Pennsylvania House, Inc. v. Barrett

• Decision Date: 15 March 1991
• Docket Number: No. CV-90-1046.,CV-90-1046.
• Citation: 760 F. Supp. 439
• Parties: PENNSYLVANIA HOUSE, INC., a wholly owned subsidiary of Ladd Furniture, Inc., Plaintiff, v. Edward BARRETT, et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

760 F. Supp. 439

PENNSYLVANIA HOUSE, INC., a wholly owned subsidiary of Ladd Furniture, Inc., Plaintiff, v. Edward BARRETT, et al., Defendants.

No. CV-90-1046.

United States District Court, M.D. Pennsylvania.

March 15, 1991.

Paul W. Brann, Brann & Light, P.C., Lewisburg, Pa., for plaintiff.

G. Thomas Miller, Harrisburg, Pa., Edward I. Cutler, Carlton Fields Ward Emmanual, Smith & Cutler, P.A., Tampa, Fla., for defendant Laura K. Cruickshank.

MEMORANDUM

McCLURE, District Judge.

I. BACKGROUND

Plaintiff Pennsylvania House, Inc. ("Pennsylvania House") filed this diversity action¹ against defendants Nola Barrett, Edward Barrett and Laura Cruickshank to recover sums owed for furniture which it supplied to a retail furniture store, Heritage House Interiors, Inc., d/b/a Heritage House ("Heritage House"). Heritage House was owned and managed by the Barretts and had its principal place of business in Tampa, Florida.² The furniture was supplied pursuant to a "Gallery Agreement" executed by Pennsylvania House and Heritage House on February 1, 1989.³

All three defendants signed indemnity agreements (and addenda thereto) personally agreeing to indemnify Pennsylvania House against any loss as a consequence of default or failure to pay by Heritage House. Both the indemnity agreement executed by the Barretts and the one executed by Cruickshank contain a forum selection clause which reads:

This Agreement shall be construed under and in accordance with the law of the Commonwealth of Pennsylvania and in the event of default of any of the par- ties, it is agreed that should either party deem it necessary to enforce this Agreement or exercise rights under this Agreement through legal remedies, that venue will lie in Union County, Pennsylvania.

(Plaintiff's complaint, filed June 4, 1990, Exhibit "C". Emphasis supplied.)

The indemnity agreement signed by Cruickshank on September 15, 1988 recites her obligations as follows:

... THE PARTY OF THE FIRST PART IDENTIFIED ABOVE AS CRUICKSHANK HEREBY AGREES TO INDEMNIFY AND SAVE HARMLESS PENNSYLVANIA HOUSE AGAINST ANY ALL LOSS, DAMAGE, COSTS AND EXPENSES WHICH PENNSYLVANIA HOUSE MAY HEREINAFTER SUFFER, INCUR OR BE PUT TO OR PAY BY REASON OF ANY CREDITS OR MONEY OR PROPERTY EXTENDED TO Heritage House Intrs d/b/a Heritage House, AND THE PARTY OF THE FIRST PARY (SIC) HEREBY AGREES TO PAY AND DISCHARGE FORTHWITH ON DEMAND OF PENNSYLVANIA HOUSE, EACH AND EVERY DEBT, OBLIGATION, OR CLAIM WHICH SHALL BE MADE, ASSIGNED, OR APPORTIONED AGAINST PENNSYLVANIA HOUSE BY REASONS OR ACTS OF Heritage House Intrs. d/b/a Heritage House.

....

The PARTY OF THE FIRST PART Cruickshank hereby understands and agrees that Heritage House Intrs. d/b/a Heritage House obligation shall become effective upon the happening of any of the following:

1.1 Upon default in payment of the whole debt hereby secured or any part thereof, as the same shall become due and payable.

.... Paragraphs 1.2 and 1.3 omitted.

The entire debt then secure by this Indemnity Agreement shall at the option of PENNSYLVANIA HOUSE become immediately due and payable and the PARTY OF THE FIRST PART shall henceforth make immediate payment upon demand by PENNSYLVANIA HOUSE.

(Plaintiff's complaint, filed June 4, 1990, Exhibit "C". Emphasis original.) Directly beneath Cruickshank's signature, the indemnity agreement further states: "THIS AGREEMENT SHALL BE IN EFFECT UNTIL THE GALLERY FINANCING DEBT OBLIGATION, INCLUDING INTEREST, HAS BEEN PAID IN FULL." (Plaintiff's complaint, filed June 4, 1990, Exhibit "C". Emphasis original.)

The addendum to the indemnity agreement, also signed by Cruickshank on September 15, 1988, states in relevant part:

... This Indemnity Agreement does constitute my personal guaranty for payment to Pennsylvania House. This guaranty will become effective upon the happening of any of the following:

1. Default of any payment of any obligations by Heritage House Intrs. d/b/a Heritage House to Pennsylvania House.

2. The breach of any contract by Heritage House Intrs. d/b/a Heritage House with Pennsylvania House.

.... Paragraph 3 omitted.

4. Or for any of the terms or conditions as set forth in the Indemnity Agreement.

We/I further understand that Pennsylvania House can require payment in full, from me/us personally and/or attach my/our personal assets in order to satisfy any obligations due Pennsylvania House by Heritage House Intrs. d/b/a Heritage House.

(Plaintiff's complaint, filed June 4, 1990, Exhibit "C".)

Heritage House subsequently defaulted on its payments and filed bankruptcy proceedings. Pennsylvania House then filed this action against all three indemnors to recover an outstanding balance of $426,505.78. The Barretts did not respond to the complaint, and default judgment was entered against them on December 7, 1990.

Before the court are two motions filed by the sole remaining defendant Laura Cruickshank: (1) a Rule 12(b) motion to dismiss plaintiff's complaint against her for lack of personal jurisdiction, lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted; and (2) a motion to quash service of process against her for lack of personal jurisdiction.

II. DISCUSSION

A. Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction

Cruickshank argues that this court lacks personal jurisdiction over her. She states that she is currently a resident of Cincinnati, Ohio and has no contacts with Pennsylvania. She concedes the existence of a forum selection clause in the indemnity agreement designating Union County, Pennsylvania as the jurisdiction where venue lies, but argues that the clause is unenforceable on two grounds: (1) it refers only to venue, not in personam jurisdiction; and (2) ownership of Pennsylvania House was transferred after Cruickshank executed the indemnity agreement on September 15, 1988, and it now brings this action as "Pennsylvania House, a subsidiary of Ladd Furniture, Inc. ("Ladd"), a North Carolina corporation," and not in the capacity in which it executed the indemnity agreement, i.e. Pennsylvania House, a division of Chicago Pacific Corp. ("Chicago Pacific"). Pennsylvania House disputes both contentions and submits an affidavit from Robin Strauser, Credit Manager for Pennsylvania House, which states that the transfer of ownership "made absolutely no difference" in the relationship between Pennsylvania House and gallery dealers, such as Heritage House, and did not "otherwise materially" change the risk which Cruickshank assumed under the terms of the indemnity agreement.

Generally, if a non-resident defendant challenges in personam jurisdiction, the plaintiff bears the burden of proving that the defendant has the requisite minimum contacts⁴ with the forum state. Compagnie des Bauxites de Guinee v. L'Union, 723 F.2d 357, 362 (3d Cir.1983) and McKnight v. Civiletti, 497 F.Supp. 657 (E.D.Pa.1980). "In actions involving forum selection clauses, however, analysis of the contacts with the forum state is inappropriate. Instead, the Court must consider the validity and effect of the forum selection clause in order to determine if there has been consent to in personam jurisdiction." Mutual Fire, Marine and Inland Insurance Company v. Barry, 646 F.Supp. 831, 833 (E.D.Pa.1986) (applying Pennsylvania law). With some exceptions not applicable here,⁵ the Third Circuit considers the interpretation of forum selection clauses to be governed by state law.⁶In re Diaz Contracting, Inc., 817 F.2d 1047, 1050 (3d Cir. 1987) (Higginbotham, J.) and General Engineering Corp. v. Martin Marietta Alumina, 783 F.2d 352, 356-57 (3d Cir.1986).

Generally, in diversity cases, such as the case sub judice, a federal district court must apply the choice of law rules of the forum state to determine which state's choice of law rules apply. Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). However, if the parties have agreed on the law which governs interpretation of the contract, no analysis under the choice of law principles is required. Their agreement is controlling in the absence of fraud or some other circumstance which invalidates it. Snavely's Mill, Inc. v. Officine Roncaglia, S.P.A., 678 F.Supp. 1126, 1129 n. 3 (E.D.Pa.1987) ("The enforceability of the forum selection clause is governed by the law which controls construction of the contract."). No such circumstance has been alleged here, so the parties' agreement that Pennsylvania law will govern⁷ is controlling.

Under Pennsylvania law, forum selection clauses are prima facie enforceable and are negated only if the party challenging enforcement can show that operation of the clause will impose unreasonable restraints or burdens, or that it was not entered into freely. Mutual Fire, supra, 646 F.Supp. at 833 and Central Contracting Co. v. C.E. Youngdahl & Co., 418 Pa. 122, 133, 209 A.2d 810, 816 (1965). Operation of the clause is unreasonable only if litigating the action in the designated forum will seriously impede the objecting party's ability to fully and fairly pursue or defend the cause of action. A showing that the objecting party will have to tolerate some lesser inconvenience or annoyance (e.g. by incurring additional expenses) will not suffice. Something more than "mere inconvenience" must be demonstrated to negate the clause as unreasonable. Mutual Fire, supra, 646 F.Supp. at 833; Central Contracting, supra, 209 A.2d at 816; and Continental Bank v. Brodsky, 225 Pa.Super. 426, 311 A.2d 676 (1973). Cf. Churchill Corp. v. Third Century, Inc., 396 Pa.Super. 314, 578 A.2d 532, 536 (1990), (Pennsylvania Superior Court refused to interpret a "boilerplate" forum selection clause in office equipment lease agreements between Pennsylvania lessees and a Missouri corporation as divesting Pennsylvania courts of jurisdiction over a dispute between the lessees and the lessor, because, inter alia: requiring Pennsylvania lessees to litigate the dispute in the ...