Herin et al v. US Band and Orchestra Supplies Inc et al
Filing
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ORDER granting 16 Motion to Dismiss for Lack of Jurisdiction/to Transfer Venue, transferring the action to the United States District Court for the Eastern District of Missouri; granting 25 Motion for Joinder. Signed by Honorable Joseph F Anderson, Jr on 08/18/2011. (bshr, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
ROCK HILL DIVISION
John Charles Herin and PEGHEDS, Inc.,
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Plaintiffs,
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vs.
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U.S. Band and Orchestra Supplies, Inc.,
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LOUD Technologies, Inc., and Andrew
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Glasser,
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Defendants.
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____________________________________ )
C/A No.: 0:11-cv-1164-JFA
ORDER
This matter is before the court upon the Defendants’ motion to dismiss, pursuant to
Federal Rule of Civil Procedure 12(b)(3), or in the alternative, to transfer this case to the District
Court for the Eastern District of Missouri, pursuant to 28 U.S.C. § 1404.1 The parties have fully
briefed this matter, and after inviting oral argument, the court grants Defendants’ motion and
transfers this case to the United States District Court for the Eastern District of Missouri.
BACKGROUND
This dispute arises out of Plaintiffs John Charles Herin and PEGHEDS, Inc.’s allegation
that the Defendants have breached the terms of the Patent License Agreement entered into
between them regarding the use of tuning pegs for orchestral instruments. Plaintiffs own a patent
on the tuning peg, and through a Patent License Agreement, they licensed the use of the tuning
peg in 2004 to St. Louis Music, Inc. in return for a specified royalty, among other things. St.
Louis Music used the tuning peg in its brand of instruments known as the Knilling String
Instruments. In 2005, Defendant LOUD Technologies, Inc. purchased St. Louis Music, which
included an assignment of the Patent License Agreement to LOUD Technologies, and LOUD
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Defendant Andrew Glasser moved the court to join in Defendants U.S. Band and Orchestra Supplies,
Inc. and LOUD Technologies, Inc.’s motion to dismiss, and the court grants that motion.
Technologies continued to use the tuning peg in its orchestral instruments. In 2008, LOUD
Technologies sold its division of orchestral instruments to Defendant U.S. Band and Orchestra,
Inc., and this sale included the assignment of the original Patent License Agreement entered into
between Plaintiffs and St. Louis Music, Inc. Plaintiffs agreed to both of these assignments of the
Patent License Agreement.
It appears from Plaintiffs’ complaint that neither LOUD Technologies, Inc. nor U.S.
Band and Orchestra, Inc. has paid the Plaintiffs royalties as they are obligated under the Patent
License Agreement. Thus, the Plaintiffs have alleged a breach of contract cause of action against
the Defendants. Plaintiffs also seek to rescind the Patent License Agreement and allege that the
2008 assignment of the Patent License Agreement from LOUD Technologies, Inc. to U.S. Band
and Orchestra, Inc. was the result of fraud, as one or both of these Defendants made
representations they knew were fraudulent in order to induce the Plaintiffs to consent to the
assignment. Finally, Plaintiffs ask for an accounting and assert a number of state law claims
against the Defendants.
The crux of this motion concerns a forum-selection clause present in the Patent License
Agreement. It states:
This Patent License shall be binding upon and inure the benefit of the parties’
permitted assigns. This Patent License shall be governed by and construed in
accordance with the laws of the State of Missouri. Any lawsuit brought to enforce
the provisions of this Patent License shall be brought either in the Circuit Court
for St. Louis County or the U.S. District Court for the Eastern District of
Missouri, Eastern Division.
(Defs.’ Mot. for S.J., Ex. A. Patent License ¶ 10.) Pursuant to this provision, the Defendants
move the court to dismiss this case for lack of improper venue, or to transfer this case, as they
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believe the Eastern District of Missouri is where this case should be filed. Plaintiffs oppose the
motion.
ANALYSIS
At the outset, the court finds it more appropriate to decide whether or not this case should
be transferred to the United States District Court for the Eastern District of Missouri, as
requested by Defendants as alternative relief, rather than to decide whether the case should be
dismissed without prejudice. A district court may transfer a case to another district court
pursuant to 28 U.S.C. § 1404(a), which provides: “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.” “Section 1404(a) is intended to place discretion in
the district court to adjudicate motions for transfer according to an individualized, case-by-case
consideration of convenience and fairness.” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29
(1988).
As the language of the rule suggests, the court should first consider the convenience of
the witnesses and the parties. In this case, it appears that this factor slightly favors transferring
the case to Missouri. Although the Plaintiffs are located in South Carolina, Defendant U.S. Band
and Orchestra Supplies, Inc. maintains its headquarters in Missouri, and it appears that many of
the material witnesses in this case are also located in Missouri. Of course, Defendant Andrew
Galsser resides in New York, and Defendant LOUD Technologies, inc. is based out of
Washington. Moreover, this matter primarily involves a breach of contract issue; therefore,
presumably, neither forum creates a burden in accessing other sources of proof beyond the
witnesses. Nevertheless, requiring all of the witnesses located in Missouri to appear in South
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Carolina could prove to be a burden. Thus, the court finds that this factor favors transferring the
case to the Eastern District of Missouri.
Next, the court should consider the “interest of justice”. As the United States Supreme
Court has noted, “the presence of a forum-selection clause such as the parties entered into in this
case will be a significant factor that figures centrally in the district court’s calculus.” Stewart
Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (“The flexible and individualized analysis
Congress prescribed in § 1404(a) thus encompasses consideration of the parties’ private
expression of their venue preferences.”). A forum-selection clause is “prima facie valid and
should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under
the circumstances.” M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972); Pee Dee Health
Care, P.A. v. Sanford, 509 F.3d 204, 213 (4th Cir. 2007). A forum-selection clause is
unreasonable if “(1) it was the result of fraud or overreaching; (2) trial in the contractual forum
would be so gravely difficult and inconvenient for the complaining party that he would for all
practical purposes be deprived of his day in court; or (3) enforcement would contravene a strong
public policy of the forum in which suit is brought.” M/S Bremen, 407 U.S. at 15–18; Pee Dee
Health Care, P.A., 509 F.3d at 213–14.
Here, Plaintiff contends that the forum-selection clause is unreasonable because the 2008
assignment was induced by fraud and overreaching. This argument is based on an alleged false
projection of sales by U.S. Band and Orchestra Supplies, Inc. While it may later be proven that
fraud or overreaching puts into question the legitimacy of the 2008 assignment of the Patent
License Agreement, Plaintiffs have not been able to make any arguments related to fraud that
would have specifically induced Plaintiffs to agree to the forum selection clause when the Patent
License Agreement was first entered into in 2004. As the Supreme Court has stated:
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[F]orum-selection clauses ‘should be given full effect’ when ‘a freely negotiated .
. . . [and] . . . unaffected by fraud . . . .’ This qualification does not mean that any
time a dispute arising out of a transaction is based upon an allegation of fraud, as
in this case, the clause is unenforceable. Rather, it means that an arbitration or
forum-selection clause in a contract is not enforceable if the inclusion of that
clause in the contract was the product of fraud or coercion.
Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n.14 (1974) (quoting The Bremen v. Zapata OffShore Co., 407 U.S. 1 (1972)). Because there has been no showing that the forum-selection
clause was the result of fraud perpetrated in 2004, the court must find the provision valid and
enforceable.
Plaintiffs further argue that the court will subject them to a grave injustice if it transfers
the case to Missouri because Missouri law has changed since 2004. Although Plaintiffs concede
that the choice-of-law provision in the Patent License Agreement would require this court to
apply Missouri law, they believe the changes in Missouri law since 2004 cause them to be
without remedies that they expected to be able to pursue at that time. While their argument may
be true, the court believes it is directed at the fairness of the choice of law provision, as opposed
to the forum selection provision, and is not enough to overcome the validity of the forumselection provision.
Finally, Plaintiffs argue that the forum selection clause at issue contravenes a strong
public policy of South Carolina. The basis of Plaintiffs’ contention lies in South Carolina Code
section 15-7-120(A), which states:
Notwithstanding a provision in a contract requiring a cause of action arising under
it to be brought in a location other than as provided in this title and the South
Carolina Rules of Civil Procedure for a similar cause of action, the cause of action
alternatively may be brought in the manner provided in this title and the South
Carolina Rules of Civil Procedure for such causes of action.
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Plaintiffs contend that this statutory provision evidences a strong policy of the State to allow
contracting parties to litigate a dispute in a South Carolina court regardless of a mandatory forum
selection clause agreed to by the parties in their contract, so long as the action may otherwise be
brought in a manner provided under the South Carolina Code and Rules of Civil Procedure. The
United States Court of Appeals for the Fourth Circuit laid this issue to rest in a recent decision,
in which it determined that South Carolina does not have a strong public policy that would be
violated by the enforcement of a forum-selection clause. Albemarle Corp. v. Astra Zeneca UK
Ltd., 628 F.3d 643, 652 (4th Cir. 2010). This court is constrained to follow this decision, and in
doing so, it must find that this argument by Plaintiffs will not defeat the Defendants’ motion.
Accordingly, the court believes the interest of justice will further be served if this case is
transferred. Therefore, the court grants Defendant’s motion and orders that this case be
transferred to the United States District Court for the Eastern District of Missouri.
IT IS SO ORDERED.
August 18, 2011
Columbia, South Carolina
Joseph F. Anderson, Jr.
United States District Judge
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