Rindal v. Seckler Co. Inc.

• Decision Date: 03 March 1992
• Docket Number: No. CV-90-052-GF.,CV-90-052-GF.
• Citation: 786 F. Supp. 890
• Parties: Dan RINDAL, Plaintiff, v. SECKLER CO. INC., Louis Dreyfus Corporation, S.A., Louis Dreyfus and C.I.E., Frank H. Seckler and James Dardanes, Defendants.
• Court: U.S. District Court — District of Montana

786 F. Supp. 890

Dan RINDAL, Plaintiff, v. SECKLER CO. INC., Louis Dreyfus Corporation, S.A., Louis Dreyfus and C.I.E., Frank H. Seckler and James Dardanes, Defendants.

No. CV-90-052-GF.

United States District Court, D. Montana, Great Falls Division.

March 3, 1992.

Sharon M. Morrison, Morrison Law Offices, Helena, Mont., for plaintiff.

Sherman V. Lohn, Missoula, Mont., Jack W. Berryhill, Berryhill, Benjamin, Cage & North, P.C., Denver, Colo., Kenneth R. Dyrud, Richard F. Gallagher, Church, Harris, Johnson & Williams, Great Falls, Mont., Charles F. Brega, W. Keith Tiptoe, Brega & Winters, Denver, Colo., for defendants.

MEMORANDUM AND ORDER

HATFIELD, Chief Judge.

BACKGROUND

Plaintiff, Dan Rindal, instituted the above-entitled action seeking monetary damages for the defendants' purported breach of contract. Plaintiff's complaint also asserts claims for breach of the covenant of good faith and fair dealing, constructive fraud, fraud and conversion, as well as a claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. Plaintiff invokes the jurisdiction of this court pursuant to 28 U.S.C. § 1332 and 18 U.S.C. § 1964(c).

Defendants Seckler Co. Inc. and Louis Dreyfus Corporation jointly moved the court to dismiss plaintiff's complaint, asserting (1) Montana is not the proper venue for this matter; and (2) plaintiff's RICO claim fails as a matter of law. Defendants Frank H. Seckler and James Dardanes subsequently moved the court to dismiss plaintiff's complaint for, inter alia, lack of personal jurisdiction.

On January 10, 1991, this matter was referred to the United States Magistrate Judge for the District of Montana, the Honorable Robert M. Holter, for findings and recommendation on defendants' motions. On May 16, 1991, the Magistrate Judge filed his report, pursuant to 28 U.S.C. § 636(b)(1)(B) and (C), recommending the court dismiss plaintiff's complaint for improper venue. In accordance with 28 U.S.C. § 636(b)(1), plaintiff timely filed his written objections to the report. Having undertaken a complete review of the file herein, together with the parties' briefs in support of their respective positions, the court, after careful consideration, is prepared to rule.

DISCUSSION

A. Forum Selection Clause

Rindal and defendant Louis Dreyfus Corporation ("Dreyfus") entered a "Range Feeding Agreement", whereby cattle were purchased by Dreyfus and placed under Rindal's care until they were sold. The cattle were kept on Rindal's ranches located in Montana and South Dakota. Rindal's compensation was based upon the weight gained by the cattle. The parties' agreement contained, among other provisions, the following forum selection clause:

7.8 Construction and Interpretation. This agreement shall be governed by the law of the State of Colorado. All issues of law concerning checks or other instruments given for payment under this Agreement, regardless of where presented or deposited, shall be governed by the laws of the State of Colorado. In the event of any action to enforce this agreement, the parties consent and agree to exclusive jurisdiction and venue in the District Court of the City and County of Denver, State of Colorado.

Defendants assert plaintiff's complaint should be dismissed because the proper venue for this action is Colorado, as mandated by the agreement's forum selection clause. In response, plaintiff contends forum selection clauses are void ab initio under Montana law, see Mont.Code Ann. § 28-2-708 (1991)¹, and, therefore, plaintiff's choice of venue is dispositive. In the alternative, plaintiff asserts the clause is contrary to Montana's public policy and should not be enforced. See, State ex rel. Polaris Industries v. District Court, 215 Mont. 110, 695 P.2d 471 (1985).

The issue dispositive of the motion to dismiss, as framed by the parties, suggests a conflict exists between Montana law, which disfavors enforcement of forum selection clauses, and federal common law, which considers such clauses presumptively valid. American Performance, Inc. v. Sanford, 749 F.Supp. 1094, 1095 (M.D.Ala. 1990), citing, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 15, 92 S.Ct. 1907, 1913, 1916, 32 L.Ed.2d 513 (1972). In resolving the conflict, the court is guided by the rationale of Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) and its progeny. Erie mandates that a federal court sitting in diversity apply federal law to procedural issues and the law of the forum state to substantive issues, absent a federal statutory or constitutional directive to the contrary. Salve Regina College v. Russell, ___ U.S. ___, ___, 111 S.Ct. 1217, 1218, 113 L.Ed.2d 190, 195 (1991).

Application of the Erie doctrine to the issue of whether state or federal law should govern the effect and scope of forum selection clauses has resulted in a divergence of opinion among the circuit courts of appeal. Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 512 (9th Cir.1988). The Third Circuit treats interpretation of forum selection clauses as a contract issue, to be resolved according to state law. Id., citing, General Engineering Corp. v. Martin Marietta Alumina, Inc., 783 F.2d 352, 356-57 (3rd Cir.1986). The Eleventh Circuit, however, holds forum selection clauses are essentially procedural in nature and, therefore, are governed by federal law. Id., citing, Stewart Organization, Inc. v. Ricoh Corp., 810 F.2d 1066, 1068 (11th Cir.1987) (per curiam), aff'd on other grounds, 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988).

Stewart is the Supreme Court's most recent word on the choice between state and federal law in the forum selection context. Although factually distinguishable², it establishes the appropriate analytical framework to be employed in resolving the present dispute. See, American Performance, Inc. v. Sanford, 749 F.Supp. 1094, 1095 (M.D.Ala.1990).

In Stewart, the Court held federal law, specifically 28 U.S.C. § 1404(a), governed the decision whether to give effect to the parties' forum selection clause. 487 U.S. at 32, 108 S.Ct. at 2245. As a result, the Court found it appropriate for the district court to consider the convenience of the stipulated forum, the fairness of the transfer, and the parties' relative bargaining power in deciding whether the clause should be enforced. 487 U.S. at 30, 108 S.Ct. at 2244.

Congress has directed that multiple considerations govern transfer within the federal court system, and a state policy focusing on a single concern or a subset of the factors identified in § 1404(a) would defeat that command. Its application would impoverish the flexible and multifaceted analysis that Congress intended to govern motions to transfer within the federal system. The forum-selection clause, which represents the parties' agreement as to the most proper forum, should receive neither dispositive consideration (as respondent might have it) nor no consideration (as Alabama law might have it), but rather the consideration for which Congress provided in § 1404(a).

Stewart, supra, 487 U.S. at 31, 108 S.Ct. at 2245.

The Court was careful to note, however, that its decision hinged on the fact the decision to transfer venue of an action from one federal court to another is a matter within the ambit of a federal statute, 28 U.S.C. § 1404(a). 487 U.S. at 32 n. 11, 108 S.Ct. at 2245 n. 11. Absent a federal statute or an applicable Federal Rule of Civil Procedure, a district court, confronted with a choice-of-law problem, must evaluate whether application of federal common law would "disserve the so-called twin aims of the Erie rule: discouragement of forum-shopping and avoidance of inequitable administration of the laws." Stewart, 487 U.S. at 27 n. 6, 108 S.Ct. at 2243 n. 6, quoting, Hanna v. Plumer, 380 U.S. 460, 468, 85 S.Ct. 1136, 1142, 14 L.Ed.2d 8 (1965). "If application of federal judge-made law would disserve these two policies, the district court should apply state law." Id., citing, Walker v. Armco Steel Corp., 446 U.S. 740, 752, 100 S.Ct. 1978, 1986, 64 L.Ed.2d 659 (1980).

In the case sub judice, the parties agree that no federal statute or Rule of Civil Procedure is directly on point in determining the effect of the contractual forum selection clause. see, Manetti-Farrow, supra, 858 F.2d at 512 n. 2. Accordingly, the court must determine whether application of federal common law would disserve the twin aims of Erie. See, Alexander Proudfoot Co. World Headquarters v. Thayer, 877 F.2d 912, 918 (11th Cir.1989).

Given the conflict between federal law and the law of the State of Montana regarding forum selection clauses, application of federal law would, in this court's opinion, encourage forum shopping.³ For example, a Montana resident could file suit in state court to avoid a forum selection clause and a diverse defendant would be encouraged to "shop" for the more advantageous federal law by removing the action to federal court. Likewise, a non-resident plaintiff hoping to avoid a contracted-for forum could choose the law of the State of Montana by filing suit in Montana state court. The "one-way" nature of the federal removal statute, 28 U.S.C. § 1441(b), would block a Montana resident's access to the local federal forum that would enforce the forum selection clause. This is exactly the situation deplored by the Court in Erie. Stewart Organization, Inc. v. Ricoh Corp., 779 F.2d 643, 651 (11th Cir.1985) (Godbold, C.J., dissenting), aff'd on other grounds, 487 U.S. 22, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988).

Furthermore, applying federal law to enforce forum selection clauses would produce an inequitable administration of the laws, since there would exist an unfair discrimination between residents and nonresidents of the forum state. Erie, supra, 304 U.S. at 74-75, 58 S.Ct. at 820-821; Hanna, supra, 380 U.S. at 467-69, 85 S.Ct. at 1141-1143. In Stewart, Justice Scalia, writing in dissent, stated:

Whether

...