Solid Q Holdings v. Arenal Energy et al

Filing 62

MEMORANDUM DECISION AND ORDER denying 54 Motion to Dismiss. Signed by Judge David Nuffer on 3/8/17 (alt)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
SOLID Q HOLDING, LLC,
MEMORANDUM DECISION AND
ORDER DENYING [54] MOTION TO
DISMISS

Plaintiff,
v.
ARENAL ENERGY CORPORATION,
RICHARD REINCKE, ERIC JOHNSON,
BRIAN CHAPLIK, GUS SHOUSE, TOM
BUIEL, and CHRIS COTA,

Case No. 2:15-cv-00419-DN
District Judge David Nuffer

Defendant.

Defendant Richard Reincke makes a limited appearance to move to dismiss the case
based on a mandatory forum selection clause and the doctrine of forum non conveniens. 1 The
plaintiff Solid Q Holdings, LLC, responded in opposition. 2 Reincke replied in support of his
motion. 3
Because Solid Q’s causes of action are outside the scope of the forum selection clause,
the Motion is DENIED.
BACKGROUND
Solid Q alleges it loaned Arenal $150,000 based on material misrepresentations made by
the defendants. The terms of that loan were memorialized in a promissory note. 4 The promissory

1

Notice of Motion and Motion to Dismiss Case Based on a Mandatory Forum Selection Clause and the Doctrine of
Forum Non Conveniens (Motion), docket no. 54, filed October 11, 2016.

2

Memorandum in Opposition to Defendant Reincke’s Motion to Dismiss (Opposition), docket no. 56, filed
November 3, 2016.

3

Defendant Richard Reincke’s Reply to Plaintiff’s Opposition to Motion to Dismiss Case Based on a Mandatory
Forum Selection Clause and the Doctrine of Forum Non Conveniens (Reply), docket no. 57, filed November 28,
2016.

4

Exhibit 1 to Declaration of Richard Reincke, docket no. 55, filed October 11, 2016.

note contains the following clause: “This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Utah. Jurisdiction shall lie exclusively
within the courts of the State of Utah.” 5
The causes of action are based on federal and state securities laws. 6
Reincke argues the forum selection clause requires a Utah state court to hear the dispute
because it says “courts of the State of Utah,” and not “courts in the state of Utah.” 7 Solid Q does
not refute Reincke’s prepositional explication. Instead, it focuses on either avoiding the
implications of the forum selection clause or undermining its validity. First, Solid Q argues that
the purported forum selection clause is invalid because 15 U.S.C. § 78aa confers “exclusive
jurisdiction” on federal courts for any violations of the Securities Exchange Act. 8 Second, Solid
Q argues that the forum selection clause does not govern the causes of action in this case. 9 And
third, Solid Q argues that the forum selection clause “is unfair.” 10
Because the motion is resolved with Sold Q’s second argument, it is not necessary to
reach the third.
DISCUSSION
“Forum selection provisions are ‘prima facie valid’ and a party resisting enforcement
carries a heavy burden of showing that the provision itself is invalid due to fraud or overreaching
or that enforcement would be unreasonable and unjust under the circumstances.” 11 Solid Q

5

Id. at 4.

6

Complaint ¶¶ 72–104, docket no. 2, filed June 15, 2015.

7

Motion at 8.

8

Id. at 3–4.

9

Id. at 4–5.

10

Id. at 6–8.

11

Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir. 1992).

2

attempts to prove the forum selection clause is invalid or, in the alternative, that it does not apply
to this litigation. The clause may valid but it is not applicable.
1. Waiving federal jurisdiction does not violate the Securities Exchange Act.
Solid Q argues that the forum selection clause is invalid because it seeks to circumvent
15 U.S.C. § 78aa, which states: “The district courts of the United States . . . shall have exclusive
jurisdiction of violations.” Circumventing this provision, according to Solid Q, runs afoul 15
U.S.C. § 78cc, which states: “Any condition, stipulation, or provision binding any person to
waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of
any rule of a self-regulatory organization, shall be void.” 12 Solid Q does not cite any case where
a court disregarded a forum selection clause as violating 15 U.S.C. § 78cc.
The Supreme Court stated in Shearson/American Exp., Inc. v. McMahon 13 that the
jurisdictional statement in § 78aa
does not impose any duty with which persons trading in securities must ‘comply.’
By its terms, [§ 78cc] only prohibits waiver of the substantive obligations
imposed by the Exchange Act. Because [the jurisdiction statement] does not
impose any statutory duties, its waiver does not constitute a waiver of
‘compliance with any provision’ of the Exchange Act under [§ 78cc]. 14
Accordingly, the Supreme Court held that parties may waive the exclusive federal
jurisdiction in favor of arbitration. 15 Numerous circuit courts have found that parties may waive
the exclusive federal jurisdiction in favor of foreign jurisdiction. 16 And numerous courts have

12

15 U.S.C.A. § 78cc (West 2016).

13

482 U.S. 220 (1987).

14

Id. at 228.

15

Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220 (1987).

16

Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953 (10th Cir. 1992); Roby v. Corporation of Lloyd’s,
996 F.2d 1353 (2d Cir. 1993) (finding the forum selection clause valid extinguished the federal statutory claims
because they were not recognized in foreign jurisdiction).

3

even found that parties may waive the exclusive federal jurisdiction in favor of state
jurisdiction. 17
Therefore, the forum selection clause in the Promissory Note does not violate § 78cc.
2. Solid Q’s causes of action are outside the scope of the forum selection clause.
Solid Q next argues that the claims are outside the scope of the forum selection clause.
When the claims are facially unrelated to the enforcement of the contract, the question
becomes whether the forum selection clause “support[s] a distinction between contract claims
and tort claims.” 18 The Utah Supreme Court in Energy Claims determined that the forum
selection clause did not support such a distinction:
The clause at issue here governs “any dispute, controversy or claim” that is
“related to” the parties' contract . . . . Accordingly, ECL's claims [for breach of
fiduciary duty] clearly “relate to” the contract and fall within the broad category
of “any dispute, controversy or claim.” Thus, we agree with the court of appeals'
conclusion that the forum selection clause is sufficiently broad to cover the tort
claims.
By contrast, the Utah Court of Appeals found that the clause in Diversified
Striping Systems, Inc. v. Kraus 19 did support a distinction. The clause in question stated
that it applied to “action[s] or proceeding[s] seeking to interpret or enforce the
provisions.” 20 The court determined that the clause did not encompass the alleged tort
claims, which included a claim for fraud, 21 because they “do not seek to interpret or
enforce the provisions of the parties’ agreement.” 22

17

See, e.g., Spenta Enterprises, Ltd. v. Coleman, 574 F.Supp.2d 851 (N.D. Ill. 2008).

18

Energy Claims Ltd. v. Catalyst Inv. Group Ltd., 325 P.3d 70, 83 (Utah 2014).

19

341 P.3d 932 (Utah Ct. App. 2014)

20

Id. at 933–34.

21

Id. at 933.

22

Id. at 934.

4

Similar to Diversified, the forum selection clause in this case is narrow. The first sentence
limits its scope: “This Note will be governed by, construed and enforced in accordance with
federal law and the laws of the State of Utah.” By limiting the effect of the clause to actions
related to “[t]his Note,” the clause makes a distinction between claims related to the promissory
note itself and other, non-contract based claims.
Therefore, Solid Q’s securities claims are outside the scope of the promissory note. The
actions will not be dismissed.
ORDER
IT IS HEREBY ORDERED that the Notice of Motion and Motion to Dismiss Case Based
on a Mandatory Forum Selection Clause and the Doctrine of Forum Non Conveniens 23 is
DENIED.
Signed March 8, 2017.
BY THE COURT

________________________________________
District Judge David Nuffer

23

Docket no. 54, filed October 11, 2016.

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