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holding that language which identifies an "exclusive" venue renders a forum-selection clause to be mandatory rather than permissive
Summary of this case from San Rafael Capital Partners, LLC v. ChaudhryOpinion
No. C 02-1717 SI
July 5, 2002
ORDER GRANTING MOTION TO REMAND AND REMANDING ACTION TO STATE COURT
On July 5, 2002, this Court heard argument on plaintiff's motion to remand. Having carefully considered the papers submitted and the arguments of counsel, and for the reasons set forth below, the Court GRANTS plaintiff's motion to remand this action to Marin County Superior Court.
BACKGROUND
On January 10, 2002, plaintiff Air Ion Devices, Inc. ("AID") filed a complaint in Marin County Superior Court alleging breach of contract arising from a written agreement ("Agreement") between AID and defendants Air Ion, Inc., et al. (collectively "AI") entered in October 2001. The Agreement established that in exchange for AID's manufacture of an air filtration component for AI's water machine and disclosure of confidential information related to AID's product, AI would transfer stock and make payments to AID. See Declaration of Daryl Weinroth ("Weinroth Decl."), Ex. A (Agreement).
Defendants move to strike the declaration of Daryl Weinroth, on the grounds that the declaration violates the parol evidence rule. See Def.'s Oppo. at 3-4. The Court denies this request. The parol evidence rule provides that where the parties have entered into an integrated written agreement, extrinsic evidence is inadmissable for the purpose of adding to or varying the terms of the agreement. See Banco do Brasil, S.A. v. Latian, Inc., 234 Cal.App.3d 973, 1000 (1991), review denied, 1992 Cal. LEXIS 302, cert. denied, 60 U.S.L.W. 3841 (1992). However, the parol evidence rule "does not exclude other evidence of the circumstances under which the agreement was made." Cal. Code Civ. Pro. § 1856 (West 1983); see Banco do Brasil, 234 Cal.App.3d at 1000. Furthermore, California law provides that extrinsic evidence may be admitted to explain the meaning of the terms in the agreement. See Trident Center v. Connecticut General Life Ins. Co., 847 F.2d 564, 568-69 (9th Cir. 1988). The Weinroth declaration briefly provides background about the circumstances that surrounded the drafting of the forum selection clause. The declaration is admissible under the authority set forth above.
On February 22, 2002, AID filed a first amended complaint alleging six additional causes of action: (1) rescission, (2) fraud, (3) negligent misrepresentation, (4) alter ego, (5) misappropriation of trade secrets, and (6) unfair business practices. AI has since filed an answer and counterclaim to plaintiff's first amended complaint. AI alleges three causes of action: (1) breach of contract, (2) fraudulent misrepresentation, and (3) negligent misrepresentation.
On April 10, 2002, AI filed a notice removing the action to this Court on diversity grounds. Now before the Court is AID's motion to remand.
LEGAL STANDARD
The removal statute, 28 U.S.C. § 1441(a), provides in relevant part that "any civil action brought in a state court of which district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants to the district court of the United States for the district and division embracing a place where such action is pending." 28 U.S.C. § 1441(a).
Remand after an action has been removed from state court is only available for lack of subject matter jurisdiction or "for any defect in removal procedure." 28 U.S.C. § 1447(c). See Buckner v. FDIC, 981 F.2d 816, 820 (5th Cir. 1993). Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance. Gaus v. Miles, 980 F.2d 564, 566 (9th Cir 1992). The burden of establishing grounds for federal jurisdiction rests on the removing party. Emrich v. Touche Ross Co., 846 F.2d 1190, 1195 (9th Cir. 1988).
DISCUSSION
AID is a California corporation with its principal place of business in Marin County, California. AI is a Delaware corporation with its principal place of business in Lafayette, Louisiana. "Due the span of distance between [the parties'] respective locations," the Agreement contains a forum selection clause that states, in relevant part:
The parties acknowledge and agree that the issue of choice of law and venue in the event suit is commenced concerning this agreement is a difficult one for them to resolve due [to] the span of distance between their respective locations. For this reason it could result in a hardship to one party if it were forced to travel to the other party's location to resolve a grievance based on the other's breach or nonperformance . . .
In the event AI has failed to meet its obligations under this agreement by failing to pay any amounts due to AID under the terms of this contract . . . then the parties agree that any action commenced by AID to enforce its rights against AI shall be brought in the County of Marin, State of California. California law shall govern and control such actions. Further, by this provision AI intends to subject itself to the jurisdiction of the courts of the State of California to this limited extent, and none other.
Agreement, ¶ 9.
AID urges remand on the grounds that, because the forum selection clause is mandatory and designates the state court in Marin County as the exclusive venue for this action, the removal was improper. AID also argues that, because of the same forum selection clause, AI contractually waived its right to consent to removal. AI, on the other hand, asserts that the forum selection clause is permissive and that it merely establishes the possibility, and not the exclusivity, of jurisdiction in Marin County. AI contends that the forum selection clause was a "geographic consideration" with no clear and unequivocal waiver of the right to removal. Def.'s Mot. at 11, 13.
AID argues that the forum selection clause at issue is "virtually indistinguishable" from the clause that the Ninth Circuit held to be mandatory in Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762 (9th Cir. 1989). Pl.'s Mot. at 6:24. AI largely relies on Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75 (9th Cir. 1987), and contends that the forum selection clause at issue lacks exclusivity and is permissive. See Def.'s Oppo. at 3, 4, 5, 9, 10, 12.
In Docksider the disputed forum selection clause stated, in relevant part, "Licensee hereby agrees and consents to the jurisdiction of the courts of the State of Virginia. Venue of any action brought hereunder shall be deemed to be in Gloucester County, Virginia." Docksider, 875 F.2d at 763. In Hunt, on the other hand, the contested forum selection clause stated, in relevant part,
Buyer and Seller expressly agreed that the laws of the State of California shall govern the validity, construction, interpretation and effect of this contract. The courts of California, County of Orange, shall have jurisdiction over the parties in any action of law relating to the subject matter of the interpretation of this contract.
Hunt, 817 F.2d at 75.
The language of the clause at issue parallels that of the Docksider clause, which the Ninth Circuit found to be mandatory. The Ninth Circuit concluded that the critical, mandatory language in Docksider was the sentence stating: "Venue of any action brought hereunder be deemed be in Gloucester County, Virginia." Docksider, 875 F.2d at 763. Similarly, the forum selection clause in the present action states that "[A]ny action commenced by AID to enforce its rights against AI shall be brought in the County of Marin, State of California." Agreement, ¶ 9. Such language establishes that Marin County is the only venue for this action.
At oral argument, counsel for defendants argued, without citation to authority, that "the cases say" that "shall does not mean shall." Thus, in the contract provision "any action commenced by AID . . . shall be brought in the County of Marin, State of California," counsel argued that "shall" is merely a precatory, not a mandatory, command. This Court disagrees. Cf. Center for Biological Diversity v. Norton, 254 F.3d 833, 837 (9th Cir. 2001), citing Forest Guardians v. Babbitt, 174 F.3d 1178, 1187 (10th Cir. 1999) ("`[s]hall' means shall.")
The forum selection clause in this case is also similar to that in Excell, Inc. v. Sterling Boiler Mechanical, Inc., 106 F.3d 318 (10th Cir. 1997), in which the Tenth Circuit held the clause to be mandatory. In Excell, the contested forum selection clause stated, in relevant part, "Jurisdiction shall be in the State of Colorado, and venue shall lie in the County of El Paso, Colorado." Excell, 106 F.3d at 320. Though the parties in Excell did not explicitly set forth whether Colorado state law or federal common law controlled the validity and interpretation of the clause, the Tenth Circuit found that "because the language of the clause refers only to a specific County and not to a specific judicial district . . . venue is intended to lie only in state district court." Excell, 106 F.3d at 321. The Tenth Circuit noted that "[f]or federal court purposes, venue is not stated in terms of `counties.' Rather, it is stated in terms of `judicial districts.'" Id. Likewise, the clause presently at issue refers only to Marin County, and not to a specific judicial district. Furthermore, because there is no federal court in Marin County, the language of the forum selection clause in the present case makes it even clearer that any action related to the Agreement must be brought in state court.
The present case is distinguishable from the authorities upon which AI relies. In Council of Laborers v. Pittsburgh-Des Moines Steel, 69 F.3d 1034, 1036 (9th Cir. 1995), the Ninth Circuit held that a forum selection clause stating that arbitrated decisions "shall be enforceable by a petition to confirm an arbitration award filed in the Superior Court of the City and County of San Francisco, State of California," was permissive. Council, 69 F.3d at 1036. The Ninth Circuit reasoned that the clause lacked any exclusive language indicating that the subject matter could not be litigated in any other court. Id. The Hunt clause, which the Ninth Circuit held to be permissive, also lacked any exclusive language. See Docksider, 875 F.2d at 764. Rather than require that all actions be brought exclusively in Orange County, the clause in Hunt merely asserted that Orange County jurisdiction over the matter was possible. See Hunt, 817 F.2d at 77. The language of the Blunt clause did not require that an action be brought only in Orange County and in no other. Id. On the other hand, the forum selection clause in the present case contains mandatory language requiring that all actions related to the Agreement be brought in the County of Marin and in no other. In sum, the forum selection clause presently at issue is mandatory and grants exclusive jurisdiction over this action to the Marin County Superior Court.
Courts must strictly construe the removal statute against removal jurisdiction. See Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir 1988). A clause that establishes a mandatory choice of venue will be enforced unless the resisting party can show that enforcement would be "unreasonable under the circumstances." See id. at 763. AI has failed to demonstrate that remand to state court would be unreasonable. AI acknowledges that the parties included the forum selection clause because "they do not want to bear the expense to travel to the other parties' location to sue the other party for its wrongdoing." See Def.'s Oppo. at 15. A change in location from San Francisco to Marin County would be negligible for AI, given the already great distance that AI must travel from Louisiana to California, whether this action is brought in state court in Marin County or federal court in San Francisco. Therefore, it is entirely reasonable to enforce the forum selection clause and remand the action to state court, as the clause requires.
The parties disagree as to whether AI waived its right to removal based on the forum selection clause. Intent to establish a waiver of the right to removal may be inferred from the language of the forum selection clause. See Regis Associates v. Rank Hotels (Management) Ltd., 894 F.2d 193, 195 (6th Cir. 1990). In the present action, the mandatory language of the forum selection clause establishes that unless defendants prove that enforcement of the clause is unreasonable, they have waived their right to removal. Because defendants have not proven that enforcement of the clause is unreasonable, the forum selection clause constitutes AI's waiver of the right to removal.