Melissa's Trust, Michelle Precin Trustee v. Seton, Jr et al
Filing
33
MEMORANDUM Opinion and Order Signed by the Honorable Thomas M. Durkin on 7/31/2014. Mailed notice(vcf, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Melissa’s Trust, Michelle Precin Trustee,
individually and derivatively on behalf of
UMIC-Upstate Associates-78 L.P.,
)
)
)
)
Plaintiffs,
)
)
)
v.
)
)
Gil Seton Jr., individually, UMIC GP LLC, a )
California Limited Liability Co., SP
)
Investment Fund, LLC, a California Limited )
Liability Co., UMIC Merger LLC, a
)
Delaware limited liability Co., and UMIC)
Upstate Associates-78, L.P., a Delaware
)
Limited Partnership,
)
)
Defendants.
)
No. 14 C 02068
Judge Thomas M. Durkin
MEMORANDUM OPINION AND ORDER
Melissa’s Trust, Michelle Precin Trustee, individually and derivatively on
behalf of UMIC-Upstate Associates-78, L.P. (“Plaintiff”) filed a seven-count
complaint against Gil Seton, Jr. (“Seton”) individually, UMIC GP LLC (“UMIC
GP”), a California limited liability Company, SP Investment Fund LLC (“SPIF”), a
California limited liability Company, UMIC Merger LLC, a Delaware limited
liability Company, and UMIC-Upstate Associates-78, L.P. (the “Partnership”), a
Delaware limited partnership (collectively, “Defendants”) for a declaratory
judgment, rescission of a December 9, 2013 merger, a full accounting of amounts
owed to the Partnership, common law fraud, breach of fiduciary duty, violation of
1
consumer fraud and deceptive practices acts, and breach of contract and the
covenants of good faith and fair dealing. R. 1. Before the Court is Defendants’
motion to transfer this case to the United States District Court for the District of
Delaware. See 28 U.S.C. § 1404(a). For the following reasons, the motion is granted.
Background 1
The Original Partnership Agreement corresponding to the formation of the
Partnership 2 was executed on September 15, 1978 (the “Original Partnership
Agreement”). R. 1-1 at 1, Exh. A. The Original Partnership Agreement was formed
under the laws of the state of Tennessee and was to be “construed and enforced in
accordance with the laws of the State of Tennessee.” R. 1-3 at 9 § 14.02; R. 1-1 at 3 §
1.01. The Original Partnership Agreement set out the terms of the relationships
among the general and limited partners and the procedures to amend the Original
Partnership Agreement. The Original Partnership Agreement was made between
UMIC Properties, Inc. (Administrative General Partner and initial limited partner)
and Kevin Kelly (Individual General Partner), and all other “persons, partnerships,
corporations, trusts or other entities who or which shall execute a Subscription
Agreement and thereby agree to contribute to the capital of the Partnership and
agree to be bound by the provisions of this Agreement, . . .” R. 1-1 at 2.
The Court recites the procedural background necessary to decide the instant
motion. In the interest of brevity, the background is limited to discussion of those
facts relevant to the resolution of the instant motion.
1
In their briefs, the parties have referred to the initial partnership, formed under
the laws of Tennessee, as UMIC Tennessee, and the partnership with which it
merged on July 18, 2013, as UMIC Delaware. For clarity, the Court will refer to
both entities as the “Partnership” throughout.
2
2
The Partnership was formed to invest in three limited partnerships: SNS
Development Company, SNL Development Company, and United Housing
Partners-Bowling Green (the “Local Partnerships”). R. 1-1 at 2. These local
partnerships were organized to own and operate multi-family residential housing
projects for elderly persons of low and moderate income in Saratoga Springs and
Ilion, New York; and Bowling Green, Kentucky. Id. Soon after the formation of the
Partnership, the General Partners sold thirty-two (32) limited partnership interests
for cash and promissory notes:
September 1978
R. 1 at 3-4 ¶¶ 4-5.
By August 2010, SPIF acquired nineteen (19) limited partners interests,
more than 59% of the limited partnership interests, making SPIF a majority holder
of the limited partnership interests:
3
August 2010
R. 1 at 10 ¶ 10.
On March 24, 2011, UMIC GP was added as a co-Administrative General
Partner of the Partnership. R. 19-2 at 2, Exh. A:
4
March 2011
R. 19-2 at 8, Exh. B. TESCO Properties, Inc. (formerly UMIC Properties, Inc.) the
sole general partner and Administrative General Partner in the Partnership prior
to UMIC GP’s admission, consented in writing to the amendment as did SPIF, the
holder of the majority of limited partnership interests of the Partnership. 3
Plaintiff is an Illinois Trust (the “Trust”) formed on or about July 26, 2011 on
the death of Margaret A. Paluch. Paluch’s daughter, Michelle Precin, is trustee of
Melissa’s Trust. Precin is Melissa’s mother. When the Trust was formed, two of the
32 limited partnership interests in the Partnership were assigned to Plaintiff,
which Plaintiff held during the transactions at issue in the complaint. R. 1 at 21-22
¶¶ 47-49.
On March 26, 2012, the Original Partnership Agreement was amended to
include, among other provisions, an exclusive jurisdiction clause for the state or
federal court of New York “for . . . any judicial proceeding . . . in connection with . . .
th[e] Agreement.” R 19-3 at 1-13, Exhs. D-E. The amendments were filed with the
Tennessee Secretary of State on April 27, 2012. Id.
On or about October 19, 2012, TESCO sold its interest as a general partner to
UMIC GP, making UMIC GP the sole administrative general partner of the
Partnership.
Neither party explains the subsequent status (or absence) of Kevin Kelly as a
general partner. However, neither party disputes that UMIC GP was the sole
General Partner of the Partnership at the time of the July 2013 Merger. R. 1 at 10 ¶
14; R. 1 at 12 ¶ 21; R. 19 at 3-4.
3
5
October 2012
R. 19-3 at 14, Exh. F; R. 1 at 10 ¶ 14. On July 18, 2013, UMIC GP, the sole
administrative general partner, and SPIF, owner of over 50% of the limited
partnership units, approved an agreement and Plan of Merger permitting transfer
of domicile of the Partnership from Tennessee to Delaware (the “Merger”). R. 1 at 12
¶ 21; R. 19-5 at 59, Exh. C. The Merger was accompanied by the written consent
and approval of UMIC GP and SPIF. R. 19-5 at 5, Exh. B. Certificates of the Merger
were filed with the states of Delaware and Tennessee, and notice of it was mailed to
each of the limited partners, which included Plaintiff. R. 19-6 at 1-7, Exh. D; id. at
69-71, Exh. G; R. 19-3 at 20, Exh. G. The Plaintiff was not asked to vote on the
Merger nor did it give its consent. R. 22 at 1, 7.
Section 211 of the Tennessee Revised Uniform Limited Partnership Act
(“TRULPA”) sets forth the requirements for the approval of a merger concerning a
6
Tennessee limited partnership. See Tenn. Code Ann. § 61-2-211. A merger under
the TRULPA requires approval by only a majority of the limited partners:
Unless otherwise provided in the partnership agreement,
a merger shall be approved by each domestic limited
partnership which is to merge: (A) By all general
partners; and (B) . . . by limited partners who own more
than fifty percent (50%) of the then current percentage or
other interest in the profits of the domestic limited
partnership.
Tenn. Code Ann. § 61-2-211.
A revised partnership agreement came into force on July 23, 2013 as a result
of the Merger (the “Revised Partnership Agreement”). R. 19-6 at 37, Exh. B. The
Revised Partnership Agreement contained the following revised forum selection
clause:
The Partnership and each Partner irrevocably (1) submits
to the exclusive jurisdiction of the courts of the State of
Delaware (and the Federal courts located in the State of
Delaware) for purposes of any judicial proceeding that
may be instituted in connection with any matter arising
under or relating to this Agreement, (2) waives any
objection that such party may have at any time to the
laying of venue of any action or proceeding brought in any
such court, (3) waives any claim that such action or
proceeding has been brought in an inconvenient forum,
(4) agrees that service of process or of any other papers
upon such party by registered mail at the address to
which notices are to be sent to such party pursuant to this
Agreement shall be deemed good, proper and effective
service upon such party, provided that this clause ( 4)
shall not affect the right to effect service of process in any
other manner permitted by the laws of the State of New
York, and (5) agrees not to bring action with respect to the
Partnership or this Partnership Agreement except in the
courts of the State of Delaware (and the Federal courts
located in the State of Delaware).
7
R. 19-6 at 66 (emphasis added).
After receipt of the notice of the Merger, Plaintiff’s representative, John
Marshall, requested and received a copy of the Revised Partnership Agreement
which included the revised forum selection clause. R. 19-3 at 21-25, Exhs. H, I.
On March 24, 2014, Plaintiff filed its complaint for declaratory judgment,
damages, and injunctive relief. R. 1. Plaintiff asserts that Defendant Seton,
manager of UMIC GP and SPIF, engaged in a scheme to take control of the
Partnership property and assets for his personal benefit to the detriment of the
Partnership and its limited partners beginning in July 2003. R. 1 at 3 ¶ 2.
On April 9, 2014, Plaintiff moved for a temporary restraining order, an asset
restraining order, removal of the general partner, and an expedited discovery order.
R. 8. At the status hearing on April 23, Defendants raised the issue of transfer in
light of the forum selection clause. On May 7, Defendants moved to transfer the
case, pursuant to 28 U.S.C. 1404(a), R. 19, and briefing followed.
For the following reasons, Defendants’ motion to transfer is granted.
Analysis
“For the convenience of parties and witnesses, in the interest of justice, a
district court may transfer any civil action to any other district or division where it
might have been brought.” 28 U.S.C. § 1404(a). This framework requires a district
court to consider convenience and fairness on a case-by-case basis. Stewart Org.,
Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988); Miller v. SKF USA, Inc., No. 10 C 6191,
2010 WL 5463809 (N.D. Ill. Dec. 29, 2010). The statute does not require the
8
evaluation of a narrow or rigid set of considerations, but instead vests discretion in
district courts to consider “all factors relevant to convenience and/or the interests of
justice.” Research Automation, Inc. v. Schrader-Bridgeport Int’l, Inc., 626 F.3d 973,
978 (7th Cir. 2010). District courts have broad discretion to grant or deny a motion
to transfer under § 1404(a). Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d
1286, 1293 (7th Cir. 1989) (citations omitted). The movant bears the burden of
demonstrating that a transfer is appropriate. Coffey v. Van Dorn Iron Works, 796
F.2d 217, 219–20 (7th Cir. 1986). Miller, 2010 WL 5463809, at *2.
I. Validity of the Forum–Selection Clause
When a party seeks transfer under 28 U.S.C. § 1404(a) pursuant to a forumselection clause, federal law governs the question of the clause’s validity. IFC Credit
Corp. v. Aliano Bros. Gen. Contractors, Inc., 437 F.3d 606, 608 (7th Cir. 2006); see
also Bertelsen v. Monsanto Co., No. 4:12-CV-04077-SLD-JEH, 2014 WL 1213474, at
*1-2 (C.D. Ill. Mar. 24, 2014). 4 “[F]ederal courts are friendly to the use of forum
selection clauses to determine which federal district court shall host a case.” Aliano
Bros., 437 F.3d at 608. The existence of a forum-selection clause is a significant
Plaintiff asserts that under IFC Credit Corp v. United Bus. & Indus. Fed. Credit
Union, 512 F.3d 989, 991 (7th Cir. 2008), state law governs the dispute. However,
as Defendants seek to transfer to the federal district court in Delaware, it is
governed by federal law. See Aliano Bros., 437 F.3d at 608, 613 (noting, where
defendant moved to dismiss for lack of personal jurisdiction, that had “the district
judge been asked to transfer the case to the federal district court in New Jersey,
where [the plaintiff] could obtain personal jurisdiction over [the defendant] without
having to rely on the forum selection clause, the validity of the clause would plainly
be governed by federal law” and that if the defendant moved for transfer under
1404(a), “there w[ould] be no shadow of a doubt that the federal standard applies.”)
4
.
9
factor that “figures centrally in the district court’s calculus of whether to transfer a
case.” Zenith Elecs. Corp. v. Kimball Int’l Mfg., Inc., 114 F. Supp. 2d 764, 774-75
(N.D. Ill. 2000) (citing Stewart Org., Inc., 487 U.S. at 29). Such clauses are
presumed valid and enforceable unless the resisting party can show that:
(1) its incorporation into the contract was the result of
fraud, undue influence, or overweening bargaining power;
(2) the selected forum is so gravely difficult and
inconvenient that the complaining party will for all
practical purposes be deprived of its day in court; or (3) its
enforcement would contravene a strong public policy of
the forum in which the suit is brought, declared by
statute or judicial decision.
AAR Int’l, Inc. v. Nimelias Enters. S.A., 250 F.3d 510, 525 (7th Cir. 2001) (internal
citations and quotations omitted). Such clauses are enforced even when parties
allege that the contract containing the clause is void or unenforceable. Miglin v.
Mellon, No. 07 C 6863, 2008 WL 2787474, at *1 (N.D. Ill. July 17, 2008) (citing
Muzumdar v. Wellness Int’l Network, Ltd., 438 F.3d 759, 762 (7th Cir. 2006)).
A. July 2013 Merger
Defendants argue that the forum selection clause in the Revised Partnership
Agreement is valid and enforceable because the Merger preceding the Revised
Partnership Agreement was valid. R. 19. Plaintiff claims that the Merger was
invalid because Defendants failed to obtain the proper consent to conduct the
Merger. R. 22.
According to its terms, the Original Partnership Agreement is governed by
Tennessee law. R. 1-3 at 9, § 14.02. Under Tennessee law, when interpreting the
terms of a contract, a court should give them their “plain and ordinary meaning.”
10
Certain Underwriters at Lloyd’s of London v. Paniagua, 957 F. Supp. 2d 921, 924
(W.D. Tenn. 2013) (citing U.S. Bank, N.A. v. Tenn. Farmers Mut. Ins. Co., 277
S.W.3d 381, 386 (Tenn. 2009)).
Plaintiff claims that the Merger “involved” the sale of all the assets of the
Partnership, triggering Sections 12.02 and 13.01(b) of the Original Partnership
Agreement and requiring consent of all limited partners, which was not obtained. R.
22 at 10-12. A plain reading of the Original Partnership Agreement provisions,
however, does not support Plaintiff’s argument.
Section 12.02 of the Original Partnership Agreement, cited by Plaintiff and
discussing the “limitations on amendments,” states that:
Notwithstanding the provisions of Section 12.01, no
amendment to this Agreement may: . . . (e) amend this
Article XII, 5 or Section 13.01, without the Consent of all
Partners.
R. 1-3 at 7 (emphasis added).
Neither the Merger or a “sale of assets” is an “amendment” to Article XII or
Section 13.01. Section 13.01(b) of the Original Partnership Agreement, cited by
Plaintiff, states:
13.01. Dissolution of the Partnership. The partnership
shall be dissolved on the earlier of the expiration of the
term of the Partnership or upon: . . . (b) the sale or other
disposition of all or substantially all of the Partnership
assets;
Article XII is the entire “Amendments” section of the Original Partnership
Agreement, including § 12.01—Proposal and Adoption of Amendments Generally; §
12.02—Limitations on Amendments; and § 12.03—Amendments on Admission or
Withdrawal of Partners. R. 1-3 at 5-7.
5
11
R. 1-3 at 8. On its face, the Merger was not an asset sale. But even if the Merger
were somehow interpreted as a sale of “all or substantially all of the partnership
asset,” under Section 13.01, it does not constitute an actual “amendment” of that
section of the Original Partnership Agreement.
Section 13.01 of the Original Partnership Agreement discusses the
circumstances under which the Partnership would be dissolved. One of those
circumstances is upon the “sale or other disposition” of all or substantially all of the
Partnership assets. R. 1-3 at 8. Section 12.02(e), requires approval of all partners to
amend Section 13.01. The apparent fulfillment of one of the conditions in Section
13.01 of a dissolution of the Partnership is not the equivalent of amending one of
those conditions. 6
B. Plaintiff’s Additional Bases for Invalidity of the Clause
Plaintiff also argues that the clause is not valid for the following reasons: (1)
Plaintiff was not a party to the contract and did not freely negotiate the clause; (2)
Plaintiff did not otherwise consent to Delaware as a district where its claims could
be brought; and (3) the clause was the product of fraud, breaches of fiduciary duty
and overreaching. R. 22 at 3. Defendants respond that the clause need not have
been freely negotiated, was not a product of fraud, and is in fact fundamentally fair
and reasonable. R. 25. They also argue that Plaintiff identifies no public interest
which would overwhelmingly disfavor transfer. Id.
Plaintiff also argues that the affidavits of Daniel McAvoy and Gil Seton, Jr. should
be disregarded as hearsay. However, based on the Court’s findings of validity of the
forum selection clause, the Court need not reach the Plaintiff’s arguments.
6
12
1. Negotiation of the Clause
Plaintiff cites multiple cases for the principle that parties without the
opportunity to review, object, or sign an agreement containing a forum selection
clause will not be bound by it. R. 22 at 2-9. Those cases are distinguishable on their
face. Many involve forum selection clauses forced upon third parties who were not
party to the agreement containing the clause. They do not involve situations such as
here where a limited partner chose, in exchange for some benefit, to bind itself by
written agreement to certain actions by the majority of limited partners. Quite
simply, the plaintiff is not a third party to the Original or Revised Partnership
Agreement but instead is a party to it.
Here, the Plaintiff agreed to be bound by the Original Partnership
Agreement, which was governed by Tennessee law. 7 Plaintiff executed a limited
The Original Partnership Agreement included a provision by which assignees of
limited partnership interests agreed to be bound by the Agreement:
7
10.03 Admission of Substitute Limited Partners
(a) Subject to the other provisions of this Article X, an
assignee of the Interest of a Limited Partner (which shall
be understood to include any purchaser, transferee,
donee, or other recipient on any disposition of such
interest . . . ) shall be deemed admitted as a Limited
Partner . . . only upon the satisfactory completion of the
following:
*
*
*
*
*
(iii) the assignee shall have accepted and agreed to be
bound by the terms and provisions of this Agreement . . .
and such other documents or instruments as the General
Partners may require.
13
partnership agreement which included provisions vesting management authority of
the partnership with the general partner and permitting certain actions based on
the approval of a majority of limited partners. The March 26, 2012 amendment to
the Original Partnership Agreement, which Plaintiff did not object to, corrected
omitted language from the Original Partnership Agreement. R. 19-2 at 16-17.
Section 7.01 of the Original Partnership Agreement, “Management Authority of the
General Partners,” was amended to provide:
(a) Except to the extent that the consent of the Limited
Partners is required by this Agreement, the
Administrative General Partner shall have full, complete
and exclusive discretion to manage and control the
business of the Partnership for the purpose herein stated,
shall make all decisions affecting the business of the
Partnership to the best of its ability and use its best
efforts to carry out the purpose of the Partnership. . . .
R. 19-2 at 16-17, Item 2. The Original Partnership Agreement also provided:
(a) . . . The Administrative General Partner, on behalf of
the Partnership, shall have the authority to perform all
acts which the Partnership is authorized to perform,
including, but not limited to the following:
*
*
*
*
*
(iv) refinance, sell or otherwise dispose of all or
substantially all of the assets of the Partnership at any
one time, provided, however, any such act shall require
the approval of all General Partners and the consent of
Limited Partners holding a majority of the Limited
Partner interests, unless it is a sale or other disposition
resulting from dissolution of the Partnership pursuant to
Article III hereof. Dkt. No. 1, Exh. A, at § 7.01(a)(iv).
R. 1-3 at 2, § 10.03(a)(iii).
14
R. 1-2 at 5-6, § 7.01(a)(iv).
Plaintiff does not allege that it was mistaken about or unaware of the terms
of the Original Partnership Agreement or the March 26, 2012 amendments at the
times of execution. Even if, as Plaintiff argues, the Merger constituted a sale of “all
or substantially all” of the partnership’s assets on their face, the conditions for
approval under the Original Partnership Agreement were fulfilled. According to the
Original Partnership Agreement, sale of all or substantially all of the partnership
assets required approval of a majority—not all—of the limited partners. R. 1-2 at 56.
If, as Defendants argue, the actions constituted a merger rather than an
asset sale, the required approval was also obtained under state law through the
TRULPA. A merger under the TRULPA requires approval by only a majority of the
limited partners. See Tenn. Code Ann. § 61-2-211. 8
It is undisputed that the sole general partner and the majority of the limited
partners approved the Merger. At the time of the Merger, UMIC GP was the sole
general partner and SPIF owned a majority of the outstanding limited partnership
interests. R. 19-3 at 19, Exh. G. Both UMIC GP and SPIF approved the merger. 9
Plaintiff asserts that the Tennessee statute relied on by Defendants is inapplicable
in part because it is dated in 2014, after the date of the merger. R. 22 at 11-12.
Plaintiff does not show, however, that the requirement of limited partner approval
under § 61-2-211 in July 2013 was greater than the more than 50 percent majority
cited above.
8
Plaintiff’s complaint concedes that the Merger was approved by the sole general
partner UMIC GP and SPIF, the holders of the majority of limited partnership
interests. R. 1 at 12 ¶ 21.
9
15
Moreover, it is undisputed that Defendants also satisfied the remaining merger
requirements under the TRULPA § 61-2-211(c), memorialized by the certificate of
merger filed with the Tennessee Secretary of State on July 23, 2013. R. 19-5, Exh.
C. Consequently, the Court concludes that Defendants’ failure to obtain consent
from all the limited partners does not invalidate the Merger or forum selection
clause contained in the Revised Partnership Agreement following the Merger.
Caselaw in analogous situations supports this conclusion. In Central States,
Southeast & Southwest Areas Pension Fund v. O’Brien & Nye Cartage Co., No. 06-C4988, 2007 WL 625430, at *1 (N.D. Ill. Feb. 22, 2007), the defendant corporation in
an ERISA case complained that the forum selection clauses did not exist at the time
the participation agreement was executed and claimed it was never given notice of
its inclusion in the trust agreements. The court found that by entering into a
presumably valid participation agreement, the defendant bound itself to the terms
of the trust agreements. The trust agreement stated that the defendant would be
bound by the trustee’s actions, including subsequent amendments like the forum
selection clause at issue there. Similarly, holders of the limited partnership
interests in this case bound themselves to the Original Partnership Agreement
which in turn binds them to subsequent amendments and actions properly taken by
the general and majority limited partners.
Likewise, Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d
934, 941 (Del. Ch. 2013), judgment entered sub nom., Boilermakers Local 154
Retirement Fund & Key West Police & Fire Pension Fund v. Chevron Corp., 7220-
16
CS, 2013 WL 3810127 (Del. Ch. June 22, 2013) is analogous. Boilermakers involved
a forum selection clause that was adopted by a board with authority to adopt
bylaws. The plaintiff filed a lawsuit outside the forum noted in the clause. It
opposed transfer on similar grounds to Plaintiff here—that they did not vote in
advance of its adoption to approve the clause. The court held: “that plaintiffs did not
vote on the bylaws at the time of their adoption is not relevant to the question of
whether the bylaws are valid or contractually binding under Delaware law.” Id. at
957-58. The court found that although the stockholders had not voted on the version
of the clause, the clause was nonetheless valid and enforceable because the
stockholders assented to the board’s adoption of bylaws, part of the agreed contract
when purchasing stock. Id. Similar to Boilermakers and O’Brien, although holders
of a minority of the limited partnership interest in this case did not vote to put the
forum selection clause in place, they are bound by the terms of the Original
Partnership Agreement. They assented to the Original Partnership Agreement and
the actions and amendments by certain parties described therein through their
purchase or assignment of the limited partnership interests.
Finally, in Goldweber v. Harmony Partners Ltd., 671 F. Supp. 2d 392, 394
(E.D.N.Y. 2009), the court found a forum selection clause valid where the general
partners had the undisputed authority to amend the partnership agreement
without the consent of limited partners. They amended the partnership to include a
forum selection clause, and the court found the clause to be valid, noting that the
17
partners met their obligation to communicate the existence of the clause by sending
plaintiff a copy of the amended partnership agreement. Id. at 396-97.
2. Fraud
Plaintiff argues that because the Merger is invalid, the entire Revised
Partnership Agreement is void as a product of fraud, rendering the forum selection
clause invalid. R. 22 at 2. Plaintiff claims that the merger and resulting Revised
Partnership Agreement were part of Defendants’ “scheme to defraud Plaintiff and
the other minority limited partners of their partnership interest and allegations
that these and other actions by defendants constituted a breach of the fiduciary
duties owed plaintiff.” R. 22 at 18. However, Plaintiff makes insufficient allegations
of fraud concerning the addition of the forum selection clause itself.
“[G]eneral claims of fraud do not suffice to invalidate the forum selection
clause.” Doe v. Cultural Care, Inc., No. 09-CV-6126, 2010 WL 3075711, at *4 (N.D.
Ill. Aug. 3, 2010) (citing Preferred Capital, Inc. v. Assocs. in Urology, 453 F.3d 718,
722 (6th Cir. 2006)). Under M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10
(1972), forum selection clauses “are prima facie valid and should be enforced unless
enforcement is shown by the resisting party to be ‘unreasonable’ under the
circumstances.” Id. at 10. “[I]t is the inclusion of the forum selection clause that
must be the result of fraud, not simply the defendants’ decision to enter the entire
contract.” Trio Video, LLC v. NTL Capital, LLC, No. 07 C 2719, 2007 WL 2230036,
at *3 (N.D. Ill. July 27, 2007) (citing Bremen, 407 U.S. at 12-13). Plaintiff has not
alleged anything about the clause itself that indicates fraud occurred in its insertion
18
in the Revised Partnership Agreement. The Court need not and should not reach
the Plaintiff’s general allegations of fraud in order to decide the validity of the
forum selection clause.
Along similar lines, the Seventh Circuit has noted the “absurdity” of asking a
court to determine the validity of a contract prior to determining the validity of a
forum selection clause in that contract, where a party makes insufficient allegations
that the clause itself was procured by fraud. See Muzumdar, 438 F.3d at 762
(stating that “[t]he logical conclusion of the argument would be that the federal
courts in Illinois would first have to determine whether the contracts were void
before they could decide whether, based on the forum selection clauses, they should
be considering the cases at all” and noting that “[a]n absurdity would arise if the
courts in Illinois determined the contracts were not void and that therefore, based
on valid forum selection clauses, the cases should be sent to [another state]—for
what? A determination as to whether the contracts are void?”); see also Macey &
Aleman v. Simmons, No. 10-CV-06646, 2011 WL 1456762, at *4 n.3 (N.D. Ill. Apr.
14, 2011) (citing Muzumdar for the same proposition and declining to rule on
whether entire agreements were void before ruling on motion to dismiss for lack of
personal jurisdiction).
In SeeComm Network Servs. Corp. v. Colt Telecomm., No. C 04–1283 MEJ,
2004 WL 1960174, at *1 (N.D. Cal. Sept. 3, 2004), the plaintiff argued that an
agreement containing a forum-selection clause was invalid as a whole because of
fraud in the inducement, rendering the entire agreement and forum-selection clause
19
unenforceable. The court observed that holding the forum selection clause invalid
because the contract as a whole is invalid due to unilateral mistake or fraudulent
inducement would improperly require the Court to assess the merits of the case. It
found use of such an analysis was “clearly backwards” as the question before the
court was “the validity of the Forum–Selection Clause, not the validity of the
contract as a whole.” Id. at *4-5.
Other courts have also rejected forum selection arguments that embrace “the
ultimate issue” and refused to “determine the validity of the entire contract merely
to resolve a defendant’s venue claim under § 1404(a).” CoActiv Capital Partners,
Inc. v. Feathers, No. CIV A 08-5506, 2009 WL 1911673, at *4 (E.D. Pa. July 1, 2009).
This Court similarly finds that determining the validity of the entire contract
merely to resolve the venue claim “would be both circular and improvident.” Id. It
would be premature to determine the validity of the Defendants’ actions—beginning
with a “scheme” that Plaintiff alleges commenced in 2003—at this stage of the
proceedings. Based on the facts presented, the forum selection clause on its face is
valid and enforceable against Plaintiff.
II. Additional Factors
Plaintiff’s remaining arguments against a transfer to Delaware under Section
1404(a) incorrectly presume that the forum selection clause is invalid. Plaintiff
argues that venue is not proper in Delaware because not all Defendants reside
there, the events giving rise to the claim did not take place there, and Defendants
20
have not met their burden to show that Delaware is more convenient to the parties,
witnesses or in the interests of justice. R. 22 at 21-24.
In evaluating the convenience of the parties and witnesses in the context of
section 1404(a), “a court ordinarily considers the plaintiff’s choice of forum; the situs
of material events; the relative ease of access to sources of proof; the convenience of
the witnesses; and the convenience of the parties of litigating in the respective
forums.” Bankers Life & Cas. Co. v. Polonczyk, No. 10 C 2523, 2010 WL 3273663, at
*1 (N.D. Ill. Aug. 16, 2010) (citing Brandon Apparel Group, Inc. v. Quitman Mfg.
Co., 42 F. Supp. 2d 821, 833 (N.D. Ill. 1999)). “The weighing of factors for and
against transfer necessarily involves a large degree of subtlety and latitude, and
therefore, is committed to the sound discretion of the trial judge.” Coffey, 796 F.2d
at 219 (citations omitted).
“In considering a motion to transfer venue, the presence of a forum selection
clause is relevant both as a matter of convenience and as an interest of justice: it is
a significant factor that figures centrally in the district court’s calculus.” Methode
Elec., Inc. v. Delphi Auto. Sys. LLC, 639 F. Supp. 2d 903, 908 (N.D. Ill. 2009) (citing
Stewart Org., 487 U.S. 22 at 29–30) (internal quotation marks omitted). The Court’s
transfer analysis remains “flexible and multifaceted,” and a forum-selection
clause—like any other relevant factor—“should receive neither dispositive
consideration . . . nor no consideration,” Methode, 639 F. Supp. 2d at 908 (quoting
Stewart Org., 487 U.S. at 31). Under these circumstances, however, there is “a
strong presumption against transfer.” Macey & Aleman v. Simmons, No. 10 C 6646,
21
2012 WL 6568234 (N.D. Ill. Dec. 13, 2012) (quoting Aliano Bros., 437 F.3d at 613).
The presumption against transfer can be overcome only “if there is inconvenience to
some third party . . . or to the judicial system itself.” Id. (quoting Nw. Nat’l Ins. Co.
v. Donovan, 916 F.2d 372, 378 (7th Cir. 1990)). Here, the presence of a valid forum
selection clause, particularly in light of the potentially dispersed localities of limited
partners, far outweighs the public and private interest factors highlighted by the
Plaintiff.
Generally, a party’s agreement to a forum selection clause amounts to a
waiver of his “right to assert his own inconvenience as a reason to transfer a case.”
Heller Fin., 883 F.3d at 1293 (emphasis added). Based on the Court’s finding that
the forum selection clause is valid and Plaintiff’s status as a limited partner who is
bound by the Original and Revised Partnership Agreements, Plaintiff’s claims of
inconvenience are not compelling. See, e.g., Hellman v. Royal Carribean Int’l, No.
04-C-4041, 2005 WL 1631135, at *4 (N.D. Ill. July 8, 2005) (“While it would no
doubt be more convenient for [the plaintiff] to litigate this claim in the Northern
District of Illinois, her inconvenience is not sufficient to satisfy the heavy burden of
proof required to set aside an otherwise valid forum selection clause.”) (internal
citations omitted).
In light of the forum selection clause, the remaining factors of the
convenience of Defendants, the convenience of the witnesses, and the interests of
justice do not strongly favor Illinois over Delaware, if at all. According to Plaintiff,
Defendants and their principal places of business (along with sources of proof and
22
some relevant documents) are located in California, which does not favor Illinois
over Delaware. The convenience of Illinois over Delaware for some witnesses does
not weigh heavily in favor of transfer. Delaware is easy to reach for any witness.
The documents about the day-to-day operations of the local partnerships are located
in Kentucky and Tennessee, but that difference does not favor Illinois. A trial in
federal court in Delaware is likely to proceed on a similar schedule as in this Court.
Finally, while Plaintiff’s allegation that the injuries took place in Illinois weigh in
its favor, it is insufficient to overcome the forum selection clause.
In any case, the selected forum is not “unreasonable or unjust,” or so gravely
difficult and inconvenient that Plaintiff will for all practical purposes be deprived of
its day in court. Plaintiff has not satisfied the heavy burden of showing that “trial in
the contractual forum will be so gravely difficult and inconvenient that [it] will for
all practical purposes be deprived of [it]s day in court.” Bremen, 407 U.S. at 18; see
also RBC Mortg. Co. v. Couch, 274 F. Supp. 2d 965, 970 (N.D. Ill. 2003). Plaintiff
does not allege that it is unable to pursue the suit in Delaware. The forum selection
clause mandating suits relating to the Agreement be brought in federal or state
court in Delaware is neither unreasonable, unjust, or inconvenient.
Conclusion
For the reasons above, Defendant’s Motion to Transfer, R. 19, is granted.
ENTERED:
23
Honorable Thomas M. Durkin
United States District Judge
Dated: July 31, 2014
24
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?