Underground Elephant, Inc. v. Insurance Zebra, Inc.
3:16-cv-02215
| S.D. Cal. | Nov 29, 2016Background
- Underground Elephant, Inc. (UE) contracted with Insurance Zebra, Inc. (Zebra) to buy leads under a December 2015 Insertion Order Agreement; the Agreement contains an exclusive forum-selection clause for Travis County, Texas.
- UE paid Zebra about $2.3 million for leads and later alleged many were "incentivized" (fraudulent) leads contrary to Zebra’s assurances that it did not use incentivized ads.
- UE sued Zebra in the Southern District of California for breach of contract, fraud, negligent misrepresentation, UCL violations, trade-secret misappropriation, and declaratory relief; Zebra filed a parallel suit in the Western District of Texas and moved to dismiss the California action under forum non conveniens based on the forum-selection clause.
- UE argued the clause only covered contract-related claims (breach of contract and implied covenant) and that private and public interest factors favored California; Zebra argued the clause covered all claims arising out of the Agreement and that the trade-secret claim was deficient.
- The court found the forum-selection clause valid and that fraud, negligent misrepresentation, UCL, and declaratory relief claims all depend on interpreting the Agreement and thus fall within the clause; the trade-secret claim failed to state a plausible claim and was not considered for clause scope.
- Applying Atlantic Marine, the court refused to weigh private-interest factors, found no extraordinary public-interest reasons to retain the case in California, and granted Zebra’s motion to dismiss (forum non conveniens) so the dispute proceeds in Texas.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the forum-selection clause applies to non-contract claims | Clause is narrow and applies only to contract and implied-covenant claims | Clause language "arising hereunder" covers all claims that depend on interpretation/performance of the Agreement | Clause applies to fraud, negligent misrepresentation, UCL, and declaratory claims because resolution requires contract interpretation |
| Sufficiency of trade-secret claim | Trade-secret claim arises from former employee disclosing UE information to Zebra | Trade-secret allegation is conclusory and lacks facts showing Zebra obtained/used secrets improperly | Trade-secret claim fails to state a plausible claim and is dismissed for purposes of clause analysis |
| Whether private-interest factors should be considered in a §1404(a) transfer based on a forum-selection clause | California forum choice and convenience should be considered | Valid forum-selection clause negates weight of plaintiff’s forum choice; private interests not considered per Atlantic Marine | Private-interest factors are not considered; they’re deemed to favor the contractually selected forum |
| Whether public-interest factors create extraordinary circumstances to overcome clause | California has strong interest (UCL, local trade-secret harm) making retention appropriate | Texas has superior interest in applying its law and enforcing forum clause; no foreclosure of remedies in Texas | No extraordinary public-interest factors found; transfer/dismissal under forum non conveniens granted |
Key Cases Cited
- Atlantic Marine Constr. Co. v. U.S. Dist. Court, 134 S. Ct. 568 (2013) (forum-selection clauses control venue analysis; private-interest factors are not considered)
- Cape Flattery Ltd. v. Titan Mar., LLC, 647 F.3d 914 (9th Cir.) (limits scope of clauses phrased as "arising under/hereunder")
- Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509 (9th Cir.) (tort claims fall under forum clauses when resolution depends on contract interpretation)
- Richards v. Lloyd's of London, 135 F.3d 1289 (9th Cir.) (to avoid forum clause on fraud grounds, plaintiff must show clause inclusion was procured by fraud or coercion)
- In re Orange, S.A., 818 F.3d 956 (9th Cir.) (tort claims are subject to forum clauses when tied to contract interpretation)
- Boston Telecomms. Grp., Inc. v. Wood, 588 F.3d 1201 (9th Cir.) (public-interest factors to consider in forum non conveniens analysis)