Stephens v. Entre Computer Centers, Inc.

• Citation: 696 F. Supp. 636
• Decision Date: 21 September 1988
• Docket Number: Civ. A. 4:87-CV-269-HLM.
• Parties: Larry STEPHENS, and Entre Savannah, Inc., a Georgia corporation, Plaintiffs, v. ENTRE COMPUTER CENTERS, INC., a Delaware corporation, Entre Computer Centers of America, Inc., a Delaware corporation, Steven Heller, and James J. Edgette, Defendants.
• Court: U.S. District Court — Northern District of Georgia

696 F. Supp. 636

Larry STEPHENS, and Entre Savannah, Inc., a Georgia corporation, Plaintiffs, v. ENTRE COMPUTER CENTERS, INC., a Delaware corporation, Entre Computer Centers of America, Inc., a Delaware corporation, Steven Heller, and James J. Edgette, Defendants.

Civ. A. 4:87-CV-269-HLM.

United States District Court, N.D. Georgia, Rome Division.

September 21, 1988.

John E. Sawhill, III, Rome, Ga., Edward A. McConwell, Overland Park, Kan., for plaintiffs.

Julian D. Fleming, Jr., Sutherland Asbill & Brennan, Atlanta, Ga., Wesley G. Howell, Jr., Gibson Dunn & Crutcher, Washington, D.C., for defendants.

ORDER

HAROLD L. MURPHY, District Judge.

Plaintiffs commenced this diversity of citizenship action claiming fraudulent inducement, fraud, breach of contract and breach of fiduciary duty arising out of a franchise agreement. Presently before the Court is defendants' motion to dismiss for improper venue and lack of personal jurisdiction.

An explanation of the relationships between the parties is necessary before the various arguments can be addressed fully. Plaintiff Larry Stephens, as franchisee, entered into an agreement with defendant franchisor Entre Computer Center, Inc. (Entre) to operate a computer center in Savannah. In fulfilling that agreement, Stephens incorporated plaintiff Entre Savannah, Inc.

Defendant Edgette signed the agreement on behalf of Entre. Defendant Steven Heller is an officer of defendant Entre Computer Centers of America, Inc., a wholly owned subsidiary of the franchisor.

In their motion to dismiss, defendants argue the action should be dismissed based on a clause in the franchise agreement specifying Virginia as the forum for bringing actions. They argue alternatively that they lack the requisite "minimum contacts" for this Court to exercise personal jurisdiction over them. Plaintiffs argue that the forum selection clause is unenforceable, that venue is proper in this Court, and that defendants are subject to this Court's personal jurisdiction.

I

The Supreme Court has decided recently that a motion to enforce a forum selection clause in a diversity case is governed by the federal venue statute, 28 U.S.C. § 1404(a). Stewart Organization, Inc. v. Ricoh Corp., ___ U.S. ___, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988). At the outset, however, the Court must resolve disputes between the parties as to the applicability of the clause to the facts of the case, as the enforcement issue need not be reached if the clause does not even apply.¹ The clause reads as follows:

The parties agree that any action brought by either party in any court, whether federal or state, shall be brought within the Commonwealth of Virginia and do hereby waive all question of personal jurisdiction or venue for the purposes of carrying out this provision.

Plaintiffs argue that the clause is inapplicable because (1) it does not cover their tort claims; and (2) some of the parties in this action did not sign the contract. Defendants respond that all actions arising from the contract are covered by the clause, and that those who did not sign the contract were related to those who did, such that the clause applies to all of them.

A

Plaintiffs' argument that the clause does not apply because they have filed claims sounding in tort in addition to ones in contract was rejected by the Eleventh Circuit in Stewart Organization, Inc. v. Ricoh Corp., 810 F.2d 1066 (11th Cir.1987) (en banc) aff'd and remanded on other grounds, ___ U.S. ___, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988). The clause in that case referred to any "case or controversy arising under or in connection with this Agreement." The district court had expressed concern that claims which were not contractual in nature, including tort claims, were not covered by that language. The Eleventh Circuit found, however, that the clause covered "all causes of action arising directly or indirectly from the business relationship evidenced by the contract." Id. 810 F.2d at 1070; accord Farmland Industries, Inc. v. Frazier-Parrott Commodities, Inc., 806 F.2d 848, 852 (8th Cir.1986); Coastal Steel Corp. v. Tilghman Wheelabrator, Ltd., 709 F.2d 190, 203 (3d Cir.), cert. denied, 464 U.S. 938, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983); Bense v. Interstate Battery System of America, Inc., 683 F.2d 718, 720 (2d Cir.1982). The Eleventh Circuit explained that "commercial contractual issues are commonly intertwined with claims in tort or criminal or antitrust law." Stewart Organization, 810 F.2d at 1070.

The clause in the instant case is at least as broad as the one in Stewart Organization as it refers to "any action" and does not explicitly limit the actions to ones arising "under or in connection with" the contract. Plaintiffs' tort claims are that defendants' fraudulent misrepresentations caused them to enter the agreement in the first instance, and then to invest significant funds to continue operating the computer center after the business was not as successful as they had anticipated. All these claims arise either "directly or indirectly from the business relationship evidenced by the contract," and are therefore subject to the forum selection clause.

B

Plaintiffs' argument that the clause does not apply to the parties who did not sign the contract is more problematic. In Coastal Steel Corp. v. Tilghman Wheelabrator, Ltd., 709 F.2d 190 (3d Cir.), cert. denied, 464 U.S. 938, 104 S.Ct. 349, 78 L.Ed.2d 315 (1983), the district court had found a forum selection clause unenforceable because, among other reasons, Coastal was a third-party beneficiary to the contract and as such was not involved in the bargaining process. The Third Circuit cited the Supreme Court's statement in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 8-9, 13-14, 92 S.Ct. 1907, 1912-1913, 1914-1915, 32 L.Ed.2d 513 (1972), that enforcement of forum selection clauses promotes stable and dependable trade relations, and found that carving out a third-party beneficiary exception would be inconsistent with that rationale. It noted that Coastal chose to do business with a party to the contract, an English firm that would be acquiring parts from other English firms. The court found it "perfectly foreseeable that Coastal would be a third-party beneficiary of an English contract, and that such a contract would provide for litigation in an English court." Accordingly, the court rejected the district court's refusal to enforce the clause based on the fact that Coastal was not a party to the contract. Id., 709 F.2d at 202-03.²

Several district court opinions similarly have ruled that the transaction participants, be they parties or non-parties to the contract, benefit from, and are subject to, a forum selection clause. See Adelson v. World Transportation, Inc., 631 F.Supp. 504, 508 (S.D.Fla.1986); Clinton v. Janger, 583 F.Supp. 284, 290 (N.D.Ill.1984); see also, Friedman v. World Transportation, Inc., 636 F.Supp. 685, 690-91 (N.D.Ill.1986) (a party cannot escape his contractual obligation to sue in a specified forum merely by joining additional parties who did not sign the contract); Dukane Fabrics International, Inc. v. M.V. Hreljin, 600 F.Supp. 202, 203 (S.D.N.Y.1985) (a party that was authorized to accept bills of lading on behalf of another party is bound by the forum selected in the bills).

Snider v. Lone Star Art Trading Co., Inc., 659 F.Supp. 1249 (E.D.Mich.1987) aff'd, 838 F.2d 1215 (3d Cir.1988), cited for support by plaintiffs, is inapposite. In Snider, there were six agreements and multiple defendants, and the forum selection clause was contained in but one of the agreements with one of the defendants. The Snider court found the clause unenforceable based on equity and the efficient administration of justice. 659 F.Supp. at 1257-58. On reconsideration, the court implied that it might have ruled otherwise had the clause been contained in one central document. 672 F.Supp. 977, 980 (E.D. Mich.1987). In the instant case, there is but one document.³

Based on these cases, the Court finds that the instant clause applies to all the parties to this action whether or not they signed the contract. As discussed, all the claims arise directly or indirectly from the franchise agreement; that single document connects all the plaintiffs with all the defendants. The question remaining is the enforceability of the clause as a matter of federal law.

II

As stated, a motion to enforce a forum selection clause is governed by 28 U.S.C. § 1404(a). Stewart Organization, 108 S.Ct. at 2243. Section 1404(a) allows a district court, for the convenience of the parties and witnesses and in the interest of justice, to transfer a case to a court where the case might have been brought. The court must weigh the plaintiff's forum choice against considerations of convenience, cost, judicial economy, and expedition of discovery and trial processes. Intergraph Corp. v. Stottler, Stagg & Associates, Inc., 595 F.Supp. 976, 978 (N.D.Ala. 1984), citing Norwood v. Kirkpatrick, 349 U.S. 29, 75 S.Ct. 544, 99 L.Ed. 789 (1956).

"The presence of a forum selection clause ... is a significant factor that figures centrally in the District Court's calculus." Stewart Organization, 108 S.Ct. at 2244. The Court should consider the fairness of the selected forum in terms of the relative bargaining powers of the parties. Id.

The Supreme Court stated further that M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), an admiralty case, "may prove instructive" in resolving disputes over forum selection clauses in domestic cases. Stewart Organization, 108 S.Ct. at 2243. The Bremen court had ruled that a forum selection clause should be enforced unless the party opposing enforcement "clearly shows that enforcement would be unreasonable and unjust, or that the clause was invalid for fraud or overreaching." Bremen, 407 U.S. at 15, 92 S.Ct. at 1916.⁴ "If the chosen forum is seriously inconvenient for the trial of the action," id. at 16, 92...