Proctoru Inc v. TM3 Software GmbH

Filing 13

MEMORANDUM OPINION and ORDER for reasons stated within the court concludes that the forum selection clause is valid and enforceable, and TM3's motion to dismiss for forum non conveniens, 2 , is GRANTED; Accordingly, this action is DISMISSED without prejudice; The motions for discovery and to continue the deadlines for the Rule 26(f) report and initial disclosures, docs. 6 & 12 , are MOOT. Signed by Judge Abdul K Kallon on 07/21/2017. (KBB)

FILED
2017 Jul-21 PM 02:11
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
PROCTORU, INC.,
Plaintiff,

vs.
TM3 SOFTWARE GMBH,
Defendant.

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Civil Action Number
2:17-cv-00926-AKK

MEMORANDUM OPINION AND ORDER
ProctorU, Inc., an “online proctoring service that allows students to take
exams online while ensuring the integrity of the exam for the institution,” doc. 1-1
at 11, entered into an agreement with TM3 Software GMBH for the use of
software developed by TM3 known as “KeyTrac,” which purportedly “confirms
the identity of an individual taking an online test based on that individual’s manner
of typing on a keyboard.” Id. at 13–14. The parties’ dispute centers, in part, on the
140 character pre-test typing sample ProctorU uses to “obtain a keystroke
biometric score.” Id. at 13. According to ProctorU, “[i]t is crucial for KeyTrac to
accurately identify test-takers at [the 140 character threshold] because a failure to
do so makes it difficult for ProctorU to solicit business.” Id. at 14. Although TM3
allegedly knew about the significance of the pre-test character limit prior to
entering into the agreement, TM3 provided software that could not achieve a
satisfactory level of accuracy, even with a 280 character threshold. See id. at 16.

As a result, ProctorU asserts claims for breach of contract (Count I), fraud (Count
II), and fraudulent inducement (Count III) against TM3. See id. at 20–21.
Presently before the court is TM3’s motion to dismiss for forum non
conveniens based on a forum selection clause stating that “[t]he exclusive place of
jurisdiction for all disputes directly or indirectly resulting from the contractual
relationship shall be the district court of Munich, Germany,” 1 id. at 37, or,
alternatively, for lack of personal jurisdiction. See doc. 2 at 2. The motion is fully
briefed, docs. 2; 8; 10; 11, and ripe for review. Because, as explained below, the
selection clause is valid and enforceable, the motion is due to be granted, and the
court will not address TM3’s alternative contention.
The “enforcement of valid forum-selection clauses, bargained for by the
parties, protects their legitimate expectations and furthers vital interests of the
justice system, and should be given controlling weight in all but the most
exceptional cases.” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 31, 33 (1988); see
also Slater v. Energy Servs. Group Int’l, 634 F.3d 1326, 1331 (11th Cir. 2011)
(“Mandatory forum-selection clauses are presumptively valid and enforceable
absent a strong showing that enforcement would be unfair or unreasonable under
the circumstances.”) (internal quotation marks and citations omitted). Thus, a

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“[T]he appropriate way to enforce a forum-selection clause pointing to a state or foreign
forum is through the doctrine of forum non conveniens.” Atl. Marine Constr. Co. v. United
States Dist. Court, 134 S. Ct. 568, 580 (2013).
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district court should only invalidate a forum-selection clause when: “(1) its
formation was induced by fraud or overreaching; (2) the plaintiff would be
deprived of its day in court because of inconvenience or unfairness; (3) the chosen
law would deprive the plaintiff of a remedy; or (4) enforcement of the clause
would contravene public policy.” Krenkel v. Kerzner Int’l Hotels Ltd., 579 F.3d
1279, 1281 (11th Cir. 2009) (citations omitted).
In an effort to avoid the forum selection clause, ProctorU raises two primary
points: that the clause is invalid because it was “procured by fraud,” doc. 10 at 2,
and because “German law is wholly different from American law, and its
application in this case would be fundamentally unfair to ProctorU,” id. at 6. As to
the latter point, ProctorU states that “[t]rial by jury is not available under German
law,” “German law also does not recognize or allow for the recovery of punitive
damages,” and “German law does not provide litigants with the ability to conduct
discovery to any extent comparable to that of the American legal system.” Doc. 10
at 6. These contentions are unavailing, because courts “will not invalidate choice
clauses . . . simply because the remedies available in the contractually chosen
forum are less favorable than those available in the courts of the United States,”
Lipcon, 148 F.3d at 1297. Also, even if Germany uses a more restrictive discovery
process, no reason exists to conclude that the German system would prevent
ProctorU from proving its claims. Indeed, courts have rejected similar arguments
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made in challenges to arbitration clauses. See, e.g., Gilmer v. Interstate/Johnson
Lane Corp., 500 U.S. 20, 31 (1991) (“[Plaintiff] . . . complains that the discovery
allowed in arbitration is more limited than in the federal courts, which he contends
will make it difficult to prove discrimination. . . . [T]here has been no showing in
this case that the [applicable] discovery provisions . . . will prove insufficient to
allow ADEA claimants such as [plaintiff] a fair opportunity to present their
claims.”); Caley v. Gulfstream Aero. Corp., 428 F.3d 1359, 1378 (11th Cir. 2005)
(arbitration clause not unconscionable simply because it “limits discovery by
allowing the taking of depositions only if authorized by the arbitrator”).
Next, as to the alleged fraud in the inducement, ProctorU asserts that, “in a
direct effort to induce ProctorU into agreeing to TM3’s proffered choice of law and
venue provisions favoring Germany,” TM3’s Managing Director, Dr. Thomas
Wolfl, told ProctorU’s then-Chief Executive Officer that “the agreement must be
governed by German law,” because TM3’s investor “is the state of Bavaria,” and
“[t]hey will not agree to an exclusive license contract based on US law.” Doc. 10
at 4. Purportedly, Dr. Wolfl “did not disclose that the state of Bavaria owns only
an unquantified interest in one of TM3’s seven investors and that through its
ownership of that investment company, the state of Bavaria has only an indirect,
minority 10% interest in TM3.” Id. at 4–5. ProctorU adds that, “had TM3 not
misrepresented Bavaria’s investment, and had ProctorU known the truth, ProctorU
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would not have agreed to the German choice of law and venue provisions.” Id.
However, stating that the state of Bavaria was TM3’s investor is not tantamount to
a representation that the state of Bavaria was the “sole” investor, as ProctorU
suggests, see id. at 5, or that Dr. Wolfl lied when he represented that the state of
Bavaria insisted on an agreement governed by German law.

In any event,

ProctorU bore an obligation to engage in due diligence prior to agreeing to the
contract terms, including the choice of law and forum selection clauses.
ProctorU’s failure to ascertain the extent of TM3’s investors or whether they
would agree to litigation in non-German courts is not an adequate basis for setting
aside the forum selection provisions.
For these reasons, the court concludes that the forum selection clause is valid
and enforceable, and TM3’s motion to dismiss for forum non conveniens, doc. 2, is
GRANTED. Accordingly, this action is DISMISSED without prejudice. The
motions for discovery and to continue the deadlines for the Rule 26(f) report and
initial disclosures, docs. 6 & 12, are MOOT. The Clerk is DIRECTED to close
this file.
DONE the 21st day of July, 2017.

_________________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE

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