Prows v. Pinpoint Retail Systems, Inc.

• Decision Date: 23 December 1993
• Docket Number: No. 920573,920573
• Parties: Tracy PROWS and Kolob Computer dba Computerland of Ogden, Plaintiffs, v. PINPOINT RETAIL SYSTEMS, INC., a corporation, and Flying J, Inc., a corporation, Defendants and Petitioner, v. The Honorable Timothy R. HANSON, Respondent.
• Court: Utah Supreme Court

Page 809

868 P.2d 809

Tracy PROWS and Kolob Computer dba Computerland of Ogden, Plaintiffs, v. PINPOINT RETAIL SYSTEMS, INC., a corporation, and Flying J, Inc., a corporation, Defendants and Petitioner, v. The Honorable Timothy R. HANSON, Respondent.

No. 920573.

Supreme Court of Utah.

Dec. 23, 1993.

Rehearing Denied Feb. 14, 1994.

Edward M. Garrett, Salt Lake City, for plaintiffs.

John Knapp Baird, Mark J. Morrise, Charlotte K. Wightman, Salt Lake City, for petitioner.

HOWE, Associate Chief Justice:

Defendant Pinpoint Retail Systems, Inc., appeals from the district court's denial of its motion to dismiss for lack of venue. Utah R.Civ.P. 12(b)(3). We granted this appeal from an interlocutory order under Utah Rule of Appellate Procedure 5.

Plaintiff Tracy Prows is principal owner and president of Kolob Computer Corporation, doing business as Computerland of Ogden. ¹ Flying J is a Utah corporation in the business of oil refining and operating truck stops, restaurants, motels, and convenience stores. In early 1987, Flying J expressed to Prows dissatisfaction with its point-of-sale computers. These devices were used at Flying J truck stops to compute sales of fuel, food, and other items and to compile accounting data. Flying J requested Prows' assistance in developing a new point-of-sale computer.

Prows contacted Pinpoint Retail Systems, Inc., a Canadian corporation he had come in contact with at a trade show in Las Vegas. Pinpoint markets and sells its computer products throughout the United States, but its principal place of business is in Ontario, Canada. Throughout 1987 and part of 1988, Prows met with personnel at Flying J and Pinpoint to develop a computer that would meet Flying J's specific needs. He worked without compensation on the project but had agreed with Pinpoint to act as its value added reseller. This meant that Pinpoint would provide the newly developed computers at wholesale price to Prows, who would in turn sell them to Flying J at Pinpoint's recommended retail price. This agreement ensured Prows a reasonable profit for his services. On July 14, 1988, Prows entered into Pinpoint's standard "Value Added Reseller Agreement" (the "VAR" agreement).

After the new point-of-sale computers were developed, Prows and Pinpoint submitted a proposal to Flying J, which agreed to the purchase price and committed to buy a substantial number of the computers. However, prior to entering into a final contract, Richard Peterson of Flying J went to Pinpoint's manufacturing plant to ensure that Pinpoint had the capability of manufacturing the new computers and software. After he returned to Utah, Peterson contacted Prows and told him that "his presence in this purchase and sale agreement would no longer be necessary" because Flying J had decided to buy the computers directly from Pinpoint. Some time later, Flying J purchased at least 200 new point-of-sale computers.

On April 16, 1992, Prows commenced this suit against Pinpoint in third district court, alleging breach of contract and quantum meruit. Pinpoint moved to dismiss for improper venue. Utah R.Civ.P. 12(b)(3). The motion was based on section 13.8 of the VAR agreement, which reads:

13.8 Forum and Venue

This agreement shall be construed and interpreted in accordance with and governed by the laws of the State of New York and the federal laws of the United States applicable therein. The VAR [Prows] consents and agrees that all legal proceedings relating to the subject matter of this Agreement shall be maintained in courts sitting in the Borough of Manhattan, in the City of New York, in the State of New York and the VAR [Prows] consents and agrees that jurisdiction and venue for such proceedings shall lie exclusively with such courts.

Thereafter, Prows filed an amended complaint, adding Flying J as a defendant and alleging several business torts including interference with contract, interference with prospective economic relations, and conspiracy. The district court denied Pinpoint's motion to dismiss for improper venue, and we granted its subsequent petition for interlocutory appeal. ²

In reviewing a motion to dismiss under rule 12(b)(3) of the Utah Rules of Civil Procedure, we view the facts and "construe the complaint in the light most favorable to the plaintiff and indulge all reasonable inferences in his favor." Mounteer v. Utah Power & Light Co., 823 P.2d 1055, 1058 (Utah 1991) (ruling on rule 12(b)(6) motion to dismiss for failure to state a claim). The trial court's decision that venue is proper, despite a forum-selection clause to the contrary, will not be reversed absent an abuse of discretion. Eads v. Woodmen of the World Life Ins., 785 P.2d 328, 330-31 (Okla.Ct.App.1989); Personalized Mktg. Serv., Inc. v. Stotler & Co., 447 N.W.2d 447, 451 (Minn.Ct.App.1989) (holding that court abuses its discretion in enforcing forum-selection clause where clause is "so unreasonable that its enforcement would be ... against both logic and the facts on the record").

Before deciding the principal issue in this case, it is necessary to address two preliminary matters. First, the parties argue at length about whether New York courts would have subject matter jurisdiction over this case and personal jurisdiction over Pinpoint. It is not necessary for us to decide this question. We will simply assume for purposes of this appeal that New York courts would have jurisdiction over the case and the parties.

Second, the parties agreed that their contract would be "interpreted in accordance with and governed by the laws of the State of New York." Pinpoint argues that under New York law, "prelitigation forum-selection clauses" must be enforced and that this rule does not "contravene any strong public policies of the State of Utah." In the absence of such a conflict, the argument continues, this court must apply New York law and enforce the forum-selection provision. We disagree.

The Second Restatement of Conflict of Laws provides:

(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless ...

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties [sic] choice....

Restatement (Second) Conflict of Laws § 187(2)(a) (Supp.1988). On its face, the rule appears to support Pinpoint's position. While New York has no "substantial relationship" to the parties or the transaction, there is a "reasonable basis" for Pinpoint's choosing New York law to govern the VAR agreement--Pinpoint wants to "limit the number of forums in which it may be required to bring or defend an action."

The existence of that "reasonable basis," however, is without effect. The comments to section 187 state that the rule of subsection (2) "applies only when two or more states have an interest in the determination of the particular issue"; it does not apply "when all contacts are located in a single state and when, as a consequence, there is only one interested state." Id. at cmt. d. New York has no interest in the determination of this case. A Utah plaintiff brought this suit against a Utah defendant and a Canadian defendant. The VAR agreement was to be performed in Utah. It was signed in Utah, and the alleged breach and tortious conduct occurred here. All relevant "contacts" occurred in Utah, and as a consequence, Utah is the only state with an interest in the action.

For this reason, we are not bound by New York law in determining the validity of the choice-of-forum provision in section 13.8 of the VAR agreement. Rather, we decide the question under Utah law, which until this time has been virtually silent on the issue. ³

Traditionally, courts held forum-selection clauses invalid on the ground that it violated public policy to "permit such clauses to 'oust' a court other than the chosen court of jurisdiction invested in it by law." Eugene F. Scoles & Peter Hay, Conflict of Laws 353 (1984); see also Francis M. Dougherty, Annotation, Validity of Contractual Provision Limiting Place or Court In Which Action May Be Brought, 31 A.L.R.4th 404, § 3 (1984). However, during the 1950s and 1960s, the ouster theory began to erode as courts sought to "effectuat[e] the intent of the parties on notions akin to the doctrine of forum non conveniens." Scoles & Hay at 353. Still, it was not until the Supreme Court's decision in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), that the "ouster theory" was permanently laid to rest. ⁴ In Bremen, the Supreme Court wrote The argument that [forum-selection] clauses are improper because they tend to "oust" a court of jurisdiction is hardly more than a vestigal [sic] legal fiction. It appears to rest at core on historical judicial resistance to any attempt to reduce the power and business of a particular court and has little place in an era when all courts are overloaded and when businesses once essentially local now operate in world markets. It reflects something of a provincial attitude regarding the fairness of other tribunals.

Id. at 12, 92 S.Ct. at 1914, 32 L.Ed.2d at 521. In short, the Court concluded, "No one seriously contends in this case that the forum-selection clause 'ousted' the District Court of jurisdiction." Id.

The modern view adopted by a majority of courts and which we adopt today is set forth in section 80 of the Second Restatement of Conflict of Laws:

The parties' agreement as to the place of the action will be given effect unless it is unfair or unreasonable.

Restatement (Second) of Conflict of Laws § 80 (Supp.1988). Under this section, a plaintiff who brings an...