Am-Rail Construction v. A&K Railroad Materials
MEMORANDUM OPINION AND ORDER signed by JUDGE LORETTA C. BIGGS on 1/31/2017, that Defendant's Motion to Transfer Venue (ECF No. 9 ) is GRANTED, and the Clerk of Court shall transfer this action to the United States District Court for the District of Utah. FURTHER that Plaintiff's Motion to Remand (ECF No. 18 ) is DENIED. (Butler, Carol) [Transferred from North Carolina Middle on 1/31/2017.]
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
AM-RAIL CONSTRUCTION, INC.,
A&K RAILROAD MATERIALS, INC., )
MEMORANDUM OPINION AND ORDER
LORETTA C. BIGGS, District Judge.
Plaintiff, AM-Rail Construction, Inc. (“AM-Rail”), initiated this action in state court on
or about April 11, 2016. On May 24, 2016, Defendant, A&K Railroad Materials, Inc.
(“A&K”), removed the action to this Court, pursuant to 28 U.S.C. §§ 1332, 1441 and 1446.
(ECF No. 1.) Before the Court are Defendant’s Motion to Transfer Venue, (ECF No. 9), filed
on July 20, 2016, and Plaintiff’s Motion to Remand to State Court for lack of subject matter
jurisdiction, (ECF. No. 18), filed on August 15, 2016. For the reasons set forth below, the
Court will deny Plaintiff’s motion to remand this case to state court and will allow Defendant’s
motion to transfer venue to the United States District Court of Utah.
MOTION TO REMAND
Plaintiff asserts in its Motion to Remand that, because the Court lacks subject matter
jurisdiction, this matter must be remanded to state court. (ECF No. 17 at 5.) Subject matter
jurisdiction relates to the Court’s power to hear this case. Holloway v. Pagan River Dockside
Seafood, Inc., 669 F.3d 448, 453 (4th Cir. 2012) (citing Arbaugh v. Y & H Corp., 546 U.S. 500,
514 (2006)). Thus, the Court must address this issue before addressing other issues in the
case. Jones v. Am. Postal Workers Union, 192 F.3d 417, 422 (4th Cir. 1999). The burden of
establishing subject matter jurisdiction rests with the party seeking removal. Hoschar v.
Appalachian Power Co., 739 F.3d 163, 169 (4th Cir. 2014). Remand is required “[i]f at any time
before final judgment it appears that the district court lacks subject matter jurisdiction.” 28
U.S.C. § 1447(c).
A defendant can remove a state court action to federal court if it is one over which the
district courts of the United States have original jurisdiction. Id. § 1441(a). Defendant
removed this case based on diversity of citizenship. (ECF No. 1 at ¶ 8.) Diversity jurisdiction
exists where the amount in controversy exceeds $75,000 and the parties are completely diverse,
meaning no plaintiff is a citizen of the same state as any defendant. 28 U.S.C. § 1332(a); Johnson
v. Am. Towers, LLC., 781 F.3d 693, 704 (4th Cir. 2015). It is undisputed that the parties in this
case are citizens of different states.1 The sole issue here is whether the amount in controversy
has been satisfied. In determining the amount in controversy, courts generally look to whether
the complaint on its face specifies an amount in damages. Dash v. FirstPlus Home Loan Tr.
1996–2, 248 F. Supp. 2d 489, 497 (M.D.N.C. 2003). The amount claimed in the complaint
controls, unless it appears to a legal certainty, from the face of the complaint, that the claim is
really for less than the jurisdictional amount. St. Paul Mercury Indem. Co. v. Red Cab Co., 303
U.S. 283, 288–89 (1938).
AM-Rail is an Oklahoma corporation with a registered office in Kannapolis, North Carolina. (ECF
No. 2 ¶ 1.) A&K is a California corporation with its principal place of business and corporate
headquarters in Salt Lake City, Utah. (ECF No. 1 ¶ 3.)
Where, as alleged here, an action is based on diversity of citizenship and was not initially
filed in federal court, the court may exercise jurisdiction only if the case is properly removed
to federal court. See §§ 1441, 1446. A notice of removal is proper when the grounds for
removal are “apparent within the four corners of the initial pleading or subsequent paper.”
Lovern v. Gen. Motors Corp., 121 F.3d 160, 162 (4th Cir. 1997). Subsequent paper, or other paper as
referenced in the removal statute, § 1446(b)(3), encompasses formal or informal
communication, including written settlement and demand letters. See Yarnevic v. Brink’s, Inc.,
102 F.3d 753, 755 (4th Cir. 1996); Rodgers v. Nw. Mut. Life. Ins. Co., 952 F. Supp. 325, 327–28
(W.D. Va. 1997) (“finding that the plaintiff’s offer of settlement constitute[d] an ‘other paper’
within the meaning of § 1446(b)”).
When removal is challenged based on the amount in controversy, Defendant, as the
party invoking the Court’s jurisdiction, bears the burden of proving that the amount in
controversy exceeds the $75,000 jurisdictional threshold. See Mulcahey v. Columbia Organic
Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994) (“The burden of establishing federal jurisdiction
is placed upon the party seeking removal.”); Talantis v. Paugh Surgical, Inc., 273 F. Supp. 2d 710,
712–13 (M.D.N.C. 2003) (explaining that “in removal cases it is the defendant’s burden to
prove that the case satisfies all of the jurisdictional requirements for removal”). Defendant
must carry its burden by a preponderance of the evidence. See Roche v. Lincoln Prop., 373 F.3d
610, 616 (4th Cir. 2004), rev’d on other grounds, 546 U.S. 81 (2005); Lee v. Citimortgage, Inc., 739 F.
Supp. 2d 940, 945 (E.D. Va. 2010). “Mere allegations in the notice of removal are insufficient.”
Lee, 739 F. Supp. 2d at 945 (quoting LJT & Assocs., Inc. v. Koochagian, No. WDQ–09–2405,
2009 WL 4884525, at *3 (D. Md. Dec. 10, 2009)). Also insufficient is the parties’ subjective
assessment of the amount in controversy. See Lovern, 121 F.3d at 162. “Competent proof” is
required, and such proof may include any evidence in the record. Lee, 739 F. Supp. at 945.
Because of the significant federalism concerns inherent in removal, the removal statute
must be strictly construed. Rizwan v. FCI Lender Servs. Inc., 176 F. Supp. 3d 513, 515 (D. Md.
2016); see Barbour v. Int’l Union, 640 F.3d 599, 615 (4th Cir. 2011) (en banc), abrogated on other
grounds by 28 U.S.C. § 1446(b)(2)(B). All doubts must be resolved in favor of granting the
plaintiff’s motion to remand. Rizwan, 176 F. Supp. 3d at 515.
Here, Plaintiff argues that “[i]n strictly construing Defendant’s motion to remove,
Defendant has not established [that] the jurisdictional amount has been satisfied by a
preponderance of the evidence. Thus, this Court should remand the case to the Superior
Court of Cabarrus County because federal jurisdiction is doubtful.” (ECF No. 17 at 7.) This
Defendant, in its Notice of Removal, relies principally upon Plaintiff’s Complaint to
support its contention that the amount in controversy exceeds the $75,000 threshold necessary
to invoke this Court’s subject matter jurisdiction. The notice provides, in pertinent part, the
4. The amount in controversy exceeds $75,000.00, exclusive of interest and costs.
In the Complaint, Plaintiff seeks an award “in excess of twenty-five thousand
dollars” in compensatory damages, as well as punitive damages or treble
damages for Defendant’s alleged fraud and alleged violation of the North
Carolina Unfair and Deceptive Trade Practices Act . . . . See Compl. ¶¶ 58, 60.
5. While North Carolina law does not require a plaintiff to plead damages
with specificity in the complaint, . . . Plaintiffs have demanded payment
from A&K in the principal amount of $67,502.31. See Letter dated
October 20, 2015 attached hereto as Exhibit D.
6. . . . Plaintiff’s stated compensatory damages in excess of $25,000, when
taken together with treble damages claimed under N.C. Gen. Stat. § 7516.1, or claimed punitive damages . . . bring the amount in controversy
above the $75,000 jurisdictional threshold.
(ECF No. 1 ¶¶ 4, 5, 6.)
Plaintiff first contends that Defendant has mischaracterized its Complaint and that the
“damages amount in excess of $25,000” in its Prayer for Relief includes the treble and punitive
damages sought. (ECF No. 17 at 7.) This contention contradicts the express language of
Plaintiff’s own Prayer for Relief which makes it clear that any treble or punitive damages are
in addition to and different from the compensatory damages sought in the earlier paragraph. (ECF
No. 2 ¶¶ 58, 60 (stating that Plaintiff seeks to “recover such other, further, and different relief
. . . including punitive or treble damages).) Next, Plaintiff goes through a series of calculations
in an effort to demonstrate that the compensatory damages to which it is entitled under the
contract with Defendant is $22,364.85. (See ECF No. 17 at 8.) Thus, according to Plaintiff,
trebling the actual amount of damages would fall short of the $75,000 threshold required to
invoke this court’s jurisdiction. (Id.) This argument fails, however, given that Plaintiff’s
Complaint does not limit its request for recovery to compensatory damages only. Plaintiff’s
Complaint specifically requests “costs, expenses, and fees as may be allowable by law including
attorneys’ fees” and “punitive or treble damages.” (ECF No. 2 ¶¶ 59, 60 (emphasis added).)
Nor is Plaintiff’s third argument persuasive. Plaintiff argues that Defendant’s reliance
on Plaintiff’s Prayer for punitive or treble damages, combined with Plaintiff’s request for
compensatory damages to establish the $75,000 jurisdictional threshold, “is entirely
speculative,” (ECF No. 17 at 8–9). Under North Carolina law, treble damages are awarded
automatically when a violation of the North Carolina Unfair and Deceptive Trade Practices
Act is established. N.C. Gen. Stat. § 75-16. Further, numerous courts have held that treble
damages can be used to meet the amount in controversy threshold to support federal court
jurisdiction. See, e.g., Gordon v. Nat’l Bus. Consultants, Inc., No. 87-2676, 1988 WL 86618, at *1
(4th Cir. Aug. 19, 1988) (unpublished table decision); Lunsford v. Cemex, Inc., 733 F. Supp. 2d
652, 657–658 (M.D.N.C. 2010). Simply trebling the compensatory damages sought on the
face of Plaintiff’s Complaint, under N.C. Gen. Stat § 75-16, satisfies the minimum
jurisdictional amount necessary to support removal in this case.
Finally, Plaintiff argues that Federal Rule of Evidence 408 prohibits Defendant from
using Plaintiff’s settlement demand letter to show that Plaintiff’s compensatory damages are
“in excess of $25,000.” (ECF No. 17 at 9.) This argument likewise fails. As argued by
Defendant, a number of courts have rejected this argument and have held that settlement
offers can be used to establish the amount in controversy for jurisdictional purposes where
such amount is not ascertainable from the Complaint. (ECF No. 20 at 8); see Wood v. Gen.
Dynamics Advanced Info. Sys., No. 1:08CV624, 2009 WL 1687967, at *3 (M.D.N.C. June 17,
2009) (“rejecting the argument that Fed. R. Evid. 408 prohibits the use of settlement offers in
determining the amount in controversy”) (citing Cohn v. Petsmart, Inc., 281 F.3d 837, 840 n.3
(9th Cir. 2002). The Court need not address this argument further since, in this case, the
amount in controversy is ascertainable from the face of the Complaint.
Defendant has established by a preponderance of the evidence that the amount in
controversy in this case is in excess of $75,000 and thus satisfies the jurisdictional amount
necessary for removal to this Court. The Court therefore concludes that it has subject matter
jurisdiction over the action and that the case was properly removed to this Court.
MOTION TO TRANSFER VENUE
The Court next considers A&K’s Motion to Transfer Venue, (ECF No. 9). A&K
moves to transfer this action to Utah pursuant to 28 U. S. C. § 1404(a) on the basis that the
Agreement entered into by the parties “contains a choice of law provision and a forum
selection clause that expressly state: ‘[t]his Agreement shall be governed by the laws of Utah.
Any litigation concerning this Agreement shall be brought in the federal or state courts in
Utah.’” (ECF No. 10 at 4–5) (alteration in original).) AM-Rail argues, however, that the
forum-selection clause does not obligate the Court to transfer these proceedings to the District
of Utah because: (1) the contract was induced by fraud on the part of the Defendant
consequently, the forum-selection clause is unenforceable under Utah law, or (2) in the event
the Court does not apply Utah law to determine the enforceability of the forum-selection
clause, the Court should find that the clause is permissive, not mandatory, and thus refuse to
transfer venue to Utah. (ECF No. 17 at 10–16.)
A. Validity of Forum-Selection Clause
It is well settled that Federal courts determine the validity of a forum-selection clause
according to federal law. See Albemarle Corp. v. AstraZeneca UK Ltd., 628 F.3d 643, 650 (4th Cir.
2010) (“[A] federal court interpreting a forum selection clause must apply federal law in doing
so.”). The Fourth Circuit has recognized that “[a] general maxim in interpreting forumselection clauses is that ‘an agreement conferring jurisdiction in one forum will not be interpreted
as excluding jurisdiction elsewhere unless it contains specific language of exclusion.’”
IntraComm, Inc. v. Bajaj, 492 F.3d 285, 290 (4th Cir. 2007) (quoting John Boutari & Son, Wines &
Spirits, S.A. v. Attiki Imps. & Distribs. Inc., 22 F. 3d 51, 53 (2d Cir. 1994)). Thus, forum-selection
clauses can be either mandatory or permissive. Turfworthy, LLC v. Dr. Karl Wetekam & Co. KG,
26 F. Supp. 3d 496, 505 (M.D.N.C. 2014). A mandatory forum-selection clause “provid[es]
the designated forum with exclusive jurisdiction over any disputes,” whereas a permissive
forum-selection clause “provid[es] the designated forum with jurisdiction over the parties, but
not necessarily exclusive jurisdiction.” Id. (quoting Gita Sports Ltd. v. SG Sensortechnik GmbH
& Co. KG, 560 F. Supp. 2d 432, 436 (W.D.N.C. 2008)); compare Excell, Inc. v. Sterling Boiler &
Mech., Inc., 106 F.3d 318, 321 (10th Cir. 1997) (holding that a forum-selection clause which
stated that jurisdiction “shall be in the State of Colorado” was mandatory), with IntraComm, 492
F.3d at 290 (holding that a forum-selection clause which provided that “either party shall be
free to pursue its rights . . . in a court of competent jurisdiction in Fairfax County, Virginia,”
was permissive). In this case, the forum-selection clause reads as follows: “[t]his Agreement
shall be governed by the laws of Utah. Any litigation concerning this Agreement shall be
brought in the federal or state courts in Utah.” (ECF No. 11 at 8 ¶ 8.) There is little question
that this clause is mandatory in nature. See Turfworthy, LLC, 26 F. Supp. 3d at 505–06; Davis
Media Grp., Inc. v. Best W. Int’l, Inc., 302 F. Supp. 2d 464, 468 (D. Md. 2004).
Mandatory forum-selection clauses are presumptively valid and “should be enforced
unless enforcement is shown by the resisting party to be ‘unreasonable’ under the
circumstances.” M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972); accord Allen v. Lloyd’s
of London, 94 F.3d 923, 928 (4th Cir. 1996). To overcome the presumption of enforceability,
there must be a clear showing that the forum-selection clause is unreasonable because: (1) its
formation was the product of 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) “enforcement would contravene a strong public
policy of the forum state.”2 Allen, 94 F.3d at 928. The party opposing enforcement of the
forum-selection clause bears the burden of showing that enforcement is unreasonable. Carter’s
of New Bedford, Inc. v. Nike, Inc., 790 F.3d 289, 292 (1st Cir. 2015); see also Carnival Cruise Lines,
Inc. v. Shute, 499 U.S. 585, 595 (1991) (finding that the party seeking to set aside the forumselection clause failed to satisfy the “heavy burden of proof”); M/S Bremen, 407 U.S. at 17
(noting that the party arguing that the forum-selection clause is inapplicable “should bear a
heavy burden of proof”).
First, it appears that AM-Rail confuses a choice-of-law argument with the issue of
forum selection which is currently before this Court. See Multimin USA, Inc. v. Walco Int’l, Inc.,
No. CV F 06-0226 AWI SMS, 2006 WL 1046964, at *6 (E.D. Cal. Apr. 11, 2006) (explaining
that “[t]he forum selection clause determines where the case will be heard” and “is separate
and distinct from choice of law provisions”). Federal law, and not the state law of Utah as
North Carolina has a strong public policy against forum-selection clauses. See N.C. Gen. Stat. §
22B-3 (“[A]ny provision in a contract entered into in North Carolina that requires the prosecution of
any action . . . that arises from the contract to be instituted or heard in another state is against public
policy and is void and unenforceable.”). However, North Carolina’s policy against forum-selection
clauses is just one factor in the Court’s analysis, which is governed by federal, and not state, law. See
Turfworthy, LLC, 26 F. Supp. 3d at 509. Further, “the applicability of the North Carolina statute is
contingent upon the given contract’s formation in North Carolina.” Scholl v. Sagon RV Supercenter,
LLC, 249 F.R.D. 230, 242 (W.D.N.C. 2008). The Agreement in this case was not negotiated, drafted,
or revised in North Carolina. (ECF No. 11 ¶ 12.)
argued by AM-Rail, governs here. Moreover, the forum-selection clause executed by AM-Rail
and A&K contains clear language designating that “[a]ny litigation concerning this Agreement
shall be brought in the federal or state courts in Utah,” (ECF No. 11 at 8 ¶ 8). Because this
clause is mandatory and therefore presumptively valid, AM-Rail has the burden of showing
that it is unreasonable. See Carter’s of New Bedford, Inc., 790 F.3d at 292. AM-Rail argues that
the contract was the product of fraud and thus contends, under Utah state law, that makes the
forum-selection clause unenforceable. It does not, however, argue that the forum-selection
clause itself was the product of fraud as required by federal law. Nor does it address the
remaining factors to be considered. AM-Rail has failed to carry its burden. Accordingly, the
Court finds that the forum-selection clause is valid and enforceable. The Court must next
determine whether transfer is warranted.
B. Whether Transfer is Warranted
Section 1404(a) is the appropriate vehicle to enforce a forum-selection clause. Section
1404(a) provides that, “[f]or the convenience of parties and witnesses, in the interest of justice,
a district court may transfer any civil action to any other district . . . where it might have been
brought or to any district . . . to which all parties have consented.” 28 U.S.C. § 1404(a).
Ordinarily, in deciding whether to transfer under § 1404(a), courts consider: (1) the weight to
accord to plaintiff’s forum choice; (2) witness convenience and access; (3) convenience of the
parties; and (4) the interests of justice. Mamani v. Bustamante, 547 F. Supp. 2d 465, 469 (D. Md.
2008). However, where there is a valid forum-selection clause, as in this case, the analysis
changes in three ways. Atl. Marine Constr. Co. v. U.S. Dist. Ct. for the W. Dist. of Tex., 134 S. Ct.
568, 581 (2013). First, “the plaintiff’s choice of forum merits no weight.” Id. The plaintiff
now carries the burden of proving that transfer is not warranted. Id. Second, “a court
evaluating a defendant’s § 1404(a) motion to transfer based on a forum-selection clause should
not consider arguments about the parties’ private interests.” Id. at 582. As such, the parties
can no longer argue that the pre-selected forum is “inconvenient or less convenient for
themselves or their witnesses, or for their pursuit of the litigation.” Id. Third, “transfer of
venue will not carry with it the original venue’s choice-of-law rules.” Id.
In evaluating transfer under § 1404(a) due to the presence of a forum-selection clause,
courts can only consider the public interest factors, id., which include “the administrative
difficulties flowing from court congestion; the local interest in having localized controversies
decided at home; [and] the interest in having the trial of a diversity case in a forum that is at
home with the law,” id. at 581 n.6 (alteration in original). The Supreme Court has stated that
“a district court should transfer the case unless extraordinary circumstances unrelated to the
convenience of the parties clearly disfavor a transfer.” Id. at 575. According to the Court, “a
forum-selection clause [should] be ‘given controlling weight in all but the most exceptional
cases.’” Id. at 581 (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 33 (1988)). Rarely will
the public interest factors “defeat a transfer motion.” Id. at 582.
AM-Rail has failed to carry its burden of establishing that the public interest factors
overwhelmingly disfavor transfer of this action pursuant to the forum-selection clause. See id.
at 583 (explaining that the party acting in violation of the forum-selection clause “bear[s] the
burden of showing that public-interest factors overwhelmingly disfavor a transfer”). AM-Rail
contends that Utah has no connection to the parties, or their contractual obligations. (See ECF
No. 17 at 20.) However, AM-Rail’s argument does not rise to the level of an extraordinary
circumstance that would bar transfer under the forum-selection clause. See O’keeffe’s Inc. v.
Access Info. Techs. Inc., No. 15-cv-03115-EMC, 2015 WL 6089418, at *3 (N.D. Cal. Oct. 16,
2015) (enforcing forum-selection clause and transferring case after concluding, among other
things, that the local interest factor generally will not “outweigh the controlling weight of the
forum-selection clause”); Brown v. Federated Capital Corp., 991 F. Supp. 2d 857, 863–64 (S.D.
Tex. 2014) (enforcing forum-selection clause and transferring case after concluding, among
other things, that plaintiff’s argument that the pre-selected forum had no local interest in the
case was not a circumstance that rose to the level of “most unusual” or “extraordinary”). Thus,
Am-Rail has failed to carry its burden of establishing that transfer to the District Court in Utah
is unwarranted based on the § 1404(a) factors.
Because the Court determines that this case was properly removed to this Court and
that this Court has subject matter jurisdiction, the Court will deny AM-Rail’s Motion to
Remand. Further, because AM-Rail and A&K specifically agreed to litigate their disputes in
Utah per the forum-selection clause in the Agreement, the clause is valid and enforceable and
transfer is warranted. The Court will therefore grant A&K’s Motion to Transfer Venue.
For the reasons outlined herein, the Court enters the following:
IT IS ORDERED that Defendant’s Motion to Transfer Venue (ECF No. 9) is
GRANTED, and the Clerk of Court shall transfer this action to the United States District
Court for the District of Utah.
IT IS FURTHER ORDERED that Plaintiff’s Motion to Remand (ECF No. 18) is
This, the 31st day of January, 2017.
/s/ Loretta C. Biggs
United States District Judge
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