Carter's of New Bedford, Inc. v. Nike, Inc et al

Filing 35

Judge Douglas P. Woodlock: MEMORANDUM AND ORDER entered granting 11 Motion to Dismiss for Failure to State a Claim; granting 23 Motion to Strike ; finding as moot 34 . (Woodlock, Douglas)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
CARTER’S OF NEW BEDFORD,
INC. d/b/a CARTER’S CLOTHING
AND FOOTWEAR,
Plaintiff,

v.
NIKE, INC., and NIKE USA,
INC.,
Defendants.

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CIVIL ACTION NO.
13-11513-DPW

MEMORANDUM AND ORDER
March 31, 2014
I.

BACKGROUND

Plaintiff Carter’s of New Bedford, d/b/a Carter’s Clothing
and Footwear, is a family owned business that operates two
clothing and footwear retail stores in southeastern
Massachusetts.

Compl. ¶ 1.

For nearly thirty years, Carter’s

has sold footwear and other apparel manufactured by Defendant
Nike.

Id. at ¶ 3.

Over time, sales of Nike products have grown

to account for more than one-third of Carter’s annual retail
sales.

Id. at ¶ 4.

By letter dated March 15, 2013, Nike informed Carter’s that
it was terminating Carter’s account effective June 30, 2013.
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Id.

at ¶ 9; Ex. B.

The notice informed Carter’s that Nike would

accept no new orders from Carter’s, and that any outstanding
orders would be cancelled unless Carter’s both notified Nike that
it wanted the orders filled and paid for the orders in advance.1
Ex. B.

Carter’s sought an explanation from Nike regarding the

cause for the termination, but Nike provided none apart from
stating that it was within its rights electively to terminate the
relationship.

Id.

Carter’s alleges on information and belief

that Nike’s termination of its account was motivated by a change
in Nike’s marketing strategy to favor large national retailers
over smaller locally-owned stores.

Id. at ¶¶ 9, 12.

Carter’s

further alleges that Nike has similarly terminated the accounts
of other small urban retailers.

Id. at ¶ 12.

To ensure that Nike would fill its outstanding orders,
Carter’s paid Nike a sum of $160,582.

Compl. at ¶ 11.

As of the

filing of the complaint on June 7, 2013, Nike had failed to
respond to repeated requests from Carter’s seeking confirmation
that the pre-paid orders would be filled.2

Id.

Carter’s alleges

that the uncertainty from this lack of confirmation complicated
Typically, under the parties’ course of dealing, payment was
not due until after merchandise had been received. Compl. ¶ 11.
1

Carter’s represents in its opposition to Nike’s motion to
dismiss that Nike finally confirmed on August 13, 2013 that it
would fill the outstanding orders.
2

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its efforts to formulate a new business plan following the
dissolution of its relationship with Nike.

Id.

Seeking to forestall the termination of its Nike account,
Carter’s filed suit in Bristol Superior Court alleging breach of
contract (Count I), breach of the implied covenant of good faith
and fair dealing (Count II), violation of the Uniform Commercial
Code (Count III), and violation of Mass. Gen. Laws. ch. 93A, § 11
(Count IV).

Nike removed to this court on the basis of diversity

jurisdiction and subsequently filed a motion to dismiss, which I
now address.
II.

STANDARD OF REVIEW

In order to survive a motion to dismiss pursuant to Fed. R.
Civ. P. 12(b)(6), “a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is
plausible on its face.”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (citation and internal quotation marks omitted).
Dismissal for failure to state a claim is appropriate when the
pleadings fail to set forth “factual allegations, either direct
or inferential, respecting each material element necessary to
sustain recovery under some actionable legal theory.”

Berner v.

Delahanty, 129 F.3d 20, 25 (1st Cir. 1997) (quoting Gooley v.
Mobil Oil Corp., 851 F.2d 513, 515 (1st Cir. 1988) (internal
quotation marks omitted).

“[W]here the well-pleaded facts do not
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permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged — but it has not ‘show[n]’
— ‘that the pleader is entitled to relief.’”

Maldonado v.

Fontanes, 568 F.3d 263, 268 (1st Cir. 2009) (quoting Iqbal, 556
U.S. at 678).
I “must accept all well-pleaded facts alleged in the
Complaint as true and draw all reasonable inferences in favor of
the plaintiff.”
1993).

Watterson v. Page, 987 F.2d 1, 3 (1st Cir.

While I am “generally limited to considering facts and

documents that are part of or incorporated into the complaint,” I
“may also consider documents incorporated by reference in the
[complaint], matters of public record, and other matters
susceptible to judicial notice.”

Giragosian v. Ryan, 547 F.3d

59, 65 (1st Cir. 2008) (citation and internal quotation marks
omitted; alteration in original).
III.

DISCUSSION

Nike has moved to dismiss the complaint on the grounds that
its contract with Carter’s contains a forum selection clause
requiring this dispute to be litigated in Oregon.3
In the alternative, Nike argues that the complaint fails to
state a claim upon which relief can be granted. Because I must
address the forum selection issue before I undertake to evaluate
the claims themselves, and I conclude this is not the proper
forum for this litigation, I do not reach the substance of
Carter’s claims.
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Carter’s relationship with Nike is governed by the “TERMS
AND CONDITIONS OF SALE” (hereinafter the “Agreement”) printed on
each invoice Carter’s receives from Nike.4

Compl. ¶ 5; Ex. A.

The Agreement contains a provision entitled “ATTORNEYS’ FEES\
GOVERNING LAW\FORUM SELECTION,” which states in relevant part:
The Agreement, and all disputes arising out of the
Agreement or out of the relationship between NIKE and
Customer, will be governed by the laws of the state of
Oregon. . . . Customer irrevocably consents to the
jurisdiction of the state and federal courts located in
the state of Oregon in connection with any action
arising out of or in connection with the Agreement and
waives any objection that such venue is an inconvenient
forum. Customer will not initiate an action against
Nike in any other jurisdiction. Nike may bring an
action in any forum.

The complaint alleges that the relationship between Carter’s
and Nike is “partially defined” by the Terms and Conditions of
Sale. Compl. ¶ 5. However, apart from the vague allegation that
“other customs and procedures have existed in the ongoing
business relationship between Nike and Carter’s that reflect the
expectations and arrangements between Nike and Carter’s in
conducting their business together,” id., the complaint does not
identify any other source of agreement between the parties. The
Terms and Conditions themselves provide that “[e]ach Order,
together with these Terms and Conditions and, if applicable
Customer’s credit application and account agreement, may be
referred to collectively as the ‘Agreement.’” Compl. Ex. A. ¶ 1.
The Terms and Conditions further provide that “[t]he Agreement
contains the entire agreement and understanding between the
parties with respect to its subject matter and supersedes prior
and contemporaneous oral and written agreements, commitments and
understandings concerning that subject matter.” Compl. Ex. A. ¶
20.
4

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Compl. Ex. A. ¶ 15.

Invoking this clause, Nike argues that the

complaint should be dismissed.5

Carter’s responds that the

entire Agreement is an “unconscionable contract of adhesion” and
therefore the forum selection and choice of law provisions, along
with the rest of the agreement, are unenforceable.
A.

Applicable Law
Because this case is a diversity action, I must determine as

an initial matter what law to apply in evaluating the validity of
the forum selection clause.

Both the Supreme Court and the First

Circuit have expressly left open the question whether, under the
Historically, in the First Circuit, “a motion to dismiss based
upon a forum-selection clause is treated as one alleging the
failure to state a claim for which relief can be granted under
Fed. R. Civ. P. 12(b)(6).” Silva v. Encyclopedia Britannica
Inc., 239 F.3d 385, 387 (1st Cir. 2001). Nike has filed such a
motion here. Although the Supreme Court recently held in
Atlantic Marine Constr. Co., Inc. v. United States District Court
for the Western District Of Texas, 134 S. Ct. 568 (2013), that
the proper way for a defendant to invoke a forum selection clause
is through a motion to transfer venue under 28 U.S.C. § 1404(a) –
if the specified forum is another federal court – or through the
doctrine of forum non conveniens – if the specified forum is a
state or foreign court – see id. at 579-80, the Court
specifically reserved the question whether a defendant may
properly use a Rule 12(b)(6) motion to dismiss to accomplish the
same purpose, see id at 580 (noting that the defendant in that
case had not raised the issue). Because Nike has relied on
substantial precedent from the First Circuit in filing a 12(b)(6)
motion invoking the forum selection clause, and because I am
satisfied that revising the technical form of the motion would
not meaningfully alter the analysis except perhaps as to the
standard of review on appeal, see Martinez v. Bloomberg LP, 740
F.3d 211, 216-17 (2d Cir. 2014), I will treat Nike’s motion as
they have presented it, as a Rule 12(b)(6) motion to dismiss.
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Erie doctrine, the issue of a forum selection clause’s
enforceability should be regarded as “procedural” — and thus
governed by federal law — or “substantive” — and thus governed by
state law.

See Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22,

25–26, 32 & n. 11 (1988); Huffington v. T.C. Group, LLC, 637 F.3d
18, 23 (1st Cir. 2011).

Nevertheless, in the absence of a

conflict between state law and the federal common law standard
set forth in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1
(1972), the First Circuit has generally applied the Bremen
standard.

See Huffington, 637 F.3d at 23; Rafael Rodriguez

Barril, Inc. v. Conbraco Indus., Inc., 619 F.3d 90, 92 (1st Cir.
2010); Rivera v. Centro Medico de Turabo, Inc., 575 F.3d 10, 1617 (1st Cir. 2009).
Here, if I were to apply state law, the source would be the
law of Oregon.

This is the law to which Massachusetts choice of

law principles direct me.

See Melia v. Zenhire, Inc., 967 N.E.2d

580, 586 (Mass. 2012) (validity of forum selection clause
determined according to state law specified in choice of law
provision); Jacobson v. Mailboxes Etc. USA, Inc., 646 N.E.2d 741,
744 (Mass. 1995) (same).

Although Oregon case law discussing

forum selection clauses appears limited, and I could find no case
explicitly citing Bremen, the standards have been described as
“similar.”

See Mittendorf v. Stone Lumber Co., 874 F. Supp. 292,
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295 (D. Or. 1995).

Given the absence of recent guidance from the

Oregon Supreme Court, which last considered the issue over forty
years ago, see Reeves v. Chem Industrial Co., 495 P.2d 729, 73132 (Or. 1972), I follow the First Circuit’s practice of applying
the federal common law, relatively secure in my understanding
that Oregon law does not conflict.
B.

Application
Under Bremen, “the forum clause should control absent a

strong showing that it should be set aside.”

407 U.S. at 15; see

also Nike USA, Inc. v. Pro Sports Wear, Inc., 145 P.3d 321, 324
(Or. App. 2006) (“Forum selection clauses contained in commercial
contracts are prima facie enforceable; they will be disregarded
only where the evidence shows that enforcement would be unfair
and unreasonable.”).

The Supreme Court has identified four

grounds for finding a forum selection clause unenforceable:
(1) the clause was the product of “fraud or overreaching,”
id. at 15;
(2) “enforcement would be unreasonable and unjust,” id.;
(3) proceedings “in the contractual forum will be so gravely
difficult and inconvenient that [the party challenging the
clause] will for all practical purposes be deprived of his
day in court,” id. at 18; or
(4) “enforcement would contravene a strong public policy of
the forum in which suit is brought, whether declared by
statute or by judicial decision,” id. at 15

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As the party challenging the enforcement of the forum
selection clause, Carter’s bears the “heavy burden” of
demonstrating why it should not be enforced.
Huffington, 637 F.3d at 23.

Id. at 17;

Carter’s has failed to meet that

burden.
The most fundamental problem with Carter’s argument in its
opposition to Nike’s motion to dismiss is that it is unsupported
by, and in many cases in direct tension with, the factual
allegations contained in the complaint.

In the complaint,

Carter’s expressly alleges that the Agreement at least partially
governs its relationship with Nike.

Compl. ¶ 5.

While the

complaint goes on vaguely to allege that the parties’
relationship was further defined by a course of dealing, id. at ¶
9, it contains no factual allegations suggesting that the
Agreement is unenforceable in whole or in part as the product of
fraud, duress or overreaching.

In contrast, Carter’s opposition

takes the position that the Agreement is unconscionable and
unenforceable.
Even putting aside the inherent conflict between Carter’s
argument and the allegations in its complaint, Carter’s still
fails to demonstrate that it should be relieved of its obligation
under the Agreement to litigate this matter in Oregon.

Carter’s

argues that the Agreement was drafted unilaterally by Nike; that
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it “is printed on the back on invoices, extends to multiple
pages, and is printed in a small nine-point font size”; and that
it is oppressive in that it forces Carter’s to pursue any claim
in Oregon but allows Nike to file suit in Massachusetts.6
That the Agreement was unilaterally drafted by Nike does not
render it, or its forum selection clause, unenforceable.

As the

First Circuit has observed, “[o]ne of the classic Supreme Court
cases concerning forum selection clauses, Carnival Cruise Lines,
Inc. v. Shute, 499 U.S. 585 (1991), enforced a non-negotiated
forum selection provision contained in the passengers’ cruise
tickets in a personal injury action.”

Rivera, 575 F.3d at 19.

“[A]dhesion does not imply nullity of a contract.”

Nieves v.

Intercontinental Life Ins. Co. of P.R., 964 F.2d 60, 63 (1st Cir.
1992) (citation omitted).

“If the wording of the contract is

Carter’s makes additional arguments based primarily on
differences between the operative Agreement, Compl. Ex. A, and
prior versions of the Agreement not incorporated into the
complaint. These prior versions of the Agreement, as well as an
affidavit by one of Carter’s owners, are extraneous materials not
properly before me on this motion to dismiss. Rivera v. Centro
Medico de Turabo, Inc., 575 F.3d 10, 15 (1st Cir. 2009)
(Observing that “[t]he fact that a motion to dismiss on the basis
of a forum selection clause is treated as a 12(b)(6) motion has
certain consequences for the materials that a district court may
appropriately consider when ruling on such a motion,” and
expressing disapproval at district court’s “sub silentio
conversion into a motion for summary judgment” by considering
materials not incorporated into complaint). Nike has filed a
motion to strike these additional materials, which I will grant.
In any event, consideration of these materials would not have
impacted my view of the merits of Carter’s challenge.
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explicit and its language is clear, its terms and conditions are
binding on the parties.”

Id.; see also Bull HN Info. Sys., Inc.

v. Hutson, 229 F.3d 321, 331 (1st Cir. 2000) (“[O]f course, even
a contract of adhesion is enforced unless unconscionable or
unfair.”).

As a general proposition, if Carter’s found the terms

of Nike’s Agreement unacceptably unfair, it was free to cease
doing business with Nike.

However, as the filing of this suit

suggests, it had substantial incentive to keep purchasing product
from Nike despite certain demanding terms in the Agreement.
That the Agreement was “printed on the back on invoices,
extends to multiple pages, and is printed in a small nine-point
font size,” barely warrants discussion.

The forum selection

clause appears in the same font and is the same size as the
remainder of text in the Agreement, under a heading containing
the words “FORUM SELECTION” in bold capital letters.

Carter’s

cites no authority suggesting a three page commercial contract
printed in small, but legible font is rendered unenforceable on
that basis.
Carter’s broadest argument is that the forum selection
clause is simply unfair; both in that it requires a small familyowned business from Massachusetts to litigate disputes with Nike
across the country in Oregon, and in that Nike is not similarly
restricted in its ability to select a forum.
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That said, the case

law demonstrates that the “‘heavy burden of proof . . . required
to set aside [a forum selection] clause on grounds of
inconvenience,’ demands more of a litigant . . . than simply
showing that another location would be more convenient.”

In re

Mercurio, 402 F.3d 62, 66 (1st Cir. 2005) (citing Carnival Cruise
Lines, 499 U.S. at 595).

“Were it otherwise, forum selection

clauses would almost never be enforceable, for inconvenience to
at least one of the parties is an almost forgone conclusion when
dealing with a provision that requires litigating away from one’s
home turf.”

Id.

Here, there is no doubt that requiring Carter’s

to pursue its claims in Oregon would cause it to incur additional
expense and suffer measurable inconvenience.

But nothing about

this case suggests that the realities of litigating in Oregon,
should Carter’s choose to press on, would rise to the level of
“practical impossibility” that the applicable standard demands.
See Huffington, 637 F.3d at 24.
IV.

CONCLUSION

For the reasons stated above, Nike’s motion to dismiss is
GRANTED.

/s/ Douglas P. Woodlock
DOUGLAS P. WOODLOCK
UNITED STATES DISTRICT JUDGE
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