Zions First Nat. Bank v. Allen

• Citation: 688 F. Supp. 1495
• Decision Date: 16 June 1988
• Docket Number: Civ. No. C-88-14W.
• Parties: ZIONS FIRST NATIONAL BANK, Plaintiff, v. Audrey ALLEN, et al., Defendants.
• Court: United States District Courts. 10th Circuit. United States District Court of Utah

688 F. Supp. 1495

ZIONS FIRST NATIONAL BANK, Plaintiff, v. Audrey ALLEN, et al., Defendants.

Civ. No. C-88-14W.

United States District Court, D. Utah, C.D.

June 16, 1988.

W. Waldan Lloyd, Jeffrey L. Shields, John P. Mullen, Lynda Cook, Salt Lake City, Utah, for Zions First Nat. Bank.

Rex E. Madsen, Ryan E. Tibbitts, Salt Lake City, Utah, for Anthony J. Hadeed.

Thomas Crowther, Roger Hoole, Salt Lake City, Utah, Christopher Ashworth, Lorraine Anderson, Los Angeles, Cal., for Audrey Allen, Steven D. Fisher and Barry J. Wolstan.

Richard D. Burbidge, Salt Lake City, Utah, for Joseph I. King.

MEMORANDUM DECISION

WINDER, District Judge.

This matter is before the court on: (1) defendant Allen's, Fisher's, Wolston's, Kang's, and Hadeed's motion to dismiss for lack of personal jurisdiction, and (2) defendant Hadeed's, Allen's, Fisher's, and Wolston's motions to stay these proceedings. The court heard oral arguments on June 11, 1988. John P. Mullen and Lynda Cook represented the plaintiff Zions First National Bank. Richard D. Burbidge represented defendant Kang. Thomas N. Crowther and Roger H. Hoole represented defendants Allen, Fisher, and Wolston. Rex E. Madsen and Ryan E. Tibbitts represented defendant Hadeed. Prior to the hearing the court had read all papers submitted by the parties. After the hearing the court took the matters under advisement. After further consideration the court now renders this memorandum decision.

Jurisdiction Over the Defendants

The first issue before the court is whether the defendants consented to jurisdiction in Utah and if so whether that consent can now be challenged.

Consent

The plaintiff argues that the defendants consented to jurisdiction in a Utah court when the defendants agreed to be bound by the partnership agreement. The applicable portion of the partnership agreement provides:

Each Partner hereby agrees that any suit, action or proceeding with respect to the Obligations may be brought in the state courts of, or the federal courts in, the State of Utah, and hereby irrevocably consents and submits to the jurisdiction of such courts for the purpose of any such suit, action or proceeding. Each Partner hereby agrees that service of process on such Partner in any such suit, action or proceeding may be made by registered or certified mail, postage prepaid, to such partner's address as set forth in the records of the Partnership. Each Partner hereby waives, and agrees not to assert against the Partnership (or any assignee thereof), by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts or that its property is exempt or immune from setoff, execution or attachment, either prior to judgment or in aid of execution, and (b) to the extent permitted by applicable law, any claim that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper or that the Obligations may not be enforced in or by such courts.

Parties to a contract can consent to litigate disputes in a particular forum by inserting a forum selection clause into their contract. National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 84 S.Ct. 411, 11 L.Ed.2d 354 (1964); Williams v. Life Savings & Loan, 802 F.2d 1200, 1202 (10th Cir.1986).

The defendants acknowledge that they were limited partners. However, the defendants contend that they never signed the partnership agreement and thus are not bound by the partnership agreement's forum selection clause.

The plaintiff has the burden of establishing jurisdiction over the defendants. However, on a motion to dismiss plaintiff need only make out a prima facie case that the defendants consented to jurisdiction. Frontier Federal Savings & Loan Association v. National Hotel Corporation, 675 F.Supp. 1293, 1295-96 (Utah 1987).

The plaintiff has not produced copies of the partnership agreement signed by the defendants. However, the plaintiff has produced documents entitled "CFS Sans Souci, Ltd. Subscription documents for Purchasers of Limited Partnership Interests" ("Subscription document") signed by all five defendants.

The subscription documents are identical except for the signature pages and the pages reserved for the defendants' personal information. The subscription document states, on page D1, in the first paragraph:

The partnership is to be operated in accordance with an Agreement of Limited Partnership (the "Partnership Agreement"), a copy of which is included in the Private Offering Memorandum of the Partnership dated November 5, 1984 (the "Memorandum"), a copy of which has been furnished to the undersigned herewith:

On page D4 in the paragraph labeled (d) the subscription document states:

He (the person signing the document) has received and carefully read or reviewed with his Purchaser Representative, if any, and is familiar with the Partnership Agreement, the Memorandum, this Agreement and the Secured Promissory Investor Note, and he confirms that all documents, records and other information pertaining to his investment in the Partnership and requested by him or his Purchaser Representative have been made available or delivered to him and/or his Purchaser Representative. (Emphasis added)

Contracting parties can incorporate by reference other documents and make the documents incorporated by reference part of the contract. Cf. USF & G v. West Point Construction Company, Inc., 837 F.2d 1507 (11th Cir.1988); Armstrong v. Federal National Mortgage Association, 796 F.2d 366 (10th Cir.1986). Prior to joining as limited partners in a partnership which was to be operated in accordance with the partnership agreement, the defendants acknowledged that they had received a copy of the partnership agreement and had reviewed the partnership agreement.

Since each defendant signed the subscription document which incorporated by reference the terms of the partnership agreement, the defendants are bound by the partnership agreement's forum selection clause. Accordingly, the court concludes that the plaintiff has met its burden of showing that the defendants consented to jurisdiction in Utah.

Enforceability of the Consent

The opposing party must clearly show that enforcement of the forum selection agreement is unreasonable under the circumstances. The Bremen v. Zapata Offshore Company, 407 U.S. 1, 15, 92 S.Ct. 1907, 1916, 32 L.Ed.2d 513 (1972). In order to show that the forum selection clause is unreasonable the moving party must clearly show either that: (1) the forum selection clause is invalid for fraud or overreaching or; (2) forcing the moving party to proceed in the selected forum will be so gravely difficult and inconvenient that the clause, for all practical purposes, will deprive the moving party of his or her day in court. The Bremen v. Zapata Offshore Company, 407 U.S. at 15, 18, 92 S.Ct. at 1916, 1917.

The defendants argue that both of the exceptions in the Zapata case are applicable.

Defendants' Rescission Argument

The defendants claim that the failure to register the partnership sale in California violated California law. In California, rescission is a remedy available to an injured party when a contract violates state law. See California Civil Code § 1689(b)(5). Plaintiff argues that the right to rescind an illegal contract is grounds to ignore a forum selection clause contained in that contract. However, this court is of the opinion that the right to rescind a contract at some future date is not grounds to ignore a forum selection clause.

Plaintiff's argument regarding rescission is similar to a claim that an entire contract can be rescinded because of fraud. While the United States Supreme Court in Bremen held that fraud could be grounds to avoid enforcement of a forum selection clause, later Supreme Court decisions have made clear that the fraud complained of must be specifically related to the inclusion of the forum selection clause. See Scherk v. Alberto/Culver Company, 417 U.S. 506, 519 n. 14, 94 S.Ct. 2449, 2457 n. 14, 41 L.Ed.2d 270 (1974).

Thus, in cases where one party fraudulently induces another to enter into a contract, the forum selection clause is still valid unless the party charged with fraud also fraudulently induces the other party to accept the forum selection clause. Giordano v. Witzer, 558 F.Supp. 1261, 1264 (E.D. Pa.1983); Hoffman v. Burroughs Corp., 571 F.Supp. 545, 549 (N.D.Tex.1982); Crowson v. Sealaska Corp., 705 P.2d 905, 911 (Alaska 1985).

This is based on sound policy. Forum selection clauses are agreements by the parties concerning where disputes are to be resolved. A suit for fraud is just one of many disputes that might arise. Absent proof that the forum selection clause is the product of fraud the parties should litigate all claims, including fraud claims, in the agreed on forum.

The registration requirement is part of California's Blue Sky laws. Blue Sky laws are primarily designed to prevent fraud in the state security market. Even if the sellers of the partnership interest somehow committed what can be considered a fraudulent or illegal act in not registering the partnership interests those fraudulent or illegal acts are not directly related to the defendants' agreement to litigate disputes in Utah. Accordingly, the information presently before the court shows that the forum selection clause is valid and enforceable notwithstanding the defendants' argument based on rescission.

The Defendants' Convenience Argument

The defendants must show that a trial in Utah would be so gravely difficult and inconvenient that the defendants for all practical purposes will be deprived of their day in court. The Bremen v. Zapata Offshore Company, 407 U.S. at 18, 92 S.Ct. at 1917.

The defendants argue that trying this case in Utah will be difficult for them. Four of the five defendants are medical doctors. Dr. Kang has argued that...