Opinion
Civil Action No. 3:04-CV-0210-G.
June 9, 2004
MEMORANDUM ORDER
Before the court is the motion of the defendants CMI Terex Corporation and CMI Sales Company (collectively, "CMI") to transfer this case for improper venue, pursuant to 28 U.S.C. § 1404(a) or FED. R. CIV. P. 12(b)(3), to the United States District Court for the Western District of Oklahoma. For the reasons stated below, CMI's motion to transfer is granted.
I. BACKGROUND
This case arises from the sale and purchase of an allegedly defective compost machine, the "Biogrind 500," on December 26, 2001. Plaintiff's Original Petition ("Petition") at 2, attached to Notice of Removal as Exhibit A. CMI, the seller of the Biogrind 500, is an Oklahoma corporation with its principal place of business in Oklahoma City, Oklahoma. Notice of Removal ¶ 6. The buyer, Soil Building Systems ("Soil"), is a Texas corporation with its principal place of business in Dallas County, Texas. Id. ¶ 5.
Soil alleges that problems with the Biogrind 500 began to surface on January 15, 2002, only two days after it was delivered. Petition at 3. These problems, Soil asserts, have caused the Biogrind 500 to fail sixty-five percent of the time, and demonstrate that it is "profoundly defective and operationally unsound." Id. at 3-5. Soil filed this case on January 5, 2004 in the 101st Judicial District Court of Dallas County, Texas, alleging breach of contract, breach of warranty, fraud, violations of the Texas Deceptive Trade Practices Act, and negligent misrepresentation. See id. at 5-10.
On February 2, 2004, CMI removed the case to this court on the basis of diversity of citizenship. Notice of Removal at 1-2. Also on February 2, 2004, CMI filed this motion to transfer Soil's claims against it for improper venue, pursuant to FED. R. CIV. P. 12(b)(3) and 28 U.S.C. § 1404(a), to the United States District Court for the Western District of Oklahoma. See Motion to Transfer Venue Pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure and/or Motion to Transfer Venue Pursuant to 28 U.S.C. § 1404(A); Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted and Motion for More Definite Statement ("Motion") at 1.
CMI contends that, pursuant to a forum selection clause in the Equipment Sales Order and Security Agreement ("Sales Agreement"), attached to Motion as Exhibit B, venue is proper in the Western District of Oklahoma. Motion ¶ 15. The forum selection clause in the Sales Agreement provides that "[t]he parties agree that the proper and exclusive forum and venue in all legal actions brought to enforce or construe any of the provisions of this agreement shall be in the United States District Court for the Western District of Oklahoma or, if federal jurisdiction is lacking in such legal action, in the District Court of Oklahoma County." Sales Agreement ¶ 16.
Soil, on the other hand, contends that the allegations in its petition are made under an oral agreement that predated the Sales Agreement, that the forum selection clause is not a term of the agreement, and that venue is therefore proper in this district. See Plaintiff's Response to Motions to Transfer Venue, Motion to Dismiss, and Motion for a More Definite Statement, and Brief in Support ("Response") at 3, 8. In the alternative, Soil asserts that the forum selection clause is unreasonable and unenforceable due to fraud and overreaching, or that it does not apply to its claims. Id. at 8-9.
II. ANALYSIS
In the following analysis, the court will first address whether the earlier oral agreement or the later written Sales Agreement controls in this case. Next, the court will consider the enforceability and scope of the Sales Agreement's forum selection clause. Finally, the court will discuss whether this case should be transferred to the Western District of Oklahoma.A. The Controlling Document
It is well settled Texas law that "a written instrument presumes that all prior agreements relating to the transaction have been merged into it," Smith v. Smith, 794 S.W.2d 823, 827 (Tex.App.-Dallas 1990, no writ), and are fully expressed by the written instrument. If the terms of the written agreement are clear and unambiguous, then the terms of the contract will be enforced as written, and cannot be supplemented, varied, or contradicted by parol evidence. Id. "The rule is particularly applicable where the written contract contains a recital that it contains the entire agreement between the parties or a similarly worded merger provision." Id. Further, this presumption of merger can only be overcome if it is clearly alleged and proved that the execution of the instrument was procured by fraud, accident or mistake. See Weinacht v. Phillips Coal Company, 673 S.W.2d 677, 679-80 (Tex.App.-Dallas 1984, no writ) (holding that allegations in petition did not state cause of action for fraud so as to escape application of the parol evidence rule); Advertising and Policy Committee of the Avis Rent A Car System v. Avis Rent A Car System, 780 S.W.2d 391, 396 (Tex.App.-Houston [14th Dist.] 1989) (holding that parol evidence was barred because appellants had not asserted that the written contract was executed, or that the merger clause was included, "because of fraud, accident or mistake"), vacated on other grounds, 796 S.W.2d 707 (Tex. 1990); Wilkins v. Bain, 615 S.W.2d 314, 315 (Tex.Civ.App.-Dallas 1981, no writ) (holding that a previous oral agreement was merged into or superseded by a subsequent written contract and that the terms of the written contract therefore controlled because appellee did not plead ambiguity, fraud, accident or mistake with regard to the written instrument).
Soil maintains that Texas law governs this dispute. Response at 3. For purposes of this discussion, the court will assume, without deciding, that Texas law applies.
In this case, the threshold issue in the motion is whether the oral agreement between Soil and the CMI, or the subsequent written Sales Agreement, is controlling. The oral agreement became binding on or about December 21, 2001, and the written Sales Agreement was executed on December 26, 2001. Significantly, the Sales Agreement clearly states that it "constitutes the entire agreement between the parties" and that it "supersedes any prior agreements . . ." — including the December 21 oral agreement. Sales Agreement ¶¶ 1, 15. In other words, the Sales Agreement "presumes that all prior agreements relating to the transaction have been merged into it," and that it is the full expression of the agreement. See Smith, 794 S.W.2d at 827.
The Statute of Frauds requires that a "contract for the sale of goods for the price of $500 or more" must be in writing to be enforceable. TEX. BUS. COM. CODE ANN. § 2.201 (Vernon 1994). A contract that does not satisfy this writing requirement can still be enforceable "with respect to goods for which payment has been made and accepted or which have been received and accepted." Id. § (c)(3). The Biogrind 500 arrived at Soil's place of business on December 19, 2001, and "[a]fter the completion of the test on December 21, 2001," Fred Ablon informed Andy Pujats that they had a deal. Affidavit of Fred Ablon Controverting the Affidavit of Andy Pujats Attached to Defendant's Appendix ("Ablon Affidavit") ¶¶ 3-4, attached to Plaintiff's Appendix in Response to Appendix to Defendant's Brief in Reply to Plaintiff's Response to Motions to Transfer Venue, Motion to Dismiss and Motion for a More Definite Statement as Exhibit 1. The delivery of the Biogrind 500 satisfies the § 2.201(c)(3) exception to the Statute of Frauds and dates the oral agreement to on or about December 21, 2001.
Fred Ablon, President of Soil, stated in his affidavit that, "Pujats returned to Soil Building Systems on Wednesday, December 26, 2001 with the Equipment Sales Order and Security Agreement dated in three different locations on the page with the same date-December 26, 2001 . . . I signed it and gave it back to Pujats." Ablon Affidavit ¶ 4.
Because there is a strong presumption that the Sales Agreement is controlling, Soil can only rebut this presumption with pleading and proof that the instrument was procured by fraud, accident, or mistake. See, e.g., Weinacht, 673 S.W.2d at 679. At first blush, Soil appears to have met this requirement, as it pleads fraud with regard to the contract it entered into with CMI "[o]n or about December 26, 2001. . . ." Petition at 2. However, Soil's response to CMI's motion shows that Soil's claim of fraud is based solely on the oral agreement, not the Sales Agreement. Response at 3 ("Plaintiff does not assert any of its causes of action based upon the receipt which contains the forum selection clause and choice of law clause . . .").
For the foregoing reasons, the court concludes that the oral agreement has been merged into the Sales Agreement, and that the Sales Agreement is the controlling document.
B. The Forum Selection Clause 1. Enforceability of the Forum-Selection Clause
Because the Sales Agreement is controlling in the instant case, the court now turns to the question of whether the forum selection clause contained therein is enforceable. In deciding this question, the court applies federal law. Stewart Organization, Inc. v. Ricoh Corporation, 487 U.S. 22, 31-32 (1988) (holding that "federal law . . . governs the District Court's decision whether to give effect to the parties' forum-selection clause. . . .").
A forum selection clause is prima facie valid and enforceable. Seattle-First National Bank v. Manges, 900 F.2d 795, 799 (5th Cir. 1990); Kevlin Services, Inc. v. Lexington State Bank, 46 F.3d 13, 15 (5th Cir. 1995); Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 589-95 (1991). To overcome the presumption of validity, the party challenging a forum selection clause has a "heavy burden" of demonstrating that enforcement of the clause would be unreasonable under the circumstances. Mitsui Company (USA), Inc. v. Mira M/V, 111 F.3d 33, 35 (5th Cir. 1997); see also M/S Bremen v. Zapata Off-Shore Company, 407 U.S. 1, 15 (1972). In general, a court will find it unreasonable to enforce a forum selection clause that is the product of fraud or overreaching, violates strong public policy, or effectively deprives a party of his day in court. Mitsui, 111 F.3d at 35; M/S Bremen, 407 U.S. at 15-18.
Fraud and overreaching must be alleged specifically as to the forum selection clause in order to render it invalid. See, e.g., Scherk v. Alberto-Culver Company, 417 U.S. 506, 519 n. 14 (1974) (it is not true "that any time a dispute arising out of a transaction is based upon an allegation of fraud, as in this case, the clause is unenforceable. Rather, . . . [a] forum selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion"); Haynsworth v. The Corporation, 121 F.3d 956, 963 (5th Cir. 1997) (stating that "the claims of fraud or overreaching must be aimed straight at the [forum selection clause] in order to succeed," and that "allegations of such conduct as to the contract as a whole . . . are insufficient"), cert. denied, 523 U.S. 1072 (1998).
The court sees no reason in the present case not to enforce the unambiguous forum selection clause included in the Sales Agreement. Soil argues that the forum selection clause is invalid because the Sales Agreement "contains a representation that the receipt was from CMI Sales Co., a duly organized legal entity," when CMI Sales Company had actually been merged out of existence. Response at 8. This misrepresentation, Soil contends, " constitutes fraud in the formation of the receipt and invalidates the forum selection clause." Id. (emphasis added). Soil's allegation of fraud is aimed at "the contract as a whole," and is therefore "insufficient." See Haynsworth, 121 F.3d at 963.
Soil also argues that the forum selection clause was non-negotiated boilerplate language and, thus, unenforceable due to overreaching. Response at 2, 8. However, "[u]nder elementary principles of contract law, one is presumed to have read a contract that one signs: A person who signs a written instrument is presumed to know its contents and cannot avoid its obligations by contending that he did not read it, or that it was not explained or that he did not understand it." In re Cajun Electric Power Cooperative, Inc., 791 F.2d 353, 359 (5th Cir. 1986); see also Elliott v. Carnival Cruise Lines, 231 F. Supp.2d 555, 561 (S.D. Tex. 2002) (holding that cruise ship passenger was chargeable with constructive notice of the forum-selection clause on his ticket, where text in all capital letters on the first page of the contract made him aware of the presence of additional terms). Even if the court assumes arguendo that there was a disparity in bargaining power between Soil and CMI, and that Soil had no actual or constructive notice of the forum selection clause, the clause is not per se unreasonable. Carnival Cruise Lines, 499 U.S. at 593-95 (finding a nonnegotiated forum selection clause contained in a form contract on a passenger ticket was reasonable and enforceable). Moreover, while Soil contends that it would be "inconvenient and costly" for it to pursue its claim in Oklahoma, Response at 3, it has "not shown that such inconvenience was unforeseeable at the time the contract was executed or that . . . [it] would be so inconvenient as to deprive [Soil] of [its] day in court." See Stanley Computer Group, LLC v. Hoosier Freelance, Inc., No. 3:02-CV-0528-G, 2002 WL 1461931, at *5 (N.D. Tex. July 3, 2002) (Fish, Chief J.); M/S Bremen, 407 U.S. at 17-18 (finding that where inconvenience was foreseeable at the time of contracting, the party seeking to avoid the contractual forum must show it "will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court").
The Sales Agreement in this case has a bold-faced line at the bottom which states, "[a]ll terms and conditions on the reverse side of this agreement are a part hereof and are binding upon the parties hereto." The court concludes that the Sales Agreement, like the contract in Elliot, provided Soil with constructive notice of the forum selection clause contained on the back of the Agreement.
The court concludes, therefore, that the forum selection clause in this case is reasonable and enforceable.
2. The Scope of the Forum-Selection Clause
The court must now consider whether the forum selection clause applies to the type of claims asserted in the instant case. Woolf v. Mary Kay Inc., 176 F. Supp.2d 642, 647 (N.D. Tex. 2001). The court looks first "to the language of the parties' contracts to determine which causes of action are governed by the forum selection clause." Marinechance Shipping, Ltd. v. Sebastian, 143 F.3d 216, 222 (5th Cir.), cert. denied, 525 U.S. 1055 (1998). "[I]f the substance of [the plaintiff's] claims, stripped of their labels, does not fall within the scope of the [forum selection] clause, the clause cannot apply." Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1361 (2d Cir.) (emphasis in original), cert. denied, 510 U.S. 945 (1993).
The court must examine both tort and contractual claims to determine whether they are governed by the forum selection clause. Carnival Cruise Lines, Inc., 499 U.S. 585 (rejecting by necessary implication an across-the-board contract/tort distinction by applying a forum selection clause to a pure tort case); Marinechance Shipping, Ltd., 143 F.3d at 221-22 ("[w]e find no persuasive support for [a contract/tort] distinction"). "Whether a forum selection clause applies to tort claims depends on whether resolution of the claims relates to interpretation of the contract." Psarros v. Avior Shipping, Inc., 192 F. Supp.2d 751, 754 (S.D. Tex. 2002) (quoting Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 514 (9th Cir. 1988)); see also Weidner Communications Inc. v. Faisal, 671 F. Supp. 531, 537 (N.D. Ill. 1987) (holding that tort claims alleged by the plaintiff were too closely related to the contract to be treated as truly independent), rev'd on other grounds, 859 F.2d 1302 (7th Cir. 1988).
In the instant case, the forum selection clause provides:
The parties agree that the proper and exclusive forum and venue in all legal actions brought to enforce or construe any of the provisions of this agreement shall be in the United States District Court for the Western District of Oklahoma or, if federal jurisdiction is lacking in such legal action, in the District Court of Oklahoma County.
Sales Agreement ¶ 16. Soil contends that "the forum selection clause does not apply to any of [its] . . . causes of action." Response at 9. This argument is based on Soil's assertion that it "did not bring this action to enforce or construe any of the provisions of the [contract]." Id. The court disagrees.
Looking first "to the language of the parties' contract," Marinechance Shipping, Ltd., 143 F.3d at 222, the court concludes that the forum selection clause at issue governs Soil's claims. Resolution of Soil's claims for breach of contract and breach of warranty will necessarily require a court to "construe" the Sales Agreement. Ryan v. Superior Oil Company, 813 S.W.2d 594, 596 (Tex.App.-Houston [14th Dist.] 1991, writ denied) ("[ B] reach of contract requires proof that (1) a binding contract existed; (2) defendants breached the contract; and (3) plaintiffs suffered damages caused by the defendants' alleged breach") (emphasis added); Chilton Insurance Company v. Pate Pate Enterprises, Inc., 930 S.W.2d 877, 891 (Tex.App. — San Antonio 1996, writ denied) (in determining the existence of a warranty for the sale of goods, " the question is whether the goods delivered pursuant to the contract are in conformance with the statement or representation of the character, quality or title of the goods promised at the time of sale") (emphasis added).
Soil's claim of deceptive trade practices, see Petition at 7-8, requires the examination of the contract as well. Specifically, Soil alleges that CMI deceptively represented that the parties'" agreement confers or involves rights, remedies, or obligations which it does not have or involve," and that CMI represented "that a guarantee or warranty confers or involves rights or remedies which it does not have or involve." Id. at 8 (emphasis added).
Soil's contention that its claims of fraud and misrepresentation are not governed by the forum selection clause because they are "torts committed in the course of the contractual relationship," Response at 9, is also without merit. Soil's reliance on Psarros v. Avior Shipping, Inc., 192 F. Supp.2d 751, 753-54 (S.D. Tex. 2002), is misplaced. In Psarros, the plaintiff's claims of negligence and products liability were unrelated to the interpretation of his employment contract. See id. at 752. In the instant case, unlike Psarros, Soil's claims in tort require interpretation of the contract. Soil's fraud claim alleges that CMI made " representations to Plaintiff that they would fix the CMI Biogrind 500 or at least reimburse [Soil] for fixing the problems," despite having no intention to do so. Petition at 6-7 (emphasis added). Soil's negligent misrepresentation claim similarly alleges that "CMI . . . made false and incorrect representations about the functions and repair of the CMI Biogrind 500." Id. at 9 (emphasis added). These claims necessarily require the court to interpret the parameters of the Sales Agreement's provisions that disclaim all oral representations and prior agreements. Sales Agreement ¶¶ 1, 15.
For the reasons stated above, the court holds that the forum selection clause at issue governs all of Soil's claims — both in contract and in tort.
C. CMI's Motion to Transfer
Given the applicability of the Sales Agreement's forum selection clause, the court will transfer this action to the Western District of Oklahoma. While CMI has moved for transfer pursuant to 28 U.S.C. § 1404(a), "this [c]ourt is of the opinion that such a transfer is more appropriately treated under section 1406(a)." Hoffman v. Burroughs Corporation, 571 F. Supp. 545, 551 (N.D. Tex. 1982) (enforcing a forum selection clause by granting motion to transfer pursuant to 28 U.S.C. § 1406 instead of 28 U.S.C. § 1404); see also Jackson v. West Telemarketing Corporation Outbound, 245 F.3d 518, 523 (5th Cir.) ("[A] transfer for improper venue comes under § 1406(a)"), cert. denied, 534 U.S. 972 (2001).A district court has broad discretion in determining whether to dismiss or transfer a case in the interest of justice. O'Malley v. Kitchen Department Hodge Unit, No. 3:04-CV-444-D, 2004 WL 549491, at *1 (N.D. Tex. 2004) (citing Caldwell v. Palmetto State Savings Bank of South Carolina, 811 F.2d 916, 919 (5th Cir. 1987)). In the instant case, CMI has not moved for dismissal, and in fact, states that "[i]t is not the intent of [CMI] that Plaintiff's case be dismissed. . . ." Id. ¶ 19. Accordingly, the court determines that transfer of this case to the Western District of Oklahoma — as opposed to dismissal — is appropriate.
III. CONCLUSION
For the reasons stated above, CMI's motion is GRANTED and this case is TRANSFERRED to the Western District of Oklahoma. This court will not address CMI's motion under Rules 12(b)(6) and 12(e), the resolution of those issues being left to the transferee court.
SO ORDERED.