Smith, Valentino & Smith, Inc. v. Superior Court for County of Los Angeles

• Decision Date: 21 October 1975
• Citation: 52 Cal.App.3d 360,124 Cal.Rptr. 917
• Court: California Court of Appeals Court of Appeals
• Parties: SMITH, VALENTINO & SMITH, INC., a California Corporation, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF LOS ANGELES, Respondent; LIFE ASSURANCE COMPANY OF PENNSYLVANIA, a corporation, Real Party in Interest. Civ. 46007.

Page 917

124 Cal.Rptr. 917

52 Cal.App.3d 360

SMITH, VALENTINO & SMITH, INC., a California Corporation, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF LOS ANGELES, Respondent LIFE ASSURANCE COMPANY OF PENNSYLVANIA, a corporation, Real Party in Interest.

Civ. 46007.

Court of Appeal, Second District, Division 5, California.

Oct. 21, 1975.

For Opinion on Hearing, see, 131 Cal.Rptr. 374, 551 P.2d 1206.

Kirsch, Arak & Bulmash, Jay S. Bulmash, Beverly Hills, for petitioner.

No appearance for respondent.

DeMarco, Barger, Beral & Pierno, and Kent Keller, Los Angeles, for real party in interest.

ASHBY, Associate Justice.

This case involves the effect to be given an agreement between the parties concerning the forum in which they will conduct litigation arising out of their contract. We hold that in the circumstances of this case the trial court properly decided that the agreement should be given effect in the absence of evidence that its enforcement would be unreasonable.

Petitioner Smith, Valentino & Smith, Inc., (Smith) is a California corporation. Real party in interest Life Assurance Company of Pennsylvania (Assurance) is a Pennsylvania corporation transacting business in California. On March 1, 1973 Smith and Assurance entered into an agreement appointing Smith as the 'managing general agent' ('MGA') to represent Assurance ('the Company') for the purpose of soliciting group insurance policies in certain western states, including California. The agreement contains the following provision:

'17. DISPUTES AND ARBITRATION

'In all matters concerning the validity, interpretation, performance, effect or otherwise of this Agreement, the laws of the Commonwealth of Pennsylvania shall govern and be applicable. Any actions or proceedings instituted by the MGA under this Agreement with respect to any matters arising under or growing out of this Agreement, shall be brought and tried only in courts located in the County of Philadelphia, State of Pennsylvania, and the MGA expressly waives their right under Part II, Title IV of the Code of Civil Procedure of the Commonwealth of Pennsylvania, to cause any such actions or proceedings to be brought or tried elsewhere. Any such actions or proceedings instituted by the Company under this Agreement with respect to any matters arising under or growing out of this Agreement, shall be brought and tried only in courts located in the County of Los Angeles, State of California, and the Company expressly waives any rights to cause any such actions or proceedings to be brought or tried elsewhere.'

Notwithstanding this provision, in November 1974 Smith filed a 'Complaint For Breach of Contract, For Intentional Interference With Advantageous Business Relationships, and for Unfair Competition' against Assurance in the Superior Court of Los Angeles County. ¹

Assurance filed a motion that the action be dismissed, based upon the agreement of the parties that any action instituted by Smith shall be brought only in Philadelphia, and Code of Civil Procedure section 410.30, subdivision (a), which provides: 'When a court upon motion of a party or its own motion finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just.'

The attorney for Smith filed a declaration in opposition to the motion to dismiss, stating that the 14 witnesses Smith intended to call at trial were all residents of California, and that Smith was financially unable to bear the extra costs necessary to prosecute the action in Pennsylvania.

The trial court denied the motion to dismiss, but granted a stay of all proceedings in this action until further order of the court, finding that the proper forum was Philadelphia, Pennsylvania, under the terms of the agreement.

Smith seeks a peremptory writ of mandate commanding the superior court to vacate its stay order and to permit the action to proceed. We issued an alternative writ to the superior court to vacate the order or show cause why it had not done so.

Smith contends that the terms of its agreement to institute proceedings against Assurance only in Philadelphia, Pennsylvania, are void and unenforceable and that Smith is not bound by them. Under the circumstances of this case we find no merit to this contention.

DISCUSSION

According to the first sentence of paragraph 17, the parties agree that Pennsylvania law is to govern disputes concerning this contract. Such choice of law provisions are usually respected by California courts. (Windsor Mills, Inc. v. Collins & Aikman Corp., 25 Cal.App.3d 987, 995, fn 6, 101 Cal.Rptr. 347; Ury v. Jewelers Acceptance Corp., 227 Cal.App.2d 11, 17-18, 38 Cal.Rptr. 376; Boole v. Union Marine Ins. Co., Ltd., 52 Cal.App. 207, 209, 198 P. 416; cf. Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 20 Cal.App.3d 668, 673, 97 Cal.Rptr. 811.)

Under Pennsylvania law the agreement between the parties specifying the forum of litigation is to be enforced in the absence of evidence that the agreement is unreasonable. In Central Contracting Co. v. C. E. Youngdahl & Co., 418 Pa. 122, 209 A.2d 810 (1965), the Pennsylvania Supreme Court considered the effect to be given a provision in the contract that "[t]he Subcontractor agrees that it will not commence any action, whether in law or in equity, against the Contractor or its sureties on bonds, if any, because of any matter whatsoever arising out of the alleged breach or performance of this subcontract agreement, in any Courts other than those in the County of New York, State of New York * * *." (209 A.2d at p. 815.) The court reviewed earlier cases which had stated that such provisions were contrary to public policy because they would 'oust the jurisdiction' of the courts. The Pennsylvania Supreme Court criticized these cases and formulated the correct rule as follows:

'In our opinion, these cases are correct to the extent that they hold that private parties cannot change by contract the rules of jurisdiction or venue embodied in the various laws of this Commonwealth. Jurisdiction over the party or the subject matter or venue of the cause is not a thing to be determined by private bargaining. However, we do not agree with these cases to the extent that they hold that an agreement between the parties, purporting to determine the forum where future disputes between them should be litigated, is per se invalid and without legal effect. The modern and correct rule is that, while private parties may not by contract prevent a court from asserting its jurisdiction or change the rules of venue, nevertheless, a court in which venue is proper and which has jurisdiction should decline to proceed with the cause when the parties have freely agreed that litigation shall be conducted in another forum and where such agreement is not unreasonable at the time of litigation. See Restatement of Contracts § 558; L. Hand, J., concurring in Krenger v. Pennsylvania R. Co., 174 F.2d 556, 560-561, (2d Cir. 1949); Wm. H. Muller & Co., Inc. v. Swedish American Line Ltd., 224 F.2d 806 (2d Cir. 1955); Cerro De Pasco Copper Corp. v. Knut Knutsen, O.A.S., per Frank, J., 187 F.2d 990 (2d Cir. 1951); Euzzino v. The London & Edinburgh Insurance Company Ltd., 228 F.Supp. 431 (N.D.ill.1964); Takemura & Company v. The S. S. Tsuneshima Maru, 197 F.Supp. 909 (S.D.N.Y.1961). Such an agreement is unreasonable only where its enforcement would, under all circumstances existing at the time of litigation, seriously impair plaintiff's ability to pursue his cause of action. Mere inconvenience or additional expense is not the test of unreasonableness since it may be assumed that the plaintiff received under the contract consideration for these things. If the agreed upon forum is available to plaintiff and said forum can do substantial justice to the cause of action then plaintiff should be bound by his agreement. Moreover, the party seeking to obviate the agreement has the burden of proving its unreasonableness.' (Id., 209 A.2d at p. 816.)

We note that there is considerable and growing support for the Pennsylvania view as representing the modern trend. The trend was summarized by the United States Court of Appeals for the Third Circuit when it endorsed the Pennsylvania view as follows, in Central Contracting Co. v. Maryland Casualty Co., 367 F.2d 341, 344-345 (1966):

'We need not consider whether in this diversity case we are bound to apply the Pennsylvania rule, for both federal and state courts have increasingly in recent years recognized the same principle which the Supreme Court of Pennsylvania has now adopted. It is becoming more widely recognized that for reasons of business or convenience the parties may have bargained that all litigation arising out of their complex activity under a contract shall be drawn into one jurisdiction. So long as there is nothing unreasonable in such a provision there is no basis for viewing it as an affront to the judicial power, which must be stricken down. On the contrary, it should be respected as the responsible expression of the intention of the parties so long as there is no proof that its provisions will put one of the parties to an unreasonable disadvantage and thereby subvert the interests of justice.' (Fn. omitted.)

(See Reeves v. Chem Industrial Co. (1972) 262 Or. 95, 495 P.2d 729, 731-732 (observing the 'obvious trend in the law as exhibited by the decisions from other jurisdictions and the opinions of the scholars in the field,' and adopting the modern rule for Oregon).)

The Restatement also supports this view. The restatement of the Law (Second), Conflict of Laws 2d, section 80, provides:

'The parties' agreement as to the place of the action cannot oust a state of judicial jurisdiction, but such an agreement will be given effect unless it is unfair or unreasonable.'

Significantly, the Pennsylvania view was...