GEOSONICS, INC et al v. AEGEAN ASSOCIATES, INC
Filing
33
MEMORANDUM OPINION. Signed by Judge Mark R. Hornak on 12/31/14. (bdb)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
GEOSONICS, INC. ET AL,
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Plaintiff,
v.
Civil Action No.2: 14-cv-908
Judge Mark R. Hornak
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AEGEAN ASSOCIATES, INC.,
Defendant.
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MEMORANDUM OPINION
Mark R. Hornak, United States District Judge
Plaintiffs, GeoSonics, Inc. and its President, D.T. Froedge, brought this lawsuit alleging
breach of contract, unjust enrichment, and declaratory judgment claims against Defendant,
Aegean Associates, Inc. They essentially allege that Defendant violated a Consulting Agreement
executed in 1990 ("1990 Agreement") for "custom software, systems, and technical support"
when Defendant forced Plaintiffs to enter into a new agreement in 2014 ("2014 Agreement") by
threatening to discontinue use of products and services already paid for and provided through the
1990 Agreement. ECF No.1, at 4jl4jl55-61. They argue that even if the 1990 Agreement ceased
to govern the current situation, Defendants were unjustly enriched as a result of Plaintiffs' forced
signing of the 2014 Agreement, id. at 4jl4jl 63-66, and also request that this Court declare, inter
alia, that Plaintiffs had an irrevocable and implied license in the relevant intellectual property,
the 2014 Agreement is the result of economic duress, and ask the Court to rescind the 2014
Agreement and its accompanying Promissory Note, id. at c- 73. Plaintiffs assert that they are not
bringing any claims under the 2014 Agreement, ECF No. 20, at 23-24, yet admit that the 2014
Agreement "is at the heart of the instant lawsuit," ECF No.1, at 4jl21.
Before the Court is Defendant's Motion to Dismiss the Complaint, ECF No. 13, along
with filings in support and in opposition thereto, ECF Nos. 14; 20; 25; 27. Also before the Court
are the parties' submissions in response to this Court's Order to Show Cause as to why the case
should not be dismissed for lack of subject-matter jurisdiction, dated November 20, 2014. ECF
Nos. 29; 30; 32. Based on the Court's consideration of the papers filed and the matters presented
at the hearing/argument on November 20, 2014 in open court as to the Defendant's Motion to
Dismiss, the Court will enter an order consistent with the conclusions set forth herein,
transferring the case to the United States District Court for the District of Delaware.
As an initial matter, the Court will consider whether it has subject-matter jurisdiction
over this action. See Sinochem In!'l Co. v. Malaysia In!'l Shipping Corp., 549 U.S. 422, 430-31
(2007) ("[A] federal court generally may not rule on the merits of a case without first
determining that it has jurisdiction over the category of claim in suit (subject-matter jurisdiction)
and the parties (personal jurisdiction).") (internal citation omitted). While the Supreme Court
held in Sinochem that "[a] district court ... may dispose of an action by a/orum non conveniens
dismissal, bypassing questions of subject-matter and personal jurisdiction, when considerations
of convenience, fairness, and judicial economy so warrant," id. at 432, the Court also observed
that when jurisdictional issues present no "arduous inquiry," such issues are properly considered
before determining whether transfer is appropriate, id. at 436 (internal quotation marks and
citation omitted). I In light of this Court's Order to Show Cause requesting supplemental filings
1 The Supreme Court has held that 28 U.S.C. § 1404(a) is the "codification of the doctrine ofJorum non conveniens
for the subset of cases in which the transferee forum is within the federal court system; in such cases, Congress has
replaced the traditional remedy of outright dismissal with transfer." Atl. Marine Canst. Co. v. U.S. Dist. Court Jar
W. Dist. oJTexas, 134 S. Ct. 568, 580 (2013).
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on the subject-matter jurisdiction issue, the Court believes it appropriate to address that matter
first?
On November 20, 2014, Plaintiffs filed a Notice of Supplemental Authority along with an
exhibit, a screen shot of the Pennsylvania Department of State's website showing that Aegean
Associates, Inc., an entity bearing the same name as the Defendant in this action, is a corporation
registered in Pennsylvania as "Domestic" and "Active" in status. ECF Nos. 27; 27-1. Because
Plaintiffs are also residents of Pennsylvania, this Court entered an Order to Show Cause dated
November 20, 2014 as to whether the Court has jurisdiction under 28 U.S.C. § 1332(a). As a
federal court hearing the case on diversity jurisdiction, the Court questioned whether complete
diversity existed between Plaintiffs and Defendant in light of Plaintiffs' Supplemental Filing.
After reviewing the parties' submissions in response to this Court's Order to Show
Cause,3 the Court is satisfied that subject-matter jurisdiction exists in the present action. Under
28 U.S.C. § 1332(a)(l), federal courts may exercise jurisdiction over civil actions between
"citizens of different [s]tates." A corporation is a "citizen" under the statute, and is deemed to
reside in both its state of incorporation and the state from which its officers control the company,
otherwise known as a company's "nerve center." Johnson v. SmithKline Beecham Corp., 724
2 This is particularly true because if this Court lacks subject-matter jurisdiction on the basis that the parties are not
completely diverse, then indeed no federal court may exercise such jurisdiction by the same logic.
3 The supplemental filings consist of (I) the Declaration of Christina Hillson, Esquire Submitted in Response to the
Court's November 20 Show Cause Order, attaching a Certificate of Good Standing for the Defendant, Aegean
Associates, Inc., from the Delaware Secretary of State, which states that the Defendant "is duly incorporated under
the laws of the state of Delaware" and that its incorporation date was November 29, 2005, ECF Nos. 29; 29-1; (2)
the Third Declaration of Demitrios Vassaras, President of Aegean Associates, Inc., attaching a copy of a 2006
"Agreement and Plan of Corporate Separation and Reorganization" by and between Aegean Associates, Inc., a
Pennsylvania corporation, and Mr. Vassaras, stating that "Vassaras is the sole stockholder of the [Pennsylvania]
Corporation ... and ... plans to relocate his residence ... to New Castle County, Delaware and desires to change
the domicile of the Corporation as well," and accordingly provides for transfer of all corporate assets and liabilities
such that "[o]n the Closing Date, the Subsidiary will be a corporation duly organized ... under the laws of the State
of Delaware," ECF Nos. 30; 30-1, at 1, 4; and (3) Supplemental Briefing in Response to Order to Show Cause
Regarding Lack of Diversity Jurisdiction Under 28 U.S.C. § \332(a), indicating that the Pennsylvania corporation is
a separate entity from the Delaware corporation, despite the fact that the two share the same name and sole
shareholder, and citing applicable law on the issue, ECF No. 32.
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FJd 337, 347 (3d Cir. 2013) (citing Hertz Corp. v. Friend, 559 U.S. 77, 81 (2010)). A district
court "can base its jurisdiction only upon the citizenship of parties with 'a real interest in the
litigation,'" and should not consider the citizenship of '"nominal''' parties. Id. at 358 (quoting
Rumberger v. Ins. Co. olN. Am., 952 F.2d 764, 767 (3d Cir.l991)).
This case presents a situation wherein the Defendant was previously incorporated and
also maintained its nerve center in Pennsylvania. However, the litigants have submitted several
documents suggesting that the Pennsylvania corporation ceased operations in 2006 and
transferred all of its assets and liabilities to a Delaware corporation of the same name, and that
the company has thereafter been controlled by its sole shareholder from Delaware. See ECF
Nos. 29; 30; 32.
Under Third Circuit precedent, it thus appears that even though the
Pennsylvania company continues to exist in some, perhaps existential, form (as demonstrated by
Plaintiffs' supplemental filing, ECF No. 27), it is not a party with an actual interest in this
litigation and the Court should not consider its citizenship for diversity purposes. Johnson, 724
FJd at 359.
Specifically because the "Agreement and Plan of Corporate Separation and
Reorganization" states that Vassaras, the "sole stockholder of the Corporation," planned "to
relocate his residence from Pittsburgh, Pennsylvania to New Castle County, Delaware and
desire[d] to change the domicile of the Corporation as well," ECF Nos. 30-1; 32-1, and operates
and controls the Defendant, Aegean Associates, Inc. from Delaware, the Court concludes that the
Defendant is a citizen of Delaware, there is complete diversity of citizenship present, and the
Court has subject-matter jurisdiction over this action.
Having resolved the subject-matter jurisdiction issue, the Court would generally tum to
Defendant's argument that the Court cannot exercise personal jurisdiction over it since the
company lacks sufficient ties to Pennsylvania to reasonably have anticipated being haled into
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court in this state. ECF No. 14, at 12-15. The Court declines to address this issue, however,
because while this Court may indeed be one possible forum for this action, it is clearly not the
only one, nor in the Court's estimation, the one to which the parties have agreed.
Paragraph 7 of the 2014 Agreement provides in part:
This Agreement shall be construed and enforced according to the laws of
Delaware and applicable federal laws and any claim relating to this Agreement
shall be brought in the Delaware courts. The Parties consent to Delaware
jurisdiction, agree to service of process upon them by mail or courier addressed to
their respective addresses set forth herein, and waive any objections they may
have to personal jurisdiction, venue, sufficiency or service of process, or under
the doctrine ofJorum non conveniens.
ECF No. 1-3, at ~ 7. "Ordinarily, a strong presumption of convenience exists in favor of
a domestic plaintiffs chosen forum, and this presumption may be overcome only when
the balance of the public and private interests clearly favors an alternate forum." Kisano
Trade & Invest Ltd v. Lemster, 737 FJd 869, 873 (3d Cir. 2013) (internal quotation
marks and citation omitted). This "balance of interests" is evaluated through the doctrine
offorum non conveniens. The Supreme Court has held that the functional equivalent of
the forum non conveniens analysis for federal courts is codified in 28 U.S.C. § 1404(a).
Atl. Marine Canst. Co. v. Us. Dist. Court for W Dist. of Texas, 134 S. Ct. 568, 580
(2013). The Supreme Court also held that when suit is filed in any venue outside that
specified in a valid contractual forum selection clause, "a district court should ordinarily
transfer the case to the forum specified in that clause" and only refrain from doing so
"under extraordinary circumstances unrelated to the convenience of the parties." Id at
581. Not only does a valid forum selection clause render the plaintiffs choice of venue
irrelevant to the analysis, id, but such a clause also requires courts to "deem the privateinterest factors to weigh entirely in favor of the preselected forum," id. at 582. In sum,
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forum selection clauses "should be glven controlling weight in all but the most
exceptional cases." Id. at 581 (internal quotation marks and citation omitted).
The Court put the parties on notice of the potential impact of Atlantic Marine during oral
argument held on November 20, 2014, and authorized several supplemental filings after the
hearing with regard to various issues. See ECF Nos. 27; 29; 30; 32. At no point did either party
raise an objection to the Court's authority to transfer the case sua sponte under 1404(a), and the
Third Circuit and others have recognized that authority. See Arnica Mut. Ins. Co. v. Fogel, 656
F.3d 167, 171 (3d Cir. 2011); Union Elec. Co. v. Energy Ins. Mut. Ltd., 689 F .3d 968, 972 (8th
Cir. 2012) ("There is authority supporting the district court's ability to sua sponte transfer a case
under § 1404(a)."); Lead Indus. Ass'n, Inc. v. Occupational Safety & Health Admin., 610 F.2d
70,79 n.17 (2d Cir. 1979) ("The broad language of28 U.S.c. § 1404(a) would seem to permit a
court to order transfer [s]ua sponte.").4
The issue now before the Court thus boils down to two questions. First, is the 2014
Assignment Agreement a valid contract?5 Second, if the contract is valid, should the Court
enforce the forum selection clause and transfer the case to Delaware? The Court concludes that
both questions must be answered in the affirmative.
With regard to the first question, Plaintiffs argue that the 2014 Agreement's forum
selection clause should not control because this is an exceptional case, in that Plaintiffs only
entered into the 2014 Agreement as a result of economic duress. ECF No. 20, at 23-24; Oral
Nor would any objection on the part of either party be dispositive. Meyers v. Heffernan, No. 10-212,2012 WL
1133732, at *5 (D. Del. Mar. 29, 2012) (explaining that, as long as the parties have adequate notice and opportunity
to be heard on a district judge's contemplated sua sponte transfer, U[a] court's authority to transfer cases pursuant to
28 U.S.c. § 1404(a) does not depend upon a motion, stipulation, or consent of parties to the litigation"); Ziemkiewicz
v. R+L Carriers, Inc., No. 12-1923,2013 WL 505798, at *1-2 (D.NJ. Feb. 8,2013). Additionally, counsel for the
Defendant specifically requested that the Court dismiss the case or, in the alternative, transfer the case to Delaware,
an argument to which counsel for Plaintiffs responded.
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5 Indeed, the Supreme Court noted in Atlantic Marine that n[o]ur analysis presupposes a contractually valid forum
selection clause." 134 S. Ct. at 581 n.5.
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Argument of 11120114. Specifically, Plaintiffs allege that Defendant forced them to enter into
the 2014 Agreement by threatening to cut off access to software required to operate Plaintiffs'
business, and they would not have done so absent that threat. Plaintiffs also request, as part of
their plea for relief, a declaratory judgment from this Court that the 2014 Agreement is void
because Plaintiffs entered into it under economic duress. ECF Nos. 1, at ~~ 70, 73(c); 20, at 23
24.
However, a plausible argument for duress under Pennsylvania law requires a "degree of
restraint or danger, either actually inflicted or threatened and impending, which is sufficient in
severity or apprehension to overcome the mind of a person of ordinary firmness ...." Gregory v.
Derry Twp. Sch Dist., 418 F. App'x 148, 151-52 (3d Cir. 2011) (quoting Carrier v. William
Penn Broad. Co., 233 A.2d 519, 521 (Pa. 1967». "Financial distress is not enough to necessitate
a finding of economic duress." Hotel Employees & Rest. Employees Union v. Sage Hospitality
Res., L.L.c., Local 57, 299 F. Supp. 2d 461, 466 (W.D. Pa. 2003) affd sub nom. Hotel
Employees & Rest. Employees Union, Local 57 v. Sage Hospitality Res., LLC, 390 F.3d 206 (3d
Cir. 2004). Moreover, "there is a presumption under Pennsylvania law against finding duress
where a party is free to consult with legal counsel." Id.; see also Gregory, 418 F. App'x at 152
('" [W]here the contracting party is free to come and go and to consult with counsel, there can be
no duress in the absence of threats of actual bodily harm. "') (quoting Three Rivers Motors Co. v.
Ford Motor Co., 522 F.2d 885, 893 (3d Cir.1975»; Degenhardt v. Dillon Co., 669 A.2d 946, 950
(Pa. 1996) ("[W]here a party has had the opportunity to consult with legal counsel before
entering into a contract, that same party cannot later invalidate the contract by claiming
economic duress.,,).6 Finally, there is support for the proposition that to raise a claim or defense
The Pennsylvania Supreme Court also stated in Degenhardt that H[a] party's mere execution of a contract without
counsel present at the exact moment is of little significance," and went on to explain that the rule governs in any
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of duress, the party seeking to assert it must prove "that there was no immediate legal remedy
available as an alternative to executing the agreement." Hotel Employees, 299 F. Supp. 2d at
466.
Plaintiffs have not adequately alleged circumstances that could support a finding of
economic duress. First, Plaintiffs allege in the Complaint, inter alia, that "GeoSonics would
have faced serious and irreparable economic loss and loss of good will from customers seeking
alternate seismic monitoring providers and from negative effects on its business reputation" if
Plaintiffs did not sign the 2014 Agreement and Defendant cut off access to its servers and source
code. ECF No.1, at
~~
41, 44. This and similar claims simply do not meet the high bar of a
threatened action that would "overcome the mind of a person of ordinary firmness." Gregory,
418 F. App'x at 152. Threatened loss of business alone amounts to no more than financial
distress, which cannot satisfy the standard. Hotel Employees, 299 F. Supp. 2d at 466.
Second, the Court's exchange with counsel during oral argument leads the Court to
conclude that Plaintiffs were free to consult with counsel during negotiations of 2014
Agreement.
While Plaintiffs allege that the 2014 Agreement was "drafted solely by [the
Defendant]," ECF No.1, at
~
48, the Complaint also includes statements that Defendant's first
attempt to negotiate with Plaintiffs occurred in November of 2013, which Plaintiffs rejected, id.
at
~~
30-34, and again no later than February 13, 2014, id. at
~~
35-47. Plaintiffs did not
actually enter into the 2014 Agreement accepting those terms until March 4, 20 14-almost three
weeks after Defendant stated its terms. Id. at
~
48. There is no allegation that negotiations took
place without any interaction with counsel, and in fact, when the Court asked counsel at
argument why a lawsuit was not filed immediately after execution of the 2014 Agreement,
situation where a litigant is otherwise free to contact counsel and failed to request to contact counsel before signing
the document. 669 A.2d at 951.
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counsel responded that they were engaged with the case at that time, and had participated in
drafting the Complaint. The Pennsylvania Supreme Court has held that counsel need not be
present at the actual signing of an agreement to conclude that a party had the benefit of counsel's
advice in entering into that agreement, Degenhardt, 669 A.2d at 950, and the Third Circuit has
explained that absent a threat of bodily harm, the ability to consult with counsel vitiates any
potential claim of economic duress, Gregory, 418 F. App'x at 152. With that standard in mind,
the Court is precluded from finding the circumstances underlying the execution of the 2014
Agreement, as pled, constitute economic duress.
Third, the Court concludes that Paragraph 47 of the Complaine is implausible, and that in
fact there were adequate legal remedies available as alternatives to executing the agreement.
Hotel Employees, 299 F. Supp. 2d at 466. While Plaintiffs contend that they "did not believe
that they could file a legal action, even for injunctive relief on an emergent basis, without
jeopardizing their need for 2417 access to the Servers" and that "[a]n injunction could not have
been obtained in time, or in a manner, to prevent the potential for the relatively simple process of
data destruction" at Defendant's election, ECF No.1, at
~
47, the Court is hard pressed to
conclude that a defendant under Court Order to refrain from any such destruction would
purposely disregard such an Order and risk being held in contempt and all that would entail.
Based on the allegations of the Complaint, the Court concludes that it is implausible that
The full text of Paragraph 47 states as follows:
GeoSonics and Froedge did not believe that they could file a legal action, even for injunctive relief
on an emergent basis, without jeopardizing their need for 24/7 access to the Servers; there was no
guarantee that Aegean would not destroy both access to and/or the actual data and software that
was critical to the business of GeoSonics and its many customers around the country[.] An
injunction could not have been obtained in time, or in a manner, to prevent the potential for the
relatively simple process of data destruction, should Aegean have decided to permanently destroy
or to move the data and source codes to a different location.
ECF No. I, at'f 47.
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Plaintiffs could not have sought a temporary restraining order, ex parte, if necessary, FED. R.
OV. P. 65(b)( 1), to vitiate the threat they say concerned them.
For the foregoing reasons, the Court concludes that Plaintiffs have not plausibly pled that
the 2014 Agreement is invalid and the product of economic duress. The next inquiry is therefore
whether the Court should enforce the forum selection clause contained in the 2014 Agreement.
The Court must first note that the 2014 Agreement is not exclusively at issue in this
action. However, exclusivity is not the test. Not only does the 2014 Agreement explicitly state
that "any claim relating to this Agreement shall be brought in the Delaware courts," ECF No. 1
3, at
~
7 (emphasis added), but Plaintiffs also characterize the 2014 Agreement in its entirety in
their Complaint as a document "at the heart of the instant lawsuit." ECF No.1, at
~
21. The
Court relies on parties to candidly describe their own claims, and Plaintiffs' explanation of the
2014 Agreement's relevance, coupled with that contract's forum selection clause indicating that
any claim "relating to" it must be brought in Delaware, compels the Court to conclude the
Western District of Pennsylvania is not the appropriate forum for this action.
As explained above, the Supreme Court has recently held that a valid forum selection
clause compels courts to "deem the private-interest factors to weigh entirely in favor of the
preselected forum," Atl. Marine, 134 S. Ct. at 582, and that absent extraordinary circumstances,
the forum selected by the parties during negotiations will control.
In addition, the forum
selection clause in this case specifies that any claim "relating to" the 2014 Agreement must be
brought in Delaware. ECF No. 1-3, at
~
7. Plaintiffs' Complaint alleges, in part, that the 2014
Agreement impermissibly altered the terms of a pre-existing agreement entered into in 1990
whereby Plaintiffs gained access to software used to operate their business. ECF No.1, at
~~
55-61. In essence, Plaintiffs contend that the 2014 Agreement allowed Defendant to double-bill
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for access to the same software and for prior performance of the same services. fd. at
~
60-61.
When the software at issue was the subject of both the 2014 Agreement and a prior contract, the
Court must conclude that deciding the merits of the case would necessarily "relat[e] to" the 2014
Agreement. Therefore, the Court must presume the forum selection clause weighs in favor of
transferring the case to Delaware. No party has advanced a public factorS that would render this
case "extraordinary" and change the calculus with regard to transfer, and none is apparent to the
Court. Atl. Marine, 134 S. Ct. at 581. Since the Court concludes that no public factors render
this case extraordinary, the forum selection clause contained in the 2014 Agreement governs
forum selection for this action.
The Court will therefore transfer this action forthwith to the United States District Court
for the District of Delaware pursuant to pursuant to 28 U.S.C. § 1404(a) and the forum selection
clause contained in the 2014 Agreement, which states that "any claim relating to this Agreement
shall be brought in the Delaware courts." ECF No. 1-3, at
Mark R. Hornak
United States District Judge
Dated: December 31,2014
cc: All counsel of record
The public factors as described by the Third Circuit are:
[T]he 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.
Jumara v. State Farm Insurance Co., 55 F.3d 873,879-80 (3d Cir. 1995) (citations omitted).
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