Guest Associates Incorporated v. Cyclone Aviation Products Ltd

Filing 22

MEMORANDUM OPINION. Signed by Magistrate Judge John H England, III on 6/30/2014. (MSN)

FILED
2014 Jun-30 PM 04:17
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
GUEST ASSOCIATES, INC.,
Plaintiff,
v.
CYCLONE AVIATION PRODUCTS,
LTD.,
Defendant.

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Case Number: 5:13-cv-01667-JHE

MEMORANDUM OPINION
Defendant Cyclone Aviation Products, Ltd (“Cyclone”) moves, pursuant to 28 U.S.C. §
1404(a), to transfer venue to the United States District Court for the Southern District of New
York. (Doc. 7). 1 Plaintiff Guest Associates, Inc. (“GAI”) responded in opposition, (doc. 12),
and, after seeking and being granted leave to file a reply, Cyclone did so, (doc. 16). Defendant
subsequently filed a notice of supplemental authority, attaching a copy of Atlantic Marine
Construction Co. v. U.S. District Court for the Western District of Texas, -- U.S. --, 134 S. Ct.
568, 187 L. Ed. 2d 487 (2013). (Doc. 19). Plaintiff responded, arguing the inapplicability of that
case. (Doc. 20). Finally, Defendant filed a second notice of supplemental authority, attaching a
copy of an Eleventh Circuit case applying Atlantic Marine. (Doc. 21). The issues have been
fully briefed, and the motion is, therefore, ripe for review.

Based on the following, the

undersigned finds Defendant’s motion to transfer venue, (doc. 7), is due to be GRANTED. 2

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All citations to the record refer to document and page numbers as assigned by the
Court’s electronic filing system.
2
Cyclone also moves to dismiss Counts III, IV, and V of the complaint under Rule
12(b)(6), FED. R. CIV. P.; however, the undersigned addresses the motion to transfer venue first
and, because the undersigned finds it is appropriate to transfer the action, the motion-to-dismiss

I. Procedural and Factual Background
This action arises from a representative agreement between Cyclone and GAI, under
which GAI assisted Cyclone in promoting and selling its products to customers within GAI’s
defined territory. (Doc. 3-2 at 6-17). The agreement contains a mandatory forum-selection
clause, stating:
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York, and any dispute arising under or in connection herewith
shall be presented in and determined by the courts of the Federal Court of the
Southern District of New York to whose exclusive jurisdiction the parties hereto
consent.
(Doc. 3-2 at 11). 3 Cyclone is an Israeli company with its principal place of business in Israel and
no offices or resident employees in the United States. (Doc. 3-2 at 3). GAI is an Alabama
corporation, headquartered in Huntsville, Alabama, but provides services throughout the United
States and abroad. (Doc. 3-1 at 4-5). Alabama is where GAI maintains its records and where its
potential witnesses reside. (Doc. 12-1 at 3).
After years of working together, the relationship between the parties soured for reasons
not relevant to the current motion, and GAI sued Cyclone in the Circuit Court of Madison
County, Alabama, asserting claims under the Alabama Sales Representative Commission
Contracts Act (“the Act”), breach of contract, unjust enrichment, quantum meruit, and
declaratory judgment. (Doc. 3-1 at 7-11). Cyclone removed the case to this Court, (docs. 1 &
portion of Cyclone’s motion is reserved for ruling by the United States District Court for the
Southern District of New York. See C.M.B. Foods, Inc. v. Corral of Middle Ga., 396 F Supp. 2d
1283, 1285 (M.D. Ala. 2005) (considering the motion to transfer venue first because a transfer of
venue “would obviate the need to reach the merits of the [defendants’] motion to dismiss”)).
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“A permissive clause authorizes jurisdiction in a designated forum but does not prohibit
litigation elsewhere. A mandatory clause, by contrast, dictates an exclusive forum for litigation
under the contract.” GDG Acquisitions, LLC v. Gov’t of Belize, 749 F.3d 1024, 1029 (11th Cir.
2014). The language of this clause very clearly “dictates an exclusive forum for litigation under
the contract,” Snapper, Inc. v. Redan, 171 F.3d 1249, 1263 (11th Cir. 1999), and GAI does not
contend otherwise.
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3), and moved to transfer the case to the Southern District of New York under 28 U.S.C. §
1404(a), (docs. 7 & 8). GAI has opposed the transfer on the grounds it would violate Alabama’s
strong public policy, New York is an inconvenient forum, and the transfer may deprive it of its
claim under the Act. (Docs. 12 & 13).
II. Analysis
The U.S. Supreme Court recently addressed the process by which district courts are to
address forum-selection clauses in Atlantic Marine Construction Co. v. U.S. District Court for
the Western District of Texas, -- U.S. --, 134 S. Ct. 568, 187 L. Ed. 2d 487 (2013). In that case,
the Court affirmed that the only vehicle for enforcing a forum-selection clause in federal court is
a motion to transfer venue under 28 U.S.C. § 1404(a). See 134 S. Ct. at 579. Moreover, the
Court affirmed “a proper application of § 1404(a) requires that a forum-selection clause be
‘given controlling weight in all but the most exceptional cases.’” Id. (quoting Stewart, 487 U.S.
22, 33, 108 S.Ct. 2239, 224, 101 L.Ed.2d 22 (1988) (KENNEDY, J., concurring)). Although the
Atlantic Marine Court was addressing a forum-selection clause pointing to a nonfederal forum
and held, under such circumstances, a motion to transfer for forum non conveniens was the
proper vehicle instead of a § 1404(a) motion, the Court noted the standard was the same for
evaluating a forum-selection clause under both standards. 134 S. Ct. at 580. After reviewing the
considerations for evaluating the typical case not involving a forum-selection clause, the Court
held: “The calculus changes, however, when the parties’ contract contains a valid forumselection clause, which ‘represents the parties’ agreement as to the most proper forum.’” 134 S.
Ct. at 581 (emphasis added).
A. Validity of the Forum Selection Clause
GAI argues Atlantic Marine is inapplicable to the issue before this Court because Atlantic

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Marine is explicitly predicated on the existence of a “valid” forum-selection clause and, as GAI
asserts, Alabama law rendered the forum-selection clause itself void. (Doc. 20 at 1) (citing Atl.
Marine, 134 S. Ct. at 581). The question then is whether, as GAI argues, the issue of a forumselection clause’s validity can, in a forum state where a state law or public policy invalidates
forum-selection clauses, prevent the ultimate application of the Atlantic Marine analysis at all.
The problem with GAI’s argument is it extends the word, “valid,” beyond its use in the forumselection clause context.
The question is easily reconciled if “validity” is read as it is in M/S Bremen v. Zapata OffShore Co., 407 U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972), in which the Court distinguished
between the contractual provision itself being “invalid for such reasons as fraud or
overreaching,” as opposed to unenforceable because it is “unreasonable and unjust.” Id. at 15,
92 S. Ct. at 1916. The Eleventh Circuit has similarly stated “[t]he validity of a forum selection
clause is determined under the usual rules governing the enforcement of contracts in general.” P
& S Bus. Machines, Inc. v. Canon USA, Inc., 331 F.3d 804, 807 (11th Cir. 2003) (citing In re
Ricoh Corp., 870 F.2d at 573-74 (considering whether the clause was “freely and fairly
negotiated by experienced business professionals” and whether there was any fraud, duress,
misrepresentation, or other misconduct in connection with the agreement to the forum selection
clause)). A state law or public policy specifically preventing the transfer of a case is not “general
contract law” but is instead addressed to the subsequent question of whether the case may be
transferred under an “enforceable” forum-selection clause. Cf. Stewart Org., Inc. v. Ricoh Corp.,
487 U.S. 22, 31, 108 S. Ct. 2239, 2244-45, 101 L. Ed. 2d 22 (1988) (referring to the state’s
policy prohibiting the enforcement of forum-selection clauses as a “policy focusing on a single
concern or a subset of the factors identified in 1404(a) [the federal transfer statute]”). See also

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KM Processing Solutions, LLC v. Bunting Magnetics Co., No. 13-cv-0366-CG-N, 2013 WL
6228734, at *5 and n.4 (S.D. Ala. Dec. 2, 2013) (applying this distinction).

When this

distinction between “valid” under general contract law and “enforceable” under a law
specifically preventing the transfer of a case is considered, the reason why the latter would be
preempted by the federal transfer statute and the former would not becomes clear. Accordingly,
the validity of a forum-selection clause must first be determined under general contract law, and,
second, where a contractually valid forum-selection clause exists, the extremely high bar of
Atlantic Marine applies to the question of whether that clause is enforceable.
This conclusion is also supported by the remarkably similar case, Stewart Org., Inc. v.
Ricoh Corp., 487 U.S. 22, 108 S. Ct. 2239, 101 L. Ed. 2d 22 (1988). In Stewart, the district court
denied the defendant’s motion to transfer venue under an outbound forum-selection clause,
reasoning the clause violated the forum state’s strong public policy against the enforcement of
such clauses. Id. at 24, 108 S. Ct. at 2241. The United States Supreme Court, however, held
that, when a party moved to transfer venue, the federal venue transfer statute, 28 U.S.C. §
1404(a), applied, and, therefore, the forum state’s categorical policy disfavoring forum-selection
clauses is preempted by the considerations prescribed by Congress in the statute. Id. at 30, 108
S. Ct. at 2244. Like Atlantic Marine, the Stewart case also depended on a “valid forum-selection
clause,” id. at 33, 108 S. Ct. at 2245-46 (KENNEDY, J. concurring), and the Court’s holding that
a state law preventing enforcement of forum-selection clauses gives way to the dictates of §
1404(a) plainly indicates such a law or policy targeted at transfer and forum-selection clauses
does not bear on the “validity” analysis.
Neither GAI’s complaint nor its response in opposition to the motion to transfer contains
any allegations of fraud, duress, misrepresentation, or other misconduct on behalf of Cyclone

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regarding the forum-selection clause. (See docs. 3-1, 12 & 13). Furthermore, the complaint
describes GAI as an Alabama company, “provid[ing] services through the United States and
abroad,” who was providing services to “an Israeli business concern, with its principal place of
business in Israel.” (Doc. 3-1 at 4). These undisputed facts tend to show both companies were
“experienced business professionals,” see P & S Bus. Machines, Inc., 331 F.3d at 807, and GAI
does not contend otherwise. GAI explicitly acknowledges its prior awareness of the Alabama
statute invalidating enforcement of choice-of-law clauses and its reliance on that statute to
invalidate the clause in this contract. 4 (Doc. 13 at 18).
GAI’s only argument against the “validity” of the forum-selection clause is its reliance on
a state circuit court case extending the state statute’s prohibition of choice-of-law clauses to a
forum-selection clause, the court felt, would lead to enforcement of the choice-of-law clause.
(Doc. 13 at 15-17) (extensively discussing Rep, Inc. v. Stmicroelectronics, Inc., No. 47-CV-032794-JPS, 2009 WL 7215384 (Ala. Cir. Ct., July 21, 2004)). As shown above, such a statute or
public policy does not prevent a finding of validity under general contract law. Because there is
no indication in the parties’ arguments or the undisputed facts that the forum-selection clause is
invalid under general contract law, the forum-selection clause analysis as set out in Atlantic

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GAI intends this as a showing of its reliance and the consequent unfairness of enforcing
the forum-selection clause to deprive it of its claim under the Act; however, what it shows is that
GAI was aware of all of the factors at the time it entered into the contract and that it apparently
also believes it is “fair” to enter a contract it knows is unenforceable and will deprive the other
party of some of the benefit of its bargain.
There is nothing unfair about holding GAI to the bargain into which it entered. GAI
agreed to a New York forum potentially applying New York law: if the New York court
determines the choice-of-law clause is not applicable under New York law and applies Alabama
law, GAI will have its claim under the Act; if that court determines the choice-of-law clause
(agreed to by GAI) applies to prevent GAI from bringing its claim under the Act, then, because
GAI agreed to that forum and that law, it essentially agreed from the start that any claim would
be under the New York, and not the Alabama, version of the sales representative commission
contract statute. GAI is not, as it asserts, deprived of a remedy.
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Marine applies to the forum-selection clause in this case.
B. Enforceability of the Forum-Selection Clause
As noted in Atlantic Marine, when addressing the typical case of a motion to transfer
venue under § 1404(a), “a district court . . . must evaluate both the convenience of the parties and
various public-interest considerations. Ordinarily, the district court would weigh the relevant
factors and decide whether, on balance, a transfer would serve ‘the convenience of parties and
witnesses’ and otherwise promote ‘the interest of justice.’” 134 S. Ct. at 581 (quoting 28 U.S.C.
§ 1404(a)). The private factors generally relate to the “practical problems that make trial of a
case easy, expeditious and inexpensive.” Id. at 581 n.6. “Public-interest factors may include the
administrative difficulties flowing from court congestion; the local interest in having localized
controversies decided at home; and the interest in having the trial of a diversity case in a forum
that is at home with the law. The Court must also give some weight to the plaintiffs’ choice of
forum.” Id.
However, a valid forum-selection clause, as in this case, changes those rules in three
ways: (1) “the plaintiff’s choice of forum merits no weight” because the plaintiff already
exercised its “venue privilege” at the time of contracting, (2) “a court evaluating a defendant’s §
1404(a) motion to transfer based on a forum-selection clause should not consider arguments
about the parties’ private interests” because the parties “waive the right to challenge the
preselected forum as inconvenient or less convenient,” and (3) the transfer of venue “will not
carry with it the original venue’s choice-of-law rules” under Van Dusen v. Barrack, 376 U.S.
612, 84 S. Ct. 805 (1964), because that case’s rationale (protecting the state-law advantages of
the venue privilege) does not apply. Atlantic Marine, 134 S. Ct. at 581-83. Furthermore,
“[b]ecause [the public-interest] factors will rarely defeat a transfer motion, the practical result is

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that forum-selection clauses should control except in unusual cases.” Id. at 582. “In all but the
most unusual cases, ‘the interest of justice’ is served by holding parties to their bargain.” Id. at
583.
GAI has challenged the enforceability of the instant forum-selection clause on two
grounds:

(1) Alabama has a strong public policy, as expressed in the Alabama Sales

Representative’s Commission Contracts Act, in favor of applying its laws to sales representative
agreements, (doc. 13 at 14-19, 25-26); and (2) the private- and public-interests militate against
venue in the Southern District of New York, (id. at 19-25). To support its arguments, GAI
primarily cites to state cases and non-transfer federal cases, all of which were applying different
standards than the ones applicable to this case.
First, federal law, not state law, applies to the enforceability of forum-selection clauses
on a motion to transfer under § 1404(a). P & S Bus. Machines, 331 F.3d at 807 (citing Stewart,
487 U.S. at 28–29). Therefore, GAI’s contrary assertion is meritless. (See doc. 13 at 11-12).
Second, where GAI cites federal law, it cites either to the balancing test generally applicable to
motions to transfer under § 1404(a), (doc. 13 at 19-20), or to cases applying the Bremen factors
to motions to dismiss under § 1406 and FED. R. CIV. P. 12(b)(3), (doc. 13 at 25). 5 As previously

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GAI also cites to Stewart for the proposition a forum-selection clause is only one factor
of many in the § 1404(a) analysis, (doc. 13 at 20); however, the language cited is from a
discussion of hypothetical conflicts between the usual § 1404(a) factors and state law, (see doc.
13 at 20) (citing Stewart, 487 U.S. at 30-31, 108 S. Ct. at 2244), which the court ultimately used
to support its decision to enforce federal law over state law, Stewart, 487 U.S. at 31, 108 S. Ct. at
2244-45 (“But this potential conflict in fact frames an additional argument for the supremacy of
federal law. Congress has directed that multiple considerations govern transfer within the federal
court system, and a state policy focusing on a single concern or a subset of the factors identified
in § 1404(a) would defeat that command.”). This language does not support the conclusion a
forum-selection clause is just one of many factors that are all on the same footing, particularly in
light of Justice Kennedy’s concurrence, id. at 33, 108 S. Ct. at 2246 (“[A] valid forum-selection
clause is given controlling weight in all but the most exceptional cases.”), and the Atlantic
Marine court’s subsequent adoption of it, 134 S. Ct. 568 at 579.
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noted, under Atlantic Marine’s balancing test, the generally applicable rules are changed to give
the forum-selection clause near controlling weight. As for the cases applying the Bremen factors
to motions to dismiss, they were not directly applicable to motions to transfer between federal
forums even before the Atlantic Marine court held motions to dismiss were not the proper means
for enforcing a forum-selection clause selecting a nonfederal forum.

See P & S Business

Machines, 331 F.3d at 807 (applying the § 1404(a) factors and not the Bremen factors to a
motion to transfer); Atl. Marine, 134 S. Ct. at 579 (“[A] forum-selection clause does not render
venue in a court ‘wrong’ or ‘improper’ within the meaning of § 1406(a) or Rule 12(b)(3) . . . .”).
Although the Bremen analysis may be “instructive,” the United States Supreme Court has
explicitly held it is not the proper analysis on a motion to transfer venue under § 1404(a).
Stewart, 487 U.S. at 28-29, 108 S. Ct. at 2243.
The proper analysis, as set out above, is to balance the near controlling weight of the
forum-selection clause, representing a finding that all of the private-interest factors fall in favor
of the selected forum, against the public-interest factors, which, in almost all cases, will not
outweigh the forum-selection clause.
Regarding the public-interest factors, GAI argues “[f]ederal courts sitting in Alabama are
more familiar with claims brought under the Act than those sitting in New York,” “the Southern
District of New York, unlike the Northern District of Alabama, has no interest at all in
adjudicating the dispute between these parties,” and “the people of the Southern District of New
York have absolutely no interest in this case.” (Doc. 13 at 23-24).
First, while the federal courts sitting in Alabama would be more familiar with the Act
than those in New York, the claim under the Act is just one of five claims. (Doc. 3-1). Under
the Act, a choice-of-law clause is only invalidated to the extent it would waive the Act’s

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provisions, see Ala. Code § 8-24-5; therefore, no matter which court hears this suit, there is a
high likelihood the court will apply the contract’s choice-of law provision (choosing New York
law) to at least four of the five claims. As for the remaining claim that may or may not
ultimately fall under Alabama law, this factor has less importance “[w]here no complex
questions of foreign law are presented.” Holmes v. Freightliner, LLC, 237 F. Supp. 2d 690, 696
(M.D. Ala. 2002). As Cyclone notes, GAI has not argued the Act is particularly complex. (Doc.
16 at 12). On balance this factor falls in favor of the New York courts.
Second, the purpose of diversity jurisdiction, such as that exercised in this case, is to
protect the interests of out-of-state defendants from state-court bias. See Holston Investments,
Inc. B.V.I. v. LanLogistics Corp., 677 F.3d 1068, 1070 (11th Cir. 2012). On this basis, the New
York court has as much right and interest in hearing an Alabama plaintiff’s claim against an
Israeli defendant as an Alabama court, especially when the parties themselves chose that forum.
Lastly, the people of New York have very little interest in this case, and, generally,
“[j]ury duty is a burden that ought not to be imposed upon the people of a community which has
no relation to the litigation,” Lary v. Doctors Answer, LLC, No. CV-12-S-3510-NE, 2013 WL
987879 (N.D. Ala. Mar. 8, 2013). However, the representatives of the people of New York have
sought “to promote and preserve New York’s status as a commercial center” by having its law
apply to large commercial transactions even where they have no reasonable relation to the forum.
See IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., 982 N.E.2d 609, 612 (N.Y. 2012)
(applying N.Y. GEN. OBLIG. LAW § 5-1401 (McKinney)). It follows they would likely not be
averse to having disputes between non-local parties, who chose New York law, heard in a New
York courtroom, even if they may be called on for jury duty.
To the extent any of these factors weigh against the valid forum-selection clause, they

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certainly do not overcome it. There is no indication this is one of the “unusual cases” in which
the public factors outweigh a valid forum-selection clause. See Atlantic Marine, 134 S. Ct. at
582.
III. Conclusion
Cyclone has satisfied its burden under § 1404(a) of demonstrating this action should be
transferred to the United States District Court for the Southern District of New York. A separate
order will be entered and will be effectuated fourteen (14) days from the date of this opinion.
See 28 U.S.C. § 636(b).
DONE this 30th day of June 2014.

_______________________________
JOHN H. ENGLAND, III
UNITED STATES MAGISTRATE JUDGE

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