365 P.3d 161
Utah Ct. App.2015Background
- BACH (Bad Ass Coffee Co. of Hawaii) granted RAI an exclusive worldwide license (except U.S., Japan, Malaysia) and received a 25% equity interest; contract allegedly negotiated by RAI agent Mihoubi and BACH’s former president Hill.
- BACH later sued seeking declaratory relief that the Agreement is void, alleging fraud, self-dealing, lack of authority, failure of consideration, conflict transactions, and related corporate-law violations.
- The Agreement contains a forum-selection clause requiring litigation in Fulton County, Georgia.
- RAI moved to dismiss for improper venue under Utah R. Civ. P. 12(b)(3) based on the clause; the district court granted the motion after reading the clause’s plain language.
- The district court did not evaluate whether BACH had pleaded fraud with particularity under rule 9(b) or hold an evidentiary hearing on the alleged fraud/overreaching.
- The Utah Court of Appeals reversed and remanded, holding the district court applied the wrong legal standard by failing to consider the fraud/overreaching exception to enforcement of forum-selection clauses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court should enforce the forum-selection clause despite fraud/overreaching allegations | BACH: clause should not be enforced because the Agreement was procured by fraud/overreaching | RAI: the unambiguous clause must be enforced; Innerlight requires enforcement based on plain language | Court: district court applied wrong standard; fraud/overreaching exception applies and must be considered before enforcing clause |
| Whether BACH pleaded fraud with the particularity required by Rule 9(b) | BACH: complaint alleges sufficient facts of fraud/overreaching | RAI: BACH failed to plead fraud with the required particularity, so clause enforcement was proper | Court: remanded for the district court to evaluate pleading sufficiency and, if necessary, hold an evidentiary hearing or allow amendment |
Key Cases Cited
- Innerlight, Inc. v. Matrix Group, LLC, 214 P.3d 854 (Utah 2009) (forum-selection clause enforceable where parties negotiated and signed contract without fraud)
- Energy Claims Ltd. v. Catalyst Inv. Group Ltd., 325 P.3d 70 (Utah 2014) (adopts minority approach allowing invalidation of forum-selection clause when contract was procured by fraud; requires Rule 9(b) pleading and permits evidentiary hearing)
- Prows v. Pinpoint Retail Sys., Inc., 868 P.2d 809 (Utah 1993) (plaintiff bears burden to show enforcement of forum clause would be unfair or unreasonable)
- Jacobsen Constr. Co. v. Teton Builders, 106 P.3d 719 (Utah 2005) (standard of review: enforcement of forum-selection clause reviewed for abuse of discretion)