MALEY v. DESIGN BENEFITS PLAN, INC. (E.D.Tex. 2000)

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Docket Number

No. 1:00-CV-625

Motions

Motion to transfer venue : Granted

Attorney(S)

I Nelson Heggen, Houston, TX, for plaintiff. Yasmin Atasi, James Keith Russell, Winstead Sechrest Minick, Houston, TX, for defendant.

Judges

Howell Cobb

Acts

Judiciary And Judicial Procedure — District Courts; Venue — Jurisdiction And Venue — Cure Or Waiver Of Defects

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Smart Summary

Factual and Procedural Background

Defendant Design Benefits Plan, Inc. is a marketing company that markets insurance policies and employed Plaintiff David Maley as an insurance agent. Under various commission agreements, Plaintiff was entitled to lifetime commissions on renewals of policies he sold and those originated by agents under him. Defendant allegedly ceased sending these commissions to Plaintiff, who then filed suit in Texas state court alleging breach of contract, fraud, and conspiracy. Defendant removed the case to federal court based on diversity jurisdiction. Plaintiff’s motion to remand was denied. Defendant subsequently moved to dismiss or transfer the case based on a mandatory forum selection clause specifying venue in Winnebago County, Illinois, and alternatively moved for a more definite statement.

Legal Issues Presented

Whether the forum selection clause mandating exclusive venue in Winnebago County, Illinois, is enforceable under the standards established by M/S Bremen v. Zapata Off-Shore Co.
Whether the case should be dismissed or transferred for improper venue under Federal Rule of Civil Procedure 12(b)(3) and 28 U.S.C. § 1406(a).
Whether a more definite statement is warranted under Federal Rule of Civil Procedure 12(e).

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972)	Forum selection clauses are prima facie valid and enforceable unless shown to be unreasonable.	Established the standard for enforcing the forum selection clause at issue, requiring Plaintiff to show unreasonableness to avoid enforcement.
Haynsworth v. The Corporation, 121 F.3d 956 (5th Cir. 1997)	Enumerated specific circumstances under which enforcement of a forum selection clause is unreasonable.	Guided the court’s analysis on whether the forum selection clause should be enforced, noting the heavy burden on the party resisting enforcement.
Seattle-First National Bank v. Manges, 900 F.2d 795 (5th Cir. 1990)	Application of M/S Bremen principles beyond admiralty cases.	Supported the court’s recognition that forum selection clauses are enforceable in contexts outside admiralty law.
In re Fireman's Fund Insurance Cos., 588 F.2d 93 (5th Cir. 1979)	Application of forum selection clause principles in non-admiralty contexts.	Further confirmed the validity of enforcing forum selection clauses in federal courts.
International Software Sys. v. Amplicon, Inc., 77 F.3d 112 (5th Cir. 1996)	Dismissal based solely on forum selection clause enforcement.	Supported dismissal of suit when the forum selection clause is valid and the opposing party fails to respond.
Hunter Distributing Co., Inc. v. Pure Beverage Partners, 820 F. Supp. 284 (N.D. Miss. 1993)	Enforcement of forum selection clause through dismissal.	Provided precedent for dismissing cases based on forum selection clauses under similar circumstances.
Dubin v. United States, 380 F.2d 813 (5th Cir. 1967)	Interpretation of 28 U.S.C. § 1406(a) to favor transfer over dismissal in the interest of justice.	Supported the court’s decision to transfer the case rather than dismiss it, emphasizing efficiency and justice.

Court's Reasoning and Analysis

The court began by recognizing that forum selection clauses are presumptively valid and enforceable unless the party resisting enforcement demonstrates unreasonableness under the standards set forth in M/S Bremen and further refined by Haynsworth. The court identified four circumstances that could render enforcement unreasonable: fraud or overreaching in incorporation, grave inconvenience depriving the party of their day in court, fundamental unfairness of the chosen law depriving a remedy, or contravention of strong public policy.

The relevant forum selection clause in the parties’ “Regional Manager Agreement” mandates exclusive venue in Winnebago County, Illinois, and requires consent to jurisdiction there. The court found this clause presumptively valid.

Critically, Plaintiff failed to respond to Defendant’s motion and did not provide any evidence or argument to show that enforcement of the forum selection clause would be unreasonable under any of the recognized grounds. The court independently found no basis to invalidate the clause.

While dismissal is a recognized remedy for enforcement of such clauses, the court noted that under 28 U.S.C. § 1406(a), it may transfer cases filed in an improper venue if doing so serves the interest of justice. The court emphasized that transfer avoids time-consuming and justice-defeating technicalities and that there was no indication of improper purpose or blatant forum shopping by Plaintiff.

Given the lack of opposition and the interest of justice, the court exercised its discretion to transfer the case to the United States District Court for the Northern District of Illinois, Western Division (Rockford, Illinois), the venue designated in the forum selection clause.

Holding and Implications

Holding: The court granted Defendant’s Motion to Transfer Venue and denied Defendant’s other motions.

Implications: The case will proceed in the Northern District of Illinois, Western Division, as required by the parties’ contractual forum selection clause. This decision enforces the validity of such clauses under federal law and emphasizes that parties resisting enforcement bear a heavy burden to show unreasonableness. No new precedent was established; the ruling applies existing legal standards to the facts presented.

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Da v. d Maley

MEMORANDUM OPINION

COBB, District Judge.

In this dispute over an insurance agent's commissions, Defendant Design Benefits Plan, Inc. moves the Court to dismiss the case based on a mandatory forum selection clause, or, alternatively, to transfer the case for improper venue under Fed.R.Civ.P. 12(b)(3). Subject to those motions, Defendant moves for a more definite statement under Fed.R.Civ.P. 12(e). Because the judicially enforceable forum selection clause provides that venue for all disputes between the parties is exclusively in Winnebago County, Illinois, the Court pursuant to 28 U.S.C. § 1406(a) transfers the case to the United States District Court for the Northern District of Illinois, Western Division (Rockford, Illinois).

I. Facts

Defendant is a marketing company that markets insurance policies for various insurance companies. Defendant employed agents to market the policies, and Plaintiff was one of those agents. Pursuant to various commissions agreements entered into by the parties, Plaintiff was entitled to lifetime commissions on renewals of policies sold under his name and for policies originated by agents working under him. At some point, Defendant allegedly stopped sending Plaintiff's commissions to him. Plaintiff thereafter brought suit in Texas state court alleging breach of contract, fraud, and conspiracy. Defendant removed the case to this Court on the basis of diversity. The Court thereafter denied Plaintiff's motion to remand. Defendant now moves to transfer the case based on a contractual forum selection clause.

II. Analysis

Forum selection clauses are considered "prima facie 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, 92 S.Ct. 1907, 1913, 32 L.Ed.2d 513 (1972). Enforcement of a forum selection clause is unreasonable if: (1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement "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 will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause will contravene a strong public policy of the forum state. See Haynsworth v. The Corporation, 121 F.3d 956, 963 (5th Cir. 1997). Although M/S Bremen was an admiralty case, courts have applied its holdings in other contexts. See, e.g., Seattle-First National Bank v. Manges, 900 F.2d 795, 799 (5th Cir. 1990) (citing M/S Bremen, 407 U.S. at 15, 92 S.Ct. 1907).; In re Fireman's Fund Insurance Cos., 588 F.2d 93, 95 (5th Cir. 1979). But the party seeking to avoid enforcement of a forum selection clause bears a heavy burden in showing unreasonableness. See Haynsworth, 121 F.3d at 963.

Design Benefits contends that the Court should dismiss this case because the forum selection clause does not provide for suit in this venue. The relevant clause is contained in the "Regional Manager Agreement" entered into by the parties. Paragraph 20 of that agreement provides:

This Agreement is subject to the jurisdiction of the courts of the State of Illinois and is to be interpreted in accordance with the laws of the State or Illinois. Venue for any action, suit or other proceeding, including non-contract disputes, shall be exclusively in Winnebago County, Illinois. Agent shall agree to consent to the jurisdiction of the Courts of Illinois and waive any other venue.

(Smith affidavit, ¶ 4; Exhibit A-1.) (emphasis added). Under the M/S Bremen standard, this clause is presumably valid and should be enforced unless Plaintiff can show that such enforcement would be "`unreasonable' under the circumstances." See M/S Bremen, 407 U.S. at 10, 92 S.Ct. 1907.

Plaintiff's first problem in meeting this burden is that he has not responded to Defendants motion. Plaintiff has presented nothing to the Court to show whether incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; he will for all practical purposes be deprived of his day in court; the fundamental unfairness of the chosen law will deprive him of a remedy; or enforcement of the forum selection clause will contravene a strong public policy of the forum state. See Haynsworth, 121 F.3d at 963.

The Court, moreover, can find no reason on its own to invalidate the clause. When a party fails to meet its burden of proof, a court may dismiss a suit as the appropriate method of enforcing a forum selection clause. See, e.g., International Software Sys. v. Amplicon, Inc., 77 F.3d 112, 114 (5th Cir. 1996) (dismissing suit based solely on forum selection clause where movant had not requested a transfer); Hunter Distributing Co., Inc. v. Pure Beverage Partners, 820 F. Supp. 284, 285-86 (N.D.Miss. 1993).

Dismissal, however, is not the only option available when a plaintiff files suit in a venue other than that allowed in the forum selection clause and in an otherwise improper forum. Design Benefits has also requested that the case be transferred under 28 U.S.C. § 1406(a) to either the United States District Court for the Northern District of Texas or the Northern District of Illinois. The language of section 1406(a) provides:

The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice transfer such case to any district or division in which it could have been brought.

28 U.S.C. § 1406(a) (emphasis added). The statute is thus broad enough to authorize the transfer of a case even where the plaintiff filed his case in the wrong venue. The interest of justice standard, moreover, encourages courts to reject "time-consuming and justice-defeating technicalities." See Dubin v. United States, 380 F.2d 813, 815 (5th Cir. 1967). Forcing the Plaintiff to file suit in another forum when this Court can transfer the case would be inefficient and time-consuming. There also has been no allegation that this case was brought for some improper purpose or as part of "blatant" forum shopping, see 17 Moore's Federal Practice, § 111.34[3] (Matthew Bender 3d ed.) (citing cases), either of which might weigh against a transfer.

Because Plaintiff has not shown the Court that enforcement of the forum selection clause is unreasonable under the circumstances and because the interests of justice are served, the Court exercises its discretion to transfer the case to the United States District Court for the Northern District of Illinois, Western Division (Rockford, Illinois).

III. Conclusion

For the foregoing reasons, Defendant's Motion to Transfer Venue is GRANTED. Defendant's other motions are DENIED.