in the inducement of a contract containing an arbitration clause is an issue that must be arbitrated).

Pauly went to Germany to meet with Schaldach and signed the Agreement. Pauly then returned to the U.S. and translated the agreement for Pena. Plaintiffs allege that Pauly did not focus or explain the forum selection clause because he did not understand the purpose or effect of such a clause. Plaintiffs allege that enforcing the forum selection clause would be unfair and unreasonable because there was no bargaining on the clause and it was presented on a "take-it-or-leave-it" basis.

Defendants allege that the negotiations between the parties led to the preparation of a letter of intent written in longhand by Pauly in the German language. Defendants say that the letter of intent was not intended by the parties to be a contract, pointing out that it specifically states that a formal contract, outlining the terms of the Biotronik Agreement, would be prepared. Defendants allege that the forum selection and arbitration clause were negotiated with plaintiffs, and that the parties agreed (in the October 1986 Agreement) that a arbitration clause was desirable because dispute resolution in Europe was expected to be quicker, cheaper and more certain than litigation in the U.S. An affidavit by Scott Shanks (MSE vice president), states that it was Pauly's idea to include an arbitration clause in his October 1986 employment agreement. Shanks states that Pauly "convinced Prof. Dr. Schaldach and I that arbitrations were quicker and cheaper than litigation." Shanks participated with Schaldach in negotiating Pauly's...