Shell v. RW Sturge Ltd., No. C-1-93-802.

• Decision Date: 22 December 1993
• Docket Number: No. C-1-93-802.
• Citation: 850 F. Supp. 620
• Parties: West SHELL, Jr., et al., Plaintiffs, v. R.W. STURGE LTD., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

850 F. Supp. 620

West SHELL, Jr., et al., Plaintiffs, v. R.W. STURGE LTD., et al., Defendants.

No. C-1-93-802.

United States District Court, S.D. Ohio, W.D.

December 22, 1993.

John Ledyard Campbell, Kohnen, Patton & Hunt, Virginia Conlan Whitman, Cincinnati, OH, for plaintiffs.

Charles Joseph Faruki, Faruki Gilliam & Ireland, Dayton, OH, for defendants.

ORDER

HERMAN J. WEBER, District Judge.

On November 1, 1993, plaintiffs filed this action in the Hamilton County Court of Common Pleas alleging that defendants violated Ohio securities law by selling unregistered and non-exempt securities. On November 2, 1993, the Court of Common Pleas issued an ex parte temporary restraining order enjoining defendants from presenting to any bank letters of credit which plaintiffs had executed in support of their transactions with defendants. The Court of Common Pleas granted a fourteen day extension of the TRO on November 14, 1993.

On November 16, 1993, defendants removed the case to this Court, and the matter was referred to the United States Magistrate Judge. Plaintiffs then filed a supplemental motion for preliminary injunction (doc. no. 7), and defendants filed a motion to dismiss for improper venue (doc. no. 8). The Magistrate Judge held hearings on November 24, 1993, and December 7, 1993, during which the parties presented evidence and oral arguments. The parties filed post-hearing memoranda and briefs.

On December 10, 1993, the Magistrate Judge filed a Report and Recommendation recommending that defendants' motion to dismiss for improper venue be granted. The Magistrate Judge also recommended granting plaintiffs' motion for a preliminary injunction in the event this Court denies defendants' motion to dismiss.

This matter is before the Court upon the Report and Recommendation of the United States Magistrate Judge (doc. no. 26), defendants' objections (doc. no. 27), plaintiffs' objections (doc. no. 28), plaintiffs' memorandum in opposition to defendants' objections (doc. no. 29), and the parties' proposed findings of fact and conclusions of law (doc. nos. 31, 32). This Court held a hearing on December 20, 1993, during which the parties presented oral arguments on their objections to the Report and Recommendation.

I.

Following a detailed analysis of plaintiffs' contentions, the Magistrate Judge concluded that defendants' motion to dismiss should be granted, because the parties' agreement contained the following enforceable forum selection clause:

Each party hereto irrevocably agrees that the court of England shall have exclusive jurisdiction to settle any dispute and/or controversy of whatsoever nature arising out of or relating to the Member's membership of and/or underwriting business at Lloyd's ...

Id. at 7 (citing doc. no. 10, attachments to Exh. D).

Plaintiffs contend that the Magistrate Judge erred in concluding that the forum selection clause is enforceable.

Since the parties have submitted evidence in support of their positions on defendants' motion to dismiss, the motion is properly treated as a motion for summary judgment under Fed.R.Civ.P. 56. See Fed.R.Civ.P. 12(b). The legal standard for consideration and disposition of issues on summary judgment is well settled and is set forth in Goldstein v. D.D.B. Needham, 740 F.Supp. 461, 463 (S.D. Ohio 1990).

The Magistrate Judge accurately set forth the following legal standards concerning the enforceability of a forum selection clause:

A forum selection clause in an international agreement is to be enforced `absent a strong showing that it should be set aside.' The Bremen, 407 U.S. at 15 92 S.Ct. at 1916<sup>1</sup> ... This presumption of validity may be overcome upon a showing that the forum selection clause is `unreasonable under the circumstances,' The Bremen, 407 U.S. at 10 92 S.Ct. at 1913. For Example: if its incorporation into the agreement was the result of fraud or overreaching, id. at 12-13 92 S.Ct. at 1914-15; if the complaining party will for all practical purposes be deprived of his day in court due to the grave inconvenience or unfairness of the selected forum, id. at 18 92 S.Ct. at 1917-18; if the forum selection clause contravenes a strong public policy of the forum state, id. at 15 92 S.Ct. at 1916; or, if the fundamental unfairness of the chosen law may deprive plaintiff of a remedy.

(doc. no. 26, p. 8). Plaintiffs concede that the above constitutes an accurate statement of the legal standards applicable to determining whether a forum selection clause is enforceable (doc. no. 28, p. 5). Plaintiffs, however, challenge the Magistrate Judge's application of these standards.

Plaintiffs argue that the Magistrate Judge improperly weighed Ohio's public policy against preserving the integrity of international business transactions. According to plaintiffs, they must show that the forum selection clause is unreasonable because its enforcement would contravene a strong public policy of the forum state. "Plaintiffs need not prove that the public policy behind the State's Blue Sky Laws outweighs the policy concerns behind preserving the integrity of international business transactions." (doc. no. 28, p. 7).

Plaintiffs' contentions lack merit. The Magistrate Judge properly applied the legal standards set forth in The Bremen. Criticizing the Magistrate Judge's analysis based on his decision to "weigh" Ohio's policy against the policy concerns behind preserving the integrity of international transactions does little to assist plaintiffs. The precise term used in The Bremen is "contravene" — that is, the presumption of validity applies to a forum selection clause unless "enforcement would contravene a strong public policy of the forum ..." 407 U.S. at 15, 92 S.Ct. at 1916. Whether a Ohio's public policy "outweighs" — exceeds in weight, value, or importance² — or "contravenes" — obstructs the operation of; contradicts³—is a distinction without significance. The issue, as framed in The Bremen, is whether enforcement of the forum selection clause would be "unreasonable." Id. Enforcing a forum selection clause would be "unreasonable" in the instant case if Ohio's public policy either outweighs or contravenes the need to preserve the integrity of international transactions. Ohio's public policy does neither. The Magistrate Judge correctly analyzed plaintiffs' contentions in this regard:

Plaintiffs concede that if they had brought claims based on violations of federal securities law or claims based on violations of the Ohio Blue Sky Laws sounding in fraud and/or nondisclosure, venue in this Court would be improper. This concession, which is supported by the great weight of legal authority, is an admission that the state and federal policies underlying protection for investors against fraud and nondisclosure must bow to the competing interest in protecting the integrity of international agreements.

* * * * * *

Plaintiffs have not provided any convincing evidence or authority that Ohio's merit review process evinces a greater public interest than the prevention of fraud and nondisclosure. To the contrary, the policy concerns behind the prevention of fraud, an intentional wrongful act, are of greater importance and warrant more protection and enforcement than the policy concerns behind Ohio's merit review, which are designed to protect investors from the foibles inherent in their own lack of knowledge, lack of business sophistication and greed.

(doc. no. 26, p. 10). None of the plaintiffs in the instant case claim to lack business knowledge. It is uncontroverted that plaintiffs are sophisticated investors who were fully aware of the nature and consequences of their investments with defendants.

The Magistrate Judge's analysis, moreover, is consistent with The Bremen and with two cases decided by United States Courts of Appeals involving enforceable forum selection clauses in international transactions similar to those at issue in the instant case. Bonny v. Society of Lloyd's, 3 F.3d 156 (7th Cir.1993); Roby v. Corporation of Lloyd's, 996 F.2d 1353 (2d Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 385, 126 L.Ed.2d 333 (1993). In Bonny, for example, the plaintiffs raised claims under "various federal and state securities laws ..." 3 F.3d at 157. The Court of Appeals found that the plaintiffs' substantive rights could be vindicated in England through the remedies provided by English law without "subverting the United States' policy of insuring full and fair disclosure by issuers and deterring the exploitation of United States investors." Id. at 161. Similarly, the record in the instant case establishes that remedies exist in England to protect plaintiffs' substantive rights while not subverting their rights under Ohio law. These remedies are stated in the unchallenged affidavit of Barrister John Lewis Powell who states:

One of the remedies under English law for misrepresentation (whether innocent, negligent or fraudulent) is rescission. In an appropriate case the Plaintiff may not only recover property transferred and money paid to the Defendant, but may also be entitled to an indemnity against liabilities incurred.

(doc. no. 23, attached aff., p. 6). Ohio law provides plaintiffs with a right of rescission similar to that described by Powell; Ohio purchasers may, at their option, void under certain circumstances any sale of securities made in violation of Ohio securities law. See Ohio Rev.Code § 1707.43; see also Riedel v. Acutote of Colorado, 773 F.Supp. 1055, 1066 (S.D.Ohio 1991); Bronaugh v. R & E Dredging Co., 16 Ohio St.2d 35, 45 O.O.2d 321, 242 N.E.2d 572 (1968).

Powell further indicates that plaintiffs may bring claims based on "the tort of deceit or fraudulent misrepresentation" breach of contract, negligence, and breach of fiduciary duty. Id. at 7-8. These remedies are consistent with those identified in Bonny as sufficient to protect a plaintiffs' substantive rights, and consequently, enforcement of the forum selection clause does not offend the public...