Secure Financial v. Popular Leasing

• Decision Date: 10 February 2006
• Docket Number: No. 34, September Term, 2005.,34, September Term, 2005.
• Citation: 892 A.2d 571,391 Md. 274
• Parties: SECURE FINANCIAL SERVICE, INC. v. POPULAR LEASING USA, INC.
• Court: Court of Special Appeals of Maryland

892 A.2d 571

391 Md. 274

SECURE FINANCIAL SERVICE, INC. v. POPULAR LEASING USA, INC.

No. 34, September Term, 2005.

Court of Appeals of Maryland.

February 10, 2006.

Scott C. Borison (Douglas B. Bowman, Legg Law Firm, LLC, on brief), Frederick, for appellant.

Erik R. Quick (Rubenstein, Cogan & Quick, P.C., on brief), Gaithersburg, for appellee.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA and GREENE, JJ.

RAKER, J.

The appeal centers around the enforcement of a forum-selection clause contained within a contract executed initially between Norvergence Communications, Inc., and Secure Financial Service, Inc., and then assigned to Popular Leasing USA, Inc. Secure Financial Service, Inc. appeals the judgment of the Circuit Court for Frederick County, raising three questions for our consideration:

"1. Whether the trial court erred in enforcing an indefinite venue provision?

2. Whether the trial court erred in enforcing a choice of law provision that would result in a due process violation?

3. Whether the trial court erred in granting the defendant's motion to dismiss?"

We shall answer the third question first and hold that in this declaratory judgment action, the trial court erred in dismissing the Complaint and failing to declare the rights and obligations of the parties.

I.

Appellant Secure Financial Service, Inc., a Maryland corporation with its principal place of business in Maryland, entered into a contract with Norvergence Communications, Inc., a New Jersey corporation, on July 11, 2003. Pursuant to the terms of the agreement, Norvergence was to provide various telecommunications services and equipment to appellant over a five-year period at a total cost of $13,500, payable at $225 per month. Five days after the contract was formed, Norvergence assigned the contract to appellee Popular Leasing USA, Inc. on July 16, 2003, a Delaware corporation with its principal place of business in Missouri. The Equipment Rental Agreement between Norvergence and Secure Financial permitted this assignment, providing as follows:

"We may sell, assign or transfer all or any part of this Rental and/or the Equipment without notifying you. The new owner will have the same rights that we have, but not our obligations. You agree you will not assert against the new owner any claims, defenses or set-offs that you may have against us."

Appellant was instructed by Norvergence to send all future payments due under the agreement to Popular Leasing:

"All terms and conditions remain unchanged except you are to make all Equipment Rental payments to Popular Leasing U.S.A., Inc. starting with your first invoice, which will be sent to you within 60 days:

Popular Leasing USA Inc. P.O. Box 4240 Carol Steam, IL 60197-4240."

Norvergence entered Chapter 11 bankruptcy on June 30, 2004, and that proceeding was converted to a Chapter 7 liquidation on July 14, 2004. Appellant did not make the monthly payment under the agreement due on August 20, 2004. By letter, Popular Leasing informed Secure Financial that the latter was in default of the contract, and that the balance due upon the contract, $10,319.18, had been accelerated.

Prior to receiving Popular Leasing's letter, Secure Financial filed a declaratory judgment action pursuant to Md.Code (1973, Repl.Vol.2002, 2005 Cum.Supp.), § 3-403 of the Courts and Judicial Proceedings Article in the Circuit Court for Frederick County.¹ Count I of the Complaint sought a declaration that the forum-selection clause and the choice-of-law provision were unenforceable. Count II sought a declaration that the Equipment Rental Agreement was unenforceable.

The applicable law provision of the lease states in pertinent part as follows:

"This agreement shall be governed by, construed and enforced in accordance with the laws of the State in which Rentor's principal offices are located or, if this Lease is assigned by Rentor, the State in which assignee's principal offices are located, without regard to such State's choice of law considerations and all legal actions relating to this Lease shall be venued exclusively in a state or federal court located within that State, such court to be chosen at Rentor or Rentor's assignee's sole option. You hereby waive right to a trial by jury in any lawsuit in any way relating to this rental."

Popular Leasing filed a Motion to Dismiss, arguing that the forum-selection provision was enforceable as a matter of law, and that Secure Financial did not allege any set of facts upon which a court could find the contract unconscionable. Secure Financial responded, arguing that it could not have reasonably anticipated being haled into court in Missouri when it signed a contract in Maryland for services to be delivered in Maryland. Because the proper venue could be changed by the unilateral action of the lessor or its assignee—Popular Leasing in the instant case—simply by assigning the contract to another party or moving its principal place of business, Secure Financial contended, the applicable law provision is vague, and not enforceable. The Circuit Court for Frederick County agreed with Popular Leasing, and ruled that the provisions were enforceable.

Secure Financial noted a timely appeal to the Court of Special Appeals. We granted certiorari on our own initiative to consider the issues presented in this appeal. 388 Md. 97, 879 A.2d 42 (2005).

II.

Before the Circuit Court, at a hearing on its Motion to Dismiss the Complaint for Declaratory Judgment, Popular Leasing maintained that the Complaint failed to state a claim upon which relief can be granted, and presented three arguments: (1) that the contract cannot be unconscionable on the face of the pleadings because there is no allegation that there was an unconscionable contract at the time the parties entered into the contract; (2) that the forum-selection clause is not unreasonable; and (3) that the declaratory judgment action is not ripe for decision because there does not exist a judicial issue or controversy.

Secure Financial advised the trial court that Popular Leasing had in fact filed suit against it in Missouri, a representation uncontroverted by Popular Leasing. Secure Financial opposed the Motion to Dismiss the declaratory judgment action, arguing that the Circuit Court had to decide the issue presented and that the Court should take evidence at a trial on the matter. Secure Financial represented to the court that Norvergence's special system, the "Matrix 2001" was a hoax—that this "magic box" is worth $250.00, maybe $500.00, and under the lease it is required to pay more than $12,000.00 for it, and that those facts can be determined by the Court to be unconscionable.

Unfortunately, the Court dismissed the Complaint for declaratory relief, ruling as follows:

"We are here on the defendant's motion to dismiss the complaint for declaratory relief. There are several grounds upon which the defendant is asking this Court to dismiss. The complaint principally [sic], in proper venue, as well as failure to state a claim upon which relief can be granted. I am not going to reach failure to state a claim. The Court grants the motion to dismiss for the venue. I have reviewed this carefully. I have reviewed the contract. It's very clear to me when I reviewed this contract that these parties knew, one thing, they wouldn't be litigating in Maryland. They knew from that contract that, and it's clear to me from this express language of the contract, that the parties knew that they weren't going to litigate in Maryland. The contract says it will be where the lessor or its assignee, so, therefore, it's clear to me from reviewing the contract the parties knew that this could perhaps be assigned. And, yes, the original contract, the original lessor was in New Jersey, but that original lessor through this bankruptcy proceeding has assigned it to a lessor in Missouri, and I also reviewed the cases here, and it's clear to me that Maryland courts typically uphold venue provisions in contracts. They enforce the choice of venue clauses. I also reviewed . . . the restatement that counsel for the plaintiff has asked me to look at. The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue. Two, 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 [sic] resolve by an explicit provision in their agreement directed to that issue, unless the chosen state has no substantial relationship to the parties or the transaction. But, here, I find there is because Missouri's aware the assignee conducts business, and the language of the contract makes it clear that the parties knew that there was a possibility of the assignment. So I do grant the motion to dismiss."

The trial court erred in dismissing the Complaint and in failing to enter a declaratory judgment defining the rights and obligations of the parties under the agreement in a separate document. See Converge v. Curran, 383 Md. 462, 477, 860 A.2d 871, 880 (2004); Salamon v. Progressive, 379 Md. 301, 307-08 n. 7, 841 A.2d 858, 862-63 n. 7 (2004).

The Declaratory Judgment Act states that it is a remedial statute; its purpose is to "settle and afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations." § 3-402.² It should be "liberally construed and administered." Id. The Act grants courts the power to grant declaratory relief to "[a]ny person interested under a deed, will, trust, land patent, written contract, or other writing constituting a contract, or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, administrative rule or regulation, contract, or franchise. . . . " § 3-406. Thus, ...