Sun et al v. Advanced China Healthcare, Inc. et al

Filing 39

ORDER by U.S. District Judge John C Coughenour granting defendant's 16 Motion to Dismiss without prejudice based on forum non conveniens. (PM)

THE HONORABLE JOHN C. COUGHENOUR

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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YEI A. SUN, et al.,

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CASE NO. C15-1385 JCC
Plaintiffs,

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ORDER GRANTING MOTION TO
DISMISS

v.
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ALICIA KAO,
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Defendant.
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This matter comes before the Court on Defendant Alicia Kao’s Motion to Dismiss (Dkt.

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16 No. 16). Having thoroughly considered the parties’ briefing, oral argument on March 11, 2016
17 (Dkt. No. 38), and the relevant record, the Court hereby GRANTS the motion for the reasons
18 explained herein.
19 I.

BACKGROUND

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In January 2011, Plaintiffs executed a Series B Preference Share Purchase Agreement

21 with Alicia Kao and Advanced China Healthcare, Inc. (Dkt. No. 1 at 3.) Under this Agreement,
22 Plaintiffs invested a total of $2,800,000 in Advanced China Healthcare. (Id.) Plaintiffs allege that
23 they made these investments in reasonable reliance on material omissions or misrepresentations
24 that Kao made in violation of the Washington State Securities Act. (Dkt. No. 1 at 3-5.) Plaintiffs
25 also allege that the conduct at issue took place in Seattle, Washington. (Id. at 2-3.) Plaintiffs have
26 already obtained a default judgment against Advanced China Healthcare. (Dkt. No. 31.)

ORDER GRANTING MOTION TO DISMISS
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Kao now moves the Court to dismiss this action under the doctrine of forum non

2 conveniens, arguing that the Agreement contains a forum selection clause that applies to this
3 dispute and requires that it be resolved in California. The forum selection clause states:
With respect to any disputes arising out of or related to this Agreement, the
parties consent to the exclusive jurisdiction of, and venue in, the state courts in
Santa Clara County in the District of California (or, in the event of exclusive
federal jurisdiction, the courts of the Northern District of California).

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(Dkt. No. 17 at 25.) Plaintiffs argue that the forum selection clause does not apply to this
dispute, but that even if it does, it should not be enforced. The Court will address these
arguments in turn.

II.

DISCUSSION
A.

The Forum Selection Clause Applies to This Dispute

In Manetti-Farrow, Inc. v. Gucci America, Inc., the Ninth Circuit held that “[w]hether a
forum selection clause applies to tort claims depends on whether resolution of the claims relates
to interpretation of the contract.” 858 F.2d 509, 514 (9th Cir. 1988). Relying on Manetti-Farrow,
Plaintiffs argue that because they are asserting statutory rights distinct from the Agreement itself,
the Agreement need not be interpreted and the forum selection clause does not apply. But the
forum selection clause in Manetti-Farrow was narrow: it applied only to controversies
“regarding interpretation or fulfillment of the present contract.” Id. at 511.
Here, the clause applies to all disputes “arising out of or related to” the Agreement. (Dkt.
No. 17 at 25.) Clauses that only refer to disputes “arising out of” a contract “apply only to
‘disputes and controversies relating to the interpretation of the contract.’” Ryan v. Microsoft
Corp., No. 14-CV-04634-LHK, 2015 WL 1738352, at *5 (N.D. Cal. Apr. 10, 2015) (quoting
Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983)). “In
contrast, a forum selection clause which covers disputes ‘arising out of or relating to’ a contract
applies much more broadly, as ‘the inclusion of the phrase “relating to” should lead to a broader
interpretation.’” Id. (quoting Perry v. AT&T Mobility LLC, No. C 11–01488 SI, 2011 WL

ORDER GRANTING MOTION TO DISMISS
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1 4080625, at *4 (N.D. Cal. Sept. 12, 2011)). In other words, forum selection clauses that include
2 “related” disputes do not require that the contract at issue be interpreted to apply. See Perry,
3 2011 WL 4080625, at *4 (holding that a forum selection clause that included “any
4 action…relating to” a contract did not require the interpretation of the contract in order to apply);
5 see also Stewart Org., Inc. v. Ricoh Corp., 810 F.2d 1066, 1070 (11th Cir. 1987) (holding that a
6 forum selection clause that applied to disputes “in connection” with a contract included “causes
7 of action arising directly or indirectly from the business relationship evidenced by the contract”).
8 The parties’ dispute is inarguably related to the Agreement, because it was under the Agreement
9 that Plaintiffs invested $2,800,000 in Advanced China Healthcare. (Dkt. No. 1 at 3.) Therefore,
10 the Agreement’s forum selection clause applies to this dispute regardless of whether the
11 Agreement itself must be interpreted. 1
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B.

The Forum Selection Clause Is Valid and Enforceable

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Because the forum selection clause applies to this dispute, the Court next analyzes its

14 validity and enforceability. Forum selection clauses are presumptively valid. Doe 1 v. AOL LLC,
15 552 F.3d 1077, 1083 (9th Cir. 2009). Plaintiffs have not contested the validity of the forum
16 selection clause.
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In order to enforce a forum selection clause and dismiss a case on grounds of forum non

18 conveniens, a court must examine: “(1) whether an adequate alternative forum exists, and (2)
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In any case, the Agreement will be interpreted. In Arreguin v. Glob. Equity Lending, Inc., the
court found that in a dispute such as this, when a defendant will “inevitably assert” a contractual
defense to a plaintiff’s statutory claim, the forum selection clause is “‘inextricably intertwined
with the construction and enforcement’ of the parties’ agreement” and therefore applies. No.
C07-06026 MHP, 2008 WL 4104340, at *4 (N.D. Cal. Sept. 2, 2008) (quoting Olinick v. BMG
Entertainment, 138 Cal. App. 4th 1286, 1294 (Cal. Ct. App. 2006)). Here, Kao argues that she
will “inevitably assert” the Agreement’s integration clause and invoke the parol evidence rule as
a defense to Plaintiffs’ claims that they reasonably relied on her pre-integration statements. (Dkt.
No. 23 at 3-4.) Consequently, the forum selection clause applies even under a narrow reading of
its scope.

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1 whether the balance of private and public interest factors favors dismissal.” Lueck v. Sundstrand
2 Corp., 236 F.3d 1137, 1142-43 (9th Cir. 2001). “[A]s the party defying the forum-selection
3 clause, the plaintiff bears the burden of establishing that transfer to the forum for which the
4 parties bargained is unwarranted.” Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of
5 Texas, 134 S. Ct. 568, 581 (2013). 2 The plaintiff’s choice of forum “merits no weight.” Id.
6 Moreover, a court “should not consider arguments about the parties' private interests,” but rather
7 “must deem the private-interest factors to weigh entirely in favor of the preselected forum.” Id. at
8 582. To meet its burden, a plaintiff must therefore demonstrate that the public interest factors
9 “overwhelmingly disfavor a transfer.” Id. at 583. Only under “extraordinary circumstances”
10 should a court decline to enforce a valid forum selection clause. Id. at 581. Such circumstances
11 are not present in this case.
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Plaintiffs Have Failed to Demonstrate That an Alternative Forum
Does Not Exist

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To demonstrate that an alternative forum does not exist, Plaintiffs must show that “the

15 remedy provided by the alternative forum…is so clearly inadequate or unsatisfactory, that it is no
16 remedy at all.” Lueck, 236 F.3d at 1143 (quoting Lockman Found. v. Evangelical Alliance
17 Mission, 930 F.2d 764, 768 (9th Cir. 1991)). Plaintiffs argue that an alternative forum does not
18 exist, because if they are forced to sue in California, they may be provided with no remedy at all.
19 The Court disagrees.
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Plaintiffs base their argument on the Agreement’s choice of law clause, which reads:

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This Agreement shall be governed in all respects by the internal laws of the State

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Although Defendant is moving for dismissal rather than transfer, the standard is the same. See
Atl. Marine Const. Co., 134 S. Ct. at 580 (“[B]ecause both § 1404(a) and the forum non
24 conveniens doctrine from which it derives entail the same balancing-of-interests standard, courts
25 should evaluate a forum-selection clause pointing to a nonfederal forum in the same way that
they evaluate a forum-selection clause pointing to a federal forum.”).
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ORDER GRANTING MOTION TO DISMISS
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of California as applied to agreements entered into among California residents to
be performed entirely within California, without regard to principles of conflicts
of law.
(Dkt. No. 17 at 23.) Plaintiffs argue that if the choice of law clause is enforced, they will have to
bring their claims under Cal. Corp. Code § 25401, which makes it unlawful “for any person to
offer or sell a security in this state” by means of a material misrepresentation or omission.
Because the sale at issue here took place in Washington, Plaintiffs argue that § 25401 does not
apply to their claims and they will have no remedy under California law. But Plaintiffs have
failed to prove that the choice of law provision would be applied, and that if it is, Plaintiffs’
claims would be unenforceable.
First, as Defendant points out, enforcement of the forum selection clause does not
necessitate enforcement of the choice of law clause. The Agreement contains a severability
clause providing that if any provision of the Agreement “becomes or is declared void,” it “shall
be severed from this Agreement” and “replace[d] with a valid and enforceable provision.” (Dkt.
No. 17 at 25.) Therefore, Plaintiffs will have the opportunity to argue that the choice of law
clause should be severed from the Agreement and Washington State law applied.
Second, Plaintiffs may well be able to enforce their rights under California law.
Defendant has essentially admitted that under the choice of law clause, the Agreement should be
interpreted as if it were entered into in California, rather than in Washington. (Dkt. No. 23 at 56.) The Court agrees with Defendant that “the Agreement requires a California court to provide
Plaintiffs with the same relief it would provide its own citizens, if appropriate.” (Dkt. No. 23 at
6.) Plaintiffs’ arguments to the contrary are purely “speculative.” See Manetti-Farrow, 858 F.2d
at 515 (finding a plaintiff’s arguments that an Italian court would not “adequately safeguard its
rights” to be “speculative” and dismissing under forum non conveniens). Most importantly,
Defendant has agreed that if Plaintiffs sue her in California, she will not argue that California
securities laws do not apply to the disputed transaction because it occurred in Washington State.
(Dkt. No. 36 at 1.) Consequently, even if the choice of law clause is applied, Plaintiffs should

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1 still be able to enforce their rights under Cal. Corp. Code § 25401.
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The Court therefore finds that an adequate alternative forum exists.

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The Balance of Public and Private Interest Factors Weigh in Favor of
Transfer

Plaintiffs have also failed to prove that the public interest factors “overwhelmingly

6 disfavor a transfer.” These factors include: “the administrative difficulties flowing from court
7 congestion; the local interest in having localized controversies decided at home; [and] the
8 interest in having the trial of a diversity case in a forum that is at home with the law.”Atl. Marine
9 Const. Co., 134 S. Ct. at 581 n.6 (quoting Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 n. 6
10 (1981)).
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Plaintiffs do not raise any arguments on these factors. Instead, relying heavily on Doe 1,

12 Plaintiffs argue that the Court should find the forum selection clause unenforceable because
13 “enforcement would contravene a strong public policy of the forum in which suit is brought.”
14 552 F.3d at 1083. Plaintiffs argue that the forum selection clause contravenes Washington public
15 policy because its enforcement would waive the protections of the Washington State Securities
16 Act. However, in Atl. Marine Const. Co., the Supreme Court held that “a plaintiff who files suit
17 in violation of a forum-selection clause enjoys no such ‘privilege’ with respect to its choice of
18 forum, and therefore it is entitled to no concomitant ‘state-law advantages.’” 134 S. Ct. at 583.
19 Therefore, Washington State public policy would seem to have no bearing on whether the
20 parties’ valid, bargained-for forum selection clause should apply.
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Moreover, as the Court has already explained, Plaintiffs can only speculate that

22 enforcement of the forum selection clause would waive the protections of Washington law.
23 Again, it is not the Agreement’s forum selection clause but rather its choice of law clause that
24 mandates the application of California law. Therefore, if the forum selection clause is enforced,
25 Plaintiffs may still bring suit in California under Washington law. And even if a California court
26 enforces the choice of law clause, Plaintiffs still will not have waived their statutory remedies.

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1 Unlike in Doe 1, in which the court refused to dismiss a consumer class action under forum non
2 conveniens because the contractually agreed-upon forum did not permit such actions, 552 F.3d
3 1083-84, “California's policy is to protect the public from fraud and deception in securities
4 transactions.” Hall v. Superior Court, 150 Cal. App. 3d 411, 417 (Ct. App. 1983). Thus, even if
5 the Court were to account for Washington public policy, which it seemingly need not, Plaintiffs’
6 argument still does not convince.
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The Court therefore finds that the balance of public and private interest factors favors

8 dismissal.
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C.

Conditional Dismissal

Even though the Agreement’s forum selection clause is valid and enforceable, the Court

11 “is nonetheless entitled to condition the dismissal.” Allianz Glob. Risks U.S. Ins. Co. v. Ershigs,
12 Inc., No. C14-1255JLR, 2015 WL 5837543, at *6 (W.D. Wash. Oct. 6, 2015). In fact, the Court
13 is “required to impose conditions if there is a justifiable reason to doubt that a party will
14 cooperate with the foreign forum.” Leetsch v. Freedman, 260 F.3d 1100, 1104 (9th Cir. 2001).
15 Plaintiffs have raised sufficient concerns to warrant a conditional dismissal. The conditions are
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First, Kao must submit to the jurisdiction of the California court in which Plaintiffs file

18 suit, so long as the court is proper under the forum selection clause. See Villar v. Crowley Mar.
19 Corp., 782 F.2d 1478, 1481 (9th Cir. 1986) (upholding a dismissal under forum non conveniens
20 that was conditioned on the defendant’s agreement “to waive all jurisdictional, venue, and statute
21 of limitations defenses”).
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Second, the statutes of limitations on Plaintiffs’ California and Washington State law

23 claims must be tolled for the pendency of this lawsuit. See Allianz Glob. Risks U.S. Ins. Co.,
24 2015 WL 5837543, at *6 (dismissing case under forum non conveniens on the condition that the
25 defendant “treat the statute of limitations on [the plaintiff’s] claims as tolled while this case
26 proceeded”). Kao has already agreed to this condition. (Dkt. No. 36 at 2.)

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Third, Kao must not argue that California securities laws do not apply to the disputed

2 transaction because it occurred in Washington State. Kao has already agreed to this condition.
3 (Id. at 1.)
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Fourth, Kao must waive formal service of process. The Court permitted Plaintiffs to serve

5 a copy of the summons and complaint upon Kao via email and upon Kao’s counsel via email and
6 FedEx in lieu of formal service. (Dkt. No. 14 at 1.) Plaintiffs alleged that Kao was living in
7 China at an unknown address, and that if service was not expedited, Kao might use allegedly
8 stolen funds to flee the country. (Id.) The Court was persuaded that if Plaintiffs were required to
9 use the internationally agreed means of service for China, they might be irreparably harmed. (Id.
10 at 2.) Therefore, in order to ensure that Kao will “cooperate with the foreign forum,” the Court
11 requires that she waive formal service. Defense counsel agreed with this condition at the motion
12 hearing on March 11, 2016.
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CONCLUSION

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For the foregoing reasons, Defendant’s motion for dismissal without prejudice based on

15 forum non conveniens (Dkt. No. 16) is GRANTED subject to the following conditions:
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i.

Defendant submits to the jurisdiction of the California court in which Plaintiffs

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file suit so long as it is proper under the forum selection clause.
ii.

All relevant California and Washington statutes of limitations are tolled for the

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pendency of this lawsuit.
iii.

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Defendant shall not argue that California securities laws do not apply to the
disputed transaction because it occurred in Washington State.

iv.

Defendant waives formal service of process.

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ORDER GRANTING MOTION TO DISMISS
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DATED this 16th day of March 2016.

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A

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John C. Coughenour
UNITED STATES DISTRICT JUDGE

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