Heartland Family Service v. Netsmart Technologies, Inc.
MEMORANDUM OPINION - This matter is before the Court on the motion of defendant, Netsmart Technologies, Inc. ("Netsmart"), to dismiss, filed pursuant to Fed. R. Civ. P. 12(b)(3) and 12(b)(6) (Filing No. 11 , with accompanying brief, Filing No. 12 ). A separate order will be entered in accordance with this memorandum opinion. Ordered by Senior Judge Lyle E. Strom. (TCL )
IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEBRASKA
HEARTLAND FAMILY SERVICES,
NETSMART TECHNOLOGIES, INC., )
This matter is before the Court on the motion of
defendant, Netsmart Technologies, Inc. (“Netsmart”), to dismiss,
filed pursuant to Fed. R. Civ. P. 12(b)(3) and 12(b)(6) (Filing
No. 11, with accompanying brief, Filing No. 12).
Heartland Family Services (“Heartland”), filed a brief in
opposition to the motion (Filing No. 13, with accompanying index
of evidence, Filing No. 14), to which defendant replied (Filing
Heartland and Netsmart are parties to a Software
License and Business Terms Agreement (the “Contract,” Ex. 1,
Filing No. 1, at 17-32).1
The Contract contains a forum-
selection clause mandating venue for any legal action thereunder
in DuPage County, Illinois (Id. at ¶ 12.3).
The Court finds the
The parties to the Contract are designated as Sequest
Technologies, Inc. (“Sequest”) and Heartland (Ex. 1, Filing No.
1, at 17). Netsmart informs the Court that it was formerly known
as Sequest (Filing No. 11, at 1). The copy of the Contract
provided to the Court as an exhibit to the complaint is not
signed, but Netsmart does not dispute that it is a party to the
forum-selection clause enforceable and the Court will transfer
the action to the United States District Court for the Northern
District of Illinois.
Plaintiff, Heartland, is a Nebraska non-profit
corporation that “helps parents who struggle; couples who want to
save their relationship; children who are removed from unsafe
homes; teens who made the wrong decisions about alcohol, drugs or
crime; survivors of family violence; [and] low-income families -mostly women and children -- who fall into homelessness.”
Filing No. 1, ¶ 4.
According to Heartland’s complaint,
defendant, Netsmart, is a Delaware corporation with its principal
place of business in Albany, New York; Netsmart is a “technology
solutions company” that provides its customers with database
systems such as the Totally Integrated Electronic Record (“TIER”)
Id. at ¶ 2, 5, 9.
Heartland brings this lawsuit because
it alleges that Netsmart’s TIER System did not deliver as
promised, and Heartland alleges seven causes of action, including
fraud and breach of contract.
Id. ¶ 19-23, 38-45.
Heartland originally filed its complaint in Douglas
County, Nebraska, District Court.
Defendants removed the suit to
this Court, claiming diversity jurisdiction under 28 U.S.C.
In this motion, Netsmart “moves this Court to enter an
order dismissing the complaint filed by plaintiff Heartland
Filing No. 11, at 1.
Netsmart argues that the
Court should dismiss the case under either Fed. R. Civ. Pro.
12(b)(3) or 12(b)(6) because venue in Nebraska is not proper
under the forum-selection clause contained in the Contract.
forum-selection clause states:
12.3 Governing Law. This Agreement
shall be governed by the laws of
the State of Illinois, without
reference to any conflicts of laws
provisions. . . . The parties
agree that the state and federal
courts serving DuPage County,
Illinois shall be the sole venue
and jurisdiction for all actions
concerning this Contract.
Ex. A, Filing No. 1, at ¶ 12.3.
Heartland opposes the motion,
stating, “[b]ecause Illinois is a substantially less convenient
locale for this matter than Nebraska, dismissing or transferring
this matter violates Nebraska’s public policy as declared by the
Filing No. 13, at 1.
As an initial matter, Heartland urges this Court to
determine whether the Federal Rule of Civil Procedure 12(b)(3) or
12(b)(6) is the proper rule to dismiss and enforce forumselection clauses.
In Rainforest Café, Inc. v. EklecCo, LLC, the
Eighth Circuit acknowledged that the question remained open in
Rainforest Café, Inc. v. EklecCo, LLC, 340 F.3d
544, 545 n.5 (8th Cir. 2003).
The Eighth Circuit did not address
the issue because the movant filed a motion to dismiss under both
subsections (b)(3) and (b)(6) of Rule 12.
filed a motion to dismiss under both subsections of Rule 12
(Filing No. 13, at 3).
Therefore, this Court declines to
determine which subsection is the proper basis for the motion.
Heartland’s argument that the Eighth Circuit has
adopted a different standard is without merit.
No. 13, at 3 (stating the Eighth Circuit implicitly adopted
Rule(b)(3) as the proper form of dismissal) (citing CCI of
Arkansas, Inc. v. Baggette Const., Inc., 2009 WL 3010986 (E.D.
Ark. Sept. 17, 2009), Marano Enter. of Kansas v. Z-Teca
Restaurants, L.P., 254 F.3d 753 (8th Cir. 2001)), with Rainforest
Café, Inc., 340 F.3d at 545 n.5 (expressly stating, two years
after the Marano opinion, that the question was open in this
circuit)); see also Union Elec. Co. v. Energy Ins. Mut. Ltd., 689
F.3d 968, 971 n.2 (8th Cir. 2012) (declining to decide whether
subsection 12(b)(3) or (b)(6) is the correct form for forumselection dismissals) (citing Rainforest Café, 340 F.3d at 545–46
First, the Court must determine the choice of law in
In federal diversity jurisdiction cases, courts
must determine whether forum-selection clauses are procedural or
substantive and thereby determine the choice of law to apply.
Generally, a “contractual forum selection clause [is] a federal
court procedural matter governed by federal law.”
Corp. v. Controlled Air, Inc., 574 F.3d 527, 528 (8th Cir. 2009).
Therefore, federal law applies to the question of enforcing the
Second, the Court must determine whether Nebraska pubic
policy factors into the enforceability of the forum-selection
In its brief, Heartland argues that, regardless of
federal or state choice of law, the Court must consider Neb. Rev.
Stat. § 25-415(3) (2012) in the enforcement of the forumselection clause.
The Nebraska statute states the following:
If the parties have agreed in
writing that an action on a
controversy shall be brought only
in another state and it is brought
in a court of this state, the court
will dismiss or stay the action, as
appropriate, unless . . . (3) the
other state would be a
substantially less convenient place
for the trial of the action than
this state. . . .
Neb. Rev. Stat. § 25-415(3) (2012) (emphasis added).
Importantly, Heartland does not contend that the inconveniences
of litigating in Illinois would prevent Illinois courts from
doing “substantial justice” to this action.
Netsmart first counters with the assertion that only
Illinois law applies.
Then, Netsmart argues, in the alternative
that, if Nebraska public policy factors into the Court’s
analysis, then Heartland’s litigation in the selected forum is
not substantially inconvenient.
We find Union Electric Co. v.
Energy Insurance Mutual Ltd. controls this issue.
In Union Electric, the Eighth Circuit determined that
district courts must “give due consideration” of the forum’s
public policy when determining whether to dismiss and enforce a
See Union Elec. Co., 689 F.3d at 973.
In that case, Union Electric Company (“Union Electric”), a
Missouri pubic utility, sued Energy Insurance Mutual Limited
(“EIM”), a company incorporated in Barbados and with a principle
place of business in Florida, in the United States District Court
for the Eastern District of Missouri for a breach of contract
Id. at 969.
EIM filed a motion for dismissal to enforce
a forum-selection clause in their contract naming the United
States District Court for the Southern District of New York as
the exclusive jurisdiction for claims under the agreement.
The Missouri district court applied the Bremen standard to
determine the enforceability of the forum-selection clause, yet
failed to address the public policy concerns of Missouri.
Upon appeal, the Eighth Circuit reversed and remanded
the district court’s dismissal.
The Court stated the
Forum selection clauses are prima
facie valid and are enforced unless
they are unjust or unreasonable or
invalid for reasons such as fraud
or overreaching. Where, as here,
the forum selection clause is the
fruit of an arm's-length
negotiation, the party challenging
the clause bears an especially
heavy burden of proof to avoid its
bargain. While inconvenience to a
party is an insufficient basis to
defeat an otherwise enforceable
forum selection clause, a party can
avoid enforcement of the clause by
showing that proceeding in the
contractual forum will be so
gravely difficult and inconvenient
that he will for all practical
purposes be deprived of his day in
court. While Bremen provides the
proper analysis for determining the
enforceability of a forum selection
clause, in this circuit,
consideration of the public policy
of the forum state must be part of
Id. at 973-74 (internal citations and quotations omitted).
Eighth Circuit then remanded with the instruction that the
district court consider the public policy concerns of Missouri
regarding the effects of the forum change, a mandatory
arbitration clause, and environmental concerns in Missouri.
The Nebraska Supreme Court has reviewed the Neb. Stat.
Rev. § 25-415(3) defense which Heartland invokes as public
In Polk County Recreational Association v. Susquehanna
Patriot Commercial Leasing Co., the Nebraska Supreme Court noted
that “mere inconvenience or additional expense will not permit a
forum selection clause to be avoided” and that “if the forum is
available and can do substantial justice to the action, there is
no serious impairment of a party's ability to litigate.”
County Recreational Ass'n v. Susquehanna Patriot Commercial
Leasing Co., 273 Neb. 1026, 1039, 734 N.W.2d 750, 761 (2007).
Furthermore, the court reasoned that parties contemplate issues
of potential litigation inconveniences when entering into
contractual forum-selection clauses and therefore, the “location
and convenience of witnesses do not necessarily make a forum
seriously inconvenient because deposition testimony can be taken
and used without disadvantage at trial.”
Id. at 1039, 734 N.W.2d
Finally, Heartland requests that, if the Court
determines that the forum-selection clause is enforceable, the
Court should transfer the action to the United States District
Court for the Northern District Illinois under 28 U.S.C. § 1404
(Filing 13, at 5-6).
As both parties acknowledge, “courts favor
transfer of an action under 28 U.S.C. § 1404 over dismissal if a
forum selection clause dictates venue in another federal
Charles A. Wright et al., 14D Federal Practice and
Procedure § 3803.1 at 76 (2007); Filing 13, at 5-6; Filing 12, at
However, Netsmart argues that when “the valid forum selection
clause mandates venue in a state court, § 1404 has no
application” and therefore the Court must dismiss the action.
Filing 12, at 7.
In the alternative, Netsmart also requests
that, if a transfer is appropriate, the Court transfer the case
to the United States District Court for the Northern District
Filing 12, at 7 n.5.
In order to determine whether a case is transferable
under § 1404, the Court must apply the Stewart test set forth in
Terra International, Inc. v. Mississippi Chemical Corp.
statutory language reveals three general categories of factors
that courts must consider when deciding a motion to transfer: (1)
the convenience of the parties, (2) the convenience of the
witnesses, and (3) the interests of justice.”
Inc. v. Mississippi Chemical Corp., 119 F.3d 688, 691 (8th Cir.
The United States Supreme Court has determined that a
valid and applicable forum-selection clause is “a significant
factor that figures centrally in the district court's calculus.”
Id. (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29
Typically, the party that seeks transfer under
§ 1404(a) bears the burden to prove transfer is warranted.
Netsmart’s motion to dismiss requires the Court to
determine three issues:
first, whether Nebraska public policy
affects the enforceability of the forum-selection clause; second,
whether federal law requires the enforcement of the forum-
selection clause; and third, whether this case should be
dismissed or transferred.
First, in the instant case, it is clear that the Court
must consider the public policy of the State of Nebraska as a
matter of federal law.
As in Union Electric, the Court is bound
to consider the public policy concerns of the forum in which the
claim was filed:
As the sole public policy
consideration of the state of Nebraska, Heartland claims that
Illinois will be a substantially less convenient place for trial
Filing 13, at 4-5.
Heartland lists a number of reasons that Illinois is a
“substantially” less convenient venue than Nebraska.
includes the following: (1) Heartland is located in Nebraska, (2)
alleged damage occurred in Nebraska, (3) nineteen potential
witnesses are residents of Douglas, Sarpy, and Pottawattamie
counties, and (4) increase in Heartland’s litigation costs.
These claims are surreptitious because these arguments fail to
overcome the especially high burden of proof to avoid the
bargained-for contractual forum-selection clause.
In this case, Heartland and Netsmart negotiated a
contract containing the forum-selection clause in question.
the time of contract, the parties knew the location of Heartland
and Netsmart, the residency of its employees, potential
litigation expenses for Heartland, and the inconvenience of
In order to stay a dismissal or transfer under Neb. Rev.
Stat § 25-415(3), the forum must be unavailable to perform
substantial justice to the action.
Polk County Recreational
Ass'n, 273 Neb. at 1039, 734 N.W.2d at 761.
Illinois courts can
do substantial justice to this action and there are no serious
impairments to Heartland’s ability to litigate such as to relieve
it of the forum-selection clause which it negotiated.
law does not shield Heartland from dismissal under Neb. Rev.
Stat. § 25-415(3), and therefore, Nebraska public policy does not
shield Heartland from dismissal or transfer.
Second, after giving due consideration to the public
policy consideration of the state of Nebraska, the Court turns to
federal law to determine whether the forum-selection clause is
Nebraska law is inextricably close to the federal
law concerning this matter, and, therefore, the analysis of this
matter is much the same.
The forum-selection clause is presumed valid and
Heartland bears the especially heavy burden of proving that this
bargained-for forum-selection clause will, for all practical
purposes, deprive Heartland of its day in court.
Heartland will likely experience extra expenses and inconvenience
in order to litigate in Illinois instead of
will also need to call witnesses from the Omaha-metropolitan area
to successfully assert its claim against Netsmart.
Heartland knew of these potential disadvantages at the time the
contract was made.
Heartland’s asserted defenses are merely
Because “inconvenience to a party is an
insufficient basis to defeat an otherwise enforceable forum
selection clause,” Heartland’s defense must fail.
Elec. Co., 689 F.3d at 975.
The forum-selection clause is
Third, after we have determined the forum selection
clause is valid, the Court must determine whether to dismiss the
action or to transfer venue.
Here, the forum-selection clause
reads, “[t]he parties agree that the state and federal courts
serving DuPage County, Illinois shall be the sole venue and
jurisdiction for all actions concerning this Contract.” (Ex. A,
Filing No. 1, at ¶ 12.3) (emphasis added).
states that if the valid forum-selection clause mandates venue in
a state court, § 1404 does not apply.
In this case, however, the
forum-selection clause authorizes venue in a federal court, and
more specifically, does not mandate claims to state courts;
therefore, transfer under § 1404 may be proper.
The moving party, Heartland, expressed its interest and
enumerated reasons for a transfer to the United States District
Court for the Northern District of Illinois in the event this
Court found the forum-selection clause enforceable.
Netsmart also requests for a transfer to the same
district court, if the Court deems transfer appropriate.
12, at 7 n.5.
“The three categories to consider for transfer are (1)
the convenience of the parties, (2) the convenience of the
witnesses, and (3) the interests of justice.”
Inc., 119 F.3d at 691.
As stated above, Heartland complains of
the inconvenience that it and its potential witnesses will suffer
in traveling to Illinois.
In the interest of justice, Heartland
argues that, if the forum-selection clause is enforceable, then
Heartland wishes to transfer directly to the correct venue and
avoid “unnecessary litigation expenses” and further delay.
Filing 13, at 6.
Without consideration of the forum-selection clause,
the three-part balancing test generally tips toward litigation in
However, a valid forum-selection clause is a central
issue to this analysis.
The clause mandates the presence of the
parties and each party’s witnesses to appear in the state or
federal court which serves DuPage County (e.g., United States
District Court for the Northern District of Illinois).
expedient and expeditious enforcement of the forum-selection
clause requires the Court to transfer, rather than dismiss this
Consequently, because of the preference of courts to
transfer actions, the deference that courts give to enforceable
forum-selection clauses, the agreement of the parties to transfer
to the District Court for Northern District of Illinois, and
because Heartland has successfully argued for the convenience of
the parties and the interest of justice, the Court will allow
Heartland to transfer directly to the United States District
Court for the Northern District of Illinois.
A separate order
will be entered in accordance with this memorandum opinion.
DATED this 19th day of August, 2013.
BY THE COURT:
/s/ Lyle E. Strom
LYLE E. STROM, Senior Judge
United States District Court
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