Crede CG III, Ltd. v. 22nd Century Group, Inc.
OPINION AND ORDER re: 36 MOTION to Sever Counts I, VI and VII. MOTION to Transfer Case to the Western District of New York filed by 22nd Century Group, Inc., 18 LETTER MOTION for Conference Regarding Anticipated Motions to Dismiss addressed to Judge Katherine Polk Failla from Beth I. Z. Boland dated May 24, 2016 filed by 22nd Century Group, Inc. For the foregoing reasons, Defendants' motion to sever and transfer Counts I, VI, and VII is GRANTED. The Court hereby severs Plaintiff's Claims I, VI, and VII of Plaintiff's Amended Complaint. The Clerk of Court is directed to transfer Claims I, VI, and VII to the United States District Court for the Western District of New Y ork. Litigation of Claims II, III, IV, and V will proceed in this District. The Clerk of Court is further directed to terminate the motions at docket entries 18 and 36. The parties are ORDERED to appear at an initial pretrial conference on Friday, February 10, 2017, at 3:00 p.m., in Courtroom 618 of the Thurgood Marshall U.S. Courthouse, 40 Foley Square, New York, New York 10007. On or before Thursday, February 2, 2017, the parties will submit a joint status letter and case management plan in accordance with Paragraph 3.B of the Court's Individual Rules of Practice in Civil Cases. (As further set forth in this Opinion and Order.) (Signed by Judge Katherine Polk Failla on 1/20/2017) (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
CREDE CG III, LTD.,
22ND CENTURY GROUP, INC.,
DOC #: _________________
January 20, 2017
DATE FILED: ______________
16 Civ. 3103 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
Plaintiff Crede CG III, LTD. (“Crede” or “Plaintiff”), an investment firm
targeting companies with small market capitalizations, brought this action
against 22nd Century Group, Inc. (“XXII” or “Defendant”), a plant
biotechnology company, claiming breaches of and interference with the parties’
contractual obligations concerning a joint venture in the People’s Republic of
China. In brief, Plaintiff contends that Defendant failed to fulfill the most basic
tasks necessary to the joint venture’s success, while Defendant responds that
the venture failed because Plaintiff’s principal overstated his connections, his
experience, and even his abilities in order to induce Defendant to enter into the
Defendant now moves to sever Counts I, VI, and VII of Plaintiff’s
Amended Complaint (the “Complaint”) on the grounds of improper venue, and
to transfer them to the United States District Court for the Western District of
New York. For the reasons that follow, Defendant’s motion is granted.
Plaintiff is a Bermuda investment company with its principal place of
business in Los Angeles, California. (FAC ¶ 2). It specializes in investing in
companies with small market capitalization, touting its “exemplary track record
of identifying companies with high-growth potential and providing them with
the capital needed to achieve their business objectives and create shareholder
Defendant is a Nevada corporation, which has its headquarters and
principal place of business in Clarence, Erie County, New York. (Def. Br. 3
(citing Sicignano Decl. ¶ 2)). Its securities are traded on the New York Stock
Exchange under the ticker symbol “XXII.” (FAC ¶ 3). Defendant’s business
“focuses on the research, development, licensing, manufacturing, sale and
distribution of specialty proprietary tobacco products, including reduced-risk
or modified risk tobacco products, as well as smoking cessation low-nicotine
tobacco products, among others.” (Def. Br. 3 (citing Sicignano Decl. ¶ 1)). This
business is based on Defendant’s “proprietary technology and plant breeding
expertise,” both of which allow Defendant “to regulate the levels of nicotine and
This Opinion draws on facts from the Complaint (“FAC,” Dkt. #11), as well as the
parties’ briefing. For convenience, Defendant’s opening memorandum of law is referred
to as “Def. Br.” (Dkt. #37), Plaintiff’s memorandum in opposition as “Pl. Br.” (Dkt. #40),
and Defendant’s reply memorandum as “Def. Reply” (Dkt. #41). The declarations
attached to this briefing are referred to by the name of the declarant: “Sicignano Decl.”
(Dkt. #37, Ex. A) and “Peizer Decl.” (Dkt. #40, Ex. A).
nicotine alkaloids in ... tobacco plant[s], thereby facilitating the growth of
tobacco with reduced nicotine content.” (FAC ¶ 3).
The Parties’ 2014 Business Dealings
In 2014, the parties began discussions regarding a potential investment
in Defendant’s business to be made by Plaintiff through its principal, Terren
Peizer. (FAC ¶ 7; Def. Br. 3 (citing Sicignano Decl. ¶ 24)). The parties were
mutually interested in exploring the opportunities afforded by the Chinese
tobacco market, the largest in the world. (FAC ¶¶ 6-7; Def. Br. 4 (citing
Sicignano Decl. ¶ 26)). Defendant clarifies, however, that this interest was
separate from and secondary to Plaintiff’s interest in investing in Defendant’s
business; only “[s]ubsequent to this investment” did Plaintiff begin to explore
the possibility of a further agreement “to pursue sales of [Defendant’s] specialty
tobacco products in China.” (Def. Br. 4).
Plaintiff recalls the timeline differently. In June 2014, months before its
preliminary investment, Peizer “arranged for several critical meetings with key
executives at [China National Tobacco Company (“CNTC”)] to lay the
groundwork for [Defendant] to obtain a valuable supply agreement” with China
Tobacco International (“China Tobacco”), CNTC’s subsidiary. (FAC ¶ 6). 2 The
parties anticipated that, by 2019, such an agreement would generate “over $1
billion in aggregate revenue.” (Id.). It was against this backdrop, Plaintiff
explains, that the parties’ negotiations began in earnest. Discussions were
The occurrence of these June 2014 meetings, though not their purpose, is agreed upon
by the parties in their Consulting Agreement. (Def. Br., Ex. 6 at 1; Peizer Decl., Ex. C at
undertaken to determine “a structure under which [Plaintiff] would provide
[Defendant] with the resources it needed to pursue a deal with CNTC on terms
that would fairly compensate [Plaintiff] for its role.” (Id. at ¶ 7). A deal was
reached in September 2014, which was “memorialized in a network of
integrated contracts, drafted and negotiated in tandem,” and executed during
that month. (Id.).
The Contracts at Issue
The Securities Purchase Agreement
The first-executed of these contracts, signed on September 17, 2014, was
a Securities Purchase Agreement (the “SPA”). (FAC ¶ 8; Peizer Decl. ¶ 4).
According to this agreement, Plaintiff invested $10,000,000.00 in Defendant’s
business in exchange for 3,871,767 shares of Defendant’s common stock.
(FAC ¶ 8; Peizer Decl. Ex. A; Sicignano Decl. Ex. 3). 3
Section 4(d) of the SPA indicated that Defendant would “use the proceeds
from the sale of the Securities for general business purposes.” (Peizer Decl.,
Ex. A at 18). Section 9(a) of the agreement further recited that
[a]ll questions concerning the construction, validity,
enforcement and interpretation of this Agreement and
the other Transaction Documents shall be governed by
the internal laws of the State of New York .... Each party
hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New
York, Borough of Manhattan, for the adjudication of any
This investment and common stock placement was also announced in several of
Defendant’s public filings. Note 4 to the Consolidated Financial Statement in
Defendant’s Form 10-K Annual Report for the fiscal year ending December 31, 2014,
indicated that “[o]n September 17, 2014, [Defendant] issued 3,871,767 shares of its
common stock for $10,000,000.” (Sicignano Decl., Ex. 3). Note 4 to Defendant’s Form
10-Q for the quarter ending March 31, 2015, announced the same. (Id., Ex. 4).
dispute hereunder or under any of the other
Transaction Documents or in connection herewith or
therewith or with any transaction contemplated hereby
or thereby or discussed herein or therein, and hereby
irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such
suit, action or proceeding is brought in an inconvenient
forum or that the venue or such suit, action or
proceeding is improper.
(Id. at 30). 4 And Section 9(e) contained the contract’s merger clause,
establishing, among other things, that the SPA, “the NDA, the other
Transaction Documents, the schedules and exhibits attached hereto and
thereto and the instruments referenced herein and therein contain the entire
understanding of the parties.” (Id. at 31).
The JV Agreement
While Defendant argues that the SPA was a standalone agreement,
Plaintiff contends it was simply the first “leg of the deal.” (FAC ¶ 9). 5 The
“second leg” was executed on September 29, 2014, through a joint venture
agreement (the “JV Agreement”) and “a package of warrants.” (Id.).
“Transaction documents” are identified in the SPA to include the SPA, “the
Registration Rights Agreement and each of the other agreements and instruments
entered into or delivered by any of the parties hereto in connection with the
transactions contemplated hereby and thereby, as may be amended from time to time.”
(Peizer Decl., Ex. A at § 3(b)).
Plaintiff also alleges that a “Side Letter Agreement” was executed simultaneously with
the SPA, “which ensured that [Plaintiff] would receive a warrant for providing financing,
if the China joint venture failed to close by October 14, 2016.” (FAC ¶ 8). However,
Plaintiff has not included this agreement in its pleadings or its opposition papers. See,
e.g., Garcia v. Pearson Educ., Inc., No. 15 Civ. 7289 (KPF), 2016 WL 5921083, at *4
(S.D.N.Y. Oct. 7, 2016) (discussing situations where courts could consider material
outside the pleadings).
The JV Agreement comprised a Shareholders Agreement between and
among Defendant, Plaintiff, and third-party Century Champion Investments,
LTD., to form a new entity, 22nd Century Asia, Ltd. (the “China JV”), “to govern
the marketing and sale of [Defendant’s] tobacco products in Greater China,
including in Macau, Taiwan and other territories.” (FAC ¶ 10; see also
Sicignano Decl., Ex. 1). Pursuant to this agreement, Defendant agreed to
provide $10,000,000.00 to the China JV, “on a preferred basis,” to be used as
the capital for the “wholly-foreign owned enterprise in the People’s Republic of
China” (the “WFOE”). (Sicignano Decl., Ex. 1 at 1). 6 Simultaneously, the
parties “anticipate[d] that China Tobacco [would] license certain of
[Defendant’s] intellectual property on a nonexclusive basis and pay a license
fee to [Defendant] of not less than [$8,400,000.00].” (Id. at 2). In fact,
Defendant’s $10,000,000 capital contribution was contingent upon this
licensing agreement. (Id. at 5). “[I]f the WFOE fail[ed] to secure an acceptable
contract with China Tobacco, the Company [would] be wound up.” (Id. at 2).
In Section 16.8, the parties provided a merger clause indicating that the
supersedes all prior agreements, whether written or
oral, between the parties with respect to its subject
matter and constitutes ... a complete and exclusive
statement of the terms of the agreement between the
parties with respect to the subject matter of [the JV]
Agreement, including the Recital paragraphs of [the JV]
Century Champion Investments Ltd. agreed to provide the China JV with “all of the
issued and outstanding equity of Vic Corporation Limited[,] ... a company organized
under the laws of Hong Kong (‘Vic’).” (Sicignano Decl., Ex. 1 (emphasis omitted)). Vic
would then “be renamed ‘22nd Century Asia (Hong Kong) Ltd.,’” and would become the
Agreement, which are hereby incorporated into and
made a part of [the JV] Agreement as if fully set forth
(Sicignano Decl., Ex. 1 at 44). In Section 16.11, the parties agreed that “[a]ll
matters relating to or arising out of [the JV] Agreement or any Contemplated
Transaction and the rights of the parties (whether sounding in contract, tort, or
otherwise) will be governed by and construed and interpreted under the laws of
the State of New York.” (Id. at 45). And in Section 16.12, the parties further
any Proceeding arising out of or relating to [the JV]
Agreement, the management and affairs of the [China
JV] or any Contemplated Transaction shall be brought
in the courts of the State of New York, County of Erie,
or, if it has or can acquire jurisdiction, in the United
States District Court for the Western District of New
York, and each of the parties irrevocably submits to the
exclusive jurisdiction of each such court in any such
Proceeding, waives any objection it may now or
hereafter have to venue or to convenience of forum,
agrees that all claims in respect of such Proceeding
shall be heard and determined only in any such court,
and agrees not to bring any Proceeding arising out of or
relating to [the JV] Agreement or any Contemplated
Transaction in any other court.
acknowledges and agrees that this Section 16.12
constitutes a voluntary and bargained-for agreement
between the parties.
The Consulting Agreement
The JV Agreement contemplated that Peizer and Plaintiff would execute a
“consulting agreement relating to services to be performed for the [China JV],”
and that this consulting agreement would “provide for the grant of warrants to
acquire certain securities of [Defendant], a portion of which [would] vest upon
revenue targets to be achieved by the [China JV] from the sales of [Defendant’s]
tobacco to China Tobacco.” (Sicignano Decl., Ex. 1 at 2). This agreement (the
“Consulting Agreement”) was executed simultaneously with the JV Agreement
on September 29, 2014. (Id., Ex. 6 at 1; Peizer Decl., Ex. C at 1).
The parties to the Consulting Agreement were Peizer, Plaintiff, and
Defendant. (Sicignano Decl., Ex. 6 at 1; Peizer Decl., Ex. C at 1). Among other
things, Peizer and Plaintiff agreed to assist Defendant “with facilitating the sale
of its tobacco products” to China Tobacco. (FAC ¶ 11; Pl. Opp. 4-5). The
agreement’s express condition precedent provided, however, that (i) the
agreement would not take effect, (ii) Plaintiff and Peizer would not provide any
of the agreed-upon services, and (iii) Plaintiff and Peizer would not be “entitled
to any compensation or warrants of any type under th[e] Agreement[,] unless
and until [Defendant], [Plaintiff], and Century Champion Investments, Ltd., ...
[had] each executed documentation evidencing an equity interest in [the China
JV].” (Sicignano Decl., Ex. 6 at 1; Peizer Decl., Ex. C at 1). In other words, the
Consulting Agreement was contingent upon the execution of the JV Agreement,
which event was specifically identified as the “triggering event.” (Sicignano
Decl., Ex. 6 at 2; Peizer Decl., Ex. C at 2). On the business day after the
occurrence of this “triggering event,” Defendant would issue a series of
warrants, which were attached as exhibits to the Consulting Agreement and
identified as the Tranche 1A Warrant, the Tranche 1B Warrant, the Tranche 2
Warrant, and the Tranche 3 Warrant. (Sicignano Decl., Ex. 6 at 2; Peizer Decl.,
Ex. C at 2). 7
Provision 13 of the Consulting Agreement indicated that the “Agreement
and the Warrants embody the complete agreement and understanding among
the parties regarding the subject matter hereof and supersede and preempt
any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.” (Sicignano Decl., Ex. 6 at 9-10; Peizer Decl., Ex. C at 9-10). The
provision further stated that “[a]ll questions concerning the construction,
validity and interpretation of the Agreement will be governed by the internal
law ... of the State of New York.” (Sicignano Decl., Ex. 6 at 10; Peizer Decl.,
Ex. C at 10). The parties to the contract, per this provision, “consent[ed] to
subject matter jurisdiction, personal jurisdiction and venue in the appropriate
The Consulting Agreement was publicly announced in the Notes to the Consolidated
Financial Statement in Defendant’s Form 10-K Annual Report for the fiscal year ending
December 31, 2014. (Sicignano Decl., Ex. 3). Note 6 announces that
[i]n connection with a joint venture arrangement entered into on
September 29, 2014 by the [Defendant’s] newly formed and 51%
owned subsidiary, [the China JV], [Defendant] entered into a sixmonth Consulting Agreement ... with [Plaintiff]. [Plaintiff] will
provide consulting services to [the China JV] with respect to the
[Defendant’s] efforts to sell its proprietary tobacco products into
the Asian market. In connection with [Defendant’s] entry into such
a joint venture and the Consulting Agreement, [Defendant] issued
[Plaintiff] 1,250,000 Tranche 1A Warrants[.]”
(Id.). The SPA was separately announced in Note 4, which describes a Registration of
Rights Agreement that was “a condition of the private placement,” but makes no
mention of any of the agreements described in Note 6. (Id.). Both Notes 4 and 6 were
replicated in relevant part in Notes 4 and 5 of Defendant’s Form 10-Q Filing for the
quarter ending March 31, 2015. (Sicignano Decl., Ex. 4).
federal court located in the State of New York for any disputes under this
Agreement.” (Sicignano Decl., Ex. 6 at 10; Peizer Decl., Ex. C at 10).
The four tranches of warrants specified in the Consulting Agreement
were issued on September 29, 2014, and each tranche was “governed by a
separate Warrant Agreement.” (FAC ¶¶ 11-12). Implicated by the instant
motion are the Tranche 1A Warrant and its Warrant Agreement. (Id. at ¶¶ 5799).
The Tranche 1A Warrant Agreement (the “1A Agreement”) entitled
Plaintiff to purchase 1,250,000 “fully paid and non-assessable shares of
[Defendant’s] Common Stock” at any time on or after the Warrant’s issuance
date and before its Expiration Date, 8 upon Plaintiff’s exercise of the Warrant.
(Sicignano Decl., Ex. 7 at 1; Peizer Decl., Ex. B at 1). The procedures for such
exercise are laid out in Section 1 of the 1A Agreement, and specified, among
other things, that the Tranche 1A Warrant could be exercised in whole or in
part through the delivery of a written notice and, further, that it was
exercisable immediately upon its issuance. (Id. at 1-2).
The 1A Agreement also imposed a number of activity restrictions on its
signatories, though it also indicated that the restrictions “shall not limit
Holder’s rights to enforce its rights or exercise its rights as to the Securities or
under [the Tranche 1A] Warrant.” (Sicignano Decl., Ex. 7 at 6; Peizer Decl.,
The 1A Agreement mandates that the Expiration Date is the second anniversary of the
1A Warrant’s Issuance Date. (Sicignano Decl., Ex. 7 at 15; Peizer Decl., Ex. B at 15).
Ex. B at 6). These restrictions included, as relevant here, obligations that
Plaintiff “or any of its Affiliates” not “seek to advise or influence any Person
with respect to any voting securities of [Defendant]” and not “engage or
participate in any actions, plans, or proposals which relate to or would result
in ... any change in the present board of directors or management of
[Defendant], ... any other material change in [Defendant’s] business or
corporate structure, ... [or] any [similar] action, intention, plan or
Section 12 of the 1A Agreement established that the Tranche 1A Warrant
“shall be governed by and construed and enforced in accordance with, and all
questions concerning the construction, validity, interpretation and performance
of Warrant shall be governed by, the internal laws of the State of New York.”
(Sicignano Decl., Ex. 7 at 12; Peizer Decl., Ex. B at 12). In signing the 1A
Agreement, “[e]ach of [Plaintiff] and [Defendant] [t]hereby irrevocably
submit[ted] to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein.” (Id.). The signatories further
waived “irrevocably,” and agreed “not to assert in any suit, action or
proceeding, any claim that [they were] not personally subject to the jurisdiction
of any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action, or proceeding is
In several places, the 1A Agreement referenced the SPA. Section 5,
which outlined Plaintiff’s exchange rights under the 1A Agreement, permitted
Plaintiff to exchange “all or any portion of [the Tranche 1A] Warrant for fully
paid and non-assessable shares of Common Stock” at any time and from time
to time after the date sixty-one days following the execution of the SPA.
(Sicignano Decl., Ex. 7 at 11; Peizer Decl., Ex. B at 11). In Section 9, the
parties agreed that notice required under the 1A Agreement would “be given in
accordance with Section 9(f) of the [SPA].” (Sicignano Decl., Ex. 7 at 8-9; Peizer
Decl., Ex. B at 8-9). And Section 15 provided that Plaintiff’s remedies
“available under this Warrant and any other agreement among the parties, at
law or in equity, ... including any right of damages, [were] subject to Section
9(k) of the [SPA].” (Sicignano Decl., Ex. 7 at 13; Peizer Decl., Ex. B at 13). 9
The Breakdown of the Parties’ Relationship
The result of these contracts was to give Defendant a 51% ownership
stake in the China JV and the power to appoint a majority of its five-person
Board of Directors. (FAC ¶ 22). Plaintiff was a minority interest holder with a
25% equity interest in the venture. (Id.). In its Complaint, Plaintiff alleges that
Defendant used this “control over [the China JV] to induce many breaches of
the China JV Agreement.” (Id. at ¶ 28). Among other grievances, Plaintiff
faults Defendant for failing to form the requisite WFOE or “to accomplish other
basic prerequisites” (id. at ¶¶ 29-34), which failures caused Defendant’s stock
Notably, this provision contemplates that the SPA between the parties was to have been
“of even date” with the 1A Agreement, though the two were ultimately executed 12 days
apart. (Sicignano Decl., Ex. 13 at 6; Peizer Decl., Ex. B at 13).
price to fall (id. at ¶ 36). Defendant rejoins that the China JV stalled largely
because Peizer “had vastly overstated his connections, experience and ability to
help the China JV do business with China Tobacco.” (Def. Br. ¶ 8). It further
suggests that Plaintiff advised Defendant to act in violation of the Foreign
Corrupt Practices Act, which Defendant refused to do. (Id.).
As the parties’ relationship soured, Peizer expressed his frustration in a
series of emails sent to Defendant’s senior executives and Board throughout
the early months of 2015. (FAC ¶ 43). In these emails, Peizer demanded that
the Board Chairman “step aside,” warned investors of the market’s “loss of
confidence” in Defendant, and threatened to take various actions at
shareholder meetings. (See Sicignano Decl., Ex. 18 (listing and describing
emails); see also Peizer Decl., Ex. D). Plaintiff further alleges that in April
2015, it became aware that Defendant had begun “operating behind the scenes
to take the China opportunity for itself and cut [Plaintiff] and Peizer out
entirely.” (FAC ¶¶ 39-40).
On June 22, 2015, Defendant served Plaintiff with a notice of
termination under the JV Agreement, “citing only the failure to secure a
contract with CNTC as a basis.” (FAC ¶ 46). Peizer allegedly attempted to
salvage the China JV in July 2015, laying “out a strategy plan for success in
China, and implor[ing] management to capitalize on the opportunity in China.”
(Id. at ¶ 47).
Defendant took the position that Plaintiff had compromised its Exchange
Right under the 1A Agreement. (FAC ¶ 49). To that end, on March 10, 2016,
Defendant informed Plaintiff that Peizer’s 2015 emails “and a demand email by
Mr. Peizer accusing [Defendant] of breach, constituted a breach of the ‘Activity
Restrictions’ in the [1A Agreement],” which restrictions “generally prohibit[ed]
[Plaintiff] from seeking Board representation or playing a public role in
corporate governance.” (Id.; see also Sicignano Decl., Ex. 18). Defendant
accordingly refused to comply with its obligations under the 1A Agreement
when Plaintiff sought to exercise its exchange rights in April and May 2016.
(See FAC ¶¶ 51-55; see also id. at ¶ 56 (expressing intent to “continue to
exercise the Exchange Right to obtain the full value of the Warrant within the
time constraints set forth in the Warrant”)).
On April 26, 2016, Plaintiff initiated this action. (Dkt. #1). On May 19,
2016, Plaintiff filed the Complaint. (Dkt. #11). 10 The following day, Plaintiff
moved for a preliminary injunction (i) requiring Defendant to deliver to Plaintiff
the shares of common stock owed pursuant to Plaintiff’s exercise of its
Exchange Right as defined in the 1A Agreement and (ii) directing Defendant to
comply with Plaintiff’s future exercise of the 1A Agreement Exchange Right.
(Dkt. #13-15). The Court issued an Order to Show Cause why it should not
grant Plaintiff’s requested injunctive relief. (Dkt. #12). Defendant filed its
opposition to the Court’s Order on June 1, 2016 (Dkt. #29-30), and Plaintiff
filed its Reply on June 6, 2016 (Dkt. #31-32).
Plaintiff’s amendment was proper as a matter of course because it was done within 21
days of service of the initial complaint. Fed. R. Civ. P. 15(a)(1).
On June 14, 2016, the Court heard oral argument regarding the
proposed injunction. (Dkt. #34). After finding that venue was proper for
purposes of Plaintiff’s motion for injunctive relief, because Defendant waived
arguments to personal jurisdiction under the terms of the 1A Agreement, the
Court denied Plaintiff’s motion. (Id.).
Defendant filed its Motion to Sever and Transfer Counts I, VI, and VII to
the United States District Court for the Western District of New York on
July 11, 2016. (Dkt. #36-37). Plaintiff filed its opposition to Defendant’s
motion on July 29, 2016 (Dkt. #40), and Defendant filed its Reply on August 5,
2016. (Dkt. #41).
Resolving Defendant’s motion to sever and transfer requires untangling a
web of interrelated issues concerning the validity of the various forum selection
clauses, their application, and their implications (if any) for this Court’s venue
analysis. In the remainder of this Opinion, the Court considers (i) which, if
any, of the contracts’ forum selection clauses apply to Plaintiff’s claims, and
(ii) the extent to which any applicable forum selection clause impacts the
propriety of venue in this District.
Issues Arising Under New York State Law
Plaintiff alleges that the various agreements discussed in the Factual
Background constitute a single Finance Agreement and therefore must be read
together. (Pl. Opp. 3-4). Because this integrated Finance Agreement does “not
contain a unitary forum selection clause, but rather is a network of integrated
contracts, each containing its own forum selection clause,” Plaintiff argues that
the Court should analyze venue pursuant to 28 U.S.C. § 1391(b)(1) & (2), and
find that venue is proper in the Southern District of New York. (Pl. Opp. 1).
Defendant disagrees, arguing that “the express terms of the China JV
Agreement, the SPA[,] and the Tranche 1A Warrant all expressly refute
[Plaintiff’s] argument, because the agreements address different matters, do
not incorporate the other agreements, and were executed at different times.”
(Def. Br. 10; see also Def. Reply 6).
The Court pauses to clarify at the outset that it does not here resolve the
ultimate question of these contracts’ interrelation, because doing so is both
unnecessary for the resolution of Defendant’s motion and premature at this
early stage of litigation. The Court takes up the question of the contracts’
interrelatedness only to establish its unimportance to the Court’s decision.
Ultimately, the Court finds that whether these contracts constitute a single
agreement or are (partly or fully) independent of one another, their respective
forum selection clauses must be given force and Defendant’s motion to sever
and transfer Counts I, VI, and VII of the Complaint must be granted.
Multiple Agreements and Potential Integration
Because (i) the relevant contracts specifically select New York law,
(ii) both the Southern and Western Districts of New York are bound to apply
the law of the state in which each court sits, and (iii) neither party has
disputed the applicability of New York law, the Court will analyze the parties’
contracts with regard to New York law.
Under New York law, the determination of “‘[w]hether multiple writings
should be construed as one agreement depends on the intent of the parties,’ ...
which is typically a question of fact for the jury.” TVT Records v. Island Def
Jam Music Grp., 412 F.3d 82, 89 (2d Cir. 2005) (first alteration in original)
(quoting Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 5253 (2d Cir. 1993)) (citing Rudman v. Cowles Commc’ns, Inc., 330 N.Y.S.2d 33,
42 (1972)). But where “the documents in question reflect no ambiguity as to
whether they should be read as a single contract, the question is a matter of
law for the court.” Id. In such unambiguous cases, “all writings which form
part of a single transaction and are designed to effectuate the same purpose
[must] be read together, even though they were executed on different dates and
were not all between the same parties.” Id. (alteration in original) (internal
quotation marks omitted) (quoting This Is Me, Inc. v. Taylor, 157 F.3d 139, 143
(2d Cir. 1998)).
“The parties’ intent is derived ‘from the plain meaning of the language
employed in the agreements,’” Madeleine, L.L.C. v. Casden, 950 F. Supp. 2d
685, 695 (S.D.N.Y. 2013) (quoting Crane Co. v. Coltec Indus., Inc., 171 F.3d
733, 737 (2d Cir. 1999)), and divining it “requires a court to ‘give full meaning
and effect to all of [the contract’s] provisions,’” id. (alteration in original)
(quoting Katel Ltd. Liab. Co. v. AT & T Corp., 607 F.3d 60, 64 (2d Cir. 2010)).
The Court must avoid “interpretations that render contract provisions
meaningless or superfluous.” Manley v. AmBase Corp., 337 F.3d 237, 250 (2d
That said, the fact that a contract constitutes
an “integral part” of a larger transaction does not mean
that any provision contained in [the contract] must be
applied to all other documents that are part of the same
transaction. ... Parties are free to enter into multiple
contracts as part of a single transaction without the
provisions in one contract governing another contract.
Rosen v. Mega Bloks Inc., No. 06 Civ. 3474 (LTS) (GWG), 2007 WL 1958968, at
*5 (S.D.N.Y. July 6, 2007), report and recommendation adopted in part, No. 06
Civ. 3474 (LTS) (GWG), 2008 WL 2810208 (S.D.N.Y. July 21, 2008) (quoting 11
Williston on Contracts § 30:26 (4th ed.)). In other words, even where a court
considers several contracts as subparts of a single transaction, the court may
still enforce the “express limitations in a particular agreement.” CFIP Master
Fund, Ltd. v. Citibank, N.A., 738 F. Supp. 2d 450, 478 (S.D.N.Y. 2010) (citing
Coleman Co. v. Hlebanja, 1997 WL 13189, at *7 (S.D.N.Y. Jan. 15, 1997)
(“[E]ven if several contracts that constitute part of the same transaction are
considered one contract, the different obligations within each contract may be
independent and divisible[.]”)).
The Enforceability and Applicability of the Forum Selection Clauses
The contracts implicated by Plaintiff’s Complaint — the SPA, the JV
Agreement, and the 1A Agreement — contain discrete forum selection clauses,
though the JV Agreement differs in selecting the Western (as opposed to the
Southern) District of New York. Mindful of its obligations to give force to the
intent of the contracting parties, as captured in the contracts’ plain language,
the Court finds the clear intent of the parties to have been that disputes arising
under each contract be adjudicated in the particular contracted-for forum. The
language of the relevant forum selection clauses is strong and unambiguous.
Thus, the parties’ intent and its obligation would persist even if the Court were
to consider these contracts as comprising a single transaction. Accordingly,
the Court will apply each contract’s forum selection clause to the extent that
the clause is (i) enforceable, and (ii) applicable to each of Counts I, VI, and VII.
Venue in federal court is generally determined pursuant to 28 U.S.C.
§ 1391, which provides, in relevant part, that a civil action may be brought in
“a judicial district in which any defendant resides, if all defendants are
residents of the State in which the district is located” or “a judicial district in
which a substantial part of the events or omissions giving rise to the claim
occurred.” 28 U.S.C. § 1391(b). For all venue purposes, “an entity with the
capacity to sue and be sued ... shall be deemed to reside, if a defendant, in any
judicial district in which [it] is subject to the court’s personal jurisdiction with
respect to the civil action in question.” Id. § 1391(c)(2). If an entity is a
plaintiff, by contrast, it “shall be deemed to reside ... only in the judicial district
in which it maintains its principal place of business.” Id.
Curing Improper Venue
“[V]enue is proper so long as the requirements of § 1391(b) are met.” Atl.
Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Tex., 571 U.S. ___, 134 S. Ct.
568, 578 (2013). If venue is improper in a particular district, “the case must be
dismissed or transferred.” Id. at 577. “The district court of a district in which
is filed a case laying venue in the wrong division or district shall dismiss, or if it
be in the interest of justice, transfer such case to any district or division in
which it could have been brought.” 28 U.S.C. § 1406(a). Similarly, “[a] district
court may dismiss a case on its own motion when venue is improper,” though
“a sua sponte dismissal is only appropriate in extraordinary circumstances.”
Wenegieme v. Bayview Loan Servicing, No. 14 Civ. 9137 (RWS), 2015 WL
2151822, at *4 (S.D.N.Y. May 7, 2015), appeal dismissed (Aug. 27, 2015).
Significantly, “[i]n a case in which [a] plaintiff brings multiple claims, the
general rule is that venue must be proper for each claim.” Copeland v. U.S.
Dep’t of Justice, No. 15 Civ. 3569 (VB), 2015 WL 12831710, at *2 (S.D.N.Y.
Oct. 5, 2015).
Venue and Forum Selection Clauses
A forum selection clause cannot render otherwise proper “venue in a
court ‘wrong’ or ‘improper’ within the meaning of § 1406(a),” but such a clause
“may be enforced through a motion to transfer under § 1404(a).” Atl. Marine
Const. Co., 134 S. Ct. at 579. Section 1404(a) “provides [the] mechanism for
enforcement of forum selection clauses” that, as here, “point to a particular
federal district.” Id. The provision allows that “[f]or the convenience of parties
and witnesses, in the interest of justice, a district court may transfer any civil
action to any other district ... were it might have been brought.” 28 U.S.C.
As a general matter, § 1404 affords “wide latitude” for transfers. Bent v.
Zounds Hearing Franchising, LLC, No. 15 Civ. 6555 (PAE), 2016 WL 153092, at
*3 (S.D.N.Y. Jan. 12, 2016) (citing In re Cuyahoga Equip. Corp., 980 F.2d 110,
117 (2d Cir. 1992)). Where the parties agree an action could have been brought
in the transferee district, the court must determine that transfer is an
appropriate exercise of its discretion. Id. (quoting Robertson v. Cartinhour,
No. 10 Civ. 8442 (LTS) (HBP), 2011 WL 5175597, at *3 (S.D.N.Y. Oct. 28,
2011)). Factors to consider include:
[i] the convenience of witnesses; [ii] the convenience of
the parties; [iii] the location of relevant documents and
the relative ease of access to sources of proof; [iv] the
locus of operative facts; [v] the availability of process to
compel the attendance of unwilling witnesses; [vi] the
relative means of the parties; [vii] the forum’s familiarity
with the governing law; [viii] the weight accorded the
plaintiff’s choice of forum; and [ix] trial efficiency and
the interests of justice, based on the totality of the
Id. (quoting Robertson, 2011 WL 5175597, at *4). To decide a motion to
transfer, “a court may consider material outside of the pleadings.” Garcia v.
Pearson Educ., Inc., No. 15 Civ. 7289 (KPF), 2016 WL 5921083, at *4 (S.D.N.Y.
Oct. 7, 2016) (internal quotation mark omitted) (quoting Mohsen v. Morgan
Stanley & Co., Inc., No. 11 Civ. 6751 (PGG), 2013 WL 5312525, at *3 (S.D.N.Y.
Sept. 23, 2013)).
In cases involving forum selection clauses, however, a court’s § 1404
calculus changes. See Atl. Marine Const. Co., 134 S. Ct. at 581 (quoting
Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 31 (1988)). This is because
parties who agree to a forum selection clause “waive the right to challenge the
preselected forum as inconvenient or less convenient for themselves or their
witnesses, or for their pursuit of the litigation.” Id. at 582. In such cases, a
court “must deem the private-interest factors to weigh entirely in favor of the
preselected forum.” Id. Because the court is left only to consider publicinterest factors, “the practical result is that the forum-selection clauses should
control except in unusual cases.” Id.
Precisely for this reason, the Second Circuit has held that forum
selection clauses are presumptively enforceable where the party moving under
§ 1404 can demonstrate that: (i) the clause was reasonably communicated to
the party challenging enforcement; (ii) the clause is mandatory, rather than
permissive, in nature; and (iii) the clause encompasses the plaintiff’s claims.
Phillips v. Audio Active Ltd., 494 F.3d 378, 383 (2d Cir. 2007). An opposing
party must (iv) make a “sufficiently strong showing that enforcement would be
unreasonable or unjust, or that the clause was invalid for such reasons as
fraud or overreaching,” to rebut this presumption. Martinez v. Bloomberg LP,
740 F.3d 211, 217 (2d Cir. 2014) (quoting Phillips, 494 F.3d at 383-84 (quoting
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972))).
To decide “whether an otherwise mandatory and applicable forum clause
is enforceable” at step four in this analysis, courts apply federal law. Martinez,
740 F.3d at 217 (emphasis in original). However, to answer “the interpretive
questions posed by parts two and three of the four-part framework,” courts will
typically “apply the body of law selected in an otherwise valid choice-of-law
clause.” Id. at 217-18 (emphasis in original). Here, neither party is arguing
that the forum selection clauses at issue were not communicated or that they
are not mandatory. 11 The Court focuses, therefore, on steps three and four.
As discussed above, step three is here analyzed according to New York
state law, which makes clear that “the applicability of the forum selection
clause does not turn on the type or nature of the dispute between the parties,”
but rather on the “express language” of the clause. Bernstein v. Wysoki, 907
N.Y.S.2d 49, 55 (2d Dep’t 2010); accord Couvertier v. Concourse Rehab. &
Nursing, Inc., 985 N.Y.S.2d 683, 684 (2d Dep’t 2014). Broad language
indicating that a forum selection clause applies to any claim “arising out of a
contract” has been interpreted to require the application of forum selection
clauses to actions outside of contract law, such as to tort, personal injury, and
products liability claims. See, e.g., Couvertier, 985 N.Y.S.2d at 683-84;
Tourtellot v. Harza Architects, 866 N.Y.S.2d 793, 794-95 (3d Dep’t 2008).
Were the Court required to reach the merits, it would find these clauses both
reasonably communicated and mandatory. A court can “easily” find a forum-selection
clause to have been reasonably communicated for purposes of step one where, as here,
the clause appears on the face of the contract the plaintiff has signed and is seeking to
enforce. See Arial Techs. LLC v. Aerophile S.A., No. 14 Civ. 4435 (LAP), 2015 WL
1501115, at *3 (S.D.N.Y. Mar. 31, 2015). With regard to step two, forum-selection
clauses containing the parties’ irrevocable submission to exclusive jurisdiction have
been deemed “classically mandatory.” Overseas Ventures, LLC v. ROW Mgmt., Ltd.,
No. 12 Civ. 1033 (PAE), 2012 WL 5363782, at *4 (S.D.N.Y. Oct. 26, 2012). And the
Second Circuit has recognized that the “combination” of a permissive forum selection
clause and a waiver of an objection to venue “amounts to a mandatory forum selection
clause at least where the plaintiff chooses the designated forum.” S & L Birchwood, LLC
v. LFC Capital, Inc., 752 F. Supp. 2d 280, 285 (E.D.N.Y. 2010) (internal quotation marks
omitted) (quoting Aguas Lenders Recovery Grp. v. Suez, S.A., 585 F.3d 696, 700 (2d Cir.
2009)); accord Akers Biosciences, Inc. v. Martin, No. 14 Civ. 8241 (AJN), 2015 WL
1054971, at *4 (S.D.N.Y. Mar. 10, 2015). The relevant clauses in the SPA, JV
Agreement, and 1A Agreement dictate that the parties to each agreement submit
irrevocably to the exclusive jurisdiction of a designated court or courts. They are
Step four is governed by federal law, and the Supreme Court has made
clear that a plaintiff’s burden at this step is a heavy one. Bremen, 407 U.S. at
19. Indeed, in Atlantic Marine Construction Company v. United States District
Court for the Western District of Texas, the Court stated that “[i]n all but the
most unusual cases ..., ‘the interest of justice’ is served by holding parties to
their bargain.” 134 S. Ct. at 583. However, the Second Circuit has recognized
that “Atlantic Marine did not address the extent to which the ‘interest of justice’
test for invalidating a forum selection clause pointing to another federal district
court resembles the test developed under Bremen for invalidating a forum
selection clause pointing to a nonfederal forum[,]” though the later case did
reaffirm “Bremen’s identification of a strong federal public policy supporting the
enforcement of forum selection clauses.” Martinez, 740 F.3d at 219. The
Second Circuit thus continues to admonish district judges to “determine
whether a forum selection clause is invalid under Bremen,” and to do so “by
examining four factors that, in effect, are four subparts that fall under the final
prong of our four-part framework governing the effect of forum selection
clauses.” Id. at 227-28. Courts in this Circuit will “decline to enforce a forum
selection clause under Bremen if: ‘[i] its incorporation was the result of fraud or
overreaching; [ii] the law to be applied in the selected forum is fundamentally
unfair; [iii] enforcement contravenes a strong public policy of the forum’ in
which suit is brought; ‘or [iv] trial in the selected forum will be so difficult and
inconvenient that the plaintiff effectively will be deprived of his day in court.’”
Id. at 228 (quoting Phillips, 494 F.3d at 392).
Severance of Improperly Venued Counts
Procedurally, severance is a step preliminary to transfer in those cases
where a court seeks to transfer only part of a larger action; because § 1404(a)
“authorizes the transfer only of an entire action and not of individual claims,” a
court may properly sever certain claims, create “two or more separate ‘actions,’”
and then “transfer certain of such separate actions while retaining jurisdiction
of others.” Wyndham Assocs. v. Bintliff, 398 F.2d 614, 618 (2d Cir. 1968).
Severance is governed by Federal Rule of Civil Procedure 21, which permits
courts to “sever any claim against a party.” Fed. R. Civ. P. 21.
“The decision [as to] whether to grant a severance motion is committed to
the sound discretion of the trial court.” Bent, 2016 WL 153092, at *9
(alteration in original) (quoting A & E Prods. Grp. L.P. v. The Accessory Corp.,
No. 00 Civ. 7271 (LMM), 2002 WL 1041321, at *1 (S.D.N.Y. May 23, 2002)).
The Bent court further observed that
[i]n considering a motion to sever, the Court must weigh
several factors, including “[i] whether the claims arise
out of the same transaction or occurrence; [ii] whether
the claims present some common questions of law or
fact; [iii] whether settlement of the claims or judicial
economy would be facilitated; [iv] whether prejudice
would be avoided if severance were granted; and
[v] whether different witnesses and documentary proof
are required for the separate claims.”
Id. (quoting Deajess Med. Imaging, P.C. ex rel. Barry v. Geico Gen. Ins. Co.,
No. 03 Civ. 7388 (DF), 2005 WL 823884, at *2 (S.D.N.Y. Apr. 7, 2005))
(alterations added). “‘Severance requires the presence of only one of these
conditions,’ although courts ‘view severance as a procedural device to be
employed only in exceptional circumstances.’” Dickerson v. Novartis Corp., 315
F.R.D. 18, 24-25 (S.D.N.Y. 2016) (quoting Oram v. SoulCycle LLC, 979 F. Supp.
2d 498, 503 (S.D.N.Y. 2013)).
Some courts have suggested “that the severance inquiry is different —
and more focused on judicial efficiency — when it is combined with a section
1404 motion to transfer than when the severed case would remain in the
original judicial district.” In re Rolls Royce Corp., 775 F.3d 671, 680 (5th Cir.
2014), cert. denied sub nom. PHI Inc. v. Rolls Royce Corp., 136 S. Ct. 45 (2015)
(collecting cases). The Fifth Circuit, for example, decided that “when
considering a severance-and-transfer motion, the inquiry collapse[s] into an
inquiry into the relative merits of convenience versus judicial economy.” Id.
The court went on to clarify that “[w]hile judicial economy is not the sole
consideration for a district court facing a severance-and-transfer motion, it
retains a cardinal role.” Id. at 681. And while the Second Circuit has not yet
addressed this exact question following Atlantic Marine, it has long affirmed its
“strong policy favoring the litigation of related claims in the same tribunal in
order that pretrial discovery can be conducted more efficiently[;] duplicitous
litigation can be avoided, thereby saving time and expense for both parties and
witnesses[;] and inconsistent results can be avoided.” Wyndham, 398 F.2d at
619. To overcome this preference, a party moving for severance in this Circuit
must show “that ‘severance is required to avoid prejudice or confusion and to
promote the ends of justice.’” Dickerson, 315 F.R.D. at 25 (quoting N. Jersey
Media Grp. Inc. v. Fox News Network, LLC, 312 F.R.D. 111, 114 (S.D.N.Y.
Venue in This District Is Improper with Regard to
Counts I, VI, and VII
The parties do not dispute that venue is proper before this Court with
regard to Counts II, III, IV, and V. (Pl. Opp. 7). As this Court found in
connection with Plaintiff’s motion for a preliminary injunction, venue is proper
with regard to these claims because (i) Defendant consented to the Court’s
exclusive personal jurisdiction in the 1A Agreement’s forum selection clause
and (ii) these claims all arise from an alleged breach of the 1A Agreement.
(Dkt. # 34). Defendant was further deemed to reside in this District, because it
was, by consent, “subject to the court’s personal jurisdiction with regard to the
civil action” then “in question.” See 18 U.S.C. § 1391(c). Defendant is the only
defendant in this litigation, which means that “all defendants are residents of
the State in which the district is located”; venue is thus proper with regard to
those claims to which the 1A Agreement’s personal jurisdiction waiver applies.
Plaintiff’s Counts II, III, IV, and V fall within this category.
Plaintiff’s § 1391 argument must go one step further though: Plaintiff
must argue that Defendant’s consent to personal jurisdiction in the 1A
Agreement with regard to “the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein” (Sicignano Decl., Ex. 7 at 12; Peizer Decl., Ex. B at 12), renders venue
in this District proper for all seven claims in the Complaint. The Court is not
convinced. If, as Defendant contends, Counts I, VI, and VII are properly viewed
as arising from the JV Agreement, rather than the 1A Agreement, then
Defendant’s 1A Agreement jurisdictional waiver would be irrelevant to the
Court’s determination of venue’s propriety with regard to these counts. The
Court proceeds to consider Defendant’s contention.
The forum selection clause of the JV Agreement dictates that “any
Proceeding arising out of or relating to [the JV] Agreement, the management
and affairs of the [China JV] or any Contemplated Transaction shall be brought
in the courts of the State of New York, County of Erie, or, if it has or can
acquire jurisdiction, in the United States District Court for the Western District
of New York.” (Sicignano Decl., Ex. 1 at 45). It further recites that the JV
Agreement signatories “irrevocably submit to the exclusive jurisdiction of each
such court in any such Proceeding.” (Id.). This “arising out of or relating to”
language is exactly the language that New York has found to provide for broad
applicability of a forum selection clause. And as detailed in the remainder of
this section, the Court concludes that the JV Agreement’s forum selection
clause applies to Counts I, VI, and VII.
Considering first the text of the Complaint, Count I alleges that while
“Plaintiff has fully performed its obligations under the Finance Agreement[,]
Defendant has breached and repudiated its obligations under the Finance
Agreement, both express and implied,” which breach has damaged Plaintiff in
an amount “believed to exceed the sum of $250 million.” (FAC ¶¶ 58-60).
Count VI alleges that Defendant, knowing of Plaintiff’s JV Agreement with 22nd
Century China, and with an intent “to disrupt that contract[,] ... improperly
caused 22nd Century Asia to breach that contract,” and did so “with malice
and intent to secure a benefit for [Defendant], at the expense of [Plaintiff], its
joint venture partner, strategic investor and largest shareholder.” (Id. at ¶¶ 9092; see also id. at ¶¶ 93-94). Finally, in Count VII, Plaintiff seeks a permanent
injunction to prevent Defendant “from wrongfully continu[ing] to pursue the
sale and marketing of its tobacco products in China outside of the JV
Agreement,” in derogation of Plaintiff’s exclusivity right in the JV Agreement.
(Id. at ¶¶ 96-97).
Counts VI and VII clearly arise out of and relate to the JV Agreement:
Count VI alleges a breach of the agreement and Count VII seeks an injunction
to enjoin present and future breaches of the agreement. On this issue, the
parties agree. (See Pl. Opp. 2 (“[I]t is true that Counts VI (tortious interference)
and VII (permanent injunction) may ‘arise’ out of the China JV Agreement[.]”);
Def. Reply 4). Arguably more attenuated to the JV Agreement is Count I, which
alleges a violation of a larger “Finance Agreement” of which the JV Agreement
is but one part. However, Plaintiff has carefully titled the count “Breach of
Contract — Failure to Pursue the China Joint Venture” (FAC ¶¶ 57-60), and
defines the breach as a “failure to pursue the China JV” (Pl. Opp. 6). And, of
course, all of Defendant’s obligations to pursue the China JV are laid out in
(and only in) the JV Agreement.
The Court has considered whether the forum selection clauses in the
SPA or the 1A Agreement — i.e., the two agreements selecting venue in this
District — could apply to Count I, and has concluded in the negative. Both
forum selection clauses are more specific, and thus more limited, than the
forum selection clause of the JV Agreement. The SPA clause provides for the
exclusive jurisdiction of courts in the City of New York, Borough of Manhattan,
but only “for the adjudication of any dispute hereunder or under any of the
other Transaction Documents or in connection herewith or therewith or with
any transaction contemplated hereby or thereby or discussed herein or
therein.” And the SPA itself does not mention any transactions related to the
subsequent JV Agreement, Consulting Agreement, or 1A Agreement, or to the
China JV more generally. Thus a dispute over Defendant’s alleged “failure to
pursue the China JV” could not be said to be a dispute covered under the SPA.
(Pl. Opp. 6).
The 1A Agreement’s forum selection clause contains very similar
language, providing for the exclusive jurisdiction of courts in the City of New
York, Borough of Manhattan, “for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or
discussed herein.” (Sicignano Decl., Ex. 7 at 12; Peizer Decl., Ex. B at 12). But
like the SPA, the 1A Agreement makes no mention of the JV Agreement,
Consulting Agreement, 1A Agreement, or China JV. Its forum selection clause
also does not apply to Count I.
Accordingly, venue in this District with regard to Counts I, VI, and VII is
improper under § 1391. Defendant’s consent to personal jurisdiction under
the 1A Agreement may provide for proper venue when the terms of that
agreement are the subject of “the civil action in question,” but where the
subject of the action is the alleged breach of a different agreement, the JV
Agreement, under which the parties consent to the personal jurisdiction of the
Western District of New York, there is no personal jurisdiction to give rise to
Defendant’s residency, and thus no basis to support venue. (See Def. Br. ¶ 12
(“No activities relevant to the China JV claims occurred in or involved the
Southern District of New York.”)). And where venue is improper, the Court
must transfer or dismiss as required by § 1406.
The Forum Selection Clause of the JV Agreement Applies to
Counts I, VI, and VII and Must Be Enforced
Even were the Court not required to transfer or dismiss Counts I, VI, and
VII on the basis of improper venue, it would be so required on the basis of the
JV Agreement’s forum selection clause. Using the analysis just described, the
Court finds that the forum selection clause in the JV Agreement applies to
Counts I, VI, and VII, and, further, that it was reasonably communicated to the
Plaintiff, is mandatory, and encompasses these three counts. The burden
therefore shifts to Plaintiff to make a “sufficiently strong showing that
enforcement would be unreasonable or unjust, or that the clause was invalid.”
Martinez, 740 F.3d at 221 (quoting Phillips, 494 F.3d at 383-84).
Making such a showing is no easy task, given the Supreme Court’s
directive that forum selection clauses are to be “given controlling weight in all
but the most exceptional cases.” Atl. Marine Const. Co., 134 S. Ct. at 579
(internal quotation marks omitted) (quoting Stewart, 487 U.S. at 33 (Kennedy,
J., concurring)). And yet Plaintiff’s argument at this fourth step is limited:
Plaintiff does not argue that the incorporation of the JV Agreement’s forum
selection clause was the result of fraud or overreaching. 12 Nor does Plaintiff
claim that the law to be applied in the Western District of New York would be
fundamentally unfair. And Plaintiff does not claim that enforcing the forum
selection clause contravenes a strong public policy of this Court, the forum in
which suit was brought.
Plaintiff instead focuses on the hardship and prejudice that would result
from the transfer of Counts I, VI, and VII to the Western District of New York.
To succeed on this prong, Plaintiff must show that trial in this forum would be
“so difficult and inconvenient that [Plaintiff] effectively will be deprived of [its]
day in Court.” Martinez, 740 F.3d at 228 (quoting Phillips, 494 F.3d at 392).
This Plaintiff surely has not done; Plaintiff alleges no prejudice stemming from
The prejudice arguments Plaintiff makes are bound up in its arguments
opposing severance. Plaintiff appears to argue that, the question of the
applicability and enforceability of the forum selection clauses aside, this case
should be resolved at the question of severance: (i) Plaintiff’s claims all arise
from a common Finance Agreement; (ii) they present common issues of law or
To be clear: While various of Plaintiff’s allegations could arguably be construed to
involve some manner of fraudulent misrepresentation, Plaintiff has in no way alleged
that any forum selection clause was itself the product of fraud, as would be required.
See Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n.14 (1974) (“[F]orum-selection
clauses ‘should be given full effect’ when ‘a freely negotiated private international
agreement [is] 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.” (internal citations omitted) (quoting Bremen, 407 U.S.
fact because they stem from a single relationship, series of events, and network
of contracts; (iii) severance will not facilitate settlement of the claims or judicial
economy but would rather hinder it, because the resources of the parties and
the Court would be expended, spread between, and wasted in “two parallel
proceedings”; (iv) severance would not reduce prejudice but would rather
increase it, because it would engender a risk of contrary and inconsistent
outcomes; and (v) different witnesses and documentary proof are not required
for the separate claims, but rather “similar witnesses and evidence.” (Pl.
Defendant responds that because the forum selection clauses are
applicable and enforceable and the JV selection clause mandates the transfer
of Claims I, VI, and VII, the Court must sever these claims and transfer them to
the Western District of New York. Moreover, Defendant disputes Plaintiff’s
severance analysis by arguing that (i) Plaintiff’s claims do not arise from the
same transaction or occurrence, because each of these contracts was executed
and negotiated separately and there is no common Finance Agreement and
(ii) “the determinative facts and issues” underlying Claims I, VI, and VII are
“distinctly different” from the those underlying Claims II, III, IV, and V, because
the former requires proof that the Defendant failed to perform under the JV
Agreement and the latter requires a determination that the Plaintiff breached
the 1A Agreement’s Activity Restrictions and thereby nullified the Exchange
Right. (Def. Reply 9). 13
Undertaking an independent evaluation of the severance factors, the
Court finds they neither favor nor disfavor severance:
Still, these claims could present common
questions of law and fact, because they implicate
the conduct of the same parties during the same
The Court cannot determine whether severance
will facilitate settlement, but can clearly
determine that it will hinder judicial economy.
Any such hindrance, however, could be lessened
by the careful pretrial management of the courts:
one of the litigations could be stayed pending the
resolution of the other, and/or the courts could
coordinate discovery and motions practice.
On their face, Plaintiff’s claims do not necessarily
arise from the same transaction and occurrence.
Plaintiff contends that there exists a Finance
contracts, but has not provided the Court
evidence of this. The JV Agreement and 1A
Agreement were executed by different parties.
Claims I, VI, and VII require interpretation of the
former, while Claims II, III, IV, and V require
interpretation of the latter.
The likelihood of prejudice might be heightened
by severance, to the extent that proceeding in
multiple fora could advantage or disadvantage
these parties according to their resources. But
such inconvenience is precisely the kind of
private interest factor not to be considered where
there is a forum selection clause. Particularly
where, as here, a different forum was selected for
in a contract executed second in time, such
private unfairness must be presumed to have
Defendant does not address factors (iii), (iv), or (v), though one may infer from its
argument regarding the differences among Plaintiff’s claims that Defendant would argue
that there is at least some difference in the witnesses and evidence that would be
required to resolved each severed count.
been accounted for in the parties’ bargain. The
Court remains attentive to the risk of inconsistent
adjudication. But this too the Court believes can
be mitigated by coordination between fora.
These claims are premised on the conduct of the
same parties, which would need to be involved in
both litigations following severance. There is
likely to be some overlap in documentary proof as
well, though also some difference, given the
existence of the different contracts.
The Court’s neutral conclusion cannot trump the impropriety of venue in
this District and the Supreme Court’s mandate that forum selection clauses be
enforced in all but the most “exceptional” circumstances. There is a strong
public interest in judicial economy, one that this Court takes seriously. Yet
there is also a strong public interest in the enforceability of contracts and the
protection of the parties’ expectations. Courts have wrestled with these
“centrifugal considerations” in the wake of Atlantic Marine, and opined that the
tension between them could suggest that a “need — rooted in the valued public
interest in judicial economy — to pursue the same claims in a single action in a
single court can trump a forum-selection clause.” In Re Rolls Royce Corp., 775
F.3d at 679; see also Samuels v. Medytox Sols., Inc., No. 13 Civ. 7212 (SDW),
2014 WL 4441943, at *7-8 (D.N.J. Sept. 8, 2014) (disregarding Atlantic Marine’s
instruction not to consider private interests where case involved two valid and
conflicting forum selection clauses because “the parties [had] not
unambiguously agreed to litigate in a particular forum as the parties did in
Atlantic Marine”). Indeed, the Second Circuit cabined Atlantic Marine to its
facts in a case involving a forum selection clause pointing to a foreign forum,
because it found clauses of that type to “present distinct challenges not raised
by clauses that merely point to other federal district courts.” Martinez, 740
F.3d at 230.
On the whole, courts have been loath to act contrary to the Atlantic
Marine mandate. See, e.g., Tulepan v. Roberts, No. 14 Civ. 8716 (KBF), 2014
WL 6808313 (S.D.N.Y. Dec. 3, 2014) (enforcing forum selection clause despite
the fact that a “factually related” suit was pending in another district); Allianz
Global Corp. & Specialty v. Chiswick Bridge, Nos. 13 Civ. 7559 (RA), 13 Civ.
7565 (RA), 2014 WL 6469027, at *3 (S.D.N.Y. Nov. 17, 2014) (enforcing forum
selection clause despite claims that litigating two “closely intertwined” matters
in two fora would be “unduly costly and prejudicial”); Carmouche Ins., Inc. v.
Astonish Results, LLC, No. 14 Civ. 00061 (SDD) (SCR), 2014 WL 2740464, at
*6-7 (M.D. La. June 17, 2014) (finding plaintiff’s “contention that there are
conflicting choice of forum clauses that are unreasonably prejudicial and
burdensome ... unpersuasive,” noting plaintiff “could have avoided this
dilemma if it had read and understood the contracts it signed,” and granting
defendant’s motion to sever and transfer); 1-Stop Fin. Serv. Ctrs. of Am., LLC v.
Astonish Results, LLC, No. A13–CA–961–SS, 2014 WL 279669, at *6 (W.D. Tex.
Jan. 23, 2014) (holding that while a potential “egregious waste of legal
resources” and local interest were legitimate concerns, they did not “rise to a
level sufficient to deny a motion to transfer”). The Court declines to do so here.
In sum, Plaintiff has not carried its burden at step four of the Court’s
§ 1404 analysis. And the Court does not find that this is a case where a forum
selection clause ought not be enforced because its enforcement would create a
“palpable conflict,” with another pending case, Credit Suisse AG v. Appaloosa
Inv. Ltd. P’ship, No. 15 Civ. 3474 (SAS), 2015 WL 5257003, at *11 (S.D.N.Y.
Sept. 9, 2015), or a “palpable inconvenience, ineconomy, and injustice,”
Howmedica Osteonics Corp. v. Sarkisian, Civ. A. No. 14-3449 (CCC), 2015 WL
1780941, at *3 (D.N.J. April 20, 2015). Nor is this so large a case that the
Court must find the forum selection clause could apply to too few of Plaintiff’s
claims to warrant their transfer. See Steinmetz v. McGraw-Hill Glob. Educ.
Holdings, LLC, No. 15 Civ. 6600, 2016 WL 7048951, at *5 (E.D. Pa. Dec. 5,
2016) (collecting cases).
Finally, the Court is concerned that limiting Atlantic Marine to its precise
facts, to govern only in two-party cases to which only one forum selection
clause applies, would allow “any clever party to a lawsuit” to plead around a
valid forum selection clause. See In re Rolls Royce Corp., 775 F.3d at 685
(Jones, J., concurring). The facts of this case do not justify this risk. The
Court will enforce the forum selection clause as required by federal law. To
give force to it, and to correct the impropriety of venue in this Court with
regard to Counts I, VI, and VII, the Court will sever these counts and transfer
them to the United States District Court for the Western District of New York.
For the foregoing reasons, Defendants’ motion to sever and transfer
Counts I, VI, and VII is GRANTED. The Court hereby severs Plaintiff’s Claims I,
VI, and VII of Plaintiff’s Amended Complaint. The Clerk of Court is directed to
transfer Claims I, VI, and VII to the United States District Court for the
Western District of New York. Litigation of Claims II, III, IV, and V will proceed
in this District. The Clerk of Court is further directed to terminate the motions
at docket entries 18 and 36.
The parties are ORDERED to appear at an initial pretrial conference on
Friday, February 10, 2017, at 3:00 p.m., in Courtroom 618 of the Thurgood
Marshall U.S. Courthouse, 40 Foley Square, New York, New York 10007. On or
before Thursday, February 2, 2017, the parties will submit a joint status letter
and case management plan in accordance with Paragraph 3.B of the Court’s
Individual Rules of Practice in Civil Cases.
January 20, 2017
New York, New York
KATHERINE POLK FAILLA
United States District Judge
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