Tele-Save Merchandising Co. v. Consumers Distributing Co., Ltd.

• Decision Date: 01 April 1987
• Docket Number: TELE-SAVE,No. 86-3115,86-3115
• Citation: 814 F.2d 1120
• Parties: MERCHANDISING COMPANY, Plaintiff-Appellant, v. CONSUMERS DISTRIBUTING COMPANY, LTD., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1120

814 F.2d 1120

TELE-SAVE MERCHANDISING COMPANY, Plaintiff-Appellant, v. CONSUMERS DISTRIBUTING COMPANY, LTD., Defendant-Appellee.

No. 86-3115.

United States Court of Appeals, Sixth Circuit.

Argued Nov. 13, 1986.

Decided April 1, 1987.

Gary D. Greenwald (argued), Schottenstein, Zox, Dunn, Columbus, Ohio, for plaintiff-appellant.

Karen A. Winters, Asst. Atty. Gen., Consumer Protection Div., Columbus, Ohio, for Amicus Curiae--State of Ohio in support of appellant.

James L. Graham, Columbus, Ohio, Barry L. Eisenberg (argued), Lasser, Hochman, Marcus, Guryan, & Kuskin, Roseland, N.J., for defendant-appellee.

Before MARTIN, MILBURN and BOGGS, Circuit Judges.

BOYCE F. MARTIN, JR., Circuit Judge.

Plaintiff Tele-Save Merchandising Company appeals the grant of defendant's motion for summary judgment in this diversity action brought under the provisions of 28 U.S.C. Sec. 1332(a). Tele-Save's original complaint contained four allegations against Consumers Distributing Company, Ltd.; count one, alleging violations of the Ohio Business Opportunity Plans Act, is the sole subject of this appeal. For the reasons set forth below we affirm the decision of the district court.

Tele-Save was an Ohio corporation with its principal place of business in Columbus, Ohio. Consumers is a Canadian corporation with an office in New Jersey. In early 1981, the parties began negotiation of an agreement whereby Consumers, a large chain of catalog showroom operators, would supply products and services to Tele-Save. Tele-Save would in turn operate as a catalog retail showroom under the direction of Consumers. An agreement was reached in late July 1981. Paragraph 17 of the agreement reads:

This Agreement shall be governed by, and construed in accordance with, the laws of the State of New Jersey.

Tele-Save opened its store in late September 1981 offering for sale general merchandise received from Consumers and from other suppliers who advertised in the Consumers catalog. In January 1982, Consumers notified Tele-Save that it was cancelling its catalog program. Tele-Save asked Consumers to reimburse the cost of merchandise purchased through the agreement and to accept its return. Consumers's refusal prompted this lawsuit.

Count one of Tele-Save's complaint, and the only issue presented on this appeal, charged Consumers with violating Ohio's Business Opportunity Plans Act, Ohio Revised Code Chapter 1334. The Act, which took effect in October 1979, regulates the sale of business opportunity plans and provides certain rights and remedies for Ohio purchasers who are defrauded by dishonest or negligent sellers. Specifically, Tele-Save alleged Consumers violated section 1334.02 by failing to provide a written disclosure statement in connection with the transaction, section 1334.03 by failing to make certain disclosures regarding potential sales, income, and profits, by making false and misleading statements, and by accepting a down payment in excess of twenty percent of the initial payment, and section 1334.06 for failing to give the required notice of cancellation and failing to follow specific procedures with regard to cancellation.

Consumers filed a motion for summary judgment arguing that the Ohio Act was inapplicable to its agreement with Tele-Save because paragraph 17 of the agreement stipulated that the contract would be governed by New Jersey law. Tele-Save opposed the motion, arguing that the contractual choice-of-law provision was ineffective because application of New Jersey law violated a fundamental public policy of Ohio and because Ohio had a materially greater interest in the resolution of the dispute than New Jersey. The district court granted the defendant's motion and never reached the merits of the claim of violations of the Act.

Federal courts sitting in diversity must apply the choice-of-law principles of the forum. Klaxon Co. v. Stentor Electric Manufacturing Company, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Accordingly, Ohio choice-of-law principles are applicable in this case.

The Ohio Supreme Court in considering the deference to give contractual choice-of-law provisions has adopted the guidelines of the Restatement (Second) of Conflict of Laws, Sec. 187(2) (1971):

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 resolved by an explicit provision in their agreement directed to that issue, unless either

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or

(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of Sec. 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Company, 6 Ohio St.3d 436, 438-39, 453 N.E.2d 683 (1983).

Ohio's receptivity to contractual choice-of-law was further discussed in the recent decision of Jarvis v. Ashland Oil, Inc., 17 Ohio St.3d 189, 478 N.E.2d 786 (1985). In Jarvis, the Ohio Supreme Court held that "where the parties to a contract have made an effective choice of the forum law to be applied, the Restatement of the Law 2d, Conflict of Laws (1971) 561, Section 187(2), will not be applied to contravene the choice of the parties as to the applicable law." Id. 17 Ohio St.3d at 192, 478 N.E.2d 786. The court then added a narrow limitation to this rule: "[W]here the law of the chosen state sought to be applied is concededly repugnant to and in violation of the public policy of [Ohio], the law of Ohio will only be applied when it can be shown that [Ohio] has a materially greater interest than the chosen state in the determination of the particular issue." Id.

These recent comments by the Ohio Supreme Court indicate that Ohio choice-of-law principles strongly favor upholding the chosen law of the contracting parties. We see no reason to disturb the parties' choice absent the application of another state's law that would be concededly repugnant to Ohio public policy.

Tele-Save contends that the contractual choice-of-law provision should be ignored in this case and that Ohio law should be applied because of a non-waiver provision found in the Ohio Business Opportunity Plans Act. Section 1334.15 of the Act states:

The remedies of sections 1334.01 to 1334.15 of the Revised Code are in addition to remedies otherwise available for the same conduct under federal, state, or local law. Any waiver by a purchaser of sections 1334.01 to 1334.15 of the Revised Code is contrary to public policy and is void and unenforceable.

Tele-Save argues that because the Ohio legislature chose to adopt the Act, including section 1334.15, we must infer that the application of another state's law would be contrary to a fundamental public policy of Ohio and that Ohio has a materially greater interest in the resolution of the conflict. We are unwilling to make these assumptions.

In order to find the first prong satisfied, we would have to find both that the Ohio statute represents fundamental state policy and that the parties' chosen law would be contrary to this fundamental policy. There is no hard and fast rule to determine when a state policy will be considered "fundamental." The Restatement suggests a few guidelines. For example, courts may consider a policy "fundamental" when a large number of significant contacts are grouped in the forum state as opposed to the chosen state. Restatement (Second) of Conflict of Laws, Sec. 187 comment g (1971). In the present case, we might observe that there is no heavy concentration of significant contacts in Ohio, rather the contacts are fairly evenly divided between New Jersey and Ohio.

The Restatement also suggests that a statute may embody a "fundamental" state policy if it is "designed to protect a person against the oppressive use of superior bargaining power [as, for example, in a statute] involving the rights of an individual insured as against an insurance company...." Id. We think it important to our decision that the parties to this contract were not of unequal bargaining strength. Their contract was freely negotiated by aggressive and successful business executives, untainted by the suspicion and misgivings characteristic of adhesion contracts. Thus, we are unable to conclude that the Ohio Business Opportunity Plans Act represents a fundamental policy of Ohio.

Further, even if we were to concede that the Ohio statute represents fundamental public policy, we are unpersuaded that the application of New Jersey law would be contrary to this policy. Both parties agree that New Jersey does not have a statute which is identical to the Ohio Act. One may not determine conclusively from this omission, however, that the application of New Jersey law would be contrary to Ohio policy. Tele-Save acknowledges that there are also common law remedies available under New Jersey law. In its original complaint, Tele-Save alleged claims for breach of contract and fraud. It is not sufficient for Tele-Save to argue nor would we hold that Ohio law should be applied merely because a different result would be reached under New Jersey law. Restatement (Second) of Conflict of Laws, Sec. 187 comment g (1971). In order for the chosen state's law to violate the fundamental policy of Ohio, it must be shown that there are significant differences in the application of the law of the two states. Barnes Group, Inc. v. C & C Products, Inc., 716 F.2d 1023, 1031 n. 19 (4th Cir.1983) (Ohio law regarding restrictive covenants not applied to a state that prohibits such covenants). We find nothing under the facts before us to indicate that application of New Jersey law...