Discount Drug Mart, Inc. v. Devos, LTD.

Filing 9

Memorandum Opinion and Order granting 5 defendant's motion to dismiss.Judge Lesley Wells(C,KA)

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

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.
: CASE NO. 1:12 CV 00386
DISCOUNT DRUG MART, INC.,
:
:
Plaintiff, :
: MEMORANDUM OF OPINION AND
-vs: ORDER
:
:
DEVOS, LTD. D/B/A GUARANTEED
:
RETURNS,
:
Defendant
-----------------------------------------------------UNITED STATES DISTRICT JUDGE LESLEY WELLS
Before the Court is a motion to dismiss filed by defendant Devos, Ltd., d/b/a
Guaranteed Returns (hereinafter “Guaranteed Returns”). (Doc. 5). Guaranteed Returns
maintains that dismissal is appropriate because it is not subject to personal jurisdiction
in this Court. Further, the defendant asserts that this lawsuit is governed by a forum
selection clause requiring that the plaintiff bring suit in either Nassau or Suffolk County
in the State of New York. The plaintiff Discount Drug Mart (“Drug Mart”) has filed a
response in opposition, and the defendant has replied. (Docs. 7, 8).
For the reasons that follow, the Court concludes that the forum selection clause
is enforceable as to the plaintiff. The defendant’s motion is granted.

I. Background
The defendant Guaranteed Returns is a pharmaceutical reverse distributor,
based out of Holbrook, New York, which processes expired, recalled, damaged or
overstocked pharmaceutical product returns. (Complaint, ¶¶3, 5). The plaintiff Drug Mart
is an Ohio corporation, with its principal place of business in Medina, Ohio. (Complaint,
¶2). On or about 29 May 2009, Drug Mart and Guaranteed Returns entered into a
Reverse Distribution Services Agreement (“Distribution Agreement”), whereby
Guaranteed Returns agreed to provide pharmaceutical reverse distribution services to
Drug Mart. (Complaint, ¶5). Under the agreement, Guaranteed Returns promised to
assist Drug Mart in the preparation, packaging, and shipping of expired, recalled,
damaged, or overstocked pharmaceuticals from Drug Mart’s warehouse in Medina
to Guaranteed Returns’ facility in Holbrook. (Complaint, ¶6). Once the returned
merchandise was shipped to the defendant’s New York facility, Guaranteed Returns
would process it and make a credit estimate based on the manufacturer/distributor’s
current procedures. (Complaint, ¶7). Drug Mart would then be credited in the form of
lump sum payment checks for returned product. The present case relates to
Guaranteed Returns’ alleged failure to remit credits due and owing to Drug Mart under
the Distribution Agreement.
The parties dispute whether this suit is subject to a forum selection clause that
requires the parties to bring suit in either Nassau or Suffolk County in the State of New
York. The defendant states that the forum selection clause is contained in two different
documents. First, it appears on Guaranteed Returns’ website, which, the defendant
maintains, was incorporated by reference into the Distribution Agreement. Under a
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section entitled “Miscellaneous Terms,” the Distribution Agreement states that the
agreement is “subject to Guaranteed Returns, standard terms and conditions, which can
be found on our website at www.Guaranteedreturns.com under the tab labeled
‘policies.’” (Doc. 5-2, p. 7). The forum selection clause is found among the standard
terms and conditions on the website.
The forum selection clause also appears in a document called a Return
Authorization Form. According to the defendant, Drug Mart was required to submit a
Return Authorization Form each time it shipped returned products to Guaranteed
Returns. (Doc. 5-2, p. 3). Drug Mart submitted executed Return Authorization Forms to
the defendant on several occasions. (Doc. 5-2, p. 3). The forum selection clause in both
documents states that “[t]he parties hereto agree that any disputes arising herefrom
shall be resolved in, and subject to the sole and exclusive jurisdiction of the courts of
either Nassau or Suffolk County in the State of the New York.” (Doc. 5-2, p.10).

II. Law and Argument
When a party seeks to enforce a forum-selection clause, the district court may
enforce the forum-selection clause through dismissal. See Security Watch, Inc. v.
Sentinel Sys., Inc., 176 F.3d 369, 371, 374-76 (6th Cir.1999). On a motion to dismiss,
the issue is properly considered under Federal Rule of Civil Procedure 12(b)(6). Langley
v. Prudential Mortg. Capital Co., LLC, 546 F.3d 365, 371 (6th Cir. 2008) (Moore, J.,
concurring). In this instance, the defendant maintains that the forum selection clause
contained in either of the above-noted documents forecloses suit in this jurisdiction and
that the case should accordingly be dismissed.

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Incorporation by Reference and the Distribution Agreement
The plaintiff’s central argument opposing dismissal is that the forum selection
clause contained on the website was not properly incorporated into the Distribution
Agreement. The plaintiff contends that it was never given a paper copy of the contract
terms as stated on the website; that Guaranteed Returns retained the unilateral
discretion to alter the terms on the website at any time; that Guaranteed Returns admits
that the terms and conditions on the website have changed over the years; and that
there is no indication that the website contained the terms relevant to this case at the
time the Distribution Agreement was executed.
The Court is persuaded that the terms and conditions contained on the website
were not properly incorporated into the Distribution Agreement. “‘Incorporation by
reference is proper where the underlying contract makes clear reference to a separate
document, the identity of the separate document may be ascertained, and incorporation
of the document will not result in surprise or hardship.’” Int'l Ass'n of Machinists and
Aerospace Workers v. ISP Chemicals, Inc., 261 Fed.Appx. 841, 848 (6th Cir. January
10, 2008) (quoting Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 447 (3d
Cir.2003)). In this instance, although the Distribution Agreement does make clear
reference to another document (that being the terms and conditions contained on the
website), incorporation of that “document” could clearly result in surprise or hardship,
since Guaranteed Returns was free to unilaterally modify the Terms and Conditions at
any time. Further, Guaranteed Returns concedes that it has modified the Terms and
Conditions in the past. As Drug Mart correctly indicates, one party to contract may not
modify an agreement without the assent of the other party. Moreover, there is no
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indication that the relevant terms were actually part of the Terms and Conditions at the
time the parties executed the Distribution Agreement. The Court accordingly concludes
that the contents of the website were not properly incorporated into the Distribution
Agreement.
The Return Authorization Form
The defendant also argues that the forum selection clause which appears on the
Return Authorization Form should control in this instance. However, because this
document was not attached to the complaint, the question arises whether the Court may
even consider it. Matters outside of the pleadings are not to be considered by a court in
ruling on a motion to dismiss. But, “[d]ocuments that a defendant attaches to a motion to
dismiss are considered part of the pleadings if they are referred to in the plaintiff's
complaint and are central to her claim.” Weiner v. Klais and Co., Inc., 108 F.3d 86, 89
(6th Cir 1997) (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429,
431 (7th Cir.1993). In this instance, the Return Authorization Form was not directly
referenced in the complaint. The defendant maintains that the form is nonetheless a
part of the pleadings because the contractual requirement that Drug Mart submit the
Return Authorization Form was incorporated into the Distribution Agreement by
reference to the Terms and Conditions contained on Guaranteed Return's website. For
the reasons already described, the Court rejects the argument that the Terms and
Conditions contained on the website were properly incorporated into the Distribution
Agreement. Therefore, the Return Authorization Form is “outside the pleadings.”

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Conversion to Summary Judgment
Once “matters outside the pleading are presented to and not excluded by the
court, the motion shall be treated as one for summary judgment and disposed of as
provided in Rule 56.” Fed.R.Civ.P. 12(b). Because of the risk of prejudicial surprise
arising from the court's treating a motion to dismiss as a motion for summary judgment,
Rule 12(b) further requires notice and an opportunity to supplement the record before
the court enters summary judgment. Id.; Briggs v. Ohio Elections Comm’n, 61 F.3d 487,
493 (6th Cir.1995). Failure to provide the parties with either constitutes reversible error.
Alioto v. Marshall Field's & Co., 77 F.3d 934, 936 (7th Cir.1996).
Under certain limited circumstances, however, this notice requirement will not
prevent a court from summarily dismissing a complaint even when relying on matters
outside the pleadings to do so. Song v. City of Elyria, Ohio, 985 F.2d 840, 842 (6th
Cir.1993). For instance, a party cannot claim surprise at conversion when it is aware
that materials outside the pleadings had been submitted to the court. Wright v.
Holbrook, 794 F.2d 1152, 1156 (6th Cir. 1986). Similarly, where plaintiffs had ample
opportunity to respond to outside evidence submitted with a motion to dismiss they had
notice of the possibility of conversion. Fugarino v. Hartford Life & Accident Ins. Co., 969
F.2d 178, 182 (6th Cir.1992).
In this instance, the plaintiff had adequate notice of the possibility of conversion.
The defendant argued in its motion to dismiss that the forum-selection clause contained
in the Return Authorization Form was controlling in this instance. (Doc. 5-1, p. 3). The
defendant provided an affidavit stating that Drug Mart was required to submit, and did
submit, a Return Authorization Form to Guaranteed Returns on several occasions.
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(Doc. 5-2, p. 3). The defendant also provided a copy of a Return Authorization Form
dated 6 May 2010. (Doc. 5-2, pp.12-13). As such, the plaintiff was on notice that
outside-the-pleadings materials were before the Court. The plaintiff had an opportunity
to submit evidence in opposition to these materials but chose not to do so. Therefore,
because the plaintiff could not reasonably claim surprise at the conversion, the Court
views the question of the enforceability of forum selection clause through the lens of
Rule 56.
Rule 56
Summary judgment is appropriate “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56. The moving party “bears the initial responsibility of informing
the district court of the basis for its motion, and identifying those portions of ‘the
pleadings, depositions, answers to interrogatories, and admissions on file, together with
the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of
material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). All inferences must be
construed in a light most favorable to the party opposing the motion. Matsushita Elec.
Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). “The disputed issue
does not have to be resolved conclusively in favor of the non-moving party, but that
party is required to present some significant probative evidence which makes it
necessary to resolve the parties' differing versions of the dispute at trial.” 60 Ivy Street
Corp. v. Alexander, 822 F.2d 1432, 1435 (6th Cir.1987).

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The Validity of the Forum Selection Clause
The Supreme Court has stated that in light of present-day commercial realities, a
forum selection clause in a commercial contract should control, absent a strong showing
that it should be set aside. M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).
When evaluating the validity of a forum selection clause, this Court looks to the
following factors: (1) the commercial nature of the contract; (2) the absence of fraud or
overreaching; and (3) whether enforcement of the forum selection clause would
otherwise be unreasonable or unjust. Preferred Capital, Inc. v. Associates in Urology,
453 F.3d 718, 721 (6th Cir. 2006). The party opposing the forum selection clause bears
the burden of showing that the clause should not be enforced. Shell v. R.W. Sturge,
Ltd., 55 F.3d 1227, 1229 (6th Cir.1995).
First, Drug Mart does not dispute that the Return Authorization amounts to a
commercial contract between business entities. “Commercial forum selection clauses
between for-profit business entities are prima facie valid.” Preferred Capital, 453 F.3d at
722. Drug Mart offers no argument or evidence to rebut this presumption. Further, while
Drug Mart attacks the forum selection clause on the ground that the defendant was
overreaching when it attempted to incorporate the forum selection clause by reference
to the website, the plaintiff fails to demonstrate the existence of fraud or overreaching
with respect to the forum selection clause as it appears on the signed Return
Authorization Form. Because the plaintiff does not deny that it executed this document,
it is presumed to have known its contents and to have assented to them. There is
simply no evidence or argument to suggest that Drug Mart should not be held to the
terms of the Return Authorization Form which Drug Mart signed.
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The Court also considers “whether the chosen forum is so inconvenient as to, in
effect, afford no remedy at all, thus ‘depriving litigants of their day in court.’” Id. Drug
Mart states that it would be disadvantaged by enforcement of the forum selection
clause, because it will be forced to incur substantial financial hardship by litigating the
case in New York. While litigating in New York will likely be inconvenient for an Ohio
firm, Drug Mart has not demonstrated that it will be prejudiced by doing so.
In sum, Drug Mart has not met its burden to show that the forum selection clause
contained in the Return Authorization Form is invalid. The Court finds that the forum
selection clause is enforceable, and that no genuine issue of material fact has been
shown in regard to plaintiff's agreement to the forum selection clause.
III. Conclusion
For the reasons stated above, the defendant’s motion is granted.

IT IS SO ORDERED.
/s/ Lesley Wells
UNITED STATES DISTRICT JUDGE
Date: 29 October 2013

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