Vinci et al v. V.F. Corp.

Filing 22

OPINION AND ORDER Transferring TNF Gear, Inc.'s Claims Against Defendant VF Outdoor, LLC to the United States District Court for the Northern District of California, Oakland Division. Signed by Judge Christina Reiss on 1/9/2018. (pac)

UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF VERMONT

U.S. OIS TP'4.CT COURT
&!STRICT Ot VERMONT
flLED

2018 JAH -9 l'H 3: !tit
Cl.ERK

BY
WILLIAM VINCI, LINDA VINCI,
TNF GEAR, INC.,
Plaintiffs,

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lt):y\

DEPUTY CLERK

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V.

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Case No. 2:17-cv-00091

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V.F. CORP., VF OUTDOOR, LLC,
Defendants.

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OPINION AND ORDER TRANSFERRING TNF GEAR, INC.'S
CLAIMS AGAINST DEFENDANT VF OUTDOOR, LLC
TO THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF CALIFORNIA, OAKLAND DIVISION
(Doc. 9)
Plaintiffs William and Linda Vinci (the "Vincis") and TNF Gear, Inc. ("TNF")
bring state law claims against Defendants V.F. Corp. ("V.F. Corp.") and VF Outdoor,
LLC ("VF Outdoor"), arising out of the parties' "business arrangement" for the purchase
and sale of The North Face branded products. Pending before the court is Defendant VF
Outdoor's motion to dismiss PlaintiffTNF's claims under Fed. R. Civ. P. 12(b)(l),
l 2(b )(3 ), and l 2(b )( 6) on the basis of a forum selection clause contained within a
Multiparty Guaranty Agreement (the "Agreement") between TNF, VF Outdoor, and a
non-party corporation controlled by the Vincis (Doc. 9). 1
The parties completed their briefing on August 17, 2017. The court heard oral
argument on October 19, 2017, after which it took the pending motions under

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Defendant V.F. Corp. filed its own motion to dismiss all claims against it for lack of personal
jurisdiction, and both Defendants filed a joint motion to dismiss the Vincis' claims in their
individual capacities for failure to state a claim and failure to plead fraud with particularity.
Those motions will be addressed in a separate Order.

advisement. Plaintiffs are represented by David E. Bond, Esq. Defendants are
represented by R. Jeffrey Behm, Esq.

I.

The Allegations of the Amended Complaint.
The Vincis are husband and wife and the sole shareholders of TNF, a Vermont

corporation with its principal place of business in Burlington. In 2001, TNF opened The
North Face Store @KL Sport in Shelburne, Vermont, which was later moved to College
Street in Burlington and then to 90 Church Street in Burlington. TNF's store sold only
The North Face branded apparel purchased at wholesale. In their Amended Complaint,
Plaintiffs allege that until 2015, "The North Face was positioned as a premium brand,"
and Defendants required them to adhere to manufacturer approved pricing plans that
dictated correspondingly high retail prices. (Doc. 5 at 3, ,i 11.) Plaintiffs allege that
Defendants "represented to Plaintiffs that these policies applied to all retailers selling The
North Face products." Id. at ,i 9.
In early 2015, Plaintiffs placed their yearly order for winter apparel, totaling
approximately $1.2 million in merchandise. In the fall of 2015, after Plaintiffs accepted
delivery of those products, Defendants allegedly dramatically reduced their wholesale
prices for sales made to third-party vendors. These third-party vendors, in tum, sold the
discounted merchandise at significantly reduced retail prices to the general public, in
violation of the marketing policies with which Defendants required Plaintiffs to comply.
Plaintiffs claim that they were unable to compete with the significantly reduced prices,
and that even if they could match them, they were barred from doing so pursuant to their
promise to adhere to Defendants' manufacturer approved pricing plans. Plaintiffs allege
that they fell "deeply into debt[,]" id. at 3, ,i 13, and reported this to Defendants who
promised to "reign[] in" the third-party discounters. Id. at 4, ,i 14.
In 2016, Plaintiffs purchased $650,000 in winter apparel inventory, and in the fall
of that year Defendants again allegedly offered the same apparel to third-party vendors at
steep discounts. Plaintiffs allege that they were again substantially underpriced by other
retailers and were unable to maintain profitability. "As a result of Defendants' actions,
the Vincis exhausted their savings and their credit, and in under 20 months saw their
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business go from a successful enterprise to the verge of failure." Id. at 4, ,r 17. The
Vincis claim they offered to sell their business to Defendants, but that Defendants refused
to entertain a fair market value purchase.
On May 23, 2017, Plaintiffs filed this suit against V.F. Corp., alleging breach of
contract, promissory estoppel, breach of the implied covenant of good faith and fair
dealing, and fraudulent concealment under Vermont common law. On June 19, 2017,
Plaintiffs amended their complaint to include VF Outdoor as a defendant, stating that VF
Outdoor "is a wholly-owned subsidiary of [V.F. Corp.] On information and belief, [VF
Outdoor] is the owner of The North Face brand, and operates a division under the trade
name, 'The North Face."' Id. at 1. The Amended Complaint includes a jury demand and
seeks $5 million in damages.
On July 18, 2017, Defendant VF Outdoor sought dismissal of the claims against it
on the basis of the forum selection clause in section 13 of the Agreement. VF Outdoor
included the affidavit of Lisa Long with its motion, which incorporated the Agreement as
an exhibit. Ms. Long serves as Senior Credit Manager at VF Outdoor and signed the
Agreement on its behalf. 2 William Vinci signed the Agreement on behalf of TNF.
Section 10 of the Agreement is entitled "Applicable Law" and states that "this
guaranty shall be governed by, and shall be construed and enforced in accordance with,
the internal law of the state of California, without regard to conflict of laws principles."
(Doc. 9-3 at 6.) Section 13 is entitled "Consent to Jurisdiction" and states in pertinent
part that "any legal action or proceeding with respect to [the Agreement] ... shall be
brought in the courts of the State of California, County of Alameda or the United States
of America for the Northern District of California, Oakland Division[.]" (Doc. 9-3 at 6.)
VF Outdoor argues that section 13 divests the court of jurisdiction over any claims
arising out of the business relationship between itself and TNF. Plaintiffs oppose both

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The court may consider materials outside the complaint in ruling on a motion to dismiss under
Fed. R. Civ. P. 12(b)(l) or 12(b)(3). Because VF Outdoor's motion is properly characterized as
one for a transfer, in ruling on the motion "a district court normally relies solely on the pleadings
and affidavits[.]" Martinez v. Bloomberg LP, 740 F.3d 211,216 (2d Cir. 2014).

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dismissal and transfer, asserting that the Agreement was the product of both procedural
and substantive unconscionability. They ask the court to decline to enforce section 13 of
the Agreement on that basis.

II.

Conclusions of Law and Analysis.
A.

Enforcement of a Forum Selection Clause Under Rule 12.

VF Outdoor relies on three subsections of Fed. R. Civ. P. 12(b) for its motion to
enforce the forum selection clause in the Agreement, pointing out that the Second Circuit
has refused "to pigeon-hole these claims into a particular clause of Rule 12(b)." Asama

Corp. v. SK Shipping Co., 467 F.3d 817, 822 (2d Cir. 2006). Clause (b)(l) of Fed. R.
Civ. P. 12 allows the court to dismiss claims for lack of subject matter jurisdiction, clause
(b)(3) permits dismissal for improper venue, and clause (b)(6) provides for dismissal
when plaintiffs fail to state a claim for which relief can be granted. See Fed. R. Civ. P.
12(b). Recent guidance from the Supreme Court counsels against using Rule 12 as a
vehicle for enforcing forum selection clauses. See Atlantic Marine Const. Co. v. U.S.

Dist. Ct.for W Dist. a/Texas, 134 S. Ct. 568, 579 (2013) (holding that district courts
may not dismiss on the basis of improper venue under Rule l 2(b )(3) where venue is
otherwise proper but a forum selection clause governs). Instead, "the clause may be
enforced through a motion to transfer under [28 U.S.C.] § 1404(a)[.] Section 1404(a) ...
provides a mechanism for enforcement of forum-selection clauses that point to a
particular federal district." Id.
Second Circuit cases have followed Atlantic Marine when considering the effect
of forum selection clauses. See, e.g., MBC Fin. Servs. Ltd. v. Boston Merch. Fin. Ltd.,
No. 16-3704-cv, 2017 WL 3616347, at *l (2d Cir. Aug. 23, 2017) (summary order)

("Atlantic Marine Construction Co. v. United States District Court for the Western
District a/Texas,[] 134 S. Ct. 568, 581[] (2013), holds that forum non conveniens is the
proper mechanism for enforcing a forum selection clause at the motion to dismiss
stage."). Accordingly, the court will treat VF Outdoor's Rule 12 motion as a motion to
transfer under 28 U.S.C. § 1404(a).

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B.

Whether the Agreement's Forum Selection Clause is Enforceable as a
Matter of Contract Law.

By its terms, the forum selection clause in section 13 of the Agreement binds the
parties to litigate "any legal action" in California state courts or the United States District
Court for the Northern District of California. Section 10 of the Agreement states that
"the internal laws of the state of California, without regard to conflict of laws principles"
will govern disputes arising out of the parties' "Business Arrangement." (Doc. 9-3 at 6, §
10) (capitalization omitted). The court must therefore determine whether Vermont law or
California law controls the question of the forum selection clause's unconscionability.
The Second Circuit has held that where district courts are presented with a choice of law
provision, the inquiry is "whether, under applicable state choice of law principles, that
provision would be honored." Valley Juice Ltd. v. Evian Waters of France, Inc., 87 F.3d
604, 607 (2d Cir. 1996). "As a general matter in diversity cases, [district courts] follow
the substantive law of the state in which the district court sits, including its choice of law
rules." Id. Under Vermont law, the court must then determine whether Vermont or
California substantive contractual law will apply.
The Vermont Supreme Court "has adopted the Restatement (Second) of Conflicts
for choice-of-law questions in both tort and contract cases." McKinnon v. F.H Morgan
& Co., 750 A.2d 1026, 1028 (Vt. 2000). It has further held that, "in the absence of a

statute in the forum state providing otherwise, it is well-settled that it would be contrary
to the justified expectations of the parties for a court to interpret their agreement by the
laws of any jurisdiction other than that specified in the contract." Stamp Tech, Inc., ex
rel. Blair v. Ludall/Thermal Acoustical, Inc., 2009 VT 91, ,i 23, 186 Vt. 369,380,987

A.2d 292, 298 (2009). If the difference between Vermont law and the law of the chosen
forum is "cruel or shocking to the average man's conception of justice," Vermont courts
may decline to enforce choice of law provisions on public policy grounds. Id. at ,i 22
(internal quotation marked omitted). Outside this narrow exception, Vermont courts
"apply the applicable provisions of the law of the designated state in order to effectuate
the intentions of the parties." Id. at,I 23.

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Plaintiffs fail to identify any reason why California contract law would be "cruel
or shocking to the average man's conception of justice" when applied to their claims.

Stamp Tech, 2009 VT 91, ,i 22. California law therefore governs the enforceability of the
forum selection clause in the Agreement.
The California Supreme Court has defined unconscionability as "an absence of
meaningful choice on the part of one of the parties together with contract terms which are
unreasonably favorable to the other party." Baltazar v. Forever 21, Inc., 62 Cal. 4th
1237, 1243, 367 P.3d 6, 11 (2016) (citation and internal quotation marks omitted).
"[T]he doctrine of unconscionability has both a procedural and a substantive element, the
former focusing on oppression or surprise due to unequal bargaining power, the latter on
overly harsh or one-sided results." Id. ( quoting Sonic-Calabasas A, Inc. v. Moreno, 57
Cal. 4th 1109, 1133, 311 P.3d 184 (2013)). Procedural and substantive unconscionability
must both be present, but "the more substantively oppressive the contract term, the less
evidence of procedural unconscionability is required to come to the conclusion that the
term is unenforceable, and vice versa." Id. (quoting Armendariz v. Foundation Health

Psychcare Servs., Inc., 24 Cal. 4th 83, 114, 6 P.3d 669 (2000)).
"There are degrees of procedural unconscionability. At one end of the spectrum
are contracts that have been freely negotiated by roughly equal parties, in which there is
no procedural unconscionability ... Contracts of adhesion that involve surprise or other
sharp practices lie on the other end of the spectrum." Baltazar, 62 Cal. 4th at 1244
(citation, alterations, and internal quotation marks omitted) (omission in original). The
California Supreme Court has "used various nonexclusive formulations to capture the
notion that unconscionability requires a substantial degree of unfairness beyond a simple

old-fashioned bad bargain." Id. at 245 (internal citations and quotation marks omitted)
(emphasis in original). It has recently emphasized that "not all one-sided contract
provisions are unconscionable[.]" Id.
Plaintiffs argue that the Agreement itself was the product of grossly unequal
bargaining power. They provide a declaration from William Vinci which states that TNF
was unique, in that it was the only independent retailer in the country which marketed
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and sold exclusively The North Face branded products. (Doc. 13-1 at 2, 13.) Mr. Vinci
further avers that "[i]n October, 2011, [VF Outdoor] ... presented us with [the
Agreement] ... which we were required to sign as a condition of continuing to do
business as sellers of The North Face products." Id. at 3, ,-i 5. He explains that "[t]o
refuse would have meant simply walking away from more than a ten-year investment in
our business." Id. Plaintiffs argue that VF Outdoor took "advantage of Plaintiffs'
uniquely dependent circumstances" and "gave Plaintiffs no choice except to sign on the
dotted line or abandon their business[.]" (Doc. 13 at 3.) They assert that the forum
selection clause is substantively unconscionable because it was the result of
"overweening bargaining power." Id. (quoting Argueta v. Banco Mexicano, S.A., 87 F.3d
320, 324 (9th Cir. 1996)).
To rebut Plaintiffs' unconscionability claim, Defendants rely on an August 17,
2017 affidavit submitted by Lisa Long, wherein she avers that VF Outdoor requested that
TNF sign the Agreement in 2011 after VF Outdoor discovered that the Vincis were using
two corporations to run their business. The Vincis' original credit line in the amount of
$900,000, was issued to a non-party corporation under the Vincis' control. In the fall of
2011, "William Vinci contacted VF Outdoor's sales agency principal on behalf of TNF"
to seek an increase in the line of credit for the purposes of expanding the store's
operations. (Doc. 17-1 at 1, ,-i 3.) VF Outdoor determined that because the Vincis used
both TNF and a non-party corporation to run the business, a guarantee from each of the
Vincis' corporations "would be needed in order to approve a credit increase for [TNF]."
Id. at 2, ,-r 6. Ms. Long avers that Mr. Vinci "expressed no objection to executing such a

guaranty." Id. She further states that "VF Outdoor sent [the Agreement] to Mr. Vinci in
October of 2011 for his review, and two weeks later Mr. Vinci returned [the Agreement]
executed by Mr. Vinci on behalf of both [corporations]." Id. Ms. Long notes that
"Plaintiffs were not obligated to seek a credit increase. If they had found the terms of the
Agreement unacceptable, they could have objected and continued to operate under the
existing $900,000 credit line, or could have sought credit from other sources." (Doc. 17
at 3.)
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Under California law, the foregoing facts do not rise to either procedural or
substantive unconscionability because there was no "absence of meaningful choice" on
TNF's part or "contract terms which are unreasonably favorable to" VF Outdoor.
Baltazar, 62 Cal. 4th at 1243 (citation and internal quotation marks omitted). California

courts "will enforce forum selection clauses contained in a contract freely and voluntarily
negotiated at arm's length unless enforcement would be unfair or unreasonable." Hunt v.
Superior Court, 81 Cal. App. 4th 901, 908, 97 Cal. Rptr. 215 (Cal. App. 2000); see
Inters hop Commc 'ns v. Superior Court, 104 Cal. App. 4th 191, 201-02, 127 Cal. Rptr.

847 (Cal. App. 2002) (holding that "[a] forum selection clause within an adhesion
contract will be enforced as long as the clause provided adequate notice to the party that
he was agreeing to the jurisdiction cited in the contract.") (internal quotation marks and
alterations omitted). The focus is on whether "the clause provided adequate notice to the
defendant that he was agreeing to the jurisdiction cited in the contract," when
determining whether the Agreement is unconscionable. Id.
While it is true that Plaintiffs had less bargaining power than VF Outdoor, there is
no evidence that Plaintiffs were forced to accept either the Agreement or its forum
selection clause, or had inadequate notice that it required any litigation to enforce it to
take place in California courts. There is also no evidence that they objected to the clause
or failed to understand it. The forum selection clause is prominently displayed in the
Agreement which is eight pages in length. The forum selection clause is therefore valid
and enforceable under California law.
C.

Whether the Forum Selection Clause is Enforceable Under
Federal Law.

Federal courts "distinguish between the interpretation of a forum selection clause
and the enforceability of the clause." Martinez v. Bloomberg LP, 740 F .3d 211, 217 (2d
Cir. 2014) (emphasis in original). "The overriding framework governing the effect of
forum selection clauses in federal courts ... is drawn from federal law." Id. Thus, even
if section 13 of the Agreement is enforceable as a matter of state substantive law, the
court must apply federal law to determine if it is enforceable in this court.
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In the Second Circuit, the enforceability of a forum selection clause is governed by
a four part test: ( 1) "whether the clause was reasonably communicated to the party
resisting enforcement"; (2) whether the clause is "mandatory or permissive"; (3)
"whether the claims and parties involved in the suit are subject to the forum selection
clause"; and (4) whether "enforcement would be unreasonable or unjust, or that the
clause was invalid[.]" Phillips v. Audio Active Ltd., 494 F.3d 378, 383-84 (2d Cir. 2007)
(citations omitted). "In answering the interpretive questions posed by parts two and three
of the four-part framework ... [courts] normally apply the body oflaw selected in an
otherwise valid choice-of-law clause." Martinez, 740 F.3d at 217-18 (emphasis in
original).
The threshold inquiry to determine whether the forum selection clause was
reasonably communicated to the party resisting enforcement is generally met where the
terms of the clause are "plainly printed" in the contract and the party resisting
enforcement had an opportunity to review the terms. See D.H Blair & Co. v. Gottdiener,
462 F.3d 95, 103 (2d Cir. 2006). The forum selection clause is included on page six of
the eight page Agreement in its own numbered paragraph, labeled in bold print as
follows: "CONSENT TO JURISDICTION." (Doc. 9-3 at 6, ,J 13.) Plaintiffs do not argue
that notice of the clause's inclusion was inadequate or that is not "plainly printed" in the
Agreement.
The court must next "decide whether the parties are required to bring any dispute
to the designated forum or simply permitted to do so." Phillips, 494 F.3d at 383
(emphasis in original). The Second Circuit has observed that it "normally appl[ies] the
body of law selected in a valid choice-of-law clause" when analyzing whether a
particular forum selection clause is mandatory or permissive. Martinez, 740 F.3d at 21718. Section 13 of the Agreement states that "any legal action" "shall be brought" in
California. (Doc. 9-3 at 6.) "[E]mphatic" language like "shall be litigated" and "any
claims shall be prosecuted" is recognized as creating a mandatory jurisdictional
requirement under California law. Intershop Commc 'ns, 104 Cal. App. 4th at 196
(collecting cases) (internal citations and quotation marks omitted). Indeed, California
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courts have also held that less direct language can constitute a mandatory clause. See id.
(finding "[t]o the extent permitted by the applicable laws the parties elect Hamburg to be
the place of jurisdiction" mandatory) (internal quotation marks omitted).
Third, the court must consider "whether the claims and parties involved in the suit
are subject to the forum selection clause." Martinez, 740 F.3d at 217 (internal quotation
marks omitted). Defendants argue that each ofTNF's claims against VF Outdoors in the
Amended Complaint derives from the "Business Arrangement" between the TNF and VF
Outdoors and section 13 of the Agreement covers all disputes arising out of that
relationship. Plaintiffs do not contend otherwise. The California Supreme Court has
applied choice-of-law provisions to claims for breaches of contract and the implied
covenant of good faith based on similar forum selection provisions. See, e.g., Nedlloyd
Lines B. V v. Superior Court, 3 Cal. 4th 459, 464-66, 834 P.2d 1148, 1150-52 (1992) (en
bane) (citing Smith, Valentino & Smith v. Superior Court, 17 Cal. 3d 491, 495-96, 551
P.2d 1206 (1976)) (finding that "Hong Kong law ... govern[s] all causes of action
pleaded in the amended complaint, including the contract cause of action.") Although the
Vincis' claims against VF Outdoor in their individual capacities are not subject to the
forum selection clause because they are not signatories to the Agreement, TNF 's claims
are clearly covered.
If the forum clause was communicated to the resisting party, has mandatory
force and covers the claims and parties involved in the dispute, it is
presumptively enforceable. A party can overcome this presumption only
by [] making a sufficiently strong showing that enforcement would be
unreasonable or unjust, or that the clause was invalid for such reasons as
fraud or overreaching.
Martinez, 740 F.3d at 211 (internal quotation marks omitted). The Supreme Court has
emphasized that "[ o ]nly under extraordinary circumstances unrelated to the convenience
of the parties should a§ 1404(a) motion be denied." Atlantic Marine, 134 S. Ct. at 581.
As a result, "a valid forum-selection clause should be given controlling weight in all but
the most exceptional cases." Id. (internal quotation marks and alteration omitted).
Moreover,

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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. Where parties agree to a forum selection clause, they
waive the right to challenge the preselected forum as inconvenient or less
convenient for themselves or their witnesses or for their pursuit of the
litigation.

Id. at 582.
Plaintiffs' argument that California would be a highly inconvenient and expensive
forum for them does not provide grounds for the forum selection clause's nonenforcement without a further claim that it would be impossible for them to litigate there.
As the court may only consider "public-interest factors" in deciding whether or not to
transfer the case to the parties' designated forum, and as Plaintiffs have failed to identify
a public interest that requires this case to be litigated in Vermont, the Agreement's forum
selection clause must be enforced.
CONCLUSION

For the foregoing reasons, the court GRANTS Defendant VF Outdoor's motion to
enforce the forum selection clause in the Agreement. The court ORDERS that Plaintiffs'
claims against VF Outdoor are hereby TRANSFERRED to the United States District
Court for the Northern District of California, Oakland Division.
SO ORDERED.
Dated at Burlington, in the District of Vermont, this

191ay of January, 2018.

~

Christina Reiss, District Judge
United States District Court

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