Southern California Regional Rail Authority v. Hyundai Rotem Company

Filing 61

MINUTES (IN CHAMBERS) ORDER RE PLAINTIFF'S MOTION TO REMAND #20 ; PLAINTIFF AND COUNTER-DEFENDANT'S MOTION TO D ISMISS COUNT TWO OF HYUNDAI ROTEM COMPANY'S FIRST AMENDED COUNTERCLAIMS #39 by Judge John A. Kronstadt. For the reasons stated in this Order, the Motion to Remand is DENIED and the Motion to Dismiss is DENIED. IT IS SO ORDERED. (lom)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

Present: The Honorable

Date

July 13, 2017

JOHN A. KRONSTADT, UNITED STATES DISTRICT JUDGE

Andrea Keifer

Not Reported

Deputy Clerk

Court Reporter / Recorder

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Not Present

Not Present

Proceedings:

(IN CHAMBERS) ORDER RE
PLAINTIFF'S MOTION TO REMAND (DKT. 20)
PLAINTIFF AND COUNTER-DEFENDANT'S MOTION TO DISMISS COUNT
TWO OF HYUNDAI ROTEM COMPANY'S FIRST AMENDED
COUNTERCLAIMS (DKT. 39)

I.

Introduction

The Southern California Regional Rail Authority (“Plaintiff”) brought this action in the Los Angeles Superior
Court (“LASC”) against Hyundai Rotem Company (“Defendant”) for breach of contract, breach of warranty
and indemnity arising out of a contract for the manufacture of railcars by Defendant for Plaintiff. Dkt. 1-2.
On October 28, 2016, Defendant removed this action. Dkt. 1. On November 30, 2016, Plaintiff filed a Motion
to Remand. Dkt. 20. Defendant opposed the Motion to Remand (Dkt. 25), and Plaintiff replied. Dkt. 34.
On November 16, 2016, Defendant filed a Counterclaim. Dkt. 16. On January 11, 2017, Defendant filed a
First Amended Counterclaim (“FACC”). Dkt. 35. On January 25, 2017, Plaintiff filed a Motion to Dismiss
the FACC. Dkt. 39. Defendant opposed the Motion to Dismiss (Dkt. 40), and Plaintiff replied. Dkt. 42.
On March 13, 2017, a hearing on the Motions was held and they were taken under submission. Dkt. 43.
For the reasons stated in this Order, the Motions are DENIED.
II.

Factual Background
A.

The Parties

Plaintiff is a government authority that operates the Metrolink commuter rail system in Southern
California. Dkt. 1-2 ¶ 1. Defendant is a corporation formed under the law of South Korea and whose
principal place of business is there. Id. ¶ 7.

Page 1 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company
B.

Date

July 13, 2017

The Contract

On April 13, 2006, the parties entered a contract pursuant to which Defendant agreed to design and
manufacture railcars for Plaintiff for a total price of $305,974,486 (the “Contract”). Id. ¶ 13. The Complaint
alleges that under the terms of the Contract, Defendant was responsible for making all decisions as to the
design of the railcars. Id. ¶ 15. It also alleges Defendant agreed to indemnify Plaintiff for any losses it
sustained as a result of Defendant’s actions in performing under the Contract. Id. ¶ 17. Defendant also
provided a two-year warranty for all work, and a 15-year warranty for work relating to the carbody and
underframe of the railcars. Id. The Complaint alleges that the last delivery under the Contract was in April
2014. Id. ¶ 18.
C.

Alleged Design Defects and the Oxnard Crash; Claims Asserted

The Complaint alleges that Defendant’s design of the railcars was defective. Id. ¶ 2. It alleges that the
pilot, or cowcatcher, of the railcars was defectively designed and inadequately attached to the railcars. Id.
“The pilot is a critical safety component that is located at the front end of the cab car and is required to
prevent collision debris from getting under the train’s wheels that could cause it to derail.” Id. ¶ 1. The
Complaint alleges: “in February 2015 . . . a Metrolink train with a Hyundai-built cab car at the front collided
with a pickup truck that had stopped on the tracks in Oxnard. The pilot broke off from the cab car and the
train derailed.” Id. ¶ 3.1
After the Oxnard Crash, Plaintiff began an investigation into the railcars and accompanying pilots. Id. ¶ 24.
It allegedly “revealed multiple fleet-wide defects” in Defendant’s railcars and pilot assemblies. Id. The
Complaint alleges that the “design of the pilot assembly was defective as well.” Id. ¶ 27. It also alleges
that Defendant refused to cooperate with Plaintiff in curing the defects in the railcars and as a result,
Plaintiff had to lease another locomotive to place in front of its railcars whose cost to Plaintiff exceeded
$20 Million. Id. ¶ 35.
Based on these allegations, the Complaint advanced the following causes of action: (i) breach of written
contract; (ii) breach of express warranty; (iii) breach of implied warranty of merchantability; (iv) breach of
implied warranty of fitness for a particular purpose; and (v) express indemnity. Id. ¶¶ 37-72.
D.

Allegations in the FACC

The FACC advances two causes of action: (i) breach of contract and (ii) breach of the implied covenant of
good faith and fair dealing. In support of these claims, the FACC alleges that, pursuant to the terms of the
Contract, the parties participated in a design review process. During that process, the parties allegedly
held frequent meetings concerning the design of the railcars, including the pilot. FACC ¶¶ 16-17. This
process led to the approval of Defendant’s designs by LTK, the firm designated by Plaintiff to provide
engineering services. Id. The FACC alleges the LTK had broad authority to approve and modify the
technical specifications for the design of the railcars. Id. ¶¶ 18-19. It also alleges that Plaintiff approved,
inspected and tested Defendant’s proposed designs, which were then finalized. Id. ¶¶ 22-24, 31. The
FACC also alleges that Plaintiff tested, inspected and approved each final railcar. Id. ¶¶ 25-31.
1

This incident is hereafter referred to as the “Oxnard Crash.”
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

The FACC alleges that Defendant performed all of its obligations under the Contract. Id. ¶ 32. It also
alleges that, on July 1, 2015, Plaintiff agreed that it would pay to Defendant $4,991,498.89, which was the
total amount that was due under the Contract. Id. ¶ 33. The payment was allegedly to be made by
September 15, 2015. It is alleged that Plaintiff failed to make that payment. Id. ¶ 34. It also alleged that, on
October 30, 2015, Plaintiff confirmed that it would not make the final payment in light of the Oxnard Crash
and the other design problems Plaintiff discovered as a result of the investigation that it conducted after
that incident. Id. ¶¶ 34-35.
The FACC alleges that the Oxnard Crash and derailment was caused by the negligence of the truck
driver and not by any defects in the design or manufacture of the pilot or railcars. Id. ¶ 36. It also alleges
that Plaintiff disclosed a confidential, internal report to the Los Angeles Times that concluded that the
crash was due to defects in Defendant’s design of the pilot. Id. ¶ 38.
III.

Analysis
A.

Motion to Remand
1.

General Legal Standards

A motion to remand is the procedural tool to challenge the removal of an action. Moore-Thomas v. Alaska
Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009). Generally, a civil action may be removed only if it could
have been brought originally in a federal court. 28 U.S.C. § 1441(a). Federal courts have diversity
jurisdiction where the amount in controversy exceeds $75,000 and is between parties who are citizens of
different states. 28 U.S.C. §§ 1332, 1441. The removal statute is to be strictly construed; any doubt about
removal jurisdiction is to be resolved in favor of remand. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.
1992). The result of the presumption against removal is that a removing party has the burden of
establishing that removal was proper. Id. “If a case is improperly removed, the federal court must remand
the action because it has no subject-matter jurisdiction to decide the case.” ARCO Envtl. Remediation,
LLC v. Dep’t of Health & Envtl. Quality of Mont., 213 F.3d 1108, 1113 (9th Cir. 2000).
2.

Application

Plaintiff contends that the Contract that gives rise to this dispute contains a forum selection clause that
specifies the state courts of California as the exclusive forum. Defendant argues that remand is improper
because this Court has subject matter jurisdiction and the forum selection clause is permissive, not mandatory.
a)

Legal Standards for Applying a Forum Selection Clause

Federal law governs the interpretation of a forum selection clause. Doe 1 v. AOL LLC, 552 F.3d 1077, 1081
(9th Cir. 2009). When “interpret[ing] a contract under federal law, [the court] look[s] for guidance ‘to general
principles for interpreting contracts.’” Id. (quoting Klamath Water Users Protective Ass’n v. Patterson, 204
F.3d 1206, 1210 (9th Cir. 1999)). “Contract terms are to be given their ordinary meaning, and when the
terms of a contract are clear, the intent of the parties must be ascertained from the contract itself.
Whenever possible, the plain language of the contract should be considered first.” Id. (quoting Klamath
Water Users Protective Ass’n., 204 F.3d at 1210. “A primary rule of interpretation is that ‘[t]he common or
normal meaning of language will be given to the words of a contract unless circumstances show that in a
Page 3 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

particular case a special meaning should be attached to it.’” Hunt Wesson Foods, Inc. v. Supreme Oil
Co., 817 F.2d 75, 77 (9th Cir. 1987) (quoting 4 S. Williston, A Treatise on the Law of Contracts § 618 (W.
Jaeger 3d ed. 1961)). A written contract is to be read as a whole, and each part interpreted with reference
to the whole. Doe 1, 552 F.3d at 1081.
“Ninth Circuit precedent requires that the court pay careful attention to whether the language in a forum
selection clause is mandatory or permissive. If the language is mandatory, the clause must be enforced
and venue will lie in the designated forum only.” Calisher & Assocs., Inc. v. RGCMC, LLC, 2008 WL
4949041, at *3 (C.D. Cal. Nov. 17, 2008), aff'd sub nom. Calisher & Assocs., Inc. v. RGCM, LLC, 373 F.
App’x 697 (9th Cir. 2010). “A forum selection clause that designates a state court as the exclusive forum
is a mandatory clause requiring that the case be remanded.” Chinatrust Bank (U.S.A.) v. Aclor, Inc., 2011
WL 1668393, at *1 (N.D. Cal. May 3, 2011). “[W]here venue is specified with mandatory language the
clause will be enforced. When only jurisdiction is specified the clause will generally not be enforced
without some further language indicating the parties' intent to make jurisdiction exclusive.” Docksider,
Ltd. v. Sea Tech., Ltd., 875 F.2d 762, 764 (9th Cir. 1989) (citations omitted); see also Gennock v. Lucas
Energy, Inc., 2011 WL 4738320, at *3 (E.D. Cal. Oct. 5, 2011); Chinatrust Bank, 2011 WL 1668393, at *1;
Calisher & Assocs., 2008 WL 4949041, at *4.
“To be mandatory, a clause must contain language that clearly designates a forum as the exclusive one.”
N. Cal. Dist. Council of Laborers v. Pittsburg-Des Moines Steel Co., 69 F.3d 1034, 1037 (9th Cir. 1995).
“However, if the language of the forum selection clause is non-mandatory or permissive, the forum
selection clause will not preclude suit elsewhere.” Gennock, 2011 WL 4738320, at *3. “A forum selection
clause is permissive when the parties merely consent to bestow jurisdiction on a court without stating that
the court has exclusive jurisdiction to hear their disputes.” Calisher & Assocs., 2008 WL 4949041, at *4;
see also Chinatrust Bank, 2011 WL 1668393, at *1 (“if the forum selection clause merely indicates that
the parties consent to a particular jurisdiction but does not provide that they cannot litigate elsewhere, the
clause does not preclude removal to federal court.”).
b)

The Forum Selection Clause is Permissive

The forum selection clause provides:
The validity of this Contract and any of its terms and provisions, as well as the rights and
duties of [Defendant] and [Plaintiff], shall be governed by the laws of the State of California.
By entering into the Contract, [Defendant] consents and submits to the jurisdiction of the
Courts of the State of California over any action at law, suit in equity, and/or other proceeding
that may arise out of this Contract.
Ex. A to Declaration of Edward E. Johnson (“Johnson Decl.”), Dkt. 20-1 (Contract ¶ 99).
Plaintiff argues that the use of the word “of” instead of the word “in” in the phrase “the jurisdiction of the
Courts of the State of California” means that the agreement is only as to state courts in California. Thus,
it contends that it does not refer to a federal court located in California. See Doe 1, 552 F.3d at 1082 (“Thus,
courts ‘of’ Virginia refers to courts proceeding from, with their origin in, Virginia—i.e., the state courts of
Virginia. Federal district courts, in contrast, proceed from, and find their origin in, the federal government.”).
Page 4 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

Plaintiff also contends that this forum selection clause is mandatory because the phrase “consents and
submits to the jurisdiction of the Courts of the State of California” creates exclusive jurisdiction in those
state courts. Defendants respond that this clause is permissive because it constitutes consent to jurisdiction
in California, but does not clearly state that there is exclusive jurisdiction in the California state courts.
(1)

Ninth Circuit Decisions

The Ninth Circuit has not addressed the specific issue presented by the forum selection clause in the
Contract. However, it has analyzed similar ones. Hunt Wesson Foods considered the following clause:
“The courts of California, County of Orange, shall have jurisdiction over the parties in any action at law
relating to the subject matter or the interpretation of this contract.” 817 F.2d at 76. Hunt Wesson Foods
concluded that the forum selection clause was “permissive rather than mandatory” because “the plain
meaning of the language is that the Orange County courts shall have jurisdiction over this action.” Id. at
77. As a result, it was proper to deny the motion to remand because
[t]he language says nothing about the Orange County courts having exclusive jurisdiction.
The effect of the language is merely that the parties consent to the jurisdiction of the
Orange County courts. Although the word “shall” is a mandatory term, here it mandates
nothing more than that the Orange County courts have jurisdiction. Thus, Supreme cannot
object to litigation in the Orange County Superior Court on the ground that the court lacks
personal jurisdiction. Such consent to jurisdiction, however, does not mean that the same
subject matter cannot be litigated in any other court. In other words, the forum selection
clause in this case is permissive rather than mandatory.
Id.
Docksider reached a different result based on its reading of the following clause: “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.” 875 F.2d at 763. Docksider held that
this clause created exclusive jurisdiction in the Virginia state court in Gloucester County, because the
“critical language . . . is the final sentence.” Id. The sentence created exclusive jurisdiction because
[t]his language requires enforcement of the clause because Docksider not only consented
to the jurisdiction of the state courts of Virginia, but further agreed by mandatory language
that the venue for all actions arising out of the license agreement would be Gloucester
County, Virginia. This mandatory language makes clear that venue, the place of suit, lies
exclusively in the designated county. Thus, whether or not several states might otherwise
have jurisdiction over actions stemming from the agreement, all actions must be filed and
prosecuted in Virginia.
Id. at 764.
N. Cal. Dist. Council of Laborers considered the following clause: “[a] decision of the Board of Adjustment
. . . or the decision of a permanent arbitrator 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.” 69 F.3d at 1036
(alterations in original). N. Cal. Dist. Council of Laborers noted that “[t]he clause does not contain additional
Page 5 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

language . . . [that] designated the state court as the exclusive forum.” Id. at 1037. It held the clause
permissive “because it does not contain language ‘clearly require[ing] exclusive jurisdiction.’” Id. (quoting
Hunt Wesson, 817 F.2d at 77). As a result, Docksider reversed the district court’s order remanding the case.

Doe 1 considered the following forum selection clause: “[y]ou expressly agree that exclusive jurisdiction
for any claim or dispute . . . resides in the courts of Virginia and you further agree and expressly consent
to the exercise of personal jurisdiction in the courts of Virginia in connection with any such dispute . . . .”
Doe 1, 552 F.3d at 1080. Doe 1 found that this clause provided for exclusive jurisdiction in the Virginia
state courts. Id. at 1082. The only relevant dispute in Doe 1 was whether the clause created exclusive
jurisdiction in either the state or federal courts in Virginia or solely in the state courts. Doe 1 considered
the dictionary definition of the word “of” and compared it to that of the word “in.” Id. Based on this
comparative analysis, it held that exclusive jurisdiction was solely in the Virginia state courts. Id. at
1081-82 (“We hold that the forum selection clause at issue here—designating the courts of
Virginia—means the state courts of Virginia only; it does not also refer to federal courts in Virginia.”).
(2)

District Court Decisions

Several district courts have considered the phrase “submits to,” in assessing whether it establishes an
exclusive, mandatory venue. They generally have concluded that it does not. Chinatrust Bank held that
the forum selection clause, “If there is a lawsuit, [defendants] agree upon [plaintiff’s] request to submit to
the jurisdiction of the courts of SANTA CLARA County, State of California,” did not create mandatory
jurisdiction in the Santa Clara County Superior Court. 2011 WL 1668393, at *1 (“While the clause at issue
in this case states that [defendant] agrees to the jurisdiction of the courts of Santa Clara County, it does
not state that those courts have exclusive jurisdiction.”); id. at *2 (“Because the choice of venue clause in
the instant case does not show that the parties intended to designate the state court as the exclusive
jurisdiction for disputes arising under the contract, Chinatrust's motion to remand will be denied.”).
A.O. Smith Corp. v. Transpac Container Sys. Ltd. considered this forum selection clause:
4.1 Disputes arising under the Document shall be determined by the courts and subject to
Clause 17 of this Document in accordance with the laws of Hong Kong.
4.2 No proceedings may be brought before other courts unless the parties agree on both
the choice of another court or arbitration tribunal and the law to be then applicable.
2009 WL 3001503, at *3 (C.D. Cal. May 8, 2009).
The court held that this “forum selection clause is mandatory and exclusive.” Id. The basis for this outcome
was that “Paragraph 4.1 uses the term ‘shall,’ which sufficiently indicates that Hong Kong courts are the
mandatory forum for resolving disputes. Moreover, Paragraph 4.2's prohibition on resolution of disputes
in other courts, except upon the parties' agreement, indicates that the clause is exclusive.” Id. (citation omitted).
Aviation Fin. Grp., LLC v. Duc Hous. Partners, Inc. evaluated this forum selection clause: “Grantor agrees
upon Lender's request to submit to the jurisdiction of the Courts of Ada County, State of Idaho.” 2009 WL
1298403, at *2 (D. Idaho May 7, 2009). The court denied a motion to remand the matter to a state court in
Idaho because “[t]here is no language mandating exclusive jurisdiction in Ada County. . . the contract contains
Page 6 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

only a consent to jurisdiction clause, not a forum selection clause.” Id. at *2. Thomas v. Mayhew Steel Prod.
considered a similar clause: “It is mutually agreed that the courts of Jackson County, Oregon are of competent
jurisdiction and the parties mutually submit to the jurisdiction of said courts concerning any disputes arising
directly or indirectly from this Agreement.” 2004 WL 2486260, at *1 (D. Or. Nov. 4, 2004). Thomas found
that this clause was permissive rather than mandatory because “in cases in which forum selection clauses
were found to be mandatory, the language mandated more than that a particular court had jurisdiction-[-]
the language mandated that the specified courts were the only ones which had jurisdiction.” Id. at *2.
Gennock considered the following forum selection clause:
[e]ach party hereby irrevocably submits to the jurisdiction of the state of and federal courts
sitting in the State of Nevada, and hereby irrevocably waives and agrees not to assert in
any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction
of any such court, that such suit or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.
2011 WL 4738320, at *2.
The district court then denied the defendant’s motion to dismiss or, in the alternative, transfer the matter
to Nevada. It concluded that, although the clause used the word “submit,” “the rule is that merely specifying
jurisdiction in a particular state does not create a mandatory clause; rather, the intent to make jurisdiction
exclusive must appear.” Id. at *4. Gennock held that the operative clause did not create exclusive
jurisdiction in Nevada because “[i]t does not say that the parties cannot bring suit in a different jurisdiction,
nor does it state that the parties cannot consent or cannot be subject to other jurisdictions.” Id. Gennock
found that the “irrevocably submit” language operated to prevent the parties from withdrawing their
consent to jurisdiction in Nevada, but did not bar jurisdiction elsewhere:
Conspicuously absent from [the clause] is any provision that actually commands where a
lawsuit is to be filed. Indeed, the term “venue” is used only once, and that is in a clause that
waives the parties’s [sic] ability to argue that venue in Nevada is improper. There is
nothing that expressly identifies Nevada as the venue for a lawsuit, let alone language that
clearly designates Nevada as the exclusive forum.
. . . Here, the Court does not see an intent to make Nevada the exclusive jurisdiction. The
words “exclusive,” “sole,” or “only” are not found in [the clause] and there is no language
that prohibits the parties from filing a lawsuit in states other than Nevada. It is true that the
there is also a choice of law clause that specifies Nevada law as controlling. However, the
inclusion of a choice of law clause does not itself sufficiently show an intent to make
Nevada the exclusive jurisdiction.
Id. (citations omitted).
(3)

Caselaw in Other Circuits

The First and Fifth Circuits considered clauses similar to the one at issue here. Each concluded that the
clause was not mandatory as to forum selection. Redondo Const. Corp. v. Banco Exterior de Espana,
Page 7 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

S.A. evaluated the clause, “Borrower and the Guarantors each hereby expressly submits to the jurisdiction
of all Federal and State courts located in the State of Florida,” and concluded that it was permissive. 11
F.3d 3, 5-6 (1st Cir. 1993). Thus, it did not constitute an agreement for exclusive jurisdiction in courts in
Florida. Id. at 6. The opinion noted that “[a]ffirmatively conferring Florida jurisdiction by consent does not
negatively exclude any other proper jurisdiction.” Id.
Similarly, in Keaty v. Freeport Indonesia, Inc., the Fifth Circuit considered the following clause: “This
agreement shall be construed and enforceable according to the law of the State of New York and the
parties submit to the jurisdiction of the courts of New York.” 503 F.2d 955, 956 (5th Cir. 1974). It held that
this language “falls short of being a mandatory forum-selection clause.” Id. at 957.
(4)

The Clause at Issue Is Permissive

The forum selection clause here does not limit jurisdiction to California state courts. By using the word “of”
in the phrase “the jurisdiction of the Courts of the State of California,” the clause establishes Defendant’s
consent to personal jurisdiction of the California state courts. Doe 1, 552 F.3d at 1082. However, consent
to such jurisdiction does not mean that it is exclusive. As noted, to establish that limitation, a forum selection
clause must “contain language clearly requiring exclusive jurisdiction.” N. Cal. Dist. Council of Laborers,
69 F.3d at 1037. The clause here provides that Defendant “consents and submits to the jurisdiction of the
Courts of the State of California.” Dkt. 20-1 (Contract ¶ 99). Once again, it does not state that venue is
exclusively in such courts with respect to disputes that arise from the Contract.
This clause is quite similar to those that were addressed in Hunt Wesson Foods, 817 F.2d at 76, and N. Cal.
Dist. Council of Laborers, 69 F.3d at 1036. Like in the clauses at issue in those cases, the clause in the
Contract does not include any exclusivity language. Therefore, its plain meaning is that California state
courts shall have jurisdiction, but it is not exclusive.
The clause is different from the one that was at issue in Docksider. 875 F.2d at 763. As noted, the first
sentence of the clause there was that the defendant “agrees and consents to the jurisdiction of the courts
of the State of Virginia,” is almost identical to the “consents and submits to the jurisdiction of the Courts of
the State of California,” language here. However, the provision in Docksider goes on to state that “[v]enue
of any action brought hereunder shall be deemed to be in Gloucester County, Virginia.” It was this
sentence that Docksider found to be “critical” to the determination of exclusivity.
(5)

Dictionary Definitions Do Not Compel a Different Result

Plaintiff argues that, notwithstanding the rulings in the aforementioned cases, the dictionary definition of
“submits” makes exclusivity clear. Thus, it argues that “submit” means “to yield to governance or
authority,” and that “yield,” in turn, means “to give or render as fitting, rightfully owed or required.” See
http://www.merriam-webster.com/dictionary/submit; http://www.merriamwebster.com/dictionary/yield.
Based on these definitions, Plaintiff argues that the phrase “submits to the jurisdiction” means that
Defendant is required to yield to the authority of a California court. It argues that by removing the action,
Defendant has not yielded to the authority of the California court.
Plaintiff also argues that the inclusion of both “consents” and “submits” in the clause shows that it is
mandatory, because if it is interpreted as permissive, one of the two words would be superfluous. It
Page 8 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

argues that because “consent” is a permissive term, the only reason that “submit” is included is to make
the clause mandatory. Finally, Plaintiff argues that words such as “sole” or “exclusive” are not required to
make a clause mandatory, because “there are no magic words that render a forum selection clause
mandatory and exclusive.” A.O. Smith Corp., 2009 WL 3001503, at *3.
The dictionary definitions do not clearly demonstrate that the word “submits” makes the forum selection
clause in the Contract mandatory. Nor is any case cited in which such an interpretation was adopted. The
definition of “submits” reinforces Defendant’s position that this clause functions as a promise by Defendant,
which is a foreign entity, not to contest personal jurisdiction in California. A.O. Smith Corp. does not
compel a different result. 2009 WL 3001503, at *3. There, although the clause did not contain any of the
words associated with exclusive jurisdiction, it was deemed mandatory based on the following language:
“[n]o proceedings may be brought before other courts unless the parties agree on both the choice of
another court or arbitration tribunal and the law to be then applicable.” Id. There is no similar language in
the Contract.2

(6)

Ambiguities May Construed Against the Drafting Party

Defendant argues that, even if the forum selection clause were ambiguous, the issue should be resolved
in its favor because Plaintiff drafted the contract. “Another fundamental rule of contract interpretation is
that where language is ambiguous the court should construe the language against the drafter of the
contract.” Hunt Wesson Foods, 817 F.2d at 78 (“Hunt drafted the contract. Construing the language
against Hunt, we would conclude that the clause does not provide for an exclusive forum.”). Here, the
forum selection clause was present in the Invitation for Bid, which Plaintiff published in September 2005.
Compare Ex. 1 to Declaration of Jun Yeon Jeong (“Jeong Decl.”), Dkt. 26-1 (Draft Contract in Invitation to
Bid ¶ 99), with Ex. 2 to Jeong Decl., Dkt. 26-2 (Contract ¶ 99). This language remained unchanged in the
final version of the Contract. Id. Therefore, any ambiguity in the clause is construed against Plaintiff. This
also supports an interpretation that the clause does not provide for exclusivity.
*

*

*

For the foregoing reasons, the forum selection clause is permissive and does not create an exclusive
forum in the California state courts. Therefore, the Motion to Remand is DENIED.

2

Plaintiff cites several cases in which insurers had entered agreements with their insureds, stating that the insurer
would submit to the insured’s chosen jurisdiction. It contends that they support the exclusive interpretation advanced
here. See City of Rose City v. Nutmeg Ins. Co., 931 F.2d 13, 14 (5th Cir. 1991); Am. States Ins. Co. v. Century
Surety Co., 2008 WL 4779833, at *2-3 (W.D. Wash. Oct. 30, 2008). These cases are distinguishable. In both, the
courts relied on “the familiar principle that ambiguities in contracts of insurance are to be construed against the
drafter of the policy.” Nutmeg Ins. Co., 931 F.2d at 15. There is no similar presumption here. Further, each contract
stated that the insurance company “agree[s] to submit to the jurisdiction of any Court of Competent jurisdiction
within the United States and will comply with all requirements necessary to give such Court jurisdiction” and to
“abide by the final decision of such court or of any Appellate Court in the event of an appeal.” Id. at 14. It is this
language, not the word “submits,” that provides the basis for the requirement that the insurers could not contest the
designated fora selected by plaintiffs.
Page 9 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company
B.

Date

July 13, 2017

Motion to Dismiss
1.

Legal Standard

Fed. R. Civ. P. 8(a) provides that a “pleading that states a claim for relief must contain . . . a short and
plain statement of the claim showing that the pleader is entitled to relief . . . .” The complaint must state
facts sufficient to show that a claim for relief is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). A complaint need not include detailed factual allegations, but must provide more than a
“formulaic recitation of the elements of a cause of action.” Id. at 555. “The plausibility standard is not akin
to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted
unlawfully. Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it stops
short of the line between possibility and plausibility of entitlement to relief.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (internal quotation marks and citations omitted).
Pursuant to Fed. R. Civ. P. 12(b)(6), a party may bring a motion to dismiss a cause of action that fails to
state a claim. It is appropriate to grant such a motion where the complaint lacks a cognizable legal theory
or sufficient facts to support one. Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir.
2008). In considering a motion to dismiss, the allegations in the challenged complaint are deemed true
and must be construed in the light most favorable to the non-moving party. Cahill v. Liberty Mut. Ins. Co.,
80 F.3d 336, 337-38 (9th Cir. 1996). However, a court need not “accept as true allegations that contradict
matters properly subject to judicial notice or by exhibit. Nor is the court required to accept as true allegations
that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead
Scies. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (quoting Sprewell v. Golden State Warriors, 266
F.3d 979, 988 (9th Cir. 2001)).
2.

Application
a)

Claim for Breach of Implied Covenant

“California law recognizes in every contract . . . an implied covenant of good faith and fair dealing.”
Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 434 (9th Cir. 2011) (quoting Brehm v. 21st Century Ins.
Co., 166 Cal. App. 4th 1225, 1235 (2008)). “[T]he covenant is implied as a supplement to the express
contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other
party's rights to the benefits of the agreement.” Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 36 (1995),
as modified on denial of reh’g (Oct. 26, 1995). “The covenant of good faith finds particular application in
situations where one party is invested with a discretionary power affecting the rights of another. Such
power must be exercised in good faith.” Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal.
4th 342, 372 (1992). “[W]here a contract confers on one party a discretionary power affecting the rights of
the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing.”
Perdue v. Crocker Nat’l Bank, 38 Cal. 3d 913, 923 (1985) (quoting Cal. Lettuce Growers v. Union Sugar
Co., 45 Cal. 2d 474, 487 (1955).
A breach of the underlying contract is not required to establish a breach of good faith and fair dealing.
Solomon v. N. Am. Life & Cas. Ins. Co., 151 F.3d 1132, 1137 (9th Cir. 1998) (citing Carma Developers, 2
Cal. 4th at 373). But a “breach of the implied covenant of good faith and fair dealing involves something
beyond breach of the contractual duty itself.” Careau & Co. v. Sec. Pac. Bus. Credit, Inc., 222 Cal. App.
Page 10 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

3d 1371, 1394 (1990), as modified on denial of reh’g (Oct. 31, 2001) (internal quotation marks omitted). “If
the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged
acts, simply seek the same damages or other relief already claimed in a companion contract cause of
action, they may be disregarded as superfluous as no additional claim is actually stated.” Id. at 1395.
To state a claim for breach of the implied covenant,
allegations which assert such a claim must show that the conduct of the defendant, whether
or not it also constitutes a breach of a consensual contract term, demonstrates a failure or
refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad
judgment or negligence but rather by a conscious and deliberate act, which unfairly
frustrates the agreed common purposes and disappoints the reasonable expectations of
the other party thereby depriving that party of the benefits of the agreement. Just what
conduct will meet these criteria must be determined on a case by case basis and will
depend on the contractual purposes and reasonably justified expectations of the parties.
Id.
b)

The FACC States a Claim for Breach of the Implied Covenant

Plaintiff argues that the breach of implied covenant counterclaim should be dismissed because it
duplicates the breach of contract counterclaim. Plaintiff contends that both are premised on the same
factual allegations and seek the same remedies. Plaintiff argues that the breach of implied covenant
counterclaim is based on the allegation in the FACC that Plaintiff did not make the final payment to
Defendant under the Contract. Damages are sought in that amount. Plaintiff adds that, notwithstanding
the general allegations of bad faith in the FACC, the only act alleged to be the breach of the implied
covenant was its nonpayment of amounts due under the Contract.
Defendant contends that the breach of implied covenant counterclaim is not duplicative. It argues that it
presents an alternative path to recovery if it is determined that Plaintiff did not breach the Contract, but
nevertheless acted in bad faith in the exercise of its discretion when it withheld the final payment owed to
Defendant. FACC ¶ 35. The breach of contract counterclaim alleges that Plaintiff failed to make the final
payment that it was obligated to make. Id. ¶ 34. Defendant argues that it anticipates that in defense of this
counterclaim, Plaintiff may contend that its failure to make the payment was not a breach of the Contract,
because the Contract provides that Plaintiff may withhold amounts due to Defendant under certain
circumstances. See Ex. A to RJN, Dkt. 41-1 (Contract ¶¶ 13.4, 64.4, 69). Defendant argues that in the
event these circumstances are established, Plaintiff has the discretion to withhold payment to Defendant.
See id. ¶ 13.4 (“[Plaintiff] shall not withhold money due [Defendant] provided [Plaintiff] receives adequate
written assurance from [Defendant]’s insurance carrier or surety . . . . [Plaintiff] shall have sole discretion
to determine the adequacy of the assurance furnished”); ¶ 64.4 (“In the event of any claim or demand
made against any party that is entitled to be indemnified hereunder, [Plaintiff] may at its sole discretion
withhold, retain, and/or apply any monies due [Defendant] under the Contract, for the purpose of resolving
such claims; provided, however, that [Plaintiff] may release such funds if [Defendant] gives [Plaintiff]
reasonable assurance that [Plaintiff]’s interest will be protected. [Plaintiff] shall, at its sole discretion,
determine whether such assurance is acceptable to [Plaintiff]”); ¶ 69 (“[Plaintiff] may, in its discretion,
enforce any [warranty] rights against [Defendant]”).
Page 11 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

Defendant argues that Plaintiff must exercise its discretion in good faith. Paragraph 13 of the Contract is
instructive. Id. ¶ 13. It gives Plaintiff the authority to withhold amounts it owes to Defendant if a claim, lien
or judgment is made against Defendant that is related to the Contract. Id. Plaintiff may assert that it did
not breach the Contract because it withheld the payment pursuant to this term. That would not necessarily
bar the breach of the implied covenant counterclaim. Thus, Paragraph 13.4 provides that
[Plaintiff] shall not withhold money due [Defendant] provided [Plaintiff] receives adequate
written assurance from [Defendant]’s insurance carrier or surety on bonds required
hereunder that the insurer or surety will assume all responsibility in connection with the
claim including defending and indemnifying [Defendant] or [Plaintiff]. [Plaintiff] shall have
sole discretion to determine the adequacy of the assurance furnished.
Id. ¶ 13.4.
In defending the breach of contract counterclaim, Plaintiff may demonstrate that, although it received
assurances from Defendant’s insurance carrier, it determined that they were inadequate. For that reason,
it did not make a payment to Defendant. Defendant could still prevail on its counterclaim for breach of
implied covenant by proving that Plaintiff’s exercise of its discretion in determining that the assurances
were inadequate was made in bad faith. See Carma Developers, 2 Cal. 4th at 372 (“The covenant of
good faith finds particular application in situations where one party is invested with a discretionary power
affecting the rights of another. Such power must be exercised in good faith.”). As explained in Celador Int'l
Ltd. v. Walt Disney Co.:
Even if Plaintiffs are not ultimately successful on their breach of contract claim, they may
still be able to prevail on their breach of the covenant of good faith and fair dealing claim.
Even if the fact finder concludes that the consensual terms of the contract did not impose
such obligations on Defendants, the fact finder could conclude that the actions of Defendants
frustrated a benefit of the contract-the benefit of receiving Contingent Compensation from
the Series.
Defendants argue that because the claim is based on the same facts as the breach of
contract claim and seeks the same remedy, it is superfluous. See Bionghi v. Metropolitan
Water District, 70 Cal.App.4th 1358, 1370, 83 Cal.Rptr.2d 388 (1999). However, such
claims will always be based on the same facts; a certain set of circumstance gives rise to
a lawsuit. They will always seek the same remedy; the same remedies are available for
both claims. Therefore, the Court should not mechanically inquire whether the same facts
are alleged and whether the same remedy is sought. Rather, the challenge brought by
Careau and its progeny is to distinguish two claims based on the same facts. If they
cannot be distinguished, then the natural conclusion is that they are duplicative. Plaintiffs
have distinguished their claims here. Plaintiffs allege that Defendants' actions breached
the contract. If not, the actions, allegedly taken in bad faith, frustrated the actual benefits of
the contract. See Lamke[ v. Sunstate Equip. Co., LLC], 2004 WL 2125869, *3[ (N.D. Cal. Sept.
22, 2004)] (allowing leave to amend to make such a distinction). The breach of the covenant
of good faith and fair dealing claim, therefore, is not superfluous.
Page 12 of 13

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES – GENERAL
Case No.

LA CV16-08042 JAK (JEMx)

Date

July 13, 2017

Title

Southern California Regional Rail Authority v. Hyundai Rotem Company

347 F. Supp. 2d 846, 853 (C.D. Cal. 2004).
For the foregoing reasons, based on the allegations that are presented, the breach of implied covenant
counterclaim is not superfluous.
IV.

Conclusion

For the reasons stated in this Order, the Motion to Remand is DENIED and the Motion to Dismiss is
DENIED.

IT IS SO ORDERED.

:
Initials of Preparer

ak

Page 13 of 13