WEIGHT LOSS SERVICES, LP et al v. HERBAL MAGIC, INC. et al

Filing 13

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE MARY A. MCLAUGHLIN ON 9/22/2011. 9/22/2011 ENTERED AND COPIES E-MAILED. CERTIFIED COPY TO THE U.S.D.C. FOR THE S.D.N.Y..(sg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
WEIGHT LOSS SERVICES, LP,
et al.
v.
HERBAL MAGIC, INC., et al.

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CIVIL ACTION

NO. 11-3859

MEMORANDUM
McLaughlin, J.

September 22, 2011

The plaintiffs in this action are Weight Loss Services,
LP (“Weight Loss Services”), NU Services, LP; LATYD, LP; LA My
Way, LP; LATYDCA, LP; WLS IP, LLC; LAIP, LLC (collectively, the
“entity plaintiffs”); William Warrin, Timothy Britt, and Kristi
McKenna (“individual plaintiffs”).

The plaintiffs filed their

Complaint on May 24, 2011, in the Court of Common Pleas of
Philadelphia County against Herbal Magic, Inc. (“Herbal”), and LA
Weight Loss, LLC,1 following the sale of their weight-loss
business.

The plaintiffs brought claims for breach of contract

and breach of the individual plaintiffs’ employment contracts,
and sought a declaratory judgment interpreting the terms of the
Asset Purchase Agreement (“APA”) underlying the sale.

The

defendants removed the action to this Court on June 13, 2011 on
the basis of diversity.
Before the Court are two motions: (1) the defendants’

1

LA Weight Loss, LLC is formerly known as Nutri Magic, LLC.

Motion Under Fed. R. Civ. P. 12(b)(6) and/or 12(b)(3) to Dismiss,
or in the Alternative, to Transfer Venue (“Defs.’ Mot.”), filed
June 15, 2011; and (2) the plaintiffs’ Motion to Amend the
Complaint (“Pls.’ Mot.”), filed August 1, 2011.

The Court will

grant the motion to amend the complaint, deny the motion to
dismiss, and grant the motion to transfer the case under 28
U.S.C. § 1404(a) to the United States District Court for the
Southern District of New York.
I.

Facts
The entity plaintiffs are Pennsylvania limited

partnerships, a Pennsylvania limited liability company, and a
Delaware limited liability company with their principal places of
business located in a number of towns in eastern Pennsylvania.2
Mr. Warrin and Mr. Britt reside in Pennsylvania and Ms. McKenna
resides in New Jersey.

The defendant Herbal Magic, Inc. is a

Canadian corporation with its principal place of business located
in Toronto, Ontario, and the defendant LA Weight Loss, LLC is a
Delaware limited liability company with Herbal as its only
member.3

Compl. ¶¶ 3-16; Declaration of Craig Thompson, Ex. 2 to

2

For diversity purposes, the citizenship of the limited
partnerships and limited liability companies is the same as each
of their partners or members (in the case of the entity
plaintiffs, Pennsylvania and New Jersey). Zambelli Fireworks
Mfg. Co. v. Wood, 592 F.3d 412, 419-20 (3d Cir. 2010).
3

Similarly, LA Weight Loss, LLC, is an alien for purposes
of diversity and venue, as its only member is a Canadian entity.
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Defs.’ Mot. (“Thompson Decl.”) ¶¶ 2-3.
In early 2010, the defendants contacted the plaintiffs
expressing their interest in purchasing their weight-loss
business, LA Weight Loss.

Throughout 2010, the plaintiffs and

defendants negotiated a potential deal.

Representatives from

Herbal traveled to Philadelphia on numerous occasions to discuss
the terms of the agreement, including provisions for the
individual plaintiffs to continue operating the “Company Group”
after the sale of the business.4

The defendants conducted two

rounds of due diligence on the deal and negotiations were
completed on December 10, 2010.
that date.

The parties executed the APA on

Compl. ¶¶ 29-45.
The APA contains two provisions that are relevant to

the instant dispute:
13.6 Governing Law. This Agreement shall be
governed by and construed in accordance with
the Laws of the State of New York.
13.7 Consent to Jurisdiction and
Venue . . . .
(a) Each party hereby irrevocably and
unconditionally consents to submit to the
exclusive jurisdiction of the courts of the
United States of America located in the
Southern District of New York and venue in

Id.
4

The “Company Group” includes entity plaintiffs Weight Loss
Services, LP, NU Services, LP, LATYD, LP, LA My Way, LP, LATYDCA,
LP, WLSIP, LLC, and LAIP, LLC. Compl. ¶ 10. It appears that all
of the entity plaintiffs are business associations composed of
the individual plaintiffs.
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Manhattan, New York County, New York, for any
actions, suits or proceedings arising out of
or relating to this Agreement.
APA, Compl. Ex. A at 55.

The individual plaintiffs also executed

Employment Agreements with the defendants that contained similar
choice-of-law and forum-selection clauses.
§§ 13-14, Compl. Exs. B, C, D.

Employment Agreement

The Employment Agreements

provided that the individual plaintiffs would be employees of LA
Weight Loss, LLC for a term of three years after the transaction
closed and would be compensated at a rate of $250,000 annually,
plus benefits.

The individual plaintiffs were terminated on May

4, 2011, putatively for cause.

Compl. ¶¶ 51-53, 63-64.

After the action was removed to this Court, the
plaintiffs made demand on the defendants for severance payments
and the value of their accrued but unused vacation days, which
the defendants refused.

The plaintiffs then filed their instant

motion seeking leave to amend their complaint to add a claim for
these amounts and liquidated damages under the Pennsylvania Wage
Payment and Collection Law (“PWPCL”), 43 Pa. Cons. Stat. § 260.1
et seq.

The defendants refused their consent to filing a second

amended complaint.
II.

Pls.’ Mem. in Support of Mot. to Amend 1-3.

Analysis
The parties have agreed to rest on their briefs

regarding the defendants’ motion whether or not the Court grants
the plaintiffs’ motion; accordingly, the Court will address the
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plaintiffs’ motion first.
A.

The Plaintiffs’ Motion
Where a party already has amended a pleading once, that

party may amend it “only with the opposing party’s written
consent or the court’s leave.
when justice so requires.”

The court should freely give leave

Fed. R. Civ. P. 15(a)(2).

The plaintiffs argue that granting their Motion to
Amend before ruling on the defendants’ motion “will create no
delay or additional work for the Court or the parties,” and that
when discussing a potential stipulation to amend the complaint,
“the parties contemplated that if the Motion to Amend were
granted, they would simply rest upon the briefs they had already
filed concerning the Motion to Dismiss, except insofar as
Plaintiffs believe that the proposed Amendment affects the
[governing law] in its favor, and Defendant does not.”
The Court agrees.

Pursuant to the liberal standard set

forth in Rule 15(a)(2), the Court will grant the Motion to Amend.
The Court thus treats the defendant’s motion as if it were
directed at the plaintiff’s proposed amended complaint, which
adds claims under the PWPCL under largely the same operative
facts as the first amended complaint.
defendants’ motion.

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The Court turns to the

B.

The Defendants’ Motion: Preliminary Matters
Because the defendants move in the alternative for

dismissal under Rule 12 and transfer under 28 U.S.C. § 1404(a),
the Court must determine as a threshold matter the appropriate
procedural vehicle for addressing the defendants’ motion.

In

Salovaara v. Jackson National Life Insurance Co., the United
States Court of Appeals for the Third Circuit addressed the
appropriate procedure for enforcing a forum selection clause.
246 F.3d 289, 297-99 (3d Cir. 2001) (per curiam).

In Salovaara,

the Court of Appeals held that a district court may enforce such
a clause through dismissal or transfer, but where a forum
selection clause permits an action to be brought in a federal
forum,
it makes better sense, when venue is proper
but the parties have agreed upon a notunreasonable forum selection clause that
points to another federal venue, to transfer
rather than dismiss. And if a defendant
moves under § 1404(a), transfer, of course,
is the proper vehicle (assuming the
reasonableness of the forum selection
clause).
Id. at 298; accord 14D Charles Alan Wright, Arthur R. Miller &
Edwin H. Cooper, Federal Practice and Procedure § 3803.1 (3d ed.
2007).

The forum selection clauses in the Employment Agreements

and APA permit transfer to another federal forum, and so under
Salovaara transfer is preferable to dismissal.

The Court thus

treats the defendants’ motion as one for transfer under Section
1404(a).
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Section 1404(a) provides: “For the convenience of
parties and witnesses, in the interest of justice, a district
court may transfer any civil action to any other district or
division where it might have been brought.”

Still, “transfer, as

distinct from dismissal, is permissible only when venue is proper
in both the original and the requested forum.”

Knights Collision

Ctr., LLC v. AAA Mid-Atlantic, Inc., No. 09-493, 2010 WL 1141334,
at *2 (E.D. Pa. Mar. 25, 2010) (citing Jumara v. State Farm Ins.
Co., 55 F.3d 873, 878 (3d Cir. 1995)).

The parties concede that

the defendants are Canadian citizens for purposes of jurisdiction
and venue.

An alien may be sued in any district.

28 U.S.C.

§ 1391(d).

Thus, venue is proper in both the Eastern District of

Pennsylvania and the Southern District of New York.
C.

Enforceability of the Forum Selection Clause
The initial burden of demonstrating the need for

transfer is on the defendant, and the plaintiff’s choice of venue
should not be lightly disturbed.

The presence of a forum

selection clause, however, shifts the burden to the plaintiff,
who “bears the burden of demonstrating why they should not be
bound by their contractual choice of forum.”
879-80.

Jumara, 55 F.3d at

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,” which
requires a “strong showing” by the plaintiff.
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M/S Bremen v.

Zapata Off-Shore Co., 407 U.S. 1, 10, 15 (1972).

Enforcing a

forum selection clause is unreasonable where the clause has been
procured by “fraud or overreaching,” or if the resisting party
shows that “trial in the contractual forum will be so gravely
difficult and inconvenient that he will for all practical
purposes be deprived of his day in court.”

Id. at 15, 18.

The

plaintiffs do not contend that either the APA or the Employment
Agreements were obtained through fraud or overreaching, nor do
they argue that they would be deprived of their day in court if
the case were transferred.

The Court finds that the forum

selection clauses in the Employment Agreements and APA are
enforceable.
D.

Section 1404(a) Balancing Test
The Jumara court added a number of factors that a

district court should consider when deciding a motion to
transfer, elaborating on the Section 1404(a) standard which
permits transfer “for the convenience of parties and witnesses”
and “in the interest of justice.”
private and public interests.

These factors are divided into

The private interests include:

plaintiff’s forum preference as manifested in
the original choice; the defendant’s
preference; whether the claim arose
elsewhere; the convenience of the parties as
indicated by their relative physical and
financial condition; the convenience of the
witnesses--but only to the extent that the
witnesses may actually be unavailable for
trial in one of the fora; and the location of
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the books and records (similarly limited to
the extent that the files could not be
produced in the alternative forum).
Jumara, 55 F.3d at 879.

The public interests include:

the enforceability of the judgment; practical
considerations that could make the trial
easy, expeditious, or inexpensive; the
relative administrative difficulty in the two
fora resulting from court congestion; the
local interest in deciding local
controversies at home; the public policies of
the fora; and the familiarity of the trial
judge with the applicable state law in
diversity cases.
Id. at 879-80.
A forum selection clause represents the preferences of
the parties as to a convenient forum, and “[a]lthough the
parties’ agreement should not receive dispositive weight, it is
entitled to substantial consideration.”

Id. (citing Stewart

Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29-31 (1988)).

Indeed, a

forum selection clause is “a significant factor that figures
centrally” in the Court’s analysis under Section 1404(a),
Stewart, 487 U.S. at 29.

Still, the statute demands an

“individualized, case-by-case consideration of convenience and
fairness.”

Van Dusen v. Barrack, 376 U.S. 612, 622 (1964).

court thus turns to the multifactor test set forth in Jumara,

The

keeping in mind the central role of the valid forum selection
clause.

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1.

Private Interests

Although the plaintiffs filed the action in the Court
of Common Pleas of Philadelphia County, this choice is not
entitled to the deference ordinarily afforded it because a forum
selection clause is present, reflecting the plaintiffs’
contractual choice.

Jumara, 55 F.3d at 880 (citing In re Ricoh,

870 F.2d 570, 573 (11th Cir. 1989) (remand of Stewart)).

The

defendants have demonstrated their preference for the Southern
District of New York through their execution of the forum
selection clauses and their instant motion to transfer.

The

plaintiffs repeatedly emphasize that most of the events giving
rise to their claims occurred in Philadelphia, although some did
occur abroad, and thus this factor weighs only marginally against
transfer.
The plaintiffs have not averred that their physical or
financial condition precludes them from litigating the matter in
the Southern District of New York.

Further, the plain language

of the transfer statute requires the Court to consider the
convenience of all parties, not simply the party resisting the
motion to transfer.

Although the plaintiffs are located in the

Philadelphia area, the defendants are located in Ontario, Canada.
The Southern District of New York and Eastern District of
Pennsylvania are roughly 100 miles apart, and thus the difference
in convenience between the fora is negligible.

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With respect to the final two private factors, the
Court is precluded from considering them on the instant motion
because the plaintiff concedes that neither witnesses nor books
and records would be unavailable if the case were litigated in
the Southern District of New York.

The Court finds that the

private interests are at least neutral and likely weigh in favor
of transfer.
2.

Public Interests

The public factors relating to enforceability,
administrability, and practicality do not weigh heavily in either
direction in this case.

The District Court for the Southern

District of New York is no less capable than this Court in
handling commercial disputes efficiently.
The plaintiffs argue that local interests militate in
favor of the Court hearing their “local controversy” and denying
the motion to transfer.

Pls.’ Oppn. to Defs’. Mot. to Dismiss or

Transfer (“Pls.’ Oppn.”) 9.

The Court acknowledges

Pennsylvania’s strong interest in providing a forum for its
citizens to litigate their disputes.

See, e.g., Elbeco, Inc. v.

Estrella de Plato Corp., 989 F. Supp. 669, 678 (E.D. Pa. 1997).
Still, the Court is reluctant to characterize this case, with
amounts in controversy well in excess of a million dollars, as
purely local.

By the plaintiffs’ own admission, the business at

the heart of the dispute is “one of the best-known and
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historically most successful weight loss programs in the
Americas,” and includes “over 800 retail diet stores that were
either corporately owned and operated or operated through
franchisees throughout the United States, Canada and Costa Rica.”
Compl. ¶ 21

The individual plaintiffs, at least for a time, were

involved in marketing efforts and correspondence with these
franchisees.

Id. ¶¶ 55-57.

This controversy thus has a broader

scope than the case the plaintiff cites on this point in
opposition to the defendants’ motion.

See Pls.’ Oppn. 9 (citing

Banket v. GC America, Inc., No. 05-576, 2005 WL 2600204, at *6
(E.D. Pa. Oct. 11, 2005) (refusing to transfer an Age
Discrimination in Employment Act case)).
Similarly, the plaintiffs argue that the addition of
claims under the PWPCL in their Amended Complaint renders the
Court’s familiarity with Pennsylvania law a factor favoring
retention of the case.

Assuming that this is so, the fact that

the parties have actively selected New York law to govern the APA
and Employment Agreements weighs equally if not overwhelmingly in
favor of transfer.
Further, the public policy of New York permits parties
to subject their disputes to their jurisdiction in choice-of-law
as well as forum-selection matters.

See N.Y. Gen. Oblig. Law §§

5-1401, 5-1402 (permitting choice of New York law in contracts
“whether or not such contract . . . bears a reasonable relation

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to this state” and allowing forum selection clauses where New
York law governs).

The courts of the Southern District of New

York are more familiar with the New York state law that governs
the bulk of this dispute.

The Court therefore concludes that the

public interests are at least neutral with respect to transfer,
and probably weigh in favor of it.
The existence of a valid forum selection clause imposes
upon the plaintiff the burden of demonstrating why it should not
be enforced.

The Court finds that the plaintiff has not made the

strong showing required to meet that burden.

The Court will

transfer the case to the United States District Court for the
Southern District of New York.
A separate order follows.

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