Whitaker v. Monroe Staffing Servs., LLC

• Decision Date: 22 July 2022
• Docket Number: 21-1217
• Citation: Whitaker v. Monroe Staffing Servs., LLC, 42 F.4th 200 (4th Cir. 2022)
• Parties: Pamela D. WHITAKER, Plaintiff - Appellee, v. MONROE STAFFING SERVICES, LLC ; Staffing 360 Solutions, Inc., Defendants - Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

42 F.4th 200

Pamela D. WHITAKER, Plaintiff - Appellee,

v.MONROE STAFFING SERVICES, LLC ; Staffing 360 Solutions, Inc., Defendants - Appellants.

No. 21-1217

United States Court of Appeals, Fourth Circuit.

Argued: March 9, 2022

Decided: July 22, 2022

ARGUED: Jonathan D. Pressment, HAYNES & BOONE, LLP, New York, New York, for Appellants. Grover Gray Wilson, NELSON MULLINS RILEY & SCARBOROUGH LLP, Winston-Salem, North Carolina, for Appellee. ON BRIEF: Craig D. Schauer, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P., Greensboro, North Carolina; Abbey Gauger, HAYNES & BOONE, LLP, New York, New York, for Appellants. Stuart H. Russell, NELSON MULLINS RILEY & SCARBOROUGH LLP, Winston-Salem, North Carolina, for Appellee.

Before RICHARDSON and HEYTENS, Circuit Judges, and KEENAN, Senior Circuit Judge.

Vacated and remanded with instructions by published opinion. Senior Judge Keenan wrote the majority opinion, in which Judge Heytens joined. Judge Richardson wrote an opinion concurring in part and concurring in the judgment.

BARBARA MILANO KEENAN, Senior Circuit Judge:

This appeal raises issues concerning ripeness and the application of a contract's forum selection clause. In August 2018, plaintiff Pamela Whitaker entered into a share purchase agreement with the defendants for the sale of her business, which agreement the parties later amended (the contract, or the amended agreement). Whitaker filed suit in December 2019 in North Carolina state court, alleging that the defendants had not made interest and earnout payments as required under the amended agreement. The defendants removed the case to federal district court in the Middle District of North Carolina, where they argued that the state or federal courts in New York were the exclusive forums for Whitaker's complaint under the contract's forum selection clause. The defendants also argued that Whitaker's claims were not yet ripe because, at the time the complaint was filed, all payments that were due under the contract had been made.

The magistrate judge recommended transferring the case to the Southern District of New York in accordance with the contract's forum selection clause. The district court disagreed. The district court concluded that Whitaker's claims were "relating to" a setoff, enabling Whitaker to invoke an exception in the forum selection clause and maintain her suit in North Carolina state court. The district court remanded the case to the North Carolina state court, and the defendants now appeal.

Upon our review, we initially conclude that Whitaker's claims are ripe, both as originally pleaded and under the facts developed prior to the district court's judgment. We also agree with the magistrate judge that Whitaker's claims do not relate to a setoff and that under the contract's forum selection clause, the state or federal courts in New York are the exclusive forums for Whitaker's claims. We therefore vacate and remand with instructions that the district court transfer this case to the Southern District of New York.

I.

Whitaker is the owner of Key Resources, Inc., a North Carolina corporation. In August 2018, Whitaker entered into a share purchase agreement with defendant Monroe Staffing Services, LLC.¹ Monroe agreed to make an initial payment of around $8 million to Whitaker, to be followed by two earnout payments in August 2019 and August 2020, each in the amount of $2,027,198.

The agreement specified that New York law would apply to all matters relating to the contract. The contract also included a forum selection clause, stating that:

Any legal suit, action, proceeding, or dispute arising out of or related to this Agreement ... may be instituted in the federal courts of the United States of America or the courts of the State of New York in each case located in the city and county of New York, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action, proceeding, or dispute [the forum selection clause].

The forum selection clause further provided the following exception (the North Carolina exception):

Notwithstanding the foregoing, any legal suit, action, proceeding, or dispute arising out of or relating to a [Monroe] setoff pursuant to Section 7.08 and [Whitaker's] dispute relating thereto may be instituted in the federal courts of the United States of America located in the Middle District of North Carolina or the courts of the State of North Carolina located in Guilford County, in either case applying New York law, and such forum selection by [Whitaker] shall be controlling.

(Emphases added.) Thus, under these provisions, New York federal or state courts are the exclusive forums for disputes arising out of or relating to the contract, unless the dispute is "arising out of or relating to a [Monroe] setoff pursuant to Section 7.08" of the contract.

Section 7.08 (or the setoff provision) allows Monroe "at its sole election" to withhold or deduct amounts from the earnout payments that otherwise would be owed to Whitaker in the event of Whitaker's breach of the contract or misrepresentation of information contained in the contract. To exercise this right of setoff, Monroe "shall" "deliver[ ] a written notice to [Whitaker] that shall contain the following: (1) the basis for why [Monroe] believes it is entitled to setoff, (2) the alleged amount owed (the ‘Setoff Amount’) along with a calculation showing the basis for such Setoff Amount, and (3) reasonable documentation supporting the Setoff Amount."

Monroe failed to make the first scheduled earnout payment due in August 2019. The following month, the parties executed an amendment to the share purchase agreement. The amended agreement stated that both outstanding earnout payments were "deemed earned and payable in full." The amendment also permitted Monroe to delay the first earnout payment "provided, however, that for each full calendar month that such payment is delayed, [Monroe] shall pay [Whitaker] interest in the amount of $10,000." The first such interest payment was due at the end of September 2019, with successive interest payments due by "the last business day of each calendar month." The amendment further provided that:

[Monroe] expects that it will pay the First Year Earnout on or around November 29, 2019, but failure to make payment shall not be a breach of the Share Purchase Agreement so long as [Monroe] continues to pay interest ... and such payment is made in full by February 27, 2020.

(Emphasis added.) The amendment also stated that the final earnout payment would be "due and payable on February 27, 2020." The parties dispute whether the interest payments specified in the amendment were made as required by the amended agreement.

On November 25, 2019, Monroe's counsel sent Whitaker a letter stating as the subject, "Notice of Claim And Reservation Of Rights With Respect To Breaches" of the contract (the reservation of rights letter). In the letter, counsel stated that it was investigating "numerous" misrepresentations that Whitaker allegedly had made in connection with the sale of her business. The letter further explained that "in an abundance of caution," Monroe was providing Whitaker with notice of its claims with respect to "suspected breaches" of the contract and "other potentially fraudulent representations and/or conduct." The letter listed several sections of the contract that might be the subject of Monroe's claims. The letter also stated:

We further provide you with notice, pursuant to [the setoff provision], that [Monroe] reserves all rights to setoff any penalties, liabilities, or damages arising as a result of any fraudulent conduct and/or breaches of the [contract] by you ... against any Earnout Payments that would otherwise be owed to you. (See [contract], § 7.08.)

However, the letter did not include a setoff amount, supporting calculations, or corroborating documentation, as required by the setoff provision of Section 7.08.

Ten days later, on December 5, 2019, Whitaker filed the present complaint against the defendants in North Carolina state court, alleging breach of contract and seeking a declaratory judgment to that effect. Whitaker alleged that the defendants "materially breached the [contract] by failing to make the payments and interest as agreed," in the amount of $4,054,396 plus interest. The defendants removed the case to federal district court in the Middle District of North Carolina and filed a motion to dismiss the complaint for lack of ripeness, lack of personal jurisdiction, improper venue, and failure to state a claim, under Federal Rules of Civil Procedure 12(b)(1), (2), (3), and (6). Alternatively, Monroe sought to transfer the case to the Southern District of New York pursuant to the forum selection clause and 28 U.S.C. § 1404(a).

In response, Whitaker filed a motion to amend her complaint. The proposed amended complaint alleged that as of February 28, 2020, the defendants had "repeatedly failed to timely make the interest payments as required," had failed to make the earnout payments, and had purported to terminate the contract. Whitaker also sought to have the case remanded to state court.

While the case was pending in the district court, Monroe filed a complaint against Whitaker in the Southern District of New York, alleging claims of breach of contract and fraudulent inducement.² Monroe's complaint did not allege entitlement to a setoff. The New York litigation currently is stayed pending resolution of this appeal.

The magistrate judge in North Carolina concluded that the contract's forum selection clause mandated exclusive jurisdiction in the state or federal courts in New York and recommended transferring the case accordingly. The district court disagreed, holding that the clause's North Carolina exception for disputes "relating to" a setoff applied. The district court remanded the case to North Carolina state court without addressing Monroe's other arguments, and denied as moot Whitaker's motion to amend her complaint....