Garrett et al v. MD Rehab, LLC et al
Filing
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ORDER granting 11 Motion to Transfer Venue, and this case is hereby transferred to the United States District Court for the District of Delaware. Signed by Senior Judge Graham Mullen on 12/29/2016. (eef)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:16CV765
EDWARD D. GARRETT and JO ANN
GARRETT,
)
)
)
Plaintiffs,
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vs.
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MD REHAB, LLC, REHAB SOLUTIONS, )
LLC, and THERASTAT DATA, LLC,
)
)
Defendants.
)
____________________________________)
ORDER
This matter is before the Court upon Defendants’ Motion to Dismiss or, in the
Alternative, to Transfer Venue. The matter has been fully briefed and is ripe for disposition.
FACTUAL BACKGROUND
This case arises out of a contract between Plaintiffs and Defendant MD Rehab, LLC
(“MD Rehab”) regarding the purchase of stock in two entities owned by Plaintiffs, Rehab
Solutions, LLC and Therastat Data, LLC. Plaintiffs allege that MD Rehab breached its
contractual obligations to Plaintiffs by failing to collect on certain customer receivables, and also
seeks a declaratory judgment as to whether Plaintiffs were required to disclose a workers’
compensation claim related to an employee injured before the sale. The contract at issue was
entered into in North Carolina and contains a choice of law provision stating that North Carolina
law governs the Agreement. The contract also contains a forum selection clause that provides as
follows:
. . . any Proceeding that seeks to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or Transaction, shall be
brought in a court of competent jurisdiction in Wilmington Delaware, or the
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United States District Court for the District of Delaware and each of the Parties
hereby consents to the jurisdiction of such courts (and of the appropriate
Appellate courts therefrom) in any such Proceeding and irrevocably waives, to the
fullest extent permitted by law, any objection that it may now or hereafter have to
the laying of venue of any such Proceeding in any such court or that any such
Proceeding that is brought in any such court has been brought in an inconvenient
forum.
This case was originally filed in North Carolina state court and timely removed to
this Court by Defendants based upon diversity jurisdiction. Defendants claim that this
matter should be dismissed pursuant to Rule 12(b)(3) of the Federal Rules of Civil
Procedure for improper venue, or in the alternative, transferred to the United States
District Court for the District of Delaware pursuant to 28 U.S.C. § 1404(a).
DISCUSSION
Defendants do not argue that venue is wrong or improper under 28 U.S.C. § 1391,
but only that the forum selection clause mandates that suit be filed elsewhere. The forum
selection clause provides that suit shall be brought in a court “of competent jurisdiction”
in Wilmington Delaware, or the United States District Court for the District of Delaware.
Under these circumstances, the proper procedure for enforcement of the forum selection
clause is a motion to transfer under 28 U.S.C. § 1404(a). See Atlantic Marine Const. Co.
v. U.S. Dist. Court for Western Dist. Of Texas, 134 S. Ct. 568, 580 (2013).
The first question that the Court must address is whether the forum selection
clause is permissive or mandatory. Citing Cable Tel Servs., Inc. v. Overland
Contracting, Inc., 574 S.E.2d 31 (N.C. Ct. App. 2002), Plaintiffs argue that North
Carolina courts have made it clear that venue selection clauses will not be interpreted as
mandatory without “some further language that indicates the parties’ intent to make
jurisdiction exclusive.” Id. at 34-35. The mere use of the word “shall” does not make a
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forum selection clause exclusive. Akima Corp. v. Satellite Servs., Inc., No. COA06-112,
2006 WL 3719782, at * 4 (N.C. Ct. App., Dec. 19, 2006); see also Southeast Caissons,
LLC v. Choate Construction Co., 784 S.E. 2d 650, 654 (N.C. Ct. App. 2016) (forum
selection clause providing that litigation “shall be in the City of Contractor’s office” was
not mandatory).
In each of the cases cited by Plaintiffs, the courts found that the forum selection
clauses were permissive because they either included mere consent and/or waiver
language such as “shall be subject to” or the clauses failed to name the specific venue
chosen by the parties. In contrast, the forum selection clause herein does contain
language that indicates the parties’ intent to make jurisdiction exclusive. It addresses
both the specific courts (venue) that the Parties agreed upon and includes a waiver of
consent to jurisdiction. None of the cases cited by Plaintiffs include the same or similar
“shall be brought” language coupled with the identification of the specific court(s) in
which both parties are required to bring an action. When read together, the Parties’ “shall
be brought” language, the naming of the specific courts in which any litigation “shall be
brought” by either party, the specific use of the word “venue,” and the additional waiver
of consent statement all illustrate that the Parties specifically intended to make the courts
of Wilmington Delaware or the United States District Court for the District of Delaware
the exclusive venue of any dispute. See Scotland Memorial Hosp., Inc. v. Integrated
Informatics, Inc., 2003 WL 151852, at *4 (M.D.N.C., Jan. 8, 2003) (noting that
“[a]lthough language such as ‘exclusive’ or ‘sole’ is not used, the specific reference to
the venue indicates mandatory language. . . . [t]he language of the contract deals with an
exact venue and indicates specific intent.”) (emphasis added). To interpret the forum
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selection clause otherwise would render the mutually negotiated and agreed upon
provisions in the Agreement meaningless. Accordingly, the Court finds that the forum
selection clause herein is mandatory.
The next question that the Court must address is whether the forum selection
clause is valid and enforceable. Forum selection clauses are “prima facie valid and
should be enforced unless enforcement is shown by the resisting party to be unreasonable
under the circumstances.” Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204, 213 (4th
Cir. 2007) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9-10 (1972)). “[A]
valid forum- selection clause is given controlling weight in all but the most exceptional
cases.” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 33 (1988) (Kennedy, J.,
concurring). The Fourth Circuit has set forth a four-part test to determine if a forum
selection clause should be enforced:
Choice of forum and law provisions may be found unreasonable if (1)
their formation was induced by fraud or overreaching; (2) the complaining
party “will for all practical purposes be deprived of his day in court”
because of the grave inconvenience or unfairness of the selected forum;
(3) the fundamental unfairness of the chosen law may deprive the plaintiff
of a remedy; or (4) their enforcement would contravene a strong public
policy of the forum state.
Allen v. Lloyd’s of London, 94 F.3d 923, 928 (4th Cir. 1996).
The only argument that Plaintiffs make with regard to enforceability concerns
factor number four. They contend that the forum selection clause is against the public
policy of North Carolina. N.C. Gen. Stat. § 22B-3 provides:
Except as otherwise provided in this section, any provision in a contract
entered into in North Carolina that requires the prosecution of any action
or the arbitration of any dispute that arises from the contract to be
instituted or heard in another state is against public policy and is void and
unenforceable.
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Contrary to Plaintiffs’ argument, this statute does not preclude the enforcement of a forum
selection clause pursuant to a motion to transfer venue under 28 U.S.C. § 1404(a). See Scholl v.
Sagon RV Supercenter, LLC, 249 F.R.D. 230, 241-42 (W.D.N.C. 2008) (“[Each of the District
Courts in North Carolina] have consistently found that [. . .] the North Carolina statute is not
dispositive as to the enforceability of a forum selection clause. [. . .] [T]he statute would be only
one factor among several under [. . .] traditional § 1404(a) analysis.”); James C. Green Co. v.
Great American E & S Ins. Co., 321 F.Supp.2d 717, 721 (E.D.N.C. 2004) (“[T]he fact that a
forum selection clause violated the public policy of the forum is just a factor in a multi-factor
analyses, but not a dispositive one.”) (citing Stewart, 487 U.S. at 32). The Court therefore finds
that the forum selection clause is valid and enforceable.
As noted above, “a valid forum selection clause is given controlling weight in all but the
most exceptional case.” Stewart, 487 U.S. at 33. There are generally eleven factors to be
considered in transferring a case pursuant to 28 U.S.C. § 1404(a): (1) the plaintiff’s initial choice
of forum; (2) the residence of the parties; (3) the relative ease of access of proof; (4) the
availability of compulsory process for attendance of witnesses and the costs of obtaining
attendance of witnesses; (5) the possibility of a view; (6) the enforcement of a judgment, if
obtained; (7) the relative advantages and obstacles to a fair trial; (8) other practical problems that
make a trial easy, expeditious, and inexpensive; (9) the administrative difficulties of court
congestion; (10) the interest in having localized controversies settled at home and the
appropriateness in having the trial of a diversity case in a forum that is at home with the state law
that must govern the action; and (11) the avoidance of unnecessary problems with conflict of
laws. Scholl, 249 F.R.D. at 239.
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However, in Atlantic Marine, the United States Supreme Court held that “[t]he presence
of a valid forum-selection clause requires district courts to adjust their usual § 1404(a) analysis”
of the aforementioned factors in three ways. 134 S. Ct. at 581. “First, the plaintiff’s choice of
forum merits no weight,” because “the plaintiff has effectively exercised its ‘venue privilege’
before the dispute arises” through the forum selection clause agreement. Id. at 581–82. Second,
“arguments about the parties’ private interests” must not be considered, since, by agreeing to the
forum selection clause, the parties effectively “waive the right to challenge” any private
inconvenience that the “preselected forum” may create. Id. at 582. Accordingly, the Court “must
deem the private-interest factors to weigh entirely in favor of the preselected forum,” and only
“arguments about public-interest factors” may be considered when deciding whether to transfer
under Section 1404(a) to the contractually-specified venue. Id. But “those factors will rarely
defeat a transfer motion,” with “the practical result [being] that forum-selection clauses should
control except in unusual cases.” Id.
“As the party acting in violation of the forum-selection clause, [Plaintiffs] must bear the
burden of showing that public-interest factors overwhelmingly disfavor a transfer.” Id. at 583.
(emphasis added) Public-interest factors may include: (1) comparative administrative difficulties
flowing from court congestion; (2) the local interest in having localized interests decided at
home; (3) the familiarity of the forum with the law that will govern the case; and (4) avoidance
of unnecessary problems of conflict of laws or in the application of foreign law. Id. at 582, n. 6.
There is nothing so exceptional or unusual about this case that would overrule the
contractually-specified venue provision in the Agreement. While North Carolina law applies to
the Agreement and this State has an interest in the underlying dispute as a result, Plaintiffs have
failed to articulate why a federal district court sitting in diversity would have any difficulty
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applying North Carolina contract law. In addition, Delaware has a similar interest in hearing the
underlying dispute since MD Rehab is a Delaware LLC and the members of all of the
Defendants are Delaware entities. While Plaintiffs have cited court congestion statistics for both
the District of Delaware and the Western District of North Carolina, the alleged court congestion
is only slightly favorable to the current venue (median time to trial of 19.2 months in the
W.D.N.C. versus 24.2 months in the D. Del.). Plaintiffs admit that several public interest factors
do not favor one forum over the other, including the possibility of a view, enforceability of a
judgment, and relative advantages and obstacles to a fair trial. The only factor of any real
significance is North Carolina’s public policy interest against enforcing forum-selection clauses
that remove disputes from North Carolina. However, the Court finds that Plaintiffs have failed
to meet their burden of demonstrating that this case is so exceptional or unusual such that the
public-interest factors overwhelmingly disfavor a transfer. Accordingly,
IT IS THEREFORE ORDERED that Defendants’ Motion to Transfer Venue is hereby
GRANTED and this case is hereby transferred to the United States District Court for the District
of Delaware.
Signed: December 29, 2016
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