Ritchie v. Carvel Corp.

• Decision Date: 20 June 1989
• Docket Number: No. 87 Civ. 8856(PNL).,87 Civ. 8856(PNL).
• Citation: 714 F. Supp. 700
• Parties: Robert RITCHIE, Susan Ritchie and Paul Fialkin, Plaintiffs, v. CARVEL CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

714 F. Supp. 700

Robert RITCHIE, Susan Ritchie and Paul Fialkin, Plaintiffs, v. CARVEL CORPORATION, Defendant.

No. 87 Civ. 8856(PNL).

United States District Court, S.D. New York.

June 20, 1989.

Herzfeld & Rubin, New York City, for plaintiffs (Peter J. Kurshan, of counsel).

Eric B. Kaviar, Jeffrey A. Klatzkow, Yonkers, N.Y., and Herbert F. Roth, New York City, for defendant.

OPINION AND ORDER

LEVAL, District Judge.

Defendant Carvel Corp. moves to dismiss the complaint for improper venue, contending that this action may be brought only in the Supreme Court of the State of New York, Westchester County. Defendant's motion is granted.

Background

On June 8, 1984 plaintiffs Robert Ritchie and Susan Ritchie entered into a Carvel Retail Manufacturer's License Agreement under which they were licensed to manufacture and sell Carvel products in a Carvel franchise in Mesa, Arizona. Plaintiff Paul Fialkin entered into a similar agreement with Carvel on October 3, 1984 with respect to a Carvel franchise in Phoenix, Arizona. The Ritchies ceased operating their store and abandoned the premises in October 1985. Shortly thereafter, Carvel terminated their license. Fialkin ceased operating his store in January 1986. Carvel terminated his license.

The complaint was filed in January 1987 in the United States District Court for the District of Arizona. It alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961, et seq., as well as state law claims of fraud, negligent misrepresentation, breach of contract and breach of fiduciary duty. In February 1987 Carvel moved to dismiss for improper venue, or, in the alternative, to transfer the action to this court. The motion was based on a forum selection clause in the license agreements. Plaintiffs contended that the forum selection clause was void by reason of Carvel's fraudulent inducements.

The Arizona district judge, Robert C. Broomfield, held that the forum selection clause was binding and enforceable and transferred the action to this court pursuant to 28 U.S.C. § 1404(a), "in the interest of justice."

In this court, plaintiffs then filed a second amended complaint which omits RICO allegations. Carvel then made this motion to dismiss based, once again, upon the forum selection clause, which provides that, unless the action is within the exclusive jurisdiction of federal courts, it may be lodged only in the Supreme Court of the State of New York, Westchester County. Plaintiffs cross-move for leave to file a third amended complaint to reallege a RICO claim.

Discussion

Defendant contends that under the forum selection clause of the license agreements, unless the action is within the exclusive jurisdiction of the federal courts, the sole venue is the Supreme Court of the State of New York, Westchester County. This contention is borne out by the license agreement between the parties. Paragraph 28 provides:

As to any legal action that Licensee may bring against Carvel or any officer, director or employee of Carvel either during the term of this Agreement or thereafter where only the federal courts have jurisdiction over the subject matter of such legal action it is agreed and understood that such legal action shall only be brought in the United States District Court for the Southern District of New York and that such court shall be deemed be the court of sole and exclusive venue for the bringing of such action. As to any other legal action that Licensee may bring against Carvel or any officer, director or employee of Carvel, it is understood and agreed that any such action shall only be brought in the Supreme Court of the State of New York, in the County of Westchester and that such Court shall be deemed to be the court of sole and exclusive venue for the bringing such action.

Plaintiffs oppose the motion on three grounds. They contend that: (1) this very motion was denied by Judge Broomfield, and should not be reconsidered by this court; (2) newly discovered evidence shows that the license agreements were procured by fraud, and therefore the forum selection clause should not be enforced; and (3) this motion is moot because plaintiffs have sought, and should be granted, leave to amend the complaint to reallege RICO violations.

1. Judge Broomfield's Decision

Plaintiffs argue that Judge Broomfield ruled on the question of proper venue when he transferred the action to this court.

The circumstances have changed in two respects: First, plaintiffs have voluntarily dropped the admittedly unsupported RICO claim and the complaint no longer contains a federal cause of action. (This change is of limited force as plaintiffs are petitioning to amend the complaint again to re-assert RICO claims.) Second, at the time of the Arizona decision, Carvel was taking the position that federal courts have exclusive jurisdiction over plaintiffs' RICO claim because New York appellate courts had ruled that state courts lacked jurisdiction over RICO claims. See, e.g., Greenview Trading Co. v. Hershman & Leicher, P.C., 108 A.D.2d 468, 489 N.Y.S.2d 502 (1st Dep't 1985). Since that time, however, the New York Court of Appeals in Simpson Electric Corp. v. Leucadia, Inc., 72 N.Y.2d 450, 534 N.Y.S.2d 152, 530 N.E.2d 860 (1988), held that New York's courts have concurrent jurisdiction of RICO claims. The motion is, therefore, not, as plaintiffs claim, identical to that filed in the District Court in Arizona. The controlling factors have changed.

2. Evidence of Fraud

Plaintiffs also argue that the forum selection clause should not be enforced because the license agreements were procured by fraud. Under federal law,¹ contract forum selection clauses "are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be `unreasonable' under the circumstances." The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513 (1972); see Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n. 14, 105 S.Ct. 2174, 2182 n. 14, 85 L.Ed.2d 528 (1985).² Enforcement is unreasonable where the opposing party establishes fraud, undue influence, or overreaching bargaining power with respect to the forum selection clause. See The Bremen v. Zapata Off-Shore Co., 407 U.S. at 12-13, 92 S.Ct. at 1914-15; Bense v. Interstate Battery System of America, Inc., 683 F.2d 718, 721-22 (2d Cir.1982); Karl Koch Erecting Co. v. New York Convention Center Development Corp., 656 F.Supp. 464, 467 (S.D.N.Y.1987), aff'd, 838 F.2d 656 (2d Cir.1988).

A forum selection clause is to be enforced, except where the clause itself is procured by fraud. Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 2457 n. 14, 41 L.Ed.2d 270 (1974).³ Plaintiffs do not allege that Carvel made any representations concerning the forum selection clause itself.

Plaintiffs made this same argument before Judge Broomfield, who found that plaintiffs failed to establish any basis for relief from the forum selection clause, including fraud. Plaintiffs freely entered into the license agreements, with awareness of the forum selection clause. In fact, they were represented by counsel. They may not now reargue the issue. The new evidence plaintiffs claim to have discovered in support of their allegations of fraud is insubstantial.

3. Motion to Amend the Complaint

Plaintiffs contend that their cross-motion for leave to amend the complaint to add a RICO claim moots the present motion, because after such amendment this court will once again be the proper forum under the forum selection clause. This argument fails because amendment of the complaint will not give this court exclusive jurisdiction over the action.

Neither the United States Supreme Court nor the Court of Appeals for the Second Circuit has addressed the issue whether federal courts have exclusive jurisdiction over civil RICO claims. Although some federal courts have disagreed, the majority hold that federal jurisdiction over RICO claims is not exclusive. The Courts of Appeals for the Ninth and Fourth Circuits and several district courts have held that state courts have concurrent jurisdiction over civil suits under RICO. Brandenburg v. Seidel, 859 F.2d 1179, 1195 (4th Cir.1988); Lou v. Belzberg, 834 F.2d 730, 737 (9th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 1302, 99 L.Ed.2d 512 (1988); Jae-Soo Yang Kim v. Pereira Enterprises, Inc., 694 F.Supp. 200, 202 (E.D.La.1988); Village Improvement Association v. Dow Chemical Co., 655 F.Supp. 311, 313 (E.D. Pa.1987); Karel v. Kroner, 635 F.Supp. 725, 731 (N.D.Ill.1986); Luebke v. Marine National Bank, 567 F.Supp. 1460, 1462 (E.D.Wisc.1983). The Court of Appeals for the Seventh Circuit has "expressed doubt that federal courts have exclusive jurisdiction over RICO claims." Crotty v. Chicago Heights, 857 F.2d 1170, 1172 n. 6 (7th Cir.1988) (citing County of Cook v. Midcon Corp., 773 F.2d 892, 905 n. 4 (7th Cir. 1985)). The Court of Appeals for the Fifth Circuit has similarly implied that it would hold in favor of concurrent jurisdiction. See Dubroff v. Dubroff, 833 F.2d 557, 562 (5th Cir.1987).

On the other hand, the Court of Appeals for the Sixth Circuit and several district courts have held that federal courts have exclusive jurisdiction over civil RICO claims. Morda v. Klein, 865 F.2d 782, 784 (6th Cir.1989); Chivas Products Ltd. v. Owen, 864 F.2d 1280, 1281 (6th Cir.1988); Hampton v. Long, 686 F.Supp. 1202, 1206 (E.D.Tex.1988) ("This court will not foist RICO ... on unwilling Texas courts."); Spence v. Flynt, 647 F.Supp. 1266, 1270 (D.Wyo.1986); Massey v. Oklahoma City, 643 F.Supp. 81, 84 (W.D.Okl.1986).

State courts are presumed to have concurrent jurisdiction with federal courts over claims arising under federal laws. See Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 477-78, 101 S.Ct. 2870, 2874-75, 69 L.Ed.2d 784 (1981). "This presumption in civil cases arises both out of federal recognition of the states' independent sovereignty...